by : Business, October 2013

Ticketmaster and the Business of Scalping

Ticketmaster and the Business of Scalping

Secondary ticketing, a practice many prefer to call ticket scalping, is hardly new. According to Ticketmaster’s co-founder Albert Leffler, ticket resale was already profitable in the Roman Empire and “tickets were regularly resold or bartered for a better view of the emperor”.1 Today, more than 2000 years later, the secondary ticket market is valued at $4 billion annually. Ticketmaster has now devised a way to tap the market and take on its biggest champion, StubHub.

Starting this past summer, Ticketmaster began testing out it’s new TM+ system, which allows for tickets to be re-sold right on the Ticketmaster website. Initially starting with only a handful of shows, and early adopters like Black Sabbath, TM+ has now been used for over three hundred events. Two-dozen professional sports teams have signed up, including NFL teams.2

TicketsNow and StubHub

TM+ is not Ticketmaster’s first attempt at  the secondary market. Previously, Ticketmaster tried out its TicketsNow re-selling program. But in February 2009, the company got into trouble with Bruce Springsteen when Ticketmaster automatically directed ticket buyers to the TicketsNow site, fetching prices as much as four times over the face value of the ticket before the sellout. In 2010, Ticketmaster reached a settlement with U.S. regulators to stop the practice of linking its site to TicketsNow3.  Since then, Ticketmaster has maintained a 10% market share of the secondary market.

Ticketmaster and the live concert industry have long been at odds with secondary ticketing. At the first sale of tickets, the money paid goes towards the artist, the promoter; ticket fees go towards the ticketing company. When tickets are resold on websites such as StubHub, the prices are marked up with the bulk of the profit going to whoever is selling the ticket. In many cases the person reselling the ticket has bought batches of prime tickets with the intent to make a profit. This makes it harder for real fans to get the tickets that they want at the price intended for them. In short, when scalpers make money it is not good for the industry.

Ticketmaster and StubHub have a checkered past.  StubHub is currently the biggest secondary ticket market player with over 30% market share. Much of those resold tickets come from scalpers who get past Ticketmaster’s security systems and buy tickets for events in bulk using automated ‘bots.’  In 2007, Ticketmaster sued StubHub over sales tactics. Contractually, Ticketmaster has the exclusive right to sell tickets to the general public for most of its events. Yet, for Lynyrd Skynyrd’s 2007 “Rowdy Frynds” tour, StubHub acquired tickets and marketed itself as the official provider of premium seats. Ticketmaster claimed that StubHub’s tactics were “part of a larger scheme to diminish Ticketmaster’s role in the sale of tickets generally.” For Michael Rapino, CEO of Ticketmaster, Stubhub took control out of an artist’s or business team’s hands and appropriated it in rent: In Stubhub’s site, Madison Square Garden events could be found for as much as $9,500 for tickets with a face value of $120.

The Ticketmaster Touch

To fight the threat of StubHub and the secondary ticket market, Ticketmaster started pushing paperless ticketing in 2012. Paperless tickets are not meant to be exchanged outside of Ticketmaster’s site and require the customer’s credit card or cell phone for admission. This hurt brokers trying to resell large amounts of tickets. For instance, between a New York Bruce Springsteen show that used traditional ticketing and a New Jersey paperless ticketing show on the same tour, StubHub listed 63% less tickets at the New Jersey show.

The conflict between the companies will likely escalate as a result of TM+’s open competition. Already in May 2013, Ticketmaster accused twenty-one hi-tech scalpers of fraud and breach of copyright, and suggested a connection with StubHub: the scalpers used bots to circumvent Ticketmaster’s security systems and caused shows to sell out quickly and at astronomic prices.5

TM+ and StubHub services are similar in several ways. Both (i) resell tickets and allow the seller to sell above face value, (ii) take 10% of the buyer and seller fees from each transaction (depending on the artist contract some of the collected fees may be split with the artist), and (iii) profit from brokers that take advantage of the primary ticket market.

TM+ does have certain factors that are unique to Ticketmaster. First, tickets will not be able to be sold for less than face value on TM+.6 Ticket brokers worry that Ticketmaster will have an unprecedented control over pricing in the live events industry. Also, Ticketmaster will allow customers to see the price of tickets being resold next to the face value price. This way, customers will be aware of the price difference, the exact seat position, and whether there are also unsold tickets in the same areas–all features that are not available on StubHub.

Ticketmaster will also make it possible to resell paperless tickets. This would make a big difference for ticket brokers that had trouble selling Ticketmaster’s paperless tickets. Additionally, Ticketmaster can verify the tickets being resold on its website, effectively taking the risk out of customers looking to buy resold tickets.

Ticketmaster’s Limitations

Ticketmaster must be careful with the handling of secondary ticketing. Selling marked up tickets can generate ill will among consumers and the business, and the company will be held accountable. It can only make the practice more acceptable if it reigns in high prices and tags reasonable service fees.  But  before this happens, Ticketmaster must drive away customers from existing websites into TM+.

Besides, it cannot do it all. To really boost the legitimate live music industry a means would have to be found to neutralize scalpers from using bots in the first place and acquiring prime tickets on the cheap.  Technological piracy, it seems, now rears its head in the live performance arena—again to the dismay of the corporate wizards.

 

By Dan Servantes

 

Endnotes

1. Lewis, Stonely. “The Economics of Ticket Scalping and Its Effect on Modern American Culture”.  The Good Life Reviews. May 6, 2009. http://www.thagoodlifereviews.com/2009/05/06/the-economics-of-ticket-scalping-and-its-effect-on-modern-american-culture/

2. “Ticketmaster puts resale and unsold tickets in one spot.” Associated Press. September 6, 2013. http://www.latimes.com/business/la-fi-ticketmaster-resale-20130907,0,3479300.story

3. Golum, Rob. “Live Nation Wields ‘The Boss’ in Stub Hub Ticket Battle.” Bloomberg. March 2, 2012. http://www.bloomberg.com/news/2012-03-02/live-nation-wields-the-boss-against-stubhub-in-paperless-ticket-battle.html

4. Broache, Anne. “Ticketmaster sues Ebay’s Stub Hub over sales tactics.” Cnet. April 20, 2007. http://news.cnet.com/2100-1030_3-6178001.html

5. Sisario, Ben. “Ticketmaster Accuses 21 of Fraudulent Ticket Buying.” The New York Times. May 1, 2013. http://www.nytimes.com/2013/05/02/business/media/ticketmaster-targets-scalpers-in-federal-lawsuit.html?_r=0

6. Balise, Julie. “Ticketmaster Raises White Flag to Scalpers.” MSN Money. Aug 14, 2013. http://money.msn.com/now/post–ticketmaster-raises-white-flag-to-scalpers

 

Berklee Professor Jeff Dorenfeld contributed to this article.

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  1. Dan – Thorough article. Nice job!

    Does it not surprise you that TicketMaster cannot create security checks to make sure bots are not infiltrating their system? To get hacked once I get it, but to have “Ticket Brokers” continuously able to get around security doesn’t make sense to me.

    Is it possible that TicketMaster is okay with some degree of bots? When Rolling Stones go on tour, we know they are going to sell out (if priced reasonably). However, other hot names like Jay-z or Elton John sometimes don’t sell out. In these cases maybe TicketMaster is okay with ticket brokers using bots to buy as many tickets as fast as possible to help something sell out. In these cases if the demand is not there, than brokers loose and they have to resell their tickets for less than face value.

    What’s your thoughts?

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