PJ's testimony before Congress regarding Ticketmaster
Prepared statement of Pearl Jam
To the Information, Justice, Transportation and Agriculture Subcommittee of the House Committee on Government Operations Pearl Jam submits this statement in connection with the oral testimony before the sub-committee of Stone Gossard and Jeff Ament, two members of the band.
June 30, 1994
As most or all of you are aware, in early May of this year, our attorneys at Sullivan & Cromwell filed a memorandum with the Antitrust Division of the Department of Justice in which we brought to the Government's attention certain conduct by Ticketmaster that we believe is unlawfully interfering with our freedom to determine the price and other terms on which tickets to our concerts will be sold. The high price of concert tickets -- especially the imposition of excessive service charges -- is a significant issue to us and we believe to the public generally. In this statement we will discuss the reasons why Pearl Jam is especially sensitive to the price of tickets to our concerts; describe some of the incidents that led us to bring Ticketmaster's conduct to the attention of the Justice Department; address the reasons why we believe Ticketmaster's business practices violate the antitrust laws and the consequences those business practices have on us, on our fans, and on others who purchase tickets to concerts; and finally discuss the type of change we hope will occur in this industry and how Government action might help bring that about.
Many of Pearl Jam's most loyal fans are teenagers who do not have the money to pay the $50 or more that is often charged today for tickets to a popular concert. Although, given our popularity, we could undoubtedly continue to sell-out our concerts with ticket prices at that premium level, we have made a conscious decision that we do not want to put the price of our concerts out of the reach of many of our fans. Moreover, we do not want to be responsible for teenagers, who may be influenced by peer pressure to feel that they must see Pearl Jam perform, spending more money for that concert ticket than they can really afford. All of the members of Pearl Jam remember what it is like not to have a lot of money, and we recognize that a teenager's perceived need to see his or her favorite band in concert can often be overwhelming.
For these reasons, we have attempted to keep the ticket prices to our concerts to a maximum of $18. We have also tried to limit any service charges that may be imposed on the sale of those tickets to 10 percent of the ticket price, and to ensure that any service charge will be separately identified from the price of the ticket itself so that fans know how much is being charged for the ticket and how much is being added on by the company selling the ticket. As a result, even where a service charge is imposed, our goal is to make it so that no one will pay more than $20 to see a Pearl Jam concert.
Our efforts to try to keep prices for tickets to our concerts to this low level and to limit the possibility of excessive service charge mark-ups have put us at odds with Ticketmaster. Ticketmaster is a nationwide computerized ticket distribution service that has a virtual monopoly on the distribution of tickets to concerts in this country. It has been no secret that since Ticketmaster acquired Ticketron, the only other nationwide computer ticket service, service charges have been on the rise. It is today virtually impossible for a band to do a tour of large arenas or other significant venues in major cities and not deal with Ticketmaster.
The reason that a band like Pearl Jam has been required to deal with Ticketmaster is because Ticketmaster has exclusive contracts with most major venues for concerts and with almost all significant promoters of concerts in the United States. In essence, if you play any of these venues or if you deal with these promoters, Ticketmaster will claim that its contracts give it the exclusive right to distribute tickets for your concert. This affords Ticketmaster tremendous power in this business.
By locking up all of the suitable venues and promoters with arrangements of this type, Ticketmaster has effectively thwarted competition and left most bands without any meaningful alternative for distributing tickets. This absence of any alternative, in turn, gives Ticketmaster the power to exercise virtual control -- to the exclusion of the views of the band -- over the level of service charge imposed on tickets for that band's concert that are sold anywhere but at the box office. The result, for our fans, has been higher service charges, meaning effectively that they pay higher prices for their tickets. Often those service charges are buried in the overall price charged by Ticketmaster, so that the fan may not even know that a substantial portion of what he or she is paying is a Ticketmaster-imposed surcharge.
Now, some of you might wonder how Ticketmaster, seemingly a service organization performing the routine function of distributing tickets, managed to put itself in a position where it can exercise such a high degree of control over the pricing and distribution of concert tickets. To understand this requires a brief description of the structure of our business.
When Pearl Jam makes arrangements to go on tour, we act through an agent. Our agent will then enter into an agreement with a promoter for a particular show or shows. The promoter, in turn, will enter into an agreement with the venue. And as indicated above, typically the venue, the promoter or both will have exclusive contracts with Ticketmaster for the distribution of tickets for events in which they are involved.
It is well known in our industry that some portion of the service charges Ticketmaster collects on its sale of tickets is kicked back to the promoters and the venues. Thus, Ticketmaster's service charges are a source of additional revenue for venues and promoters. It is in their interest, as well as in Ticketmaster's interest, to impose high service fees. The "service fee" -- which in concept should be nothing more than a handling charge for the convenience and cost associated with purchasing a ticket over the phone or at a remote location -- has thus become a source of additional revenue not only for Ticketmaster but for the promoters and venues.
