[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
COMPETITION IN THE TICKETING AND PROMOTION INDUSTRY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS AND
COMPETITION POLICY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 26, 2009
__________
Serial No. 111-62
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
----------
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida STEVE KING, Iowa
STEVE COHEN, Tennessee TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr., LOUIE GOHMERT, Texas
Georgia JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico TED POE, Texas
LUIS V. GUTIERREZ, Illinois JASON CHAFFETZ, Utah
BRAD SHERMAN, California TOM ROONEY, Florida
TAMMY BALDWIN, Wisconsin GREGG HARPER, Mississippi
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
[Vacant]
Perry Apelbaum, Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
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Subcommittee on Courts and Competition Policy
HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman
JOHN CONYERS, Jr., Michigan HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia JASON CHAFFETZ, Utah
ROBERT WEXLER, Florida BOB GOODLATTE, Virginia
CHARLES A. GONZALEZ, Texas F. JAMES SENSENBRENNER, Jr.,
SHEILA JACKSON LEE, Texas Wisconsin
MELVIN L. WATT, North Carolina DARRELL ISSA, California
BRAD SHERMAN, California GREGG HARPER, Mississippi
[Vacant]
Christal Sheppard, Chief Counsel
Blaine Merritt, Minority Counsel
C O N T E N T S
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FEBRUARY 26, 2009
Page
OPENING STATEMENTS
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Georgia, and Chairman, Subcommittee
on Courts and Competition Policy............................... 1
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Ranking Member, Subcommittee on
Courts and Competition Policy.................................. 3
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Ranking Member, Committee on the Judiciary. 4
WITNESSES
The Honorable Bill Pascrell, Jr., a Representative in Congress
from the State of New Jersey
Oral Testimony................................................. 5
Prepared Statement............................................. 8
Mr. Michael Rapino, President & Chief Executive Officer, Live
Nation Worldwide, Incorporated, Beverly Hills, CA
Oral Testimony................................................. 12
Prepared Statement............................................. 14
Mr. Irving Azoff, Chief Executive Officer, Ticketmaster
Entertainment, Incorporated, West Hollywood, CA
Oral Testimony................................................. 21
Prepared Statement............................................. 23
Mr. Robert W. Doyle, Jr., Partner, Doyle, Barlow & Mazard, PLLC,
Washington, DC
Oral Testimony................................................. 29
Prepared Statement............................................. 31
Mr. Peter A. Luukko, President & Chief Operating Officer,
Comcast-Spectacor, Philadelphia, PA
Oral Testimony................................................. 57
Prepared Statement............................................. 60
Mr. Luke Froeb, William C. and Margaret W. Oehmig Associate
Professor of Management, Owen Graduate School of Management,
Vanderbilt University, Nashville, TN
Oral Testimony................................................. 63
Prepared Statement............................................. 64
Mr. Ed Mierzwinski, Consumer Program Director, U.S. PIRG, the
Federation of Public Interest Research Groups, Washington, DC
Oral Testimony................................................. 74
Prepared Statement............................................. 76
APPENDIX
Material Submitted for the Hearing Record........................ 101
COMPETITION IN THE TICKETING AND PROMOTION INDUSTRY
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THURSDAY, FEBRUARY 26, 2009
House of Representatives,
Subcommittee on Courts and
Competition Policy
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:07 a.m., in
room 2141, Rayburn House Office Building, the Honorable Henry
C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee)
presiding.
Present: Representatives Johnson, Sherman, Coble,
Sensenbrenner, Goodlatte, and Issa.
Staff Present: (Majority) Christal Sheppard, Chief Counsel;
Elisabeth Stein, Counsel; Anant Raut, Counsel; Rosalind
Jackson, Professional Staff Member; (Minority) Sean McLaughlin,
Chief of Staff and General Counsel; and Stewart Jeffries,
Counsel.
Mr. Johnson. This hearing of the Committee on the
Judiciary, Subcommittee on Courts and Competition Policy, will
now come to order.
Without objection, the Chair will be authorized to declare
a recess of the hearing. I will start by saying that there has
been a request by Congressman Pascrell that after he testifies,
he would like to come and sit on the podium with us. I have
spoken to my colleagues on the other side of the aisle, and
they have no objection to that provided, that you don't ask any
questions. So you are welcome to sit up here.
Mr. Pascrell. Thank you.
Mr. Johnson. I now recognize myself for about 5 minutes. I
would like to make an opening statement.
The reality in these tough economic times is that
businesses are hurting. The entertainment business is affected
by this economic downturn in the same way as other companies.
TicketMaster, which owns the ticketing rights to 80 percent of
the major venues in the United States, and Live Nation, which
controls over 150 venues in addition to being the biggest
concert promoter in the United States, have argued that a
merger is necessary for the companies to survive in the
changing entertainment environment.
While it is important to examine the effects of the merger
between Live Nation and TicketMaster on the live entertainment
industry, there may very well be reasons to support such a
venture.
Prior to this proposed merger, the companies simultaneously
occupied different positions in the supply chain and were
competitors. Until December of 2008, Live Nation was a client
of TicketMaster, generating 17 percent of TicketMaster's
overall revenue. Live Nation elected not to renew its contract
with TicketMaster, choosing instead to enter the primary
ticketing market and compete directly against TicketMaster.
Live Nation also competed against TicketMaster for a
controlling stake in Front Line, which is an artist management
company, which TicketMaster ultimately won.
In the primary ticket market, too much control over live
entertainment might result in significantly higher ticket
prices for consumers. The combined company would have vertical
integration of every element of the live music business, that
being artist management, promotion, venue and primary
ticketing.
Both companies have stated that this merger will not raise
ticket prices because the artists sets the ticket price. This
statement has, in my opinion, limited believability, and I am
sure that we will hear more about that when we hear testimony.
It is one thing to claim that artists such as Bruce
Springsteen or Barbra Streisand have the star power to exert
control over ticket prices, but artists without that clout are
not in a position to negotiate the price of their tickets.
TicketMaster and Live Nation argue that artists support the
merger because artists will benefit, and they offered letters
from a number of artists who support this merger. I could not
help but notice that at least four of those five artists are
currently managed by Live Nation or TicketMaster, yet we do not
have an artist on the witness panel, despite our monumental
efforts to procure someone.
Our understanding is that those artists we reached out to
were reluctant to speak against the merger, presumably for fear
of repercussions.
It is also troubling that a combined Live Nation and
TicketMaster might have significant control over the secondary
ticket market. Live Nation might have been a competitor of
TicketMaster's ticket reseller TicketsNow.
Recently, TicketMaster tickets for a Bruce Springsteen
concert were available on TicketsNow with a considerable markup
from the face value. When fans complained about the bait and
switch, Springsteen stated, quote, ``The one thing that would
make the current ticket situation even worse for the fan than
it is now would be for TicketMaster and Live Nation coming up
with a single system, thereby returning us to a near-monopoly
situation in music ticketing.''
Three days ago TicketMaster reached a settlement with the
New Jersey attorney general, Anne Milgram, where TicketMaster
agreed not to allow tickets to be sold on TicketsNow.com until
the initial sale begins on its primary site. Only yesterday it
was reported that TicketsNow began selling tickets to Leonard
Cohen concerts before the tickets went on sale. I was
astonished to learn that tickets with a face value of $99 to
$250 were being sold on TicketsNow.com for between $568 and
$856 plus a service charge ranging from $85 to $128 per ticket.
There is a risk that ticket prices will increase and
consumers will be harmed by this merger. The Department of
Justice has opened an investigation into this matter, and today
we have a balanced panel because we want to understand how this
merger will affect consumers.
We are not here to gang up on a U.S. business that is doing
its best to weather hard economic times. I thank TicketMaster
and Live Nation for being here today, and I look forward to
your candid testimony.
I am now going to recognize my colleague, Mr. Coble, the
distinguished Ranking Member of the Subcommittee for his
opening remarks.
Mr. Coble. Thank you, Mr. Chairman, and thank you for
calling this hearing of the Courts and Competitive Policy
Subcommittee.
Until very recently, as you know, Mr. Chairman, antitrust
has been a full Committee issue; and I believe this is the
first Subcommittee hearing on antitrust matters in at least 8
years, and I am pleased that we have such an interesting first
topic.
Bill, it is good to have you with us. And I will say to
some of the witnesses who came by my office yesterday, because
of conflicting hearings, I was not able to be with you, but I
hope my staff extended a cordial greeting to you. I have heard
no complaints, so I assume they did.
Today's hearing gives us the opportunity to examine the
proposed merger of Live Nation and TicketMaster, a combination
that would create one of the world's largest entertainment
companies. The combined company would own a segment of every
aspect of the live music distribution chain from artist
management to ticketing and practically everything in between.
The Senate Judiciary Committee, Mr. Chairman, conducted a
hearing on this very issue earlier this week, and it appears
from their comments that several of the Senators had real
concerns about this proposed merger. One of their main concerns
arises from the relationship that TicketMaster has with its
wholly owned subsidiary, TicketsNow.com, which is a secondary
ticket retailer.
Recently, hundreds of fans seeking Bruce Springsteen
tickets on TicketMaster.com, I am told, were redirected to
TicketsNow.com for tickets at a significantly higher price than
face value. Furthermore, I am advised that there were still
tickets available for face value on the main TicketMaster Web
site.
In addition, TicketMaster's CEO, Mr. Azoff, who is
testifying today, was recently quoted in the Wall Street
Journal as saying that artists' agents frequently leverage
their value of their start clients to extract better deals from
venues and concert promoters. With a stable of artists that
includes--and, Mr. Chairman, I will stipulate that I am not the
most hip guy on Capitol Hill, so I may mispronounce some of
these names--The Eagles, Jimmy Buffett, Neil Diamond, Van
Halen, Fleetwood Mac, Christina Aguilera, Aerosmith, Miley
Cyrus, Madonna, Jay-Z, U-2 and Shakira.
A combined Live Nation-TicketMaster would have a lot of
leverage, and that is only one aspect of this business. I
noticed, Mr. Chairman, conspicuously absent from that list of
artists are some of my favorites--Earl Scruggs, Lyle Lovett,
the late Grandpa Jones, the late Buck Owens--but as I say, I am
not the most hip guy around.
All of that leads me to be concerned about how this deal
with affect the average customer. With its wealth of resources
in terms of artists managed, venues controlled and tickets
sold, the combined TicketMaster-Live Nation will have a lot of
sway, it seems to me, over the little guy. After all, in these
troubled economic times we cannot ask customers to pay more for
a TicketMaster ``convenience charge,'' a charge that many
customers would probably indicate is not convenient.
This Subcommittee, with the support of the current and
former Chairman, have spent enormous resources to improve and
secure the future of the American entertainment industry, which
is indeed significant. It provides billions, billions, in
positive revenue to our economy. At the same time, this
entertainment must remain affordable and accessible for the
industry to continue to flourish.
As I implied earlier, I am a devout bluegrass and old time
country fan, and while this may be only a fraction of the
events affected by this merger, thousands of my constituents
back home, Mr. Chairman, are skeptical; and I am sure they are
watching or will follow this hearing closely as to how this
matter will affect them.
That said, the burden today, it seems to me, is on
TicketMaster and Live Nation to demonstrate how their proposed
merger will benefit fans and the industry alike.
I thank our witnesses who have agreed to participate in
today's hearing, and I look forward to hearing the testimony.
I yield back.
Mr. Johnson. I thank the gentleman for his statement.
I now recognize Representative Smith, who would like to
make an opening statement, an honorable Member from Texas.
Mr. Smith. Mr. Chairman, I appreciate your calling this
hearing on competition in the ticketing and promotion industry.
Vigorous, unimpeded competition sustains our economy and
keeps it strong. It leads to innovative products that better
our lives and keep prices low.
The Judiciary Committee has a long history of oversight to
ensure that American markets retain healthy competition. This
hearing is evidence of the Committee's continued interest in
considering mergers of large companies that can affect American
consumers.
Today's hearing gives us the opportunity to examine the
proposed merger of Live Nation and TicketMaster, a combination
that would create one of the world's largest entertainment
companies. The combined company would own significant assets in
the artist management, venue management, concert promotion,
ticketing and marketing aspects of live entertainment. In
short, the new company will have a hand in everything from
signing up artists, to deciding what venues those artists will
play, to the price of the ticket that consumers must pay.
The question that the Department of Justice must answer in
reviewing this merger is whether the proposed transaction will
lessen competition and thereby harm consumers.
On the other hand, this merger is not typical of the
mergers that this Committee usually reviews. Normally, we look
at mergers between head-to-head competitors such as Delta and
Northwest and XM-Sirius.
While there is an element of that in this merger, the more
compelling and harder-to-answer question is whether a
vertically integrated company that has a hand in every stage of
live entertainment from artist to concert goer will reduce
choices and raise prices for live entertainment. This is
particularly relevant given that one of the parties,
TicketMaster, has recently been the subject of scrutiny because
of a mistake that directed hundreds of customers for Bruce
Springsteen tickets to a TicketMaster-owned ticket reseller
that was charging significantly higher prices. The Boss was
upset, his fans were upset; and I can't say that I blame them.
