While many experts predicted the Ticketmaster-Live Nation merger would create an unstoppable live music behemoth, one analyst has dumped Live Nation from one of his portfolios. In Morningstar’s StockInvestor newsletter, Morningstar equities strategist Paul Larson explained how the Ticketmaster-Live Nation merger created a less attractive company (via Digital Audio Insider).
The main problem, he says, is that Live Nation does not have Ticketmaster’s competitive advantages (which he calls economic moats because they keep competitors at a distance).
First, to get the merger past the antitrust hurdles, the company had to agree to license its ticketing software, providing a potential bridge across the moat of the ticketing business. Yet even if the ticketing business retains its moat (something with decent odds of happening, in my view), Live Nation's other operations are quite unattractive. It owns several concert venues, a business with a high degree of rivalry and modest barriers to entry…Live Nation is also involved in promoting concerts and managing artists, businesses for which I fail to see a moat. The old Live Nation generated an operating loss in four of the past six years, and the combined entity will also have to deal with roughly $1.5 billion in debt.
In sum, Live Nation is a financially levered firm with a declining moat and a management team that have done a good job destroying value. No thank you!
One could point to Live Nation’s top market share in concert promotion, or Front Line’s dominance in artist management, as being competitive advantages. But Larson’s point is neither has the kind of sustainable competitive advantage that creates long-term value. Ticketmaster’s technology and expertise has created a definite competitive advantage. Promoters and managers, on the other hand, exist in markets with lower barriers to entry. Talent can move from one company to another while technology remains in one place.
In fact, the very thing that could give Live Nation its greatest competitive advantage would run it afoul of the Department of Justice: leveraging its artist management division to sign ticketing clients. Instead, the value in the merger will be realized through the synergies found at the intersection of ticketing, promotion and artist management. Only Live Nation can boast three such divisions. It’s not a traditional competitive advantage, but Live Nation is hoping to make it work.