The Washington Post:
Ticket Masters of the Universe
In Round 2 of the Pearl Jam Challenge, the Justice Department Takes Center Stage
By John Edgell
The 165,000 rock fans who mailed in postcards, hoping to purchase tickets to this weekend’s Constitution Hall pro-choice benefit concerts featuring Pearl Jam, Neil Young and L7 know something is definitely wrong in the way concert tickets are sold today. Why did three of the nation’s top rock music acts have to rely on an old-fashioned mail-order lottery to sell tickets? The answer in a word is Ticketmaster, one of the few businesses in American whose market dominance has been directly facilitated by government antitrust agencies.
Welcome to Round 2 of Pearl Jam vs. Ticketmaster, a struggle between two of the most successful enterprises in their respective fields. Pearl Jam is a Seattle-based alternative rock band that has sold 12 million copies of its first two albums; its latest release, “Vitalogy,” is near the top of the music charts. The band’s 1995 world tour – mail order drawings or not – will see sold-out shows in Europe, Asia and North America. Ticketmaster, with projected annual revenues of $250 million, is the nation’s largest ticket-selling company. It is backed by Microsoft co-founder Paul Allen, a self-described rock music fan, who reportedly paid $300 million in late-1993 for 79 percent of the privately-held firm.
What began last year merely as a business dispute between the band and the nation’s largest ticket seller has escalated into a conflict that may change the entertainment industry. The controversy started when Pearl Jam sought to hold a low-price concert tour and Ticketmaster refused to reduce its fees. According to a civil complaint Pearl Jam filed with the Justice Department, thee firm threatened to sue the music promoter who did business with Pearl Jam when the band was exploring a future tour without Ticketmaster. The antitrust division of the Justice Department is now examining Pearl Jam’s allegations that Ticketmaster has engaged in anticompetitive practices. Ticketmaster denies any wrongdoing.
“This case could fundamentally change the way tickets are sold to the public,” says Peter Jablow, a Rockville consultant for ticketing firms and a former Ticketmaster official. “If all goes right, every consumer and music act could benefit substantially.”
The average rock fan may not sit around the kitchen table pondering the U.S. government’s current antitrust policy.But they know unrestrained market power when they see it.And anyone who has recently purchased concert, sports, or theater tickets from Ticketmaster knows the price of that power: handling or “convenience” changes that range from $2.25 to as much as $10 in some cases.While the Justice Department’s review centers on the music industry, the investigation’s outcome could affect every sports fan, theatergoer, or tourist visiting the Holocaust Museum (where admission is “free” if you stand in line at the museum; otherwise the only choice is Ticketmaster – which charges $3).
Of course there is nothing wrong with charging to provide a service that customers find convenient. The problem centers on the design of the ticket distribution system. Ticketmaster (and other ticket firms) sign long-term contracts with concert venues that stage the shows and the music promoters who serve as behind-the-scene coordinators between the bands, venues, radio stations and the buying public. These contracts often guarantee the firm (usually Ticketmaster) exclusive rights to ticket sales typically over a three- to five-year period. Without access to concert halls and promoters, of course, the show can’t go on.
Thanks in part to the Justice Department and the Federal Trade Commission, there aren’t very many ticket firms competing with Ticketmaster. From 1985 to 1991 Ticketmaster acquired seven major competitors, according to an internal company memo, while the Reagan and Bush administrations stood idly by.In May 1991, for example, the Justice Department permitted Ticketmaster to acquire a substantial portion of the assets of Washington-based Ticketron.That acquisition, according to Pollstar, a concert industry trade magazine, guaranteed Ticketmaster an estimated 90 percent market share. And last April a little-noticed FTC decision allowed Ticketmaster to block a potential rival, MovieFone, from expanding its over-the-phone movie ticket operation into the “live events” ticket business.
