The Concert Business: Why Live Nation Wants To Merge

By David K. Randall

A combined company could become the Microsoft of the entertainment industry. Published reports have Live Nation, the world's largest concert promoter, in talks to merge with either Ticketmaster Entertainment or AEG Worldwide. The company is reportedly closer to making a deal with Ticketmaster.

It's easy to see why. Live Nation (nyse: LYV - news - people ) and Ticketmaster are set to square off directly for the first time. Live Nation debuted its own ticketing service in January, which Ticketmaster estimated would take approximately 20% of its business. Ticketmaster countered by acquiring Front Line Management to help it compete with the string of deals Live Nation signed with Madonna, Jay-Z and U2 last year.

The $200 million Live Nation spent on those deals, which give it a slice of each artist's concert, album and merchandise revenue, may be the catalyst for it to seek a merger. A larger combined company without any additional debt may be better able to handle Live Nation's deals with talent, said Alan Gould, an analyst at Natixis Bleichroeder in New York.

"We have watched the two sides playing a game of mutually assured destruction over the last year, with both stocks seemingly going down with each move," he said.

A spokesman Live Nation declined to comment on the reported merger. Representatives from AEG (other-otc: AEGXY.PK - news - people ) Worldwide and Ticketmaster Entertainment did not respond to calls for comment.

The concert business faces a tough economic climate, as consumers pare back spending on entertainment. High ticket prices may reduce consumers' ability to spend money on high-margin areas like beer and food sales once they reach the venue, a profitable area that accounts for more than 40% of Live Nation's total revenue. It will also be difficult to grow sponsors, Gould notes, which currently account for 24% of Live Nation's overall revenue.

Despite the introduction of its own ticketing service, Live Nation projected Ticketmaster would still sell tickets for approximately 60% of its events. Bringing ticket sales and promotion under one roof would reduce costs and boost margins.
The market reacted strongly to the news, pushing the stock of both companies up nearly 15% in early trading.

But investor enthusiasm is premature. A combined Live Nation-Ticketmaster will face high-profile headwinds from an Obama Justice Department inquiry into whether the new company would constitute a monopoly in the struggling music industry.

If AEG does not merge with Live Nation, it will argue that bringing the nation's largest ticketing system, the majority of arenas and amphitheaters and an artist management division responsible for top acts like Guns N' Roses, Jimmy Buffett and Miley Cyrus under one roof will reduce its ability to compete. They'd be right.

Source : Forbes.com