by Adriana Hamacher

OP/ED: Tiger Management, Lone Pine Capital and Glenview Capital Management were among 30 of the largest equity-oriented hedge funds that bought shares of Live Nation Entertainment (LNE) in the first quarter, according to recent regulatory filings.The company was also one of the top additions to the portfolios of the "Smart Money" 30 in the period, according to data compiled by Thomson Reuters. But, in the past few weeks, the value of LNE stock, which trades under the symbol LYV, has dropped about 30 percent as concerned investors ponder a host of challenges to the live entertainment and ticketing giant.

Investors have been betting that the January merger of Live Nation, the No. 1 concert promoter, and Ticketmaster, the leading ticketing company, is just the ticket to control the fastest growing segment of the music business, with sales of recorded music in decline. But is Live Nation’s enviable position as undisputed market leader - managing the artists, running the live venues, promoting the concerts and selling the tickets - a guarantee that the funds will roll in? Analysts believe that while Live Nation's results should get a jolt in the short run from merger cost savings, seizing the potential benefits of vertical integration will make or break the company in the long run and there are three areas investors should be examining carefully.

The first is that as a combined company controlling so many tiers within the business, it’s likely to be much easier for LNE to introduce dynamic pricing and paperless tickets. These are measures which have the potential to undermine the booming secondary ticketing business, if individuals can no longer resell their paper tickets without going back through the Live Nation technology platform. There are those who have doubts:

"While the benefits of dynamic ticket pricing have been well documented both in terms of blunting the premiums on the secondary market and clearing unsold primary market inventory, to date the roll-out has been slow," said Benjamin Mogil, an analyst at Thomas Weisel who rates Live Nation "overweight."

Then there is the current political logjam in New York over whether or not LNE should be able to control the secondary market for tickets. Governor Paterson wants consumers to have the option of paperless tickets in order to create a more vibrant (read: less controlled by LNE) marketplace for resale. If, by no means certain, LNE is able to control the secondary marketplace through paperless ticketing, it would be a boon. But the situation in New York is evidence that there are parties not willing to grant the company that much power. Investors are betting on a political win that is far from likely at this point.

But when asked which issue was of the most concern to investors, Mogil did not cite either of these areas: "Tours.", he said. This can’t have gone down well with investors. Out of all the factors influencing the control of their money, the most unpredictable is likely to be leaving it in the hands of a bunch of rock stars.

This week, two major LNE-produced tours were postponed - one because of surgery and the other claiming prior commitments. Along with that, there were quite a few dates cut by other artists for various reasons. Nervous investors have showed their displeasure by selling off stock.

But, despite everything, it may be too soon to judge whether LNE is likely to be a monolithic success. Speaking to the New York Times, Mogil  quantified:

"The real gauge of the health of the concert business is the strength of the 25 to 75 top shows, not the top 10 shows alone."

And, even if LNE is able to capitalise on all of these fronts, it still needs to show that it has effective leadership to capture, not only the market, but also the synergies within all its divisions. Not an easy task.