
Continued from "I feel a great disturbance in the force."
Live Nation’s potent marketplace power emerges from its relationships to artists. Their primary customer is – and will continue to be – their 1,300+ artists, including long-term agreements with such big names as Madonna, U2, and Jay-Z.
Doubtless, many in the arts and cultural sector are unperturbed by these events. These people, after all, are in commercial entertainment. What does this have to do with us? We are concerned with art not commerce.
I would plead the case that today’s commercial act is tomorrow’s (and arguably today’s) fine artist. Increasingly, art that matters to audiences bubbles up at the confluence of high art and popular art streams. Tony Bennett may have just been a nightclub act at certain points in his career, but just try to tell his fans that he’s no artist now and see how far you get. As I have been reminded more than once in life, Mozart was once a pop figure.
It is obvious that regulators fail to grasp that the relationship that matters in the live event industry is with the artist. Most key business decisions are controlled by the artist or their management. Artists control: who manages them; where they play; when they play; how they are represented; the sponsors with whom they will associate their image; the causes that matter to them, etc. Live Nation gets it.
"We now have an artist relationship with premium ticket sales and venue ancillaries. [We will] expand that relationship to include tickets, sponsorships, fan clubs, DVDs, etc.," says Live Nation CEO Michael Rapino. (Billboard.biz, Live Nation Takes Ticketing In-House, January 11, 2008)
Why would Ticketmaster merge with Live Nation? Because Ticketmaster’s contract with Live Nation was set to end at 2008 year end, Ticketmaster faced losing its largest client. Live Nation had already announced that it would commence a 10-year agreement with CTS Eventim, giving the largest ticketing company in Europe a secure foothold in the North American market in exchange for a turn-key infrastructure reputed to be “the most technologically advanced ticketing system in the world.”
Live Nation’s plans to operationalize Eventim and abandon Ticketmaster contained some strategic flaws, chief among them having to replace or match Ticketmaster’s existing 6700 retail locations and its network of global call centers. Presumably Live Nation understood that the physical and human resource assets possessed by Ticketmaster were worth acquiring to realize their vertical integration plans.
In what other sector would regulators allow one entity to exercise such significant cross-industry control of: product development; product management; product distribution; product marketing and promotion; product sales; consumer marketing data; ancillary product development, manufacture, marketing, and sales? Will this merger survive eventual anti-trust challenges?
Currently, many independent companies and individuals benefit from working in the live event industry. Artist managements and agencies entertain competing offers from promoters with experience in particular markets with particular artist genres. In turn, the successful promoter can seek the best venue and ticketing deals and the most advantageous media buys.
The new competitive landscape is markedly altered. Even when the occasional independent event promotion takes place inside one part of the product-development-to-consumer pipeline, the chances are assured that the new merged entity will get its piece of the action - even if that piece of the action is just ticket fees and surcharges.
Imagine that you are an artist who is successfully breaking into the big-time, or that you’ve been around a long time – your career has cooled off into the has-been category – but now it appears that you’re getting your second wind. You’re making a come-back. In either scenario you’re going to be an attractive property to an agent or manager who wants to monetize the opportunity. Will you choose a stellar boutique agency with a great track record or will you feel forced to choose the mega-entity that controls tours, venues, promotions, media, market data, ticketing services, and ancillary artist-franchise product sales? This merger significantly advantages Live Nation over other artist managements.
Is it reasonable to assume that Live Nation’s artist-management division will choose an independent promoter over taking a tour route to a venue or market controlled by its own promotional division? Why would it choose to let the event’s promoter profit fill somebody else’s bank account?
How likely is Live Nation to mount an event in a venue that doesn’t use Live Nation ticketing services when tens and often hundreds of thousands of dollars in ticket fees and surcharges are at stake on a per event basis? In many of the markets that matter, Live Nation has or will have venues that it manages. Will it promote its most lucrative attractions in venues it does not control?
It is no secret that the music recording industry is reeling and that artists and attractions increasingly depend on touring to generate revenues. To maximize revenue generation, merchandising ancillary products - including sponsorship and product endorsements - is a key strategy. If the Grateful Dead were still around, it wouldn’t be a band. It would be the Grateful Dead franchise.
