[Senate Hearing 111-201] [From the U.S. Government Publishing Office] S. Hrg. 111-201 THE TICKETMASTER/LIVE NATION MERGER: WHAT DOES IT MEAN FOR CONSUMERS AND THE FUTURE OF THE CONCERT BUSINESS? ======================================================================= HEARING before the SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS of the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION __________ FEBRUARY 24, 2009 __________ Serial No. J-111-6 __________ Printed for the use of the Committee on the Judiciary U.S. GOVERNMENT PRINTING OFFICE 54-048 WASHINGTON : 2009 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON THE JUDICIARY PATRICK J. LEAHY, Vermont, Chairman HERB KOHL, Wisconsin ARLEN SPECTER, Pennsylvania DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa CHARLES E. SCHUMER, New York JON KYL, Arizona RICHARD J. DURBIN, Illinois JEFF SESSIONS, Alabama BENJAMIN L. CARDIN, Maryland LINDSEY O. GRAHAM, South Carolina SHELDON WHITEHOUSE, Rhode Island JOHN CORNYN, Texas RON WYDEN, Oregon TOM COBURN, Oklahoma AMY KLOBUCHAR, Minnesota EDWARD E. KAUFMAN, Delaware Bruce A. Cohen, Chief Counsel and Staff Director Nicholas A. Rossi, Republican Chief Counsel ------ Subcommittee on Antitrust, Competition Policy and Consumer Rights HERB KOHL, Wisconsin, Chairman CHARLES E. SCHUMER, New York ORRIN G. HATCH, Utah SHELDON WHITEHOUSE, Rhode Island ARLEN SPECTER, Pennsylvania RON WYDEN, Oregon CHARLES E. GRASSLEY, Iowa AMY KLOBUCHAR, Minnesota TOM COBURN, Oklahoma EDWARD E. KAUFMAN, Delaware Carolina Holland, Chief Counsel/Staff Director C O N T E N T S ---------- STATEMENTS OF COMMITTEE MEMBERS Page Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 5 Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota.. 6 Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin...... 1 prepared statement........................................... 130 Schumer, Hon. Charles E., a U.S. Senator from the State of New York........................................................... 3 prepared statement........................................... 162 WITNESSES Azoff, Irving, Chief Executive Officer, Ticketmaster Entertainment, Inc., West Hollywood, California................ 9 Balto, David A., Senior Fellow, Center for American Progress, Washington, DC................................................. 14 Hurwitz, Seth, Co-Owner, I.M.P. Productions and 9:30 Club, Washington, DC................................................. 12 Mickelson, Jerry, Chairman and Executive Vice President, Jam Productions, Chicago, Illinois................................. 11 Rapino, Michael, President and Chief Executive Officer, Live Nation, Beverly Hills, California.............................. 7 QUESTIONS AND ANSWERS Responses of Irving Azoff to questions submitted by Senators Kohl and Schumer.................................................... 35 Responses of David Balto to questions submitted by Senators Kohl and Schumer.................................................... 62 Responses of Seth Hurwitz to questions submitted by Senator Kohl. 66 Responses of Jerry Mickelson to questions submitted by Senator Kohl........................................................... 68 Responses from Michael Rapino to questions submitted by Senators Kohl and Schumer............................................... 79 SUBMISSIONS FOR THE RECORD Azoff, Irving, Chief Executive Officer, Ticketmaster Entertainment, Inc., West Hollywood, California, statement..... 87 Balto, David A., Senior Fellow, Center for American Progress, Washington, D.C., statement.................................... 93 Corgan, Billy, February 24, 2009, letter......................... 108 Gabrielli, Bob, Senior Vice President, Broadcasting Operations and Distribution, DIRECTV, Inc., Washington, D.C., statement... 111 Hurwitz, Seth, Co-Owner, I.M.P. Productions and 9:30 Club, Washington, D.C., statement.................................... 126 Mickelson, Jerry, Chairman and Executive Vice President, Jam Productions, Chicago, Illinois, statement...................... 132 Mountford, Mike, Chief Executive Officer, National Programming Service, Indianapolis, Indiana, statement...................... 148 Rapino, Michael, President and Chief Executive Officer, Live Nation, Beverly Hills, California, statement................... 156 THE TICKETMASTER/LIVE NATION MERGER: WHAT DOES IT MEAN FOR CONSUMERS AND THE FUTURE OF THE CONCERT BUSINESS? ---------- TUESDAY, FEBRUARY 24, 2009 U.S. Senate, Subcommittee on Antitrust, Competition Policy and Consumer Rights, Committee on the Judiciary, Washington, DC. The Committee met, pursuant to notice, at 2:29 p.m., in room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman of the Subcommittee, presiding. Present: Senators Kohl, Schumer, Feingold, Klobuchar, and Hatch. OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE STATE OF WISCONSIN Chairman Kohl. Good afternoon to one and all. We appreciate your being here today. Today we will examine the recently announced merger between Ticketmaster and Live Nation. This merger will combine two entertainment powerhouses: Ticketmaster, the Nation's leading ticketing company, and Live Nation, the world's largest concert promoter, owner, or operator of hundreds of concert venues, and a recent entrant into the ticketing business. This merger will not only expand Ticketmaster's control of the ticketing market by eliminating a competitor, but it is also creating an entity that will control the entire chain of the concert business-- from artist management to concert promotion and production to ticketing and ticket resale. We are here today to focus on what this deal will mean for the millions of concert-goers across our country. Ticketmaster and Live Nation argue that this merger will create efficiencies which ultimately will serve consumers. But we have good reason to be skeptical as to whether music fans will truly realize these benefits. Critics of this merger allege the deal will combine two competitors in the evolving entertainment business by creating an enormous, vertically integrated entertainment giant that will dominate all aspects of the business. They argue that the strength of this combined company will make it impossible for new competitors in ticketing or concert promotion to emerge, and that consumers will pay higher prices as a result. Live Nation owns or has operating agreements with 140 amphitheaters, clubs, theaters, and small music venues, 30 music festivals, and 305 large arenas. It also has exclusive deals with marquee artists, including U2, Madonna, and the Jonas Brothers, to name just a few. The company recently launched Live Nation Ticketing which makes it a viable competitor to Ticketmaster. Ticketmaster is the Nation's dominant ticket seller, processing in 2007 more than 280 million tickets and $8.3 billion in sales for thousands of venues--including more than 77 of the 100 largest venues. By some accounts, Ticketmaster controls 70 to 80 percent of all concert ticket sales. Late last year, it acquired a management company that manages 200 artists, Front Line Management, and a leading ticket resale company. The combination has the potential to create one company with a stranglehold on all segments of the concert business. It raises serious concerns for independent concert promoters who give a platform to new and less established artists. When these promoters book acts in the hundreds of venues under the Live Nation/Ticketmaster umbrella, they will have to use the merged company's ticketing services. What this means is that the independent promoters will have to reveal a treasure trove of competitive information about their ticket sales to the combined company--the very company with whom they will have to compete for concert promotion. At the same time, independent concert venues will be under enormous pressure to use Live Nation for ticketing if they wish to book the hundreds of key acts controlled by the company. Our concerns are heightened by the fact that Live Nation recently entered into the ticketing business to compete with Ticketmaster. This needed competition will be lost if this merger is completed. What does Live Nation's decision to merge with its competitor rather than fight it in the market tell us about any company's ability to compete with Ticketmaster? If Live Nation cannot compete, after all, who can? All of this comes at a time when consumers are justifiably wary of Ticketmaster's recent acquisition of a company that sells tickets on the secondary ticket market, TicketsNow.com. Just 3 weeks ago, the consumers attempting to purchase Bruce Springsteen tickets through Ticketmaster's website were diverted to TicketsNow's website. There, the tickets were priced two to three times higher than face value, as well as a hefty service fee. Ticketmaster blames technical glitches for this unfortunate incident, but the incident does raise a serious question: Will the combined company be tempted to divert tickets to the resale market at inflated prices because there are no competitors to keep this behavior in check? In sum, this deal raises many serious questions regarding the future of competition in the concert business. The burden will be on Ticketmaster and Live Nation to demonstrate that consumers will, in fact, be better off. Those of us who are concerned with maintaining diversity and competition in the concert business should insist that these issues be closely examined before this deal is allowed to proceed. At this time, I would like to turn to Senator Schumer, who has, if it possible, a brief statement. STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE STATE OF NEW YORK Senator Schumer. Thank you, Mr. Chairman. I will try my best, hard, though, as it may be. But, seriously, I want to thank you very much for holding this hearing and for just running the Antitrust Committee in such a professional, businesslike, and effective way. And I am glad you are still the Chairman. Chairman Kohl. Thank you. Senator Schumer. And I am glad I am No. 2 now on this Subcommittee. Mr. Chairman, I have made no secret of my opposition to this merger. I have told that to the CEOs of both companies in my office this morning. First, I want to say a word, though, about Ticketmaster's recent actions in the sale of tickets for Bruce Springsteen's concert tour. We all know the basic story. Many fans were told the shows were sold out when, in fact, they were not. The fans were then provided links to Ticketmaster's own ticket-reselling site, TicketsNow.com, where they were charged many times the face value of the tickets. Talk about a way to have your cake and eat it, too. Bruce Springsteen says Ticketmaster abused his fans, and I agree with the Boss. Ticketmaster is the only major primary ticket seller in America with a wholly owned secondary seller, and it took advantage of that corporate structure which allowed Ticketmaster to charge much higher fees with customers paying hundreds or thousands of dollars for tickets in the secondary market. They have said that this clever arrangement was caused in part by a malfunction. Given what Ticketmaster stood to gain by directing consumers to its own resell site, the episode seems to be much more about money making than about malfunction. Now, in fairness, Ticketmaster has apologized for the incident, but to my knowledge, it still has not provided any details as to how this happened. To simply say it was a malfunction is not good enough. We need answers, not apologies, and I hope in this hearing we can hear specific answers as to what happened here and why it will not happen again. But as far as I am concerned, Ticketmaster never should have gotten into the secondary ticketing business by buying TicketsNow to begin with. Again, in fairness, that was before the new management came in. And I think it needs to get out of that business, especially in light of this merger proposal. So I am going to ask you, Mr. Azoff, that question, and I hope you will tell me that you agree that you/Ticketmaster needs to sell TicketsNow and make them independent of you in every way. Now, about the merger. As the Chairman outlined, we cannot forget what this merger will mean to the music industry. Consider that Ticketmaster in 2007 sold 141 million tickets worth $8.3 billion for its clients. It is estimated Ticketmaster has 80 percent of the concert ticket market in America cornered. But most troubling of all is what Ticketmaster has chosen to do to protect its market dominance. Once Live Nation started a rival ticket-selling service that threatened to take away 15 percent of Ticketmaster's business, Ticketmaster chose not to compete but to gobble it up. This is not the American dream, as the company's witnesses might have you believe. It seems to be monopolistic behavior, plain and simple. The one competitor who had a chance to compete is taken out of the picture. Live Nation also, of course, has a lock on its side of the market, as Chairman Kohl outlined. It is the largest concert promoter in the world, more than doubling its next competitor in the number of tickets sold worldwide. It owns over 100 venues in the United States to boot. So think of what this merger