Does Department of Justice Lawsuit Mean Curtains for Live Nation?

The US Department of Justice has filed a lawsuit against concert giant Live Nation, accusing it of repeatedly violating US antitrust laws and seeking to break up the company. The filing alleges that the entertainment giant uses its market dominance to stifle competition by tying concert promoters and entertainment venues to exclusive contracts and retaliating against artists and venues that seek to do business with rivals.

The Justice Department was joined by a bipartisan collection from 29 states and the District of Columbia. States joining in cross political boundaries and include California and New York, as well as Tennessee and Florida. Ron DeSantis and Gavin Newsome on the same page?

According to the lawsuit, Live Nation and its subsidiary Ticketmaster violated the Sherman Antitrust Act of 1890, which prohibits the creation or attempted creation of a monopoly in restraint of trade. The Biden administration has pursued antitrust cases more aggressively than its recent predecessors, but in this case many observers agree that the company clearly hindered competition by raising prices and surcharges as it exercised its market dominance.

Live Nation no longer had many friends among concert-goers, but anger grew in 2022 when Taylor Swift fans were cut off from Ticketmaster during pre-sales for the superstar’s tour. The breakdown led to a controversial hearing in the Senate Judiciary Committee and a reopened Justice Department investigation. Hell hath no fury like a senator’s scorned granddaughter.

Live Nation began in 1993 as SFX Broadcasting, a media company founded by Robert FX Sillerman to acquire and operate radio stations in the Northeast. In 1996, Sillerman began his concert promotion business, using his radio properties to promote his company’s live events. SFX expanded into sports marketing and talent management and continued to aggressively acquire competitors.

In 2000, the company was sold to Clear Channel Communications. However, the deal never produced the expected synergies, and in 2005, Clear Channel spun off its concerts, events and talent businesses to shareholders under the new name Live Nation.

Ticketmaster was the brainchild of a computer programmer and box office manager from Scottsdale, Arizona in 1976. In an attempt to gain market share from the dominant player, Ticketron, they sold the company to Jay Pritzker, scion of the Hyatt Hotel dynasty. Pritzker hired an aggressive CEO, Fred Rosen, who turned the tables on Ticketron: Instead of charging venues to provide ticketing services, Ticketmaster offered to pay them in exchange for exclusive contracts, financed by increasing service fees charged to fans. Pritzker bought Ticketron in 1991, turning Ticketmaster into an 800-pound gorilla, and sales grew from $1 million in 1982 to $2.5 billion in 1998 under Rosen.

In 2008, Ticketmaster, the reigning ruler of primary ticketing, entered the talent management and promotions industry, entering Live Nation’s turf and sparking intense competition that, in theory, should increase competition and lower prices. Instead, the two giants announced their intention to merge and finalized the marriage in 2010, becoming Live Nation Entertainment.

By then, regulators had recognized the potential for anti-competitive harm posed by the new behemoth and launched an investigation. But just in case Live Nation issues a consent decree with a few minor concessions and the government approves the merger. The Justice Department reopened the case in 2019, finding that the company had consistently violated the 2010 regulation and gave it another slap on the wrist.

To appreciate the impact of Live Nation’s massive reach, consider the live events supply chain: artists and performers, agents and managers, event organizers, venue operators, ticket sellers and fans. In a strong free market, each link in the chain operates in its own competitive sphere. The merger of Live Nation and Ticketmaster essentially brought together the middle four links in the chain, which is known as vertical integration. The entertainment giant currently manages 400 artists, controls 60% of major event concert promotions, owns or controls 265 concert venues in North America, including 60 of the top 100 amphitheaters, and sells 80% of major event tickets. It also collects massive amounts of data on its 80 million fans to promote its events.

Live Nation’s effective control over its supply chain drives what the company calls its “flywheel,” providing momentum that drives growing profits by foreclosing competitors. In addition to raising prices, Ticketmaster has imposed an ever-increasing range of fees, ranging from 15% to over 40% of the ticket price. Anger erupted last year when extra fees charged to fans of The Cure exceeded the actual ticket price, forcing the company to issue a partial refund.

Live Nation called the allegations absurd, insisting that the majority of profits go to artists (many of whom they manage) and venues (many of which they own). They also blame secondary sales, the resale of tickets purchased on Ticketmaster. It turns out that Live Nation also controls about a third of all resales.

The case will likely drag on and may be discontinued or diluted by a future attorney general. But the Justice Department is taking aggressive tactics in pursuing the separation and seeking a jury trial, which is unusual in antitrust cases. And Merrick Garland is a Swiftie. At a press conference announcing the lawsuit, Garland cited the pop singer’s 2017 hit, saying Americans were “ready for it.”

Christopher A. Hopkins, CFA, is co-founder of Apogee Wealth Advisors.