Mario Tama
By Breakingviews
The drums are beating louder for a breakup of Live Nation Entertainment (LYV). Its Ticketmaster business, acquired controversially in 2010, recently botched availability to see Taylor Swift and Bad Bunny and in the process stirred up fans, trustbusters and politicians. A split could be sweet music for all, even shareholders.
When 33-year-old pop star Swift launched her Eras tour last month, all hell broke loose. Ticketmaster called off seat sales for her first concert in five years, blaming a surge in demand – including from bots – that attracted unprecedented traffic to the site.
If everyone who wanted to sing along to “Shake It Off” bought a ticket, Ticketmaster calculated that Swift would have been singing every night from March 2023, when the tour is due to kick off in Arizona, until around Labor Day in 2025.
Swifties, as her devotees are known, aren’t taking the situation sitting down. A group of consumers already has filed a lawsuit against Ticketmaster in California, alleging anticompetitive behavior. A U.S. Senate panel plans to hold a hearing on the company’s dominance.
The White House cited U.S. President Joe Biden’s view that “capitalism without competition isn’t capitalism, it’s exploitation,” when asked about the incident. Swift expressed frustration, too: “It’s truly amazing that 2.4 million people got tickets, but it really p****s me off that a lot of them feel like they went through several bear attacks to get them.”
Puerto Rican rapper Bad Bunny experienced a similar mishap last week when fans in Mexico City were told that their tickets purchased from Ticketmaster were illegitimate duplicates and turned away.
Mexican President Andrés Manuel López Obrador said he wants the company to pay for the debacle. Hefty fines may be levied. The international uproar puts Live Nation, which has lost more than 40% of its market value this year, in the spotlight again to defend its corporate structure.
Rage against the machine
Ticketmaster has been the musical boogeyman since the 1990s when rock band Pearl Jam started a campaign against it. The service is the first stop for primary ticket sales. Artists and venues set the price and take a cut.
There are other ways to get into concerts, through secondary markets such as Stub Hub and SeatGeek, where ticket holders can resell. Those companies also take a piece of the action, but performers are frozen out.
The secondary market aligns more closely with the economic principles of supply and demand, but the primary market features pricing mechanisms that work similarly to how airlines sell seats to generate maximum revenue.
For instance, Bruce Springsteen may invite fans to hear him sing “Born to Run” and other classics live for $300 on the primary market, but his popularity means tickets will sell for multiples more on the secondary market.
Given that he would be blocked from pocketing any of that money, it would theoretically make sense for The Boss to charge more when tickets are first made available.
Either way, Ticketmaster controls a significant share of the primary market and has a growing presence in the secondary market, too. Its size and power were scrutinized when Live Nation, a promotion and venue owner, merged with the company in a $2.5 billion deal.
The fear then was that Live Nation would use Ticketmaster’s dominance at the turnstiles, with some 80% of the ticketing market, to force artists to perform in its venues, and vice versa.
U.S. regulators gave the union their blessing, but with some concessions, including the sale of a smaller ticketing unit and a promise that the combined company would license its software to rivals, most notably Anschutz Entertainment Group, the outfit behind the Coachella music and arts festival.
In 2019, the Department of Justice said Live Nation had violated the terms of the agreement and therefore the agency was extending it with fresh provisions. The DOJ called the addendum “the most significant enforcement action of an existing antitrust decree by the Department in 20 years.”
Part of the updated arrangement said that Live Nation, which owns, operates and holds exclusive booking rights to more than 300 performance spaces, including the House of Blues and the Ziggo dome in Amsterdam, cannot threaten to withhold concerts at a space if a singer opts for a different ticket issuer.
Flywheel to the moon
Live Nation Chief Executive Michael Rapino cites the virtuous circle of sponsorships, ticketing and arenas. The so-called vertical integration also makes Live Nation a target.
After all, the DOJ’s efforts look to prevent Live Nation from strong-arming venues into getting tangled up in what Rapino often refers to as the “flywheel” model coined some two decades ago by management guru Jim Collins, where each part of the business supposedly strengthens the other. It’s often just a bunch of unsubstantiated hype or a phenomenon with a limited run.
For Live Nation, it’s not entirely clear that the flywheel is spinning smoothly. The $17 billion enterprise, including debt, may be worth more apart than together.
Ticketmaster is the most valuable piece of the company, with an impressive adjusted operating margin of 37% last year, better than even Google owner Alphabet’s (GOOG) (GOOGL). The business is expected to pull in approximately $750 million of adjusted operating profit next year, according to estimates by Jefferies analysts.
Smaller ticketing peer Vivid Seats (SEAT), which went public last year by way of a shell company, trades at 15 times earnings before interest and taxes. Ticketmaster is projected to grow its top line faster over the next two years, per estimates gathered by Refinitv, and is far more profitable.
Put it on a premium multiple of 21 times and it would be worth nearly $16 billion on its own. The figure doesn’t account for the possibility there may be some dis-synergies in a carve-up, including from corporate expenses.
Even so, the disparity suggests that investors don’t necessarily appreciate the value of Live Nation’s integrated approach or Rapino’s flywheel. Live Nation says it is so dominant because it’s so much better than the competition. It’s a questionable assertion.
A stand-alone Ticketmaster might have to invest more in technology to satisfy customers, but the greater management focus also could make it into a stronger company.
The endless backlash to the combined company, too, surely comes at a cost. Putting the complicated legal and regulatory questions aside, there’s probably a financial case for Ticketmaster to become a solo act.
(This story has been amended to correct Vivid Seats’ EV/EBIT multiple and Ticketmaster valuation analysis in paragraph 11.)
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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