would mean if they put both these companies under the same roof. It would combine the largest ticket seller in the world with the largest event promoter in the world. The result would be a behemoth that would operate the majority of concert venues in America, sell the tickets to the events at those venues, and manage many of the very top artists who perform there. In short, the new merged company would have a hand in every step of the process of going to see a concert. Now, when I talked to the owners, they said that business is bad given the economic climate these days and the merger will make things more efficient. I would say two things. First, taking away competition in the long run almost never makes things more efficient. That is why we have this Subcommittee. And, second, I will not forget in the days of the Clinton administration, when oil prices were very low, that the Exxon- Mobil merger was allowed. And it was said, well, prices are so low, they cannot get by unless they merge. Look what happened: much less competition, and once the market changed, they had the consumer by the neck. And I worry about the same thing with this merger. We cannot look at just the moment and take a snapshot. We have to look at the long-term effects, and good old-fashioned American competition is the best way to protect consumers. That competition would be snuffed out, the way I look at it, with this merger. So I look forward to seeing how the companies can explain how the proposed merger could possibly be good for consumers, and thank you for my hopefully not that long a statement. I cannot say it is short. Chairman Kohl. Not that long, but very good. Senator Schumer. Thank you, Mr. Chairman. Chairman Kohl. Thank you so much. Now I would like to introduce our distinguished panel of witnesses. Our first witness who will testify today is Michael Rapino. Mr. Rapino is the President and Chief Executive Officer of Live Nation. Before his position with Live Nation, Mr. Rapino was CEO and President of Global Music for the Clear Channel Music Group. Mr. Rapino began his career as a concert promoter and an entertainment marketer. Next we will be hearing from Irving Azoff. Mr. Azoff is the CEO for Ticketmaster Entertainment. Mr. Azoff joined Ticketmaster when it acquired Front Line Management, the artist management company that he founded. He continues to serve as the Chairman and CEO for Front Line Management and serves as the personal manager for a number of artists. Our next witness will be Jerry Mickelson. Mr. Mickelson is the Chairman and Executive Vice President of Jam Productions, which he co-founded in 1971. Under Mr. Mickelson's leadership, Jam Productions has become one of the country's largest independent producers of live entertainment. Our next witness will be Seth Hurwitz. Mr. Hurwitz is co- owner of I.M.P. Productions, a concert promotion company, and the 9:30 Club, a local music venue. Mr. Hurwitz has led I.M.P. Productions to produce almost 10,000 events over the past 30 years. And our final witness will be David Balto. Mr. Balto is a senior fellow at the Center for American Progress, focusing on competition policy, intellectual property law, and health care. His testimony today is also being submitted on behalf of the Consumer Federation of America. He has over 20 years of experience as an antitrust attorney in the Antitrust Division of the Department of Justice, the Federal Trade Commission, as well as the private sector. We thank you all for being here today, and before I swear you in prior to your testimony, I would like to call on the Ranking Member of this Committee, Senator Orrin Hatch. STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH Senator Hatch. Well, thank you, Mr. Chairman. I am very happy that we will be working together again on the Antitrust Subcommittee during the 111th Congress. I have enjoyed working with you. I am also grateful that you have expressed a willingness to work with me on what I believe is the antitrust issue of our time. Of course, I am referring to the gross inequities and injustices that have arisen from the so-called Bowl Championship Series. I thought you would really enjoy getting into that with me. I know that working together in a bipartisan manner, we are going to return collegiate football to an honorable state, and true champions, such as those from the University of Utah, will indeed play in a national championship game. Alas, that is a hearing for another day. Today's hearing is vital to one of our most creative industries--the live music concert business. With the continuing rise of illegally pirated music, more and more artists are turning to live concert events as their primary source of revenue. However, live concert events in large venues are increasingly being controlled by a small list of companies. Today two of those companies are seeking to merge in a transaction that has both horizontal and vertical implications. From a horizontal perspective, both Live Nation and Ticketmaster sell tickets to live concert events at large venues. Therefore, understanding their respective market shares and those of their competitors will be of great import during this hearing. However, more intriguing would be the vertical aspects of this transaction. True, history has often relegated vertical merger enforcement to secondary status, but as Sullivan and Grimes in their book ``Law of Antitrust'' correctly point out, ``Vertical mergers are subject to the same statutory enforcement provisions as any other merger.'' Therefore, as with any such proposed merger, it should be examined closely. Specifically, Live Nation is widely known as a corporation with ownership or exclusive rights to place music acts at many of our Nation's largest venues. But this is only a portion of Live Nation's business model. According to Standard & Poor's, Live Nation is also implementing so-called 360-degree deals. Under a 360-degree deal, an artist is paid a certain amount for a certain period of time. In consideration, Live Nation controls the artist's music rights, tours, and merchandise. Therefore, Live Nation is more than just a leasing agent for venues. Live Nation offers a comprehensive package of services that includes the management of talent. Live Nation's partner, Ticketmaster, is recognized as the leader in sales of live event tickets. According to the company, last year it sold 141 million tickets valued at approximately $8.3 billion. In addition, 77 out of 100 of the Nation's largest venues has exclusive relationships with Ticketmaster. Yet the sale of tickets is not the only aspect of Ticketmaster's business. Recently, Ticketmaster purchased a leading artist management company, Front Line Management Group. Therefore, one could argue that the comprehensive package of services offered by Live Nation and Ticketmaster will grow to an all-in-one package if the mergers are confirmed. Now, the question then arises if the proposed transaction will run afoul of the Department of Justice's enforcement policy, as articulated in their 1984 guidelines. Mr. Chairman, I look forward to exploring these issues with you in greater depth during the hearing. I welcome all of these very, very important people to our Committee. I have great respect for each one of you sitting at the table, and I look forward to hearing your testimony in this very serious hearing. Thank you, Mr. Chairman. Chairman Kohl. Thank you, Senator Hatch. We also have with us Senator Amy Klobuchar. We would love to hear from you. STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM THE STATE OF MINNESOTA Senator Klobuchar. Thank you very much, Chairman. Thank you for holding this important hearing. The music industry, and live music in particular, is very important to my home State of Minnesota. We are home base to many artists, and we have made important contributions to music, including Prince and Bob Dylan. Minnesotans like their music, and they particularly like to listen to live music, whether at larger stadiums like the Xcel Center in St. Paul or small music venues like First Avenue, which was made famous in the movie ``Purple Rain.'' You should also know that my house--I live on 6th Street, which is two blocks from 4th Street, as in ``Positively 4th Street.'' So I care very much about this issue. I am particularly interested in the proposed merger of Ticketmaster and Live Nation. Like many consumers, I would like to know whether this merger will raise ticket prices and whether the proposed merger will make it harder for independent concert agents to market and promote lesser known artists at smaller venues. I would also like to hear about the problems associated with ticket resellers, which were brought to my attention, actually, in 2007 when, within minutes of going on sale at Ticketmaster.com, ticket brokers swooped up hundreds of tickets for the Hannah Montana concert at the Target Center in Minneapolis. In order to purchase these Hannah Montana tickets, fans or, most likely, the parents of Hannah Montana fans--and you can count me as one of those parents--were forced to go on the ticket reseller sites where they would have to pay brokers anywhere between $350 to $2,000 for a $63 concert ticket for Hannah Montana. The outcry even led to the passage of a State law in my home State called ``The Hannah Montana Law,'' which bans the use of automated software designed to quickly purchase numerous tickets in a matter of seconds and actually attaches criminal penalties to anyone that does it. But the problem, as I can see, with ticket resellers continues. The recent issue with the Springsteen tickets in New York and New Jersey focused attention once again on the sale of tickets on these reseller sites for hundreds if not thousands of dollars more than they were on Ticketmaster.com. And so I would like to hear from our witnesses whether the proposed merger will make it more or less likely that this and similar anti-consumer practices will go unchecked and unaddressed to the detriment of consumers, to concert-goers, and, of course, to those Hannah Montana parents like myself. Thank you very much. Chairman Kohl. Thank you, Senator Klobuchar. Gentlemen, would you stand and raise your hand to be sworn in? Do you affirm that the testimony you are about to give today will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. Rapino. I do. Mr. Azoff. I do. Mr. Mickelson. I do. Mr. Hurwitz. I do. Mr. Balto. I do. Chairman Kohl. Thank you. Mr. Rapino, we will hear from you first. And we hope you will hold your initial statements to 5 minutes. Mr. Rapino. STATEMENT OF MICHAEL RAPINO, PRESIDENT AND CHIEF EXECUTIVE OFFICER, LIVE NATION, BEVERLY HILLS, CALIFORNIA Mr. Rapino. Thank you for the opportunity to speak today. I am glad we have a chance to explain some of the rationale behind this merger. I got into this business because I love music and I love working with artists. We did not have concerts in my small town, but I took a 6-hour bus trip to Minneapolis to see Prince as one of my first concerts. I was hooked, and I knew I wanted to work in the business. I started by working with bar bands in college and worked my way up to CEO of Live Nation in 2005. Live Nation is a decentralized business that offers live music through a collection of local entrepreneurs. We employ over 17,000 employees across the country, including more than 100 here in Washington. The concerts we bring to cities and towns help sustain countless jobs, from the stagehands to the security guards to nearby hotels. An economic impact study of a 2-day Live Nation show at Alpine Valley in East Troy found that the multiplier effect from a single weekend generated over $5 million for the local economy. Our biggest stars--artists like Madonna, U2, and the Jonas Brothers--get most of the attention, but Live Nation probably does more than anyone to promote young artists. We put on over 7,000 club shows and others across the venues last year. We are probably the largest artist development company in the business right now. We will continue to work with these independent venues, promoters, in search of the next Bruce Springsteen. We have grown the company the old-fashioned way, by sticking to our basics. Our employees are hard-working and committed. We are not overleveraged. We spent 3 years rebuilding this company from the Clear Channel Entertainment days. We are focused on our core business. We have managed our balance sheet carefully. We have grown our business 3 years in a row through the old hard values. But, unfortunately, the economic times have taken its toll. Our stock has declined by two-thirds. Our real estate holdings are gutted. And our hard work is not producing the rewards it should. I have two choices: I can hope the economy gets better, or I can seek a more proactive approach to protect our employees, reward our shareholders, and better service artists and fans. That is the motivation behind the merger. The music industry that existed when I entered the business is broken. In the old model, the record label supports the artist. Record sales were the hub, and everything else--from concerts and merchandising--flowed from that. Tower Records, MTV, and