Anticipated acquisition of a controlling interest in Academy Music Holdings Limited by Hamsard 2786 Limited (a company jointly controlled by Live Nation (Music) UK Limited and Gaiety Investments Limited)

Affected market: Live music venues

No. ME/2481/06

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 21 August 2006. Full text of decision published 18 September 2006.

Please note that square brackets indicate figures or text which have been deleted at the request of the parties for reasons of commercial confidentiality.

PARTIES

Hamsard 2786 Limited (Hamsard) is active in concerts, festivals, promotions and venue operations businesses in the UK. It is jointly controlled by Live Nation (holding 50.1 per cent of its shares) and Gaiety Investments Limited (holding the remaining 49.9 per cent). Hamsard acquired the Mean Fiddler Music Group plc (Mean Fiddler) in 2005. (see note 1)  

Live Nation (Music) UK Limited (Live Nation) (formerly Clear Channel Entertainment (Music) UK Limited) is a wholly owned subsidiary of the US company Live Nation Corporation. In the UK, Live Nation owns and manages live music venues (see note 2) and produces and promotes live music concerts, festivals, theatrical and arts performances.

Gaiety Investments Limited (Gaiety) promotes concerts and festivals in the UK and abroad. It is solely controlled by Mr. Dennis Desmond. Mr Desmond also holds 67 per cent of DF Concerts, which is active in the promotion and organisation of festivals in the UK. (see note 3) Gaiety (through its wholly-owned subsidiary MCD Productions) already holds a 12 per cent share of Academy which it will retain post-merger.

Academy Music Holdings Limited (Academy) is an owner and operator of live music and club venues in the UK. (see note 4) Its main shareholders are Royal London Private Equity Fund (53 per cent), Gaiety (12 per cent) (see note 5), SJM Limited (12 per cent) (see note 6), and Customblock Limited (12 per cent) (see note 7). The remaining 11 per cent shareholding is divided into smaller stakes held by several individuals. Its UK turnover in the financial year ended 30 September 2005 was £ 17 million.

TRANSACTION

Hamsard will acquire the whole 53 per cent of the issued share capital of Academy, currently held by Royal London Private Equity Fund, and as a result, it will acquire a controlling interest in Academy.

The OFT's administrative deadline expires on 21 August 2006.

JURISDICTION

As a result of this transaction enterprises carried on by or under the control of Hamsard, Live Nation and Gaiety will cease to be distinct from enterprises carried on by or under the control of Academy (collectively 'the parties'). The parties overlap in the ownership and management of indoor live music venues in London with a capacity of over 1,000 people in respect of which their combined share of supply exceeds 25 per cent. Thus, the OFT believes that the share of supply test in section 23(4) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which if carried into effect, will result in the creation of one or more relevant merger situations ('the merger situation').

THIRD PARTY VIEWS

Extensive third party comments were received. The majority of these raised concerns. The OFT has considered carefully the quality of the evidence supplied to support these concerns.

ASSESSMENT

The Parties overlap in the business of owning and/or managing indoor live music venues, particularly in London. Live Nation and Denis Desmond are also active in the promotion of live music events. Two of Academy's other existing shareholders are also promoters. In addition, Mr. Denis Desmond, Mr. Robert Angus and Mr. Simon J Moran are active in the organisation of music festivals.

Given the wide range of factors affecting venue choice and the fact that different venues are often considered to be suitable for different artists, the OFT considers that in this case, the most appropriate way to assess whether competition may be substantially lessened as a result of this merger is to focus on the evidence it has obtained on the closeness of competition between the Parties' venues.

At the horizontal level, the merger brings together the closest competitors in: (1) live music venues of around 5,000 capacity in London (Hammersmith Apollo and Brixton Academy), and (2) live music venues of around 2,000 capacity in London (the Forum, Astoria and Shepherd's Bush Empire).

Third party responses and the OFT's own assessment of the evidence provided suggests that the merger of the closest competitors in some London venues may give rise to a substantial lessening of competition: the Parties may be able to increase the venues' rental fees higher than absent the merger. While some venues (such as the Royal Albert Hall or the Barbican Centre) are good substitutes for certain types of event, the OFT does not consider that they represent a sufficient competitive constraint on the Parties.

The OFT considered whether some mitigating factors could prevent the Parties from raising rental fees post-merger. We considered potential agent's countervailing buyer power; the possibility that promoters could discipline the Parties by using alternative venues owned by third parties in other locations outside London where there is more choice; and whether any increase in venue rental fee would not be passed on to the final ticket price. However, the OFT considers that the evidence before it is not sufficient to enable it to conclude that any of these potentially mitigating factors is strong enough to counteract the loss of rivalry at the horizontal level.

In relation to barriers to entry, third parties identified a number of potential barriers to timely entry, and the OFT did not find sufficient evidence of recent (or likely new) entry to conclude that entry would be a sufficient constraint on the Parties post-merger such as to counteract the OFT's concerns. 

The OFT has noted in this decision other issues raised by third parties or considered by the OFT. These include: vertical issues, portfolio effects, risk of co-ordination among promoters and the Ticketmaster issue. However, since the OFT's duty to refer has been triggered in relation to the horizontal issues discussed above, there is no need for the OFT to conclude on any of these issues.

Consequently, the OFT believes that it is or may the case that the merger situation may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom as a result of the horizontal overlap in the ownership and/or management of indoor live music venues in London.

UNDERTAKINGS IN LIEU OF REFERENCE

Where the duty to make a reference under section 33(1) of the Act is met, pursuant to section 73(2) of the Act the OFT may, instead of making such a reference, accept from such of the parties concerned undertakings as it considers appropriate for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned or any adverse effect which has or may result from it.

The OFT has therefore considered whether there might be undertakings in lieu of reference which would address the competition concerns outlined above. The OFT's guidance states that in order to accept undertakings in lieu of reference '…the OFT must be confident that the competition concerns identified can be resolved by means of undertakings without the need for further investigation. Undertakings in lieu of reference are therefore appropriate only where the competition concerns raised by the merger and the remedies proposed to address them are clear cut, and those remedies are capable of ready implementation…' (see note 8).

Live Nation, proposed undertakings to the OFT, intended to address the potential competition concerns, in lieu of a possible reference to the Competition Commission. The proposed undertakings were that:

[ ]

These proposed undertakings do not, however, address the horizontal issues which have triggered the OFT's duty to refer, and therefore, would not resolve the competition concerns identified and as such are not appropriate.

Accordingly, the OFT has decided not to exercise its discretion under section 73(2) of the Act to consider whether to accept undertakings in lieu of a reference.

DECISION

The merger situation will therefore be referred to the Competition Commission under section 33(1) of the Act.

NOTES

1. OFT decision on the anticipated acquisition of Mean Fiddler Music Group by Clear Channel Entertainment (Music) UK Ltd and Gaiety Investments Ltd of 17 June 2005 (the Mean Fiddler Decision). Mean Fiddler owns and manages venues including in London: Forum, Astoria, Mean Fiddler, Garage, Borderline and Jazz Café.
2. In London, it owns Hammersmith Apollo and manages Wembley Arena (under a long-term management contract).
3. See Mean Fiddler decision for further details on DF Concerts.
4. These include: the Brixton Academy; the Shepherd's Bush Empire; and the Islington Academy.
5. According to Hamsard, via Gaiety's wholly owned subsidiary, MCD Productions.
6. A company solely controlled by Mr Simon J Moran.
7. A company solely controlled by Mr Robert Angus.
8. See paragraph 8.3 of OFT Mergers Substantive Assessment Guidance.

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