Marshall-Wythe School of Law A CAREFUL EXAMINATION OF THE PROPOSED LIVE NATION- TICKETMASTER MERGER Alan J. Meese William & Mary Law School Barak D. Richman Duke University School of Law William & Mary Law School Research Paper No. 09-41 This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract= 1542626 A Careful Examination of the Proposed Live Nation-Ticketmaster Merger Alan J. M eese* Barak D. Richman** People deserve better. They deserve the truth. They deserve honesty. The best music, you can seek some shelter in it momentarily, but it's essentially there to provide you something to face the world with. --Bruce Springsteen God have mercy on the man who doubts what he's sure of. “Brilliant Disguise” Tunnel of Love (1987) As great admirers of The Boss and as fans of live entertainment, we share in the popular dismay over rising ticket prices for live performances. But we have been asked as antitrust scholars to examine the proposed merger of Live Nation and Ticketmaster, and we do so with the objectivity and honesty called for by The Boss’s quotes above. The proposed merger has been the target of aggressive attacks from several industry commentators and popular figures, but the legal and policy question is whether the transaction is at odds with the nation’s antitrust laws. One primary source of concern to critics is that Ticketmaster and Live Nation are two leading providers of ticket distribution services, and these critics argue that the merged entity would have a combined market share that is presumptively anticompetitive. We observe, however, that this transaction is taking place within a rapidly changing industry. The spread of Internet technologies has transformed the entertainment industry, and along with it the ticket distribution business such that a reliance on market shares based on historical sales is misleading. A growing number of venues, aided by a competitive bidding process that creates moments of focused competition, can now acquire the requisite capabilities to distribute tickets to their own events and can thus easily forgo reliance upon providers of outsourced distribution services. If self-distribution is an available and attractive option for venues, as it appears to be, then it is unlikely that even a monopolist provider of fully outsourced ticketing services could exercise market power. Ultimately, a proper assessment of the horizontal effects of this merger would have to weigh heavily the emerging role of Internet technologies in this dynamic business and the industry-wide trend towards self-distribution. The second category of arguments by critics opposing the merger rests on claims that vertical aspects of the transaction would produce anticompetitive effects. Indeed, * Ball Professor of Law, William and Mary, [email protected] ** Professor of Law and Business Administration, Duke University, [email protected] Ticketmaster’s and Live Nation’s core businesses are in successive markets, and thus the proposed transaction is primarily a vertical merger, but there is broad agreement among economists and antitrust authorities that vertical mergers rarely introduce competitive concerns and are usually driven by efficiency motivations. This wealth of academic scholarship, which is reflected in current antitrust law, has not—from our vantage point—been properly incorporated into the public dialogue concerning the proposed merger. To the contrary, critics articulate concerns, including the fears that the merger would lead to the leveraging of market power and the foreclosure of downstream competition, that are refuted by accepted scholarship. Moreover, there are a number of specific efficiencies that, consistent with economic and organizational theory, are likely to emerge from a Live Nation-Ticketmaster merger and would be unlikely but for the companies’ integration. For these reasons, we submit this analysis in an effort to inform the debate with current economic and legal scholarship. A Careful Examination of the Proposed Live Nation-Ticketmaster Merger Alan J. Meese Barak D. Richman Executive Summary...................................................................................... ...................... ii I. Introduction .............................................................................................. ...................... 1 II. Background on Live Entertainment: Industry Structure and Trends ............................ 5 Overview ......................................................................................................................... 5 Parties to Proposed Merger....................................................................... ................... 13 Recent Industry Developments.................................................................. .................... 18 III. Analysis of Merger’s Horizontal Consequences.................................... .. ................. 23 Market Definition...................................................................................... .................... 25 1. General Standards Governing Market Definition............................ .....................2 5 2. Identification of Relevant Consumers .............................................. ....................27 3. Geographic and Product Markets..................................................... .....................2 8 4. Applying the SSNIP Test.................................................................. ....................3 3 Identification of Market Participants and Calculation of Market Shares. ................... 44 Potential Adverse Effects .......................................................................... .................... 53 1. Coordinated Interaction ................................................................... .....................5 5 2. Unilateral Effects ............................................................................. .....................5 9 Entry.............................................................................................................................. 64 Concerns About a Purported Loss of “Future” or “Potential” Competit ion.............. 69 Horizontal Efficiencies Resulting from the Merger...................................................... 78 Summary ................................................................................................... .................... 79 IV. Analysis of Merger’s Vertical Consequences......................................... ..................80 The Evolving Economic and Legal Treatment of Vertical Integration...... ................... 81 Scrutiny of Ticketmaster’s Vertical Agreements....................................... .................... 88 Efficiencies from Vertical Integration ...................................................... .................... 93 1. Investments in Promotion and Information ....................................... ................... .9 4 2. Cooperative Adaptation to Meet Artists’ Demands, Respond to Market Changes, & Pursue Innovations........................................................ .....................9 6 3. Targeted Linkages Between Venues, Entertainers, and Fans............ .................... 99 4. Industry-wide Vertical Integration.......................................................................102 Addressing Critics of the Live Nation-Ticketmaster Transaction .............................. 105 1. Leveraging Market Power from Ticket Distribution to Concert Promotion........107 2. Foreclosing Competition in Ticket Distribution..................................................111 Summary ..................................................................................................................... 116 V. Conclusion ................................................................................................................ 117 Executive Summary On February 10, 2009, Live Nation, Inc. and Ticketmaster Entertainment, Inc. announced their intentions to merge and create Live Nation Entertainment. The proposed merger is one of several recent and significant developments in a rapidly changing industry, and it reflects the search for new business models that capitalize on Internet technologies and respond to disruptions to previously reliable revenue flows. The Department of Justice’s Antitrust Division has been investigating whether the merger is permissible under the nation’s antitrust laws, and the parties have asked us to examine the legality and competitive consequences of the merger in light of public criticism. Our analysis reflects our own views, not those of the parties or their counsel, and is based only on publicly available information. Live Nation and Ticketmaster both provide multiple services that contribute to the production of live entertainment. Live Nation, the world’s largest producer of live concerts, engages in the promotion of concerts and other events, the operation and management of live entertainment venues, various forms of entertainment-related merchandising, and the sale of tickets for events at venues it owns or operates. Ticketmaster, the world’s leading live entertainment ticketing and marketing company, sells tickets in the primary and secondary markets, licenses technology that facilitates the self-distribution of tickets for assorted venues, and manages entertainment talent. Because Live Nation’s primary business is in live entertainment promotion and Ticketmaster’s primary business