local radio stations were the industry storefronts. That model is as obsolete as an 8-track tape today. Tower Records went bankrupt, MTV does not play videos, and radio stations are in a downward spiral. Album sales have fallen almost by half since 2000. Artists are subject to rampant piracy that steals their creativity and their livelihood. Ninety-five percent of the songs that are downloaded are downloaded illegally. Forty percent of concert seats go unsold. Computer-driven bulk purchases suck tickets out of the primary market and deny fans a chance to see their favorite performers. Fans pay more, but the performers, the promoters, and the venues do not get a dime. And fans who never get a chance to buy a ticket at face value are rightfully angry. The scalpers of today are the pirates of yesterday. Our business is bleeding, and the real victim is the artist. The artist makes music, and others steal and exploit it. Clinging to the old ways and fighting change is not the answer. Together with artists, local promoters and venues, and my new partner Irving, we want to offer solutions. I am not claiming we have all the answers, but we can be on the leading edge of change in our industry. We have an opportunity to create a truly modern business by putting these companies together--something that we cannot do alone, and certainly not quickly. Far from harming consumers or promoters or artists, this deal will benefit them as we spur competition and innovation. A system that empowers artists benefits everyone because that is where the value change starts. Our business model rises or falls on the ability to service an artist. If others can do it better, then the artist will go elsewhere. I am confident this plan will work, but it is an experiment. It is a new approach for an ailing American industry. All we want is a chance to try it. And I know this: If we do not make significant changes to the business model and if we do not build new structures, we may be back in the future for another hearing on the death of the American music industry. Thank you for allowing me to voice these concerns. [The prepared statement of Mr. Rapino appears as a submission for the record.] Chairman Kohl. Thank you, Mr. Rapino. Mr. Azoff. STATEMENT OF IRVING AZOFF, CHIEF EXECUTIVE OFFICER, TICKETMASTER ENTERTAINMENT, INC., WEST HOLLYWOOD, CALIFORNIA Mr. Azoff. First I would like to thank Chairman Kohl and the Subcommittee for the opportunity to speak about the Ticketmaster/Live Nation merger. Both companies are excited about our plans for Live Nation Entertainment. We believe the combination of our two companies will benefit artists, fans, theatergoers, sports teams, museums, and all of the other facilities, performers, and spectators who use our services. As a kid growing up in Danville, Illinois, my first concert was The Beatles in Chicago's old Comiskey Park. I was bitten by the music bug, but I soon realized that I am no musician. I was rejected by the school choir, and the only bad grades I got in school were when I tried to master the saxophone and drums in music class. My instrument of choice is the telephone. I have spent 43 years in the music business, but through it all, I have focused on one thing: serving artists and their fans. I put myself through college at the University of Illinois booking bar bands. Together with my late friend, the gifted singer-songwriter Dan Fogelberg, and the rock band REO Speedwagon, we quit school and headed west to pursue the American dream. I launched Front Line Management about 35 years ago. When I started managing the Eagles, they were playing venues not much larger than this room. I am proud to say that they are still my clients. I came to Ticketmaster 4 months ago when it acquired a majority interest in Front Line Management and I became CEO of Ticketmaster Entertainment. While I have spent my career serving artists, Ticketmaster has dedicated itself for 30 years to reaching fans of live entertainment. My job now is to use the resources of both companies to enhance the artist-to-fan experience. We constantly strive to improve our online technology, but we continue to serve fans who do not have Internet access or credit cards. That is why Ticketmaster outlets still are often crowded on weekend mornings when tickets go on sale for bands that attract a teenage audience. We employ roughly 6,700 people who have worked extremely hard to bring us the success we have seen as a company. All of them have a stake in this merger. As hard as we try to serve clients and ticket buyers, technology is not perfect. For example, I fully understand the frustration and anger created by the problems we experienced in the recent sales for three Bruce Springsteen shows. A computer malfunction temporarily affected sales on our main Ticketmaster website for these shows, and many fans were then frustrated by the very rapid sell-out of the shows combined with being given the opportunity to purchase tickets on the resale marketplace, TicketsNow.com. I have personally apologized to Mr. Springsteen and his fans about what happened a couple weeks ago. I was angered and embarrassed by the incident. As the still-new CEO of Ticketmaster Entertainment, I have pledged, and I reiterate now, that we will never let something like this happen again. The merger will let us fully integrate our complementary strengths and eliminate about $40 million in inefficiencies-- money that could be invested in more innovation. It is designed to address the obvious inefficiencies in the entertainment supply chain--the large volume of unsold tickets to events, higher costs, surcharges, and especially the explosion of the resale market. The message I want to leave you with today is that this business is in far worse shape than most people realize. The economic foundation that supported artists in the past is crumbling. Piracy is threatening their livelihood. Secondary ticketing is driving up prices for the fans, with absolutely no benefit to the artist. For the sake of clarity, I want to distinguish between a first sale and what I refer to here as ``secondary ticketing.'' An artist only benefits from a first sale, which is a ticket put on the sale for the first time, whether he or she is doing so by placing the ticket on sale via Ticketmaster's regular channels, or by offering it for sale as a higher Priced VIP or Platinum ticket or through a licensed broker. A secondary sale, which occurs after the initial generally does not benefit the artist even if the ticket is sold well above face value. We just cannot cling to old ways. There is nothing more electrifying in the entertainment industry than watching a gifted artist perform in a sold-out house. That is the magic that drew me to this business. That is why I still go to work every day. But the live performance is only part of the story. If we cannot figure out how to support artists and ensure that they reap the financial rewards for their creativity, the stage will go dark for many who deserve a career in music. Thank you very much. [The prepared statement of Mr. Azoff appears as a submission for the record.] Chairman Kohl. Thank you, Mr. Azoff. Mr. Mickelson. STATEMENT OF JERRY MICKELSON, CHAIRMAN AND EXECUTIVE VICE PRESIDENT, JAM PRODUCTIONS, CHICAGO, ILLINOIS Mr. Mickelson. Thank you, Chairman Kohl, Ranking Member Hatch, and other members of the Senate Judiciary Subcommittee, for allowing me to appear before you to hear my testimony about the competitive harms that will arise if the proposed merger of Ticketmaster and Live Nation is allowed to go through. I am here today speaking on behalf of concert fans as well as many other interested and concerned stakeholders in the music industry. Also here today are two giants in the music business. Both Mr. Azoff, representing Ticketmaster, and Mr. Rapino, representing Live Nation, are already the two most powerful people in contemporary music. Their companies are both Goliaths, so their unification will create a business with extraordinary market power and clout unlike any that I have ever seen in my lifetime. This causes me to have serious concerns about the business I work in and I love because this new company has the ability to continue to strengthen their hold on the entire music industry even farther than what currently exists today. If this merger is allowed to proceed, the combined entity will have the ability to suppress or eliminate competition in many segments of the music industry, including rival concert promoters, primary and secondary ticketing companies; artist management firms; talent agencies; venue management companies; record companies; artist merchandise, music apparel and licensing companies; and sponsorship companies. It is my belief this merger is vertical integration on steroids. The amalgamation of these two companies into one should make them the poster child illustrating why this country has and needs antitrust laws. The size and scope of this new company will be unmatched and pose a formidable challenge to anyone trying to compete in the music business. Live Nation is the largest producer of live concerts. They control the summer season of outdoor concerts. They own, as you have said, many numbers, hundreds of venues. They purchase a majority of the national indoor arena tours. They pay some performers over 100 percent of the gross ticket sales. Live Nation owns the recording and touring rights to Madonna and Jay-Z and also owns the touring rights to U2, Shakira, Nickelback, and many others. Ticketmaster represents nearly 200 performers and has more than 80 executive managers working for them. Live Nation and Ticketmaster already have substantial market power in their respective businesses, but this merger could enable them to have an even greater competitive advantage. Let me be very clear. What we are discussing today will impact and affect every part of the entire music industry. A few weeks ago, Bruce Springsteen posted a letter on his website after a ticketing problem occurred when tickets to some of his concerts went on sale at Ticketmaster. One point that Bruce made really hit home when he stated ``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.'' As I have pointed out, this merger is much larger than just the ticketing business since both Live Nation and Ticketmaster could attempt to use their combined market dominance to monopolize the entire music industry. This is a very compelling reason to vigorously enforce antitrust legislation, but make no mistake about it, this can be very difficult because of the enormous political power these companies have attained. Just look at their board of directors to understand the resources they have available to support and lobby on behalf of their effort to proceed with this proposed anti-competitive merger. The enforcement of antitrust laws over the years has been uneven depending on the party in power rather than preserving the interests of our free market economy to sustain and foster competition in order to protect consumers and companies from unfair and harmful business practices. I hope and pray that the issues I have raised today will lead policymakers and our enforcement agencies to conclude that a large part of the Nation's live entertainment industry would be seriously if not irreparably impaired by a Live Nation/Ticketmaster merger. Thank you for your time. [The prepared statement of Mr. Mickelson appears as a submission for the record.] Chairman Kohl. Thank you, Mr. Mickelson. Mr. Hurwitz. STATEMENT OF SETH HURWITZ, CO-OWNER, I.M.P. PRODUCTIONS AND 9:30 CLUB, WASHINGTON, D.C. Mr. Hurwitz. My name is Seth Hurwitz. I have been an independent promoter for the last 30 years. But the free market system that allowed me and other promoters to thrive and to offer the music fans of this country so many different choices for their entertainment is in trouble. So while I am honored to participate in these proceedings, I am deeply sorry that it has taken this long for everyone else to start figuring out what is going on here. Apparently, it took something as simple as not being able to get Bruce Springsteen tickets to finally wake the public up. I am going to start with a short history of how we got here. The market used to be healthy. Concert promoters had their own geographical areas and competed in the individual markets. The promoters that did the best jobs, with the best venues, and the lowest ticket prices, got the shows. The customers then got concerts in the best places with the lowest ticket prices. But then a roll-up artist named Robert Sillerman showed up with a plan. He consolidated as many promoters and their venues as he could buy under one roof and touted his plan as what was best for the consumer and the industry. He paid whatever it took to sign up the acts for the tours, all to give the appearance of an undeniable juggernaut. He sold the conglomeration to a company called Clear Channel, under the veil of gaining control of the industry through vertical integration--in this case radio. They owned over a thousand radio stations. It did not take too long for folks to figure out how rotten this new Clear Channel situation was. In fact, one of