Friday, May 5, 2006

Thoughts on Ticketmaster and Price Sensitivity

I just tried and failed to buy Radiohead tickets for Kane.

So then, to see how I could improve my "Ticketmaster skills" I did a blogsearch on Google for "Ticketmaster." Instead of getting tips on how to successfully buy high-demand tickets, I just found a lot of hatred and anger towards Ticketmaster.

Despite fans' rabid hatred, though, it seems like people use Ticketmaster anyway. They have no alternative! It looks like Ticketmaster will mark up fees 60%+ for concerts. How can they do that? Why do they have the power to do so?

It seems to me whenever there are multiple parties between and different motivations of decision makers, egregious pricing can result.

Ticketmaster has contracts with concert facilities, who negotiate the convenience fee the fans pay. Since the facility isn't paying the fee, they are less incented to reduce the fees. In fact, it seems they have incentives for the fees to be higher (they are getting a cut I think.)

The fans just want to see the bands or teams or whatever. If the band will only be there once (scarcity) the fans will be less price-resistant since there is NO alternative.

The bands just need a place to play. How much power do they have over the venues that just seek to make profit? Again, scarcity becomes an issue. There are probably only one or two large facilities in a given region.

From InteractiveCorp's 10-K:
"Ticketmaster generally enters into written agreements with its clients pursuant to which it agrees to license the Ticketmaster System and related systems to clients, and to serve as the clients' **exclusive ticket sales agent** for sales of individual tickets sold to the general public..."

What incentive would the concert facilities have to have **exclusive** arrangements with Ticketmaster?

"Generally, the amount of the convenience charge is determined during the contract negotiation process, and typically varies based upon numerous factors...

In many cases, clients **participate in the convenience charges and/or order processing fees paid by ticket purchasers for tickets bought through Ticketmaster for their events. ** The amount of such participation, if any, is determined by negotiation between Ticketmaster and the client...

"The increase in average domestic revenue per ticket resulted from **higher convenience and processing fees** due in **part** to the higher mix of live music and sporting events.

"These increases were partially offset by higher domestic ticket royalties as a percentage of revenue ."
This is the money that Ticketmaster pays to the venues (or even the bands?)

It also seems that Ticketmaster raised prices in 2004 due to a "2% decrease in the number of tickets sold."

Anyway, Ticketing isn't as profitable as I thought. Their operating margins are 19% and their EBITDA margins were 26%. Pretty good, but I thought they'd be in the order of 50%+ given how little costs Ticketmaster has. They must be sharing the fees with the concert facilities.

I guess now the right thing to do would be to investigate the revenues of major concert locations, like Madison Square Garden. Should I go check out Cablevision's financials?

End result, fans get sort of screwed over I guess. I wonder why another ticket company doesn't step in? I guess since the facilities like the fees they get from Ticketmaster right? And unless bands are going to build their own facilities, it's not like they have a choice.

This makes me think of that recent Economist article that discusses how sometimes people are just not price sensitive. I guess stuff like plumbers or immediate/urgent needs. Like if your toilet is overflowing everywhere into your apartment you will probably be less price sensitive. I think also for small, cheap items that are less than 50 cents a pop, people are also less price sensitive. Bleh, I can't find the article. Sorry, otherwise I would link it for you all.