Ticketmaster adapts to rivals' online threat
Ticketmaster starts auctioning tickets for major music tours. It also allows some scalping.
By Washington Post
Published September 12, 2006
Reselling sports and concert tickets online has become a multibillion-dollar business for eBay Inc., StubHub Inc. and other middlemen. Now the concert and sports industries — and Ticketmaster, which sells the majority of seats — are fighting to take back some of that money.
A division of Barry Diller’s IAC/InterActiveCorp, which also owns HSN in St. Petersburg, Ticketmaster is overhauling the way it sells tickets.
It’s embracing new methods that it long shunned. Most notably, Ticketmaster is running auctions to sell seats for roughly 30 percent of this year’s major music tours — including Pink Floyd’s Roger Waters, Barbra Streisand, Madonna, B.B. King and Melissa Etheridge. Ticketmaster also is letting customers resell some seats at its Web site.
Since that lets fans sell tickets far above face value, Ticketmaster has joined the fight against state antiscalping laws, reversing its earlier position.
Concert promoters, performers and sports teams stand to win if the new methods at Ticketmaster reduce scalper sales — and return some of the proceeds to their own coffers.
Ticketmaster, which for 15 years has held a near-monopoly over the market for ticketing major live events, is battling competition from online rivals that can easily resell tickets at whatever price the market will bear.
Tickets for live events are frequently either overpriced — leading to potentially disastrous sales shortfalls — or underpriced, opening the door for scalpers. “We’re in an industry that prices its product worse than anybody else,” says Ticketmaster chairman Terry Barnes.
People in the concert industry estimate that only 45 percent of tickets made available to the public end up being sold.
Last year, the number of concert tickets sold in the United States fell, although prices and overall ticket revenue continued to rise. The average price of a ticket to the 100 top-grossing shows hit a record $57 in 2005, according to Pollstar, a trade magazine, up nearly 9 percent from 2004’s average of $52.39.
In 2005, the number of tickets sold fell to 67.4-million, down nearly 7 percent from 72.2-million in 2004.
Prices for Barbra Streisand’s coming tour, for example, are setting records, with top-tier seats carrying face values of $750 through Ticketmaster.
At the same time, sales of seats by resellers have thrived, thanks to the Internet. By some estimates, the U.S. secondary market reached $5-billion in 2005 — nearly equal to the face value of all the tickets sold by Ticketmaster that year.
“The Internet has opened up the world of reselling tickets to anybody,” says Arthur Fogel, chairman of concert-promotion giant Live Nation Inc.’s music division. That rankles Ticketmaster, concert promoters and musicians, who generally haven’t benefited financially from this extra revenue.
“That secondary-market money, we think belongs in the industry,” says Ticketmaster’s Barnes.
Ticketmaster began exploring auctions and other sales methods in 2003 as a way to address the disequilibrium.
Ticketmaster now makes auctions available as an option to concert promoters, venues, performers and sports teams. For any given show, clients decide how many seats to put up for auction — and set the opening bid prices.
The bidding process is similar to that of Web auctioneer eBay. A fan enters the maximum he or she is willing to pay, along with a credit-card number, and can follow competing bids online.
When country stars Tim McGraw and Faith Hill played a concert last month at Phoenix’s U.S. Airways Center arena, ticket prices ranged from $49 to $125. Marcus Ridgway, a 36-year-old real-estate developer from Mesa, Ariz., paid $700 on a Ticketmaster auction for a pair of seats close enough to touch the country stars as they strutted on a catwalk.
Ticketmaster’s early efforts suggest even limited auctions can help offset scalping activity. Jim Guerinot, a manager, says his client Nine Inch Nails auctioned fewer than 10 percent of the tickets on a tour last summer but saw a significant decrease in online reselling. “We watched eBay and (scalping activity) was way down,” he says.
Ticketmaster also is pushing its own resale program. Launched in 2002, “TicketExchange” has proven most popular for sporting events, letting season-ticket holders unload seats they won’t use.
In 2005, Ticketmaster customers resold 329,000 tickets this way, up from 83,000 the year before. Ticketmaster and the promoter, venue or team share an undisclosed percentage of the sale price, while the seller keeps the rest.
Ticketmaster allows reselling on TicketExchange only when its clients agree.
Ticketmaster’s revenue jumped to $950-million in 2005, up almost 24 percent from 2004, partly as a result of strong sales in Canada and higher sales from recent acquisitions in Sweden, Finland and Australia.
The bulk of Ticketmaster’s revenue comes from fees it adds on top of the face value of tickets, accounting for 30 percent or more of the final cost.
It is the cash cow for parent company IAC. For the quarter ending June 30, the company’s ticketing division had $295-million in sales and produced $69-million in operating income, the bulk of IAC’s total operating income of $81-million.
Ticketmaster’s online rivals are fighting back, boasting that they offer a wider range of tickets in the resale market. A leading combatant is StubHub, founded in 2000 amid the tech crash by two students at Stanford University’s Graduate School of Business who began devising a business plan as part of a school competition.
The company expects ticket sales to hit $400-million this year — double that of 2005 — and to take in fees of 25 percent of sales, or about $100-million.
StubHub says it can maintain its edge by letting fans buy and sell any ticket for any event through its site. It pockets a fee from both buyer and seller. Ticketmaster only resells tickets when it has a resale contract with the artists, teams or venues.
“In the secondary market, success is driven by relationships with the fans, whereas Ticketmaster’s focus is about locking up deals with venues,” says Chief Executive Jeff Fluhr.
Branching out, StubHub recently staged an auction for every seat in the house for an INXS concert at the 650-seat Lobero Theater in Santa Barbara, Calif., with the band’s cooperation. Seats went for an average $50, with one pair fetching more than $500 each (a price that included an opportunity to meet the band) and a few going for just $3.
The legal barriers to reselling tickets are starting to erode. Florida in June overturned a law against reselling a ticket for more than $1 above face value. Eleven states still have strong antiscalping laws, like the one Florida did away with, and nine others have weaker ones. Even in states and municipalities where such laws remain on the books, they are enforced inconsistently at best and have done little to slow the growth of the online secondary market.
Now that Ticketmaster is slugging it out in the secondary market, it has joined in lobbying for the repeal of states’ antiscalping laws — a 180-degree change from its earlier efforts to make such laws stiffer. StubHub says it also is lobbying to repeal “antiquated” state laws.