Rock Concerts Are A Marketing Device
According to an article in the New York Times this past weekend, later this year Ticketmaster will begin auctioning off the best available seats for concerts that it is ticketing. According to John Pleasants, Ticketmaster's president and CEO, the fact that there is a thriving secondary ticket market suggests that concert tickets are unpriced today. Rather than put those additional dollars in the pockets of ticket brokers, Ticketmaster contends that those dollars should go to the promoters, venues and musicians themselves. Thus, Ticketmaster is going to offer its clients the ability to auction off tickets to their events. Pleasants calls primary market ticket auctioning the first step in "a new age of the ticket."
It is clear that Pleasants has a point about ticket pricing -- tickets to many concerts are unquestionably underpriced. Ticket brokers have long been the beneficiaries of that underpricing. More recently, eBay and other auction sites (like StubHub) have enabled a broader range of people to benefit from the arbitrage between a ticket's face value and its fair market value. With Ticketmaster's new pricing scheme, Ticketmaster's clients will be able to capture all of that value and in so doing derive greater return on the same limited number of seats, which venue operators will no doubt applaud. The same may not prove true of performers.
Ticketmaster's new pricing scheme ignores one important factor -- to my mind, rock concerts are as much about marketing as sales. Bands tour to promote themselves and promote record sales. While bands can certainly make a pretty penny touring, traditionally tickets have been priced so that they are accessible to their entire fan base, not just the richest groupies. Moreover, the poor fan with lots of time on her hand was supposed to have as good a shot at getting the best seats as was the rich guy with a big checkbook. I suspect that a band's loyal fans will not take kindly to rich folk buying up the front rows and leaving them to fight for the back of the house.
Perhaps the idea of the rock concert as marketing vehicle is an outdated concept and fans are willing to accept that tickets will sell for whatever the market will bear (if my recollection serves me correctly, Barbara Streisand was the first one who was willing to truly test the outer limits of market pricing and discovered that the prices for her shows were far more inelastic than anyone would have previously guessed). But you'd think that Ticketmaster would have learned from its feud with Pearl Jam almost a decade ago. There is something about rock concert tickets that elicits a visceral reaction from the ticket buying public. And if that reaction is an overwhelmingly negative one, variable pricing could easily backfire on the bands that first choose to implement it. If I were John Pleasants, I would roll out ticket auctioning very slowly and very carefully.
UPDATE: My brother emailed me after I posted this entry and told me that I was completely wrong. He argued that every time Red Sox ticket prices have been jacked up, fans have grumbled like crazy but always ultimately come back and paid the toll. Despite his firm belief that I am wrong and that there will be no backlash from concert ticket auctioning, he just sent me this article in which a number of sports venue managers state that they will not allow auctioning of their tickets. As the article concludes:
[T]he primary risk, according to Baker [of StubHub], Thomas [of Tickets.com] and team executives, is at the public relations level. Teams and venue operators are fearful of the perception that they are gouging fans.
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there are a number of news [ny times- registration required] stories [ap wire via tampa tribune] and the retail perspective [san jose mercury news] that explain the biggest event in the recorded music industry since britney kissed madonna. there are... Read More
This strategy seems to be working well for Major League Baseball, FWIW. Season ticket holders can sell unused tickets at their team's Web site at something called the Double Play Ticket Window. And it seems to have the opposite effect of what you describe. Rather than forcing the poor fans to the bleachers, it offers good seats usually tied up in season ticket holders to fans who would typically never get that close to the field. The difference, I think, comes from the ubiquity of baseball games -- every day, spring through fall -- rather than the singularity of your favorite band coming to town.
But you're right: either way this creates a market based on supply and demand, rather than the arbitrary pricing we've seen to date.
On one hand, I do believe that promoters, artists, and venues are entitled to the market value of the product they are selling.
However, I totally disagree with the belief that the tickets are underpriced ... rather I think they (live event tickets of all kinds, including sports) are WAY over-priced. Most shows are way too short ... which leads me to assume the artists are more concerned with counting the crews' hourly wages then they are concerned with providing a quality product to the fan.
The apparent inelasticity of the ticket price is only due to those with either fat pocketbooks, or no practical sense in budgeting their disposable income.
In the end, it is the average fan that gets bullied by the rich and insatiable promoters and artists.
I admit that I straddle the fence on this argument. I attend many concerts each year AND I sell extra tickets above face value ... but not for profit's sake ... simply to make the tickets that I keep that much more affordable.
I think TicketMaster is making a big mistake, and I hope this new strategy backfires on them. To my chagrin, however, I can only assume that it won't.
Generally it's out of bounds to correct English usage in a blog, but VCs are such sophisticates...
_triage_ refers to the ranking of criticalities; _arbitrage_ is the process of profiting from price variances, usually in disparate markets.
Ok, Ned. You got me. I clearly meant to say arbitrage. Maybe I was the victim of a malfunctioning spell checker : )
(Side note: author of this comment was a consultant to Hollywood music companies for many years).
Actually, this is absolutely the RIGHT thing for Ticketmaster to be doing, and the profits from it need to flow to the bands.
You are correct that concerts used to be marketing devices. However, as some on this blog have pointed out, online distribution & free music services are changing the structure of the music industry. Basically, it is getting turned on its head -- now the albums are the marketing devices and the bands are making money from the concert tours.
Think Grateful Dead (free copying, but made a fantastic living off of concerts) and you'll know how the entire entertainment industry will be organized in another 10 years.
This factual premise:
"to my mind, rock concerts are as much about marketing as sales. Bands tour to promote themselves and promote record sales. While bands can certainly make a pretty penny touring,"
does not square with this:
"few musicians ever actually receive royalties from their record sales on major labels, which managers say have accounting practices that are badly in need of review. (Artists do not receive royalties for a CD until the record company has earned back the money it has spent on them.)
Even the Backstreet Boys, one of the best-selling acts of the 1990's, did not appear to have received any CD royalties, their management said.
"I don't have sympathy for the record companies," said Mickey Melchiondo of the rock duo Ween. "They haven't been paying me royalties anyway."Musicians tend to make more money from sales of concert tickets and merchandise than from CD sales. In fact, many musicians offer free downloads of their songs on their Web sites to market themselves."
from:
http://www.nytimes.com/2003/09/14/technology/14MUSI.html
The new model for artists is "relationship marketing"... this applies to rock musicians as well as anybody else.
Basically, a fan wants a relationship with his artist of choice. The more intense the realtionship, the more money he is prepared to give the artist.
Record companies don't make money on singles. However by selling them at zero-profit the record companies hope to expose their bands on the radio/MTV/meida and start relationsips i.e. harvest fans, and get them to start spending money on profitable product i.e. CDs, t-shirts, concerts, posters etc.
You have to spend money to make money. First that meant forgoing profits on singles. Then it meant spending money on videos. I don't see why CDs/files can't be added to the list. It certainly seems inevitable, despite the best efforts of the industry to prevent it.