What’s occurred?
After an 18-month investigation, the US Division of Justice has filed a civil antitrust lawsuit towards Reside Nation, proprietor of Ticketmaster, for what it says is “monopolization and different illegal conduct that thwarts competitors in markets throughout the stay leisure business.”
The lawsuit didn’t come as a shock to both Reside Nation or the broader music business; varied information tales over the previous yr had reported on the DoJ’s investigation, and Reside Nation itself addressed the probe on its earnings calls.
What wasn’t totally sure was simply how far the DoJ would go in addressing what it says are LN’s monopolistic practices – and it went for the jugular, asking the US District Courtroom for the Southern District of New York to order the break-up of the corporate, in order that Reside Nation and Ticketmaster would as soon as once more be two separate entities after spending 14 years underneath one company roof.
Even earlier than the DoJ’s case has begun, it’s threatening to unleash an avalanche of authorized complications for Reside Nation. It has already spurred a $5-billion class-action from a bunch of shoppers, in what Reuters says may very well be “the primary in a possible wave of latest client antitrust lawsuits” towards the corporate.
Authorized analysts say the truth that the DoJ, underneath then-President Obama, authorised the merger within the first place in 2010, and got here to a different settlement over alleged monopolistic practices in 2019, means it might have a tough time convincing the court docket at this time that breaking apart Reside Nation/Ticketmaster is a mandatory treatment to the issues it alleges.
But the political surroundings of our period is notably completely different from the Obama period. Reside Nation argues that the antitrust case towards it’s the results of the US authorities succumbing to a “populist urge” within the physique politic, and certainly we live by means of a populist period.
However the unhealthy information for Reside Nation is a earlier populist period, simply over a century in the past, gave rise to the the grand-daddy of US company breaks-ups: The 1911 Supreme Courtroom choice to divide John D. Rockefeller’s Commonplace Oil into 34 separate firms (lots of which turned recognizable oil and gasoline manufacturers comparable to Exxon, Mobil, Amoco, Chevron, and many others.).
Since that point, nonetheless, US courts have shifted in direction of a extra pro-business stance – to not point out, companies have not often dominated their markets on the dimensions of Commonplace Oil, which at its peak managed 91% of the refined petroleum market within the US.
The Microsoft precedent
Maybe the closest parallel to Commonplace Oil in more moderen historical past can be the antitrust case towards Microsoft over its dominance of the online browser market within the Nineties.
In that case, the US took Microsoft to court docket, arguing the tech large had abused its monopoly energy by limiting the flexibility of PC customers to modify away from Microsoft’s Web Explorer browser. In 2000, a US district court docket dominated towards Microsoft, and ordered that the corporate be break up in two, with one firm producing the Home windows working system, and the opposite producing software program like Web Explorer.
Nevertheless, that ruling was overturned on enchantment. Notably, nonetheless, a part of that call needed to do with unethical habits by the choose within the unique case, and never the deserves of the case itself. Nonetheless, in 2001 – with a brand new Republican administration within the White Home – the DoJ introduced it was not searching for to interrupt up Microsoft, and settled with the corporate out of court docket.
As a part of that settlement, Microsoft agreed to permit PC producers to put in non-Microsoft software program by default on their computer systems, and allowed entry to its API to 3rd social gathering firms.
This case highlights two info which can be related to the Reside Nation case: One, there are political points to antitrust investigations (i.e., some administrations can be extra aggressive in pursuing the break-up of a enterprise than others); and two, it’s not simple to legally break up a company underneath US antitrust regulation.
As all the time, within the Reside Nation case, the burden of proof lies with the Division of Justice, and if it needs to power the separation of live performance promoter/venue proprietor Reside Nation from ticketing firm Ticketmaster, it should overcome numerous challenges.
Under, we discover a few of them.
Proving that Reside Nation has monopoly energy
If it needs to persuade a court docket to interrupt up Reside Nation, the DoJ should present that the corporate enjoys monopoly energy in its markets.
To be clear, it doesn’t must show that Reside Nation is a monopoly, simply that it enjoys monopoly energy.
“Courts don’t require a literal monopoly earlier than making use of guidelines for single agency conduct; that time period is used as shorthand for a agency with important and sturdy market energy — that’s, the long run potential to boost worth or exclude opponents,” the Federal Commerce Fee states in an explainer on monopolies.
Reside Nation has been adamant, earlier than and after the antitrust go well with was filed, that it doesn’t get pleasure from this sort of energy.
If it have been a ticketing monopoly (Reside Nation argues), it might be capable to set costs available in the market and cost unusually giant charges for its providers. However costs for tickets are set by the artists and sports activities groups, and far of the add-on charges that Ticketmaster prices goes to the venues themselves, the corporate says. Its personal take of charges is 5% – a lot decrease than the 37% charged by StubHub, the 25% taken by Uber and the 17.5% taken by Airbnb.