The “convenience” charge does not merely pay for Ticketmaster’s service. Ticketmaster also shares part of the convenience charge with concert hall owners, entertainment promoters and apparently even some music acts in exchange for the exclusive right to sell tickets. It’s a form of mutual back-scratching. Pearl Jam’s manager, Kelly Curtis, likes to say, “It turns out everyone has their hands in each other’s pockets.”
The average entertainment consumer bears the burden. With the combination of the industry standard practice of long-term, exclusive contracts coupled with little viable competition, the feds essentially sanctioned Ticketmaster’s dominance.
Ticketmaster has stated that it “operates fully and squarely within the parameters of all applicable laws.”It downplays its market power.In congressional testimony last summer, company CEO Fred Rosen said that the firm sold a mere 2 percent of America’s entertainment tickets.But the figure came from a study commissioned by Ticketmaster which included tickets sold by museums, theme parks and national parks. A recent story in the New York Times said that if only tickets for professional sports and events in arenas, auditoriums and theaters are considered, Ticketmaster’s share is significantly higher. Moreover, the Times said, Pollstar data shows that Ticketmaster has exclusive contracts with concert halls and arenas representing 63 percent of the country’s 9.9 million seats; in addition, the Times said, Ticketmaster has non-exclusive arrangements covering a large share of the rest. For example, locally, RFK Stadium, George Mason’s Patriot Center and the USAir Arena guarantee Ticketmaster exclusive rights. Constitution Hall, the site of this weekend’s concert, also has an exclusive arrangement, but makes an exception for charity events. Nationwide, fewer than 40 concert venues allow two or more ticketing firms access to their facilities.
More competition might benefit the consumer. In Portland, Oregon, a city where ticket-selling competition exists, handling changes are less than $2 per ticket. A couple of bucks per ticket may not seem like a big deal but it makes the difference for music acts, especially younger ones, which want to reward the loyalty of their fans.
This is not to say that having two or more ticket firms in this market will result in lower handling fees. If the “back-scratching” policies are permitted then venues and promoters will look to the ticket seller providing the most revenues. This would result in ever-increasing “convenience” charges. The only real solution to policymakers may be to prohibit shared revenues from handling fees.
Another option, still not ideal, is for Ticketmaster to cede more control of the ticket inventory to the music acts. The 7,000 fans fortunate enough to buy tickets this weekend – not to mention the 158,000 not-so-lucky fans – may have found mail order drawings somewhat unconventional and certainly antiquated. But the system locked into place by Ticketmaster has its own drawbacks. Ask anyone who has spent a Saturday morning in a frantic and sometimes futile effort to get tickets to a hot show.
In an era where computers and phones are driving an ever-increasing electronic marketplace, why can’t music acts use existing technology – toll-free numbers, the “information superhighway,” the mail – to sell their own tickets? Isn’t it their show? What this weekend’s concerts revealed is the very real potential and likely demand for music acts to sell tickets themselves to their best, most loyal fans.
The legendary rock band the Grateful Dead, with its loyal and dedicated fans, is currently the only music act that has enough clout to force Ticketmaster to allow direct-to-consumer ticket sales through phone and mail order sales. When the Dead announce an upcoming concert, fans can call established hotlines that provide concert information. The tickets are then sold by mail. All fans have an equal chance to purchase the best seats to shows of their choice, bypassing the normal channels of busy signals, long box office lines and scalpers. After several weeks, remaining tickets are sold through Ticketmaster’s phone system, box offices and outlets. There is not reason that Pearl jam, or any other rock band, could not duplicate this success – no reason, except that Tickemaster won’t allow it.
While it’s true Ticketmaster has acted within the legal boundaries established by the federal government, those rules may be changing soon. Pearl Jam’s principled stand prompted the antitrust review, the broad scope of which could change the way tickets are sold everywhere. Now, it’s up to the Justice Department (or perhaps a change in heart by rock music fan and billionaire Paul Allen) to determing if the show will go on.
John Edgell is a former congressional staff member.
Published: January 15, 1995
The New York Times:
Not All Drug Lords Are Outlaws
By PETE STARK.
