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Things were just getting interesting. Froeb made the point that, in effect, the artist should have control of the whole process and get the true value of the tickets. (That’s Hitsville’s position to, along with a ban on scalping.)

But all of a sudden Sherman said time was up. The hearing’s over. Ended with a bang.

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Hard to believe Rapino is happy with these admissions. Avoff: “They go to building holds, sponsor holds, band holds, record company holds. They go out the door multiple places.”

Now we get to the true craziness.

Sherman: Why are you not selling tix for their true value?

Azoff: They are worried about the press. I always say, “That’s the guy who’s getting in for free!”

Hey! He’s talking about me!

Avoff makes a pitch for “dynamic pricing”—that’s auctioning.

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Sherman is asking by far the best questions. Now he’s pinning Azoff down on where tickets to a concert go. “Inventory control is not a perfect science,” Azoff says.

That’s an extraordinary euphemism, give Azoff’s replies immediately following:

Sherman: If there’s ten thousand seats in the area, are you selling 10,000 tickets?

Azoff: Never. On average we might see 80 or 85 percent of the seats.

Sherman: Are those the good ones or the bad ones you’re not getting?

Azoff: The vast majority of the best seats in the house.

This is the first time to my knowledge this has been publicly acknowledged by a major person in the music business. It’s the headline of the day.

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Sherman jumps on Rapino for saying that the average ticket price of $50 is a deal. Not in San Fernando Valley it’s not, Sherman says.

Here again, he’s picking and choosing his figures. He’s mentioned the 7000 club shows Live Nation puts on; that far outweighs the number of arena shows. Think what the avg. ticket price of them are. $200 and $300 top ticket prices at major shows are common now.

Sherman hones in on Rapino on ticketing fees, finally, making him explain where the fees go. “So when I think I’m paying Azoff I’m paying you?” he asks. “You’re also paying the venue and the artist,” Rapino replies.

It has long been an irritant to me that most people writing about Ticketmaster don’t say where the fees go. Now there’s no excuse. The head of LN and TM have testified before Congress saying that Ticketmaster service fees are kicked back to the venues and artists.

Sherman finally sums up the issue: “So what I think is the Ticketmaster service charge is really a disguised portion of the price. They are forcing Azoff to pretend like he’s charging a lot when it’s really coming back to you.”

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Rapino is also playing up the idea that new artists aren’t being created—and that the merger might help that. But of course, the industry has become increasingly consolidated over the last 15 years, which coincides with the alleged dearth of new artists.

He also says he doesn’t hear complaints from consumers about high ticket prices.  Very hard to believe.

He and Azoff also hitting another common refrain: That artists have to charge high ticket prices to cover the costs of their elaborate productions. This is more legerdemain: I don’t care how much the Police, or Madonna, or Neil Diamond, or the Stones, or Pink Floyd spend on their sets. They gross hundreds of millions of dollars on those tours.

As LN keeps testifying, the artists take essentially all of the gate, and then there’s merchandise, tour sponsorships, their kickback from ticketing fees, and the like. The cost of the sets aren’t zero, of course, and it’s expensive to take large entourages on the road. But it’s a pittance compared to the money they are making.

Azoff is referring to “problems of the secondary ticketing process.” He means that he’s not getting that money. That’s what the “problem” is.

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Sherman asks Azoff if many of his artists have empty seats in the room. Both Azoff and Rapino play this up big time; Rapino repeats his number that “40 percent of seats go unsold.”

Again, the congressman doesn’t have enough knowledge of the business to say, “Jesus, why is your board keeping you on as head of this company if you don’t know how to place artists in the the right venues? All of your bookers must be entirely incompetent, particularly because, since many shows do sell out, that means many, many other shows have more than 40 percent of the venue unsold.”

I have to confess I don’t understand this figure. I’ve spent a lot of time at concerts, and I’ve always thought the problem is booking acts into too-small venues so sellouts are more likely. Either the industry has changed of late or Rapino is conflating attendance at a broader spectrum of events than he’s letting on—I don’t know, Broadway roadshows or monster truck shows or something. I’d be happy to be proven wrong, but I can’t believe attendance at mid-sized-theater-and-above rock shows is anywhere near that figure.

Even if it were 80 percent that would mean many shows were, say, 60 percent full, and again, it would be hard to believe the company’s bookers could continually make those sorts of deals.

