Looking closer at the Ticketmaster/Live Nation merger: What does it mean for Chicago?

After a year of quiet deliberations behind closed doors while everyone from angry congressmen to consumer advocates to Bruce Springsteen shouted in opposition outside, the U.S. Department of Justice on Monday gave its blessing to the merger of two of the most controversial companies in the music industry: giant national concert promoters Live Nation and monopolistic ticket brokers Ticketmaster.

The ruling--which can be read here--cleared the way for the creation of a new company called Live Nation Entertainment that will own more than 140 concert venues worldwide and sell 140 million tickets to 22,000 concerts annually. It will dominate every aspect of the live music industry, setting prices while promoting shows from small clubs to giant arenas, selling the tickets, concessions and merchandise for those gigs and managing the performers who play them.

The Justice Department did impose several conditions on the deal: Ticketmaster must sell one small subsidiary, Paciolan, to sports promoters Comcast-Spectacor, and it must share its ticketing software with the second largest national concert promoter, AEG Live. In theory, Ticketmaster, Comcast and AEG will now compete, offering venues three choices for ticketing, and possibly resulting in lower service fees.

"This settlement will preserve competition in primary ticketing and maintain incentives to innovate and discount, thereby benefiting consumers," Assistant Attorney General Christine Varney said when announcing the ruling. "This is the right result."

But many artists, consumer groups, industry analysts and music fans strongly disagree. "I don't know that is going to create the kind of even competitive field that was intended," Standard & Poor's equity analyst Tuna Amobi told the Reuters news service. Added Sally Greenberg, executive director of the National Consumers League: "We remain concerned that these two companies, with a history of anti-consumer behavior, will abide only by the letter, and not the spirit of the settlement agreement."

The major stumbling block to the scenario of three competing ticket brokers is that Ticketmaster has locked almost all of the major concert venues in America into exclusivity agreements of five to ten years, and venues will not be able to entertain competing offers until those expire. These agreements were at the heart of the Justice Department investigation of Ticketmaster in the mid-'90s, famously championed by Pearl Jam, though the federal government ultimately took no action at that time.

In Chicago, every major concert venue has an exclusive deal with Ticketmaster, from the United Center to the Allstate Arena to the Chicago Theatre. And many smaller clubs do as well, via Ticketmaster subsidiary TicketWeb, including hot spots such as the Empty Bottle, Martyr's and Reggie's.

The exclusivity agreements are not addressed in the new Justice Department ruling. Nor does it address other hot-button consumer issues, such as the fact that Ticketmaster service fees can add as much as 50 percent to the face price of a ticket, or charges that the company increasingly is holding back a percentage of seats for some shows to sell to the highest bidders in the secondary or scalpers' market.

Questioned about the exclusivity agreements at a press conference, Varney admitted the government is not making Ticketmaster abandon them. "What we're trying to do, as the ticketing contracts expires, which is coming up [for] 20 percent... this year, we are trying to make sure that there are competitive alternatives [and assure that Ticketmaster] cannot behave in an anticompetitive manner." As for after-market sales, she said, "Ticket resale was not part of this investigation."

The government also gave short shrift to the biggest concern of the few remaining independent concert promoters: that Live Nation will now have an unfair advantage when competing to promote the same artist, because the giant company will have intimate knowledge of the inner workings of its smaller competitors via its ticketing arm. The Justice Department expects Live Nation Entertainment to erect a "firewall" between its concert promotion business and its ticketing business, but no specific requirements for this are laid out in the federal ruling.

No specific requirements for this are laid out in the federal ruling, but a Justice Department spokesperson maintained that, "We will be vigilant in enforcing the firewall."

Widely considered to be the first major test of the Obama administration's stance on antitrust issues, the Justice Department's ruling is similar to many issued during the Clinton and Bush years, including the settlement of the Microsoft case. The government is trusting an ever-expanding big business to police itself and act in consumers' interests.

For followers of politics as practiced in Chicago, it is hard not to suspect some successful influence peddling. In addition to employing the most high-powered Democratic lobbyists in Washington, Live Nation's board members include Hollywood super agent Ari Emanuel, brother of President Obama's chief of staff and former North Side congressman Rahm Emanuel, while Ticketmaster's board of directors included the President's Harvard classmate and transition team leader Julius Genachowski, until he resigned to become chairman of the FCC.

What does the merger mean for the local music scene?

Chicago is unique among most major music markets in the U.S. as the home of one of the few remaining regional promoters, Jam Productions, which has been locked in a cutthroat competition with Live Nation for the last 15 years.

Live Nation promotes many of the biggest arena and stadium concerts here. It owns the First Midwest Bank Amphitheatre in Tinley Park and the Alpine Valley Music Theatre in East Troy, Wisc., and it controlled the Charter One Pavilion on Northerly Island until its contract there expired at the end of last summer's concert season. It also owns the House of Blues, though it has been frustrated in its attempts to purchase another large club or mid-sized theater.

Jam owns the Vic and Riviera theaters and the Park West, and it promotes the majority of shows at other mid-size venues such as the Aragon Ballroom and the U.I.C. Pavilion. It increasingly is losing out on larger arena shows to Live Nation as that company controls major artists' tours from coast to coast.

"I'm not sure how this ruling benefits the consumer, nor any of the competitors," Jam co-founder Jerry Mickelson said on Tuesday. "The Justice Department focused on one aspect of the vertical integration: ticketing. They didn't focus on venues, on promoters, on merchandise companies, on artists' managers or on any other aspect.

"We showed the Department of Justice how ticket prices increased from an average of $25 in 1996 to well over $60 last year, which in my view is a direct cause of the consolidation under Live Nation. We showed how we at Jam used to produce over 160 arena concerts and we're down to 30 or 40 a year. We showed, through Live Nation's own documents, how their food and beverage prices are higher than Major League Baseball, the NHL or the NFL. And we showed how when Live Nation entered the ticketing market in 2009, their convenience charges were higher than Ticketmaster's. So tell me how these increased prices have benefited the consumer?"

Mickelson is skeptical that AEG or Comcast will be able to compete with Ticketmaster, since Live Nation's brief and unsuccessful attempt to do the same last year was a major factor that ultimately led the two companies to merge.

"The merger is going to make it tough for any independent promoter to compete," Mickelson added. But he and the handful of other regional promoters making the effort--including John Scher in New York, Don Fox in New Orleans and Seth Hurwitz in Washington, D.C.--are unlikely to mount further legal challenges because of the staggering costs.

One thing Jam is considering is bringing its ticketing in house when contracts with Ticketmaster at the Vic, the Riv and the Park West expire at the end of 2011. The challenge will be competing with Live Nation without losing more business between now and then.

"I'd like to believe there still is a place for the independent entrepreneur--that's what we all believe in over here at Jam," Mickelson said. "But we'll see. It's tough to be competitive when both our hands are tied behind our back and we're facing a two-ton gorilla."

UPDATED WITH COMMENTS FROM SETH HURWITZ AFTER THE JUMP