Mr. Azoff's own clients, Don Henley of the Eagles, even testified against it. There were accusations of being denied airplay for not playing radio-sponsored concerts--those were piling up--and a lawsuit from an independent promoter in Denver that could not buy airtime or get promotion for his independent concerts. With antitrust allegations mounting, Clear Channel spun off the company and called it Live Nation. Same principles, same business model, but it was not dragging Clear Channel down anymore. By now, overpricing on every level had become the order of the day. Even bigger offers were put in front of bands with the accompanying ticket prices that justified them. And the more money it took to lock these tours up, the higher those tickets went. Yes, of course, the bands could have said no, just like my kids could say no if I put ice cream in front of them for dinner. But the idea of blaming the artist for ticket prices is completely out of context. The offers come from the promoters who are supposed to know their market, and in Live Nation's case, they are the self-proclaimed leader of the concert world who claim, then and now, to know what is best for everyone. At this point, there are only a few competitors left. They finally landed on Boardwalk and bought the last remaining piece--House of Blues Concerts, which had clubs and amphitheaters that people preferred to play. With each purchase, they could squelch competition and confuse the investor about the company's lack of financial health by touting the added grosses as growth and actually heralding the mounting losses as investments. And now their next step to completely dominate the industry is to control the ticketing. They announced their own ticket system and spent millions to develop it. It lasted about a month. One month. So what is their next move? Same as it ever was: Buy the competition and ask everyone to trust them to serve the needs of the people. I suppose it could happen. I am sure there was a dictator somewhere in history who honored that blind trust. I cannot think of one now. So the question is: How much control is too much? When do they get told to stop? But why would they stop if they do not have to? You cannot blame Live Nation at this point any more than you can blame a shark for eating people. As far as using another ticketing service, there are simply situations where it will not be possible to bring in a new ticketing system without a very steep, painful, expensive curve that no major act will be willing to endure. Live Nation themselves have admitted this, and that is why we are here today. Now, for the record, I have never had a problem with Ticketmaster I could not work out, but that is because we have competition here in D.C. In fact, I use Tickets.com for the 9:30 Club and Ticketmaster for my amphitheater and arena shows. I feel it is very important to keep both entities in play for competition's sake, or I would be sleeping in that bed that I made--which leads me to some other beds about to be made here. If this merger is allowed to happen, my biggest competitor will have access to all of my sales records, customer information, on-sale dates for tentative shows, my ticket counts, and they can control which shows are promoted and much more. This will put all independent promoters at an irreparable, competitive disadvantage. This would be like Pepsi forcing Coke to use its services as distributor. So let's talk about the acts again. Yes, a couple of them who landed 70 million paychecks, or those who would like to get them, from Live Nation finally spoke up last night in support. But outside of those few, why have we not heard from anyone besides Springsteen? It is because they fear for their careers, and they do not dare cross the largest promoter and venue operator, especially if they end up being the Ticketmaster as well. Someone famous recently said, Competition is a win-win situation because it is great for consumers. Antitrust,'' he continued, ``helps to keep that system in force. It addresses the temptation that some businesses will sometimes experience, to merge with key rivals instead of outperforming them, to agree not to compete too hard, or to sabotage rivals' efforts to serve consumers instead of redoubling their own.'' That someone was Barack Obama. I hope he backs it up, and I hope you do, too. Thank you for letting me speak today. [The prepared statement of Mr. Hurwitz appears as a submission for the record.] Chairman Kohl. Thanks, Mr. Hurwitz. Mr. Balto. STATEMENT OF DAVID A. BALTO, SENIOR FELLOW, CENTER FOR AMERICAN PROGRESS, WASHINGTON, D.C. Mr. Balto. Thank you. Chairman Kohl and Ranking Member Hatch, I want to thank you on behalf of the consumers of the United States for the important mission of this Committee. Last year, you held hearings on the JBF/National merger, which involved beef processing, and the Highmark/IBC merger. In both cases, you advised the antitrust enforcers just to say no, and that is what they did. And in the past month, both of those mergers have been dropped. Because of that, millions of consumers of health insurance and beef in the United States will receive the benefits of competition. I have a simple message for you today. Ticketmaster has perfected and preserved its monopoly power, not by creating better products and services, but through exclusionary arrangements to exclude its rivals. Now, faced with the first significant threat in a decade to that market dominance, it is trying to buy it out of the market. It is a cornerstone principle of the antitrust laws that a dominant firm cannot use acquisitions, such as this one, to preserve its monopoly power. Just as you did last year, you should say no, and the antitrust enforcers should do the same. Consumers pay a lot for Ticketmaster's dominance. In a Boston Globe editorial called ``Ticket to Gouge,'' they noted that Ticketmaster's charges can increase the prices of seats by 20 percent, and that does not include the additional $2.50 if you want to print your tickets at home. I can print lots of tickets at home. Only Ticketmaster charges me for that honor. Simply from a straightforward horizontal concern, this merger is anti-competitive. They may say that Live Nation would not have done much. Well, industry analysts said that they would take 22 million tickets. I brought to you a printout from a website that monitors hits on ticketing websites, and it shows you that Ticketmaster is now the--Live Nation is now the No. 2 website in terms of ticket hits on the Web. That shows you the type of innovation and competition that would arise if this merger is prevented, if Live Nation continues to compete and be in the marketplace. But this merger, as Mr. Hurwitz and Mr. Mickelson both articulately pointed out, raises severe vertical concerns by combining the dominant concert promoter with the monopoly ticket firm. There are three anti-competitive effects, vertical anti-competitive effects. First, it will diminish competition in primary ticket distribution. The only reason Live Nation can mount this challenge is because it has this control over concert venues. No one else is going to have that. That will prevent any entry for the future. It will diminish competition in terms of independent concert promoters. These independent concert promoters offer an important source of innovation and creativity in the marketplace. That will be lost if you allow its rival to basically be able to ransack its files and control their ability to compete. It will reduce competition among ticket resellers, such as StubHub, by putting Ticketmaster in a position where they can control access to ticket resellers. The fundamental question here is one of efficiencies, and the parties have told you consumers will be better off. Let us be clear about this. Efficiency under the antitrust law means something that leads to lower prices or better products for consumers. Did their acquisition of TicketsNow lead to lower prices or better products for consumers? No. It led to market manipulation and higher prices to consumers. It is Ticketmaster's burden to demonstrate that those efficiencies will outweigh the competitive harm. They say in their testimony today that the efficiencies are $40 million. Go back, look at past mergers where people have testified before you. You will see that figure is paltry compared to the amount of sales. But the lesson is simple here: Vertical integration is a fertile medium for harm. Please look at the cases in Footnote 6 of my testimony that detail past examples where vertical integration has been harmful. But the Committee should go further than recommending opposition to this deal. This is a competitively unhealthy market. I have three recommendations for this Committee. First, advise the FTC's Bureau of Consumer Protection to investigate the Springsteen incident and determine whether Ticketmaster has violated Section 5 of the FTC Act. Second, advise the Antitrust Division to look at past acquisitions by Ticketmaster. If those past acquisitions, like the TicketsNow acquisition, have led to competitive harm, those acquisitions should be undone. Third, the key to Ticketmaster's monopoly power, the reason why this market is competitively unhealthy is Ticketmaster's exclusivity agreements. Unfortunately, 10 years ago, the Antitrust Division did not step up to the plate and challenge it. Fortunately, economic theory and the law has evolved, so we now realize how those arrangements can be anti-competitive. And 10 years of excessive prices also demonstrates how these agreements are anti-competitive. The Antitrust Division should investigate those agreements and challenge them if they determine they are anti-competitive. Thank you very much. [The prepared statement of Mr. Balto appears as a submission for the record.] Chairman Kohl. Thank you very much. Gentlemen, we will have questioning rounds now of 5 to 7 minutes. Mr. Rapino and Mr. Azoff, you are both operating very fine ongoing, profitable businesses. You have a history of making profits, and that is the American way, and we certainly commend you for that. Just a few months ago, we were discussing the competitive aspects of a merger between satellite radio companies XM and Sirius, and their argument was--and eventually it prevailed-- that separately they were going to go out of business because they just could not function unless they were allowed to merge. We challenged that, and they prevailed. And as things turned out, they probably were not totally incorrect. If you followed the history of their businesses over the past 6 months or a year, it really has indicated that they need to merge or they needed to have merged if they had any chance of succeeding, and that overcame the question of competition between the only two satellite radio companies, XM and Sirius. They were able to merge, and they still have a lot of problems because they just cannot seem to make it work. By contrast, your two companies are doing just fine. You are two successful companies. So why shouldn't we say to you go on, competition is what spurs in our country efficiency and competitiveness and the best value for consumers, all the things that capitalism is supposed to bring to consumers by way of competing companies for their services? That is what you represent. So why should we say to you we will throw that out the window, we will not believe that competition is what brings out the best in companies in serving their customers, and believe a whole new doctrine on your part, which is to say let us merge, let us really be not only strong and dominant but the overwhelming company in that industry making it very difficult for anybody to compete with you and believe that that is going to bring--once you have that dominance and that monopoly, that is going to bring the best service to consumers at the best prices? Mr. Rapino, you strain our sense, you know, of common sense, Mr. Azoff. Now I am sure you feel differently but explain to us. Why should we let you merge? Mr. Rapino, then Mr. Azoff. Mr. Rapino. I will just start on the Live Nation front. There is lots of competition in the concert business right now. We have anywhere in the 35- to 38-percent market share, depending on how you want to look at the pie. AEG is a very big competitor of ours, and across the country there are strong local promoters in every city. I think here in Washington, Seth would have a very strong market share. I think he does 17 percent of the shows; we do 14 percent. In Chicago, I think we do 16 percent of the shows, and Jam does 29 percent. So we have no market in America where we would not have a strong, at least three-party minimum-competition. So competition in the concert business is healthy. The debate I am having as I talk to artists and fans is, so how are we going to change the model? How are we going to service them better? How are we going to provide a better place for artists to promote their music, to take advantage of the situation where the labels have let them down? How do we provide a new model for the artists of the future? Who will provide all those young artists the new business model? And who will provide the fan a