The Department of Justice Antitrust Division (“DoJ”), along with 17 state attorneys general, reached an agreement with the parties last week that allows the merger of Ticketmaster Entertainment, Inc. (“Ticketmaster”) and Live Nation, Inc. (“Live Nation”) to proceed. The parties agreed to a combination of conditions – licensing, divestiture and conduct restrictions – to settle DoJ’s concerns. Although it is still early to draw conclusions about the new administration’s antitrust enforcement policies, this action shows that DoJ was willing to negotiate a solution to replace the competition that had been provided by Live Nation, the second largest, up-and-coming competitor in the market, rather than sue to block the deal.
DoJ concluded that a combination of Ticketmaster and Live Nation would lead to an unlawful concentration among providers of primary ticketing for major concert venues. Ticketmaster has the vast share of the primary ticketing business. By the time Live Nation entered the primary ticketing market, Ticketmaster had an 82 percent market share.
Live Nation had been Ticketmaster’s largest primary ticketing client for a number of years. In 2007, however, Live Nation announced that it would not renew its contract with Ticketmaster. Instead, Live Nation launched its own primary ticketing service, lowering service fees and offering something Ticketmaster was not able to offer – access to concert tours (in its role as a promoter). With Live Nation ticketing its own venues and taking some of Ticketmaster’s significant customers, Ticketmaster’s market share was threatened, according to DoJ.
In February 2009, Ticketmaster and Live Nation announced their plans to merge.
DoJ explained, in its Competitive Impact Statement, that the proposed settlement will eliminate the anticompetitive effects of the proposed transaction in three material ways:
Establishing a new Competitor with Compulsory Licensing
. Positioning Anschutz Entertainment Group, Inc. (“AEG”), the second largest promoter in the U.S. (behind Live Nation), to become a new, independent, economically viable, and vertically integrated competitor in the market by requiring Ticketmaster to provide AEG a license to its primary ticketing software; AEG will be able to purchase the Ticketmaster ticketing software within five years, decide to create its own software, or partner with a ticketing company other than Ticketmaster.
Establishing a new Competitor with a Divestiture of Assets
. Positioning Comcast-Spectacor, L.P. (“Comcast-Spectacor”) to become another new, independent, economically viable, and vertically integrated competitor in the market by requiring Ticketmaster to divest its entire Paciolan business (a “self-enablement” model, which allows a venue to manage its own ticketing platform) to Comcast-Spectacor, so that the combination of (1) the Paciolan business; (2) New Era’s ticketing business (a subsidiary of Comcast-Spectator); and (3) Comcast-Spectacor’s venue presence will provide Comcast-Spectacor sufficient scale to compete effectively and independently with the merged firm in the market for primary ticketing services to major concert venues.
Limiting the Advantages of Vertical Integration
. The merged firm will be forbidden from retaliating against any venue owner that chooses to use a competing company’s ticketing or promotional services, including restrictions on anticompetitive bundling of services. Also, to prevent the combined company from abusing its new market position to impede competition among promoters and artists managers, the new Ticketmaster must allow any client that chooses to use another primary ticketing service to take a copy of the ticketing data related to that client’s sales. In addition, the combined company must set up firewalls to prevent it from leveraging confidential and valuable competitor data gleaned from its ticketing business in the day-to-day operations of its promotions or artist management businesses.
The combined company must also notify the DoJ before acquiring any assets of or any interest in any firm engaged in providing primary ticketing services in the U.S., regardless of Hart Scott Rodino Act requirements. Unless an extension is granted, the obligations imposed by the settlement expire in ten years.
DoJ reported that it cooperated closely with the Canadian Competition Bureau throughout the course of its investigation, and to obtain the same remedy in both countries. The settlement must now be approved by the Court after a period in which comments are accepted from interested parties.
The first takeaway is that, after almost a one-year investigation, the merger between a dominant firm and its nearest competitive threat was allowed to proceed. DoJ was willing to accept a negotiated solution, hereby applying a creative combination of licensing, divestiture and conduct restrictions in an effort to position two competitors to replace Live Nation’s competitive presence.
The second takeaway is that DOJ treated the vertical aspects of the combination with a set of conduct restrictions designed to protect competitors – restrictions to prevent the firm from retaliating against competitors, as well as restrictions from taking advantage of information acquired in the course of running the integrated businesses. These are constraints that its competitors will not have.
What does this tell us about DoJ’s approach to future transactions? It is hard to draw conclusions from one disputed merger, but the Ticketmaster resolution indicates that DOJ will give serious consideration to vertical integration as well as horizontal overlaps between merging parties; it also appears the government is willing to settle its differences with the parties and allow a merger that increases already high concentration.
Kelley Drye & Warren LLP
Kelley Drye is recognized as a premier antitrust and competition firm. Our national reputation stems from our proven track record of successfully representing clients in complex competition issues arising under federal and state antitrust laws. Our professionals include officials from the ABA Antitrust Section, and former officials of the United States Department of Justice Antitrust Division and the FTC. Our firm is also supported by Georgetown Economic Services, an economic consulting firm.
For more information about this client advisory, please contact:
Richard E. Donovan
William C. MacLeod