Fixing the Ticketed Event Industry
Though ticketed events are more popular than ever, the industry is deeply broken. Here's how I believe it could be fixed.
In many ways, the ticketed event industry has never looked healthier. Live Nation Entertainment, the industry’s biggest player and owner of Ticketmaster, grew revenues more than 10% over the last twelve months – and shareholders expect an even brighter future; the company’s stock price more than doubled over the same period. The space is also increasingly important to its suppliers. Concert revenues in the US are expected to grow at nearly 3x the pace the of the music industry overall through 2017, driving the medium’s share of revenues from 57% to 63%. Better yet, this growth has come not just from sharply higher prices, but also significant increases in demand. Tickets for live performances of all kinds are more scarce than ever. But beneath this smiling façade is a profoundly sick patient.
Behind this illness is the rise of ticket “bots”, which have supercharged the scalping market. Historically, all buyers (including) scalpers had to go through an in-person lineup or telephone queue to make a purchase a lot-limited set of tickets. Today, however, professional scalpers often deploy dozens of simultaneous software applications that automate online ticket orders. This not only allows them to flood queues, each bot can perform a transaction at a rate much faster than any individual person could possibly achieve. Ticketmaster alleges that bot orders purchase more than 60% of tickets for some top shows, the New York Times recently reported. In a recent lawsuit, the company “accused one group of scalpers of using bots to request up to 200,000 tickets a day.” Michael Rapino, Live Nation’s CEO, likened the company’s anti-bot efforts to an “arms race”, adding that “(we) can solve it today, and they’re rewriting code tomorrow.”
This “arms race” has even gone civilian. TicketBots.net, for example, sells various consumer-oriented bots for Ticketmaster, StubHub and more than a dozen other e-retailers for hundreds, and sometimes, thousands of dollars. While these prices might seem outlandish, the payback can often be immediate – even if they’re used just to avoid buying scalped tickets, rather than to scalp them yourself. To prevent bots, some services (often at the behest of artists) have resorted to requiring credit card verification at entry or printing names on individual tickets, thus preventing scalping altogether. Yet, this solution is imperfect. Credit card verification, for example, requires all attendees to arrive at an event simultaneously. While this may seem to be a minor inconvenience, it means that a group event can be ruined by a single person’s cancellation or tardiness. It also prevents tickets from being gifted if the giver doesn’t retain a ticket themselves. While tying tickets to individual attendees may seem to be a practical solution, it creates several new problems. For one, attendees must be finalized weeks – if not months – in advance, and each cancellation results in a wasted ticket and an unfilled seat, even if demand exceeds supply. It also eliminates that possibility for surprise gifts or “buy-now, distribute later” group-purchases (a common strategy among my friends). To solve this, Ticketmaster introduced Ticket Transfer, enabling free ticket transfers to friends. However, this re-enables ticket scalping – and with the added benefit of ticket verification.
In fact, today’s system fails more than just would-be concert goers. While technology has dramatically changed the ways in which tickets and bought and used, it has done little to solve the industry’s biggest unsolved problems: pricing. Despite the growing use of tiered ticket prices (price discrimination), live events remain uniquely hard to price optimize. Willingness to pay for a Beyoncé concert will be affect by everything from the venue, tour reviews, recent single sales, promotion, day of the week etc. Each of these factors changes for each show. As a result, the market price is evident only after tickets have gone on sales – and thus scalpers end up capturing most of the arbitrage. While sports franchises can better estimate price and demand, given higher volume, the one-off nature of most concerts poses a challenge. Through TicketsNow, Live Nation (but not the artists) are able to gain exposure to the ticketed-events aftermarket (StubHub is owned by eBay). But this is only at 15% gross transaction fee (which applies to the price the ticket is sold for, whether its above or below the listed value). Furthermore, these services do not solve the “bot problem”, which itself makes it hard to review historical ticket sales for pricing-insight.
I propose a straightforward solution – and one I’m surprised has is not yet in-market, frankly. Ticketmaster (or any other services) sells all of its tickets with name-requirements, thereby eliminating direct resale. It then sets up a First In, First Out consignment ticket resale system. When a ticket buyer wants to cancel their purchase (whether the next day or day before the show) they simply release their ticket back to Ticketmaster, which then relists them for sale. When the ticket is sold (in which it’s assigned to a new name), the refund is made.
For this to work, Ticketmaster must also use dynamic pricing for this new inventory of tickets. With first-sales complete, it will be easier for the company to modulate prices based on interest and sales volume analytics (this similar to how airlines price their tickets). If interest is low, prices can be adjusted down – with the difference deducted from the refund value (plus a 5-15% transaction fee). For the majority of tickets, however, prices are likely to increase. In this case, Ticketmaster (and likely the artist) would retain the incremental revenue – thus granting them much-desired exposure to (if not the control of) the after-sales market and price arbitrage.
Finally, Ticketmaster would need to create “Friend Lists” that enable buyers to transfer tickets to friends or family members without fees. However, the company would also need to introduce one or two additional features to prevent scalpers from using the “Friend List” to transfer a ticket to someone they had only met via Kijiji or Craigslist – and would pay them more than the ticket value in person. First, there would need to be be a time-delay after a ‘Friend’ is added to your “Friends List” until they can actually engage in a ticket transfer. For example, if this delay was 30 days, a buyer would need to have made an agreement with a scalper at least a month before the show and even if they did, they would have little-to-no way of ensuring they actually transfer the ticket when the time comes. While this may seem prohibitively onerous, list creation could be easily facilitated when users register for Ticketmaster via APIs (Addressbook, Facebook, Twitter etc.), as well as through reminders at time-of-purchase.
Ticketmaster would also need to cap the size of a “Friend List” in order to prevent ‘Friends’ who are actually mass-market scalpers. This would be controversial – and I’m not sure exactly how low the ceiling should be – but a reasonable limit is likely possible.
This solution will also accomplish several other goals. First, it eradicates the bot problem by locking all tickets to individual names and retaining all resale revenue/upside. By acting as a clearinghouse for all tickets – not just new ones – this will also put an end to rampant ticket fraud and make it both easier and safer to resell tickets. This will reduce purchase risk, which should in turn increase willingness to pay. In many ways, the core infrastructure for this solution is largely in place: Live Nation already authenticates tickets available on TicketsNow and TicketExchange and numerous IT companies offer dynamic pricing solutions.
The question, then, is why haven’t we seen this type of solution? Can anyone think of a better way of solving this problem? Let’s hear it.