TicketMaster And Live Nation Head For Divorce

Not all marriages are meant to last.

On Thursday, it was widely reported that Ticketmaster is ready to end its relationship with Live Nation (nyse: LYV - news - people )after protracted contract negotiations broke down. The demise of the union between the country's biggest ticket retailer and the biggest concert promoter will inevitably shake-up the U.S. ticket sales industry.

According to a report by the Wall Street Journal, an internal memo released by Ticketmaster said the company did not expect to renew its contract with Live Nation. "We are now conducting our business with the clear understanding that our partnership with Live Nation is more than likely coming to an end," Chief Executive Officer Sean Moriarty and Chairman Tom McInerney said in a Wednesday e-mail.

The clear loser in this case is Ticketmaster, which depends on Live Nation for roughly 20% of its sales. In 2006, the online ticket store raked in $1.1 billion, about $200 million of which was generated by Live Nation tickets. In turn, it's a major hit for Ticketmaster's parent company, IAC/InterActiveCorp (nasdaq: IACI - news - people ), which relies on Ticketmaster for 19% of its sales.

Live Nation and its subsidiary, House of Blues, is Ticketmaster's biggest client and the premiere concert promoter in North America. The firm accounted for 42% of North America's total ticket sales in 2006.

"Live Nation holds the cards," Piper Jaffrey analyst Aaron Kessler told Forbes.com on Thursday, "It is by far the largest concert operator in the United States, there is nothing Ticketmaster could do to replace it."

Despite its dominating presence, Live Nation hasn't been that profitable. After Ticketmaster's cut, the company makes a razor thin profit on each sale. For instance, Live Nation reaped $1.0 billion in sales in the last quarter but it made only $9.9 million in net income. Meanwhile, Ticketmaster has fared far better. The ticket seller enjoys an operating margin of 25% for Live Nation sales, Kessler said . The profit sharing structure was clearly a point of frustration for Live Nation, which reported a loss of profit last year. Even though Ticketmaster allowed Live Nation to sell 10% of its tickets through its own site, Live Nation likely thirsted for more independence.

Ultimately, the spat between Ticketmaster and Live Nation boiled down to money and independence. Live Nation has already made moves to develop its own online ticketing infrastructure. Last July, Live Nation said it would purchase a majority stake in Musictoday, an online portal that provides ticketing services to musicians. By losing Ticketmater, Live Nation would have to beef up its online presence, but a revamped ticketing service would not be too difficult to set-up, Piper Jaffrey's Kessler said.

According to the 'Journal, Live Nation also wanted access to Ticketmaster's extensive database on consumers' transactions and e-mail addresses. Live Nation also wanted to minimize its partner's role, by forcing customers to come to their website via Ticketmaster to buy tickets.

It may not be completely over for the two companies, however. "They are still in negotiations as far as we know," Kessler said. Regardless of the outcome, it is unlikely that Ticketmaster or IAC will come out unscathed. "Its going to be a negative for IAC/ InterActive. Live Nation will either walk away or they will negotiate better terms," Kessler said. Kessler also maintains his "market perform" rating on IAC, with a $32 price target.

[ via forbes.com ]

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