Live music is classic abusive monopoly – Twin Cities

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Edward Lotterman

Pioneering political cartoonist Thomas Nast died in 1902, but his sharp wit still is relevant. Take, for example, his famous “It Was Him” cartoon of an outward-facing circle of corrupt New York politicians all pointing to the person to his left to answer the question, “Who stole the people’s money?”

“It was him.”

Paste the countenance of Live Nation/Ticketmaster President and CFO Joe Berchtold appearing before a Senate committee in place of the avaricious Boss Tweed, and ask “Who screws over music fans?”

“It was him.” In other words, “Not me.”

That conveys the gist of the recent Senate hearings on abuses of the public by the cynical clique controlling the multi-billion dollar popular-music concert market. Berchtold and other execs piously spouted concern for their customers while blaming others for abusive ticket prices and other objectionable practices.

Well, now that the Senate has gotten involved, how should government respond, if at all?

Let’s start with the situation.

Millions of people enjoy live music and are willing to pay substantial amounts for it, depending on the artist. Thus there is a large pot of money to be divvied up.

There are thousands of musicians who perform for money. However, the top earnings are concentrated among a few hundred of these. And a couple dozen of each gender and subgenre collectively get a very large fraction of the total.

This commodity is not a “homogenous product” in supply-demand intro econ. Rihanna is not Garth Brooks is not Bruce Springsteen is not Taylor Swift is not Jay-Z is not Lady Gaga. Yes, there is overlap in customers wanting their “product” — my wife and I could crossover between Michael Buble and The Village People. The key point economically is that there are dozens or hundreds of market demand curves for live music, not just one.

Yet supply and demand curves do have their usual shape. Taylor Swift may only want to give a certain number of concerts each year but, at the margin, she might give more if she netted more, and less if her earnings were lower. Fans collectively will go to more events if they were cheaper. Indeed they might actually spend more overall if individual events were cheaper. But collectively, they will go to fewer events as prices go higher.

This is not Adam Smith’s classic situation of a butcher or baker selling directly to customers. There is a complicated web of intermediaries.

Concerts require venues. Some are more attractive than others, both to performers and fans. And demand is a determining factor. Taylor Swift might bring 20,000 to Xcel Energy Center in St. Paul and possibly could fill U.S. Bank Stadium with four-times that many; meanwhile, Brazilian guitarist Caetano Veloso might bring 2,000 fans in Northrop Auditorium on the U of M campus.

Logistics are involved. Someone must schedule and organize tours, set up venues, move equipment, arrange hotels for artists and their entourage. Promoters need to promote. And everyone involved needs to get paid.

So someone needs to sell tickets. And this is where the rub is right now.

For decades, venues sold tickets after negotiating with the performers and promoters. When mom took us and cousins to the Ringling Brothers circus at the shiny new Sioux Falls Arena in 1962, she followed the instructions on Channel 11, mailed a non-personalized check to the arena and got six tickets back a week later. Seeing Elvis would have been the same. You could always take your chances standing in line. And then there sometimes were scalpers on the sidewalk or in the parking lot.

Computers, credit cards, 800 numbers and the internet have changed all that in ways that raised the potential for singular control at various chokepoints. Ticketmaster was founded in 1982 and acted as a ticket-selling agency, removing the task from venue promoters, adding convenience to buyers and taking a fee along the way. Active consolidation to gain monopoly power came early, with its purchase of major competitor Ticketron in 1991 and others along the way. This is what economists would call “horizontal integration” — buying up competitors.

But when Ticketmaster finalized a merger with promoter and venue operator Live Nation in 2011, this became “vertical integration,” analogous to a meat packer buying up feedlots and feed suppliers.

So recapping: There is a large pot of money; and the conditions for “perfect competition” don’t exist because there are differentiated products, differentiated demand, asymmetric bargaining power and imperfect information. And the chokepoints give the entity controlling them two kinds of price-setting power — monopolistic and monopsonistic.

As solo sellers, these are “monopolists.” In selling their products and services to fans they can earn “monopoly rents” by offering a smaller number of tickets at higher prices than if perfect competition were possible. As solo buyers, they are “monopsonists” in that they can force exclusive contracts on venues and artists — their suppliers — who then have little recourse because they have no one else to sell to. They earn “monopsonistic rents,” buying less than in a competitive market would allow and getting what they buy at lower prices.

There are laws on the books that the Justice Departments of successive Democratic and Republican administrations could have used to halt this concentration and these abuses. Congress could have acted to tailor added statutes to meet new technology and market conditions. Both sat on their hands. The upshot is that in Europe, 10% to 12% of money fans pay to hear their idols goes to service fees. Here it is over 25%.

The most egregious failure was not stopping the Live Nation-Ticketmaster merger. That was like a bank president not only opening the vault, but furnishing handcarts so the yeggs could wheel the moneybags out to their getaway car without breaking a sweat.

The positive side is that U.S. anti-monopoly legislation facilitates after-the-fact actions. John Sherman of Ohio was a Republican who sponsored the 1890’s basic antitrust legislation. Democrat Henry Clayton of Alabama wrote the 1914 act that plugged loopholes and put teeth into law. Republican President Theodore Roosevelt, a Progressive who saw that the abuses of the first Gilded Age threatened the U.S. market economy and U.S. democracy, used the law to break up Rockefeller’s Standard Oil, the McCormack family’s International Harvester, and the J.J. Hill-J.P. Morgan-Edward Harriman ‘Northern Securities” railroad cartel, among others.

There are several steps that could be taken to improve competition in live music that would give lower prices to fans, higher incomes to artists and the resulting greater availability of events. But the obvious first one is to break up Live Nation and to ban practices such as exclusive contracts with venues. The Justice Department could start on this and Congress could facilitate and extend possible action.

Will anything happen? Don’t count on it. For one thing, the Roberts Supreme Court legalized direct political corruption in its Citizens United decision; for another, the post-2000 Senate filibuster rule means that parties with much at stake, such as Live Nation and anyone else legally benefitting from economically unethical and untenable practices, really don’t have to buy off too many members of Congress to block any reform.

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