Moreover (Reside Nation argues), if it have been a monopoly, it might have a lot greater revenue margins. In its public response to the antitrust go well with, Reside Nation produced a chart displaying its personal web revenue margin at 1.4% in the latest full fiscal yr, a lot decrease than ultra-profitable tech companies like Meta Platforms (29.8%), Apple (25.3%), and Google proprietor Alphabet (24%).
Case closed? Not essentially. In its submission to the court docket, The DoJ asserts that Reside Nation’s international ticketing enterprise – separate from its concert events enterprise – had a “almost 40%” adjusted working margin in 2023. (Reside Nation’s annual report exhibits a 37.7% AOI margin for the yr).
And the DoJ makes one other (circumstantial) argument that Reside Nation enjoys monopoly energy particularly within the US: “In america, the place Reside Nation maintains a excessive market share in arenas and amphitheaters by means of its unique contracts and owned and operated venues, Ticketmaster has a lot greater charges relative to different international locations however comparable prices.”
The DoJ is arguing that Reside Nation’s vertical integration throughout completely different points of stay occasions (ticketing, promotion, venues) provides it monopoly energy in ticketing. That argument might run into some issues.
For one, the DoJ didn’t object to LN’s vertical integration again when it authorised the merger (extra on that under), and for an additional, LN’s live performance division isn’t almost as worthwhile. In reality, in 2023 it clocked an adjusted working margin of -0.3%, a lack of round $63.6 million worldwide. (Its low total margin is because of the truth that its concert events enterprise is by far the biggest a part of its enterprise by income.)
In a column at Forbes, Alden Abbott, a former Common Counsel for the Federal Commerce Fee and an antitrust knowledgeable, factors to a DoJ report which states: “Monopoly energy requires that the agency have the opportunity profitably to cost costs excessive sufficient to earn a supernormal return on its funding.“
The DoJ may be capable to argue credibly that Reside Nation’s ticketing enterprise has a “supernormal” return on its funding, however it will likely be hard-pressed to take action for Reside Nation as an entire. And if Reside Nation is ready to leverage its monopoly energy to earn giant margins on its ticketing enterprise, why can’t it leverage that energy to show any type of revenue in any respect in its concert events enterprise?
Proving that Reside Nation engaged in unlawful ‘exclusionary or predatory acts’
“Acquiring a monopoly by superior merchandise, innovation, or enterprise acumen is authorized,” the FTC notes in its explainer on monopolies. “Nevertheless, the identical consequence achieved by exclusionary or predatory acts could elevate antitrust considerations.”
The DoJ is arguing that Reside Nation did, certainly, use predatory and exclusionary practices to construct its enterprise; Reside Nation is arguing it ended up with a big share of the ticketing and concert events enterprise by providing superior merchandise.
“Some of the jaw-dropping components of [the DoJ’s] criticism is the assertion that there are ‘limitations to entry’ as a result of ‘artists naturally choose to work with a promoter who’s profitable in selling many high-demand exhibits at in style venues’ – specifically, Reside Nation,” the corporate mentioned.
“That may be a supreme expression of competitors on the deserves, successful by being higher. However to [the DoJ] it’s anticompetitive.”
All the identical, the DoJ’s criticism incorporates some allegations that would definitely be construed by some as “exclusionary or predatory.”
“In 2021, Reside Nation threatened industrial retaliation towards non-public fairness agency Silver Lake, until one in every of its portfolio firms, TEG, stopped competing with Reside Nation for artist promotion contracts in america,” the DoJ alleges.
It factors to an electronic mail trade between Reside Nation CEO Michael Rapino and a co-founder of venue operator Oak View Group, by which Silver Lake is an investor.
“Reside Nation’s CEO complained to Oak View Group’s co-founder that TEG was ‘[f]ull on opponents,’” the DoJ criticism states. “Oak View Group, in flip, conveyed to Silver Lake that Reside Nation was ‘not blissful.’ Reside Nation’s CEO then escalated his complaints to Silver Lake instantly, conveying: ‘I’m all in on [Oak View Group] the place the large play lies with venues – why insult me with this funding in ticketing/promotions and many others.’
In response to the DoJ, TEG arrange a cope with Ticketmaster competitor StubHub to promote tickets for a “big-name artist” on the Los Angeles Coliseum – a venue with which Reside Nation had an unique ticketing deal.
“In response, Reside Nation… threatened to disclaim entry to any fan utilizing a StubHub-issued ticket. Finally, StubHub stopped promoting tickets and tried to work with Ticketmaster to satisfy the tickets that it had already bought. However Ticketmaster failed to satisfy lots of these tickets to StubHub’s prospects, and tons of of StubHub’s prospects have been refused entry to the occasion.”
Little question, Reside Nation will argue that it was effectively inside its rights to signal an exclusivity cope with the Los Angeles Coliseum – these kind of offers have been “prevalent within the major ticketing enterprise for many years,” LN says.