better model? We do not have the model figured out. The model right now is broken for the fan. They are confused about ticket prices, and how they can get access to concert tickets. So the change needs to be made in this business, whether it is us, whether it is others. Whoever has great ideas, we are open to them. But this industry is not going to exist in a profitable way or deliver any of these fan and customer needs in its current configuration. Vertical has happened in the record label. Most record labels now would be involved in all areas of the business, from record label to publishing to concerts to T-shirts to ring tones to websites. So we looked at a model that said how can we service the fan and the artist of the future. The model needs to change, and we believe this is a good start. Chairman Kohl. Mr. Azoff. Mr. Azoff. I agree with everything Michael said. I would also like to add that this is the first time in the history of the music business that it would give artists control to get their goods bundled and sold directly to the fan. You can no longer break a new artist with radio. I think someone mentioned the lack of video airplay. We are not breaking any new artists. If you look at who is currently selling tickets, it is all the older established acts in most cases. And, you know, for the first, time there is a complete inefficiency, there is a complete lack of respect for the music side of the business from potential sponsors and advertisers that we think together these complementary businesses will get some of that, you know, those areas available to artists. We really are complementary businesses. You know, as of 30 days ago or 45 days ago, we sold every Live Nation ticket. So, you know, we are not going to sell one more ticket than we did last year. To paint the ticketing side of the business as not competitive is just not accurate. Major League Baseball owns Tickets.com. There is a company called Veritix that has taken three of the big arenas with NBA teams, New Era Tickets in Philadelphia, and, you know--and then we have been told and we believe that if this merger were approved, many of our larger clients would opt out. The new ticketing company in Colorado called Ticket Horse, actually the owner of the Denver Nuggets, has formed the ticketing company. The technology entrance into ticketing these days is not as vast as one might think, and there is plenty of competition out there. From all the comments that I hear, I think so many people would be upset about this merger that I am sure a lot of our clients would leave. And I do not really play the market share game. We do not care about our market share. What we care about is can we deliver for artists, deliver for our fans, deliver for our clients, whether they be teams or museums or, you know, whatever. Ticketmaster has, as I am told, about 11,000 clients. We serve a lot of municipalities and nonprofits. The music business is not as healthy as you would think. I just came to ticketmaster recently, and I assure you that, you know, there are real possibilities, especially in this economy, that, you know, instead of sitting here talking about a merger, I might be at home thinking about how many people we have to fire and how many accounts we have to cut. So, you know, I think on a number of grounds, especially from allowing rights-holders to pursue their dreams, that this merger makes sense. Chairman Kohl. You both certainly do expect that your companies together will be bigger, better, and more profitable than ever before; otherwise, you wouldn't be doing this. You have not addressed that at all. And you are not serving your shareholders' interest unless you can make that claim. But in your statements, you do not make that claim at all. You would not be talking with each other unless the combination were bigger, better, and more profitable than the individual businesses. And you have every right to do that, and we have every right to challenge it. But I am, I must say, disturbed by your unwillingness to discuss the main reason for the merger. Thank you so much. Senator Hatch. Senator Hatch. Thank you, Mr. Chairman. Mr. Azoff, according to the Chicago Tribune, under Live Nation and Ticketmaster's existing business model, last year ticket prices for the top 100 tours averaged $67, more than double the 1998 average, as I understand it. Now, this is far higher than the rate of inflation. Now, these figures are especially disconcerting since Live Nation and Ticketmaster argue that their transaction--your transaction will create efficiencies in the marketplace. Granted that the merger will most likely result in the reduction of fees and costs associated with independent promoters and management. However, the businesses of these independents are already widely considered to be in decline. For example, Jam Productions, whose Chairman Jerry Mickelson is here with us today, is testifying, has testified and stated in his written testimony that his company in 1996 ``produced 130 arena concerts but in 2008 only produced 35. The single most profitable part of our business has been dramatically impacted and continues to decrease.'' Therefore, the question I naturally have is: How can the Subcommittee believe that ticket prices will go down or hold steady as a result of this transaction if the independents are already struggling? Mr. Azoff. Thank you, Senator Hatch. First of all, the demand for arena shows is way down from 1996 until now. The industry has not been breaking acts. In the old days, where an act might play 4 days in a city, they might play 1 or 2 now. I think every arena in America has suffered a reduction in the number of shows over the past 10 years--a great reduction--and there has been a narrow casting-out to smaller buildings because people just cannot draw that. Every entertainer I manage would like to charge less for tickets. You know, you accurately stated that the amount of money they make from recorded music has been drastically reduced. Their publishing royalties, therefore, are drastically reduced. And the explosion of the secondary resale market, which artists in the most part do not share in, has drastically increased. So if there is a model where you can sit down with an artist, they just want to make their nut and the profit that they want. Artists do not sit around and say, ``Let's raise prices.'' You know, if we are successful in doing this, I for sure think that we will be able to show that ticket prices will go down because it will create a bigger pot of money for artists from other avenues in their careers. Senator Hatch. Okay. Mr. Rapino, I understand that one of Live Nation's major arguments in favor of this transaction is that artists will have a greater say in setting concert ticket prices. However, at the same time, Live Nation has been implementing what has been referred to as 360-degree deals. You know, such transactions entail paying an artist a certain amount for a certain period of time. In consideration, Live Nation controls the artist's music rights, tours, and merchandise, at least as I understand it. In addition, if the merger is ratified, the resulting company will continue to be dominant in concert ticket sales. Therefore, if you are able to control an artist's music rights, when and where they perform, and the means by which tickets are sold, why would you allow the artist to influence the ticket price? Mr. Rapino. Two points. On the 360-degree deals, which receive a lot of press, we have four of those arrangements. We do over 20,000 shows a year around the world and deal with 1,500 artists. So it is a very small--less than 1 percent of our strategy. There are some artists who have been looking to find new partners and new revenue sources as the labels have shifted their model. So those four artists that we deal with, that is all we have in those 360's. We have not expanded that in the last year, and we are, again, experimenting with what is the right business model for the future. As far as the competition on the competitive side, you mentioned independents. Again, I would just say we have a 38- percent market share. I do not believe our market share has increased in 8 years straight. So whatever market share that Jam or Seth has lost was probably a function of AEG, another large company that entered the market. As far as the ticket price, again, it is a bit of-- everything we learned in business school does not apply to the music business. I want the lowest ticket price possible. Forty percent of tickets are unsold. Every time a consumer walks in the door, I make about $12 to $14 per head on the ancillary business. I lost $80 million at the door. I do not make money on the ticket in general. An average promoter, if he is lucky, makes about $4 out of every $100 on the ticket price. Our motivation is to keep the ticket price as low as possible and get everyone in the building. That is the business model of a promoter. The artist, though, over the years has had an incredible new model. They have 18 trucks on the road, from the U2s to the Madonnas. They have become a very big spectacle. An artist's job then is to figure out how to maximize his revenue on the road. So his ticket price is a sole function of his operating costs, and the bigger the tour, the longer the tour, it tends to be the bigger the ticket price. The ticket prices are set by the agent. The agent calls up Seth and I and says, ``Here is what the guarantee is,'' or ``Would you like to bid on the show? '' And they have a number that they need to get to. We do not set the guarantee. We do not set the ticket price. We only decide as promoters' can we afford to promote that show and make any money? And over the last 2 years, Live Nation in all of our amphitheaters we have initiated $9 tickets, three for four's. We found all the promoting ways we can to try to grow attendance at our venues, and I think we are one of the leaders in that business across the Nation. Senator Hatch. Well, for both of you, I appreciate the cooperation that your firms and your representatives have extended to us here on this Subcommittee. However, there still remains a level of ambiguity as to your company's respective market share and the horizontal aspects of this transaction. Therefore, I hope you will bear with me as--well, maybe I do not have time to ask any more questions, but I will submit these questions in writing, and maybe you can answer them for me that way. I am very concerned because, you know, I know that this is a tough business. I know that most musicians are having some difficult times. And like you say, there are very few real headliners, but there are a lot of young, up-and-coming people who can really be headliners if we can keep a system going that will give them opportunities. So I am very concerned about that as well, and we will just have to see. But I will submit the rest of my questions in writing so that I do not take any more of the Committee's time. Thank you, Mr. Chairman. Chairman Kohl. Thank you, Senator Hatch. Senator Schumer. Senator Schumer. Thank you, Senator Kohl. So, Mr. Azoff, Mr. Rapino, we did have a good meeting earlier today, and I told you of some of the concerns I would be raising at this hearing to give you some time to give some answers. I want to thank both of you and all the witnesses for being here today. First, as I said in my opening statement, we need to get to the bottom of what happened with the Springsteen debacle, and a debacle it was. At 10:01 on February 2nd, after the New Jersey concert was sold out, visitors to Ticketmaster were provided a link to another site, TicketsNow, which supposedly sold-out tickets to the very same concert were available at several times the price. So I have a series of questions I want to ask you, Mr. Azoff, and to help me get through it in the time allotted, just try to answer them yes or no if they do not need an elaboration. First, Mr. Azoff, you suggested this was a computer glitch. I think we need a better explanation, a more detailed explanation than that. So, first, Ticketmaster owns TicketsNow. Isn't that correct? Mr. Azoff. Correct. Senator Schumer. And Ticketmaster earns money through tickets sold in the secondary market through TicketsNow, right? Mr. Azoff. Not a lot. Senator Schumer. But the answer is yes. Mr. Azoff. Yes. Senator Schumer. In fact, am I correct that Ticketmaster is the only primary ticket seller that provides a link to a secondary seller that it also owns? Mr. Azoff. I believe that Veritix also has a secondary site, and it is pretty common in the business for primary sites to so-called--I do not know if the right word is ``link,'' but allow buyers the option of going to the secondary site. Senator Schumer. Well, let me ask you this, because that is not quite relevant, and we will---- Mr. Azoff. Okay. Senator Schumer. Okay. In fact, Ticketmaster stands to gain more in fees and markup from tickets sold on TicketsNow. Isn't that correct? Mr. Azoff. No, because a very--I believe--you know, it would depend show to show, but so many fewer tickets sell on the secondary site---- Senator Schumer. Talking about per ticket, you would rather sell a ticket