Problem 126 Radio Stations and Rock Concerts In 2005 Clear C

Problem 12-6 Radio Stations and Rock Concerts: In 2005, Clear Channel (an owner of popular radio stations) spun off concert promoter Live Nation into an independent company. How would this affect prices for concert tickets or rates for radio programming?

Solution

In general, a spin-off reduces stock price of the spun-off entity. This is a direct result of the uncertainty surrounding a spin-off event and its announcement.

Therefore, at initial periods right after the spin-off, prices for concert tickets and radio programming are likely to fall. But after the initial \"Settle-Down\" period, demand and prices are expected to bounce back to previous, pre-spin-off level.