The Business of Entertainment Ticket Sales & Reselling

Tuesday's Wall Street Journal featured an article about the business of selling, and reselling, entertainment event tickets. Ticketmaster, a part of Barry Diller's IAC/Interactive Corp., and the market leader, is portrayed as having reversed its long-held position against reselling, and now trying to cut itself in on scalpers' profits. In fact, many states are now reconsidering, or simply not enforcing, their laws against the resale of tickets for more than $1 above the original price.

The key facet of the business which has brought it to this point is described in a quote by Ticketmaster's chairman, Terry Barnes,

"We're in an industry that prices its product worse than anybody else."

The result is frequently either unfilled stadii, or scalpers realizing healthy profits from underpriced tickets. A revealing statistic is that the estimated sales of tickets in the US secondary market was roughly $5B last year, or nearly Ticketmaster's own revenue from ticket sales.

Now, artists whose events are handled by Ticketmaster complain that more of the end user prices of tickets should belong to them, including the extra revenues from online resales, or "scalping," in general.

In the other "corner" of the competitive ring is a smaller, but significant, rival, StubHub, along with eBay's use for ticket resale auctions. Founded in 2000 by two Stanford Business School graduates, the Journal piece reports that StubHub will have $400MM in ticket sales, double that of 2005, on which it makes 25% for its own revenue.

The two major competitors, Ticketmaster and StubHub, view the "market" in radically different terms. The former sees all end-sale ticket revenues as prospectively belonging to the artist and itself, while the latter views all secondary sales as simply between consumers.

It's hard to fault StubHub. Ticketmaster admits its own pricing strategies are so inept as to leave "5% to 10%, that are priced well below their market value," and a further "over 50% of tickets go unsold." Meaning, taken together, that over half of venue tickets are improperly prices, so as to yield sub-maximal, or no, revenues.

Two similar markets come to mind- IPOs and airline seats. Of the two, IPOs have more than simply revenue maximization as an objective. Typically, the offering is meant to create widespread distribution of shares, so that foregone gains on the day of the initial offering, and later, can be somewhat characterized as a "price" paid by the issuing owners, whose equity is up for sale, in order to create a large and liquid market in the shares for the future.

It's possible that musicians and other entertainers, be they sports figures or others, have similar secondary objectives. However, according to Ticketmaster's new position, it seems like this is ebbing in importance. The company began, in 2003, to auction some tickets online, in an attempt at revenue maximization. Apparently, even this hasn't yet resulted in the successful initial sales of prime seats for desired prices.

This would seem to suggest that the artists, and Ticketmaster, should be calling Bob Crandall's old outfit, American Airlines, to consult with it on yield management for entertainment ticket sales.

On a more basic level, however, it seems that artists are trying to have their cake, and eat it, too. In the past, artists have wanted cash up front to fund them, and allegedly do what they do 'for art's sake.' Until, that is, it pays a lot. Then, it seems, they want the full end sales value of the seats for their events, without the risk of that value being less than they might get upfront via the current process.

But if they want the money, shouldn't entertainers take the risk of unsold seats? Cashflow risk? Timing of sales risk?

Why should Ticketmaster and the entertainers they represent get scalper's prices without the risks?

Painters don't get a cut of their painting's eventual high prices, if their canvases ultimately trade for much higher sums among and between collectors.

I think StubHub is correct on this one. Ticketmaster, it points out, brokers deals for artists to play venues. The ticket seller estimates what to charge for tickets, and artists get a cut. However pricing is done, it is their choice.

Would Ticketmaster, the venue, and artists all be OK with a simple online bidding process? Reserving the timing of various tickets for maximum yield? Calling on an airline for help with yield management of the scarce and perishable inventory of event tickets?

On one hand, they may realize better ticket sales by volume and percentage of seats, as well as total revenues. On the other hand, Ticketmaster's stable of entertainers may lose fans, as they are seen as directly involved and complicit in the move to a total auction market for live performance tickets, possibly moving most tickets beyond the price range of many of their fans.

Doesn't it really boil down to the opening quote by Ticketmaster's chairman? The company appears to simply be inept at a key operating function, price setting and yield management, in its major business line, selling tickets to venue seating for its entertainment clients.