Hearing Of The Subcommittee On Courts And Competition Policy Of The House Committee On The Judiciary - Competition In The Ticketing And Promotion Industry

Chaired By: Rep. Hank Johnson

Witnesses Panel I: Bill Pascrell, Jr.; Panel Ii: Michael Rapino, President And CEO, Live Nation Worldwide, Inc., Beverly Hills, California; Irving Azoff, CEO, Ticketmaster Entertainment, Inc., West Hollywood, California; Robert W. Doyle, Jr., Partner, Doyle, Barlow And Mazard, Pllc Washington, Dc; Peter A. Luukko, President And Coo, Comcast-Spectacor Philadelphia, Pennsylvania; Luke Froeb, William C. And Margaret W. Oehmig Associate Professor Of Management, Owen Graduate School Of Management, Vanderbilt University, Nashville, Tennessee; Ed Mierzwinski, Consumer Program Director, U.S. Pirg, The Federation Of Public Interest Research Groups, Washington, DC

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REP. JOHNSON: This hearing of the Committee on the Judiciary, Subcommittee on Courts and Competition Policy will now come to order. Without objection, the chair will be authorized to declare a recess at the hearing.

I will start by saying that there has been a request by Congressman Pascrell that after he testifies he would like to come and sit on the podium with us. And I had spoken to my colleagues on the other side of the aisle, who have no objection to that provided that you don't ask any questions.

Yes, so you'll be welcome to sit up here. And now, what I'd do is recognize myself for about five minutes, and I would like to make an opening statement.

The reality in these tough economic times is that businesses are hurting. The entertainment business is affected by this economic downturn in the same way as other companies. Ticketmaster which owns the ticketing rights to 80 percent of the major venues in the United States, and Live Nation which controls over 150 venues in addition to being the biggest concert promoter in the United States have argued that a merger is necessary for the companies to buy -- to survive in the changing entertainment environment.

While it is important to examine the effects of the merger between Live Nation and Ticketmaster on the live entertainment industry, there may be -- there may very well be reason to support such a venture. Prior to this proposed merger, the companies simultaneously occupied different positions in the supply chain and were competitors. Until December of 2008, Live Nation was a client of Ticketmaster, generating 17 percent of Ticketmaster's overall revenue.

Live Nation elected not to renew its contract with Ticketmaster, choosing instead to enter the primary ticketing, marketing -- compete directly against Ticketmaster. Live Nation also competed against Ticketmaster for a controlling stake in Front Line, which is an artist management company, which Ticketmaster ultimately won.

In the primary ticket market, too much control over live entertainment might result in significantly higher ticket prices for consumers. The combined company would have vertical integration of every element of the live music business, that being artist management, promotion, venue, and primary ticketing.

Both companies have stated that this merger will not raise ticket prices, because the artist sets the ticket price. This statement has in my opinion limited believability and I am sure that we'll hear more about that when we hear testimony. It is one thing to claim that artists such as Bruce Springsteen or Barbara Streisand have the "star power" to exert control over ticket prices, but artists without that clout are not in a position to negotiate the price of their tickets.

Ticketmaster and Live Nation argue that artists support the merger, because artists will benefit and they'll put letters from a number of artists who support this merger. I could not help but notice that at least four of those five artists are currently managed by Live Nation or Ticketmaster.

Yet, we do not have an artist on the panel -- on the witness panel despite our monumental efforts to procure someone. Our understanding is that those artists we reached out to were reluctant to speak against the merging parties presumably for fear of repercussions. It is also troubling that a combined Live Nation and Ticketmaster might have significant control over the secondary ticket market. Live Nation might have been a competitor of Ticketmaster's ticket reseller, TicketsNow.

Recently, Ticketmaster tickets for Bruce Springsteen concert were available on TicketsNow with a considerable markup from the face value. When fans complained about the bait-and-switch, Springsteen stated, quote, "The one thing that would make the current ticket situation even worse for the fan, than it is now would be Ticketmaster and Live Nation coming up with a single system, thereby returning us to a near monopoly situation in music ticketing."

Three days ago, Ticketmaster reached a settlement with the New Jersey Attorney General Anne Milgram, where Ticketmaster agreed not to allow tickets to be sold on TicketsNow.com until the initial sale begins on its primary site.

Only yesterday it was reported that TicketsNow began selling tickets to Leonard Cohen concerts before the tickets went on sale. I was astonished to learn that tickets with face value of $99 to $250 were being sold on TicketsNow.com for between $568 and $856, plus a service charge ranging from $85 to $128 per ticket.

There is a risk that ticket prices will increase and consumers will be harmed by this merger. The Department of Justice has opened an investigation into this matter and today we have a balanced panel, because we want to understand how this merger will affect consumers.

We are not here to gang up on a U.S. business that is doing its best with the hard economic times. I thank Ticketmaster and Live Nation for being here today and I look forward to your candid testimony.

If it's all right with the ranking member, we would like to have -- if that's okay on that. Okay, I'm going to now recognize my colleague, Mr. Coble, the distinguished ranking member of the subcommittee for his opening remarks.

REP. HOWARD COBLE (R-NC): Thank you, Mr. Chairman, and thank you for calling this hearing of the Courts and Competition Policy Subcommittee. Until very recently, you know, Mr. Chairman antitrust has been a full committee issue.

I believe this is the first subcommittee hearing on antitrust matters in at least eight years, and I am pleased we have such an interesting first topic. Feel good to have you with us, and I'll say to some of the witnesses who came to my office yesterday, because of conflicting hearings I was not able to be with you, but I hope my staff extended a cordial greeting to you.

I've heard no complaints, so I assume they did. Today's hearing gives us the opportunity to examine the proposed merger of Live Nation and Ticketmaster, a combination that would create one of the world's largest entertainment companies. The combined company will own the segment of every aspect of the live music distribution chain from artist management to ticketing, and practically everything in between.

The City Judiciary Committee, Mr. Chairman, as you know, conducted a hearing on this very issue earlier this week, and it appears from their comments that several of the Senators had real concerns about this proposed merger. One of their main concerns arising from the relationship that Ticketmaster has with its wholly- owned subsidiary, TicketsNow.com, which is a secondary ticket retailer.

Recently, hundreds of fans seeking Bruce Springsteen tickets on Ticketmaster.com, I am told, were redirected to TicketsNow.com for tickets at a significantly higher price than face value, and this occurred furthermore, I'm advised, that there were still tickets available for face value on the main Ticketmaster website.

In addition, Ticketmaster CEO, Mr. Azoff, who is testifying today, was recently quoting a Wall Street journalist saying that artist agents frequently leveraged their value of their star class to extract better deals from venues and concert promoters. Well, this table of artists that includes, and Mr. Chairman, I will stipulate that I am not the most hip guy on Capitol Hill, so I may mispronounce some of these names; the Eagles, Jimmy Buffett, Neil Diamond, Van Halen, Fleetwood Mac, Christina Aguilera, Aerosmith, Miley Cyrus, Madonna, Jay-U -- Jay-Z, U2, and Shakira, the combined Live Nation, Ticketmaster would have a lot of leverage, and that is only one aspect of this business.

I noticed, Mr. Chairman, conspicuously absent from that lists of artists are some of my favorites Earl Scruggs, Lyle Lovett, the late Grandpa Jones, the late Buck Owens, but as I say I am not the most hip guy around. All that leads me to be concerned about how this deal will affect the average customer.

With its wealth of resources in terms of artists managed, venues controlled, and tickets sold, the combined Ticketmaster-Live Nation will have a lot of sway it seems to me folks over the little guy. After all in these troubled economic times we cannot ask customers to pay more for a Ticketmaster, a quote "convenience charge," close quote, a charge that many customers would probably indicate is not convenient.

This subcommittee with the support of the current and former chairman has spent enormous resources to improve and secure the future of the American entertainment industry, which is indeed significant. It provides billions, billions in positive revenue to our economy.

At the same time, this entertainment must remain affordable and accessible for the industry to continue to flourish. As I implied earlier, I am a devout bluegrass and old-time country fan. And while this may be only a fraction of your business affected by this merger, thousands of my constituents back home, Mr. Chairman, are skeptical, and I am sure they are watching this and will follow this hearing closely, as to how this matter will affect them.

That said, the burden today it seems to me, is on Ticketmaster and Live Nation to demonstrate how their proposed merger will benefit music fans and the industry alike.

And again, Mr. Chairman, I want to thank you and I want to thank our witnesses who have agreed to participate in today's hearing. And I look forward to hearing the testimony and yield back.

REP. JOHNSON: Thank you. I thank the gentleman for his statement, and I'll now recognize Representative Smith who would like to make an opening statement that will be included in the record, and Mr. Smith, the honorable member from Texas.

REP. LAMAR SMITH (R-TX): Thank you, Mr. Chairman. I appreciate your calling this hearing on Competition in the Ticketing and Promotion Industry. Vigorous, unimpeded competition sustains our economy and keeps it strong. It leads to innovative products that better our lives and keep prices low.

The Judiciary Committee has a long history of oversight to ensure that American markets retain healthy competition. This hearing is evidence of the committee's continued interest in considering mergers of large companies that can affect American consumers. Today's hearing gives us the opportunity to examine the proposed merger of Live Nation and Ticketmaster, a combination that would create one of the world's largest entertainment companies.

The combined company would own significant assets in the artist management, venue management, concert promotion, ticketing, and marketing aspects of live entertainment. In short, the new company will have a hand in everything from signing up artists and deciding what venues those artists will play, to the price of the ticket that consumers must pay.

The question that the Department of Justice must answer in reviewing this merger is whether the proposed transaction will lessen competition and thereby harm consumers. On the other hand, this merger is not typical of the mergers that this committee usually reviews. Normally, we look at mergers between head-to-head competitors such as Delta and Northwest and XM and Sirius.

While there is element of that in this merger, a more compelling and harder to answer question is whether a vertically integrated company that has a hand in every stage of live entertainment from artist to concert goer will reduce choices and raise prices for live entertainment.

This is particularly relevant given that one of the parties, Ticketmaster, has recently been the subject of scrutiny, because of a mistake that directed hundreds of customers for Bruce Springsteen tickets to a Ticketmaster-owned ticket reseller that were charging significantly higher prices. The boss was upset, his fans were upset, and I can't say that I blame them. Under these circumstances, it is harder to believe that Ticketmaster, when it says trust us, that ticket prices can come down under this merger.

Finally, while some artists such as Bruce Springsteen have expressed public displeasure with this deal, none was willing to testify today. Conversely, numerous artists have written to the committee to say that the deal will lead to better options for artists and consumers alike.

I would like to thank all of our witnesses for coming here to testify and I look forward to hearing your views on this subject. Thank you, Mr. Chairman. I yield back.

REP. JOHNSON: Thank you, Congressman Smith. Without objection, other members' opening statements will be included in the record. I'm now pleased to introduce the witnesses, or the witness for today's hearing.

Well, we have actually two panels; I'll introduce the first panel, which consists of the distinguished gentleman from New Jersey, Representative Bill Pascrell, Jr. He's in his seventh term as the Congressman for the 8th District of New York -- excuse me of New Jersey.

Throughout a distinguished career in public service, first as a member of the New Jersey General Assembly and later as Mayor of Paterson, New Jersey, Representative Pascrell has earned numerous accolades including a Humanitarian Award from the New Jersey State Fireman's Mutual Benevolent Association. His special recognition from the Brain Injury Association of America, or as well as Special Recognition from the Brain Injury Association of America. Welcome, Congressman Pascrell.

REP. PASCRELL: I want to thank you. I want to thank our Ranking Member Coble, my neighbor, and members of the committee for this critical hearing, allowing me to testify before the subcommittee about the proposed merger between Ticketmaster and Live Nation.