on TicketsNow than Ticketmaster. Do you make more money in general? Mr. Azoff. I don't--not net, no, I don't think so. The costs of running a secondary site are extremely high. Senator Schumer. Right, but the gross--the amount you get-- -- Mr. Azoff. The gross amount is higher---- Senator Schumer [continuing]. Initially is considerably higher. Mr. Azoff [continuing]. But I don't think it is fair to characterize the net amount. I could---- Senator Schumer. Like $7 compared to $30. Is that right, on the gross? Mr. Azoff. Could be way more. Senator Schumer. Okay. What were the Ticketmaster fees on the Springsteen concert? Your fees. Mr. Azoff. I don't remember--I don't know the exact gross fees. I can tell you that on average, in 2007, we were paid for printing 141 million tickets. We make an average of $2. Senator Schumer. But I am talking about the gross fee that the concert-goers pays. Mr. Azoff. That varies---- Senator Schumer. But on the ticket on the Springsteen concert---- Mr. Azoff. I don't know. I don't know the exact fee. Senator Schumer. I will ask unanimous consent he be allowed a day to submit that in writing? Chairman Kohl. Without objection. Senator Schumer. Okay. And what were the ticket fees--do you know the fees for--the TicketsNow fees for the Springsteen concert? Mr. Azoff. I don't, but all ticket resellers are based on usually a percentage of the sales---- Senator Schumer. My understanding is you made about $7 on Ticketmaster gross--I don't know your--versus $30 on TicketsNow. Mr. Azoff. It is unfair to characterize---- Senator Schumer. I understand, but is that correct, what I said? Mr. Azoff. I am not sure. Senator Schumer. It is not 7 and 30 or close to it. Mr. Azoff. I don't know. I don't know. No, I don't think those are---- Senator Schumer. It is not correct or is it that you don't know? Mr. Azoff. I don't know, and I don't think those are accurate numbers. Senator Schumer. You can have a day to--that is easily verifiable. Mr. Azoff. Thank you. Senator Schumer. So submit that in writing. Mr. Azoff. Okay. Senator Schumer. Okay. Who was responsible for the so- called malfunction? Was anyone fired? Was anyone disciplined? Now, you did apologize for this so-called malfunction. Mr. Azoff. There have been some people reassigned. If you would like to know specifically what happened, I will get it exactly right. I have a few comments I could make to that if you would like to hear them. Senator Schumer. Here is what I am going to do. Again, submit those in writing, OK? But the writings are under oath and all of that, so we know they will be accurate and all that. These glitches have happened before. Isn't that right? Mr. Azoff. Glitches are--you know, it is technology. Sometimes it breaks. Senator Schumer. But the same type of situation that we saw with Springsteen, this is not the first time it happened? Mr. Azoff. I think it is the first time this type of glitch happened. Senator Schumer. That, in other words, immediately after a concert was sold out---- Mr. Azoff. To my knowledge---- Senator Schumer. Ticketmaster did not refer--there is no other instance where Ticketmaster did not---- Mr. Azoff. I don't know---- Senator Schumer [continuing]. Refer to TicketsNow? Mr. Azoff. We--listen, that is a practice that, as you know, we have ended. That is a practice that I was going to end prior to the Springsteen event. Senator Schumer. But it didn't--but it happened before, right? Mr. Azoff. Yes. Senator Schumer. Okay. It seems to me--your answers obviously do not satisfy me, so I want to ask you a $64,000 question, and you could help yourself with this, obviously. But maybe you do not want to do it. First, didn't Ticketmaster make a mistake in getting into the secondary market to begin with? And isn't the only real solution now to get out of that business and have Ticketmaster sell TicketsNow? Mr. Azoff. First of all, I was not at the company when it purchased the---- Senator Schumer. I know. I am asking you your judgment. Mr. Azoff [continuing]. Purchased TicketsNow. Personally, I don't believe there should be a secondary market at all. Senator Schumer. Okay. Mr. Azoff. Okay. I believe that scalping and resales should be illegal, but that is--you know, I am one man of---- Senator Schumer. Give us some inkling as to whether Ticketmaster is thinking of, would consider, will sell TicketsNow. Mr. Azoff. You know, I have spoken with senior executives at Ticketmaster and members of my board as to why Ticketmaster thought they needed to buy TicketsNow. It was for--they felt that this was a business that in the old days you would go stand out on the corner, and it led to complete chaos. They got into the business because a lot of teams and a lot of other clients asked them to get in the business and create a transparent model. Senator Schumer. Okay. My time is limited. Is it your view--yours, not your board's, not the company, but Mr. Irving Azoff's--that Ticketmaster should sell TicketsNow? Mr. Azoff. My view is I never would have bought it. I don't have a view currently because I need to do some more investigation, because my answer has to represent the various teams and other people that we---- Senator Schumer. All right. At least you will say that you shouldn't--that Ticketmaster, you weren't the owner then-- shouldn't have bought it. Mr. Azoff. I wouldn't have bought it, no. Senator Schumer. Are you open to selling it? Mr. Azoff. Listen, we are a public company. If you would like to make an offer, Senator, we would love to hear it. [Laughter.] Senator Schumer. Well, I could not afford it. I can barely afford to buy one ticket on TicketsNow. Mr. Rapino. And, Senator, when all of those companies approached Live Nation over the last couple of years, from StubHub onward, to be bought, and we absolutely stayed out of that business. Senator Schumer. Good for you. Maybe Mr. Azoff will come to your wisdom at that. My time is up. I do have more questions if there will be a second round, Mr. Chairman. Chairman Kohl. We will do that. Senator Schumer. Thank you. Chairman Kohl. Senator Klobuchar. Senator Klobuchar. Thank you very much, Mr. Chairman. To follow up on what Senator Schumer was asking, Mr. Azoff, if you are not going to sell TicketsNow, how do you plan to ensure that some of the Springsteen incident where I talked about what happened in Minnesota, that these very best seats, in fact, go to the fans that want them, that they are sold at face value, that they are not sold at a marked-up price? How would you do this given what we have seen over and over again? Mr. Azoff. Well, first of all, you know, we have instituted a policy at TicketsNow where you will no longer have the option of going from the primary site at Ticketmaster to TicketsNow. Secondly--and I believe we are the only major reseller to do this--we are no longer going to allow the pre-listing prior to on-sale for any of them. We have also come up with a plan to limit some of the search off of the search engines back to TicketsNow. The whole secondary--one of the reasons for this merger is the whole secondary area is a mess. In a perfect world, I personally would hope that there would be a more transparent, accurate primary that would do away with the need for any secondary whatsoever. You should also understand that Ticketmaster does not control what tickets go on sale and what tickets do not go on sale. There are tickets held by various parties throughout the business, and these tickets are the ones that generally end up on the secondary sites. Senator Klobuchar. So do you think the merger will bring the prices down for the tickets? Mr. Azoff. Yes, I do. Senator Klobuchar. Have past acquisitions that you have made brought tickets down? Mr. Azoff. I have not made any past acquisitions. Senator Klobuchar. Well, that Ticketmaster has made. Because the numbers I look at show that tickets have been going up. Mr. Azoff. Tickets have been going up. Senator Klobuchar. So you do not have any proof that any-- -- Mr. Azoff. They are rising about 4 percent a year, I believe. I will also say--I would also like to get on the record that when people hear what Ticketmaster's service charge is, you know, Ticketmaster was set up as a system where they took the heat for everybody. Ticketmaster frequently gets a minority percentage of that service charge. In that service charge are the credit card fees, the rebates to the buildings, rebates sometimes to artists, sometimes rebates to promoters. So Ticketmaster has been the--we are like the IRS. We deliver bad news. You know, if you get a ticket to the concert, a few people get a good ticket; they are happy. The people who do not get great seats, they are unhappy. And there to a great event, there are untold thousands that get shut out. And we take the brunt of that. And we also take the brunt, you know, which is the other thing that we are trying to accomplish is to go to all-in ticketing. We are trying to talk as many rights-holders as we can into going to, you know, one-price, all-in ticketing so the public knows what the total cost of the ticket is when they get there. Senator Klobuchar. Okay. Mr. Hurwitz, do you want to talk about if you think this is going to bring prices down, this merger, and some of these other claims that were made early on about how it is going to result in eliminating inefficiencies, eliminating large volumes of unsold tickets, address the problems with the secondary market? Mr. Hurwitz. Well, I am a little confused because today they are saying business is bad, and yet with all their quarterly reports, they say business is great. So I do not really know whether business is good or bad on their side of things. Whichever it is, I am not sure how combining improves either situation or helps either situation. As far as the secondary ticketing business is concerned, I personally have never sold a ticket to a scalper. Not that I am claiming sainthood, but in that particular topic, I have never sold a ticket to a scalper. I think that what happened was people started looking at these scalpers and seeing other people making money on their acts, and our business is fraught with people counting other people's money and saying, ``If they are making money, I should get a piece of it.'' I think what happened was that people started looking at the secondary ticketing market and saying, ``If they are making money on a product that we are controlling, we should be getting a piece of that,'' and they got into it. I think it is wrong. I would never do it. It will go on whether we do it or not, but that does not mean I have to participate in it. Senator Klobuchar. Mr. Balto, the question about if the prices will go down, and have you seen when you have studied this market they have gone down before with acquisitions? Mr. Balto. Well, first of all, you must recognize that what compels companies to reduce prices is competition, and both of these firms are dominant firms in the market. Nothing after this merger is going to force them to lower prices. It is only rivalry that does that. Second, you have to look at the past experience of their acquisitions. The TicketsNow acquisition--which, by the way, the Justice Department cleared without issuing a second request--has not led to any benefits. In fact, Mr. Azoff has difficulty justifying why it ever occurred in the first place. There are only two reasons why acquisitions occur: either to go and bring benefits to the company, either to bring some kind of pro-competitive benefits, or for an anti-competitive reason. And if he cannot articulate a pro-competitive reason for the deal, I think we should seriously consider whether it is anti- competitive. Senator Klobuchar. You know, one of the issues that the antitrust regulators will need to consider is whether in the wake of the merger other competitors can emerge to provide a ticketing system that can effectively compete with this combined entity, as I understand, because it takes away the major competitor. With Live Nation out of the picture, how hard will it be for any other business or entity to compete in the market? Mr. Balto. I think it would be extraordinarily difficult, and it is really intriguing. You know, the technology involved is not rocket science, but it is the tying arrangements, it is the exclusivity arrangements with venues, tying up the concert promoters. It is all of those arrangements that create the bottleneck that prevent entry into this market. That is why blocking this deal is a good first step, but it is not sufficient to restore the competitive health in the market. Senator Klobuchar. Do you want to respond, Mr. Rapino? You had gotten into this ticketing for a while, and then why did you get out? Mr. Rapino. If you do not mind, I just want to talk about ticket price for a second and then I will jump in. David refers to, you know, the ticket prices will go down because of competition, and, David, I wish that was the case. The true monopoly in our business, as you know, is the artist. There is only one Aerosmith. So Aerosmith's ticket price goes up because Aerosmith gets to call Seth, Jam, and I. The agent calls us and says, ``Who is going to bid the most for my tour? '' The