Under these circumstances, it is harder to believe
TicketMaster when it says, Trust us that ticket prices can come
down under this merger.
Finally, while some artists, such as Bruce Springsteen,
have expressed public displeasure with this deal, none was
willing to testify today. Conversely, numerous artists have
written the Committee to say that the deal will lead to better
options for artists and consumers alike.
I would like to thank all of our witnesses for appearing
here today, and I look forward to hearing the views of the
witnesses on this subject.
I yield back.
Mr. Johnson. Thank you, Congressman Smith.
Without objection, other Members' opening statements will
be included in the record.
I am now pleased to introduce the witnesses for today's
hearing. We have two panels, and I will now introduce the first
panel which consists of the distinguished gentlemen from New
Jersey, Representative Bill Pascrell, Jr. He is in his seventh
term as the Congressman for the Eighth District of New Jersey.
Throughout his distinguished career in public service, first as
a member of the New Jersey General Assembly and later as Mayor
of Paterson, New Jersey, Representative Pascrell has earned
numerous accolades, including a humanitarian award from the New
Jersey State Firemen's Mutual Benevolent Association, as well
as special recognition from the Brain Injury Association of
America.
Welcome, Congressman Pascrell.
TESTIMONY OF THE HONORABLE BILL PASCRELL, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pascrell. Mr. Chairman, I want to thank you and I want
to thank our Ranking Member, Mr. Coble, my neighbor, and
Members of the Committee for this critical hearing and allowing
me to testify before the Subcommittee about the proposed merger
between TicketMaster and Live Nation.
My attention was brought to this issue by the botched sale
on February 2 of tickets to two Bruce Springsteen shows in New
Jersey. To be clear, fans trying to buy tickets on
TicketMaster.com were met with error messages and a link to
purchase more expensive tickets on a secondary resale site,
TicketsNow, which TicketMaster happens to own.
Mr. Chairman, let me say that I was moved to act on this
issue by the appeal of over 1,000 average Americans who felt
they got a rotten deal and just wanted to know the truth, which
is why I wrote to the Federal Trade Commission and the Justice
Department calling for an investigation.
But when I read yesterday in Roll Call that a Live Nation
source said that this whole issue was just a distraction and
not a legal issue, well, I have to admit I went from cerebral
to visceral. To even imply that the Senate committee and the
House committee are irrelevant to the task of examining this
merger, first of all, is wrong and, second of all, we should
all think about what our responsibilities are.
The heart of this issue is the average American out there,
the person who works longer and longer hours for less and less,
the person who scrimps and saves for months to maybe buy a
couple of tickets to their favorite sporting event or a concert
only to be gouged at every turn.
That same Live Nation source went on to say that ``This
whole 'flap' was a bit of a surprise, but is not really related
to the deal. There is nothing that a merger with Live Nation
will do that changes that scenario, just what happens when you
have bad public relations at the wrong time.''
I don't know if there are bad public relations at the right
time.
Mr. Chairman, I am sorry about the debacle on February 2,
and it shouldn't have been a surprise to the parties involved,
and it has everything to do with the merger we are talking
about today. This isn't just a little bad PR, this is quite
simply a bad deal for the American people.
Listen to Bruce Springsteen himself, who said, ``The one
thing that would make the current ticket situation even worse
for the fan than it is now would be TicketMaster and Live
Nation coming up with a single system, thereby returning us to
a near-monopoly situation in music ticketing. If you, like us,
oppose the idea, make it known to your Representatives.''
That is what Bruce Springsteen had to say.
Let me tell you, Mr. Chairman, they have indeed made their
feelings known. Now TicketMaster wants us to believe that by
merging with promoting juggernaut Live Nation, they will be
able to offer lower prices and better service to consumers.
That is what you are going to hear today.
You don't have to have a Ph.D. in economics to see this for
what it is. This is a naked attempt to dominate the concert
marketplace, to stifle competition and prevent any competitors
from entering the market in the future.
The combined corporation would control nearly every aspect
of the live music business--you referred to this in your
opening comments, Mr. Chairman--the artist management, the
record sales, the promotion, the licensing, the venue control,
the marketing, the ticket sales and the resales all of the way
down to the hot dogs and beer.
Try to take your family to a baseball game or a football
game. Pretty soon you won't be able to wash your hands at a
concert without this new company making a profit. Independent
promoters, artists and the fans will have no choice but to do
business with this behemoth and pay whatever they charge. It
will be the only game in town, and that is the epitome of a
monopoly.
For years, TicketMaster has been able to get away with its
arbitrary and overpriced service and convenience fees by
cornering the market for ticket sales through anticompetitive
exclusivity arrangements with venues. Today, you have to pay a
fee just to print your tickets out at your home. That is greed,
plain and simple.
And what did TicketMaster do when the first significant
competitor to them in the primary ticketing industry finally
emerged, they didn't choose to out-compete them, they sought to
gobble them up in order to preserve their market dominance.
This is the very essence of anticompetitive behavior, and this
Committee and the Department of Justice must reject it.
The President is on the side of the people, Mr. Chairman.
In 1962, Robert Kennedy, his Justice Department refused to
allow MCA, Music Corporation of America, and Decca Records to
merge because it would have put a talent agency and a movie
studio under the same corporate roof.
The merger we are discussing today would similarly put the
managers of talent, the operators of venues and ticket sales
together and allow them to exclude outside artists, allow them
to exclude venues and allow them to exclude promoters from
their business.
The issue of a primary ticket reseller owning a secondary
ticket dealer raises many significant questions in and of
itself. TicketMaster has admitted that it earns more gross
profits off a sale on its secondary site than its primary one.
Everyone, from the scalpers to the hackers--and by the way, in
the United States, scalping is legal in most States; we need to
take a look at this--brokers and TicketMaster itself, makes a
little extra cash under this perverse system of incentives; and
the fans are left sitting outside in the cold.
Senator Schumer and I agree, TicketMaster should
immediately sell TicketsNow and end this obvious conflict of
interest. I will soon be proposing Federal legislation to ban
the use of automated ticketing programs and rein in the
secondary ticket market. Real music and sports fans deserve the
right to see their favorite bands and their teams without a
greedy middleman cutting the line and exploiting their passion
for profit. I hope that is clear.
We live in a period of tough economic times. Oftentimes
live entertainment is a way to escape for a few moments or a
few hours. For years fans have scraped together some cash to
buy a ticket to their favorite band or sports team, but
anticompetitive behaviors have driven these costs to
astronomical heights, pricing many fans out of the market.
The question we should be asking in any merger is this:
When this deal is approved and all of the scrutiny and press
attention dies down, as it certainly will, do we really believe
that this new corporate Goliath will do what is in the best
interest of consumers and the marketplace?
I think the actions of TicketMaster and I think the actions
of Live Nation make it clear that the answer is a definitive
``no.''
I thank you for allowing me to come here and testify today.
I hope the rest of the hearing is revealing.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Pascrell follows:]
Prepared Statement of the Honorable Bill Pascrell, Jr., a
Representative in Congress from the State of New Jersey
introduction
I want to thank Subcommittee Chairman Johnson and Ranking Member
Coble for inviting me here today to testify about the proposed merger
between TicketMaster, the country's largest primary ticketing company,
and Live Nation, our country's largest concert promoter and operator of
over 150 venues. I have grave concerns that this merger will have far
reaching negative consequences for artists, fans, promoters, and the
music industry as a whole. I believe that it violates both horizontal
and vertical anti-trust principles, and will undoubtedly lead to higher
ticket prices for the average consumer. I applaud the Subcommittee for
taking a careful look at this merger. I fear that if this merger is
approved we will lose any semblance of competition in the live music
industry.
testimony
As a Member of Congress, my number one priority is to represent my
constituents and to defend their interests. I was troubled when I was
contacted by many constituents and read press reports regarding the
initial sale of tickets to two Bruce Springsteen shows in New Jersey,
in which fans trying to buy tickets on TicketMaster.com were met with
error messages and links to purchase the tickets on TicketsNow.com, a
TicketMaster subsidiary, for two, three, or four times the original
price. Something was not right, and I'm glad that TicketMaster has
since acknowledged that. I am pleased with many of the concessions they
were forced to make, although they still maintain cause of the problems
so many fans had was simply the glitch with their technology. I've
written to the FTC to request a full investigation of what occurred on
February 2nd to make sure we get to the bottom of this.
However, the problems with TicketMaster's business practices go far
beyond a simple one time glitch. The fact is that without this glitch,
we would never have uncovered the insidious relationship between
TicketMaster and TicketsNow to begin with. It has brought to light the
many consumer complaints and problems with TicketMaster that for years
we have shut our eyes to, but the fans have known about all along. For
years they have been dealing with unjustified and arbitrary ``service''
and ``convenience'' fees, including a fee to print your tickets in your
own home, and rising base ticket prices that have far outpaced the rate
of inflation. And they have finally had enough. I was moved to act by
the thousands of messages my office has received regarding not only the
botched Bruce Springsteen sale, but issues with TicketMaster going back
years. Yes, TicketMaster has apologized for their recent actions, but
how sincere is this? Is it just a coincidence that these apologies and
concessions occur at the moment they are seeking this merger? I urge
this committee to consider how this proposed corporate conglomerate
will behave when they are not under our watchful gaze. Do we really
believe they will have the best interest of the consumer in mind? The
nature of the complaints my office has received and their actions
suggest that once this merger has been approved and we aren't looking,
it will be back to business as usual at TicketMaster/Live Nation.
As we saw with the initial ticket on sale to the Bruce Springsteen
concerts at the beginning of this month, TicketMaster's current
monopolization of the primary ticket market and questionable business
practices often lead to the consumer being taken for a ride. Now
TicketMaster wants us to believe that by merging with Live Nation it
will be able to offer lower priced tickets to consumers. Now, I don't
have a PhD in economics, but I'm not stupid either, and neither are the
American people. They see this for what it is: a naked attempt to
dominate the concert marketplace.
This merger will combine TicketMaster, which owns the ticketing
rights to 80 percent of the major venues in this country, with Live
Nation, which in addition to being the biggest concert promoter in the
world, also controls over 150 venues. This combined company would be a
juggernaut. It would have control over every aspect of the live music
business: artist management, record sales, promotion, licensing, venue
control, parking, ticket sales and resales, all the way down to the hot
dogs and beer. Pretty soon, you won't be able to wash your hands at a
concert without this new company making a profit. This level of
vertical control will be unprecedented in the music industry and
recalls the trusts of the gilded age that controlled every step along
the production process for oil or steel. Independent promoters, who
don't get squeezed out of business, artists and fans will have no
choice but to do business with this behemoth and pay whatever they
charge. It will be the only game in town--and that, I must say, is the
epitome of a monopoly.
It didn't have to be like this. Live Nation, which until recently
had sold tickets through TicketMaster, was poised to enter the primary
ticket sales market and finally provide some much needed competition in
the ticketing industry. Competition, after all, is what capitalism is
all about. This new and significant challenge to TicketMaster's
dominance was sure to cause ticket prices to fall. But what happened?
After only one month of real competition in the ticketing industry,
this merger between the country's two largest primary ticket agents was
announced. Now, the combined company will maintain its stranglehold on
the primary ticket market and the ability to raise prices at will not
because they offer a better service, but because they were able to buy
out their only competition. This is anti-competitive behavior distilled
to its purest form, and must be rejected by this committee and the
Department of Justice.
Combining Live Nation and TicketMaster would obviously
significantly dilute competition in the live music industry and
violates both vertical and horizontal models of anti-trust law. It
would create no benefit for the consumer, and as history, economic
theory, and common sense dictate, would not lower the cost of tickets.
TicketMaster already has a monopoly on primary ticket sales in this
country. Live Nation has a monopoly on this country's amphitheaters and
many other venues in addition to promoting a vast majority of the top
concerts in this country each year. Two wrongs don't make a right and
combining two monopolies cannot possibly be a good deal for consumers.
While rejecting this merger is imperative, I would urge this
committee to further consider federal review of consolidation within
the music industry as a whole. I believe that both TicketMaster and
Live Nation may already be violating federal anti-trust laws. The
Department of Justice has let these companies get too big, and I urge
this committee and the new Administration to take a fresh look at their
business practices.
Precedent is on the side of the people. In the 1960s, MCA (the
Music Corporation of America) entered a merger with New York-based
Decca Records. MCA at the time included in its business portfolio a
successful talent agency, while Decca at the time owned a controlling
stake in Universal Pictures. In order to acquire Universal, the
Department of Justice led by Attorney General Robert F. Kennedy, forced
MCA to dissolve its talent agency. The Department of Justice felt that
one company owning both the movie studio and a talent agency would
violate anti-trust laws.\1\ The TicketMaster-Live Nation merger before
us today would violate the same anti-trust principles by putting
control of top talent as well as the production of their shows under
one company's roof.
---------------------------------------------------------------------------
\1\ See McDougal, Dennis. The Last Mogul: Lew Wasserman, MCA, and
the Hidden History of Hollywood. Da Capo Press, 2001. 299-302.
---------------------------------------------------------------------------
If this merger is allowed to proceed, problems like those that fans
experienced trying to buy Bruce Springsteen tickets will become more
and more commonplace. The issue of a primary ticket reseller owning a
secondary ticket market raises many significant questions in of itself.
