[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
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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
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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
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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?
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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.
[Whereupon, at 4:08 p.m., the Subcommittee was adjourned.]
[Questions and answers and submissions for the record.]
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