Ticketmaster / Front Line Deal Rocks, But Lacks Web Strategy

| About: Ticketmaster (TKTM)

Gimme digital.

Talent manager Irving Azoff's blockbuster takeover of Ticketmaster as C.E.O. has rocked the recording industry. But where's his digital music strategy?

Answer: Nowhere.

Azoff's pact with Ticketmaster, in which Ticketmaster acquires a controlling interest in Azoff's Front Line Management Group, will re-align the balance of power in the music business, but it does little to address the copyright wars that have riven the online music space over the last decade.

Given the recording industry's troubles, it's not surprising to see two powers -- Azoff''s top talent-management company and Ticketmaster, the dominant ticket-seller -- consolidate.

But as sexy as this deal is, it could obscure the larger challenges facing the industry: the incapability of the major labels to devise a digital music business model; and the difficulty faced by new online music ventures in an environment in which the major labels demand upfront, equity, or royalty payments that threaten to choke Web music start-ups.

The Ticketmaster takeover is a good deal for Azoff and his roster of stars. But what about consumers, concert-goers, and independent artists? How will the company address declining CD sales and digital piracy? Copyright/DMCA issues? Streaming royalty rates?

These are the questions that Azoff -- 60, and an industry legend -- will have to answer.

Per the deal, Azoff will soon control Ticketmaster. The deal merges the giant concert-ticket company, recently spun off by Barry Diller's IAC Corp (IACI) -- though Diller's still chairman of Ticketmaster -- with Azoff's company, Front Line Management, which boasts over 200 top recording acts, including the Eagles, Christina Aguilera, Morissey, and Jimmy Buffet. Azoff inists that he won't discriminate against artists which he doesn't manage.

For now, Azoff can ride high on the hog, because the deal instantly propels him to top-dog status in the music biz. (He was there already by virtue of his management business, but this puts him in the stratosphere.) Azoff will become chief executive of Ticketmaster Entertainment, a new entity  -- his management company combined with their ticketing company -- which could re-alter the balance of power in the music industry.

In true rock and roll fashion, the pact was announced on the same day that Guns 'N' Roses - which Azoff also manages -- released "Chinese Democracy," the band's first album in 15 years.

The merger is further evidence of a new industry emphasis on live concerts, tickets, and merchandise, as compact disc sales decrease and new internet-based music models fail to take hold against Apple's iTunes, which dominates the space.

For Ticketmaster, which has long dominated the concert-ticketing business, the merger is a flanking action against recent moves by Live Nation, the concert-promotion giant, which was spun off from Clear Channel, the billboard ad behemoth -- in 2005. Live Nation recently announced plans to start its own ticketing business -- and has struck so-called "global deals" to handle the touring and merchandise operations of a handful of superstars, including Jay-Z and Madonna.

Faced with such an upstart threat, Ticketmaster had to act. "It's a defensive move to try to position the business relative to what Live Nation's doing," analyst Scott Devitt of Stifel Nicolaus told the Associated Press. The deal reflects an acknowledgment by Ticketmaster that is can't survive as a stand-alone -- if dominant -- ticket-seller, now that the internet has spawned second-hand ticketing options from StubHub to Criag's List. Newly combined with Azoff's roster of concert top-draws, Ticketmaster ensures itself a torrent of business to come.

But Azoff's merger with Ticketmaster -- as dramatic as it is -- doesn't address the current crisis in the digital music space: Although Azoff says he wants to establish new music "pipelines" to consumers, he doesn't have any solutions to the most important question facing the music business today: how consumers will receive that music over the internet. After a long and distinguished career in the industry, Azoff deserves his prize. He'll become one of the most powerful men in the business. Now, he'll have to turn his attention to the digital world.