TicketMaster's business practice in this arena appears to contradict
its tough public rhetoric on ticket scalpers. In reality, TicketMaster
has little financial incentive to reign in brokers and hackers who may
be using computer software to either cut the line or purchase mass
quantities of tickets. After all, TicketMaster has admitted it earns a
larger gross profit on a ticket sold on their secondary market site
than on their primary market one. Everyone, from scalpers and hackers
to brokers and TicketMaster itself, makes a little extra cash under
this perverse system of incentives, and the fans are left sitting
outside in the cold. I agree with what Senator Schumer said at
Tuesday's hearing in the Senate Judiciary Committee. TicketMaster
should immediately sell TicketsNow and end this obvious conflict of
interest.
Additionally, I will soon be proposing federal legislation to ban
the use of these automated ticket purchasing programs and take
additional steps to reign in the secondary ticket market, and I hope to
work with this committee on this important initiative. The real fans
deserve the right to see their favorite bands without a greedy
middleman cutting the line and exploiting their passion for profit.
We are all well aware of the tough economic times this country and
its citizens are faced with. This economy is scary. For many Americans,
going to sleep every night means wondering if they will have a job to
wake up to in the morning. Will I be able to afford a trip to the
hospital bill if something happens? Will my house be foreclosed on
tomorrow? For many, live music and entertainment is a way to escape all
of this, if at least for a few hours.
However, over the past several decades, anti-competitive behaviors
by companies such as TicketMaster and Live Nation have priced so many
of these average fans out of the market. The last thing that the
American people deserve in these tough economic times is to be
continually price gouged by a corporate conglomerate more concerned
with profits and the price of its stock then the experience of the
fans.
Live Nation and TicketMaster has assembled a strong team of
expensive lobbyists, law firms and publicists to push for their goal of
merger. There is no comparable group on the other side of the issue to
pay for lobbyists, to pay for attorneys, no one to fight for the
average Joe. My friends, it is the job of those of us in the Congress
to represent the people and fight for what is in their best interest.
It is time for the Congress to ensure that the concert industry returns
to a business model that puts the fans, artists and music first.
Rejecting this merger will be a significant first step in that
direction.
Thank you.
__________
Mr. Johnson. Thank you. I thank the gentleman for his
statement.
I will say that back in 1973, when I was in college, I was
feeling pretty low one day and so I decided to go to a concert
that was being held at the old Atlanta Fulton County Stadium.
It was on the lawn out there, and the headliner was George
Clinton and the Funkadelics. I don't know if Ranking Member
Coble recalls that group, but I think tickets were somewhere
between $5 and $10.
So I went to the concert. It was a wonderful experience. It
definitely took my mind off of my troubles, and I had a renewed
sense of vigor to press forward. You mentioned about how
concerts can positively impact people, particularly during a
tough economic time as we are in now.
Mr. Pascrell. Mr. Chairman, if I may.
Mr. Johnson. Please.
Mr. Pascrell. There is nothing in what I have said that
implies that we want the government to control A to Z. That
doesn't help, either.
But I think we have a responsibility. I know that Bruce
Springsteen's song, The Promised Land, has been an inspiration
to a lot of people. And I don't pretend to be an expert on
Bruce Springsteen, although I know most of his music and he is
from New Jersey. But in that song he said, ``Driving all night
chasing some mirage, some day with a girl I'm going to take
charge.''
Folks need to know we do have some control over what is
happening, that we are not simply at the beck and call of other
people.
We want people to make profits. That is what America is all
about. But the average guy out there is getting stuck every
day, and particularly when it comes to some entertainment, I
think we need to take a real good look at this proposed merger,
and I am sure you are up to it.
Mr. Johnson. There is no question that this Subcommittee
has--from the outset of the announcement of the merger, been
concerned about this issue. We view it very seriously, and that
is why we are meeting today for this hearing.
I thank you for your statement. Please feel free to come up
and have a seat.
I want to now introduce our second panel. Our second panel
features Mr. Michael Rapino, President and CEO of Live Nation
Worldwide. Mr. Rapino began his career in the music business as
an undergraduate at Lakehead University in Canada, promoting
Labatt Brewing Company at live music shows. He was the CEO and
President of Global Music for Clear Channel Music Group and has
been President and CEO of Live Nation since 2005, when it was
spun off as a separate company by Clear Channel.
Welcome, Mr. Rapino.
Next is Mr. Irving Azoff, CEO of TicketMaster
Entertainment. From his early days booking bands as an
undergraduate at the University of Illinois, Mr. Azoff has been
a fixture in the music business. He has experience as a music
agent, manager, promoter, publisher, producer and record label
owner.
In 1983, Mr. Azoff was named Chairman and CEO of the MCA
Music Entertainment Group. In 2005, his artist management firm,
Front Line Entertainment, was acquired by TicketMaster; and in
addition to serving as CEO of TicketMaster, Mr. Azoff manages
such recording artists as The Eagles, Christina Aguilera, Van
Halen and Steely Dan.
Welcome, Mr. Azoff.
Also on the panel is Mr. Peter Luukko, President and Chief
Operating Officer of Comcast-Spectacor, a Philadelphia-based
sports entertainment firm that owns the NBA Philadelphia 76ers
and the NHL's Philadelphia Flyers as well as the arenas in
which they play.
Beginning with an internship at the New Haven Coliseum, Mr.
Luukko's sports management career spans two decades. He was the
2000 recipient of the City of Hope's Tri-State Labor Award. In
his own words, Mr. Luukko describes himself as a hockey player,
a hockey coach, and a hockey parent.
Welcome. Mr. Luukko.
Next is Mr. Robert Doyle, an antitrust partner in the firm
Doyle, Barlow & Mazard, PLLC. After receiving degrees in law
and economics from Temple University, Mr. Doyle spent 20 years
litigating cases on behalf of the Federal Trade Commission.
Mr. Doyle served previously as a Deputy Assistant Director
in the FTC's Bureau of Competition and has been featured on the
cover of the American Lawyer magazine.
Welcome, Mr. Doyle.
Next is Professor Luke Froeb of the Owen Graduate School of
Management at Vanderbilt University. Mr. Froeb spent 7 years as
an economist at the Antitrust Division of the Department of
Justice before becoming Director of the Bureau of Economics at
the Federal Trade Commission.
Professor Froeb has published numerous papers concerning
antitrust policy and economics and was voted outstanding
professor of Vanderbilt's executive MBA program in 3 separate
years.
Welcome, Professor Froeb.
Our last witness is Ed Mierzwinski, who is a Senior Fellow
in the consumer program of the National Association of State
Public Interest Research Groups, known as U.S. PIRG. Mr.
Mierzwinski has testified on numerous occasions before State
legislatures and Congress on a wide variety of consumer issues.
He has appeared as a commentator on the Today Show, Good
Morning America, Nightline, CNN, Crossfire and NPR's Talk of
the Nation.
Mr. Mierzwinski is a recipient of Privacy International's
Brandeis Award for privacy protections and the Consumer
Federation of America's Esther Peterson Consumer Service Award.
Welcome, Mr. Mierzwinski.
Mr. Johnson. We thank all of you for joining us here today.
Without objection, your written statements will be made a part
of the record in their entirety.
I ask each of you to summarize your testimony in 5 minutes
or less. There is a timing light at your table. When 1 minute
remains, the light will switch from green to yellow, and then
to red when your 5 minutes are up.
Mr. Rapino, please proceed.
TESTIMONY OF MICHAEL RAPINO, PRESIDENT & CHIEF EXECUTIVE
OFFICER, LIVE NATION WORLDWIDE, INCORPORATED, BEVERLY HILLS, CA
Mr. Rapino. Thank you, Mr. Chairman and Members of the
Committee, and thank you for the opportunity to speak today and
address some of the perceptions about Live Nation and this
merger.
I want to address this quote that was apparently in some
paper yesterday. I can assure you that it didn't come from me.
I wouldn't even know who to call to make that quote. And I can
assure you that everyone on our team has the utmost respect for
these hearings, and we appreciate and understand your concerns.
As a side note, I am fully aware of the power of the Senate
and the Congress. I am a fellow Canadian who will be sworn in
as a U.S. citizen in the next 30 days after going through my 6
months of the process to become a U.S. citizen. So I am very
proud to become part of this country.
Let me explain some of the facts regarding Live Nation
because sometimes the perception of ``big'' isn't always the
truth.
We have 17,000 employees that work in local communities
across America. Last year, our market share was approximately
35 percent and has declined for 5 years straight. Our market
cap today is $250 million and we are carrying $700 million in
debt. Our stock is widely held and owned by many of your
constituents. We have no large shareholder who controls our
company.
We put on 7,000 concerts a year for young artists, and we
lose $10-20 million on those shows. We operate in a highly
competitive marketplace. We are in a 4 percent margin business,
the lowest in the industry. And to give you a comparison,
record labels operate in the 15 to 20 percent margin business.
Let me tell you about our competition. Our biggest
competitor is AEG, a privately held company owned by
multibillionaire Phil Anschutz, who is the 31st richest man in
America. AEG promoted five of the top 10 concerts last year; we
promoted four. AEG is a vertically integrated company in two
separate categories. They own a movie production company and
chain of movie theaters; and in live entertainment, they own
arenas, stadiums, clubs, sports teams, a concert company, music
merchandise, and are one step away from a ticketing company.
To put it in perspective, one of those assets, the Staples
Center, is worth more than our two companies combined.
In every market we face able and relentless competition
from AEG and independent promoters. For example, in Washington,
DC, the local promoter, Seth Hurwitz, has a larger market share
than Live Nation.
Some of the facts about our venues: We own 18 venues and
lease 70 in America. This is a small fraction of the thousands
of venues across America that are staging music. In every city
and town, there are buildings and stiff competition from the
new casinos to fairs, festivals and arenas.
When we fired TicketMaster, we found it very easy to find
other competing ticketing companies for our venues. We had a
lineup of companies willing and able to ticket our venues. We
narrowed it down to four, and we ended up choosing a company
from Germany--we are not actually a ticketing company, the CTS
company is the ticketing company--and we found it to be a very
competitive marketplace.
Let me tell you about the concert business. The artist pays
us a fee to handle their show. We guarantee them an amount of
dollars, and they pay us a fee from the concert promotion
profits, somewhere in the 5 to 15 percent range. The artist and
their business team set the basic prices and financial needs of
the tour. From a small band to a large band, an artist has a
running operating cost that he needs to cover on the road. He
then works backwards and sets ticket prices to help cover his
expenses.
An average ticket price for a concert is only $50. Front
row may cost you up to $150. That is still well below the price
of a ringside boxing match seat, courtside at a basketball
game, rink level seats at a hockey game or seats on Broadway.
Fans go to an average of only two concerts a year
historically. It is not a necessity. It is a form of
entertainment, and it is still much cheaper than an average
dinner in Washington.
When polled and fans were asked, ``why did you not go to
the show?'' Their top reasons were: They did not know about the
show--50 percent said they didn't know; they didn't like the
band; and they couldn't get good seats.
In our business we have a saying: If the front row was 8
miles long, we would have a lot of happy fans. If you are in
the front row of a show, you love the system. If you are in the
back row of the arena, you are not that happy. And if you are
one of the thousands that didn't get into the show, it is our
fault.
The Live Nation business model: We make money two ways,
from artist revenue and ancillary revenue. Our model is based
on putting fans in seats. The more fans that walk in the door,
the more money we make. We make very little money from the
ticket; on average, $4 out of a $100 concert ticket goes to us.
We make $12 to $15 on peanuts, popcorn, parking, ticket rebates
and all of the ancillary revenue created to fund the business.
Mr. Johnson. Mr. Rapino, your time has expired. Please sum
up.
Mr. Rapino. I apologize.
This merger, we believe, is going to be a good step forward
for an industry that needs change. We don't have all of the
answers. We are not miraculously going to change a 30-year
history, but we believe change is needed, and technology
advances are needed.
We agree that scalping has to be addressed, from outlawed,
and stopped. We would like to reduce service fees and we would
like to create a better model for the artist that helps the
fan.
Mr. Johnson. Thank you, Mr. Rapino.
[The prepared statement of Mr. Rapino follows:]
Prepared Statement of Michael Rapino
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Johnson. Mr. Azoff, it is time for your testimony now.
TESTIMONY OF IRVING AZOFF, CHIEF EXECUTIVE OFFICER,
TicketMaster ENTERTAINMENT, INCORPORATED, WEST HOLLYWOOD, CA*
---------------------------------------------------------------------------
*Subsequent to delivering this testimony, Mr. Azoff learned that as
to a de minimis number of tickets sold in very narrowly defined cases
(constituting less than four one-hundredths of one percent of the
tickets that TicketMaster sells), TicketMaster sets ticket prices.
---------------------------------------------------------------------------
Mr. Azoff. First, I would like to thank Chairman Johnson
and the Subcommittee Members for this opportunity to speak
about this proposed merger.
I came to TicketMaster 4 months ago when it acquired a
majority interest in Front Line Management; I became CEO of
TicketMaster Entertainment. While I have spent my 43-year
career serving artists, TicketMaster has dedicated itself for
30 years to reaching fans of live entertainment. We have
roughly 6,700 employees, who have worked extremely hard to
bring us the success we have seen as a company.
