Sunday, August 19, 2012

More on Ticketmaster's Legal "Ticket Scalping"

Following a recent post titled "Ticketmaster Must Be Stopped," several commenters defended Ticketmaster's right to operate its monopolistic, anti-competitive, anti-consumer business model free from government regulation, and I concede that's a valid position.  As one person wrote:    

"Are the purchasers of tickets not free to do business or not with Ticketmaster? Won't the free market eventually take care of such poor business practices?"

Another valid point - we can let market competition eventually take care of Ticketmaster's unsustainable practice of "legalized ticket scalping," which I illustrate above.  I was planning to buy three $25 tickets online, available online only through Ticketmaster, for an upcoming concert in D.C.  But then I was faced with an $8.20 "convenience charge" per ticket (32.8% of the ticket price) and an "order processing fee" of $4 to place the order, for a total cost of $103.60, of which only $75 is for the actual tickets, and $28.60 in exorbitant FEES (38% of the ticket cost)! Ouch! Note that the same $4 "order processing fee" applies even for one ticket, which would add $12.20 in total fees to a $25 ticket, for a total "scalped" cost of $37.20, with Ticketmaster charging fees of almost 50% of the ticket price!

And the fans (some), artists (most), promoters (all) and venues (all) are upset about some tickets reselling above face value on the secondary market (see photo below)?   Tickets are already selling for WAY above face value in the primary ticket market, with Ticketmaster's practice of legalized scalping fees on all of the tickets sold!  

Now I'm not arguing for government regulation of Ticketmaster's exorbitant fees, I was only making a property rights case against Ticketmaster's new "restrictive paperless tickets" in my previous post. 

Two points/questions:

1. Ticketmaster's business model seems clearly unsustainable, especially when the cost of selling and processing online ticket purchases is almost zero.  Why aren't competitors challenging Ticketmaster's monopoly? There don't appear to be any significant barriers to entry, are there?  There is an active competitive secondary market with lots of competition (Seat Geek, Stub Hub, Tickets Now, eTix, eBay, Craigslist, etc.), so why hasn't anybody challenged Ticketmaster's monopoly in the primary market? 

2. Why isn't there more fan and artist outrage over Ticketmaster's fees? Over the years, concert fans and musicians have directed a lot of outrage towards "ticket scalpers" (see photo below), but seem somewhat complacent about "legalized ticket scalping" when Ticketmaster sells tickets at 38% above face value? 

Personally, I'll be expressing my outrage over Ticketmaster fees by going to the venue tomorrow and purchasing the tickets there for $25.  Thankfully, that's an option in this case, but only because it's convenient for me to actually buy tickets directly, and would frequently not be an option for most buyers.   


At 8/19/2012 9:24 AM, Blogger Steve P. said...

The property is the seat at the event, not the ticket. The ticket is a rental agreement.

At 8/19/2012 9:34 AM, Anonymous Anonymous said...

Well, Steve, if you want to get reductive about it, the "property" is the artist's performance, which has been "rented" first to the venue, and then sublet, via Ticketmaster, to the attendee.

What puzzles me is trying to figure out what interest is served by arbitrarily ending the right to sublet at Ticketmaster. Were attendees not restricted in their rights to resell, the money going to Ticketmaster, the venue and the artist would be completely unaffected.

At 8/19/2012 9:50 AM, Blogger Scott Drum said...

Since Ticketmaster and Live Nation merged, they now represent somewhat of a vertical monopoly. Live Nation controls most of the large venues that sell tickets (i.e. they control the supply of what Ticketmaster sells). They also manage a large number of the artists and their concert tours (the supply to the venues). It was Live Nation starting to sell tickets (i.e. competing with Ticketmaster)that prompted the merger.
The barriers to ticket issuance may not be high, but the barriers to venue building are. Most of the large venues are subsidized by government in some form -- e.g. outright ownership or financed with muni bonds. So government is often complicit in this scheme as well.

At 8/19/2012 9:54 AM, Blogger juandos said...

"What puzzles me is trying to figure out what interest is served by arbitrarily ending the right to sublet at Ticketmaster"...

Price maybe tim w?

What I don't understsand in this day and age of twitter why people would tolerate Ticketmaster...

Just a few events that have Ticketmaster involved that play to nearly empty venues (yes, boycott the event if Ticketmaster is involved) and word will spread quickly...

If and when people start voting with their wallets there will be a few rather immediate results...