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Great question to Rapino: You’ve said said you might have to lay off employees if you don’t merger. If you do merge, you’ve claimed $40 million in efficiencies. Will that come from layoffs?

Rapino says, incredibly, that he didn’t say that, but that he might have to lay people off, but that the merger will create jobs. It hard to take that seriously.

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The subcommittee is taking a twenty-minute break.

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Rep. Brad Sherman, from the San Fernando Valley in California, questions next. Can LN’s ticket agent, CTS, go to AEG and compete with TM? Rapino says yes. Sherman, delightedly, says, well, that would open competition! He seems to be on LN’s side.

He asks Azoff if he will ask his board to sell TicketsNow. He says he will, but hedges mightily. He says “the secondary market really needs cleaning up.”

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Coble’s next. He asks a clever direct question of Rapino:  Does Live Nation currently compete with TM, and what will they do if they don’t merge?

Rapino doesn’t really answer the question, though the obvious answers are “yes” and “”will continue to compete.” Coble’s not up enough on the subject to follow up.

The Vanderbilt guy again takes the opportunity to spin for the merger.

To Azoff: Will this improve efficiencies in the industry and will it lead to reduced ticket prices?

Azoff responds in a way that contains about 18 angles of disingenuousness—or lies, if you want to call them that. Example: He says, Gee, if we can increase reselling, then the price of tickets will go down. But reselling, which is his word for scalping, is all about selling tickets at greatly increased prices.

He whines that MTV stopped playing videos. Gee, if only there were some forum on, say, a revolutionary international communications network  that could allow fans to see any artist video they want any time.

Azoff says the company will be like Switzerland. Allow me to quote myself:

Azoff says his management company was “decentralized.” Yeah, right. Readers will I hope have noticed that Hitsville has refrained from making reference to the famous sobriquet attached, many years ago, to Azoff—”the poison dwarf”—on the grounds that it’s an ad hominem attack and that it makes fun of his height. But it’s worth noting that Azoff has a longstanding reputation as a major industry motherfucker, and people who get called things like that generally don’t run “decentralized operations.”

… or “Switzerlands.” I won’t say what they do run.

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Azoff refers to the “old Ticketmaster.” Ha! He explains again about the ticket fees. He stresses credit card fees again. He says that the Pearl Jam debacle had to do with venues refusing to accept lowering the fees.

He says he convinced the Eagles to eliminate fees. But of course the band was one of the pioneers of the extra large service fees; around the time Pearl Jam was risking its career to lower a $5 fee (those were the days), the Eagles were pushing the envelope with $20+ fees.

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Rapino says they get zero of the scalping market. It reminds me that earlier he said LN makes $4 on every hundred dollars in tickets. Other reports have said the company loses $4 on every hundred. Not sure which is right.

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Rapino admits that Clear Channel had a name as bad as Ticketmaster’s. I would like to take some credit for this:

http://www.salon.com/ent/clear_channel/

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The chair starts questioning. He says fans are “forced” to pay exorbitant prices. I think this isn’t quite right. Ticket prices aren’t the issue. It’s the deception and screwing along the way that that’s the problems.

Azoff says the system is broken. It’s not. It’s like a pickpocket being caught. “The system is broken!”

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Mierzwinski makes a good point: TM has corrupted the ticketing at publicly owned venues. Why should public bodies help fund venues that are ripping fans off? (My restating of his more politic point.)

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Next Ed Mierzwinski, from the U.S. Public Interest Research Group. He says the PIRGs were there back when Pearl Jam fought TM. He notes that Pearl Jam’s experience explains why artists aren’t speaking up against the merger today: Disappointing but not surprising artists aren’t here today.

Bad for consumers, artists and independent promoters, he says. Violates the Clayton Act.

1) TM the dominant player in ticket sales; we thought LN would compete; now they want to merge.

2) A vertical monopoly as well; combined firm would have tremendous market power over artists, venues and consumers.

He says sure that artists might find other places to play: Amer. Legion Hall or county fairground, Doesn’t say an important point: Rock tours are v. complicated these days; in most cities, no place to play, realistically, that isn’ta LN venue.

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Next up, Luke Froeb, a Vanderbilt prof and a former govt. lawyer. He’s trying to give a detached view of the economics of the industry. He seems to be discounting the horizontal integration aspects.