I have come to realize in my short time with the company
that TicketMaster is a lightning rod for many issues beyond its
control. As the only point of contact with fans, TicketMaster
hears nearly every gripe about--just about everything that goes
wrong. People don't like ticket prices, they blame TicketMaster
even though we have nothing to do with setting ticket prices.
If a show sells out, they get mad at TicketMaster even
though all we do is sell all the tickets that our clients give
us to sell.
If they get a bad seat, they blame TicketMaster even though
we don't control which seats go on sale.
If somebody gets hurt in a mosh pit, they try to sue us. We
take so much heat for what we do, you would think that we were
the IRS.
That is not to say that we always get it right. We don't.
No one does. As hard as we try to serve clients and ticket
buyers, technology is not perfect.
I fully understand the frustration and anger created by the
problems we experienced in the recent Bruce Springsteen on-
sale. I will explain in detail.
On February 2, tickets for three Bruce Springsteen concerts
went on sale at 9 a.m. Because of Mr. Springsteen's popularity,
there were many more fans trying to buy tickets through
TicketMaster.com than there were tickets available. As a
result, many requests could not be filled.
In August 2008, TicketMaster modified its payment
processing software in the U.S. to support certain credit card
antifraud programs. On the morning of February 2, on the
TicketMaster server covering sales for New Jersey, the extreme
load caused by the Boss's concert on sale revealed a limitation
in the software implementation. While the code that was added
to implement this program passed all internal tests, it
ultimately was unable to handle the extreme conditions of the
heavy volume. Starting at approximately 9:08, this caused
certain consumer transactions to freeze for an extended period
to be aborted while processing payments. It also caused certain
consumers to see routine maintenance error pages on the Web
site while attempting to reserve tickets.
No consumers were directed to TicketsNow or given the
option to link to TicketsNow from the error page. TicketMaster
identified the software problem at approximately 9:45. In both
cases, fans involved had to return to start over at the
TicketMaster.com site to start another search.
The problem was corrected at approximately 1:25 p.m. when a
software patch was installed on the affected ticket inventory
systems. That unlocked the frozen transactions and eliminated
the routine maintenance error pages. In addition, TicketMaster
sent out a ticket alert e-mail to certain registered users that
inadvertently and mistakenly listed the on-sale time as 10 a.m.
rather than 9 a.m.
Consistent with our policy at the time, other ticket
purchasing options for the event were unable to fulfill a
specific ticket request on TicketMaster.com. Fans who were
unable to secure tickets in response to their search were given
three choices: Search again using different parameters, come
back later, or voluntarily click on a link to see inventory
available on TicketsNow. Some consumers who chose to link to
TicketsNow and then completed a purchase, however, complained
they were confused and believed they were instead purchasing
tickets from the initial on-sale from TicketMaster.com.
While we believe the messaging on the site was clear when
consumers chose to switch to TicketsNow, we immediately offered
to issue refunds for the difference between the purchase price
and the face value of the ticket. Also, to address the concerns
we received from consumers, we have removed all links to
TicketsNow from our TicketMaster Web site in all States.
We are in a service business, and like any other service
business, if we don't serve our clients, we lose the business.
We are proud of our success and the number of our satisfied
customers who rely daily on our ticketing system. Some claim we
have a large share of the ticketing service market. We don't
measure or keep track of such things. What we do is we strive
to do the best job we can and keep up with the many competitors
who are offering alternatives to our clients.
All of our venue agreements come up for renewal constantly.
We have lost major arenas to competitors in Philadelphia,
Houston, Cleveland and Denver. If that is not competition, I
don't know what is.
Others will most certainly leave if this merger is
consummated. In fact, AEG has notified us by letter that they
believe they have the right to terminate our agreement in
connection with this merger. I will supply a letter to the
Committee. Thank you very much.
[The prepared statement of Mr. Azoff follows:]
Prepared Statement of Irving Azoff
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Johnson. Mr. Doyle.
TESTIMONY OF ROBERT W. DOYLE, JR., PARTNER, DOYLE, BARLOW &
MAZARD, PLLC, WASHINGTON, DC
Mr. Doyle. Thank you, Mr. Chairman and the Subcommittee,
for this opportunity to present my views on this proposed
merger. I do not represent anybody here. I am appearing at the
invitation of the Committee to express my views on the
transaction.
I have four basic views on the proposed merger:
I believe that the merger will eliminate competition in the
primary ticket services market;
I believe it will reduce competition in the secondary
ticket services market;
It will reduce competition in the management of top tier
artists; and
Fourthly, it will reduce competition in the concert
promotion industry.
In the interest of time, I am going to focus my summary on
the competitive effects of this merger in the primary ticket
services market.
This merger will eliminate the only viable competitor
available to go head to head with TicketMaster in the primary
ticketing services market. Now let me put this in a little bit
of context. We have to go back to September of 2008.
On September 11, 2008, Live Nation announced that it was
entering the ticketing business. That same day they also
announced that they had taken away from TicketMaster its
largest customer, SMG Entertainment. TicketMaster immediately
responded to that press release put out by Live Nation.
Their press release indicated that in the short term Live
Nation's entry didn't impact them very significantly because
SMG was tied up in a long-term contract through 2010, and
during the interim period, TicketMaster would take every step
possible to convince SMG to stay with them until the expiration
of their contract.
The following month, after TicketMaster saw Live Nation
entering its market, what did TicketMaster do? It announced its
acquisition of Front Line. Now, that could be a retaliatory
response, it could be a defensive response, but within a short
period of time after Live Nation begins competing with or
announces that it is going to compete with TicketMaster,
TicketMaster announces that it is going to get into the talent
management business, a business obviously that Live Nation was
in.
So you have these two large competing firms going head to
head with each other, and within a short period of time Live
Nation in January of 2009 began ticketing some of its own
venues. So not only did it announce it was getting into the
market and taking away a significant competitor from
TicketMaster, but shortly thereafter, in January, it began
ticketing some of its events.
We all stood by. We all saw these two significant
competitors finally going head to head, and we waited to see
what kind of a competitive response the market would realize.
Well, the market didn't get any response at all because the
companies decided in February to merge. They called a truce.
There was no point banging each other in the marketplace in
ticketing on one side of the coin, and on the other in the
management, the talent management part of the business. So the
merger eliminates the only viable, integrated, potential
competitor that could challenge the monopoly position of
TicketMaster in the marketplace.
Now, there is another concern that has arisen as a result
of this transaction, and that is the degree to which a combined
Live Nation-TicketMaster can impose its will on the venue
customer in particular. We have done several interviews of
venues over the course of the last week or so, and the
indications that we have gotten from the venue segment of the
industry is that they are concerned that a combined Live
Nation-TicketMaster will exercise leverage and impose its will
on the venue in the form of perhaps higher convenience fees, in
the form of perhaps less services, and in the form of picking
and dictating to the venue what ticket company to use.
Now the question is, does that leverage exist, number one;
and number two, will it be exercised post acquisition by the
merged firm?
Let me quickly sum up and say that we don't have to
speculate whether leverage can be used or not used. In
Saturday's Wall Street Journal, over the weekend, there was a
front page article on TicketMaster; and Mr. Azoff was quoted
extensively in the article. I would direct your attention to my
Exhibit 4 where I have copied the article.
In the article the question was put to Mr. Azoff about
leverage, and the best way to summarize here is to read his
comment: ``Mr. Azoff isn't shy about using his gold-plated
roster as leverage when negotiating with concert promoters. 'It
is done with a wink,' he said. There is never a conversation
that says if you don't extend this rent deal to Journey and The
Eagles, I'm not going to let Jimmy Buffett play your
building.'"
That is an acknowledgment by Mr. Azoff that he has the
market power to impose his conditions on the venue which would
extend, in my opinion, to selecting the ticket company, post
acquisition, to the exclusion of other competitors in that
marketplace.
Thank you.
[The prepared statement of Mr. Doyle follows:]
Prepared Statement of Robert W. Doyle, Jr.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
EXHIBIT 1
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
EXHIBIT 2
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
EXHIBIT 3
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
EXHIBIT 4
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Johnson. Mr. Luukko.
TESTIMONY OF PETER A. LUUKKO, PRESIDENT & CHIEF OPERATING
OFFICER, COMCAST-SPECTACOR, PHILADELPHIA, PA
Mr. Luukko. Thank you, Mr. Chairman.
I have spent my entire career in the sports management and
facilities management industries, and I have done business with
both TicketMaster and Live Nation for many years.
Since 2005, I have been the President and Chief Operating
Officer of Comcast-Spectacor, a Philadelphia-based sports and
entertainment firm which includes the Philadelphia Flyers
hockey team, the Philadelphia 76ers basketball team, the
Philadelphia Phantoms hockey team, and two south Philadelphia
arenas in which the teams play, the Wachovia Center and the
Wachovia Spectrum.
In my current position, I am also responsible for oversight
of Comcast-Spectacor's other business interests which include
Global Spectrum, a company that manages stadiums and arenas
throughout the country and Canada; Ovations Food Services, a
food and concessions company; New Era Tickets, a full-service
ticketing company which is a competitor of TicketMaster--and
with all due respect to Mr. Doyle, we do not feel any implied
leverage whatsoever and, in fact, we see this as an
opportunity--Flyers Skate Zones, a series of community skating
and hockey rinks in the Greater Philadelphia region; and Disson
Skating, the developer and promoter of a series of ice skating
and music shows performed live and distributed to a national
television audience.
Also within the Comcast-Spectacor family of companies is
Front Row Marketing Services which provides consulting services
to help develop effective sports and entertainment marketing,
sponsorship and advertising strategies.
My duties include serving as the Chairman of Global
Spectrum, and I am responsible for creating new business
opportunities for Comcast-Spectacor in the fields of facility
management, sports ownership and operations, food and
concessions.
Prior to joining Comcast-Spectacor and ultimately becoming
the company's President and COO, I worked in various aspects of
facility management, event organization and hospitality
services, including such positions as Vice President of
Spectacor Management Group's western region and Facility
Manager for SMG at the Los Angeles Coliseum and Sports Arena.
Let's talk about vertical integration. In my position at
SMG, Comcast-Spectacor and Global Spectrum, I have come to
understand the benefits of having a vertically integrated live
entertainment business. By being part of a company that owns,
manages, and/or operates venues and owns several sports teams
and other content, and provides its own ticketing solution in
food and beverage services to arenas, stadium and amphitheaters
throughout the country, we have the ability to cross-promote
among these different levels in the vertical distribution chain
and to touch the fan directly at multiple points in his or her
sports entertainment experience.
Additionally, because we have more assets in some cities,
like Philadelphia, we have the ability to create unique
packages to offer to sponsors and, most importantly, the fan.
This is where the industry trend is clearly moving, in large
part because content providers want to have more direct control
of the connection to their fans.
We believe that one of the reasons Comcast Spectacor has
been so successful in its ability to vertically integrate all
of the resources of its related companies, as well as those
supplied by its parent company, Comcast Corporation, is to
create synergistic opportunities to grow our business. We
provide a unique and excellent opportunity for our teams and
facilities to utilize the relationship in the Comcast family of
companies, including Comcast Cable, Comcast SportsNet, the
Versus Network, E! Entertainment Television, to increase market
visibility.
But don't just take my word for it. Look at the other
competitors, like MLBAM/Tickets.com and Kroenke Sports in
Denver. They are doing the same thing. This is what is
happening.
The merger. I believe that the merger of TicketMaster and
Live Nation is an exciting combination that has potential to
reinvigorate the industry at a time when change of direction is
drastically needed. The economy is distressed right now and, as
a result, many sports teams and other live entertainment acts
are struggling to sell event tickets.
This industry needs some new and fresh ideas, especially
now, so that we can provide consumers with the much-needed
leisure activities that keep their spirits up and our economy
moving in the right direction.
I think the merger will bring welcome change. If together
TicketMaster and Live Nation can sell more tickets, and
therefore provide more content to venues and consumers, this
will be a huge improvement over the status quo. I also believe
that this type of strategic combination will encourage other
competitors, like myself, to be more creative in their
offerings and to compete more effective overall.
I certainly don't have any reasons to believe that the
combination will in any way whatsoever stifle competition.
Mr. Johnson. Mr. Luukko, your time has expired. If you
would go ahead and sum up.
Mr. Luukko. In summary, I think this combination will
breathe much-needed life to an industry that is hurting. And,
at the end of the day, change is good. Thank you.
[The prepared statement of Mr. Luukko follows:]
Prepared Statement of Peter Luukko
__________
Mr. Johnson. Thank you, sir. Mr. Froeb, please begin.
TESTIMONY OF LUKE FROEB, WILLIAM C. AND MARGARET W. OEHMIG
ASSOCIATE PROFESSOR OF MANAGEMENT, OWEN GRADUATE SCHOOL OF
MANAGEMENT, VANDERBILT UNIVERSITY, NASHVILLE, TN
Mr. Froeb. Mr. Chairman, Ranking Member Coble, Members of
the Subcommittee, thank you for this opportunity to testify. My
name is Luke Froeb. I teach management at Vanderbilt
University, and I was formally a staff economist at the Justice
Department and chief economist at the Federal Trade Commission.
