If you're a famous musician, the choices are limited if you want to go on tour. You see, Ticketmaster, a division if IAC/InterActiveCorp (NASDAQ:IACI) has a stranglehold on ticket sales, and Live Nation (NYSE:LYV) controls most of the concert venues throughout the U.S. -- all the more so, now that it plans to purchase HOB Entertainment, owner of 10 House of Blues concert halls.

Live Nation operates and/or owns the rights to approximately 150 U.S. venues, where it is able to produce and promote concerts, Broadway musicals, and even sporting events. Last year, it produced nearly 30,000 events. It also runs more than 60 websites and is aiming to buy competitors in cyberspace too, as witnessed by last week's purchase of Musictoday, a fan-club operator. Live Nation is by far the largest company in the live-entertainment field. Unfortunately, though, that market dominance has not fallen to the bottom line.

Live Nation was recently spun off by Clear Channel Communications (NYSE:CCU), the venerable radio-station and outdoor-advertising firm. Clear Channel's core markets have struggled to find growth, and its scuttling of Live Nation speaks to just how tough it has become to make a buck in the live-music industry. Since the spinoff, Live Nation has started to work overtime to transition its businesses.

Lately, tour promoters and musicians alike have found it hard to turn a profit. Attendance trends for live shows have stagnated, as ticket-price inflation has driven people to attend fewer shows or avoid them altogether. Adding to the woes, certain musicians are demanding up-front guarantees as CD sales suffer from a fan migration to purchasing singles at sites such as Apple's (NASDAQ:AAPL) iTunes. What's more, ticket scalpers are capturing the upside from fans who are willing to pay top dollar for rock-star seating. As a combined result of these trends, Live Nation has reported negative earnings over the past two years, and cash flow has been erratic as well.

However, the industry is still growing, and Live Nation's revenue is moving in the right direction. There's huge potential in combining a band's website and fan club with exclusive ticket offers, albums, and high-margin merchandise, and the company is working to find the most lucrative combination. Indeed, in yesterday's second-quarter results, CEO Michael Rapino stressed the need to focus on the relationship between artists and their fan bases. Results reflected the transition, as sales grew only 4% and operating income fell.

In terms of Foolish investment characteristics, Live Nation possesses a couple of the more important metrics, including a market leadership position and large market exposure with repeat purchasers. Yet it's still struggling to find a clear financial direction, including profitability and strong cash flow generation. Until the track record improves in those respects, the stock will remain at the bottom of my watch list.

For related Foolishness:

Priceline is a Motley Fool Stock Advisor pick. To see what other market-beating picks Tom and David Gardner have made, check out Stock Advisor with a free, no-risk trial.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email him with feedback or to discuss any companies mentioned further.