Op-Ed: Live Nation/Ticketmaster Judiciary Hearing – By Bob Lefsetz

I don't advise you watch it. Unless you want to familiarize yourself with everyone's personality. As for seeing government in action, when Orrin Hatch started talking about Utah and the Bowl Championship Series, I wanted my money back. Or at least a deduction on my 1040. If you think that the music business is a club, you should check out the verbal gymnastics and ass-kissing of these committee members. I think we'd be better off investigating them.

As for the music business personalities… The only man who didn't come across as himself was Michael Rapino. Maybe because he's Canadian, maybe because he's a generation younger than his compatriots on the panel. One on one, Rapino is a mastermind. He's self-deprecating and aligns himself with you like a fraternity brother, and then proceeds to weave a net that wraps you up tight, convincing you that he's altruistic and has the true vision of the future. It's akin to Steve Jobs, with just a little less assholity. Unlike his brethren on the panel, Mr. Rapino's career is mostly in front of him. So he's got something to prove. But he didn't prove it here.

Jerry Mickelson represents the classic promoter. An angry force of nature. Just watch the movie "Fillmore" to see the venerated Bill Graham in action. He could pop off in an instant, at the tiniest offense. Classic concert promoters were entrepreneurs, they had to watch every nickel and dime, they were proud of their accomplishments. That's Jerry.

As for Seth Hurwitz… If he were ever to lose his concert promotion business, unlike so many in the music industry, he could find another job. Eloquent, well-spoken, the opposite of winning through intimidation. Seth's recitation of history, how we got here, was one of the highlights of the hearing. Unfortunately, it represents the past.

And Irving Azoff represents not only the past, but the future.

I was just waiting for one of the committee members to ask Irving about Sal Pisello. But they've probably got no idea who that man was, just like they were clueless when it came to the concert industry. Malcolm Gladwell should have held this hearing. Because he understands that it takes 10,000 hours to truly be a pro in any field. And the four men here are all pros, they all made good points, and all we got from the committee was Bruce Springsteen and Hannah Montana. The Senators were so clueless as to prove Irving's point, that Ticketmaster is a front for the artists.

Bottom line, the music business is in trouble. And concert promotion is only one element of the music business. And no one has figured out how to fix the recorded music industry. Actually, one can argue that rights holders have done their best to kill the recorded music industry.

Watching this hearing reminded me of a similar one held regarding Napster almost ten years ago. The record labels succeeded in killing Napster, but then came KaZaA and now they've lost 45% of their sales. You've got to look to the future! The labels wanted CDs, priced at far north of ten bucks apiece. The heads of the labels weren't computer-savvy, if they used computers at all. They not only couldn't understand the greatness of Napster, they could not conceive that in the relatively near future, most people would want files, and that people would own much more music. If the labels didn't want to charge? So be it. Then music would be free.

We're building no new arena acts, never mind stadium attractions. As for sheds, if they were such a good deal, Live Nation would be promoting more shows in the venues and everybody wouldn't be laughing about the business model. The only person who thinks sheds are a viable business is Michael Rapino, who owns almost all of them. Yet at this hearing Jerry and Seth talked about Bruce performing outdoors in the summer in sheds? Hysterical.

You know who wasn't at this hearing?

AEG.

Jerry and Seth decided to go it alone, not to sell out to Sillerman. That was their choice. But they shouldn't be protected from consequences with regard thereto in perpetuity. Irving Azoff built AEG for Philip Anschutz. In order to have another competitor to sell his talent to. Brilliant idea. One that could have been executed by Messrs. Mickelson and Hurwitz if they'd so chosen. Yup, look for a deep pocket to execute a strategy. Jerry and Seth wanted to remain fiercely independent. That's like John DeLorean thinking that he could compete with not only GM, but Toyota. Or like Kaypro computer being pissed it's not dominant today. Sometimes you've got to double down in order to continue to succeed on a first tier basis. If you choose not to do so, you don't gain immunity.

So, you can sell your tour to AEG or Live Nation. One can argue that AEG has better venues. But AEG tends to only want the superstars. Which they are willing to pay handsomely for. Where's the hearing ordering AEG to develop talent?

So, there is competition in the concert industry. It's just that you've got to have very deep pockets to enter. Welcome to the twenty first century world.

Where was the manager at this hearing? Oh yeah, Irving bought almost all of them up. Just like Sillerman rolled up the concert industry twelve years ago. All I heard from individual managers was complaints that they could do it better. Well, they still can. But many acts want to align with Irving/Front Line.

And then we've got Ticketmaster's mistake. The Springsteen debacle. That, along with Live Nation starting its own ticketing, may cause this merger to crater. Without these two faux pas, this merger passes muster much easier.

But let's look at reality. Ticketmaster bought Tickets Now for growth, they didn't want to lose out on the secondary market revenue. And Live Nation built its own ticketing enterprise BECAUSE THAT'S THE ONLY PLACE THERE ARE PROFITS!

We're all in trouble here. Not only the public, supposedly protected by the government. Acts can't get paid for recorded music, and unless they broke eons ago, almost no one wants to buy their music or see them live.

Live Nation has got such razor thin margins that its health is in trouble.

So what's the solution?

That's what I want to hear, solutions. None came from Jerry or Seth. Do they want to sign acts, give them advances like Live Nation or manage them like Irving? Nothing's preventing them from employing this model. But they don't want to, they want to live in 1976. As for the labels, they've always stolen from the acts, and now, with their 360 deals, they want to steal even more.

So how do we fix this?

Not by leaving things the way they are. Because they're totally fucked.