But the DoJ has opted for a jury trial, and it’s well-known jurors might be swayed by emotion. Rapino’s perspective (taking the prospect of competitors as a private insult), and followers being denied entry by means of no fault of their very own, are precisely the type of factor that would bitter a jury on Reside Nation on this case.
Proving Reside Nation’s practices harmed shoppers
Nevertheless, one case of followers being turned away on the gate doesn’t make an antitrust case. A key ingredient in US antitrust regulation is that, to show {that a} enterprise is illegally having fun with monopoly energy, you must present that buyers have been harmed.
Reside Nation’s argument is that, if shoppers are being harmed, it’s not on account of Reside Nation’s actions.
The DoJ “ignores all the pieces that’s truly liable for greater ticket costs, from rising manufacturing prices, to artist reputation, to 24/7 on-line ticket scalping that reveals the general public’s willingness to pay way over major ticket costs,” Reside Nation wrote.
In Abbott’s view, the truth that Reside Nation has little management over the precise worth of tickets may very well be the place the DoJ’s case falls aside.
“To the extent that [Live Nation] can factually help these statements in litigation, DoJ will discover it exhausting to point out that breaking apart or in any other case sanctioning the corporate will make shoppers higher off,” he wrote.
Nevertheless, Invoice Baer, who has served as an antitrust lawyer for each the Division of Justice and the Federal Commerce Fee, isn’t so certain this protection will maintain up – due to all the opposite habits by Reside Nation that the DoJ is alleging.
“The criticism places a misinform numerous that,” he mentioned, as quoted by Rolling Stone.
“It exhibits how of their inside communications, [Live Nation] labored to dam competitors, stress artists to undergo them, [and] management so many alternative key venues.”
The ‘changed-our-minds’ drawback
One other key points the DoJ should overcome is the seemingly notion that the division “modified its thoughts” about Reside Nation as a monopoly – in spite of everything, it did approve the Reside Nation/Ticketmaster merger, with some situations, again in 2010.
The DOJ’s argument now’s that the issue with Reside Nation is one in every of vertical integration: The truth that Reside Nation is a ticketing firm and a live performance promoter and a venue enterprise is why they’re able to train monopoly energy, the DoJ argues. And but it didn’t see it that manner again in 2010.
In a speech that yr, Christine Varney, an assistant Lawyer Common for antitrust on the DoJ, mentioned the division was “not satisfied” it might make a case that the vertical integration of Reside Nation and Ticketmaster would cut back competitors.
“We did conclude, nonetheless, that Ticketmaster was dominant in major ticketing, and the cures that we secured will be sure that competitors is preserved in that necessary realm and that Ticketmaster’s energy in ticketing is not going to wend its manner into different ranges of the stay music provide chain,” she mentioned.
So what modified since 2010? The DoJ could discover itself having to argue that it was flawed again then in its evaluation of the influence of the merger on competitors. And if it was flawed again then, why can’t it’s flawed now, too?
Reside Nation “is bound to emphasize that by ‘passing’ on the preliminary merger… DoJ has conceded that competitors has not been considerably lessened,” Abbott wrote. “That being the case, [Live Nation] could assert that DoJ can not credibly argue for [Live Nation being a monopoly] now, and is appearing inequitably by attempting to get an unfair ‘second crack on the apple.’”
A remaining thought…
Even when the Division of Justice proves its case and prevails, analysts say there’s probability that breaking Ticketmaster off from Reside Nation received’t truly assist shoppers – i.e., it received’t lead to decrease ticket costs.
Many analysts agree with Reside Nation’s evaluation that the issues which can be inflicting ticket costs to rise are past Ticketmaster’s management – maybe most of all, skyrocketing demand.
“The actual difficulty preserving prices excessive and provide low in terms of the most well liked excursions is a primary one in every of provide and demand,” Invoice Werde, director of the Bandier music program at Syracuse College, informed information service TND. “Even then, if we needed to [reduce] ticket costs or give artists extra management, we might deal with that legislatively by means of caps on resale.”
Werde added that he thinks the lawsuit “is extra about politics than it’s about serving to music followers.”
But even stopping the resale of tickets won’t assist; with everybody who as soon as purchased from scalpers and resellers now piling into the first ticketing market, it would simply drive up preliminary ticket costs as a substitute.
Finally, the one actual resolution to the underlying drawback is likely to be one thing over which the Division of Justice has no management, and corporations like Reside Nation can solely make occur slowly over time: Extra artists, extra exhibits, and extra venues, to repair the imbalance between provide and demand. We’d want extra builders constructing, and extra A&Rs scouting.
In that respect, Reside Nation’s authorized battle with the US is likely to be pointing to the truth that the music business has the form of drawback any enterprise can be fortunate to have, even when it does frustrate the followers.Music Enterprise Worldwide