In this short oral testimony, I want to highlight what I
can some of the most interesting and significant issues raised
by this merger.
TicketMaster and Live Nation are part of the vertical
supply chain that delivers live performances to fans. The price
of this service is the difference or ``wedge'' between what
consumers pay and what performers receive. The size of this
wedge is one criterion the Justice Department will use to
determine whether the merger is anticompetitive or not. This is
important because a bigger wedge means either the consumers are
paying more or that performers are receiving less, or both. In
the first case, one might expect fewer tickets purchased; in
the second, fewer concerts performed.
This leads naturally to a second criterion that the
agencies will use: The expansion of output. More seats or more
concerts. A merger that increases the size of the wedge and
reduces industry output would likely to be found
anticompetitive and vice versa. This merger is complex because,
as Representative Smith has noted, it raises both horizontal
and vertical issues. The Department of Justice will analyze the
extent to which actual and potential horizontal competition is
lost by this merger and count this as a cost of the merger.
But, for the most part, TicketMaster and Live Nation occupy
different positions in the supply chain and perform different
functions. When firms producing complementary services do
business with one another, incentive conflicts naturally arise.
These conflicts can be over what price to charge or how much to
spend on promotion, as noted by Mr. Rapino.
A merger among the providers of these services would likely
reduce the costs of controlling these incentive conflicts and
could result in levels of price and promotion that would both
reduce the size of the wedge, as well as increase output.
But perhaps the biggest potential benefit of this merger is
innovation. The fragmentation of the supply chain means that
individual firms may lack the information necessary to innovate
or the incentive to do so because each receives only a small
slice of the proverbial pie.
Innovation is important to the music industry because
business models are changing rapidly. If this merger gives the
merged firm enough information to design more effective ways of
managing the supply chain, and the incentive to do so, it could
reduce the size of the wedge and increase output. This kind of
experimentation in innovation is crucial to the health of the
economy. Its ability to adapt to change is what makes it
strong.
Thank you for giving me the opportunity to share my views
on this timely and important topic.
Mr. Johnson. Thank you, Professor Froeb.
[The prepared statement of Mr. Froeb follows:]
Prepared Statement of Luke Froeb
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Johnson. Mr. Mierzwinski.
TESTIMONY OF ED MIERZWINSKI, CONSUMER PROGRAM DIRECTOR, U.S.
PIRG, THE FEDERATION OF PUBLIC INTEREST RESEARCH GROUPS,
WASHINGTON, DC
Mr. Mierzwinski. Thank you, Mr. Chairman and Ranking Member
Coble. I am Ed Mierzwinski, program director and senior fellow
at the U.S. Public Interest Research Group, which is the
Federation of State PIRGs.
Before I begin my testimony, as a point of personal
privilege, Mr. Chairman, I want to say that the consumer civil
rights community strongly supports your Arbitration Fairness
Act as one of the most important pieces of legislation before
the Congress. We hope we can get it through and signed by the
President this year. It is an important bill to balance the
scales between powerful companies with their one-sided
contracts and individual consumers, small businesses, and small
farmers. So we appreciate your work on that.
Mr. Johnson. Yes. Mr. Mierzwinski, you get an extra 5
minutes.
Mr. Mierzwinski. Thank you very much, Mr. Chairman. U.S.
PIRG has long been concerned with the important matter of
fairness in the ticket industry. We were partners with Pearl
Jam in their unsuccessful effort 15 years ago or so to convince
the government to take action against TicketMaster's unfair
practices at the time.
And you pointed out in your opening remarks that you were
disappointed that there were no artists on the panel today. I
would suggest that based on my understanding of the history of
what happened back then, Pearl Jam faced enormous competitive
pressures, had difficulty obtaining venues, and for several
years was treated with disdain by powerful interests in this
industry 15 years ago.
So I would suggest that it is disappointing, but not
surprising, that other artists are not here the testify. But I
know a lot of them are concerned.
It is our view that this merger is bad for consumers, bad
for artists, and bad for independent promoters. We believe it
violates the Clayton Act, and we believe that the Justice
Department should reject the merger. It is a bedrock principle
of our antitrust laws that merging to avoid competition is
simply wrong, illegal, and should be defeated.
I want to make just a couple of quick points. A lot has
already been said about all of these issues. And I will try to
summarize very quickly. First, TicketMaster is the dominant
player in primary ticket sales. We thought a year ago that Live
Nation would be a competitor. Now Live Nation wants to merge
with TicketMaster. That is unacceptable on face and that alone
should be a reason to deny the merger.
Second, the merger also raises the specter of a vertical
monopoly, since Live Nation, by all accounts, controls through
exclusive long-term contracts the market for marquee venue,
events, and major tours. The combined firm would have
tremendous market power over artists and venues, as well as
over consumers.
We would all have no choice but to accept their terms of
trade. Higher prices and fewer choices. Certainly bands might
find an American Legion hall or a county fairground not
controlled by the combination if they wanted to have a venue.
But if the firms combine, artists would not be able to
negotiate. There would be fewer choices in that marketplace.
We have already heard how big the company would be. I won't
go through that again. I do want to elaborate further on the
impact on independent promoters. Seth Hurwitz was mentioned
further. He owns the local 9:30 Club, and has testified before
the Senate this week. In his Senate testimony he said, If this
merger is allowed to happen, my biggest competitor will have
access to all my sales record, my customer information, sales
dates for tentative shows, my ticket count. They can control
which shows are promoted, and much more. This will put all
independent promoters at an irreparable competitive
disadvantage.
To make it clear, if we have this vertical integration,
independent promoters will face a significant problem. They
won't be able to get the artist unless they take the ticketing,
unless they also take the venue control, and the artist
management. They simply cannot compete on that basis.
I want to make a couple of quick points about a couple of
the other issues. TicketMaster and its reseller affiliate,
TicketsNow, I mean, really, how can the company that owns
primary ticketing also own legal ticket scalping ticketing. I
don't think that the proposed solution to the problem that
occurred with Bruce Springsteen is any kind of a solution. I
think that issue raises significant unfair and deceptive
practices, as well as structural problems.
Second, my testimony goes into detail about our efforts,
particularly in New York, to fight ticket scalping. We have
argued very strongly in New York--and I think the Committee
should look at this--the relationship between taxpayer-built
venues and these long-term contracts from these companies
raises serious questions. If taxpayers can't get a ticket a
fair price, why do taxpayers pay to build these venues?
Finally, I would be remiss as a consumer advocate if I
didn't point out that consumers are outraged, absolutely
outraged, over the unfair convenience fees and handling fees
that TicketMaster loads on to all of its sales. Nobody else
that sells anything on the Internet charges convenience fees
and handling fees. You pay a handling fee as if somebody's
going to walk up to your house and deliver your ticket, when
all they do is push a button and deliver it to your e-mail
account. There are numerous sites on the web,
TicketMasterSucks.com, and other sites.
In other circumstances, a consumer could simply say, I will
get a new cell phone company; I will get satellite instead of
cable. But in the case, particularly after this merger, the
consumer can't fight back against TicketMaster. They have got
to get the tickets through them.
I appreciate the opportunity to testify before you today. I
would point out I like all the music that has been discussed,
from Bruce Springsteen to George Clinton to Doc Watson and Buck
Owens. And I hope that all artists and all independent
promoters will be given a fair chance to compete, and that this
monopoly does not go forward. Thank you.
Mr. Johnson. Thank you, Mr. Mierzwinski.
[The prepared statement of Mr. Mierzwinski follows:]
Prepared Statement of Edmund Mierzwinski
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Johnson. I will now recognize myself for 5 minutes for
purposes of asking questions.
Mr. Azoff, in the last month alone, two incidents have
occurred where consumers were directed to a secondary ticketing
site and forced to pay significantly more for tickets than
advertised. It has been reported that Live Nation and
TicketMaster tend to concentrate more efforts on the secondary
ticket market as a merged company.
How does the proposed firewall between TicketMaster and
tickets now prevent TicketMaster from continuing to use the
secondary ticket market to charge inflated ticket prices to
consumers?
Mr. Azoff. First off, we have instituted a policy that
these two companies will be run totally separately in that you
will not be able to link directly from TicketMaster to
TicketsNow. In particular, people are never automatically sent.
This is a standard industry practice. Major League Baseball,
Tickets.com both link to StubHub; Veritix links to Flash Seats.
We are the first one to unlink.
Secondly, we are the first site now, and it is going to
take a bit of time because we have to do it manually until we
get this automated--we will be the only secondary site that
will not allow pre-listings on the site because what the
brokers currently do is list tickets before the on-sale, under
the assumption that they know they will get the seats. It
confuses consumers into thinking tickets have actually been
pulled and left.
I might add that I am new at TicketMaster. Had I been
there, I would not have purchased TicketsNow. When we talk
about under the merger that we want to concentrate on secondary
ticketing, we want to concentrate on a different model. We
agree that this model is broken, and it needs a solution. As
the Congressman said, it is legal to scalp in nearly every
State, but that, and we fully agree, that it is an area that
needs a lot of work. We think that this merger will give us the
ability to work hand-in-hand and get it done.
Mr. Johnson. Thank you.
Mr. Rapino, you state in your testimony that your stock has
declined and you are concerned about being bought by a foreign
company. Yet, your balance sheet appears to be quite healthy,
with the chance to increase profits with your entry into the
primary ticketing market. Can you explain in detail the grounds
on which you believe this merger is necessary for Live Nation
to survive as a U.S. company?
Mr. Rapino. Yes. Thank you. We took over 3 years ago from
what Clear Channel Entertainment was, and it was spun out to
Live Nation. Our management team was installed then, and we had
a failing business model, and a horrible name, equal to
TicketMaster. We renamed the company Live Nation, we fired old
management, and set off on a journey 3 years ago to build this
company.
Three years later, we are proud. We are not laying off
employees. I think we will have one of the best performances in
the entertainment business. And we worked hard for 3 years to
run the company right. No excessive CEO pay or bonuses. We
rebuilt it.
A year ago, we had a $20 stock, capital was available, and
the fight to continue globally seemed very certain. A year
later, our stock is down to $4, capital is not available. Our
real estate holdings have been gutted. So it is a tough
economy.
We believe that we can continue our model with or without
TicketMaster. This is not about us going broke and needing a
solution. This is about excelling in the race to try to solve
these problems that Peter outlined.
I absolutely agree that scalping is a huge problem. It is
about a billion-dollar business that we receive zero dollars
from. We invest $2 billion a year with artists. We made $160
million in Ebitda last year, but we had a negative cash flow.
We didn't actually make a dollar. We spend millions on real
estate and artist investments. And we realize zero of the
scalping market.
We have realized that technology is moving fast, and
artists want solutions now. And we want to excel in our chance
to innovate this market. And from outlawing scalping, to
figuring out how the artist participates in it, we absolutely
think it needs to be addressed.
Mr. Johnson. All right. Thank you, Mr. Rapino.
Back to you, Mr. Azoff. The recent conflict with
Springsteen is not the first time that TicketMaster has had a
conflict over the price of TicketMaster tickets. In 1994, Pearl
Jam canceled its summer tour after the band was unable to
negotiate a deal with TicketMaster to keep ticket prices below
$20, or find a way to tour without selling tickets through
TicketMaster.
You claim that artists set the price of tickets. However,
Pearl Jam certainly did not believe so in 1994, and many
artists have recently opposed your proposed merger with Live
Nation on the grounds that they will have even less control
over the price of tickets if the merger were to go through.
How do you respond to that charge, sir?
Mr. Azoff. I believe the Pearl Jam, the dispute with old
TicketMaster was about the service charges. The public believed
that TicketMaster sets the service charges. The old regime at
TicketMaster basically set up TicketMaster to take the brunt of
the criticism. The consumer thinks if there is an $11 service
charge, that that is what TicketMaster makes. What that service
charge really contains is all the credit card processing fees,
which average about 2.9 percent, and there are enormous rebates
back to the venue.
The convenience issue really--for Pearl Jam to get the
service charges down to the level they wanted, required venues
to agree. TicketMaster can't unilaterally set any service
charge.
So, basically, what we believe is there needs to be, in the
new model of what we accomplish--when you walk into a building,
you have the rent, the service charge. You can't just isolate
the service charge. And we think the industry needs a complete
overhaul on how it does figure out these service charges.
The first thing I did when I started at TicketMaster was I
convinced my client, the Eagles, to go to all-in ticket prices.
So, in virtually every date that they now do, except where a
building will not allow it, the stated ticket price includes
all the service charges.
I think that the public needs truth in advertising from all
ticket charges, and we think that will go a long way toward
solving this problem.
Mr. Johnson. Thank you, Mr. Azoff. I will now recognize the
Ranking Member, Mr. Coble, for 5 minutes for questioning.
Mr. Coble. Thank you, Mr. Chairman. Good to have you
gentlemen with us.
Mr. Rapino, I am an avid Canadaphile, so good to have you
as an American citizen here. What was your home province?
Mr. Rapino. Ontario.
Mr. Coble. Mr. Rapino, does Live Nation currently compete
with TicketMaster and, in the absence of the merger, how would
Live Nation continue to compete with TicketMaster?