Innovation is important, he says, and then makes a very strange argument, that the music industry in in the throes of technological change, and that the merger would allow the companies to innovate better. This would be “crucial” to the economy. I hate to sound glib when talking about a guy who obviously has had a great deal of experience in these matters, but this seems to me to be crazily, almost deliberately, disingenuous. Don’t we want companies to compete to give them the incentive to innovate?

This seems to take an upside-down view of the world. Merged and protected, they won’t innovate. They will just exploit their power.

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The guy from Comcast, Peter A. Luukko, is up next. He seems to run the company’s sports teams and its venue management arm.  He says he’s in favor of the merger! He’s speaking in favor of vertical integration; he says it provides for creative cross marketing and “synergistic opportunities.”

The sports integration we’ve seen is different; the sport teams is the draw, and it has a right to market itself as it sees fit. Also, there are hundreds of thousands, if not millions, of 76er’s, say, seats available each year. In one town, by contrast, there are only, say, 30K Springsteen seats available in a certain year, creating much more opportunities for abuse.

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Next up, a lawyer from DC, I assume an antitrust guy named Robert Doyle. He says merger will eliminate competition in ticketing, reduce competition in reselling, reduce competition in top-tier artist management, and reduce competition in concert promotion industry.

He gives a pretty precise recapitulation of some of the corporate moves the companies were making against each other and points out that they are in effect each eliminating each other’s biggest potential competitor.

He says he’s been doing interviews with venues and says they are afraid of a combined TM/LV.

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Azoff says AEG has told TM it feels it can terminate its venue agreements if the merger goes through.

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I don’t know if any of the Reps will jump on this, but Azoff just said, “We’re in the service business; if our customers don’t like it they will go somewhere else.” But that’s of course the point. They can’t go anywhere else. 

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He says many requests could not be filled for the Bruce shows. They modded their credit card software and it couldn’t handle the demand, resulting in frozen transactions and error pages.

No consumers were directed to TicketsNow from error pages, he said.

This brings up an interesting, unanswered question from that incident. I’ve read all the complaints and I have to say it’s unclear as to whether it’s actually true fans were “redirected” to the scalping site. I think that they instead all hit a button on the page that took them there, but the button didn’t say, “Hey, we’re taking you to our rapacious scalping site.”

TM also sent a note out saying the tickets went on sale at 10 a.m., though it really started at 9. That note also had a link to TicketsNow, he said and confused consumers who ended up there. He says he’s taking the TicketsNow links off their site.

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Azoff up next.

He says TM gets the complaints when someone gets hurt in a mosh pit. I think that’s a dumb thing to bring up—LN will definitely be responsible when someone gets hurt in a mosh pit.

He says he’s going to explain the Springsteen imbroglio in detail.

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With a straight face, Rapino says LN found it easy to get into the ticketing business. That’s like saying Haliburton found it easy to get into the Iraq contracting business. The problem is that if you don’t control hundreds of venues across the country, you can’t break into the business.

Front row tix, he says, might cost $150. Is he joking? Most floor seats, sometimes most of all the seats, are higher than that at many shows.

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Of the witnesses, it will be interesting to hear Peter A. Luukko: he runs all the sports teams and sports venues in Philadelphia. Not sure what his position is going to be.

Rapino’s going to talk first. Let’s see if they learned anything on Tuesday. He’s going to cite some facts: 17,000 employees: 35 percent market share. Market cap $250M; $700M in debt. We have no large shareholder. 7000 concerts for “young artists” where we lose $10M to $20M.

Highly competitive marketplace. 4 percent margin business.  Competitor AEG, owned by a multibillionaire! 31st richest man in America; they promoted five of top ten concerts last year; LN did four. They are the true integrated companies. He says that AEG’s Staple Center is worth more than LN and TM combined. (The companies have lost 70 percent of their value the last few years.)

Not sure right now, but I think Rapino is choosing his words carefully: Top five concerts ($2M to $3 grosses) is different from top five tours ($200M to $200M grosses!).

Rapino says they have “relentless” competition. Own 18, lease 70 venues, he says. A small percentage.

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The chairman recalls being down one day and going to a Parliament-Funkadelic concert—he notes that Coble probably wasn’t familiar with them. Pascrell sites Bruce Springsteen’s “Promised Land.”