My attention was brought to this issue by the botched sale on February the 2nd of tickets to two Bruce Springsteen shows in New Jersey. To be clear, fans trying to buy tickets on Ticketmaster.com were met with error messages and a link to purchase more expensive tickets on a secondary resale site, TicketsNow, which Ticketmaster happens to own.

Mr. Chairman, let me say that I was moved to act on this issue by the appeal of over 1,000 average Americans who felt they got a rotten deal and just wanted to know the truth, which is why I wrote to the Federal Trade Commission and the Justice Department calling for an investigation. When I read yesterday in Roll Call, that a Live Nation source said that this whole issue was just a distraction and not a legal issue, well, I have to admit, I went from cerebral to visceral.

To even imply that the Senate committee and the House Committee are irrelevant to the task of examining this merger, first of all was wrong, and second of all, we should all think about what our responsibilities are. The heart of this issue is the average American out there.

The person who works longer and longer hours for less and less, the person who scrimps and saves for months to maybe buy a couple of tickets to the favorite sporting event or a concert, only to be gouged at every turn. That same Live Nation source went on to say that this whole, quote, unquote, "flap, was a bit of a surprise, but it's not really related to the deal.

"There's nothing that a merger with Live Nation will do that changes that scenario, just what happens when you have bad public relations at the wrong time." I don't know if there is bad public relations at the right time. Unquote.

Mr. Chairman, I'm sorry about the debacle on February the 2nd. It shouldn't have been a surprise to the parties involved and it has everything to do with the merger we are talking about today. This isn't just a little bad PR. This is quite simply a bad deal for the American people.

Listen to Bruce Springsteen himself who said, "The one thing that would make the current ticket situation even worse for the fan than it is now would be Ticketmaster and Live Nation coming up with a single system, thereby returning us to a near-monopoly situation in music ticketing. If you, like us, support that idea, you should make it known to your representative." That's what Bruce Springsteen had to say.

Let me tell you Mr. Chairman, they have indeed made their feelings known. Now, Ticketmaster wants us to believe that by merging with promoting juggernaut Live Nation, they would be able to offer lower prices and better service to consumers. That's what you're going to hear today.

You don't have to have a Ph.D. in economics to see this for what it is. This is a naked attempt to dominate the concert marketplace, to stifle competition, and prevent any competitor from entering the market in the future. The combined corporation would control nearly every aspect of the live music business.

You referred to this in your opening comments, Mr. Chairman, the artist management, the record sales, the promotion, the licensing, the venue control, the marketing, the ticket sales, and the resales, all the way down to the hot dogs and beer. Take your -- try to take your family to a baseball game or a football game. Pretty soon, you won't be able to wash your hands at a concert without this new company making a profit.

Independent promoters, artists and the fans, will have no choice but to do business with this behemoth and pay whatever they charge. It will be the only game in town, and that I must say, is the epitome of a monopoly. For years, Ticketmaster has been able to get away with its arbitrary and overpriced service and convenience fees by cornering the market for ticket sales through anti-competitive exclusivity arrangements with venues.

Today you have to pay a fee just to print your tickets out at your home; that's greed, plain and simple. And what did Ticketmaster do when the first significant competitor to them in the primary ticketing industry finally emerged; they didn't choose to out-compete them. They sought to gobble them up in order to preserve their market dominance. This is the very essence of an anti-competitive behavior and this committee and the Department of Justice must reject it.

Precedent is on the side of the people, Mr. Chairman. In 1962, Robert Kennedy, his Justice Department refused to allow MCA, Music Corporation of America and Decca Records merge because it would have put a talent agency and a movie studio under the same corporate roof. The merger we're discussing today would similarly put the managers of talent, the operators of venues, and ticket sales together and allow them to exclude outside artists, allow them to exclude venues, allow them to exclude promoters from their business.

The issue of a primary ticket reseller owning a secondary ticket dealer raises many significant questions in and of itself. Ticketmaster has admitted that it earns more gross profits off a sale on its secondary site than its primary one.

Everyone, from the scalpers to the hackers, and by the way in United States scalping is legal in most states. We need to take a look at this, to brokers and Ticketmaster itself, makes a little extra cash under this perverse system of incentives; and the fans are left sitting outside in the cold.

Senator Schumer and I agree. Ticketmaster should immediately sell TicketsNow and end this obvious conflict of interest. I will soon be proposing federal legislation, Mr. Chairman, to ban the use of automated ticket purchasing programs and reign in the secondary ticket market.

The real music and sports fans deserve the right to see their favorite bands and their teams without a greedy middleman cutting the line and exploiting their passion for profit. I hope that's clear. We live in a period of tough economic times now, everybody.

Oftentimes, live entertainment is the way of escape for a few moments, a few hours. For years, fans have scraped together some cash to buy ticket to their favorite band or sports teams, but anti- competitor behaviors have driven these costs to astronomical heights, pricing many fans out of the market.

The question we should be asking any merger is this, in my opinion, when this deal is approved and all the scrutiny and press attention dies down as it certainly will; do we really believe that this new corporate alliance will do what is in the best interest of consumers in the marketplace?

I think the actions of Ticketmaster, and I think the actions of Live Nation, make it clear that the answer is a definitive, no. And I thank you for allowing me to come here and testify today. And I hope the rest of the hearing is revealing.

Thank you, Mr. Chairman.

REP. JOHNSON: Thank you. And I thank the gentleman for his statement. I will say that back in '73, when I was in college, I was feeling pretty low one day. And I decided to go to a concert. It was held at the old Fulton County, Atlanta-Fulton County Stadium.

And I was on the line out there and the headliner was George Clinton and the Funkadelic. I don't know if the chairman -- I mean, I don't if Ranking Member Coble recalls that group, but anyway I think tickets were like somewhere between $5 and $10.

And I went to the concert and it was a wonderful experience, it definitely took my mind off of my troubles and I had a renewed sense of vigor to press forward. So you've mentioned to us about how concerts can positively impact people particularly during a tough economic time as we are in now.

REP. PASCRELL: Mr. Chairman, if I might. There is nothing, yeah, in what I have said that implies that we want the government to control A to Z. That doesn't help either, but I think we have a responsibility.

I know that Springsteen's song, "The Promised Land," which has been an inspiration to a lot of people, and I don't pretend to be an expert on Bruce Springsteen, although I know most of his music and he's from New Jersey. But in that song he said, and this in the song, "Driving all night chasing some mirage, pretty soon little girl, I'm going to take charge."

Folks out there need to know, I think all of us, that we do have some control over what's happening; that we are not simply at the beck-and-call of other people. We want people to make profits and that's what America is all about. But the average guy out there is getting stuck everyday, and particularly when it comes to some entertainment, I think we need to take a real good look at this proposed merger and I'm sure you're up to it. Thank you.

REP. JOHNSON: Well, there is no question that this committee -- this subcommittee has from the outset of the announcement of the merger we've been concerned about this issue. We view it very seriously, and that's why we are meeting today for this hearing. So I thank you for your statement and you can feel free to come up and have a seat.

I want to now introduce our second panel, and by the way, please come on up and assume your seats at the table. Our second panel features, Mr. Michael Rapino, president and CEO of Live Nation Worldwide. Mr. Rapino began his career in the music business as an undergraduate at Lakehead University in Canada, promoting Labatt Brewing Company at live music shows.

He was the CEO and president of Global Music for Clear Channel Music Group and has been president and CEO of Live Nation since 2005, when it was spun off as a separate company by Clear Channel. Welcome, Mr. Rapino.

Next is Mr. Irving Azoff, CEO of Ticketmaster Entertainment. From his early days, booking bands as an undergraduate at the University of Illinois, Mr. Azoff and it is Azoff -- Mr. Azoff -- Azoff or Azoff?

MR. AZOFF: Azoff.

REP. JOHNSON: Azoff, okay. Mr. Azoff has been a fixture in the music business. He has experience as a music agent, manager, promoter, publisher, producer, and record label owner. In 1983, Mr. Azoff was made chairman and CEO of the MCA Music Entertainment Group.

In 2005 his artist management firm Front Line Entertainment was acquired by Ticketmaster, and in addition to serving as the CEO of Ticketmaster, Mr. Azoff manages such recording artists as the Eagles, Christina Aguilera, Neil Diamond, Van Halen, and Steely Dan.

Welcome, Mr. Azoff.

And also on the panel is, Mr. Peter Luukko, president and Chief Operating Officer of Comcast-Spectacor, a Philadelphia-based, sports- entertainment firm that owns the NBA's Philadelphia 76ers and the NHL's Philadelphia Flyers, as well as the arenas in which they play.

Beginning with an internship at the New Haven Coliseum, Mr. Luukko's sports management career spans three decades. He was the 2000 recipient of the City of Hope's Tri-State Labor Award. In his own words, Mr. Luukko describes himself as a hockey player, a hockey coach and a hockey parent.

Welcome, Mr. Luukko.

Next, is Mr. Robert Doyle, an antitrust partner in the law firm Doyle, Barlow, & Mazard, LLC. After receiving degrees in law and economics from Temple University, Mr. Doyle spent 20 years investigating mergers and litigating cases on behalf of the Federal Trade Commission. Mr. Doyle served previously as a deputy assistant direct in the FTC's Bureau of Competition and has been featured on the cover of the American Lawyer Magazine.

Welcome, Mr. Doyle

Next, is Professor Luke Froeb of the Owen Graduate School of Management at Vanderbilt University. Mr. Froeb spent seven years as an economist at the antitrust division of the Department of Justice, before becoming director of the Bureau of Economics at the Federal Trade Commission. Professor Froeb has published numerous papers, concerning antitrust policy and economics and was voted outstanding professor of Vanderbilt's executive MBA program in three separate years.

Welcome, Professor Froeb.

Last, but not least, Mr. Ed Mierzwinski who is a senior fellow in the consumer program of the National Association of the State Public Interest Research Groups known as U.S. PIRG. Mr. Mierzwinski, excuse me, Mr. Mierzwinski has testified on numerous occasions before state legislatures and Congress on a wide variety of consumer issues.

He has appeared as a commentator on the Today Show, Good Morning America, Nightline, CNN Crossfire, and NPR's Talk of the Nation. Mr. Mierzwinski is a recipient of Privacy International's Brandeis Award for privacy protection efforts, and the Consumer Federation of America's Esther Peterson Consumer Service Award.

Welcome, Mr. Mierzwinski.

We thank all of you all for joining us here today. And without objection, your written statements would be made a part of the record in their entirety. We would ask each of you to summarize your testimony in five minutes or less. To help you keep time, there is a timing light at your table. When one minute remains the light will switch form green to yellow and then to red when your five minutes are up.

Mr. Rapino, will you begin your testimony at this time?

MR. RAPINO: Thank you.

REP. JOHNSON: And don't forget to cut that mike on also. Your mike -- yeah, all right. Cut it on. All right, proceed.

MR. RAPINO: Thank you, Mr. Chairman, and members of the committee. Thank you for the opportunity to speak today and address some of the perceptions about Live Nation and this merger.

And I want to address this quote that was apparently in some paper yesterday. I can assure you, it didn't come from me. I wouldn't even know who to call to make that quote. And I can assure you that anyone in our team has the utmost respect for these hearings and we appreciate and understand your concerns.

As a side note, I'm fully aware of the power of the Senate, the Congress, a fellow Canadian who will be sworn in as a U.S. citizen in the next 30 days after going through my six months of process to become a U.S. citizen, so I am very proud to become part of this country.

Live Nation, let me explain some of the facts, because sometimes perception of big isn't always true. We have 17,000 employees that work in local communities across America. Last year, our market share was approximately 35 percent and has declined for five years straight.

Our market cap today is $250 million. We are carrying $700 million in debt. Our stock is widely held and owned by many of your constituents. We have no large shareholder that controls our company.