The list of drug traffickers in the war on drugs includes a lot of unscrupulous villains: the Colombian drug lords, gangs like the Bloods and the Crips and some U.S. pharmaceutical manufacturers.
Huh? American pharmaceutical manufacturers?
Yes, that's right. The drug companies - and a core group of unwitting doctors who supply the illicit market and keep millions of Americans needlessly addicted to tranquilizers, sedatives and other dangerous controlled substances. Drug companies and doctors also present the biggest obstacle to prescription drug reform and a plan to save taxpayers hundreds of millions annually.
The problem is 41 state Medicaid programs that lack simple oversight over the prescribing of almost 200 types of controlled substances, including the tranquilizers Valium and Xanax as well as dangerous sedatives and amphetamines. Recent Federal data reveal that these controlled substances are responsible for a third of all drug overdoses that turn up in hospital emergency rooms - a total of 80,000 a year, or three times the rate of heroin overdoses.
The nine other states require doctors who prescribe these dangerous legal drugs to use multiple-copy prescription forms, similar to credit-card slips. One copy of the prescription is kept by the doctor; one copy is given to the patient to take to the pharmacy. The remaining copy goes to the state health agency, which can then monitor prescriptions.
The idea is straightforward: Make doctors accountable for their prescriptions of dangerous drugs. This eliminates forgeries, illegal dispensing and fraud by patients, and also reminds doctors that these substances require special attention. The costs of implementing this program to Medicaid, by the way, are minimal.
In each of the nine states that require multiple-copy forms - including New York, Texas, California and Illinois - prescriptions for dangerous drugs fell 35 to50 percent after controls were instituted. Nationally, with 1.5 billion prescriptions issued annually for dangerous drugs, the plan could save hundreds of millions a year.
The benefits are obvious:
■ Reductions in prescription drug abuse and associated Medicaid fraud, not to mention decreased illegal diversion of these drugs for resale. New York found that covering just one class of heavy sedatives saved their Medicaid program $24 million in the first year.
■ The reduction of illegal prescribing and ''doctor shopping'' by addicted patients . Last year, for example, one New Mexico doctor was responsible for 28 percent of all Valium prescribed to Medicaid recipients in the state.
■ The protection of millions of elderly people from drug-induced injury. Some estimates put the number of senior citizens needlessly addicted to tranquilizers alone at 2 million.
Why haven't all 50 states instituted such programs? Because of the strong opposition of drug manufacturers, who stand to lose up to 50 percent of their sales of sedatives, tranquilizers and amphetamines.
How can the U.S. drug companies reasonably defend a system that invites fraud and forgery? How can the pharmaceutical lobby advocate the needless addiction of millions of senior citizens to powerful psychoactive drugs?
This is clearly unacceptable. Limited Medicaid dollars ought to go toward improving services, rather than subsidizing drug abusers and paying for injuries caused by unnecessary medication. Instead of defending their profits, drug companies and organized medicine should join with consumer, elderly and law enforcement groups to support multiple-copy prescription plans.
Pete Stark, Democrat of California, is Chairman of a House Subcommittee on Health.
Published: August 12, 1990
Billboard Magazine
Taking Issue: P2p Sites Open Door To Identity Theft
By JOHN EDGELL
Saturday, January 31 2004
The music industry is overlooking perhaps its most promising means of deterring peer-to-peer (P2P) music file sharing: the case of how Kazaa and the other P2Ps facilitate identity theft, credit card fraud and bank fraud.
The Recording Industry Assn. of America's (RIAA) high-profile litigation strategy aims to convince the public that music-file sharing is illegal and prosecutable. Lawsuits against major P2P users may have generated considerable news coverage and public awareness, but they won't stop downloading.
Rather than suing the teenager, the RIAA should instead focus on scaring teenagers' parents. Parents need to understand that their child's downloading exposes their personal financial records to credit card fraud and bank fraud.
A full understanding of the roles that Kazaa and other P2Ps hold in making identity theft possible should prompt millions of parents to remove those programs from their home computers.