Mr. Rapino. We have been selling tickets for the last 2
years on our own. We have a system that we use. As of January,
we had a new ticketing supplier called CTS, who owns the
ticketing company, and licenses to us. We had planned on by the
end of this year looking to third parties to compete with
TicketMaster. As of this year, our stated goal publicly has
just been to service our own needs.
And the SMG comment is relevant here. We have the option
and right to bid on the SMG buildings if we are capable to
service them by the end of the year. And TicketMaster has a
full right to convince them that they are still a better
solution because they are usually city buildings.
So, as of today, we are not out competing. We are worried
about servicing our initial needs this summer.
Mr. Coble. I thank you for that.
Professor Froeb, you live in a city that would embrace my
affinity for country and bluegrass. What are the horizontal and
vertical effects of this proposed merger, Professor?
Mr. Froeb. It is funny you mention Nashville. A lot of my
friends are part of this vertical supply chain, and they are
facing a lot of uncertainty. And if this merger is successful
and does what it is designed to do, a lot of them are going to
face a lot more competitive pressure than they did before, and
that is reducing the size of the wedge between what artists
receive and what consumers pay and what artists receive. So
that could be counted as a potential benefit of the merger.
And the horizontal potential and actual loss in horizontal
competition probably will be narrowly focused on the ticketing
services.
Mr. Coble. I thank you.
Mr. Azoff, if this merger succeeds, you will control, I am
told, virtually all aspects of major concerts in the United
States. Will this improve efficiencies in the music industry,
A, and will it likely lead to reduced ticket prices?
Mr. Azoff. I have spoken to many artists. Basically, this
Committee, as I understand it, was also formerly Intellectual
Properties. I know that you all are very well versed in that.
The complete destruction of recorded music earnings to
artists is one thing that has driven ticket prices up. We fully
believe that this merger will allow us to get marketing moneys
back into the business. Currently, $9 billion goes to sports
marketing and $900 million goes to music. We fully believe by
selling more seats and bringing in new revenue sources and
also, in the secondary area, that we will create a pot that is
bigger for the artists. Every artist I talk to would like to
charge less money for their tickets, but they have to meet a
nut to go out on the road, and since there is really no
contribution, or little contribution from their recorded music
now, that is the theory under which we think ticket prices will
go down, not up. And certainly on the major acts, that is for
sure.
New artists we think we can bring so many of these new
marketing opportunities across the board to new artists that
currently can't get radio airplay. MTV stopped playing videos.
We are going to try to connect these artists directly to their
fans. We have got this list of ticket buyers that currently is
not being utilized, and this is really about music business
3.0. It is about creating the new model. And under this model,
we intend to be a Switzerland-type distribution system. We
don't intend to ask artists to sign over rights the way the old
recorded music model worked. We intend to get a fair
distribution fee and let artists control their intellectual
property and exploit it to the fan. We think it will reduce and
lower costs across the supply chain.
Mr. Coble. And you mentioned intellectual prompt. You all
probably know that is an issue that will be considered by the
full House Judiciary Committee. Mr. Johnson and I won't have
that at the Subcommittee level any more. But I thank you for
that.
I think my time is about to expire. I yield back.
Mr. Johnson. Thank you, Representative. We will start with
questions from Mr. Brad Sherman from California. Five minutes,
sir.
Mr. Sherman. Thank you, Mr. Chairman. I know that a vote
has been called, and I know I have been told that the Chairman
will not be able to be here between 12 and 1. And I will be
happy to Chair the hearing during that period, as I think the
Chairman has requested.
You hear the bell, but you will not be saved by the bell.
We will come back after votes.
I think this hearing is important, not only because it
affects consumers so much, but it affects the artists and the
music that we all love.
We have seen the artists get ripped off in so many ways.
They don't get a performance right. They listen to their music
on the radio. They know that the songwriter is getting paid for
that. So many other people are being paid for that. The radio
station is being paid for that. The artist is getting nothing.
They hear their recorded music taken from them by various
technologies.
And so they are really relying upon live music to be
compensated for their work. So many of them are not going to be
the big superstars, but they may make it for a year or two. And
this industry has got to pay the piper, which is so important
if you want to listen to the music.
Now, we are not experts here in antitrust law. We rely upon
the Justice Department to do so. I hope the Hart-Scott-Rodino
process plays itself out. But given how important this is to
the music we all love, I am glad we are having this hearing.
Now, being that I am so interested in where the artists
stand on this, do any of you have letters of support or
opposition to this merger from artists that you would want to
put in the record?
Mr. Rapino. Yes, Congressman. We have letters of support.
Mr. Sherman. Without objection, I would like them put in
the record. Do any other witnesses have letters of support or
opposition from others in the food chain, the venues, or anyone
else?
Mr. Johnson. Without objection.
Mr. Sherman. Without objection, they will be made part of
the record. Please enter them.
Now, we have heard from some of the witnesses that AEG is a
big player. I mean that is an extremely well-financed
operation. And I guess the implication is that they would want
to stop using TicketMaster. They would have to use someone
else.
The second biggest primary ticket operation in the world,
as I understand it, is CTS, out of Germany, and I believe they
have a contract that makes Live Nation their exclusive operator
partner.
Mr. Rapino, if this merger goes through, is CTS free from
their contract with you to then go to anyone else, including
AEG, and say, We want to be your ticket agent in the United
States?
Mr. Rapino. Yes. Part of the contract is clearly stated
that if we were ever to merge with TicketMaster, they would
have full rights to leave and pursue another U.S. client.
Mr. Sherman. Because the testimony here from opponents to
the merger focused on the primary ticketing business, and
allowing the number two primary ticketing company to do
business in the United States freely would, I think, open
competition in that business.
Obviously, there is concern about what happened with
secondary marketing in the Springsteen concert. Mr. Azoff, you
have testified that you would not have advised TicketMaster to
buy the secondary marketer. Is it your intention to advise your
board to sell tickets now and to stay out of secondary--the
secondary business? I realize you can't sell it unless you get
a good offer. But is it your advice to your board to be in the
secondary market, or not to be; or to be in it, and if you
would want to stay in that business, what is your proposed wall
between primary and secondary?
Mr. Azoff. For us to stay in that business, it would have
to be a different business. Many of our team clients, for the
purpose of allowing season on ticket holders to exchange seats,
we do operate Ticket Exchange. If there were some way to make
Tickets Now a straight, legitimate exchange where the rights
holders were able to transfer tickets with, I would hope,
limited fees, et cetera, but----
Mr. Sherman. I am talking about where you buy the Bruce
Springsteen ticket for $95 and sell it for $950.
Mr. Azoff. As it currently exists now, yes. Obviously, with
all the normal public company approval requirements. I would
advise my board if we got the right offer. Senator Schumer
hasn't made the right offer to us yet. I would advise my board
to consider that. And I certainly would vote to do that.
We agree with Congressman Pascrell on the whole idea of
bots, and we also agree with him that the secondary area really
needs cleaning up. We think this merger gives us a seat at the
table, along with every government body, to do that.
Mr. Johnson. All right. At this time--and your time has
expired, Mr. Sherman.
Mr. Goodlatte. Mr. Chairman, I am not going to be able to
come back. I wonder if I might have a couple of minute's worth
of questions.
Mr. Johnson. We have got about 4 minutes, 3\1/2\ minutes
before votes expire on this. I would be inclined to not put the
Members at risk of missing the vote.
Mr. Goodlatte. Then I would just ask--I will submit my
questions for the record--but I would ask the Chairman to make
sure that the panelists answer the questions in writing for us.
Mr. Johnson. No doubt.
Mr. Sherman. If the gentleman from Virginia wants to leave
me with a written question or two, I would be happy to ask
them.
Mr. Goodlatte. That would be great. Thank you.
Mr. Johnson. We will be in recess for about 25 minutes
while we go vote. Two votes; one 15-minute and one 5-minute
vote.
[Recess.]
Mr. Sherman. [presiding]. We will come to order. We are
ready to start a second round. We will start with the senior
Republican on the Committee, Mr. Coble.
Mr. Coble. You go ahead, Mr. Chairman. Let me examine what
I have got waiting here.
Mr. Sherman. So I will pick one here. It is for Mr. Rapino
and Azoff.
Mr. Rapino has testified that if the merger is not
completed, both companies would be required to lay off
employees. You have also claimed that a merger would lead to
$40 million in savings. Do those savings involve laying off
employees either from your operation or from the TicketMaster
operation?
We are in a strange economy where savings are good. But
when savings lead to layoffs, that concerns some of us. Tell us
about how employment is going the be affected by this merger.
Mr. Rapino. On the Live Nation front I actually haven't
said that if we didn't do the merger, we would lay off
employees. I have said that we have been a very progressive
company for the last 3 years and in hiring employees and
creating jobs. I do believe though, with these economic times,
my 5-year vision certainly needs to be adjusted, and we
currently do have a hiring freeze on. And we are just going to
have to get through this year and see how the business turns
out.
We do believe that the efficiencies of the merger created--
will actually create jobs. This merger will create jobs because
we will have to staff up on the technology side to better equip
ourselves to handle the scalping and the needs of today. So, no
layoffs. Jobs created.
Mr. Sherman. Mr. Azoff, if this merger doesn't go through,
what is the effect on jobs in your operation. And, if it does
go through, what is the effect on jobs?
Mr. Azoff. Right before I started with the company,
TicketMaster laid off 10 percent of its workforce. And the
recent studies that we have done are we can't get the job done
with less people, regardless of whether the merger goes through
or not.
So we don't anticipate being able to reduce the workforce
at this time, nor are we looking to. However, we are a public
company and we have a board. We currently lose money on about,
we think, 2,600 of our accounts, many of which are nonprofits
and museums and municipal-owned buildings.
So, down the road, if we were forced to cut back, it would
probably be both in the area of accounts and employees. But,
for sure--I agree with Michael--if the merger is approved, we
would be adding people.
Mr. Sherman. And you would be adding people because there
would just be more music?
Mr. Rapino. No. We believe that right now we are both
really understaffed on the technology, research, development,
and consumer side of the business. So we believe that the
answer for the future is creating a more accessible storefront.
And technology has just taken off, as you know.
On the recording side, they have lost a lot of their
business to the pirates of the Internet. That is happening
right now with these professional scalpers and professional
technology that are just way more advanced than we are.
So, we would assume we would have to build a much more
sophisticated consumer storefront. We like to think it as the
TicketMaster.com of today needs become the Amazon of tomorrow
for the consumer and fan. A much more convenient and accessible
place to buy music. With that, we would like to staff up in the
technology side.
Mr. Coble. Thank you, Mr. Chairman. Let me put this
question, Mr. Chairman, jointly to Mr. Luukko, Doyle and
Professor Froeb. What would you all say are the relevant
product and geographic markets at issue in this proposed
merger?
Mr. Froeb. There are various aspects of the merger. It is a
tough, fact intensive investigation. And these are the kinds of
questions that the Justice Department is investigating and
answering. And the blunt answer is, I don't know. But there is
certainly the methodology for delineating markets is known.
You ask, How do these guys compete? If they limited that
competition, could they raise price by a significant amount. If
the answer is, yes that is a relevant market for antitrust
purposes. If the answer is no, they would substitute to various
other suppliers. Then you have to expand the market and re-ask
the question.
In this industry that is so, so complicated--one of the
things that I heard earlier today was that the merged firm was
going to spin off the German ticketing part of supplier if that
turns out to be a relevant market, that it is these two
ticketing suppliers, then the spinoff would certainly mitigate
the anticompetitive effects of that merger.
So the answer is, I don't know. It is a fact-intensive
investigation that is very, very detailed. And I haven't done
it.
Mr. Coble. Anybody else want to weigh in on that?
Mr. Doyle. Can I weigh in on that? I think the most
significant antitrust product market here is competition in the
primary ticket services market. Now, if you look at that
market--and the geographic market, I would argue, is the United
States as a whole. But if you look at the ticketing market
closely, you will see that Tickets.com has always been a
relatively insignificant player over time, and TicketMaster has
had a very significant market share over a long period of time.
That would suggest to me that the market is somewhat
barricaded. And you don't see significant entry, and you don't
see any exits from the market.
But I would argue that the best market for the Department
of Justice to look at, if they seriously thought about
challenging this acquisition, would be the primary ticketing
market, where the overlap is horizontal, and you have got some
fairly good evidence that Live Nation seriously considered
entering the market, in fact, did enter the market, took SMG
away from TicketMaster, and you saw an immediate reaction from
TicketMaster.
So, TicketMaster clearly felt threatened by the
announcement of Live Nation entering the market and, in fact,
felt threatened in January of this year when it saw Live Nation
ticketing some of its own venues.
The primary ticket service market, I think, should be the
primary focus of the Department of Justice inquiry. Contrary to
what else has been said, the vertical case, I agree, is
complicated. But to look at the essence of competition in the
ticketing market is not complicated. It is a relatively
straightforward, horizontal analysis. The Department goes
through this analysis over and over again.
So, if you focus on that market, I think you will be able
to define it as a relevant market. And the facts suggest that
it is in fact a relevant market.