We put on 7,000 concerts a year for young artists, but we lose $10 million to $20 million on those shows. We operate in a highly competitive marketplace. We are in a 4 percent margin business, the lowest in the industry. To give a comparison, record labels operate in a 15 to 20 percent margin.

We'll tell you about our competition. Our biggest competitors, AEG, privately held company owned by multi-billionaire Phil Anschutz who is the 31st richest man in America. AEG promoted five of the top ten concerts last year, we promoted four.

AEG is a vertically integrated company in two separate categories, they own a movie production and chain of movie theatres and in live entertainment, they own arenas, stadiums, clubs, sports teams, concert companies, music merchandise, and one step away from a ticketing company.

To put it in perspective, one of their assets, the STAPLES Center, is worth more than our two companies combined. In every market you face able and relentless competition, from AEG and independent promoters. For example, in Washington, DC, the local promoter, Seth Hurwitz, has a larger market share than Live Nation.

Some of the facts about our venues; we own 18 venues and at least 17 in America, this is a small fraction of thousands of venues across America that are staging music. In every city and town there are buildings and stiff competition from the new casinos, various festivals, arenas, amphitheatres, et cetera.

When we fired Ticketmaster, we found it very easy to find other competing ticketing companies for our venues. We had a lineup of companies willing and able to ticket our venues, we narrowed it down to four, and we ended up choosing a company out of Germany. We are not actually a ticketing company, a CTS company is a ticketing company, and we found it a very competitive marketplace.

Let me tell you about the concert business. The artist pays us a fee to handle their show. We guarantee them amount of dollars and then they pay us a fee of the concert promotion profits, somewhere in the five to fifteen percent range. The artists and their business team set the basic prices and financial needs of the tour. From a small band to a large band, the artist has a running, operating cost that he needs to cover on the road.

He then works backwards as ticket prices to help cover his expenses. An average ticket price for a concert is only $50, front row may cost to up to a ($)150, and it is still well below the price of a ringside boxing match seat, court side of a basketball game, rink level seat for the hockey game, seats in Broadway.

Fans go to an average of only two concerts a year historically. Not a necessity, one of entertainment, and it is still much cheaper than an average dinner in Washington. When called, and fans asked, why did you not go to the show, top reasons, they did not know about the show; 50 percent of fans said they didn't know. They didn't like the band and they could not get good seats.

In our business we have a saying that if the front row was eight miles long, we'd have a lot of happy fans. If you're in the front row of a show, you love the system. If you're in the back row of the arena, you're not that happy. And if you're one of the thousands that didn't get into the show, it's our fault.

The Live Nation business model, we make money two ways, from artists' revenue and from ancillary revenue. Our model is based on putting fans in seats. The more fans that walk in the door, more money we make. We make very little money from the ticket.

On average $4, out of a $100 concert ticket, goes to us. We make $12 to $15 on peanuts, popcorn, parking, ticket rebates and all the ancillary revenues that has been created in this industry to fund the business.

REP. JOHNSON: Mr. Rapino your time has expired, if you would sum up.

MR. RAPINO: I apologize. This merger, we believe, is going to be a good step forward for an industry that needs change. We don't have all the answers. We are not miraculous going to change a 30-year history, but we believe change is needed, technology advances are needed.

We agree that scalping has to be addressed, and outlawed, stopped. We'd like to reduce service fees, and we'd like to find new ways to create a better model for the artists that helps the fan.

REP. JOHNSON: Thank you, Mr. Rapino. Mr. Azoff, it's time for your testimony now.

MR. AZOFF: And by the way the timer is not working. We need to press this?

REP. JOHNSON: Okay.

MR. AZOFF: First, I'd like to thank Chairman Johnson and the subcommittee members for this opportunity to speak about this proposed merger. I came to Ticketmaster four months ago, when it acquired a majority interest in Front Line Management and became CEO of Ticketmaster Entertainment.

While I have spent my 43 years career serving artists, Ticketmaster has dedicated itself for 30 years to reaching fans of live entertainment. We have roughly 6,700 employees who've worked extremely hard to bring us the success we've seen as a company.

I have come to realize in my short time at the company that Ticketmaster is a lightning rod for many issues beyond its control. As the only point of contact with fans, Ticketmaster hears nearly every gripe about, just about everything that goes wrong. People don't like ticket prices, they blame Ticketmaster even though we have nothing to do with setting ticket prices.

If the show sells out, they get mad at Ticketmaster, even though all we do is sell all the tickets that our clients give us to sell. If they get a bad seat, they blame Ticketmaster, even though we don't control which seats go on sale. If somebody gets hurt in a mosh pit they try to sue us.

We take so much heat for what we do, we think, you think we're the IRS. That's not to say that we always get it right. We don't, no one does. As hard as we try to serve clients and ticket buyers, technology is not perfect. I fully understand the frustration and anger created by the problems we experienced in the recent Bruce Springsteen concert. I will explain in detail.

On February 2nd, tickets for three Bruce Springsteen concerts went on sale at 9:00 a.m. Because of Mr. Springsteen's popularity, there were many more fans trying to buy tickets through ticketmaster.com and then there were tickets available. As a result, many requests could not be filled.

In August 2008 Ticketmaster modified its payment processing software in U.S. to support certain credit card anti-fraud programs. On the morning of February 2nd, when the Ticketmaster still recovering sales for New Jersey, the extreme load caused by the Boston's concert on sales revealed the limitation in the software implementations.

While the code that was added to implement this program passed all internal tests, it ultimately was unable to handle the extreme conditions of the heavy volumes. Starting at approximately 9:08, this caused certain consumer transitions to freeze for an extended period or be aborted while processing payments. It also caused certain consumers to see routine maintenance error pages on the website, while attempting to reserve tickets.

No consumers were directed to TicketsNow or given the options to link to TicketsNow from the error page. Ticketmaster identified the software problem at approximately 9:45. In both cases, fans involved had to return, to start over at the ticketmaster.com site to start another search.

The problem was corrected at approximately 1:25, when a software patch was installed on the affected ticket inventory system. That unlocked the frozen transactions and eliminated the routine maintenance error page. In addition, Ticketmaster sent out a ticket alert e-mail to certain registered users that inadvertently and mistakenly listed the on-sale time as 10:00 a.m. rather than 9:00 a.m.

Consistent with our policy at the time, other ticket purchasing options in the event were enabled to fulfill the specific ticket request on the ticketmaster.com. Fans who were unable to secure tickets from sponsors -- responses to their search were given free choice. Search again using different parameters, comeback later, or voluntarily click on a link to the inventory available on TicketsNow.

Some consumers who chose to link to TicketsNow and then completed a purchase, however, complained they were confused and believed they were instead purchasing tickets form the initial on-sale at ticketmaster.com. Thought we believed the messaging on the site was clear when consumers chose to switch to TicketsNow, we immediately offered to issue refunds to the difference between the purchase price and the face value of the ticket.

Also to address the concerns with received consumers we have removed all links to TicketsNow from our Ticketmaster website in all states. We're in a service business and like any other service business, if we don't serve our clients, we lose the business. We're proud of our success with the number of our satisfied customers who rely daily on our ticketing system.

Some claim we have a large share of the ticketing service market, we don't measure or keep track of such things. What we do is, try to do the best job we can and keep up with the many competitors who are offering alternatives to our clients. All our venue agreements come up for renewal constantly. We've lost major arenas to competitors at Philadelphia, Huston, Cleveland, Denver. If that's not competition, I don't know what is.

Others will most certainly leave if this merger is consummated. In fact, AEG has notified us by letter that they believe that they have the right to terminate our agreement, in connection with this merger. I'll supply a letter to the committee.

Thank you very much.

REP. JOHNSON: Thank you, Mr. Azoff. Mr. Doyle. And your mike, sir.

MR. DOYLE: Thank you, Mr. Chairman. Is it on?

REP. JOHNSON: Yes, just pull it a little closer.

MR. DOYLE: Thank you, Mr. Chairman, and the subcommittee for this opportunity to present my views on this proposed merger. I do not represent anybody here. I'm appearing at the invitation of the committee to express my views on the transaction.

I have four basic views on the proposed merger. I believe that the merger will eliminate competition in the primary ticket services market. I believe it will reduce competition in the secondary ticket service market. It will reduce competition in the managements of the top tier artists, and fourthly, it will reduce competition in the concert promotion industry.

In the interest of time, I'm going to focus my summary on the competitive effects of this merger in the primary ticket services market. This merger will eliminate the only viable competitor available to go head-to-head with Ticketmaster in the primary ticketing services market. Now, let me put this in a little bit of context.

We have to go back to September of 2008. On September 11, 2008, Live Nation announced that it was entering the ticketing business. That same day, they also announced that they had taken away from Ticketmaster, its largest customer, SMG Entertainment. Ticketmaster immediately responded to that press release put out by Live Nation.

Their press release indicated that in the short term, Live Nation's entry didn't impact them very significantly, because SMG was tied up in a long-term contract through 2010, and during the interim period, Ticketmaster will take every step possible to convince SMG to stay with them at the expiration of their contract. The following month, after Ticketmaster sees Live Nation entering its market, what Ticketmaster did -- it announced its acquisition of Front Line.

Now, that could be a retaliatory response, it could be a defensive response. But within a short period of time, after Live Nation begins competing with -- or announces that it's going to compete with Ticketmaster, Ticketmaster announces that it's going to get into the talent management business, the business obviously that Live Nation does.

So you've got two large competing firms, going head-to-head with each other. And within a short period of time, Live Nation, in January of 2009, began ticketing some of its own venues. So not only did it announce that it was getting in the market, it's taking away significant competitors from Ticketmaster, but shortly thereafter in January, it began actually ticketing some of these events.

We all stood by, we all saw the two significant competitors finally going head-to-head and we waited to see what kind of a competitive response, the market would show. Well, the market didn't get any response at all. Because the company decided in February to merge, they told the truth. There is no point banging each other in the marketplace -- (off mike) -- ticketing of one -- (off mike) -- and on the management, the talent management part of the business. I'm sorry. So the merger eliminates the only viable, integrated potential competitor that could challenge the monopoly positions of Ticketmaster in the marketplace.

Now, there is another concern that has arisen as a result of this transaction. And that is, the degree to which a combined Live Nation/Ticketmaster can impose its will on the venue, customer, and the ticket. And we have done several interviews of venues over the course of the last week or so.

And the indications that we have gotten from the venue segment of the industry is that they are concerned that a combined Live Nation/Ticketmaster will exercise leverage and impose its will on the venue in the form of, perhaps, higher convenience fees, in the form of perhaps less services, and in the form of picking and dictating to the venue what the ticket company receives. Now, the question is, does that leverage exist, number one. And number two, will it be exercised post-acquisition by the merged firm?

REP. JOHNSON: Mr. Doyle, your time has ended, if you would sum up.

MR. DOYLE: Yes, let me quickly say that we don't have to speculate as to whether leverage can be used or not used. In Saturday's Wall Street journal article, over the weekend, there was a big front page article on Ticketmaster. And Mr. Azoff was quoted extensively in the article. I would direct your attention to my exhibit 4 where I've copied the article. And in the article a question is actually put to Mr. Azoff about leverage and the best way to summarize here is to read his comment.

Mr. Azoff -- this is the author of the article. "Mr. Azoff isn't shy about using his gold-plated roster as leverage when negotiating with concert promoters." Quote, Mr. Azoff says, "It's done with a wink," he says. "There's never a conversation that says, 'If you don't extend this rent deal to Journey and the Eagles, I'm not going let Jimmy Buffett play your building.' End quote."

Now, that's an acknowledgment from Mr. Azoff that he has got the market power to impose his conditions on the venue which would extend, in my opinion, to selecting the ticket companies post acquisition to the exclusion of other competitors in that marketplace.

