Ticketmaster’s latest move warms the hearts of economists everywhere

Most people don’t like Ticketmaster very much. They have monopoly/quasi-monopoly in the market for selling event tickets. And they price accordingly.

But their latest move is one that economists will love. USA Today reports that the best seats for some concerts will start to be auctioned off, rather than sold at below market prices, as has been done in the past. The article argues that this is being done in response to ticket resellers like RazorGator, where good tickets routinely go for more than their face value.

I actually think that is not the real reason. Concert promoters like full venues. Big crowds buy more CDs and t-shirts, and maybe they also make the concert experience more enjoyable. So historically, tickets in general were priced too low to ensure a sell-out crowd, and the best seats were particularly underpriced. Whether or not scalpers got involved, the artist/Ticketmaster got the same amount of revenue. So this isn’t really about the scalpers.

But the economics of the music industry are changing. There is less money to be made in selling CDs, so bands are no longer willing to underprice live shows to support record sales. Rather, the concerts themselves have become the cash cow. Consequently, the artists want to squeeze as much money as possible out of them. Combine that with technological advances that make it possible to carry out online auctions, and you now have a much more efficient market. More efficient in the sense that the people willing to pay the most end up in the expensive seats, and those extra revenues go to the artists (and the promoters and Ticketmaster), rather than scalpers.

The only problem is that losers like me will now be the ones in the front row. It will depress the performers so much they will want to go back to the old system, even though it generates less cash for them.


MM01

> losers like me
A co-writer of a million seller calls himself a loser??? Stephen disclosed how much you get out of the price of a copy a while ago, and if that's what a loser is, I definitely wanna be one.

dvasques

> losers like me
Maybe he meant loser in the winner's curse sense... You win the auction because you have the highest expectations on the quality of the concert (and, being more optimistic than the crowd, you are probably wrong!).

Ok, Steve didn't mean that, but I reckoned it was a point worth mentioning.

Chris Mealy

Naw, if the performers want attractive youngsters in the front, they'll have handlers pull them out of line and give them good seats. They do it all the time in show business. Look at the front row on Leno sometime.

MM01

> performers want attractive youngsters
> in the front

Maybe he can wear a T-shirt saying "Love me I'm an economist." It should work at least when the performer is a female.

ann michael

I've often wondered why didn't do this. I've never been one to camp out all night to go to a show - but I'd pay more for good seats up front through an auction! Of course, sitting near an economist would be an extra plus (you know why most people study economics - don't you?)

Tony Vallencourt

I don't think that this is a response to the decline in CD sales. It may be spun that way, but the numbers just don't really fit for this to *not* have been optimal before file sharing, etc. hit. I've posted about this myself:

http://econball.blogspot.com/2006/05/rockonomics.html

jborneman

Ugh. What a load. Yeah, the 'economist' in me thinks it's great but you'll end up with just what you see at NBA games - a pack of uninterested dopes in suits in the front row s that can afford it while the fans that came because they love the band/game/whatever are stuck in the nosebleeds trying to make out the band from the roadies from the drums.

110phil

I wonder if the artists and promoters were scared of being accused of gouging. Now, with the technology to have auction, the prices are seen as being set by the fans themselves. I've never heard of anyone on eBay called a "gouger" simply because buyers bid up the price.

Of course, even if the prices are set by the promoter, they're set to what the price would be *if* there were an auction. But the public doesn't see it that way -- they see only a gouge.

bradkh

Based on my research into the music industry, my understanding is that the artists actually don't make much money off CD sales, instead they make almost all their money off concerts. If this is true, wouldn't that mean that artists have no real reason to change ticket prices? The price should already be at the point that makes the ARTIST happy, leaving the record label in a position to find a new way to make their cut.

Mike MacLeod

I don't know when you went to a concert last, but the front rows are currently filled with stuffed suits that are there to be seen; not to enjoy the show. I don't see this new model changing that.

With eBay, most front row tickets are already auctioned to the highest bidder. the only this this will change is that the dollars go to Ticketmaster and (presumably) the artists as opposed to a bunch of online scalpers.

ditto

It's been my understanding that most artists typically don't run the concerts, but rather the promoter/record label. The latter, obviously, has the incentive of using the concert to sell more records. Artists, unfortunately, didn't/don't get much of a cut of the concert profits, but did have a bigger cut on merchandising at the concerts. This is something the record labels have been fighting in recent years.

Alan De Smet

"So historically, tickets in general were priced too low to ensure a sell-out crowd..."

Perhaps you mean tickets were priced too high to ensure a sell-out crowd? I imagine that few people think, "I'd love to see the U2 show, but the tickets are just too cheap for me afford!"

dratskee

Perhaps you mean tickets were priced too high to ensure a sell-out crowd?

Just could've used a comma, maybe. :) As in, "tickets in general were priced too low, (in order) to ensure a sell-out crowd...”

smili

I agree with ditto above. I think most artists, particularly newer artists, make little money from the album but can make a living from touring. This probably doesn't have much to do with record companies.

bradkh

In the past few years a couple of articles have come out (one of which the econball.blogspot.com link above discusses) that have tried explaining CD sales and ticket prices. The general concensus is that artists only receive about $1.00 for each CD sold, and receive close to 80% of ticket revenue plus a cut of merchandise. Even for a mediocre tour, that would still be a much larger payday. They also seem to conclude that the record labels have very little to do with tours (the exception being that newer acts will sometimes recieve help finding a promoter). I'm sure that label definitely want a much larger cut now that their stream of income has been interrupted.

tim in tampa

Hmm, I was planning on a dissertation covering ticketing auction scenarious in the distant future. Looks like my hypotheses are already being put into practice. Back to the drawing board.

ditto

Hey, bradkh. I'd like to be better informed about tours. Can you post some links?

Tours are very expensive to run, so I'm curious about who gets what and what the final profit margins would be.

Wreakonomics

One problem with a ticket auction could be timing. What if, while you are bidding on the front row seats, the rest of the seats sell out? I guess you could always have the auctions before the other tickets go on sale. This might give ticket scalpers additional information on what tickets are hot, and how much they are likely to be worth for the rest of the (non-auction) tickets.

DasLuft

I read somewhere that nowadays due to the "ease" with which goods are faked, specially expensive brands and such, theres is a tendency towards spending money on that which cannot, yet, be faked... in other words spending money in "experiences". From bungee jumping to Safaris to flying a small plane or driving a rally car, there seems to be a tendency to give more value towards "felling" than "having".
If one accepts this line of thinking then it would follow that "going to a Concert", a one off experience, has become more valuable than "having the CD", easily copied/downloaded if one has a mind to it, and that people are now willing to pay higher prices for concert tickets than before.

Tina

Since this blog was posted, the ticket industry has evolved. Ticketmaster now own a secondary reseller called TicketsNow. This means that concert ticket prices are going to increase significantly; the free market is just going to explode! Here's an article, which links to a series of other articles on the topic.

http://www.ticketnews.com/Ticketmaster-TicketsNow-meeting-analysis-a-bright-future06812555