Post Lawsuit, Live Nation Entertainment Stock Flat As Sales Seen Up 5%

WASHINGTON, DC - JANUARY 24: Amy Edwards demonstrates against the live entertainment ticket industry ... [+] outside the U.S. Capitol January 24, 2023 in Washington, DC. The Senate Judiciary Committee is holding a hearing this morning to explore whether the merger of Live Nation and Ticketmaster has stifled competition and harmed the consumer marketplace. (Photo by Drew Angerer/Getty Images)

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On May 23, the U.S. Department of Justice filed a lawsuit against Live Nation Entertainment Live Nation Entertainment — aiming to break up the company, according to the Wall Street Journal.

Why is the government suing Live Nation? The DOJ alleges the company is harming key stakeholders: "fans are paying more in fees, artists have fewer opportunities to play concerts, and venues have fewer choices for ticketing services," reported the Los Angeles Times.

Moreover, the DOJ charges Live Nation has "retaliated against competitors and new entrants and locked out competition with exclusionary contracts," the Los Angeles Times noted.

What's more, the DOJ's complaint identifies a so-called flywheel model which strengthens Live Nation's control over the industry.

How so? the DOJ lawsuit argues the company is running a "self-reinforcing business model that captures fees and revenue from concert fans and sponsorship, uses that revenue to lock up artists to exclusive promotion deals, and then uses its powerful cache of live content to sign venues into long term exclusive ticketing deals, thereby starting the cycle all over again," according to Billboard.

The DOJ and Live Nation are far from resolving their differences. While Attorney General Merrick Garland says, "It is time to break up Live Nation," the defendant disagrees.

On May 23, the company said it doesn't have a monopoly in ticketing or promotion and will fight the government's case. Moreover, the company said its Ticketmaster unit "doesn't set prices, artists and teams do, and they are subject to high demand and low supply, while the majority of fees go to venues," noted the Journal.

This lawsuit comes as no surprise — but it will only lower concert ticket prices if the appropriate market mechanisms are in place, I wrote in an April 2024 Forbes post.

Lawyers for Live Nation are likely to make bank as they delay the DOJ's efforts to break up the company. While the litigation drags on, consumers are likely to continue to pay exorbitant prices to satisfy their concert-going needs.

Finally, there is no compelling reason to buy Live Nation stock as its revenue growth downshifts significantly in the current quarter following a post-pandemic pop in recent quarters.

Merging Live Nation And Ticketmaster Sends Ticket Prices Soaring

On January 25, 2010, Live Nation Entertainment was formed through the merging of Ticketmaster — now the largest ticket selling platform with more than 80% market share — and Live Nation — the leading operator of concert venues with 50% share, noted the Journal.

While Live Nation shareholders have benefited from the merger, consumers have paid a heavy price. Between January 2010 and May 24, 2024, Live Nation Entertainment's stock price has soared 967% — trouncing the S&P 500's 382% increase during the period.

Between 2010 and 2023, consumers have paid much more for live entertainment — over four times the average rate of inflation.

How so? The average concert ticket price has increased at an 11,5% annual rate from $60.77 in 2010, according to the New York Times, to $252 in 2023, the Wall Street Journal noted. During that time, the consumer price index rose at an average annual rate of 2.6%, noted the Bureau of Labor Statistics.

The 2010 merger of Ticketmaster and Live Nation — about which I co-wrote the business school case, Chokehold on Live Entertainment — continues to shock me. How could combining the largest ticketing service provider with the dominant operator of concert venues have passed antitrust muster in the first place?

The merger has enabled Live Nation to charge high administrative fees while making it nearly impossible to buy tickets unburdened by the greed of ticket scalpers and other intermediaries.

For example, our business school case discussed prices for a 2009 Green Day concert in Denver in which Ticketmaster required the concertgoer to pay a "service fee" of 45% of the ticket's $45.50 face value — or $20.50 (which included $2.50 for printing the ticket at home) — bringing the total price to $66. The fees tacked on to tickets can now be as high as 78% of the ticket price, noted Time.

Resellers also rip off consumers. On StubHub, a ticket resale site, seats near Swift's stage at MetLife Stadium in New Jersey were listed for as much as $76,000 on November 17, 2022, the Journal reported. Why is that possible? Ticketmaster holds back as many as 90% of the tickets for the secondary market, reported Time.