Do I wish that Sillerman hadn't rolled up the concert promoters? Yes, but for order to be maintained, Frank Barsalona would have had to continue to limit each promoter to his territory, and Frank's power was broken by Michael Cohl, if not earlier.

Do I wish that the Telecommunications Act of 1996 hadn't allowed radio consolidation? Absolutely. But I no longer listen to terrestrial radio, I'm against commercials, like so many other listeners.

Do I wish MTV still played videos? Of course. But I wouldn't watch, when I can stream any video I want, instantly, online.

Things change. Can we admit that? What looks like a powerhouse today can be on the verge of bankruptcy tomorrow. GM? Remember they wanted to break up that company? The Japanese beat Detroit by building reliable cars, what a concept. Microsoft? Lost out to Google. All the money's in paid search, Microsoft is laying people off. Applications are moving to the Web. What's the future of Microsoft Office, never mind Windows?

You break power by creating something better. Whether it be more efficient, cheaper or better. Anybody can promote the concert of a new act. Very few people want to do it. You can take over the industry of developing acts tomorrow. The major labels sign very few artists and usually only those who can get radio airplay. Why can't you manage and promote something people want to see?

Yes, Live Nation might offer a bunch of money to promote the act in the future, but Arcade Fire never signed to a major label.

So, emotionally I don't want Ticketmaster and Live Nation to merge. I hate consolidation. But it happened in our industry and it can't be denied. This merger should not be stopped until someone comes up with a better solution for protecting and developing talent. The labels are bankrupt when it comes to this. Irving and Rapino are trying to make the old acts money. As for the new ones, they're trying to change the paradigm, where the act gets the lion's share of the money from all revenue streams.

You can't stop progress.

You can't jet back to the past.

Do I trust Irving Azoff?

No.

But I don't trust Bill Belichick either. But if I owned a football team, I'd want Bill to coach it. Because he might not be a nice guy, but he's a winner. If you watch this hearing, you'll see a bit of Irving. Only he joked in his prepared statement. He stood up to the Senators' questions. Isn't that what you want?

I bet on Irving Azoff because he's a winner. He's not going to live forever. Nobody is. Give him the ball now and let him turn this business upside down, into one in which the acts have more control and more power.

If I wanted you to like me, if I wanted to please most of the people on this list, I'd rail against this merger. Let's bring down Hubert Humphrey so Richard Nixon can be elected President! Let's sue our customers because music should be paid for! Let's bury our heads in the sand and refuse to see the freight train rolling down the track.

Conventionally the labels built acts, they created demand. Their ability to do that is a shadow of what it once was. Promoters need to build acts. And the more rights a promoter has, the better his chance of financial success.

As for whether Irving needed to sell Front Line to Live Nation instead of Ticketmaster… If everybody agrees the money is in the ticketing, isn't that where you want to be?

You can't predict the future. Could Ticketmaster and Live Nation merge and things be worse? Absolutely. But I've got no doubt that a competitor would arise. Certainly on the promotion side. Sometimes you've got to take a risk. This is one of those times.

CelebrityAccess's coverage of the hearing can be found here.


Seth Hurwitz & Peter Paterno respond:

The live music model is broken because they broke it. It would fix itself if it were allowed to continue and Live Nation was prevented from using its ponzi scheme to announce the next deal without making the last one work.

Wishful thinking?…no…this is from LN's very own claim that the business won't survive as it is. But the difference between allowing this one to fail, as opposed to say GM, is that this will create opportunities for new entrepreneurs. Agents will have no choice but to find someone to make offers. And they will find them, if not create them.

The LN model would work if they negotiated each market separately, and paid $100K for an act in Indianapolis that they are paying $200K here. But they can't help themselves. They are the ones stuck in a broken model, the tour offer. It doesn't work, and their attempt to keep all the cookies for themselves is what has made them too fat to play with the other children.

What they need to do is have their people learn how to horse trade instead of trying to corral every bronco on the plain. That's how they could use their power that they amassed to make money. It would be so easy for them. Yes they might lose a few battles such as Merriweather over Nissan here. But they need to get over that, and start making money with the markets they can win on by having the best venues, not by trying to control the ones they don't, perhaps even getting rid of some.

Imagine if Starbucks tried to force everyone to buy coffee at the shops that people didn't want to go to, by lowering their prices storewide. The reduction in overall profit would far outweigh whatever they made by getting people to go to the underperforming shops.

But I can't control or change them. Well, maybe. We'll see.

Seth Hurwitz

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I gave up after watching the officials we elected conduct the steroids hearings. It was so embarrassing that I wrote to one of the Senators and told him I was ashamed to be an American after their total display of ignorance and grandstanding.

BTW, I'm happy to see that you're subconsciously adopting my view of antitrust. Eventually all so-called monopolies become bureaucracies and some clever entrepreneur takes their business away. Some day long after I'm dead, the government will disband the Antitrust divisions of the FTC and the Justice Department and stop wasting the taxpayers' money on this nonsense.

I remember that at the end of the semester in my Law and Economics class I looked back through all the seminal cases involving the government setting aside mergers as anticompetitive. As I leafed through the case names, I realized that the common thread of all the companies on the other side of the v. (you know, where it says The United States v. Schwinn, White Trucks, Sears Roebuck, Continental Airlines, etc.) was that they ALL went bankrupt. The government blocked the "anti-competitive" merger that turned out to be their last remaining hope of solvency. A few years later the companies tanked because they couldn't compete. It would be really nice if the legislators passing all these dumb laws had even the vaguest concept of economics.

Peter Paterno