People only have themselves to blame for the Ticketmaster problem...

At 8/19/2012 10:16 AM, Blogger Seth said...

It could be that Ticketmaster's charges could represent the convenience value of not having to go to the venue to buy tickets. Since it sounds like the venue is relatively convenient for you, the price isn't worth it.

I work near two local venues and have discovered that not only do I save on the convenience/processing fees, but for some reason the actual ticket prices are sometimes lower than online.

But, for me, I find it's convenient to buy these tickets on my lunch break. For venues that aren't convenient for me, I find the online fees are usually worth not having to make the trek.

The value story (i.e. that ticketmaster actually does add value in the process) may be one reason for its continued existence.

At 8/19/2012 10:17 AM, Anonymous Anonymous said...

Whose price, Juandos? If resell my ticket, Ticketmaster is unaffected - I've already paid them. Surely Ticketmaster is not trying to protect consumers!

At 8/19/2012 10:19 AM, Blogger Steve Winkler said...

I believe there are a couple of issues here. In most cases artists, agents, and other creators/creator representatives are interested in the bottom line after someone else figures out the logistics of selling their events. They also have a tendency to believe in large, professional organizations who appear to have all the answers. They are easily captured interests. Secondly, the venues and other capital owners involved are interested in sharing the monopolistic gains a single provider offers. Scott's point about vertical integration is well put. Apathy and conspiratorial attempts to share rents represent unseen barriers to entry. But these are fleeting, and government involvement is not desired as a remedy.

At 8/19/2012 10:25 AM, Blogger Larry G said...

re: " Now I'm not arguing for government regulation of Ticketmaster's exorbitant fees, I was only making a property rights case against Ticketmaster's new "restrictive paperless tickets" in my previous post. "

are property rights - to be determined by the market or by government or ?????

in the same breath that it is said that we are not talking about regulation, we say that we ARE talking about property rights.

Doesn't that issue also involve the government?

how would it not?

At 8/19/2012 11:03 AM, Blogger juandos said...

"Surely Ticketmaster is not trying to protect consumers!"...

No tim w I personally think the very last person Ticketmaster is concerned about is the consumer...

The price I was thinking about since Ticketmaster gets a piece of the action is the price of the tickets...

At 8/19/2012 12:19 PM, Blogger Buddy R Pacifico said...

Who owns Ticketmaster?

Live Nation Entertainment.

From the 2011 LVY Annual Report:

"We believe that we are the largest live entertainment company in the world..."

"We believe we are the largest producer of live music concerts in the world..."

"We believe we are the world’s leading live entertainment ticketing sales and marketing company..."

"Through all of our ticketing
services, we sold over 141 million tickets in 2011 and sold an additional 135 million tickets through our venue clients’ box offices.

BTW, one of Live's leading competitors is, owned by Major League Baseball.

At 8/19/2012 12:21 PM, Blogger Buddy R Pacifico said...

Make that

At 8/19/2012 12:48 PM, Anonymous Anonymous said...

Scott mentions Live Nation and large venues, and to some extent Ticketmaster/Live Nation is built around that model. Live Nation signed Madonna, U2, and Jay-Z to huge deals, which likely led to the merger with Ticketmaster as they overpaid for those big names. That model is already dying out and the combined entity is likely to go down with it. The CEO of Ticketmaster himself admitted that the future is likely small bands playing in medium-sized and smaller venues, as nobody gets big enough to play the big venues anymore. Look at the names that Live Nation signed, none made their name in the last decade. It's all old acts that pull an older crowd to the stadiums and other large venues. More than that, attendance for all live events is down across the board, and the Ticketmaster CEO didn't think it was because of the recession. People just have too many other things they can do, whether whiling away time on their iPad or watching basketball on their High-Definition TVs, without all the hassles and bad sightlines of a live event. The fact is that Ticketmaster is tied to a doomed model and it's unlikely that they'll be to able to reinvent themselves for what's coming. So it hardly matters what they're up to now, I doubt they will be able to survive the massive change the music market is undergoing.

At 8/19/2012 3:01 PM, Blogger Kevin James said...

From Wikipedia:

"Ticketmaster frequently obtains agreements to become the sole provider of tickets for large venues... In many cases, acquiring this exclusivity requires Ticketmaster to pay substantial "signing bonuses" to venues, sometimes millions of dollars."

