Live Nation’s Purchase of House of Blues: A Contrary Perspective
[Editors note: Dan Greenhaus wrote this column in response to a news story in our Latest section which suggested that Live Nations acquisition of House of Blues Entertainment might lead to anti-competitive business practices]
With the announced deal closing between Live Nation and House of Blues Entertainment, the internet has been aflutter with condemnations and critiques of an industry consolidation which fans are sure will lead to both higher ticket prices and greater promotion of band’s undeserving of such attention. And while that feeling permeates the fan base in a fairly widespread manner, I can’t help but once again be on the other side of things with respect to business decisions in and around the Jamband world.
To give a little bit of background to the uninitiated, Live Nation was spun off from Clear Channel Entertainment and is a venue operator for live music. It is the largest venue manager in the United States with over 150 such venues under management, while House of Blues has only 10 owned restaurants but admittedly has significantly more venues in which they have promotional rights. From a corporate standpoint, there had been a critique of Live Nation from the financial world for some time that they were overexposed to amphitheaters while they were lacking in exposure to the club circuit, so a merger with House of Blues had been discussed for some time before it was announced, despite denials from those involved.
So with a merger between the two (they still trail SMG Europe), fans are wondering what happens to prices now? Many believe they surely go higher. Of course, this ignores the reality of recent history, in which Clear Channel originally earned the ire of fans around the country when ticket prices began to accelerate at a seemingly faster pace that fans had become accustomed to (some attribute that price hike to Clear Channel’s acquisition of SFX Entertainment in 2000). However, subsequent to those hikes, the origin of which we can debate later, total ticket sales fell, and fell enough that Clear Channel introduced such promotions as ‘$10 Tuesdays’ which allow fans to buy lawn seats to top tier concerts for only $10. In essence, the free market worked. Prices went up, demand went down. In fact, the average ticket price for the country’s top 100 tours (according to Pollstar) fell in 2005 to $50.27 from $53.55 in 2004 (which not surprisingly was a terrible year for the concert industry), no doubt affected by the $10 offers in many markets. Where are the Ticketmaster critics when prices go down?
Which leads then to another point; perhaps ticket prices didn’t go up because of monopolization, but rather because of simple market economics. For starters, promoters have finally caught on to the fact that concerts have always garnered more demand that ticket prices indicated. Essentially, ticket prices have been, for years, under priced. So in theory, promoters decided to take a piece of the pie that previously had been divvied up amongst scalpers. Has scalping been eradicated? Of course not, but a Paul McCartney ticket didn’t go for face value anyway, not in 1995 and not in 2005.
Secondly, much of the blame for higher ticket prices probably falls on Ticketmaster’s shoulders. With over $1 billion dollars in assorted fees, surcharges and parking charges off of $6 billion in top line sales, Ticketmaster has effectively nullified the concept of ‘face’ as now ‘face’ by all accounts includes those aforementioned fees and charges (I personally have no problem with convenience fees whatsoever. That’s a fee I gladly pay), driving the cost of seeing concerts up well more than most egregious estimation of inflation would warrant. In fact, its no secret that Live Nation’s CEO (an avid music fan himself) is doing everything he can to try to get Ticketmaster to reduce its charges, something Live Nation isn’t banking on, hence the establishment of its own ticketing system which is now one of the top five largest in the country.
And lastly, the use of the internet in distributing music, both legally and illegally, has let to an overall reevaluation of the concert business model. Concerts were, for years, seen as promotional tools to sell albums, which netted artists their biggest payday. But in recent years that has changed. In fact, we’re now at the point where by some estimations, artists keep about 70% of the price of a ticket (not including charges) whereas they may keep, at best, 10%-15% of the price of an album, not including the millions in promotional costs they have to reimburse the record company for. So some portion of the rise in ticket prices may be the desire of artists to keep up a certain income level, but instead of charging $20 for a CD, they now charge $9.99 and make up the difference with inflated ticket prices and $40 t-shirts. Furthermore, while I have no hard numbers to back this up (but I do have common sense), I would imagine the average price of a ticket would move even lower if one removed the ‘Classic Rock’ bands such as The Rolling Stones, Paul McCartney and Elton John from the equation.
While it may be easy to blame Clear Channel for all the ills in the music industry, the free market operates in a far more complex manner that many would like to believe. In the most basic and elementary study of a monopoly, which the Justice Department feels Live Nation is not, the company with no competition does not simple charge the highest price. To be sure, no one is suggesting Live Nation is an innocent bystander in this debate. One can blame Ticketmaster or the artists themselves, and truthfully, some blame lies at the feet of consumers who continually pay $450 to see The Rolling Stones.
But to fear higher prices because Live Nation merged with House of Blues is to fear capitalism itself. Without it, we wouldn’t have musicToday, or SCI ticketing, or tickets.com…...