Identity theft has exploded in recent years. The Federal Trade Commission recently reported that in 2002, nearly 10 million people were victims of identity theft.
At an annual cost to consumers of $5 billion and a cost to businesses and financial institutions of nearly $48 billion, this is no minor inconvenience.
The FTC's conclusions far exceeded previous estimates, indicating how truly vulnerable many Americans are to credit card and bank fraud.
The FTC report cites a stolen wallet or purse as a leading means by which criminals obtain a driver's license number, a date of birth and home address and a social security number—all ingredients necessary to commit credit card and bank fraud.
Recent congressional hearings highlighted the practice of "dumpster diving," where credit card applications found in trash cans are used to open up fake accounts.
The consumer agency's report fails, however, to acknowledge or comprehend how our day-to-day reliance on ccomputers has elevated identity theft to a whole new level of sophistication, making credit card fraud and bank fraud all too convenient and far too profitable for an entire new class of technologically savvy criminals.
For example, new and dastardly software known as "keylogger" permits the remote monitoring of computer keystrokes. Keylogger software can be embedded in a downloaded videogame or text document and, unknown to the end user, secretively sends regular e-mail updates of the end user's keystrokes.
Every time a credit card number is typed to make an online purchase or an online bank transaction is initiated, the identity theft criminal is provided the information.
Computer-savvy identity-theft criminals know that to access an end user's personal financial information, security firewalls must be bypassed and anti-virus software disabled.
Most Americans seem confident that computer-security software packages, including firewalls and anti-virus programs, are adequate protection.
But since P2Ps operate behind a computer's firewall, security programs offer insufficient safeguards and perhaps no protection at all.
Operating behind the firewall permits anti-virus programs to be disabled and [also permits] access to the end user's file directory, including personal tax returns, money management programs or bank records.
After acquiring the end user's personal financial information, the identity thief is able to reinstall the anti-virus programs, leaving virtually no trace of the criminal activity.
This all happens in a matter of minutes. The combination of P2P, keylogger and the disabling viruses make computer-related identity theft all too convenient and frightfully effective. The identity theft criminal has the keys to the bank vault, and the download is the getaway car.
Kazaa and the other P2Ps are careful to claim no responsibility for the content of songs, pictures, computer videogames or other items downloaded by tens of millions daily. Their end-user licensing agreements contain language waiving liability for damages caused by their services.
The scrutiny of the hidden embedded content is left to the end user.
The combination of growth in online retail, the popularity of file sharing and a reliance on online tax filing and online banking has converged to make identity theft convenient, efficient and extremely profitable, with little chance [of the thief] getting caught.
The identity-theft moon, sun and earth are aligned, and the music industry is blind to the obvious business, public relations and legislative opportunities available to exploit the P2Ps' role.
The major labels' interest in providing their own versions of online music distribution services presents an obvious business opportunity for a safe environment for downloading, devoid of keylogger or other computer viruses.
This would be in clear contrast to Kazaa and the other P2Ps, where downloads currently facilitate identity theft fraud.
To make this contrast between safe and unsafe music downloads, the RIAA and the labels must discard their current litigation jihad and engage in a full-throttle campaign to expose how P2P use makes Americans vulnerable to such fraud.
Of course, Kazaa and the other P2Ps will discount or refute their roles. But, put in terms that the RIAA's lawyers may understand, this would force the P2Ps to prove they are a safe venue for downloading.
Finally, the RIAA has a remote chance to include anti-P2P legislation in Congress' renewal of the Fair Credit Reporting Act, perhaps this session's only identity-theft-related legislation.
Legislators could slightly modify recently introduced House legislation that seeks to deter P2P user's sharing of child porn by requiring parental consent before a file can be downloaded. Parents would then understand the types of downloaded files their children are accessing and the lack of scrutiny of those files' hidden content.
John Edgell is a Washington, D.C.-based legislative and public affairs consultant.