Thank you.

REP. JOHNSON: Peter Luukko.

MR. LUUKKO: Okay. Thank you, Mr. Chairman. I have spent my entire career in the sports management and facilities management industry, and I have done business with both Ticketmaster and Live Nation for many years. Since 2005, I have been the president and chief operating officer of Comcast-Spectacor, a Philadelphia-based sports and entertainment firm, which includes the Philadelphia Flyers hockey team, the Philadelphia 76ers basketball team, the Philadelphia Phantoms hockey team, and two South Philadelphia arenas in which the teams play --- the Wachovia Center and the Wachovia Spectrum.

In my current position, I am also responsible for oversight of Comcast-Spectacor's other business interests, which include Global Spectrum, a company that manages stadiums and arenas throughout the country in Canada, Ovations Food Services, a food and concession company and New Era Tickets, a full-service ticketing company, which is a competitor of Ticketmaster. And with all due respect for Mr. Doyle we do not feel any implied leverage whatsoever. In fact we see this as an opportunity.

Flyers Skate Zone, a series of community skating and hockey rinks in the Greater Philadelphia Region, and Disson Skating, the developer and promoter of a series of ice-skating and music shows performed live and distributed to a national television audience. Also within the Comcast-Spectacor family of companies is Front Row Marketing Services, which provides consulting services to help develop effective sports and entertainment marketing, sponsorship and advertising strategies.

My duties include serving as the Chairman of Global Spectrum, and I am responsible for creating new business opportunities for Comcast- Spectacor in the fields of facility management, sports ownership, and operations, food and beverage concessions. Prior to joining Comcast- Spectacor and ultimately becoming the company's President and COO, I worked in various aspects of facility management, event organization, and hospitality services, including in such positions as vice president of Spectacor Management Group's Western Region and facility manager for SMG's Los Angeles Coliseum and Sports Arena.

Let's talk about vertical integration. In my positions at SMG, Comcast-Spectacor and Global Spectrum, I have come to understand the benefits of having a vertically integrated live entertainment business. By being part of a company that owns, manages, and/or operates venues, and owns several sports teams and other content, and provides its own ticketing solution and food and beverage services to arenas, stadiums and amphitheatres throughout the country, we have the ability to cross-promote among these different levels in the vertical distribution chain and to touch the fans directly at multiple points in his or her sports, entertainment experience.

Additionally, because we have more assets in some cities like Philadelphia, we have the ability to create unique packages to offer to sponsors and most importantly the fans. This is where the industry trend is clearly moving, in large part because content providers want to have more direct control of the connection to their fans.

We believe that one of the reasons Comcast-Spectacor has been so successful in its ability to vertically integrate all of the resources of its related companies, as well as those supplied by its parent company, Comcast Corporation, to create synergistic opportunities to grow our business.

We provide a unique and excellent opportunity for our teams and facilities to utilize the relationships in the Comcast Family of Companies, including Comcast Cable, Comcast SportsNet, the Versus Network, and E-Entertainment Television to increase market visibility. But don't just take my word for it, look at other competitors like MLBAM/Tickets.com and Kroenke Sports in Denver — they're doing the same thing. This is what's happening.

The merger. I believe that the merger of Ticketmaster and Live Nation is an exciting combination that has the potential to reinvigorate the industry at a time when change of direction is drastically needed. The economy is distressed right now, and as a result, many sports teams and other live entertainment acts are struggling to sell event tickets.

This industry needs some new and fresh ideas, especially now. So that we can provide consumers with the much needed leisure activities that keep their spirits up and our economy moving in the right direction. I think the merger will bring welcome change. If together Ticketmaster and Live Nation can sell more tickets, and therefore provide more content to venues and consumers, this will be a huge improvement over the status quo.

I also believe that this type of strategic combination will encourage other competitors, like myself, to be more creative in their offerings and to compete more effective overall. I certainly don't have any reason to believe that the combination will in any way whatsoever stifle competition.

REP. JOHNSON: Mr. Luukko, your time has expired. If you could go ahead and sum up.

MR. LUUKKO: I think in summary, I think this combination will breathe much needed life into an industry that is hurting, and at the end of the day, change is good.

Thank you.

REP. JOHNSON: Thank you sir. Mr. Froeb, please begin.

MR. FROEB: Mr. Chairman, Ranking Member Coble, members of the subcommittee, thank you for this opportunity to testify.

My name is Luke M. Froeb. I teach Management at Vanderbilt University. And I was formerly a staff economist at the Justice Department and chief economist at the Federal Trade Commission. In this short oral testimony, I want to highlight what I consider as some of the most interesting and significant issues raised by this merger.

Ticketmaster and Live Nation are part of the vertical supply chain that delivers live performances to fans. The price of this service is the difference or wedge between what consumers pay and what performers receive. The size of this wedge is one criterion that the Justice Department will use to determine whether the merger is anticompetitive or not.

This is important because a bigger wedge means either that consumers are paying more or that performers are receiving less, or both. In the first case, one might expect fewer tickets purchased; in the second, fewer concerts performed.

This leads naturally to a second criterion that the agencies will use, the expansion of output, more seats, or more concerts. A merger that increases the size of the wedge and reduces industry output would likely be found to be anticompetitive and vice versa.

This merger is complex because as Representative Smith has noted, it raises both horizontal and vertical issues. The Department of Justice will analyze the extent to which actual and potential horizontal competition is lost by this merger and count that as a cost to the merger.

But for the most part, Ticketmaster and Live Nation occupied different positions in the supply chain and performed different functions. When firms producing complementary services do business with one another, incentive conflicts naturally arise.

These conflicts can be over what price to charge, or how much to spend on promotion, as noted by Mr. Rapino. A merger, among the providers of these services, would likely reduce the cost controlling these incentive conflicts, and could result in levels of price and promotion that would both reduce the size of the wedge as well as increase the output.

But perhaps the biggest potential benefit of this merger is innovation. The fragmentation of the supply chain means that individual firms may lack the information necessary to innovate or the incentive to do so because each receives only a small slice of the proverbial pie.

Innovation is important to the music industry because business models are changing rapidly. If this merger gives the merged firm enough information to design more effective ways of managing the supply chain and the incentive to do so, it could reduce the size of the wedge and increase output. This kind of experimentation in innovation is crucial to the health of the economy. Its ability to adapt to change is what makes it strong.

Thank you for giving me the opportunity to share my views on this timely and important topic.

REP. JOHNSON: Thank you, Professor Froeb. Mr. Mierzwinski.

MR. MIERZWINSKI: Thank you, Mr. Chairman, and Ranking Member Coble. I am Edmund Mierzwinski. I'm consumer program director and senior fellow at the U.S. Public Interest Research Group, which is the federation of State PIRGs.

And before I begin my testimony, it's a point of personal privilege, Mr. Chairman; I want to say that the consumer civil rights and community strongly supports your Arbitration Fairness Act. That is one of the most important pieces of legislation before the Congress. We hope we can get it through and signed by the President this year.

It's an important bill to balance the scales between powerful companies with their one-sided contracts and individual consumers, small businesses, and small farmers. So we appreciate your work on that.

REP. JOHNSON: Yes, and Mr. Mierzwinski, you get an extra five minutes.

(Laughter)

MR. MIERZWINSKI: Thank you very much, Mr. Chairman. U.S. PIRG has long been concerned with the important matter of fairness in the ticket industry. We were partners with Pearl Jam in our unsuccessful effort 15 years ago or so to convince the government to take actions against Ticketmaster's unfair practices at the time.

And you pointed out in your opening remarks that you were disappointed that there were no artists on the panel today.

I would suggest that based on my understanding of the history of what happened back then, Pearl Jam faced enormous competitive pressures and difficulty obtaining venues, and for several years was treated with the same by powerful interests in this industry 15 years ago.

So I would suggest that it's disappointing, but not surprising that other artists are not here to testify, but I know that a lot of them are concerned. It is our view that this merger is bad for consumers, bad for artists, and bad for independent promoters. We believe it violates the Clayton Act, and we believe that the Justice Department should reject the merger.

It is a bedrock principle of our antitrust laws that merging to avoid competition is simply wrong, illegal, and should be defeated. I want to make just a couple of quick points, a lot has already been said about all of these issues, and I'll try to summarize very quickly.

First, Ticketmaster is the dominant player in primary ticket sales. We thought a year ago that Live Nation would be a competitor, now Live Nation wants to merge with Ticketmaster. That is unacceptable on face and that alone should be a reason to deny the merger.

Second, the merger also raised the specter of a vertical monopoly since Live Nation, by all accounts, controls exclusive long-term contracts, the market for marquee venues, events, and major tours. The combined firm would have tremendous market power over artists and venues as well as over consumers.

We would all have no choice but to accept their terms of trade, higher prices and fewer choices. Certainly, bands might find an American Legion hall or a county fairground not controlled by the combination if they wanted to have a venue. But if the firms combined, artists would not be able to negotiate. There would be fewer choices in that marketplace.

We've already heard how big the company would be, I won't go through that again. I do want to elaborate further on the impact on independent promoters. Seth Hurwitz was mentioned earlier, he owns the local 930 Club, and has testified before the Senate this week.

In his Senate testimony he said, "If this merger is allowed to happen, my biggest competitor will have access to all my sales records, my customer information, sales dates for tentative shows, my ticket counts, they can control which shows are promoted and much more. This will put all independent promoters at an irreparable competitive disadvantage."

To make it clear, we have this vertical integration. Independent promoters will face the significant problem. They won't be able to get the artists unless they also take the ticketing, unless they also take the venue control, and the artist management, and they simply cannot compete on that basis.

I want to make a couple of quick points about a couple of the other issues. Ticketmaster and its reseller affiliate TicketsNow. I mean, really, how can the company that owns primary ticketing also own legal ticket scalping, ticketing, and I don't think that the proposed solution to the problem that occurred with Bruce Springsteen is any kind of a solution. I think that issue raises significant unfair and deceptive practices as well as structural problems.

Second, my testimony goes into detail about our efforts, particularly in New York, the site ticket scalping. We have argued very strongly in New York, and I think the committee should look at this, the relationship between taxpayer-built venues and these long- term contracts from these companies raises serious questions. If taxpayers can't get a ticket at a fair price, why did taxpayers pay to build these venues?

And finally, I would be remiss with the consumer advocate if I didn't point out that consumers are outraged, absolutely outraged over the unfair convenience fees and handling fees that Ticketmaster loads on to all of its sales. Nobody else that sells anything on the Internet charges convenience fees and handling fees. You pay a handling fee as if somebody is going to walk up to your house and deliver your ticket, when all they do is push a button and deliver it to your e-mail account.

They are numerous sites on the web, TicketmasterSucks.com kinds of sites. And in other circumstances, the consumer could simply say, I'll get a new cell phone company. I'll get satellite instead of cable. But in the case, particularly after this merger, consumer can't fight back against Ticketmaster; they've got to get the tickets through them.

I appreciate the opportunity to testify before you today. I would point out I like all the music that's been discussed from Bruce Springsteen to George Clinton to Doc Watson, and Buck Owens. And I hope that all artists, and all independent promoters would be given a fair chance to compete and this monopoly does not go forward. Thank you.

REP. JOHNSON: Thank you, Mr. Mierzwinski. I'll now recognize myself for five minutes for purposes of asking questions.

Mr. Azoff, in the last month alone, two incidents have occurred where consumers were directed to a secondary ticketing site and forced to pay significantly more for tickets than advertised. If they reported that Live Nation and Ticketmaster intend to concentrate more efforts on the secondary ticket market as a merged company, how does the proposed firewall between Ticketmaster and TicketsNow prevent Ticketmaster from continuing to use the secondary ticket market to charge inflated ticket prices to consumers?

