Saturday, December 14, 2019

The Wall Street Journal Article | Lefsetz Letter

“Justice Department Preparing Legal Action Against Live Nation for Ticketing Practices-Live Nation allegedly sought to strong-arm concert venues into using its dominant Ticketmaster subsidiary”

The only money is in the ticketing.

Actually, this is not the most important music business story this week. Also from the WSJ:

“Liberty Media Seeks to Increase Stake in iHeart Media-Deal would put nation’s largest radio broadcaster under same umbrella as concert promoter and satellite-radio giant SiriusXM”

Now using the logic of the SiriusXM merger, Liberty’s control of iHeart should be approved by the government. In other words, satellite radio and terrestrial radio are two different entities, they serve different audiences.


Now if you go deep into the inner-workings, antitrust law is a game of the usual suspects on both sides of the fence, both attorneys and government. And the law is not a practical enterprise, a judge doesn’t look at what feels right, but what the law says, how it should be interpreted, and if you’ve got good enough attorneys, which are always better than those employed by the government, chances are you can get what you want, especially if you donate to the ruling party.

So what is end game here?

Liberty Media has a long history of spinning off and exchanging assets. Liberty is in the money business. And it tries not to pay taxes. Ergo, the spinning off and exchange. In other words, the present-day status is not going to go on forever, there’s going to be an event. History tells us, unlike a hedge fund, Liberty is willing to wait. But a transaction transpires.

Now as for Live Nation…

The problem with Ticketmaster is its basic principles and ethos. Credit Fred Rosen with the original problem. He paid buildings to be the exclusive ticketing company. This is a huge incentive to building managers/owners. In essence, it’s free money. But to pay for that deal, Ticketmaster charges the end client, the everyday customer, fees, which consumers abhor, never mind don’t understand. Now the truth is these fees are not only a way to pay building owners, but for the promoter to make money, because the face value of the ticket…almost all of it goes to the talent. The fees are really the talent’s fault. Under the deals, the fees are not commissionable. And, Ticketmaster is paid to take the heat, the fans refuse to blame the acts anyway. And this has worked well until…

Concert ticket prices went through the roof, becoming the main source of income for acts, in a world where experiences are gaining value in comparison to assets. Furthermore, the ticket sellers are trying to squeeze the brokers, and the brokers don’t want to be put out of business. So, it’s an ugly situation, drawing government scrutiny. And the last thing you want is government scrutiny, which always comes too late and is effected by those unsophisticated with the industry.

So if all the money is in the ticketing… Ticketmaster is more valuable than Live Nation. Furthermore, in its war against scalpers, Ticketmaster is now selling secondary market tickets. And those are even more profitable than primary tickets. Ticketmaster is double-dipping, competitors cringe, but this is what is happening.

So…something’s gotta move.

Now a radio conglomerate already bought a concert promotion company, i.e. Clear Channel’s acquisition of SFX. It didn’t pan out financially, but it was approved. So, allowing Liberty to control both iHeart and Live Nation…that should garner approval too.

Now what you’ve got to understand is concert promotion and radio are mature businesses. And with mature businesses there is consolidation, and usually price wars before prices ultimately are stabilized at a higher point. This is the Amazon paradigm. Amazon puts competitors out of business by undercutting their prices, or it buys the competitor, and then prices stabilize at a higher level.

But concerts are not fungible items. And the truth is many shows are actually underpriced, ergo the secondary market.


Do we let Live Nation continue to use its Ticketmaster muscle?

“Live Nation Chief Executive Michael Rapino said the decree allows the company to make decisions that are ‘right for our business,’ and that booking a Live Nation tour date at a venue that uses a ticketing provider other than Ticketmaster may not make economic sense for the company.”

BINGO! If the only profit is in ticketing, if you don’t control it, you don’t make any money. Not that the government understands this.


Amazon is going to buy Ticketmaster. It’s just a matter of when Liberty can strike a stratospheric price. Once again, the value in Live Nation is not in the concert promotion, but the ticketing. Amazon doesn’t want to own a concert company, but it sure wants to own ticketing, it’s a gold mine. Furthermore, Amazon would do a better job of selling tickets than Ticketmaster could ever do. Amazon knows its customers, it’s one stop shopping. It’s the Google of commerce, i.e. you search for what you want on Amazon, not Google. So…

If Liberty can strike a high enough price, done deal. Then it sells the Live Nation concert company to some mark, just like Sillerman sold SFX to Clear Channel. Or it is broken up, the company being worth more when sold piecemeal.

As for SiriusXM/Pandora/iHeart…. If Verizon and AT&T continue to overpay for content companies that don’t pan out, why not buy this entity! There is a deep pocket who would want control of all these distribution pipelines and content. They could be put to better use by someone with a broader game. Or could they?

But when you’re the only game in town, the price goes up.


Distribution is king, but content counts. Liberty has both, and will sell/exchange/merge what it’s got with something bigger.

In other words, this is a money play.

This is what those on the street, not Wall Street, but Main Street, don’t understand.

Even the government thinks it’s about ticketing.

And when businesses are mature, those with money, those involved in maximizing value, enter the picture. Same in tech right now. The crazy days of individual entrepreneurs are done. Now it’s about the investors more than those who actually work at the company.

Now fees have invaded so many spheres. Have you stayed at a hotel recently? And the public hates fees, but pays them anyway, until it gains an option. Napster was that option in recorded music. Does the public have an option regarding ticketing/concerts? No, so that’s why it’s getting the government involved.

Now let’s never forget that they got Al Capone for tax evasion.

So… The public is pissed about ticketing. It is too opaque. It’s just the way the industry wants it, although its goal is to eliminate the secondary market completely, in a world where the public relies on this secondary market for availability. Sound complicated? IT IS!

Ticketmaster is headed for a brick wall. You remove any element and it doesn’t work. You’ve got to have exclusive deals with the venues, you’ve got to have the fees. As for third party entrants…even if they could pay the venues, the venues would be locked out of shows, since the only profit is in the ticketing!

Live Nation’s stock price has gone up and up, that’s what Michael Rapino is paid for. Buyers and sellers, i.e. money, cares not a whit about the underlying business, just the perceived value, and right now the perceived value of Live Nation is stratospheric.

It’s not about ticketing, it’s not about fees, it’s not even about the government investigation. It’s about raising the value and taking advantage of discrepancies in the market, and companies eager for an infusion/rescue. Soon, Liberty will control it all. And Liberty has a history of exchanging assets.


A change is gonna come.


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