Mr. Coble. I thank you, gentlemen. Mr. Chairman, that is
all I have. Thank you.
Mr. Sherman. Thank you. I will pick up on Mr. Doyle's
comment, because we all want the benefits of competition for
consumers.
Now, I wouldn't care if somebody had 100 percent of the
market if the potential market entrance were such that the
monopolist felt they needed to keep prices down and services
good. So the question is not how much of the market do you
have, but how much of it could you keep if you started acting
like a monopolist. I see you nodding in general agreement.
So I am interested in this primary ticket market, which you
have identified. And I am aware of a couple of possible
competitors. The first of these is sitting immediately next to
you.
So, let me ask Mr. Luukko, what made you decide to bring
ticketing service in-house and not to use TicketMaster? Could
other venues choose to do the same, unless they thought they
were getting a really good deal from TicketMaster. How
difficult was it for you to take ticketing inhouse?
Mr. Luukko. It is very interesting. When we looked at our
decision to do inhouse ticketing, it wasn't necessarily a knock
on TicketMaster, Tickets.com, AudienceView, and probably more
than 100 companies that pursued our ticketing accounting.
Philly is a big market. It sells a lot of tickets.
Mr. Sherman. You say 100 different companies.
Mr. Luukko. When we were going out and getting into the
ticketing company, we were contacted by so many. We had to
ferret out even who we would use as our back-house engine.
There is a lot out there. And I am not an expert in technology,
but a lot of that has to do with the advent of the Internet and
the barriers to entry to get into ticketing.
We found that out as a company in Philadelphia. And,
really, we looked at it as part of our vertical integration
program. We own the teams, we own the venues. We are getting
into the food and beverage business. We own the merchandising
rights for those teams. And the ticketing was a natural flow in
our business plan.
Again, with the advent of the Internet, we could get into
that business. And we wanted to control the data, we wanted to
directly control the message to our fans. And at times, which
was under our control before, but we wanted to have quick,
direct control of the service charges for a lot of the low end
offers we make for various specials to our fans.
So, for us, the barrier to entry--this is not easy to be in
the ticketing business--but the barriers to entry had lowered,
and it was really part of our vertical integration plan as a
company and how we compete in the marketplace.
Mr. Sherman. So did you develop your own software or were
you able to get it licensed by someone else?
Mr. Luukko. We were a licensee, if that's the correct legal
term, of Packi Owen, a company in southern California.
Mr. Sherman. Okay. So, then that licensing agreement,
whatever they did for you, I am sure they would do for any
other major venue. It is not that they love you so much, they
wouldn't sell----
Mr. Luukko. Ironically, they have been purchased by
TicketMaster since. We are still competing.
Mr. Sherman. So at least that one--now Tickets.com, I
realize they are a small competitor, or a smaller competitor,
but did they make a credible offer to you?
Mr. Luukko. We had some discussions. We had really made the
decision through a lot of research to go inhouse. So we were
approached by many to be our back end.
Mr. Sherman. If you couldn't get the software from the same
source, is there other software available to you?
Mr. Luukko. There is plenty available, including looking at
the option of the creating the software ourselves. So we had a
lot of options as we looked into this business.
Mr. Sherman. One of the things that I am interested in, and
Mr. Rapino, is helping the artists, because they are not
getting paid for their music. They make a recording, the radio
plays it, they don't get anything. I see everybody listening to
it and I wonder how many of them have paid for the music they
are listening to.
And it occurs to me that in addition to selling music, the
artists can sell the T-shirts, the hats, the this, the that. At
the present time, when you have--when you are selling tickets
to the concert, and I go to buy the ticket on line, am I cross-
marketed? Am I given a chance to buy the T-shirts and the other
paraphernalia, or is the ticketing system that you currently
use only selling me tickets?
Mr. Rapino. It is a good point. It is a key strategy of
ours. First and foremost, on the artists. There has been
suggestion that artists have not opposed this because they are
scared, I think I have heard. If you work with artists in the
year 2009, you find me an artist that is not one that likes to
speak up and stand his own ground.
Mr. Sherman. So you are saying the Boss is the boss.
Mr. Rapino. He clearly stood up. He had a concern. I
believe that every other artist I met usually likes to jump on
these kind of situations if they can so-called go after the big
company.
Mr. Sherman. I would point out that even if the artist is
too shy to come before the lights here, all of us are community
leaders. Different types of music is popular in our different
districts. There isn't a Member of Congress that doesn't have
contacts with artists. And there isn't a single one of us that
wouldn't take a call from Bruce Springsteen or a shier but
equally popular artist. If they are afraid to come in public,
they will certainly tell us in private.
Mr. Rapino. Absolutely. For the record, we actually did not
want to bring any artists on our behalf. We actually said to
all the artists, ``This is not what we want you to do. Go worry
about making music, and leave this to us.''
Seventy-six percent of the artists' income now comes from
the road. Ten years ago, it was from the records. So for 30
years, the artist made all of his money from the record, and he
went on tour to sell records. Today, an artist goes on the road
to pay the bills. Seventy-six percent. So any economic theory
will tell you if 76 is coming from the road.
Mr. Sherman. Let me just interject. If somebody creates a
hit song, 99.99 percent of the listenings of that song are from
recorded. We all like to spend our whole lives at concerts but,
as you point out, even the concert-goer only goes to two. And I
haven't been to a concert since I had hair. That long.
So the 99.99 percent of the listenings of that song are
paying only 24 percent of the freight.
Mr. Rapino. Absolutely.
Mr. Sherman. So, go on.
Mr. Rapino. So we work for the artists. It is fundamentally
that simple. They are the start of the value chain. They can
decide to hear us or not. That is why we only have 38 percent
market share. There are a lot of options.
Number two, you should remember the artist is very
sophisticated. He has a very good business team. He has a full
accounting firm, he would have a law firm, and a manager. That
team is sophisticated. And an agent. And their job is to
maximize their artist's revenue, find great new ways to develop
and get their art to the world.
What we find is we talk to artists daily. We are in their
dressing room at midnight. The number one concern if you talk
to an artist that we sense is, for 30 years I had a great
business partner called the record label. He got my art to the
fan, and he financed my investment. Who is going to take care
of me in the future? Who is going to invest in the young band?
How do I solve this technology maze? It scares me. I want a
company that can first realize that they work for us. We always
say at Live Nation, ``Our boss is the artist.''
Number two, we want to build a platform that I think you
referred to earlier--I thought that was brilliant. The crux of
the entertainment problem is it has been fragmented. The pie
has been built in slices. Any industry you look at in history
says, at some point some of the slices come together to provide
a better innovative product.
We think it is crazy that we have a Web site today that
sells a concert ticket. So we have the fan to spend $50. But we
don't have anything else for them.
Mr. Sherman. The specific answer to my question is right
now, I buy a ticket, and nobody is selling me an album, nobody
is selling me a T-shirt.
Mr. Rapino. A quick point. We look at the average fan and
you how he has to go to market today. He comes to a Web site to
buy a ticket and is probably not satisfied. If you put Bruce
Springsteen in Google now, you will get seven pages of scalpers
selling tickets.
So you can't even get a ticket in a simple way. He has got
to go probably to eBay to find a souvenir T-shirt; he has got
to go to iTunes or a pirate site to get the music. The reason
we said Amazon earlier is we want to be able to give the artist
a platform to reach his fan. And when the wallet is out and he
wants to buy a T-shirt, a song, another avenue to sell music
with the ticket, they embrace that model continually when we
talk to them about it.
Mr. Sherman. I think my time has more than expired. I see
the gentleman from California, and recognize him.
Mr. Issa. I thank the gentleman from California. I am sure
when you went to that first Beatles concert, you did have a
full head of hair. I think you should go to another one. I
think you would be welcome.
All kidding aside, this Committee deals with very serious
issues, and all antitrust hearings in this Committee always
look the same: Two groups are wanting to get together, and it's
going to potentially affect competition. Yours is no different.
Mr. Doyle, let me ask one question, because all antitrust
is comparative, in addition to relative market share and all
the others. Major league baseball bought Tickets.com. The
acquisition created a vertically integrated mechanism that
included, if you will, and I am going to try to convert here,
the teams, which had the talent; the promoter, which was Major
League Baseball; the venues, which were the ball barks, were
either owned or controlled; and then, of course, now the
tickets.
Is there an effect that can show us why this sort of a
merger would cause higher prices based on that model?
Mr. Doyle. Tickets.com presents an interesting situation.
It is owned by Major League Baseball, which obviously has a
deep pocket. If they wanted to expand and put Tickets.com into
every stadium, it clearly could do it, as I understand it.
However, it is my understanding that Tickets.com only has
14 of the Major League Baseball teams. The question is, Why
aren't they in every team? And I don't know the answer to that.
But I can sit here and speculate that perhaps it is the
significant market power of TicketMaster that allows it to get
some of those baseball teams as well.
The Major League Baseball model, the Tickets.com model, I
think is an example of the degree of market power that
TicketMaster has. Under normal economic--under a normal
economic rationale, you would expect Tickets.com to be in every
Major League Baseball stadium. And the question is: Why aren't
they?
Mr. Issa. Mr. Azoff, I am going to ask you sort of the
other side of the same coin, because I am very interested.
Baseball does have a Congressionally granted monopoly. So, as
Mr. Doyle said, they can do whatever they want. They do own the
talent. Even if you want to be a free agent, where are you
going to go? You ultimately are going to end up within Major
League Baseball. So it is only a question of where.
Now, let me just look at the music industry for a moment.
You don't have long-term binding contracts with the talent, if
you will--the major stars--do you?
Mr. Azoff. No, I don't.
Mr. Issa. After this merge, you still won't.
Mr. Azoff. Virtually all of them will be free.
Mr. Issa. On top of that, you are not controlling the whole
world, so they can tour anywhere that makes the money, right?
Mr. Azoff. Correct.
Mr. Issa. So, if I understand correctly, from the
standpoint of the artist, who ultimately is probably the most
important part of this, with the possible exception of those of
us who do go to concerts a little more often, and I will go as
long as I have hair. So the artist isn't going to be hurt
because he has a great deal freedom of choice, and ultimately
you have to attract him, right?
Mr. Azoff. Yes. I might add, the TicketMaster contracts
virtually one in four, one in three, come up for renewal every
year. And I could shed a little bit of light because I recently
met with one of the Major League Baseball owners.
TicketMaster has a service called Archtics. In these very
difficult times, people are not renewing season seats. And we
have a unique program that allows them to, like, bundle. If you
want 20 games and we find a person that can do 12 and 10. And
we are actually putting TicketMaster personnel in their box
offices.
So my answer would be, as to why some of them have elected
to come back to us is, because they get better service, and we
spend a lot of money on R&D to provide great technology.
Mr. Issa. I found something interesting when it was said
earlier if you Google for Bruce Springsteen, or whoever, you
are going to get all these other wrong sites. And it suddenly
hit me, Well, you are Googling. So, in the search world we have
this dominant power. And we have had hearings to talk about
Google and their market share and so on. Ultimately, if I
understand, post-merger you won't control Google or Yahoo! from
a standpoint you cannot guarantee you will always come up
first. You will still have to compete for that slot, right? Pay
for it, actually.
Mr. Azoff. Yes.
Mr. Issa. So you are not going to control the search
engines which, in an Internet age, is really the front end of
the process. So, anyone who wanted to compete, including if
Major League Baseball decided they were going to flex their
muscle outside of Major League Baseball and do concerts, at
least in baseball parks, they could potentially show up first
on Google's search.
Mr. Azoff. Makes sense.
Mr. Issa. I am trying to understand. You have got to pay a
free and fair price for the entertainers. There are lots of
venues beyond the ones that you could potentially lock up in a
contract. There are a lot of places people can be. I was at the
Consumer Electronics Show and I saw Diana Ross in concert
inside a large ballroom in a private venue. But there were a
couple thousand of us having a great time.
By the way, Brad, that was my last concert I went to. That
was in January.
What I am trying to understand is, in this whole circle of
things, what are the barriers to entry or the competitive
advantage you have other than adding some size and scale, which
would be a little bit like Citibank bundling together a number
of banks, and we know how much good that did them, right?
Anyone want to comment on Citibank? Anyone want to say that
this combination is any more powerful than perhaps Citibank or
Bank of America was in their industries?
Mr. Rapino. I would just say that typically the output of a
monopoly is a very high margin. We have a 4 percent margin
business.
Mr. Issa. Roughly the same as VISA and MasterCard make off
of your ticket sales.
Mr. Rapino. Exactly. So we spend $2 billion to make 4
percent off of that. TicketMaster would be in the 15 percent
margin business. So if there was any demonstration of power,
believe me, the margins would spit out that as a result.
Mr. Issa. Thank you, Chairman. It helps me understand this
situation better.
I yield back.
Mr. Sherman. Mr. Doyle, there are two possibilities as to
why TicketMaster has business from major league baseball. One
idea is that they just provide a better service at a better
price than major league baseball is willing to provide to the
teams, and the other is they have some sort of market power.
How could TicketMaster threaten the Dodgers or the Angels
in a way that they would say we don't want to do business, and
then if they have that kind of market power, why don't they
have the other 14 teams?
Mr. Doyle. The short answer is, I don't know the answer to
that question. But let me make this observation.