As anyone who has read the papers this summer is undoubtedly aware, the Ticketmaster service charge has in at least one case been reported to have gone as high as $15 per ticket. An informal survey of the service charges being imposed by Ticketmaster on the events currently being advertised in the Los Angeles area shows that they range from a low of $3.50 for a ticket to an ice skating show at the Forum to $6.25 for a ticket to see either ZZ Top or Phil Collins at the Forum or Janet Jackson at Irvine Meadows, to a high of $7.25 for a ticket to see the Eagles at the Rose Bowl. On top of that, Ticketmaster imposes an additional charge of $2.00 or more per order if the tickets are ordered by phone. By contrast, the service charge imposed on a ticket to the musical Sunset Boulevard purchased over the phone -- from a non-Ticketmaster service -- is only $3.00, less than the lowest charge being imposed by Ticketmaster and less than half of the surcharge Ticketmaster imposes for a ticket to a ZZ Top, Janet Jackson or Phil Collins concert. There can be little question that if competition existed, service fees would be lower.
Bands like Pearl Jam receive no part of the service charges collected by Ticketmaster. And let us make it quite clear that Pearl Jam seeks no portion of those service charges. As a result, a band like Pearl Jam, which is concerned about keeping the price of its tickets low, almost by necessity finds itself on the opposite side of Ticketmaster, which has every economic incentive to raise the price of the tickets it sells.
During its brief existence, Pearl Jam has had several confrontational encounters with Ticketmaster. The first occurred in 1992, in connection with the "Drop in the Park Show", a free concert Pearl Jam arranged in Seattle. Pearl Jam paid for the costs of staging the free concert -- an amount in excess of $125,000 -- but was required for security reasons to limit attendance to 30,000 fans and as a result had to distribute tickets. Ticketmaster refused to distribute tickets for this free concert for less than a $1.50 per ticket service charge (a total of $45,000), requiring us to make other arrangements with the City of Seattle to distribute tickets.
A series of run-ins with Ticketmaster during our last tour illustrates quite clearly the power that Ticketmaster wields and the risk that any band undertakes in attempting to utilize an alternative to Ticketmaster's distribution system. Last December, we had made arrangements with a local promoter in Seattle to perform at the Seattle Center Arena. A portion of the proceeds from this concert were to go to charity. We originally had an agreement with Ticketmaster under which they would distribute tickets for the concert and impose a service charge of $3.25, of which $1 would be donated by them to the charity, plus they would make an additional contribution from their revenues so that their total contribution would be $20,000 if the concert sold out. Pearl Jam also agreed to contribute $20,000 to the charity. At the last minute, just as the tickets were about to go on sale, Ticketmaster reneged, and threatened not to sell tickets if it could not raise the service charge by $1 per ticket to cover the amount of their contribution. After a tense impasse, Ticketmaster finally relented and agreed to charge only $3.25, but it limited its contribution to the $1 per ticket portion of its undertaking and did not make the full contribution it had originally agreed to make.
After this, our run-ins with Ticketmaster became increasingly threatening. In Chicago last March, Ticketmaster insisted on imposing a $3.75 service charge on top of the $18 price of a ticket to our concerts. We negotiated with Ticketmaster's general manager in Chicago and obtained an agreement to identify that service charge separately from the actual price of the ticket. Then, just as tickets were to go on sale, Ticketmaster again reneged. It was necessary for us to threaten to perform at another venue before Ticketmaster backed down and agreed to sell tickets that separately disclosed its service charge. Even then, Ticketmaster told us that its concession only extended to our Chicago shows and we should not expect them to be willing to do it elsewhere.
Chicago was followed soon after by Detroit. In Detroit, we decided to try to bypass Ticketmaster by distributing tickets through our fan club and by a lottery system. We were informed that Ticketmaster threatened the promoter of this concert with a lawsuit for violating its exclusive Ticketmaster agreement by allowing this method of distribution to occur, and also temporarily disabled the promoter's ticket machine to that it could not print tickets for the concert for that time.
In New York, where we played a show at the Paramount Theatre in April of this year, we tried to distribute some tickets over the radio. Using a city-wide promotion, tickets were sold through the Paramount Box office. Here again, we were informed that Ticketmaster threatened the Paramount's management with legal action for supposedly allowing us to evade Ticketmaster's exclusive rights.
While we were experimenting with these alternative distribution arrangements, Ticketmaster attempted to threaten and intimidate us. For example, at one point the person in charge of handling concert arrangements for us was told by Ticketmaster in essence that he had better watch himself and that if we didn't back off he would be run out of the business.
After the conclusion of our winter tour, we began to plan for a tour this summer. In attempting to arrange that tour, we made it clear that we would only perform if the service charge imposed on our tickets was limited to 10 percent and was separately disclosed. Ticketmaster responded by spreading the word to promoters that it viewed our efforts as a threat to its business and urged promoters to refuse to deal with Pearl Jam. For example, as we disclosed to the Justice Department, in March of this year, Ben Liss of the North American Concert Promoters Association -- a group of all major promoters in North America -- sent a memorandum to the Association's members in which he referred to them as "brother raccoons" and warned that:
"Ticketmaster has indicated to me that they will aggressively enforce their contracts with promoters and facilities. Ticketmaster's stance is that they have been loyal to their partners in this business and they hope and expect their partners will reciprocate."