MR. AZOFF: First of all, we have instituted a policy that these two companies be run totally separately. There will -- and you will not be able to link directly from Ticketmaster to TicketsNow. In particular, people are never automatically sent, this is a standard industry practice, majorleaguebaseballtickets.com links to StubHub, Veritix links to Flash Seats; we are the first one to unlink.

Secondly, we are the first site now, and we have some -- it's going to take a bit of time, because we have to do it manually until we get this automated, we will be the only secondary site that will not allow pre-listings on the site, because what the brokers currently do is list tickets before on-sale under the assumption that they know they'll get the seats and it confuses consumers into thinking tickets have actually been sold and left.

I might add that, you know, I'm new at Ticketmaster. Had I been there, I would not have purchased tickets now. When we talk about under the merger that we want to concentrate on secondary ticketing, we want to concentrate on a different model. We agree that this model is broken, you know, and it needs a solution.

As the Congressmen said, you know, it's legal to scalp in nearly every state. But that -- and we fully agree that that is an area that needs a lot of work, and we think this merger will give us the ability to work hand in hand and get it done.

REP. JOHNSON: Thank you.

Mr. Rapino, you state in your testimony that your stock has declined, and you are concerned about being bought by a foreign company. Yet your balance sheet appears to be quite healthy with the chance to increase profits from -- or with your entry into the primary ticketing market. Can you explain in detail the grounds on which you believe this merger is necessary for Live Nation to survive as a U.S. Company?

MR. RAPINO: Yes, thank you. We took over three years ago from what Clear Channel Entertainment was and it was spanned out to Live Nation. Our management team was instilled then, and we had a failing business model and a horrible name equal to Ticketmaster. We renamed the company Live Nation, we fired old management and started our journey three years ago to rebuild this company.

Three years we are proud, we are not laying off employees. I think we'll have one of the best performances in the entertainment business. And we worked hard for three years to run the company right, no excessive CEO pays or bonuses. We rebuilt it. A year ago, we were $20 stock, capital was available, and the fight to continue globally seemed very certain.

A year later, our stock is down to $4, capital is not available. Our real estate holdings have been gutted. So in an overall sense it's a tough economy. We believe that we can continue our model with or without Ticketmaster. This is not about we are going broke, we need a solution.

This is about excelling the race to try to solve these problems that Peter outlined. I absolutely agree that scalping is a huge problem.

It is about $1 billion business that we receive $0 from. We invest $2 billion a year with artists, we made a $160 million in EBITDA last year, but we had a negative cash flow. We didn't actually make a dollar.

We spent millions on real estate and artist investments, and we realized zero of the scalping market. We've realized that technology is moving fast, and artists want solutions now. And we want to excel our chance to innovate this market. And from outline scalping to figuring how a artist participates in it, we absolutely think that needs to be addressed.

REP. JOHNSON: All right, thank you Mr. Rapino.

Back to you, Mr. Azoff. The recent conflict with Springsteen is not the first time that Ticketmaster has had a conflict over the price of Ticketmaster tickets. In 1994, Pearl Jam cancelled its summer tour as the band was unable to negotiate a deal with Ticketmaster to keep ticket prices below $20 or find a way to tour without selling tickets through Ticketmaster.

You claim that artists set the price of tickets. However, Pearl Jam certainly did not believe so in 1994, and many artists have recently opposed your proposed merger with Live Nation on the grounds that they will have even less control over the price of tickets, if the merger were to go through. How do you respond to that charge, sir?

MR. AZOFF: I believe that Pearl Jam, the dispute with ticket -- with old Ticketmaster was about the service charges, okay? The service charge -- the public believe that Ticketmaster sets the service charges. The old regime at Ticketmaster basically set Ticketmaster up to be the -- to take the brunt of the criticism. The consumer thinks that there is a $11 service charge and that's what Ticketmaster made.

What that service charge really contains is all the credit card processing fees, which averaged about 2.9 percent, and there are enormous rebates back to the venue. The venues really would, you know, for Pearl Jam to get the service charges down to a level they wanted, required venues to agree. Ticketmaster can't unilaterally set any service charge.

So basically, you know, what we believe is there needs to be a -- in the new -- you know, in the new model, what we accomplished -- when you walk into a building, everything is, you know, the rent, the service charge, you know, it's not -- you can't just isolate the service charge, and we think the industry needs a complete overhaul in how it does figure out these service charges.

The first thing I did when I started at Ticketmaster was I convinced my client Eagles, to go to all-in ticket prices. So on -- in virtually every date that they now do except, where building will not allow it, the stated ticket price includes all the service charges. I think that the public, you know, needs truth in advertising from all-in ticket charges, and we think that that will go long way to solving this problem.

REP. JOHNSON: Thank you, Mr. Azoff.

I'll now recognize the ranking member Mr. Coble for five minutes for questioning.

REP. COBLE: Thank you, Mr. Chairman.

Good to have you gentlemen, whether it is Mr. Peter Luukko of the avid Canada files, it is good to have as an American citizen here, what was your home province?

MR. LUUKKO: Ontario.

REP. COBLE: Yeah.

Mr. Rapino, does Live Nation currently compete with Ticketmaster? And in the absence of the merger, how would Live Nation continue to compete with Ticketmaster?

MR. RAPINO: Currently, we have -- we have been selling tickets for the last two years on our own. We have a system that we use. As of January, we have a new ticketing buyer called CTS who owns the ticketing company and licensed it to us.

We had planned on by the end of this year looking to third parties to compete with Ticketmaster. As of this year, our stated goal publicly has been to service our own needs and the SMG comment is relevant here is that we have the option and right to bid on the SMG buildings, if we are capable to service them by the end of the year.

And Ticketmaster has the full right to convince them that they are still a better solution, because they are usually city buildings. So as of today, we are not out competing, we are worried about servicing our initial needs this summer.

REP. COBLE: Thank you for that.

Professor Froeb, you live in a city that would embrace my affinity for country and bluegrass. What are the horizontal and vertical effects of this proposed merger, Professor?

MR. FROEB: The -- its funny you mentioned it, as a lot of my friends are part of this vertical supply chain and they are facing a lot of uncertainty. And if this merger is successful and does what it's designed to do, a lot of them are going to face a lot more competitive pressure than they did before, and that's reducing the size of the wedge between what artists received -- I mean, what consumers pay and what artists receive.

So that could be counted as a potential benefit of the merger. And the horizontal potential and actual loss in horizontal competition probably will be narrowly focused in -- part of the investigation was narrowly focused on the ticketing services.

REP. COBLE: Thank you.

Mr. Azoff, if at this part you succeed, you will control, I'm told, virtually all aspects of major concerts in the United States. Will this improve efficiencies in the music industry, a, and will it likely lead to reduced ticket prices?

MR. AZOFF: We -- I've spoken to many artists. Basically this committee, as I understand it, is also -- is formerly also intellectual properties. And I know that you all have -- are very well-versed in that. The complete destruction of recorded music earnings to artists is one thing that has driven ticket prices up.

We fully believe that this merger will allow us to get marketing monies back into the business. Currently $9 billion go to sports marketing and $900 million go to music. And we fully believe by selling more seats and bringing new revenue sources and also in the secondary area that we create a pot that is bigger for the artists.

Every artist I talk to would like to charge less money for their tickets, but they have to meet the -- (inaudible) -- to go out on the roads, that, you know, and since there is really no contribution or little contributions on their recorded music now. That's the theory under which we think that ticket prices will go down, not up, and certainly on the major acts, that's for sure.

And you know, new artists -- under what we are trying, we think we can bring so many new marketing opportunities across the board to new artists that currently can't get radio airplay, MTV stopped playing videos. We are going to try and connect these artists directly to their fans. We've got this list of buyers -- ticket buyers, that currently is not being utilized. And this is really about, you know, music business 3.0. It's creating the new model, and under this model, we intend to be a Switzerland-type distribution system.

We don't intend to ask artists to sign-over rights, the way the old recorded music model worked. We intend to get a fair distribution fee, and let artists control their intellectual property and exploit it to the fans. And we think it will reduce and lower cost across the supply chain.

REP. COBLE: And you mentioned intellectual property. And you will probably know now that's an issue that will be considered by the Full House Judiciary Committee.

Mr. Johnson, I won't have that in the subcommittee level anymore, but I thank you for that. I see my time is about to expire, and Mr. Johnson I yield back.

REP. JOHNSON: Thank you, Representative. Now, we'll start with questions from Mr. Brad Sherman from California, five minutes sir.

REP. BRAD SHERMAN (D-CA): All right, thank you Mr. Chairman. I know that a vote has been called, and I know that the -- I've been told that the chairman will not be able to be here between 12:00 and 1:00, and I'll be happy to chair the hearing during that period as I think the chairman has requested.

So you folks, you hear the bell but you will not be saved by the bell. We will come back after votes. I think this hearing is important not only because it affects consumers so much, but it affects the artists and the music that we all love.

We've seen the artists get ripped off in so many ways. They don't get a performance right, they listen to their music on the radio, they know that the song writer is getting paid for that. So many other people are being paid for that. The radio station is being paid for that, the artist is getting nothing.

They hear their recorded music, taken from them by various technologies, and so they are really relying upon live music to be compensated for their work. So many of them are not going to be the big superstars, but they may make it for a year or two, and this industry has got to pay the piper, which is so important if you want to listen to the music.

Now, we are not experts here in antitrust law. We rely upon the Justice Department to do so. I hope the Hart-Scott-Rodino process plays themselves out, but given how important this is to -- to the music we all love. I'm glad we're having this hearing.

Now, I've -- being that I'm so interested in where the artists' stand on this, do any of you have letters of support or opposition to this merger from artists that you would want to put in the record?

MR. : Yes, congressman, we have letters from artists.

REP. SHERMAN: Without objection, I'd like to put in the record. I don't know if any of the other witnesses have that. Do any other witnesses have letters of support or opposition from others in the group chain, the venues, or anyone else?

MR. : We've got objection.

REP. SHERMAN: Without objection that will be made part of the record and please enter them. Now, we've heard from some of the witnesses that AEG is a big player. I mean, that is an extremely well-financed operation. But -- and I guess the implication is that they would want to stop using Ticketmaster, they would have to use someone else.

The second biggest primary ticket operation in the world, as I understand it, is CTS out of Germany. And I believe they have a contract that makes Live Nation their excusive operator partner.

Mr. Rapino, if this merger goes through, is CTS freed from their contract with you, to then go to anyone else including AEG and say, we want to sell -- we'd be your ticket agent in the United States.

MR. RAPINO: Yes, part of the contract has clearly stated that if we were ever to merge with Ticketmaster, they have full rights to leave and pursue another U.S. client.

REP. SHERMAN: Because the testimony here from opponents to the merger focused on the primary ticketing business, and allowing the number two primary ticketing company to do business in the United States freely, what I think opens competition in that business.

Obviously, there is concern about what happens with secondary marketing and the Springsteen concert. Mr. Azoff, you testified that you would not have advised Ticketmaster to buy a secondary marketer. Is it your intention to advise your board to sell -- what is it, TicketsNow and to stay out of secondary -- the secondary business?

I realize you can't sell it unless you get a good offer, but is it your advice to your board to be in the secondary market, or to -- or not to be, or to be in it and if you would want to stay in that business what is your proposed wall between primary and secondary?

MR. AZOFF: First to stay in that business, it would have to be a different business. Many of our team clients you know, for the purpose of allowing the season ticket holders to exchange seats, you know, we do operate ticket exchange. You know, if there were some way to make TicketsNow a straight legitimate exchange with a rights holder, and we were able to transfer tickets with, you know, I would hope limited fees et cetera. But in terms of --

REP. SHERMAN: Wait, I am talking about the business where you buy the Bruce Springsteen's ticket for $95 and sell it for $950 --

MR. AZOFF: As it currently exists now, yes. You know, obviously with all the normal public company approval requirements, you know, I would advise my board, if we got the right offer. But Senator Schumer hasn't made the right offer to us yet. But I would advise us, I would advise my board to consider that and I certainly would vote to do that.