If TicketMaster provides a better service, and that service
is replicated by Tickets.com, why doesn't Tickets.com provide
that service?
Mr. Sherman. The real answer is Google, an example brought
up by my colleague from California: Why does Google have more
than 50 percent share of the search engine? One theory is that
they have somebody in my office with a gun to my head saying if
I use another search engine, I'm dead. Another possibility is
that they hired more engineers to create better software to do
a better search to do better computer work, whatever software
does.
In my case, it is the latter. I have never been threatened
by Google that if I searched on Yahoo, I would be hurt. And
Google does the best job as far as I know. There are probably
some computer experts here who know better.
Let me turn to Mr. Luukko.
So you own venues. You are able to take your ticketing in-
house. If you don't want to go in-house, are there companies
that want to provide the ticketing service for you?
Mr. Luukko. Absolutely. Yes, there are. Tickets.com is one.
Audience View. There are others. There has never been an issue
that you couldn't go in your own direction.
Mr. Sherman. And CTS is the biggest, I believe, in Europe.
And I am told that if this merger goes through, CTS is then
free to do business in the United States.
You are in the business. Is there any reason to think CTS
is not competent?
Mr. Luukko. No, not at all.
Mr. Sherman. Okay. You described how you decided to become
vertically integrated, and so presumably that helps the teams
who are the artists in that business.
Describe how your fans and team revenues have been helped
by your decision to be vertically integrated.
Mr. Luukko. It is essential in sports today to survive.
Owning a team, in itself, is very, very difficult. I will give
you an example probably that most recently has happened in this
tough economy is, we own the Philadelphia 76ers. We have some
unsold seats. We have noticed that the market for the sport is
very, very price sensitive. So we decide in a short period of
time that we need to discount certain nights in certain areas
of our building or create various packages.
It starts first with our ticketing system. We have
collected data over the years of people who attend basketball
games and who may attend our hockey games or family shows. We
have an e-mail database, we create an offer, and then we blast
that e-mail database. We also use our synergies by owning
Comcast SportsNet to promote that offer through the unsold
inventory that we do have. So we are using the assets of our
company to create and promote this offer.
So now we have discounted the seats, but at the same time
we are putting people into the building and we are getting the
parking and the food revenue.
Mr. Sherman. So the key thing to benefit the artists and
athletes and the teams, you have to know which seat you can
sell for $200 and sell it for $200, which seat the day before
the game is going to be unoccupied--and not only unoccupied,
they are not buying beer or popcorn--and who to send an e-mail
to, to say you can have that seat for $3.95, but please buy a
lot of beer?
Mr. Luukko. Yes. You need to have the ability to--to use a
sports term, to read and react. You see where the marketplace
is and see what you have or haven't sold, and then you have to
react quickly because that game or concert happens on a date
certain; and then you move forward.
Mr. Sherman. So you are in effect the promoter of the game
and the ticketer, and without being vertically integrated, you
would not be able to exploit those empty seats because an
independent ticket agent can't just wake up 2 days before the
concert or the game and say I am going to sell seats for $3.95.
I guess you could get all of the advantages of vertical
integration without vertical integration if you had
instantaneous agreement of all the different parties involved
in the vertical chain. Good luck in achieving that.
Mr. Luukko. It is pure efficiency. The team, in essence, is
similar to the artist and its manager. The team ultimately
makes that decision, and the other pieces follow.
Mr. Sherman. So the ticketing operation has the data and
the capacity to market the discounted tickets, but the promoter
has the authority, and unless you put those two together, you
end up with empty seats and unsold popcorn.
I think athletes are doing pretty well, but you end up with
a team that can't make the payroll necessary to beat New York.
Mr. Azoff, is this analogous to the music business? Do you
have a lot of--we are all familiar with Bruce Springsteen
selling out every arena within an hour. But do you have a lot
of clients that have empty seats in the room?
Mr. Azoff. Virtually every client has empty seats in the
room, and it is a struggle. Bringing efficiencies, Michael
spoke about how we want to do it.
Currently, at TicketMaster, we have a list of names, but we
don't yet have the ability to share that data with artists. We
don't have the ability to sell merchandise and sell music. That
is the real efficiencies in this merger. We are betting that
despite less market share in the ticketing area, we will be
able to start this new business that will serve consumers, fans
and teams.
Mr. Sherman. So your business plan is that after this
merger, your share of the market declines, but your ability to
exploit that market by selling ancillary products increases?
Mr. Azoff. Yes.
And as each artist makes more, I think it will lower ticket
prices.
Mr. Sherman. Mr. Rapino, you probably know something about
empty seats.
Mr. Rapino. There are two fronts. There is the venue and
the artist. Currently, 40 percent of tickets go unsold. Other
than Bruce Springsteen and the very, very top, our bread and
butter is the middle of the road and lower, in terms of the
7,000 club shows and the arena acts that sell 6,000 seats out
of 12,000. So the number one thing that an artist wants from us
as a promoter is to become a better marketer and sell more
seats.
I think the sports analogy is a fabulous example because no
one says, ``Where is the next Kobe Bryant going to come from?''
But everyone says, ``How is the next Bruce Springsteen going to
be created?''
Sports is a very institutionalized industry, from the
college league up to these four monopolies, from the NBA to the
NHL, who are vertically integrated from the fullest, from the
team to the broadcast.
The reason the music business is in trouble and has been in
trouble is because it has not been institutionalized. It has
been fragmented, and there has been no system to help the young
artist, no system to help sell more tickets and innovate.
Our model is only one model, and we hope other models are
generated from this. But we think it is a good example to
market better, sell more seats, fill more venues because the
irony is, my competition is the sports leagues. A consumer does
decide to go to the NBA game or the congressional monopoly-
granted NBL league, or a concert. That is my concert competitor
for that disposable income, and it is tough to fight.
Mr. Sherman. Mr. Coble has graciously allowed me to ask a
few more questions.
Mr. Coble. I have to leave shortly for another meeting, but
I want to express thanks to the panel for being with us today.
I will be around for a few more minutes.
Mr. Sherman. Mr. Rapino and Mr. Azoff, your detractors say
ticket prices have gone up in recent years and that your
companies are responsible for that.
Have ticket prices gone up and, if so, why?
Mr. Rapino. In the concert business, ticket prices have
gone up 4 percent a year on an annual basis.
Mr. Sherman. Is that for the whole market? We all focus on
the top 50 acts.
Mr. Rapino. In my testimony, the very small percentage of
top acts get great press about ticket prices. An average ticket
price for a concert is $50.
I would again argue, what could you absolutely do in the
world of entertainment for $50, by comparison?
Mr. Sherman. A lot of people in the San Fernando Valley can
go out on the town for $50 or less per person. We live cheaper
lives.
Mr. Rapino. What the consumer is telling us, and when we
poll consumers, is not that the ticket price is too expensive.
That is not their number one problem with the business. When
they see a Madonna show, they think it is great value.
What the artist ticket prices have been driven by, for many
years now is, the artist continually innovating his show, as
you would know from the first show 20 years ago with the bad
light and a mike on stage at the Forum to today where Britney
Spears would probably have 18 transport trucks and 300 people
on payroll because the fans want a great show.
They want the fireworks and the spectacular part of that
coming to that show, and the cost of production is part of the
show that the consumers want. So part of the cost is, the cost
of the show has increased.
The artist wants to figure out how to pay for the show. And
no one has to go to a Britney Spears show, but the economics
still seem to be affordable that these shows do well and the
consumer has many choices from a $9 ticket to a $100 ticket and
small clubs to large.
Mr. Azoff. On the TicketMaster site, we don't set ticket
prices at all.*
---------------------------------------------------------------------------
*Subsequent to delivering this testimony, Mr. Azoff learned that as
to a de minimis number of tickets sold in very narrowly defined cases
(constituting less than four one-hundredths of one percent of the
tickets that TicketMaster sells), TicketMaster sets ticket prices.
---------------------------------------------------------------------------
Mr. Sherman. Have you seen them go up at least for the A-
plus events?
Mr. Azoff. Yes. I believe I have the same figures as
Michael does.
On the management side, yes, ticket prices have gone up. It
is a function of two things. It is a function of the loss of
income from recorded music and the increased production costs.
In preparation for these hearings, I sounded out several
artists, and they all said, If you can show me a way that I can
make the same money and not lose my production, of course I
would like to see lower ticket prices.
And everybody focuses on the problems in the secondary
ticketing business: Oh, if the guy is paying $1,600 for the
front row, why can't I charge another $10? That's a problem.
Mr. Rapino. We do 1,000 concerts at our 50 amphitheaters.
We will lose $70 million at the door. That means the price of
the talent versus the ticket price. That is 10 million tickets
being sold. In theory, if I had any control on those ticket
prices, you would assume I would charge $7 more a ticket to
cover my $70 million loss. The artist takes the door, and we
end up making the money on peanut, popcorn, parking and ticket
rebates.
Mr. Sherman. What is a ticket rebate?
Mr. Rapino. Most of the TicketMaster service fees that
TicketMaster charges, the $10, $12.
Mr. Sherman. So when I think I am paying Azoff, I am really
paying you?
Mr. Rapino. You are really paying me and you are paying the
venue, and obviously you are paying the artist in theory
because the venue promoter needs to make a pot of money to
cover that $70 million loss at the door.
Mr. Sherman. So what I think is a TicketMaster service
charge is really a disguised portion of the price, and the
people in your business and/or the artists have enough power to
force Azoff to pretend like he is charging a lot when he is
really giving part of the money to you?
Mr. Rapino. Yes.
Mr. Sherman. So you are a professional bad guy, Mr. Azoff?
Mr. Azoff. We're used to it.
Mr. Sherman. I finally want to go to the scalping issue.
One of the bizarre things is, the scalping business should
not--if things are priced correctly, there shouldn't be a huge
industry in buying them and reselling them. But in fact, as I
understand it, those great front row tickets are still being
sold for $100 and $200 and they are worth thousands.
Mr. Azoff, when these big acts have you as their ticket
agent, do they give you all of the seats or do they hold back
some to be sold in some other way?
Mr. Azoff. Inventory control is not a perfect science.
Everybody in the food chain seems to have access.
Mr. Sherman. If there are 10,000 seats in the arena and you
are doing the event, are you selling 10,000 seats or are you
often selling 7,000?
Mr. Azoff. Never the former. I would say on an average we
might see 80 to 85 percent of the seats.
Mr. Sherman. When you don't get the 15 percent, are those
the bad or good seats that you are not getting?
Mr. Azoff. The vast majority, they are the best seats in
the house. They go to building holds, sponsor holds, band
holds, record company holds. They go out the door, you know,
multiple places.
Mr. Sherman. So if I want to pay $800 for a ticket, I
probably am getting one of those and you probably never touched
it?
Mr. Azoff. I would say that is correct, yes.
Mr. Sherman. Then there are these companies that try to buy
from TicketMaster and then resell, or buy from whoever the
ticket agent is and then resell.
Why are the artists/promoters having you sell some tickets
that are worth 1,000 bucks for a 100 so the lucky fan and/or
scalper ends up with $900 of consumer surplus? Why are you
sometimes putting on your Web page a $1,000 ticket for a $100
price?
Mr. Azoff. The standard line I get when I talk to an artist
is, you know, they are all worried about the press. If my
ticket is $300--and I always say that is the guy who is getting
his tickets for free. They are always worried about bad press,
especially with the way the Internet flows now.
If the Eagles were to raise their ticket prices----
Mr. Sherman. Does the press focus on the average price or
the cheapest price, or if there are 50 seats being sold for
$1,000 apiece, does the press focus on those 50 seats?
Mr. Azoff. Yes. Again, people lead. When Bruce Springsteen
says I am charging $95, another artist is going to say, Hey, my
fans are going to think I am a jerk if I charge $150.
Look, in a perfect world we would all sit down and we would
convince artists to realize that they ought to charge what they
are worth.
Mr. Sherman. At least for the top 1,000 seats or the top
500 seats in the house. You are not deprived of a chance to see
the artist if you don't go one of the best 500 seats.
Mr. Azoff. The focus on this merger will enlighten a lot of
artists, I hope. The first step at fighting the scalping would
be for dynamic pricing to finally come into effect.
Mr. Sherman. Do any of the other witnesses have a comment
on why we are in this weird situation where the artist feels it
necessary to sell one of those best 500 seats for a $100 when
everybody knows it is worth $1,000?
Mr. Froeb. One of the great ironies of this merger is, in
theory, if it works the way it is designed to, it should allow
the artist to grab control of the entire supply chain--
including scalping--a lot better than they currently have. To
me, it is part of their image. What creates demand for their
tickets is their image of being good guys and selling cheap
tickets.
Mr. Sherman. Nobody thinks United Airlines is terrible when
they sell a $250 ticket from L.A. to New York just because
there are some First Class seats that they are able to get
$3,000 for. There are many complaints that we have back in
steerage, but the fact that they were able to squeeze a lot of
money out of those people on the other side of the curtain has
never bothered those of us on the plane.
I don't know why it bothers people who buy tickets, but you
know your business better than I do.
I have run out of questions, so thank you very much.
[Whereupon, at 1:02 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
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