Going After Ticketmaster

By Kristina Dell

When Peter Shapiro owned the wetlands, a New York City concert hall where Dave Matthews and Pearl Jam played in the 1990s, there was one sure path to a sellout: team up with Ticketmaster. Fans would line up outside record stores for tickets processed by Ticketmaster or call one of Ticketmaster's phone banks to score seats. No other distributor had the worldwide labyrinth of retail partnerships and phone outlets to move millions of tickets in minutes. And they charged for it--as much as $15 on a $50 ticket. But the music industry, if you hadn't noticed, isn't quite what it used to be. Just as personal computers are replacing record stores and downloads will soon outpace CD sales, ticketing is experiencing a transformation all its own. "The Internet is the great equalizer," says Shapiro.

A decade after Pearl Jam's failed "Ticketbastard" crusade against the ticketing giant, the Web is doing what lawsuits couldn't: raising the bar with a healthy dose of competition. While Ticketmaster, part of Barry Diller's Interactive Corp., still dominates the industry--it sold 128 million tickets last year, compared with Tickets.com's 76 million--it is fending off threats from every direction. Some of its biggest customers--concert promoters and professional sports leagues--are finding ways to sell their own tickets. Smaller ticketing outfits are attracting museums and concert halls with software that gives them closer fan connections. Worst of all, Ticketmaster arrived late to the secondary market--what used to be called scalping--which has gone legit and become very profitable. The result: no ticket is off-limits, and Ticketmaster is scrambling to shore up its once sure thing.

In 2005, one of Ticketmaster's biggest customers became, in effect, its biggest competitor. Major League Baseball bought Tickets.com pumping money into the fledgling site, which is now the second largest ticketing retailer, selling about $1 billion worth annually. "Given the importance of online ticketing, we thought we should drive the car from the front seat rather than the back," says Bob Bowman, CEO of MLB.com The league doesn't dictate how teams sell their tickets. That business, for now, is divided fairly evenly among Ticketmaster, Tickets.com and Paciolan, a ticketing software firm based in Irvine, Calif. But if the league consolidates its ticketing when these contracts expire, millions of tickets could leave the Ticketmaster stable. "It would be a dream for them to have it all under Tickets.com but probably a distant hope," says Sucharita Mulpuru, senior analyst at Forrester Research.

A similar shift threatens to upend Ticketmaster's live-music business. Ticketmaster has exclusive rights to sell tickets for most of the 29,000 events organized by Live Nation, the largest concert promoter in the U.S. That eight-year-old deal, which expires next year, accounts for about 20% of Ticketmaster's $1.1 billion in revenue. Live Nation's in-house ticketing system, through which it can sell up to 10% of its inventory, is already the third largest, and taking the rest inside would make it a power. But Ticketmaster isn't waiting to be cut out of the business. In May, its parent company significantly increased its stake in Front Line Management, an agency that represents Christina Aguilera, Jimmy Buffett and Aerosmith--links that it could leverage for its concert-tour business.

Of course, most of Ticketmaster's customers don't have the money or expertise to run their own online ticketing sites. So a new crop of companies has emerged to help them. "When you outsource your ticketing, you lose the touch point with your customers," says Tom Gillis of Capital Tickets, which runs ticketing for the Ottawa Senators hockey team and several large venues in the Ottawa area. Instead of steering buyers to Ticketmaster, the Senators keep fans on its own website (and the revenue from online ads) using software by Paciolan. Jim Royce of the Center Theatre Group in Los Angeles switched from Ticketmaster to Dallas-based Tessitura's software because it allows him to identify first-time buyers and cultivate them, sending restaurant suggestions and e-mail reminders before the show.

Ticketmaster has the most ground to cover in the red-hot resale market. The secondary market for online sports and entertainment tickets--on websites such as StubHub, RazorGator and TicketsNow--has grown to an estimated $3 billion since 2000. The industry leader, StubHub, operates as an open auction, taking a surcharge on each sale. Popular events go for incredible amounts--$10,287 for Super Bowl XLI and $5,500 for Elton John's 60th-birthday bash--but there are also bargains to be had from season-ticket holders, for example.

Ticketmaster at first ignored resale. But as teams and artists have realized the benefits--more seats get filled, and fans buy food and merchandise--it eventually joined the crowd. Its resale site, TicketExchange, sold 600,000 tickets last year, compared with StubHub's 3.3 million. TicketExchange touts its status as the reliable authorized reseller for 230 venues and 46 pro teams. "[We deliver tickets] at a level of scale and consistency better than anyone else," says Ticketmaster CEO Sean Moriarty. Since teams usually limit the ticket prices that sellers can charge, TicketExchange eliminates both the deep discounts and the outrageous premiums. StubHub's response: the market should set the price. "Could you imagine if Ford said every time our car is resold, we should be making money on that?" says Jeff Fluhr, former CEO and founder of StubHub.

So what is a fair price for a hot concert ticket? All this competition may finally sort that out. Concert organizers underprice shows to attract interest, but fans end up paying an average of 45% above face value for resold tickets, according to a study by Alan Krueger, economics professor at Princeton University. Sites like StubHub are, in effect, helping to determine the correct price for tickets; even Ticketmaster now uses an auction to price some premium seats. For music fans, that means the days of camping overnight for a front-row ticket are truly over. But they'll pay a little more for the privilege.