Using bots, resellers mark up ticket prices to concertgoers. "They usually [go] to professional brokers charging outlandish markups, which a 2018 government report said can range from an average of nearly 50% to an astonishing 7,000%," wrote Variety.

Why Are Ticket Prices Outpacing Inflation?

Ticket prices are going up because the demand for live concerts by the most popular artists — such as Taylor Swift, Beyonce, and Bruce Springsteen — exceeds the supply.

Concertgoers who were home bound during the pandemic almost seem to enjoy sharing how hard it was for them to purchase a ticket and how much they overpaid for them, reported The Dartmouth.

In theory, those ticket buyers could choose not to pay these high prices. Indeed, many Taylor Swift fans forked over less than $20 a ticket to watch her concert movie — a fraction of the the high price of attending her concerts in person.

Moreover, artists — who formerly made money selling records, tapes, and CDs — are cashing in on the high ticket and merchandise prices consumers pay at concert venues.

Swift keeps 105% of her average Era's Tour ticket price of $456 because concert promoters are so happy to have their venues filled by her fans, according to my April 2023 interview with Northeastern University professor David Herlihy.

On top of that, he estimated she takes 80% of the merchandise her fans buy at concert venues — who spend an average of about $215.

Ticketmaster is using its power over the scarce supply of concert tickets to raise prices. As mentioned earlier, administrative fees are approaching the face value of the ticket and scalpers enjoy huge markups.

On top of that, Ticketmaster uses dynamic pricing — meaning ticket prices rise along with demand. For example, Ticketmaster raised prices on a 2023 Harry Styles concert from their original face value of €97 to €195, reported the BBC. The company said dynamic pricing was "an important shift necessary to maintaining the vibrancy and creativity of the live music industry," BBC noted.

Since 2010, Live Entertainment has grown considerably and went from losing money to making a small profit. For example, the company generated $5.1 billion in 2010 revenue while posting a $189 million net loss, according to Live Nation's 2011 10K filing. By 2023, revenue had increased at a 12.2% average annual rate to $22.7 billion while the year's net income totaled $316 million, the Journal reported.

A Breakup Could Take Years And Won't Solve The Problem

Live Nation has enough cash to fight the DOJ for years. A change in administration this year would likely put the suit way on the back burner.

Even if some day Ticketmaster is spun off from Live Nation, the effect on ticket prices would only be significant if Live Nation encourages real competition among ticketing service providers.

If that does not work, a simple — but radical — solution would be to sell concert tickets directly between artists and consumers on a nontransferable basis. Simply put, artists would set the price and once consumers paid for the tickets, they could either attend the concert or let the ticket expire and be worthless.

This method of selling tickets would eliminate the high administrative fees and scalper markups mentioned above.

Where Will Live Nation Stock Go From Here?

Live Nation stock has not done well in 2024 — rising a mere 4.6% as of May 24. The DOJ lawsuit is a minor headwind. However, the biggest question for investors is whether Live Nation can sustain the rapid growth it has enjoyed since the pandemic ended.

The short answer is no. How so? Although Live Nation grew faster than investors expected in its most recent quarter, that ends in the current quarter.

More specifically, the company reported a 21.5% increase in revenue to $3.8 billion in the March 2024-ending quarter — 16.5% more than the consensus estimate, according to Google Finance.

Sadly for investors, analysts anticipate Live Nation's growth to slow to 5% in the June 2024-ending quarter — to $3.28 billion — far slower than the previous year's 73.5% revenue increase, reported Yahoo! Finance.

Nevertheless, the consensus is for 25% upside in the stock. The 15 Wall Street analysts set an average 12-month price target for Live Nation of $120.50, according to TipRanks.

One analyst — who has a more modest $105 per share fair value estimate for Live Nation stock — expects the DOJ suit to leave the company's business largely unscathed. "While we think Ticketmaster would have slightly less value if it operated independently, we also see it as a valuable asset that would attract interest from other buyers," wrote Morningstar Morningstar analyst Matthew Dolgin.

Like the tickets it sells, LiveNation's stock is dynamically priced. As the company's double-digit growth drops to single-digits, its stock price could drop.