10.12.2007

Tickets Play a Big Role in Madonna Deal


Madonna
poses for photographers in London, in this Thursday Jan. 25, 2007 file
photo. Madonna intends to sign a $120 million recording and touring
deal with live entertainment promoter Live Nation Inc. and leave her
longtime record label at Warner Music Group Corp., a person familiar
with the contract negotiations said Wednesday, October 10, 2007. (AP
Photo/Matt Dunham, file)


NEW YORK (AP) — Madonna's deal to abandon Warner Music for concert
promoter Live Nation signals more than just a tectonic shift in the
music distribution business: It shows how far Live Nation is willing to
go to break the hammerlock Barry Diller's Ticketmaster has on online
concert and sporting ticket sales.

The core benefit to Live
Nation of the $120 million recording and touring contract with the pop
superstar is the opportunity to tap into concert, recording,
merchandising and other lucrative revenue streams. But don't discount
the role that lowly ticket fees play.

Ticket buyers may be
annoyed by the $5 or more in convenience and delivery fees tacked on to
every ticket ordered online or over the phone, but they've proven to be
a gold mine for Ticketmaster, a unit of IAC/InterActiveCorp.

Regulatory
filings show that Ticketmaster's revenues jumped 14 percent to $1.1
billion in 2006 and generated almost a 25 percent operating profit
margin for the nation's largest seller of tickets.

Live Nation,
whose 160 venues include House of Blues and Fillmore locations, Nikon
at Jones Beach in New York and London's Wembley Arena, currently is
Ticketmaster's largest single generator of ticketing fees. But Live
Nation has signaled it wants to bring the fee revenue in-house when its
Ticketmaster contract expires in 2008 for most of its locations and in
2009 at the House of Blues venues.

Live Nation Chief Executive
Michael Rapino has made no secret of his desire to use the company's
relationships with artists to get into related businesses. He had
talked about selling T-shirts, parking passes, VIP party passes,
secondary tickets and DVDs as well as broadcasting shows live. And
gaining direct access to fans through ticket sales is seen as a crucial
building block to collecting other profit related to the event.

Rapino
said Live Nation owes its window of opportunity to the rise of the live
show as a profit driver — instead of the records and CD sales as in
previous years. "Thankfully for our business, the center of that pie
has really become the live show now," he said in September at a Goldman
Sachs conference.

The possibility of having Live Nation as a
competitor drew a bring-it-on response from Diller, chairman and chief
executive of IAC, whose holdings also include the HSN home shopping
network as well as Internet businesses including LendingTree,
Citysearch, Evite, Match.com and the Ask.com search engine.

"We've
invested hundreds of millions of dollars in our infrastructure. Let
someone else make these investments and get into ticketing," Diller
said at a New York conference in September. "It'll be good for us and
interesting for them."

About 22 percent of all event tickets are
now sold online and they are expected to generate sales of $4.9 billion
this year, according to Jupiter Research retail analyst Patti Freeman
Evans.

But a greater number of sellers won't automatically
translate into lower prices or fewer fees for customers, she said.
That's because tickets are not wholly commoditized, and sellers who
tack on bonuses like limousine rides, dinner or other goodies are
aiming to capture a segment of the market from customers willing to pay
more, Freeman Evans said.

Among the top shareholders of Live
Nation, based in Beverly Hills, Calif., is L. Lowry Mays, founder of
Clear Channel Communications and its CEO for 30 years until 2004. Mays
owns 5.4 percent of the company, according to Capital IQ, a unit of
Standard & Poor's.

For its part, Ticketmaster has made its
own moves to get closer to the fans. It has bought fan management Web
site Echo Music and music sharing Web site iLike.com, as well as artist
management company Front Line, which includes in its portfolio the
Eagles, Christina Aguilera, Aerosmith, Jimmy Buffett and Paris Hilton
the singer.

"There's a whole host of things we've been engaged in
and organizing and thinking about for the past year," Diller said last
month.

Madonna's management told Warner Music last week that the
49-year-old pop singer would accept Live Nation's offer after the
record company refused to match the deal, a person familiar with the
confidential contract negotiations told The Associated Press on
Wednesday.

Under the proposed deal, Madonna would get a signing
bonus of about $18 million, an advance of about $17 million for each of
three albums, stock, and an agreement for Live Nation to exclusively
promote her tours.

To try to fend off the Live Nation deal,
Warner pursued a partnership with Ticketmaster that would have enabled
the record company to offer a spectrum of touring services to Madonna,
the person said.

Diller is no stranger to the world of Hollywood.
He's credited with the creation of Fox Broadcasting Company and the
network's motion picture operations. He also spent a decade as head of
Paramount Pictures Corp., as well as working at ABC Entertainment.

Meanwhile,
the rise of a secondary market for tickets has brought new players to
the industry, including eBay subsidiary StubHub and Tickets.com, which
is owned by Major League Baseball's Advanced Media LP.

StubHub is
on track to sell its 10 millionth ticket in a matter of days, spokesman
Sean Pate said. This year alone, it should sell more tickets than the
total of all tickets sold in the years since it was founded in 2000.
Last year, its biggest yet, StubHub sold 3.3 million tickets. In
February it was bought by eBay.

As a reseller, StubHub and others are taking over what used to only be done by scalpers on the street.

Ticketmaster,
which sells tickets for promoters, sports teams and venue owners, is
less free to pursue the secondary market since any reselling activity
should not infringe on the profit-seeking of its clients, whose main
goal is to accurately price tickets the first time around in order to
maximize profit.

Still, Ticketmaster hopes to push back against
the rapid growth of StubHub with its own resale service, called Ticket
Exchange, and Ticketmaster Auctions. As of mid-2007, Ticketmaster
reports a 130 percent increase in the number of tickets sold through
Ticket Exchange and a 59 percent rise in the number of online auctions
conducted.

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