Mention the name Ticketmaster (NASDAQ:TKTM) and you'll likely elicit reactions of disdain and disgust, especially from Bruce Springsteen fans.
Luxury tax
Why such ire? Like another company everyone loves to hate, Microsoft (NASDAQ:MSFT), Ticketmaster wields virtual monopolistic power. Though recently spun off from IAC (NASDAQ:IACI), Ticketmaster has linked artists and fans for live events since 1976, while taking a lucrative cut along the way. Millions of fans cough up fees to see their favorite band or local sports team.
As a customer, I expect fees. What irks me is Ticketmaster's audacity to charge me to print my own tickets. I grudgingly do it, as many others do -- paying for convenience, speed, and reliability.
Working on the railroad
For an investor, what's not to like about a company that is a master of the negotiation and resource management game? Take to heart Peter Lynch's principle of "never invest in any idea you cannot illustrate with a crayon" and you'll really appreciate this business model. Very simply: For a fee, Ticketmaster sells tickets to fans on behalf of client artists and venues.
Leveraging its exclusive client relationships, technology, multichannel distribution, and a marquee brand, Ticketmaster sold more than 140 million tickets last year to a tune of $1.45 billion in revenue -- up 17% from the prior year.
However, its results for last year weren't as pleasant as landing on "free parking." While revenue for the year was up 17%, adjusted operating income fell 12%. Not to mention Ticketmaster took a $1.1 billion non-cash goodwill impairment charge in its fourth quarter to reflect the decline of its share price since the spinoff from IAC and the uncertain economy. Ticketmaster finished the year deep in the red with a net loss per share of $17.84. Compare that with Ticketmaster's current stock price of $6.85!
Unless something changes, Ticketmaster may find itself downsizing from Boardwalk to Mediterranean Avenue.
Taking a chance
Faced with declining ticket sales and increasing pressure from self-ticketing venues and resellers such as eBay's (NASDAQ:EBAY) StubHub! and RazorGator.com, Ticketmaster isn't leaving things to chance: It's taking steps to establish a new model for itself.
First, it acquired Front Line, an artist management company, last October. In February, it announced a merger with Live Nation (NYSE:LYV), one of its biggest clients, which had chosen not to renew its annual deal so it could build its own ticketing business. In 2007, the annual contract was not renewed, but when Live Nation had a contract with Ticketmaster, its concerts and venues accounted for 15% of Ticketmaster's revenue. Together, these companies would gain access to more than 140 venues.
The combined company, pending regulatory approval for the all-stock deal, would unite the expansive ticketing site and exclusive artist relationships with a premier concert promoter with multiyear rights for major tours such as Madonna and U2. It's estimated that the combined company would bring $40 million in annual savings.
It would be an end-to-end provider -- from artist management, production, promotion, and ticketing, to merchandise sales -- with the opportunity to make money from a combined global database. Ticketmaster estimates that its industry faces 40% to 50% unsold inventory rates, so integrating all these functions might make the company more efficient, bring innovations in ticketing technology, and increase attendance. And innovation could lead to things like better seating and pricing options for fans and direct artist-to-fan connections.
Community chest
Of course, such a merger raises industry concerns. A combined company could suppress competition among distribution channels and ultimately harm customers. Management companies, record labels, and booking agents could lose business. Ticketmaster has an artist management business, so artists not signed with it could be shut out.
Ticketmaster is no stranger to controversy or regulatory concerns, as its Pearl Jam antitrust case from the 1990s illustrates. Just to name a few of the company's recent challenges:
- An investigation into Springsteen fans' claims that they were diverted to its resale site, TicketsNow, for higher fees.
- A technical glitch led to Phish tickets being sold before they were supposed to be, resulting in refunds of the sold tickets.
- Regulatory review of the proposed Live Nation merger.
- The departure of its CEO.
However, Ticketmaster continues to respond to new threats as it tries to strengthen its foothold in the live entertainment business. Both Ticketmaster and Live Nation expect the merger to pass Go. However, if it doesn't, Ticketmaster may continue to spar with this contender in the ticketing game.
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