Are you ready? It's coming.
For the last year or so, I've been doing some research to get a better understanding of how the online ticket industry has evolved. I stumbled upon an old article describing Ticketmaster's entrance into the industry. They were a puny David with $1M in annual sales up against the colossal Ticketron, which did $100M in annual sales. Ticketmaster, founded by two Arizona State University computer students in 1978, got its first big break in 1981, when it was a struggling $1 million-per-year upstart trying to take on $100-million-per-year giant Ticketron. Ticketmaster needed a major client to give it credibility, and to prove that the company could handle a large account and a complicated set of ticketing problems efficiently. They also wanted a client with a national profile. It settled on a major-league baseball franchise whose new owner was appalled to find that his team did not have computerized ticketing. At the beginning of each baseball season, tickets to every seat for every game were printed, stored somewhere in its stadium, then delivered to box offices and ticket outlets as game dates approached. The system was horribly inefficient, and wasteful as well, as most of the tickets printed up were never sold.
-Fred Moody Seattle Weekly 11/2/94
Wow! Talk about coming full circle. Back in the day, Ticketmaster found a way to make the process of buying tickets more efficient and more enjoyable to the customer. Fred goes on to point out three keys to Ticketmaster's success:
- 1-Ticketron stopped innovating
It is also forgotten that Ticketmaster rose to dominance at the expense of an established, competing company -- Ticketron -- that operated a virtual monopoly in the early 1980s, and that was notorious both for insensitivity to customer complaints and for its refusal to innovate or create efficiency. Ticketron was so bad that many venues opted for noncomputerized ticketing rather than Ticketron's computerized service. Even Curtis says Ticketmaster succeeded because "they are good, smart businessmen. They were way better than everyone else -- Ticketron just wasn't as good."
- 2-Ticketmaster built a portfolio of exclusive venue contracts
These exclusive contracts contain two interesting provisions -- one of which helps explain the variety and high levels of Ticketmaster service charges. Arenas or promoters who sign them are prohibited from allowing anyone else to sell their tickets; and Ticketmaster "rebates" or, in the words of its critics, "kicks back" some of the service charges to its contractors. Venues that have entered into such agreements with Ticketmaster are reported to have taken in as much as $500,000 per year from the ticketer as a result -- payment, essentially, for freezing competitors out of the market.
- 3-Ticketmaster established "promoter incentive programs"
In addition to locking up those venues, Ticketmaster also signs contracts directly with promoters. So even a venue that refuses to contract with Ticketmaster finds it impossible to stage a non-Ticketmaster concert, as any viable promoter in a given market will also have an exclusive contract with Ticketmaster.
Because of Ticketmaster's avowed determination to enforce its contracts by suing promoters who cooperated with Pearl Jam, says Kelly Curtis, "We realized that we couldn't put together a safe, efficient tour without using existing venues. In order to do that, we would have to use non-Ticketmaster venues, which means open fields where we install fences, security, amenities... It was a logistics thing. It's possible to do a tour without Ticketmaster, but it's an incredible pain in the ass."In the early 80's, 2 computer scientists from Arizona State (Albert Leffler?, Jerry Nelson?) built a better mouse trap. Their technology made it possible to service a larger number of consumers in a smaller period of time. Ticketmaster's ability to sell out a show in less than 10 minutes was revolutionary. In addition to speed of transactions, one often overlooked asset is the information Ticketmaster produced through the market.
While the convenience factor Ticketmaster affords cannot be overemphasized, neither can the value of the information it provides. One of the prime justifications for the company's high service charges is the fact that only one out of eight callers actually buys a ticket; the rest call for information, and pay nothing. The company is an information source for nearly every live event in the region. "Seventy to eighty percent of our calls," says Ticketmaster Northwest general manager Brian Kabatznick, "are for information only, and generate no revenue."Fast forward to 2001 and Stubhub steps on the scene. Doesn't Stubhub's story sound strikingly similar? In the later 90's Ticketmaster's fees were getting a bit too annoying. Marquee events would sellout too fast (I guess there is a such thing as too much efficiency) leaving customers highly upset. Additionally, customers not only wanted to buy tickets, but also SELL their tickets. Ticketmaster had fumbled the ball. How did Stubhub scoop and score?
- 1-Built a better platform for sellers
- Stubhub attracted sellers which in turn attracted more buyers. An introductory systems dynamics course will help you see the positive reinforcing feedback loop.
- 2-Established "secondary market" contracts
- Once Stubhub got a foot in the door, it would be easier to become the primary ticket supplier of a venue, artist, or team. (Stubhub recently inked the MLB deal.)
- 3-Developed ticket broker relationships
- Stubhub aggregated inventory from the fragmented ticket broker community across the United States. "Fans" could [buy/sell] tickets [from/to] other "fans" or ticket brokers.
2 Stanford MBA students (Eric Baker, Jeff Fluhr) established a $310M company in 6 years. Their technology was not rocket science, but as enterprising economists, the founders built a more relevant, efficient way to both buy and sell tickets.
Here's the kicker. Fred Moody actually predicted the fate of Ticketmaster in 1994. Almost 13 years before eBay bought Stubhub. At that time Ticketmaster had unimaginable power. Here's Fred's warning:
It's now 2007 and according to Moore's law, things are coming full circle once again.Ticketmaster, like IBM before it, is more likely to falter or decline because of changing market conditions than because of federal intervention. Knowledgeable sources claim that the availability and ease of use of current computing technology has so lowered the barriers of entry into the ticketing market that competitors inevitably will find a way to break Ticketmaster's stranglehold. And if Pearl Jam pulls off its concert tour next year, a template of sorts will be in place for other acts to follow. The history of monopoly in this country, after all, is more a history of disgruntled competitors and customers finding an alternative to the services of a monopolist than it is a history of the government regulating monopolies out of existence.
Ultimately, the question of whether a monopoly can survive its own abuses of power boils down to how much consumers will tolerate. Companies that are morally monopolistic -- even if not monopolists in the tangled and technical legal sense of the word -- grow so cynical in the process of accumulating and keeping market power that they lose touch with reality, become incapable of decent public relations, and overstep some boundary in the consumer's mind. Monopoly, in this sense, is like pornography -- consumers can't define it, but they know it when they see it. And ultimately they turn away from the monopolist in disgust.
2 (I guess two is the magic number) engineers from Princeton who graduated from Sloan (me, Gos) have combined technology and creativity with the most efficient market clearing mechanism known to man, not an online store, not a message board, not an auction...............................but a continuous, electronic exchange. I wonder what Fred would say about trading tickets and ticket derivatives. Innovative? Efficient? Fun? Transparent?
It's about to get really interesting. WGTCT
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