Monster deal could oust the little guy


July 16, 2006


The corporate executives at both the Chicago office and the West Coast headquarters of the country's largest concert promoter aren't talking, and neither are local employees at one of the city's best music clubs. But the recent news that Live Nation has purchased the national House of Blues chain for $350 million in cash, including the landmark club just north of the Loop, has left music fans wondering what it means for them.

Not surprisingly, one veteran Chicago promoter, Jam Productions co-founder Jerry Mickelson, sees trouble.

"I think it's bad for the consumer and bad for those of us who are in the live entertainment industry, because one more competitor has just been eliminated by Live Nation," he says. "It's not a healthy thing: Competition is good, but the way the concert industry is going, pretty soon, they'll be only one company."

Indeed, the thriving Chicago concert market is unique among most major cities in the United States. A decade ago, when it originated as SFX Entertainment (before being bought by Clear Channel, then recently spinning off as a separate publicly traded company), Live Nation set out to create a giant national monopoly, spending billions of dollars buying up regional concert promoters.

"Jam is probably the biggest of the local promoters that didn't get bought out, which makes Chicago different than most of the other markets," says Gary Bongiovanni, editor of the concert trade publication Pollstar. "In Cleveland, Belkin sold; Bill Graham sold in San Francisco; Delsener-Slater sold in New York; the Electric Factory sold in Philadelphia. They all became a part of this larger company, where Jam hung in there as one of the last of the independents."

Last year, Jam won a $90 million verdict against Clear Channel in a highly publicized antitrust suit involving motor sports, after testimony that included Clear Channel executives boasting that they'd love to "crush, kill and destroy" Jam. The verdict was overturned on appeal, but Clear Channel reportedly paid a hefty settlement to Jam before it could bring its case back to court. (Neither side will comment on the amount.)

Live Nation and Jam now fight a pitched battle over which company gets the biggest piece of the local concert pie. Live Nation owns the First Midwest Bank Amphitheatre in Tinley Park and the Alpine Valley Music Theatre in East Troy, Wis., and it controls the new Charter One Pavilion on Northerly Island. Jam owns and operates the Park West and the Vic Theatre, and it regularly promotes shows at other venues including the Riviera, the Aragon and the Auditorium Theatre.

The two rivals duke it out to promote the biggest national tours at venues such as the Allstate Arena and the United Center, with Live Nation often winning the top-dollar superstar packages such as Madonna and Paul McCartney -- which have seen top ticket prices nearing $400 -- and Jam promoting more independent-minded, less bottom-line obsessed acts such as Pearl Jam, Widespread Panic and the Foo Fighters.

It's fair to say that Live Nation dominates the market in the arenas, while Jam rules at the level of 1,000-seat clubs to 4,500-seat theaters. Live Nation has long sought to secure a large club or small theater of its own to compete with Jam at that level -- the idea is that acts that start out in clubs eventually make it to stadiums, and Live Nation doesn't want to cede a single ticket dollar along the way -- but it was frustrated in its earlier attempts to buy the Vic or turn the Congress Theatre into a viable venue. Now, with the purchase of House of Blues, Live Nation has the club it has long been seeking.

Local Live Nation vice president Scott Gelman declined to comment for this story, as did company spokesman John Vlautin, but back in 2002, when rumors first surfaced that his company was trying to buy the House of Blues, Gelman told me: "If I had a 1,000- or 1,400-seat legitimate city of Chicago venue, I'd be a happy camper. I need that small venue. Jam's been in the market for almost 30 years, and they own two or three of the best venues in the marketplace. The House of Blues is their competitor, and they're beating the crap out of each other at the club level."

Chicago's House of Blues was one of the chain's most successful venues, and its secret weapon was local talent buyer Michael Yerke, who cut his teeth as an arch-competitor to Jam at clubs such as the Cubby Bear, back when Jam was the 800-pound gorilla and local monopoly, before the 10,000-pound elephant of Live Nation came along. Seeing parts of the music community that Jam wasn't servicing, Yerke turned the House of Blues into the premier local venue for hip-hop, worldbeat and extreme metal, making the club a vital part of the local music scene.

For Chicago concert-goers, the first and most obvious impact of the latest mega-deals and corporate machinations involves the future of Yerke and his crack staff at the local House of Blues, who also declined to comment here.

"If [Live Nation] gets rid of Michael [Yerke], they're crazy -- they really are," says Bongiovanni, one of the concert industry's most knowledgeable independent observers. "Live Nation has made the decision that they are going to keep the House of Blues brand name on the clubs, and Chicago is a very successful venue. It really would be foolish for them to get rid of the people who are really good at their jobs. When you buy a company, you don't want to fire the best people. I'm sure Michael, like everyone else, is wondering, 'What's this going to mean for me?' But I'd be hard-pressed to figure that they would get rid of him."

The other impact this deal will have on local music fans is less immediate and harder to gauge, since it involves much bigger questions about whether the consumer ever really benefits when one company -- be it Starbucks, Microsoft or Live Nation -- dominates a market at the expense of smaller or local business, whether it's the mom-and-pop coffee shop, Apple Computers or Jam.

"We now have an industry with a huge No. 1, one significant No. 2" -- national promoter the Anschutz Entertainment Group, which had been vying with House of Blues for the No. 2 slot, though both shared a fraction of the market enjoyed by Live Nation -- "and then a pretty big drop-off before you get down to the level of Jam," Bongiovanni says. The biggest positive of this new Live Nation nation is convenience for superstar acts. "They are a huge, one-stop company, where if you just want to deal with one person, they can put together a tour for you end to end." But any company that large is inherently conservative. "With bigness comes a loss of street sense. The independents have always seemed to have an advantage in that they are more on top of new trends."

Then there is the matter of ticket prices. After leveling off for a year or so following a sharp downturn in attendance in 2004, the cost of tickets has once again been rising steadily since the summer of 2005, according to industry reports.

"As the concert business gets smaller and smaller, the consumer is hurt more and more," Jam's Mickelson maintains. "The fewer choices we have, the worse it is in any segment of our lives. It's true of phones, computers, refuse removal or concerts. The consolidation of almost everything we see today is costing us more. Just tell me when you've ever seen big business make anything cost less."