The whole, you know, we agree with Congressman Pascrell on the whole idea of thoughts and we also agree with him that the secondary area really needs cleaning up. And we think this merger gives us the, you know, a seat at the table along with every government body to do that.

REP. JOHNSON: All right, at this time, and your time has expired.

REP. SHERMAN: I understand sir.

REP. : Mr. Chairman, Mr. Chairman, I wonder if I might -- I'm not going to be able to come back. I wondered if I might ask a couple of minutes of questions.

REP. JOHNSON: Well, we've got about four minutes -- three-and-a- half minutes for votes expire on this. So I would be inclined to not put the members at risk of missing the vote.

REP. : Then I would just ask, I will submit my questions in the record, but I'd ask the chairman to make sure that the panelists answer the question in writing for us --

REP. JOHNSON: No doubt, each --

REP. : Right, that'll be great. Thank you.

REP. JOHNSON: All right, thank you. So we'll be in recess for about 25 minutes while we go vote two votes, one, 15 minutes, and one, 5-minute-vote.

(Recess)

REP. JOHNSON: Okay, we'll come to order. The -- I guess we start -- Howard, have you asked questions already. So we're ready to start a second round, and we'll start with the senior republican on the committee, Mr. Coble.

REP. COBLE: Please go ahead, Mr. Chairman, I'll -- (off mike).

REP. JOHNSON: Ah, going to vent for a while here. The gentleman from Virginia left several questions. I'll submit them for the record, but I said I'd ask at least one orally. So I'll pick one here. And it is for Mr. Rapino -- Rapino and Azoff.

Mr. Rapino has testified that if the merger is not completed, both companies would be required to layoff employees. You've also claimed that a merger would lead to $40 billion savings.

There are no savings involving laying off employees either from your operation or from the Ticketmaster operation, or -- we are in a strange economy where savings are good, but when savings lead to layoffs, that concerns some of us. Tell us about how employment is going to be affected by this merger?

MR. RAPINO: On the Live Nation front, I actually haven't said that if we didn't do the merger we would lay off employees. I have said that we have been a very progressive company for the last three years and I'm hiring employees and creating jobs.

I do believe though, with this economic times, my five-year vision is certainly -- needs to be adjusted and we have currently do have a hiring freeze on, and we're just going to have to get through this year and see how the business turns out. We do believe that the efficiencies of the merger created will actually create jobs.

This merger will create jobs because we will have to staff up in the technology side to better equip our self to handle the scalping and the needs of today. So no lay offs, jobs created.

REP. JOHNSON: Mr. Azoff, how would you -- if this merger isn't -- doesn't go through, what is the effect on jobs in your operation, and if it does go through what's the effect on jobs?

MR. AZOFF: The -- right before I came with the company, Ticketmaster laid off 10 percent of its workforce. In the recent studies that we've done are we can't get the job done with less people regardless of whether the merger goes through or not. So we don't anticipate being able to reduce the workforce at this time nor are we looking to.

However, we are a public company and we have a board and we currently lose money on about, we think, 2,600 of our accounts, many of which are nonprofits and museums and municipal owned buildings. So, you know, down the road I -- you know, if we were forced to cut back it would probably be both in the area of accounts and employees. But for sure, I agree with Michael, if the merger is approved we would be adding people.

REP. JOHNSON: And you would be adding people because there would just be more -- more music?

MR. RAPINO: Well, no, we believe that right now we are both, you know, really understaffed on the technology, research, development, the consumer side of the business.

So we believe that the answer for the future is creating a more accessible and broader store-front and technology has just taken off as you know on the -- just like the recorded side, they've lost a lot of their business to the pirates of the Internet. Well, that's happening right now with these professional scalpers and professional technology that are just way more advanced than we are.

So we would assume we would have to build a much more sophisticated consumer storefront. We would like to think it as, you know, the Ticketmaster.com of the day needs to become the Amazon of tomorrow for the consumer and fan, a much more convenient and accessible place to buy music, and with that we would look to staff up in the technology side.

REP. JOHNSON: (Off mike) -- go ahead.

REP. COBLE: Thank you, Mr. Chairman. Let me put this question, Mr. Chairman, to -- jointly to Mr. Luukko, Doyle, and Professor Froeb. What would you all say are the relevant product at geographic markets at issue in this proposed merger?

MR. : Well, there is the -- there is various aspects of the merger and horizontal, it's a tough fact- intensive investigation, and this is the kind of things that -- just the kind of questions that the Justice Department is investigating and answering.

And it's a very tough and the blunt answer is I don't know. But there's certainly -- the methodology for delineating markets is well known. You ask, you know, how do these guys compete? If they limited that competition, could they raise price by a significant amount. If the answer is yes, then that's a relevant market for antitrust purposes. If the answer is no, they substitute various -- to various other suppliers, then you have to expand the market and re-ask the question.

In this industry that's so complicated, one of the things that I heard earlier today was that that the merged firm was going to spin off the CT -- the German ticketing part of the -- part of the product. If that turns out to be a relevant market, you know, that if these two ticketing suppliers then, you know, the spin off would certainly mitigate the anti competitive effects of that merger. So the answer is, I don't know. It's a fact-intensive investigation that is very, very detailed. I haven't done it.

REP. COBLE: I'm finished. Is anybody else going to weigh in on that?

MR. DOYLE: (Off mike.)

REP. COBLE: Your mike, I don't think so, Mr. Doyle.

MR. DOYLE: I think the most significant antitrust product market here is the competition in the primary ticket circle. Now, if you look at that market and the geographic market, I would argue that the United States as whole, but if you look at the ticketing market closely you'll see that tickets.com has always been a relatively insignificant player over time. And Ticketmaster has had a very significant market share over a long period of time.

That would suggest to me that the market is somewhat barricaded and you don't see significant entries and you don't see any exits from the market. But I would argue that the best market for the Department of Justice to look at, if they seriously thought of about challenging this acquisition, would be the primary ticketing market where the overlap is horizontal and you've got some fairly good evidence that Live Nation seriously considered entering the market, in fact, did enter the market, took SMG away from Ticketmaster, and you saw an immediate reaction from Ticketmaster.

So Ticketmaster clearly felt threatened by the announcement of Live Nation entering the market and in fact felt threatened, in January of this year, when it saw Live Nation ticketing some of its own venues. So the primary ticket service markets, I think, is or should be the primary focus of the Department of Justice inquiry.

And contrary to what else has been said, the vertical case, I agree, is complicated. But to look at the essence of competition in the ticketing markets is not complicated. It's a relatively straightforward horizontal analysis. The department has skewed this analysis over and over and over again. So if you focus on that market, I think you will be able to find it as a relevant market and the facts suggest that it is in fact a relevant market.

REP. COBLE: Thank you, gentlemen.

Mr. Chairman, that is all I have thank you.

REP. JOHNSON: Thank you. I'll pick up on Mr. Doyles' comments because we all want the benefits of competition for consumers. Now, I wouldn't care if somebody had 100 percent of the market if the potential market inference were such that the monopolists felt they needed to keep prices down and services good.

So the question is not how much of the market do you have, but how much of it could you keep if you started acting like a monopolist. I see you you're nodding in general agreement. And so I'm interested in this primary ticket market, which you've identified, and I'm aware of a couple of possible competitors.

The first of these is sitting immediately next to you so let me ask Mr. Luukko, if I'm pronouncing that right, what made you decide to bring ticketing service in-house and not to use Ticketmaster? Could other venues choose to do the same unless they thought they were getting a really good deal from Ticketmaster? How difficult was it for you to take ticketing in-house?

MR. LUUKKO: Well, it's very interesting and we looked at our decision to go into what I would call in-house ticketing. It wasn't necessarily a knock on Ticketmaster, tickets.com, AudienceView and probably more than 100 companies that pursued our ticketing -- oh, it's a big market, it sells a lot of tickets.

REP. JOHNSON: You say 100 different companies --(cross talk) --

MR. LUUKKO: -- there is many different companies throughout the world. When we were going out and getting into the ticketing company we were contacted by so many, we had to ferret out even who we would use as our back house engine. So there is a lot out there and a lot of that has to do -- and I'm not an expert in technology --but a lot of that has to do with the advent of the Internet and the barriers to entry to get into ticketing, and we found that out as a company in Philadelphia.

And really, we looked at it as part of our vertical integration program. We own the teams, we own the venues, we're getting into the food and beverage business, we own the merchandizing rights for those teams, and the ticketing was a natural flow in our business plan. Again, with the advent of the Internet, we could get into that business, and we wanted to control the data, we wanted to directly control the message to our fans. And at times -- which was under our control before but we want to have quick direct control under the service charges, for a lot of the low-end offers we made, for various specials to our fans.

So for us the barrier to entry, you know, it's not easy to be in the ticketing business but the barriers to entry had lowered and it was really part of our vertical integration plan as a company in how we compete in the market place.

REP. JOHNSON: So did you develop your own software or were you able to get it licensed by someone else?

MR. LUUKKO: We actually were a licensee, if that's the correct legal term, I don't -- of Paciolan.

REP. JOHNSON: A what?

MR. LUUKKO: Paciolan, a company in Southern California.

REP. JOHNSON: Okay. So then that licensing agreement, whatever they did for you, I'm sure they would do for any other major venue or did -- it is not that they love you so much they wouldn't sell --

MR. LUUKKO: To anybody else, ironically they've been purchased by Ticketmaster since but we're still competing and out in the marketplace for Ticketmaster.

REP. JOHNSON: Okay. So at least that one -- that tickets.com how -- I realize they're a small competitor, a smaller competitor, but are they -- did they make a credible offer to you?

MR. LUUKKO: We had some discussions. We had really made the decision through a lot of research, to go in-house, so we were approached by many to be our backend --

REP. JOHNSON: And if you couldn't get the software from the same source, is there other software available to you?

MR. LUUKKO: Oh, there is plenty available and including looking at the option of creating the software our self. So we had a lot of options as we looked into this business.

REP. JOHNSON: Now, one of the things that I'm interested in that Mr. Rapino is helping the artists because they're not getting paid for their music. They make your recording -- the radio plays that, they don't get anything. Most of the -- you know, I see everybody listening to it and I wonder how many of them have paid for the music they are listening to.

And it occurs to me that in addition to selling music the artists can sell the T-shirts, the hats, the this, and the that. In the -- at the present time when you have -- when you're selling tickets for the concert and I go to buy the ticket online, am I cross-marketed, am I given a chance to buy the T-shirts and the other paraphernalia or is the ticketing system that you currently use only selling the tickets?

MR. RAPINO: It's a good point. It's a key strategy of ours. First and foremost on the artists, there has been a suggestion that artists would not oppose this because they're scared. I think I've heard it. But if you work with artists in the year 2009, you find me an artist that is not one that likes to speak up and stand his own ground. So I've yet to meet an artist.

REP. JOHNSON: So you're saying The Boss is the boss?

MR. RAPINO: I think The Boss clearly stood up. He had a concern, I believe, that every other artist I've met actually usually likes to jump on to these kind of situations if they can so call go after these --

REP. JOHNSON: And I would point out that even if the artist is too shy to come before the lights here, all of us are community leaders, different types of music is popular in -- our different districts. There isn't a member of Congress that doesn't have contacts with artists, and there isn't a single one of us that wouldn't take a call for Bruce Springsteen, so -- or a shier, but equally popular artist. So -- we -- if they're afraid to come in public they'll certainly tell us in private. Go on.