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Smith says he thinks TM should sell TicketsNow. He says he has legislation to ban automatedticket-buying programs, too.

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Smith is there to jump on the Springsteen issue. He says he got 1000 complaints about the imbroglio. He’s jumping on a quote he says he saw from a LN source, that the hearings were a “distraction.” He kicks that one around the ring a while.

“This isn’t just live PR—it’s a bad deal for the American people! … You don’t have to have a Ph.D in economics to see it for what it is.”

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I can’t find a WSJ live-blog of the hearings… please let me know if anyone finds it.

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Rep. Lamar Smith, from Texas, zeroes in on the vertical integration issue. He’s not a supporter.

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The ranking member (highest Repub.) is Howard Coble, from South Carolina. “I am not the hippest member on Capitol Hill, he says. He lists TM’s big artists, apologizing for mispronouncing Christina Aguilera’s name. He likes Earl Scruggs and Lyle Lovett.

He’s suspicious. “A lot of sway over the little guy.” He mocks the “convenience charge.” “A lot o consumers would say it’s not convenient.   He says the burden is on the companies to demonstrate the deal isn’t bad for onsumers.

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The Chair is Hank Johnson, from Georgia. He doesn’t sound well-disposed to the merger. He is mocking the companies list of artists who are supporting the merger. He says the subcommittee made “monumental” efforts to get artists at the hearing, as one assumes they would!

He’s quoting Springsteen saying the merger would make a bad situation worse.
$500 and $800 Cohen tickets on sale on TicketsNow, with additional $100+ fees, he says, before the tizx went on sale officially.

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Bill Pascrell, Jr, a rep. from NJ, is going to testify as well, and then sit on the committee, but won’t ask questions. I assume he just wants to get his face out there on the side of Boss fans everywhere, but I could be wrong.

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The House link for the webcast seems to be here. I’m checking with C-Span to see if there will be a feed there.

DeRogatis is blogging here.

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Hitsville is excited. The company leaked early on that big stars like Don Henley, U2 and Jay-Z would be coming out in favor of the merger. Maybe Don Henley, no stranger to the public political arena, will be a surprise guest!

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Our witnesses today, according to the subcommittee website:

Michael Rapino
President & CEO
Live Nation Worldwide, Inc.
Beverly Hills, CA

Irving Azoff
CEO
Ticketmaster Entertainment, Inc.
West Hollywood, CA

Robert W. Doyle, Jr.
Partner
Doyle, Barlow & Mazard, PLLC
Washington, DC

Peter A. Luukko
President & COO
Comcast-Spectacor
Philadelphia, PA

Luke Froeb
William C. and Margaret W. Oehmig Associate Professor of Management, Owen Graduate School of Management
Vanderbilt University
Nashville, TN

Ed Mierzwinski
Consumer Program Director
U.S. PIRG, the Federation of Public Interest Research Groups
Washington, DC

Hitsville’s coverage of the Senate hearings Tuesday is here.

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Previously in Hitsville:
Live-blogging the House hearings on the Ticketmaster/Live Nation Merger
“Re”-selling tickets that don’t yet exist
Liveblogging the Senate’s Ticketmaster/Live Nation Merger hearings
Seal & Van Halen in Azoff’s corner!
Updated! 26 questions that should be asked at the Ticketmaster/Live Nation merger hearings tomorrow Ticketmaster shareholders sue to stop merger
How Live Nation does business
Will the Live Nation/Ticketmaster merger mean higher concert prices?
Another suit against Ticketmaster
Constantly updated: The Ticketmaster-Live-Nation unholy-matrimony news round-up!
Five arguments against the Live Nation/Ticketmaster merger
Irving Azoff kicks it old school
The music industry’s Putin
Bad merger coverage
WWBD (What would Bono do?)
Billboard’s analysis of the Ticketmaster/Live Nation merger
Springsteen and Landau bash Ticketmaster and Live Nation!
P.S. on Ticketmaster: A case study, starring Bruce Springsteen
Why the potential Live Nation-Ticketmaster merger is a very bad idea
Is Ticketmaster trying to muddle the fees issue?
The Azoff-Ticketmaster deal: Bad news for concert-goers—and the music industry
Why you so seldom read about obscene Ticketmaster-style ticketing charges