one that bids the most then drives the ticket price. In a warped way, if Aerosmith could only call one person, then that person could actually set the ticket price. That is why we do not set the ticket price. Competition has gone up for 10 years, and the ticket price has gone up for 10 years, because there are enough competitors for Aerosmith to call every day to create a great race to the highest price. That is the bottom line to why ticket prices go up. So competition or not, the monopoly is the artist. We believe the only way you can try to get output in the future is to do two things: make the artist more money other ways, so if the artist wants $700,000 a night for a guarantee, you have got to find it other ways than the primary ticket. That is the problem with the business. The primary ticket is not funding the 700. So---- Senator Klobuchar. But did there used to be more competition in this market? Mr. Rapino. There has always been competition, and there has always been--that is why an artist used to get 50/50 of a deal, then 60/40, then 70/30, then 80/20, and now an artist gets 90/10 of a deal. So competition has always driven up---- Senator Klobuchar. Okay. And we will get back to that in a second round. But, Mr. Mickelson, could you just respond to this idea that it is the artist that is driving the prices up? Mr. Mickelson. Yes, and I would also like to get a chance to comment about some other things that were said which need some clarification. I have got to tell you, when he said Aerosmith called Seth or called me to compete with Live Nation's bid, Aerosmith did not call me; they did not call Seth. U2 did not call us. Shakira did not call us. Coldplay did not call us. And I can go on and on and on about the tours they bought that the independent promoters did not get a call on because they have paid so much money to buy that tour. And let's not forget, as I said earlier, there are acts-- and they will not deny this--that they pay more than 100 percent of the gross to. Well, no wonder why they are losing money. How can you possibly make money when you are paying more than 100 percent of the gross ticket sales to? So, in answer to your question, we do not get to bid on some of these shows because the money is so big, the agents do not even call us. Senator Klobuchar. Thank you. I will get back on the second round, Mr. Rapino, with the other question I had. Thank you. Chairman Kohl. Thank you, Senator Klobuchar. Mr. Balto, consumers have long expressed dissatisfaction with Ticketmaster, focusing on things like their high service fees, which sometimes approach 40 to 50 percent of the face value of the ticket. In my opinion, the best way to address this is to have vigorous competition in the ticketing market, including entry of new competitors. Right now Ticketmaster is estimated to control between 60 to 80 percent of the concert ticketing business and provides ticketing services for about 2,300 venues in our country. What is the likelihood of new entry into the ticketing business? Doesn't this deal make entry even harder as all venues owned or managed by Live Nation will automatically give their ticketing business to Ticketmaster? So how likely is it that a new company could enter the ticketing business when it does not have any hope of business from Live Nation venues? Mr. Balto. I think it would be extraordinarily unlikely if this merger occurs that we would ever see entry. First of all, we must pause and recognize for 10 years Ticketmaster has held a monopoly. No one has been able to effectively challenge them. So this is a tremendously serious issue. But if you allow it to acquire access to the concert promotion and venues, those are the essential inputs that are necessary to be able to provide a ticketing rival. Now, please note this is not a situation where this is the only way--if this was efficient for them to vertically integrate, fine. Ticketmaster already knows how to do that. They acquired Front Line. They can acquire acts. They can compete with Live Nation head to head for those acts. But if vertical integration is efficient, fine. They can do it on their own. That is the purpose of the antitrust laws. Chairman Kohl. All right. Mr. Hurwitz, it is my understanding that you often use Ticketmaster to sell tickets for concerts that you promote. Ticketmaster often has exclusive contracts to sell tickets at venues that you use. And I further understand that this arrangement has worked fairly well for you. What will change once Ticketmaster becomes part of the Live Nation family of companies? You have concerns about dealing with Ticketmaster as part of Live Nation because Live Nation will gain access to confidential information regarding the concerts that you promote. Is that a matter of concern to you? Mr. Hurwitz. It is a big matter. You know, your sales history is what you base your next offers on for your bands, and having worked with those bands and having those relationships, you deserve to have that information. You have invested in that band, and you have built up a business there with that band. And if they have an inside to that, you do not have that over them anymore, and you are not getting their information. A long time ago, when there was an independent promoters organization, we used to share ticket counts, and we used to trade each other's information. And Live Nation at the time was Clear Channel or SFX, I am not sure, famously would not share that information, so they themselves knew that that was sensitive information that could help a competitor. Chairman Kohl. Mr. Mickelson, do you share that opinion? Mr. Mickelson. As far as selling tickets on Ticketmaster if the merger goes through? I absolutely share that opinion, and, you know, they would have access to our ticket sales information; they would have access to our customer data bases; they would have access to the financial terms of our ticketing agreements. They would be receiving, our competitor would be receiving income from every ticket that we sell. That is not what I call something I relish. They have revenue streams that they share in, being Ticketmaster, that they could offer the artist, and we cannot offer the artist those revenue streams from ticketing, from the convenience fees. So now they have another lever to use against us to get a date or get a tour because they can offer that artist ticket revenue that we cannot offer. So it is a problem because we will lose more shows if this merger goes through just on that fact alone. Chairman Kohl. Well, Mr. Rapino, once Ticketmaster and Live Nation merge, the combined company will gain access to an enormous amount of competitive information with respect to concerts promoted by independent promoters like Mr. Hurwitz and Mr. Mickelson, information like the demographics of the audience attending concerts, ticket sales, pricing, e-mail addresses, and things like that. This information will be gained whenever Ticketmaster sells tickets for their concerts. Live Nation can use this information to promote its own concerts in competition to these independent promoters. Yet the independent promoters will have no such information regarding the concerts that Live Nation promotes. Won't this place these independent concert promoters at yet an even greater competitive disadvantage to Live Nation? Mr. Rapino. I would absolutely agree that that is a concern on their part. I would understand their concern. We would absolutely have the concert division that would not have access to the ticketing division data. The ticketing division customer is the venue. So the venue is in business with these promoters every day. I could understand their concern, and we would absolutely make sure that both divisions are separately run. There would be no reason to share that data. Chairman Kohl. Are you saying that you would support the concept of a firewall to protect the information Ticketmaster gains about concerts from being shared with Live Nation or anything like that? Mr. Rapino. In theory, yes, in terms of how the firewall would be defined. But on data and all those things, absolutely, the concert division should have no access to anything Seth or any other promoter does in any building or anything to do on the ticketing business, absolutely. Chairman Kohl. Mr. Balto, both Ticketmaster and Live Nation argue that the merger will benefit consumers by eliminating inefficiencies and will lead to cost savings that will be passed on to consumers. What is the likelihood that any efficiencies gained by this merger will be passed on to consumers in the form of lower prices or lower service fees for concert tickets? Do you think that is a bogus claim that they are making? Mr. Balto. I think it is extremely unlikely that consumers are going to see that these convenience and service charges are going to go down because of this. As a monopolist, nothing is going to compel them to reduce those charges even if they have savings. They are concerned about benefiting their stockholders. That is where it is going to go first. And, again, I want to emphasize I have done mergers for over 25 years. This $40 million efficiency figure is a fig leaf compared to the size of their businesses. This is not a significant amount of efficiency that they are proposing would exist in the first place. Chairman Kohl. All right. Senator Klobuchar. Senator Klobuchar. Thank you very much. Mr. Rapino, I wanted to go back to what we were talking about, and then we got off on prices again, but about this idea of if anyone else would enter the market and how you would respond to that, because some of the other witnesses talked about that they do not see this, that other people will enter the market when your combined company will have such a large share of the market. Mr. Rapino. And you are referring to the ticketing, right? I think you had asked---- Senator Klobuchar. Yes. Mr. Rapino.--why we started and why would we---- Senator Klobuchar. Yes, it was follow-up on my questions and Senator Kohl's that were asked of the other witnesses about other people getting into the market. Mr. Rapino. Right. You know, the ticketing business is more Irving's expertise, but I would say that we definitely have decided in the last few months that we needed to get into the ticketing business on pure vertical needs of the marketplace. So as a promoter, we thought it was important to start selling at the front door on our own basis. We tried to renew with Ticketmaster years ago, but management did not work. We believe that going forward--when we left Ticketmaster, and we fired Ticketmaster, so let me be clear, I understand the issues of Ticketmaster and what they can and cannot do for the customer. We had a line-up of companies around the world that wanted to be our ticketing company. We ended up with a German-based company, but we had got down to five different companies that were fully aware, fully equipped, in business, and were dying to be our ticketing company. We do not do it ourselves. We outsource ticketing to another company, and we use that company called CTS, and we found no---- Senator Klobuchar. Didn't you say for a time you were going to be a competitor to Ticketmaster and many industry observers thought you could siphon off something like 15 percent of the market? Mr. Rapino. Absolutely. We do have 15 percent of the market. Senator Klobuchar. Okay. But then you decided to opt against competing in this market. Mr. Rapino. Yes. Senator Klobuchar. So why do you think other people would want to come in? Mr. Rapino. Well, I think our business decision was different. I mean, right now there are a lot of companies, brands ticketing themselves--a lot of football teams, baseball teams, hockey teams. Our needs just got to the point where--you know, a year ago it was a very different marketplace, as you know. Our stock price, access to capital to really build out around the world like we had hoped just dried up, and we just decided that if you look at our ticket platform today, we are charging the same service fees as Ticketmaster. We had not really developed a new product for the consumer. And we believe the quickest way to try to bulk up and deliver a different product to the end was to enter into a bigger relationship with Ticketmaster, which could excel our strategy. Senator Klobuchar. You know, early on I talked about the small venues that we have and the history of Minnesota with First Avenue and other places. How do you think these small venues are going to continue to attract artists to their sites if the venue is not owned by or affiliated with your large combined company if the merger is approved? Mr. Rapino. You know, just for the record--I heard different numbers--we only own 18 venues. We manage or lease 88 in America. There are thousands of venues that are producing music every day, from the small clubs, as you have said, to the big arenas. All of those venues, right now we are only doing 38 percent of the shows, so they are finding lots of competitors, lots of suppliers like Seth to fill their venues in Minnesota and onward. So right now all those young bands are working. They are finding they can never work with me and do a