Ticketmaster (Nasdaq:TKTM), a spinoff from IAC/InterActiveCorp (Nasdaq:IACID), the internet conglomerate run by Chairman and CEO Barry Diller, fell to a 52-week low after a competitor signed a deal with one of Ticketmaster's largest customers. Ticketmaster is down almost 33% from where it was trading when the spinoff was completed in mid-August and was down an additional 6% by midday September 12. (Companies use M&As and spinoffs to boost profits. Learn how you can do the same by checking out Cashing In On Corporate Restructuring.)
Ticketmaster is an online and offline ticketing services business, both domestically and internationally. Live Nation (NYSE:LYV) promotes live music events in facilities that it owns or operates and in rented third-party facilities. The company also produces music festivals.
Live Nation signed a deal with SMG, a venue management company that controls 216 locations in North America. The seven-year alliance gives Live Nation an exclusive right to sell tickets at SMG facilities. Ticket sales are expected to begin in late 2009 and to increase as SMG's current ticketing contracts expire. SMG is owned by American Capital (Nasdaq:ACAS), a private equity fund. (Find out whether this pricey investment is for you and how you can invest in Private Equity Opens Up For The Little Investor.)
Ticketmaster is the leader in ticketing services with 141 million tickets sold in 2007. Live Nation's share was 71 million.
IAC/InterActiveCorp warned investors of the possibility of Ticketmaster competing with Live Nation in its 10-K filing earlier this year. Since Ticketmaster does not control venues or sponsor music, it is entirely dependent on companies like Live Nation to supply tickets. Ticketmaster's contract with Live Nation, which is its largest, expires December 31 and the filing said it would probably not be renewed. Once the contract expires, Live Nation will be allowed to sell tickets at venues other than its own, thus becoming a direct competitor of Ticketmaster.
The two companies have been negotiating for at least a year on a contract renewal. Last summer contract negotiations broke down, prompting Ticketmaster management to say in internal company e-mail, "We are now conducting our business with the clear understanding that our partnership with Live Nation is more than likely coming to an end," according to the Wall Street Journal.
Ticketmaster defended the future of its business in a news release the day after the Live Nation-SMG announcement. Sean Moriarty, Ticketmaster CEO and president, said that the announcement was "theatrics," and that SMG just signed an extension to its master contracts with his company. This places only 250,000 ticket sales out of the company's 141 million volume at risk in the short term, according to the company, since SMG has exclusive contractual obligations to Ticketmaster through December 31, 2010, covering approximately 70 percent of the tickets sold in SMG venues.
Ticketmaster also raised a legal issue that might enable the company to retain its business with SMG. Since SMG does not own many of its venues, but operates them for various municipalities, it must solicit business using a competitive bidding process. The company said that it would bid for the business when "requests for proposals" are out. Ticketmaster also threatened that if necessary, it would enter the venue management business as well and compete directly against SMG.
Despite market enthusiasm over the deal, Live Nation is losing money on its ticketing operations, reporting an operating loss of $4.3 million in Q2 2008. (What long-run profitability measure can a smart investor count on? NOI may be the answer; find out more in Zooming In On Net Operating Income.)
IAC/InterActiveCorp also spun off The Home Shopping Network, HSN Inc. (Nasdaq:HSNI), Interval Leisure Group (Nasdaq:IILG) and Tree.com (Nasdaq:TREE) in the same transaction.
Since the spinoff was completed August 21, the parts have a mixed performance record.
|Company||Symbol||Opening Stock Price||Closing Stock Price||Change|
|IAC Interactive||IACID||$ 16.20||$ 16.69||3.02%|
|Home Shopping Network||HSNI||$ 11.00||$ 14.65||33.18%|
|Ticketmaster||TKTM||$ 20.20||$ 15.45||-23.51%|
|Tree.com||TREE||$ 7.00||$ 7.65||9.29%|
|Interval Leisure Group||IILG||$ 12.88||$ 11.85||-8.00%|