MR. RAPINO: Absolutely. And for the record we actually did not want to bring any artists on our behalf. We actually said to all the artists, this is not what we want you to do, go worry about making music and leave this to us. Seventy-six percent of the artists' income now comes from the road.

Ten years ago it was from the records, so for 30 years the artist made all of his money from the record and he went on tour to sell records. Today, an artist goes on the road to pay the bills, 76 percent. So there is no -- any economic theory will tell you that if 76 percent of your money is coming from the road and that's paying --

REP. JOHNSON: Let me just interject. If somebody creates a hit song, 99.99 percent of the listenings of that song are from recordings there.

MR. RAPINO: Yeah.

REP. JOHNSON: Well, we all like to spend our whole lives at concerts, but as you point out, even the concert goer only spends -- goes two concerts a year. And I haven't been to a concert since I had hair.

(Laughter)

Yes, that long. So only -- the 99.99 percent of the listenings of that song are paying only 24 percent of the -- (inaudible) -- after -- so go on.

MR. RAPINO: So the artists -- you know, we work for the artists. It's fundamentally that simple. They are the start of the value chain. They can decide to hire us or not. That's why we only have 38 percent market share. There are a lot of options for them. So the artist never too -- remember, the artist is very sophisticated. He has a very good business deal.

He has a full accounting firm. He will have a law firm and a manager. That team is sophisticated and their job -- and an agent -- and their job is to maximize their artist's revenue, find great new ways to develop and get their art to the world.

What we find is -- we talk to artists daily. We're in their dressing room at midnight. And the number one concern, if you talk to an artist, we sense is, for 30 years I had a great business partner called the Record Label. He got my art to the fans and he financed my investment. Who is going to take care of me in the future? Who is going to invest in a young band? How do I solve this technology maze? It scares me.

I want a company that can first realize that we work -- that they work for us. So we always say at Live Nation, our boss is the artist. Number two, we want to build a platform that I think you referred to earlier, and I thought it was brilliant. The crux of the entertainment problem is it's been fragmented.

The pie has been built in slices, and any industry you look at in history says at some point some of the slices come together to provide a better innovative product.

We think it is crazy that we don't have a website today that sells a concert ticket, so we have the fan to spend $50, but we don't have anything else there for them.

REP. JOHNSON: So you say the specific answer to my question is right now I buy a ticket and nobody is selling me an album, nobody is selling me a T-shirt and --

MR. AZOFF: We think -- just a quick point, we look at the average fan and how he has to go to market today. He comes to a website to buy a ticket, probably not satisfied.

If you put Bruce Springsteen in Google right now, you'll get seven pages of scalpers selling tickets. So you can't even get a ticket in a simple way. He's got to go to probably eBay to find a souvenir T-shirt. He's got to go to iTunes or a pirate site to get the music. The reason we said Amazon earlier is we want to be able to give the artist a platform to reach his fan and when the wallet is out and he wants to buy a T-shirt, a song, another avenue to sell music with the ticket they embrace that model continually when we talk to them about it.

REP. JOHNSON: I think my time is more than expired. I see the gentleman from California, and recognize him.

REP. SHERMAN: Well, I thank the gentleman from California, and I'm sure you went -- when you went to that first Beatles concert you did have a full head of hair and I think you should go to another one I think you will be welcome.

(Laughter)

Look, all kidding aside, this committee deals with very serious issues and all antitrust hearings in this committee always look the same. Two groups are wanting to get together and it's going to potentially affect competition. Yours is no different.

Mr. Doyle, let me ask one question because all antitrust is comparative in addition to relative market share and all the others. Major League Baseball bought tickets.com. The acquisition created a vertically integrated mechanism that included, if you will -- and I'm going to try and convert here -- the teams which was -- which had the talent, the promoter which was Major League Baseball, the venues which were the ballparks were either owned or controlled and then of course now the tickets.

Is there an effect that -- can you show us why this sort of a merger would be -- would cause higher prices based on that model.

MR. DOYLE: The tickets.com presents an interesting situation --

REP. SHERMAN: Can you speak a little louder?

MR. DOYLE: I'm sorry. Tickets.com is an interesting situation. It's owned by Major League Baseball, which obviously has a deep pocket. They want us to expand and put tickets.com into every state. It clearly could do it as I understand; however, it's my understanding that tickets.com is only -- only has 14 of the Major League Baseball teams.

The question is, why aren't they in every team? And I don't know the answer to that. But I can sit here and speculate that perhaps it's the significant market power of Ticketmaster that allows it to get some of those baseball teams as well. That -- the Major League Baseball's model, tickets.com model, I think, is an example of the degree of market power that Ticketmaster has. Under normal economic rationale you would expect tickets.com in every Major League Baseball, okay, and the question is why aren't they.

REP. SHERMAN: Well, Mr. Azoff, I'm going to ask you sort of the other side of the same coin because I'm very interested. Baseball does have a congressionally granted monopoly. So, as Mr. Doyle said, they can do whatever they want. They do own the talent even if you want to be a free agent, where are you going to go?

You know you ultimately are going to end up within Major League Baseball. So it's only a question of where. Now, let me just look at the music industry for a moment. You don't have long-term binding contracts with the talent, if you will, with the major stars, do you?

MR. AZOFF: No, I don't.

REP. SHERMAN: And after this merger, you still won't?

MR. AZOFF: Virtually all of them would be free.

REP. SHERMAN: Okay. And on top of that you're not controlling the whole world. So they can tour anywhere that makes them money, right?

MR. AZOFF: Correct.

REP. SHERMAN: So if I understand correctly, from the standpoint of the artist, who ultimately is probably the most important part of this with a possible exception of those of us who do go to concerts a little more often -- and I will go as long as I have hair -- the -- but so the artist isn't going to be hurt by this because he has a great deal of freedom of choice, and ultimately you have to attract him. Right?

MR. AZOFF: Yes. And I might add that the Ticketmaster contracts, you know, virtually one in four -- one in three come up for renewal every year. And I could show a little bit of light I think on -- because I recently met with one of the Major League Baseball owners. Ticketmaster has a service called Arctic (ph).

In these very difficult times people are not renewing season seats and we have a unique program that allows them to like bundle, if you want 20 games and then we find the person that can do 12 and 10 and we -- actually putting Ticketmaster personnel in their box offices.

REP. SHERMAN: Right.

MR. AZOFF: So my answer would be as to why some of them have elected to come back to us is because they get better service which is, you know, we spend a lot of money on R&D to provide great technology.

REP. SHERMAN: Well, I found something interesting when you said -- you said earlier if you Google, you know, for Bruce Springsteen or whoever you're going to get all these other wrong sites. And it suddenly hit me, well, you are googling; so in the search world we have this dominant power, and we've had hearings to talk about Google and their market share and so on.

Ultimately, if I understand, post merger you won't control Google or Yahoo from a standpoint, you cannot guarantee you will always come up first. You'll still have to compete for that spot, right? Pay for it, actually.

MR. AZOFF: Yes.

REP. SHERMAN: Okay. So you're not going to control the search engines, which in an Internet age is really the front end of the process. So anyone who wanted to compete, including if Major League Baseball decided that they were going to flex their muscle outside of Major League Baseball and do concerts at least in baseball parks, they could potentially show up first on Google's search.

MR. AZOFF: Makes sense.

REP. SHERMAN: Okay. So I'm trying to understand, you've got to pay a free and fair price for the entertainers. There are lots of venues beyond the ones that you could potentially have locked up in a contract. There are just -- now, there's lot of places people can be.

I was at the consumer electronics show and I saw Diana Ross in concert inside a large ballroom in a private venue, but there were a couple of thousand of us having a great time, and by the way Brad that was my last concert I went to, that was in January.

(Laughter)

So what I'm trying to understand is in this full circle of things, where the barriers entry or the competitive advantage you have other than adding some size and scale, which would be a little bit like Citibank bundling together a number of banks and we know how much good that did them, right?

Anyone want to comment on Citibank? Anyone want to say that that this combination is any more powerful than perhaps Citibank or Bank of America was in their industry?

MR. RAPINO: And I would just say that typically the output of a monopoly is a very high margin. We have a 4 percent margin business, so if we --

REP. SHERMAN: Roughly, the same as Visa and Master Card make off of your ticket sales, right?

MR. RAPINO: Exactly. So we spend $2 billion to make 4 percent of that so and Ticketmaster would be in the 15 percent margin business, so if there is any demonstration of power, believe me, the margins would spit out that as a result.

REP. SHERMAN: Thank you.

Thank you, Chairman. It helps me understand this situation better. I yield back.

REP. JOHNSON: Thank you.

Mr. Doyle, you've surmised that -- I mean there are two possibilities as to why Ticketmaster has business from Major League Baseball.

One idea is they just provide a better service at a better price than Major League Baseball is willing to provide to the teams. And the other is that they have some sort of a market power.

How could Ticketmaster threaten the Dodgers or the Angels in a way that they'd say we don't want to do business and then if they have that kind of market power how come they don't have the other 14 teams?

MR. DOYLE: The short answer is I don't know the answer to that question. But let me make just an observation, if Ticketmaster provides a better service and that service can be replicated by tickets.com, why doesn't tickets.com provide the service, or --

REP. JOHNSON: Well, I mean, the real answer is Google, as an example brought up by my colleague from California. Why does Google have more than 50 percent share of the search engine? One theory is that they have somebody in my office with a gun to my head saying that if I use another search engine I'm dead.

Another possibility is that they hired more engineers to create better software to do a better search to get me a better -- to do better computer work or whatever software does. In my case, it's the latter. I've never been threatened by Google that if I searched on Yahoo I would be hurt.

And yet -- and Google does the best job as far as I know. There are probably some computer experts here who know better.

The -- let me turn to Mr. Luukko. So you were in venues, you were able to take your ticketing in-house. If you didn't want to go in-house, are there many companies that want to provide the ticketing service for you?

MR. LUUKKO: (Off mike).

REP. JOHNSON: Mr. (Off mike).

MR. AZOFF: The tickets.com is one, the AudienceView, there are others. There has never been an issue that you couldn't go in your own direction.

REP. JOHNSON: Okay. And then CTS is the biggest, I believe in Europe, and I'm told that if this merger goes through CTS is then free to do business in the United States. You are in the business, is there any reason to think CTS is not competent?

MR. AZOFF: No, not at all.

REP. JOHNSON: Okay. Can you explain how -- you described how you've decided to become vertically integrated so presumably that helps the teams or the artists in that business. Describe how your fans and team revenues have been helped by your decision to be vertically integrated?

MR. AZOFF: It's essential in sports today to survive. Owning a team in itself is very, very difficult. And I'll give you an example probably that most recently has happened in this tough economy is we have to -- we own the Philadelphia 76ers, now we have some unsold seats.

We have noticed that the market for the sport is very, very price sensitive. So we decide and in a short period of time, say okay, we need to discount certain nights in certain areas of our building and create various packages and we're able to -- first thing about -- really with our ticketing system is that we've collected data over the years of people who attend basketball games, may attend our hockey games or other -- whether it's concerts or family shows.

We have an e-mail database. We create an offer and then we blast that e-mail database. We also use our synergies by owning Comcast, SportsNet to promote that offer through the unsold inventory that we do have. So we're using the assets of our company to create more of this offer. So now we have discounted the seats, but at the same time we're putting people into our programs, we're getting the parking avenues, the food revenues --

REP. JOHNSON: So the key thing to benefit the artists or the athletes and the teams here is you've got to know which seat you can sell for $200 and sell it for $200, and which seat, the day before the game is going to go unoccupied -- not only unoccupied, they are not buying beer, they're not buying popcorn, and who to sell -- to send an e-mail to, to say, hey you can have that seat for $3.95, but please buy a lot of beer.