very good job, as in 70 percent of the other bands. And the ticketing business has changed dramatically in 5 years. It is now a very low barrier entry business to enter, as we demonstrated and as the Cleveland Browns have demonstrated. Senator Klobuchar. Mr. Mickelson, do you want to reply? Mr. Mickelson. Well, I keep hearing this 38 percent, Live Nation has 38 percent of the market share. That is not true. I mean, I do not have all the figures with me, but I was reading Pollstar, and in 2000 Pollstar said SFX promoted 150 or the top 200 tours. In 2001, Clear Channel promoted 161 of the top 200 tours. So if, in fact, he is talking about 38 percent, he may be including, you know, the smallest clubs that hold a hundred people. They dominate the arena level for ticket sales. They control and have all of the outdoor amphitheaters so that not one of us really can compete. Maybe Seth has one amphitheater, but they own 90 percent of the amphitheater market. So we cannot control that. With House of Blues and their expansion into lower-level feeders, they are soon going to control that if they continue that, and that means that none of us that are competing will be able to stay in business if they are able to buy more House of Blues or build more small theaters. Also, when you look at Ticketmaster, they, I believe, have contracts with 90 percent of the top 50 buildings, 50 arenas, and I believe it is over 80 percent for the top 100 buildings. They have contracts with every major arena--I mean, not every but 80, 90 percent of the major arenas, and they pretty much control most of the other important theaters around this country. Now, your original question, can---- Senator Klobuchar. It was about the small venues. Mr. Mickelson. Can other ticket companies enter the market? I don't think so, because what could happen is that Ticketmaster/Live Nation could go to any venue and say, ``If you want my concerts, you have to use my ticketing. And if you don't use my ticketing, you won't get my concerts.'' That can happen and has happened with others. And I think it is a real possibility that it could happen in this situation. Senator Klobuchar. So that is your core concern here? Mr. Mickelson. That is a huge concern. Senator Klobuchar. Mr. Balto, if I could just have one more question here. Do you think that is true? Mr. Balto. Absolutely. Look at Footnote 6 of my testimony. Senator Klobuchar. Oh, I cannot wait to see that. [Laughter.] Mr. Balto. Yes. I think these are significant concerns that have been documented in past antitrust cases. And let me just say as an aside, as a Golden Gopher and a native Minnesotan, I am very pleased to see you on this Committee. Senator Klobuchar. Oh, well, that is very nice. Thank you, Mr. Balto. Mr. Azoff, do you want to respond? I am at the end of my time here. Mr. Azoff. No. Senator Klobuchar. Okay. There you go. I will be left Footnote 6. Thank you very much. Chairman Kohl. Senator Feingold. Senator Feingold. Thank you, Mr. Chairman, first, for your leadership of this Subcommittee. Your leadership is very important on this issue for our State that we share, as well as for the country, and I appreciate all that you have done in this general area. Thank you for having a hearing especially on the topic of the music industry. It is an industry that I have been concerned about for some time, about concentration and various anti-competitive practices. About 7 years ago, I began hearing a lot from local businesses in Wisconsin about the harm being caused by concentration in radio ownership and its effect on concert promotion and control of venues. A special concern was the combined market power of Clear Channel. In fact, I first learned of this problem from the owners of a small independent concert promoter that was being pushed out of business because radio airplay and concert promotion were being tied together. This local business was happy to compete in the free marketplace, but was at a severe disadvantage when cross- ownership was used in an anti-competitive manner. Back in 2002, I therefore introduced the Competition in Radio and Concert Industries Act. That bill was not enacted, but we have made some progress, especially when Clear Channel spun off the promotion and venues part of its business into Live Nation and when the FCC and New York Attorney General brought action against some of the worst payola abuses. Even though the concentration issues remain, the risk of leveraging by cross-ownership has lessened. But now two music industry giants--Live Nation and Ticketmaster--propose to merge and form an entity that would be the largest company in multiple segments of the music industry, raising similar concerns about cross-ownership leveraging. This combination has the potential to be even more harmful to consumer interests because Ticketmaster's market share in the ticketing market is even larger than Clear Channel's share was for radio. To say the least, I come to this hearing with a healthy dose of skepticism about this proposal, especially because both of these companies have shown a willingness in the past to use cross-ownership power to the detriment of competition. So I just have a couple of questions. Mr. Mickelson and Mr. Hurwitz, I know that this is not necessarily what you do, but based on your long history in the industry, even without the merger, could a big name act like Bruce Springsteen schedule a national tour without playing in Live Nation-owned or -controlled venues? And if so, would they have to perform in smaller venues or skip certain cities altogether? Also, just another way to look at it, could you schedule a national tour at venues that do not have a requirement that Ticketmaster sell the tickets, like Pearl Jam tried to do in the 1990s? Mr. Mickelson. If Bruce Springsteen was going to play amphitheaters, the answer would be no, you could not avoid Live Nation. They manage, own, operate, control almost all of them. So the answer in the summer in the outdoor amphitheaters is no. In indoor arenas, they do not control indoor arenas the way they do the amphitheaters. So I suppose Bruce could play arenas that--well, they do not control, I do not think, very many arenas. But as far as Ticketmaster is concerned, Ticketmaster has most of the arenas, so you would have to use Ticketmaster's contract. You could not bring in someone else, because typically the arenas sign exclusive contracts for multi-year periods, typically 5 to 7 years. Senator Feingold. So that problem would exist in both contexts? Mr. Mickelson. Pardon. Senator Feingold. The Ticketmaster problem exists in both contexts that we are talking about here? We are talking about the amphitheaters and---- Mr. Mickelson. Well, if Ticketmaster is not in the amphitheaters anymore, no. But, yes, if you are talking about the combined company, you cannot get around them at the amphitheaters, and you cannot get around Ticketmaster really into arenas, yes. Senator Feingold. All right. Mr. Hurwitz, do you have a comment? Mr. Hurwitz. If you could clarify the exact question, because I am not sure---- Senator Feingold. I just asked whether--he already answered--and I wonder if you would agree--whether Springsteen could schedule a national tour without playing in Live Nation- owned or -controlled venues? Mr. Hurwitz. He answered it. You could in arenas, but as far as amphitheaters, no. I mean, they have owned virtually all of them, and that is by design. Let me explain a fundamental problem in our business. Our suppliers--the fans, their agents, et cetera--this is kind of weird compared to other businesses as far as I can see. They have complete disregard for our financial health. They feel like they are there for the moment, we have got to get all we can, we do not care if this guy is in business tomorrow, we have got to make our money today. And the only way to combat that is with leverage. There are two ways to get leverage. One is by doing a better job and compelling them to play your venues because it is the best choice. And the other way is to remove that choice. You know, I have played one game, which is to build better venues. They played another game, which is to control the system of touring. I do not blame them for playing that. You know, if I was making what they were making on shows, I would try to do that, too. But they are going to keep going until someone stops them, because why wouldn't they? Senator Feingold. Mr. Balto, your opinion on the current state of competition, even without the merger? Mr. Balto. I say this is a competitively unhealthy market. Senator Feingold. Unhealthy. Mr. Balto. Unhealthy market. And I think you have identified one of the key problems, that these vertical arrangements allow firms to engage in leveraging, which, you know, inhibits the ability of their rivals to compete. It was a godsend that Clear Channel spun off Live Nation, but this will restore the type of vertical arrangements that led to so many problems earlier this decade. Senator Feingold. And back to Mr. Mickelson and Mr. Hurwitz. This proposed merger, would it be in an order of magnitude worse than what was going on with Clear Channel in 2002? How would you compare it? Mr. Mickelson. Yes, as I said, this is vertical integration on steroids. The ticket company that is supposed to be--you know, we thought was neutral, was supposed to be not our competitor, is now our competitor. So the leverage that they would have in so many parts of the music industry, not just concerts, not just ticketing, is huge. And they would be able to control the music industry, not just ticketing, not just concerts--everything. Recorded music they could. They could go into so many things. If you read my written testimony, you will see that this is much worse than anything I had imagined and much worse than the Clear Channel 2000. Senator Feingold. Do you agree with that, Mr. Hurwitz. Mr. Hurwitz. Yes, I mean, which is worse? You know, it is like which cancer do you want. I mean, it is--the whole play here is control. That is the point. The whole play here is leverage. And if they have the power to use that for the good of the industry, they also have the power to use it the other way. And I do not think anyone should have that power. Senator Feingold. I thank you. Thank you, Mr. Chairman. Chairman Kohl. Thank you, Senator Feingold. I would just like to ask one question on paperless ticketing. Mr. Azoff, last year Ticketmaster announced that it would move toward implementing a paperless ticketing system. Under such a system, consumers would not get paper tickets but would have to show something like a credit card or a driver's license to get admitted to an arena for a concert. Last year, a senior Ticketmaster executive was quoted as saying, ``Paperless ticket is the next key step for Ticketmaster along its innovation path.'' Among other things, such a system would eliminate the ability of consumers to resell their tickets if they were unable to attend a concert at the last minute. And without paper tickets, there would also be no ability for those seeking to purchase tickets at the last minute on the secondary market. Do you intend to continue your efforts to implement a paperless ticketing system after this merger? What will this mean for consumers? Mr. Azoff. Yes, we do, both before and after the merger. I would also like to add that AC/DC recently took the front 3,000 seats to their concerts, and we did paperless ticketing, and it still did not solve the secondary problem. But the answer is yes, and we are making great strides, and it is the future. Chairman Kohl. All right. Any other thing that we have not covered today, gentlemen, for or against? Any comments you would like to make? Mr. Balto. Mr. Balto. Can I just mention one thing? It goes back to the answer that Mr. Rapino gave to Senator Klobuchar where he suggested that competition was bad, that currently Live Nation and Ticketmaster both compete for the same people. First of all, it is a bedrock principle that competition is never bad, competition is always good. But that argument was posed in the Highmark/IBC merger when the insurance commissioner looked at a merger between two insurance companies, and the insurance companies said, oh, you know, let us create a monopoly, because right now we both compete to sign up doctors, and that is bad for consumers. And the insurance commissioner rightfully found that that argument was just inconsistent with the law and inconsistent with economics. Competition is always better than having a monopolist, and conceivably, you know, a monopoly concert producer, which, you know, could actually harm competition by reducing the output of, you know, artists by reducing their level of compensation. So it is always better to have competition. Chairman Kohl. All right. We will shut it down at this point. We will leave the record open for 1 week, and we thank you all for appearing here today. We believe that this is an important issue. We urge the Justice Department to review it closely, and we will continue to examine this transaction along the way. Thank you so much. This hearing is adjourned. 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