One sector that will feel the impact of this merger is large publicly funded performing arts and entertainment venues - performing arts centers, sports complexes, arenas, convention centers. Many if not most of these venues were built on the public dime. Those who advocated building these complexes made economic development and quality-of-life arguments to get the projects done. Feasibility studies, business models, and financing plans were predicated on these venues retaining particular revenue streams, among them ticket office commissions, user fees (seat taxes), rental income, and commissions on merchandise sales.
Many of these venues are quite large and expensive to operate, but expense is not the only strategic corollary to size. Bigger venues make for bigger gross potentials and higher profits. The new Live Nation-Ticketmaster entity’s enhanced marketing power puts them in a power position with respect to these venues.
Gary Lustig, Managing Director of Ticket Philadelphia, raised a salient and important policy point with respect to the merger. “The Department of Justice should have looked at this from a data perspective. It's patently anti-competitive to allow Ticketmaster to own and share with Live Nation data collected as a result of the marketing efforts of non-Live Nation venues and promoters. Basically if a promoter brings an artist to a Ticketmaster-serviced venue, Ticketmaster gets unfettered access to the ticket buyer data and can share that data with Live Nation freely. Ticketmaster can also market to those ticket-buyers even though the ticket buyer didn't necessarily desire to be a Ticketmaster customer.”
One can build a big venue but not just any artist or attraction can attract an audience that will fill it up. Live Nation’s vertical integration strategy endows the entity with awesome bargaining power when it comes to negotiating who does ticketing. Everyone knows that Live Nation artists are more likely to play a Live Nation-managed or -ticketed venue because it benefits both the company’s bottom line and - at least indirectly - the artist’s bottom line as well.
Who loses in this scenario? Those venues that feel forced to abandon their own internal venue ticketing operations to contract with Ticketmaster. Why would they do this? To increase the odds that Live Nation’s heavy-hitting artist roster shows up in their venue.
Venues that once counted on ticketing revenues to help keep the venue operating will lose a substantial, ongoing revenue stream in this scenario. While there are some savings, venues still have to staff ticket offices at some level, even with a Ticketmaster contract. Once venues go down this path, they lose control of audience data and ability to market. It is a slippery slope downhill from there.
While most Ticketmaster venues share in Ticketmaster’s fee revenue, if they abandon their own systems for Ticketmaster, they will lose at least a portion of ticket purchase fees. Venues that move to Ticketmaster will still earn some fee revenue depending on the deal that is negotiated with Ticketmaster.
What this really means is that taxpayers may likely be stuck paying higher taxes to keep these venues open and operating at all. Monies that were once available to partially offset what was always a losing proposition will line the coffers of the new Ticketmaster-Live Nation entity.
This news is another sobering reminder just how important it is to our sector to GET REAL, to focus on those issues and priorities that matter.
To put things in perspective, when a venue loses its ability to ticket internally because it is forced for marketplace reasons to contract with Ticketmaster/Live Nation, it loses more revenue than it will ever hope to get from grants. It loses its ability to control its destiny. It loses its ability to build and understand its relationships with individual audience members. It loses its ability to develop and implement special short-term fee assessments for capital improvements. It loses its ability to manage customer service levels and build loyalty programs.
Venues are built to provide arts and entertainment experiences to the communities that surround them. If the artists and attractions that excite audiences and fulfill the venue’s purpose won’t play a venue because it’s not a Live Nation venue or because it’s not ticketed by Ticketmaster, nobody wins. Every venue needs winners. Venues need to keep at least some share of the revenue that winners produce. With each passing year, however, that amount has been reduced. Increasingly, the expectation is that venues should fundraise to pay for events that used to pay for themselves. A loss of ticketing fees - where they exist - is just one more step in that direction.
It’s impossible to know the end game here. Will Live Nation develop a venue management division the goal of which is to act as a management contractor for most major market large venues? Given the foundation that this expanded vertical integration gives them, it is not a stretch to imagine such a scenario.