A day later Mr. Liss sent the Association's members an "update" on the matter, in which he conveyed that "Fred" -- referring to Fred Rosen, the CEO of Ticketmaster "will use all available remedies" to protect itself. He added that "[Ticketmaster] views the Pearl Jam issue as an all or nothing proposition, meaning that they will not agree to handle half of the available inventory on a show in any situation where a contract exists." Now what is wrong with Ticketmaster's business practices? On a purely practical level, its practices are a problem because they preclude bands like Pearl Jam from having access to any alternative method of distributing tickets with the consequence that our fans are forced to pay [it appears some material is missing here]
Copies of the memos are annexed as Exhibits B and C to this statement of higher ticket prices. In our memorandum to the Justice Department, Sullivan & Cromwell explained why those practices should also be considered to be illegal.
As our memorandum to the Justice Department explains, Ticketmaster's exclusive arrangements with promoters and venues are unreasonable restraints of trade, and its use of those arrangements to prevent promoters and venues from dealing with Pearl Jam amounts to a group boycott, in violation of Section 1 of the Sherman Act. Ticketmaster is also a monopolist, having acquired and perpetuated that position through its acquisition of Ticketron and various other regional ticket services and the use of long term exclusive contracts. In acting to preclude Pearl Jam and other bands from distributing tickets to their own concerts other than through Ticketmaster, Ticketmaster is unlawfully exercising that monopoly power in violation of Section 2 of the Sherman Act.
Since we brought Ticketmaster's conduct to the attention of the Department of Justice almost two months ago, public support for us and more generally for efforts to reduce ticket prices has been overwhelming. Although our success as a band gives us a degree of power to try to stand up to Ticketmaster that newer and less established bands do not have, we do not consider ourselves to be crusaders. And while we recognize that the issues we have raised have implications that go beyond Pearl Jam, our interest is really quite narrow. We simply have a different philosophy than Ticketmaster does about how and at what price tickets to our concerts should be sold. We do not want to force Ticketmaster to do business on our terms, but we believe we should have the freedom to go elsewhere if Ticketmaster is not prepared to negotiate terms that are acceptable to us. That is the essence of competition. As we learned in attempting to arrange a tour this summer, given the current state of Ticketmaster's dominance of the industry, that may well mean that we must play non-traditional venues and use non-established promoters or promote our own shows.
The level of the service charge is not the only problem that Pearl Jam faces in connection with the sale of tickets to its concerts. Beyond the excessive service charges there are the problems of ticket scalping, counterfeiting, and commercial advertising on tickets. For example, at some of our recent concerts, an informal poll of fans in the audience revealed that more than 40 percent of them bought their tickets from ticket brokers. At many of our concerts, we are experiencing a counterfeit ticket rate of about 2.5 to 3%. And at one recent concert in Boston, we learned that some of these counterfeit tickets had been sold to fans for $250.
The problems of ticket scalping and counterfeiting are not new or unique to Pearl Jam concerts. There are, however, steps that can be taken to address those problems. These include specific monitoring to ensure that when tickets to a concert go on sale to the public, none are held back for the benefit of ticket brokers. With respect to counterfeiting, it is possible to use ticket stock that is more difficult to copy. Ticketmaster, unfortunately, has been unwilling to address these concerns.
Pearl Jam believes that if Ticketmaster is unable or unwilling to provide the level of service that Pearl Jam believes is appropriate for the distribution of tickets to Pearl Jam concerts, then we should have the option to make arrangements to distribute tickets to our concerts through other means. That freedom of choice -- a basic principle of competition in this country -- does not effectively exist in the music industry today. Something is vastly wrong with a structure under which a ticket distribution service can dictate the mark-up on the price of a concert ticket, can prevent a band from using other, less expensive, methods of tickets, and can effectively preclude a band from performing at a particular arena if it does not accede to using Ticketmaster. The effect of this situation on ticket prices has not been subtle: prices paid by consumers -- the ordinary concert fans -- for tickets to see Pearl Jam or any other band in concert are higher than they would otherwise be if competition existed.
In bringing Ticketmaster's conduct to the attention of the Department of Justice, Pearl Jam hoped that the Government would agree with our view that Ticketmaster's anti-competitive business practices are illegal and would take steps to stop those practices from continuing. We believe that the Department of Justice is particularly well suited to deal with this matter because the problem is national in scope and has broader ramifications than simply the price of tickets to a Pearl Jam concert. We are encouraged by the Antitrust Division's public confirmation that it is conducting an investigation into those practices and we look forward to the outcome of that investigation and hopefully to enforcement action that will serve to prevent these practices from continuing. Congressional attention and support for this matter will, we hope, reinforce the Antitrust Division's activities.