MR. AZOFF: Well, you need the ability to use a sports team to really act. If you go to marketplaces, see what you've sold or haven't sold, then you have to react quickly obviously because that team or that concert happens on a date certain and then you move forward. So --

REP. JOHNSON: So you are in effect the promoter of the game and the ticketer and without being vertically integrated you would not be able to exploit those empty seats because an independent ticket agent can't just wake up two days before the concert or the game and say I'm going to sell seats for $3.95.

They would have to, I mean, I guess, you could get all the advantages of vertical integration, without vertical integration if you had instantaneous agreement of all the different parties involved in the vertical chain -- good luck in achieving that.

MR. : It's pure efficiency. You know, the teams in essence is similar to the artists and its manager; the team ultimately makes that decision and then the others follow.

REP. JOHNSON: Yeah, so the ticketing operation has the data and the capacity to market the discounted tickets, but the promoter has the authority. And unless you put those two together, you end up with empty seats and unsold popcorn. And you know, I think athletes are doing pretty well, but you end up with a team that can't make the payroll necessary to beat the odds.

Mr. Azoff, the -- is this analogous to the music business, do you have a lot of -- well, when you do -- I mean we all -- we are all familiar with Springsteen selling out every arena within an hour. But do you have a lot of clients that have empty seats in the room?

MR. AZOFF: Virtually, every client has empty seats in the room. And it's a struggle, and you know, bringing efficiencies, you know, Michael spoke about, you know, we wanted to -- currently, at Ticketmaster, we have a list of names, but we don't yet have the ability to share that data with artists.

We don't have the ability to sell merchandise, sell music, you know, and that's the real efficiencies in this merger. You know, we're betting that despite less market share in the ticketing area that we're going to be able to start this new business that will serve consumer, stands, and teams.

REP. JOHNSON: So you're saying your business plan is that after this merger your share of the market declines, but your ability to exploit that market by selling ancillary products increases.

MR. AZOFF: Yes. And as each artist makes more, I think it will lower ticket prices.

REP. JOHNSON: Mr. Rapino, do you have a -- you probably know something about empty seats.

MR. RAPINO: You know, well, there's two fronts. First the venue, and the artist. So the artist currently -- 40 percent of tickets go unsold. So other than Bruce Springsteen and the very, very top we -- our bread and butter is the middle of the road and lower in terms of the 7,000 club shows, the arena acts that sell 6,000 seats for the 12(ph). So the number one thing that an artist wants from us as the promoter is to become a better marketer and sell more seats.

I think the sports analogy is a fabulous example because, you know, no one says where is the next Kobe Bryant going to come from, but everybody says how is the next Bruce Springsteen going to be created.

Sports is a very institutionalized industry from the college league up to these four monopolies from the NBA to NHL, who are vertically integrated from the -- from the team to the broadcast.

The reason the music business is in trouble and has been in trouble is because it has not been institutionalized. It has been fragmented. And there has been no system to help the young artists. There has been no system to help sell more tickets and innovate. And our model is only one model and we hope other models are generated from this.

But we think it is a good example to market better, sell more seats, sell more venues because the irony is my competition is the sports leagues. A consumer does decide to go to the NBA game or the -- I think congressional monopoly granted NBL league or a concert. That is my concert competitor for that disposable income, at the very top of my --

REP. JOHNSON: Okay.

Mr. Coble has graciously allowed me to ask a few more questions --

MR. : (Off mike).

REP. JOHNSON: Good, these -- probably I can have as much minutes I want.

MR. : Yes.

REP. JOHNSON: Yield to the gentleman from North Carolina.

REP. COBLE: Mr. Chairman I have another meeting. I want to express thanks to the panel for being with us today, and making this a very good hearing. I'll be left in a few more minutes. Thank you, Mr. Chairman.

REP. JOHNSON: Okay. I'll try to keep you entertained. And there is no ticket and -- but there is no popcorn.

Mr. Rapino and Mr. Azoff, your detractors say ticket prices have gone up in recent years and that your companies are responsible for that. Have ticket prices gone up, and if so, why?

MR. RAPINO: In the concert business ticket prices have gone up 4 percent a year on an annual basis, so slightly --

REP. JOHNSON: Is that for the whole market? What about, I mean, we are all focused on the top 50 acts.

MR. RAPINO: Well, that's right. I brought up in my testimony that, you know, the very small percentage of top acts great press about ticket prices. An average ticket price for a concert is $50. I would again argue what could you absolutely do in the world of entertainment for $50 in comparison.

REP. JOHNSON: Well, a lot of people in the San Fernando Valley can go out on the town for $50 or less.

MR. RAPINO: Exactly.

REP. JOHNSON: About $50 per person --

MR. RAPINO: Per person.

REP. JOHNSON: So I mean we live cheaper lives --

MR. RAPINO: But I mean --

REP. JOHNSON: -- in the sports world.

MR. RAPINO: I mean, what the consumer is telling us. And this is the -- when we poll consumers, they do not tell us that the ticket price is too expensive. That is not on their number one problem of the business.

They -- when they see a Madonna show, they think it's great value. What the artist's ticket prices are being driven by, just for many years now the artist has continually innovated the show.

As you would know from the first show 20 years ago with a bad light, a mike on stage at the forum to the day, where Britney Spears would probably have 18 transport trucks, and 300 people on payroll because the fans want a great show.

They want the fireworks. They want the spectacular part of coming to that show. And the cost of production is part of the show that the consumers want.

So part of the show has increased; the artist wants to figure out how to pay for the show. And as we all say, no one has to go to a Britney Spear show, no one has to go to the show.

But the economics still seem to be affordable that these shows do well. And the consumer has many choices from a $9 ticket to a $100 ticket, small clubs to large.

MR. AZOFF: On the Ticketmaster site, we don't set ticket prices at all. So --

REP. JOHNSON: Have you seen them go up at least for the eight past events?

MR. AZOFF: Yes.

REP. JOHNSON: Have they gone up --

MR. AZOFF: I do -- I believe, my -- I mean, I believe I've got the same figures that Michael did. On the management side, yes, ticket prices have gone up. I think it's the function of two things. It's the function of the loss of income from recorded music and the increase in production costs.

But in preparation for these hearings, I sounded out several artists. And to a person they all said, if you can show me a way that I can make the same money and not lose my production, of course, I would like to see lower ticket prices.

And everybody focuses on the problems in the secondary ticketing business is what, you know, "Oh, if the guy is paying $1,600 for the front row, why can't I charge another $10." And that's a problem.

MR. RAPINO: Look, I just want to give one --

REP. JOHNSON: Yeah.

MR. RAPINO: -- other factor that I think will state it even clearer. We do 1,000 concerts at our 50 amphitheaters.

We will lose $70 million dollars at the door. That means the price of the talent versus the ticket price.

That's 10 million tickets being sold. So in theory if I had any control on those ticket prices, you would assume I would charge $7 more a ticket to cover my $70 million loss. The artist takes the door and we end up making the money on the peanut, popcorn, parking, and ticket rebates.

REP. JOHNSON: Well, what's a ticket rebate?

MR. RAPINO: Most of the Ticketmaster service fees that the Ticketmaster charges the $10, $12 --

REP. JOHNSON: So when I think I'm paying Azoff, I'm really paying you.

MR. RAPINO: You're really paying me, and you're paying the venue, and obviously you're paying the artist in theory because the venue and promoter need to make a pot of money to cover that $70 million lost at the door.

REP. JOHNSON: So what I think is a Ticketmaster service charge is really a disguised portion of the price. And the people in your business and/or the artists have enough power to force Azoff to pretend like he's charging a lot when he's really giving the money to you -- part of the money to you.

Okay, so you're a professional bad guy.

MR. RAPINO: (Off mike).

REP. JOHNSON: Okay. Finally, I want to go to the scalping issue and I don't know if any of the other witnesses because one of the bizarre things here is, I mean, the scalping business should not -- if things are priced correctly, there shouldn't be a huge industry in buying them and reselling.

But, in fact, as I understand it, those great front-row tickets are still being sold for a $100, $200 when they're worth thousands. Mr. Azoff, when these big acts -- have you as their ticket agent -- do you -- do they give you all the seats or do they hold back some to be sold in some other way?

MR. AZOFF: Inventory control is not a perfect science. Everybody in the food chain seems to have --

REP. JOHNSON: But if there are 10,000 seats in the arena and it's -- and you're doing the event, are you selling 10,000 seats or are you often selling 7,000?

MR. AZOFF: No, never, I would say on an average, we might see 80, 85 percent of the seats in an extreme --

REP. JOHNSON: Now, when you don't get the 15 percent, are those the bad ones or the good ones that you're not getting?

MR. AZOFF: They're the vast majority are the best seats the house. And they go to, you know, they go to new building holds, sponsor holds, band holds, record company holds, they go out the door, you know, multiple places.

REP. JOHNSON: So if I were to pay $800 for a ticket, I'm probably getting one of those and you probably never touched it.

MR. AZOFF: Actually, that's correct, yes.

REP. JOHNSON: And then there are these soft -- there are these companies that try to buy from Ticketmaster and then resell or buy from whoever the ticket agent is and then resell.

Why are the artists/promoters having you sell some tickets that are worth $1,000 for $100 so that the lucky fan and door scalper ends up with $900 of consumer surplus? Why are you sometimes putting on your webpage a $1,000 ticket for a $100 price?

MR. AZOFF: A standard line --

REP. JOHNSON: How can I get --

MR. AZOFF: -- that I get when I talk to an artist is, you know, they're all worried about the press. You know, if my ticket is $300, I'm going to get, you know, -- and I always say that's the guy that's getting in for free. He's getting his tickets for free.

They're always worried about, you know, bad press especially with the rapid, the witty Internet, you know, it flows now like if the Eagles were to raise their ticket prices, you know, it would be --

REP. JOHNSON: Does the press focus on the average price, the cheapest price, or if there are 50 seats being sold for a $1,000 a piece, does the press focus on those 50 seats?

MR. AZOFF: Yes. And, you know, -- again, you know, people leave, you know, when Bruce Springsteen says I'm charging $95, you know, another artist is going to say, hey, my fans are going to think, you know, I'm a jerk if I charge a $150.

So the prices -- you know, look, in a perfect world, we would all sit and we'd convince artists to realize that they ought to charge what they are worth.

REP. JOHNSON: Well, at least for the top 1,000 seats or the 500 seats in the house. You're not depriving them a chance to see the artist if you don't get one of the best 500 seats.

MR. AZOFF: You know, and I think the focus on this merger is going to enlighten a lot of -- a lot of artists, I hope. And you know, the first step at fighting the scalping would be for dynamic pricing to finally come into affect.

REP. JOHNSON: I wonder if any of the other three witnesses have a comment on why we are in this weird situation, where the artist feels it necessary to sell one of those best 500 seats for $100 when everybody knows it's worth $1000.

MR. : I mean, that's quite -- one of the great ironies of this merger is that it should -- in theory, if it works the way it's designed to, it should allow the artist to grab control of the entire supply chain including the scalping a lot better than they currently have.

That they don't is, to me, it's a deliberate, you know, part of their image, part of their -- you know, it creates demand, you know, for their tickets, to their image of being good guys and selling cheap tickets.

REP. JOHNSON: Nobody thinks that United Airlines is terrible when they sell a $250 ticket from L.A. to New York just because there are some first class seats that they are able to get $3,000 for.

There are many complaints we have back in steerage, but the fact that they were able to squeeze a lot of money out of those people on the other side of the curtain has never bothered any of us on the plane. I don't know why it bothers those people who buy tickets, but you know your business better than I do.

I've run out of questions, which means this -- unless Howard has any further comments, we stand adjourned. Thank you very much.

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