From what I can tell, the problem seems to stem from base ticket prices tending to be artificially low. Ticketmaster captures a good deal of the surplus (as do scalpers), and uses that money to buy exclusivity agreements with venues. Why the base ticket prices aren't just set to equilibrium, I do now know.

At 8/19/2012 3:09 PM, Blogger Larry G said...

Why the base ticket prices aren't just set to equilibrium, I do now know

seems like they could be put in an auction format... and let supply/demand dictate the price.


the scalpers are basically performing the auction function, right?

At 8/19/2012 4:57 PM, Blogger Jon Murphy said...

Actually Larry...that's not a bad idea.

At 8/19/2012 11:39 PM, Anonymous Anonymous said...

For a minute don't think of TicketMaster as something you use as a consumer. Think of them as any other vendor in the venue: Ice Cream, burgers, fries...

All these items items are overpriced because they have to sign an overpriced contract with the venue to sell product there. Typically there is a rent fee (a fixed amount paid up front.. Say $200,000 for a hypothetical) AND a share of the revenue... again, just for a hypothetical, say 25%.

So when you go to the Yankee game and get a Carvel cup of ice cream, instead of paying $2.75, you pay $8. Why? Because they had to pay $2 off the top to the Yankees and then sell enough during the season to pay for that $200K rent fee plus pay for the product, employees and dare I say profit.

These venues will bid it out to the one who gives them the best deal.

TicketMaster is really no different. They are paying to be the exclusive provider of tickets to the event. Whether or not you buy them at the box office or via or on the phone, the electronic ticket still resides in the TicketMaster computer. They will go in and pay the venue based on projected revenue an up-front fee (rent) for this AND if volume of ticket sales where they collect a service charge goes over a certain point, give a percentage of the service charge back to the venue.

If you notice, service charges are different by performer. Why? Because the performer often wants to keep their "ticket prices" low, but tacks on an extra couple dollars to the service charge which TM will rebate back to them.

Can you save the service charge by going to the venue? Sure (sometimes). But they play the odds game. They know that for a given event, very few people will take time out of their day to go there. So those that go to the box office are a small percentage of people they essentially give a discount to (no service charge). The other downside is there often no special allocation for the box office to sell without service charge. So when tickets go on sale at 10am a person sitting at home with his computer probably has a better chance of getting a better seat than you do by going to the box office. To make matters worse, many box offices won't even sell tickets on the 1st day of the on-sale.

Don't think of the ticket as a $25 ticket with a $9.20 service charge. Think of it as a $34.20 ticket which you can get at a discount if you go to the box office.

At 8/20/2012 2:24 AM, Anonymous Anonymous said...

At most venues you can't save on fees by going direct to the venue. Generally, Ticketmaster's contracts forbids the venue from undercutting them, so you'll pay the fees regardless.

At 8/20/2012 6:49 AM, Blogger Jon Murphy said...

Good point, whyzat, but I think there is a distinction:

If you go to Yankee Stadium, you can buy a beer and give it to your friend.

With what Ticketmaster wants to do, you would not be able to buy a ticket and give it to your friend.

At 8/20/2012 7:56 AM, Blogger Larry G said...

so... is this a property rights issue per Prof. Perry's assertion: "
I was only making a property rights case against Ticketmaster's new "restrictive paperless tickets" in my previous post. "

Isn't this where regulation comes from - when a number of people believe that a company has violated THEIR property rights and needs to be regulated?

At 8/20/2012 12:02 PM, Blogger t11s said...

My belief (based on publicly available SEC documents) is that nearly half of Ticketmaster convenience fees may go back to venues to fund their lock-in deals.

Thus, it would be more appropriate to think of Ticketmaster as a risk-management company rather than a ticket company. They pay venues on an up-front, regular schedule to reduce their risk of not selling enough tickets for particular events.

The actual ticketing technology is a very small part of the business value for venues. Indeed there are plenty of non-Ticketmaster online ticketing companies for small venues that do not want to become involved (or are too small to become involved) with Ticketmaster.

However it is true that artists and governments are putting pressure on Ticketmaster to avoid scalping (it should be noted that Ticketmaster runs its own resale company, TicketsNow). I believe that some artists feel a need to signal to their fans that tickets are reasonably priced, even if that is not profit-maximizing in the short-term. And of course politicians are all about signaling as well....

If you had about $10 billion you too could get into the Ticketing risk management business by walking into every venue in the country at the same time and trying to buy them out from Ticketmaster. But it certainly would not be easy.

AEG appears to be trying to do this themselves for their own venues.


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