What the fans and the government get wrong about Ticketmaster (and what they get right)

If this week were a concert, and the Trump verdict was the headliner, then the government's anti-trust lawsuit against Ticketmaster had to have been the opening act (at least based on my podcast feed).

Listening to all the talk about this lawsuit, I can't help but wonder what it is actually based on, other than some fairly thin evidence in less than a handful of cases where the parent company, Live Nation, was alleged to have strong armed venues. So why is this lawsuit getting so much airtime in the media? I think it's because Ticketmaster (both as a standalone company in the past and a subsidiary of LNE) has offered up its brand name as a shield for the industry and has therefore fostered a system of behavior, specifically for talent, that allows star artists to reap huge financial windfalls without having to mar their good name. Ticketmaster, after all, will absorb the negative PR and the wrath of fans.

How does this work? I listed some of the grievances the company is consistently accused of to show how it plays out:

? Ticket prices are too high: when an artist, and especially a megastar, goes on tour, they bargain for guarantees. This means that they will get paid, no matter if the show is sold out or not. In effect, this means that the promoter has to front all the money to the artist and then own all the risk. The artists negotiate what that guarantee is and the promoter has to then recoup the costs (+ build in margin) for the tour. A vertically integrated company like LNE doesn't have to recoup the cost through tickets alone, as it has multiple revenue streams, including concessions in the venues it owns, advertising and sponsorships, etc. When you go to a concert and wonder why a tall boy of Coors is $19, that's why. But the up front ticket price is what fans see and the initial sticker shock is one that enrages people the most.

? A follow on to this is that the ticketing market consists of primary and secondary tickets. For shows in high demand, tickets can be sold out in minutes, and then resold with a significant mark up, with the profit going to the seller. Until about 6-7 years ago, secondary ticketing was the domain of platforms like Stubhub. Ticketmaster decided to move into this space for three reasons:

1. It suffered from a perception that it didn't have tickets for sold out shows, while the likes of Stubhub did. The idea was to "stock the shelves" so that if people wanted to buy a ticket to a show, they could do so on one platform and Ticketmaster could deliver both the primary ticket or the resale alternative. It made sense for a bunch of reasons - it would make it easier for fans to have choice (e.g. the only primary tickets left were in the nosebleeds, but you could also see and buy better tickets in the lower bowl, if you wanted); it would make it easy for fans who wanted to sell their ticket, to do so in one click (a very useful feature, if you're in a rush and don't want to deal with having to sell on a different platform); it would provide a guarantee to fans that their tickets were real (TM held the chain of custody and verified the resale ticket as legit); and it would get rid of the stigma that Ticketmaster didn't have tickets to hot shows.

2. Artists wanted a cut of the secondary market. Plain and simple. And they could get this with Ticketmaster's resale offering.

3. Ticketmaster themselves would make more money by offering this service. Remember, this wasn't new. People (scalpers) resold tickets for a century. It was just new to Ticketmaster.

? What's with the f$#@ing fees?! Ah yes, the fees. This is probably Ticketmaster's biggest achilles heel, but also one of the tools it deploys when courting artists, venues and sports teams. Since we live in a capitalists society, we all acknowledge that companies will have to cover their costs and make a profit. We accept this and generally don't get bent out of sorts when we buy something. Where consumers do start getting infuriated is with the perceived "nickel and diming" that happens either during the transaction flow or after. And especially when this is done via obfuscated "fees" and "service charges" that are hard to place a value on for us as consumers. We know this about delivery apps ("how did my $15 pad thai end up costing $28?!"), hotels with their mandatory de-bundled "resort fees" and airlines who have for the most part unbundled the ticket from every other element of flying, so that they could upsell you later.

Ticketmaster gets a lot of consumer wrath for doing the same. I recently looked up a concert in LA, where the ticket cost $61.50. But in the order flow, the final price increased to $87.80 after a $21.30 "Service Fee" and a $5.00 "Order Processing Fee". That's a 43% increase in the price of the ticket and it absolutely makes everyone go berserk - justifiably!

But what's behind these fees? Well, Ticketmaster actually tells you (although it's not going out of its way to make it obvious) - some of this money goes to the venue (in fact, it says this for both the Service Fee and the Order Processing fee), some of the money goes to the talent or their promoters (which means it ultimately goes to the artist - see above with guarantees) and some of it goes to Ticketmaster.

It's been a very common practice for artists to price their tickets lower to not appear greedy* to their fans (more on greed in a second), but then to recoup the money left on the table through these fees. They know (as does Ticketmaster) that fans won't make the connection between the fees and the artists, and their reputation won't suffer as a result. Ticketmaster willingly uses its brand to shield artists from negative PR that would result as a consequence of charging high prices for shows.

* Greed - basically that's what we, as fans, would call what's happening. What the artists, promoters, venue operators and ticketing companies would call this is "market pricing". Historically, artists have underpriced (and continue to underprice) their shows. How do we know this? Because if they priced based on what the market could bear, there wouldn't be a resale industry. Everything I've discussed so far has been an effort by the industry to price shows based on market dynamics. This is a tough balancing act - on the one hand, Taylor's two private jets don't fly themselves and she needs to milk her tour, on the other hand artists know and value their fan bases and don't want to prevent them from seeing the shows by pricing tickets for the top end of the market. With a given venue's capacity, this becomes a question of scarcity and whenever you have scarcity, the tool that's deployed to solve for it is pricing. Again, see above. If artists and their promoters didn't want to participate in, and profit from, the market, they could take a stance like Pearl Jam did in the 90s, but they are unlikely to do so.

? I couldn't buy the Eras Tour (or some other super in-demand show's) ticket/Ticketmaster wouldn't let me buy a ticket/Ticketmaster crashed when I was about to buy a ticket after waiting for 3 hours/etc.. Yep, the Eras Tour was an ugly chapter for the folks at Ticketmaster. Not because they didn't do their job - arguably, they did what nobody else could do and actually fulfill the insane demand that was incredibly concentrated in terms of on-sale timeframe. With millions of pandemic-starved Swifties trying to score a limited number of primary tickets, many would end up very unhappy. Ticketmaster published its own postmortem of the Eras Tour on sale here but this chart really shows what the company was dealing with:

Having worked at Ticketmaster for several years, I can say with confidence that it employs a lot of smart people who are thinking a lot about how to make these on sale experiences as fair as possible and as stable/frictionless as possible. They create incredible prediction models to help cope with demand and they have the best infrastructure of any company in the business to handle this many transactions. And yet, any company that sees a multiple of its normal peak demand for a given event would struggle. Ticketmaster was no exception. Given the candid disclosures after the fact, I am sure they took valuable lessons away from the Eras Tour.

But generally speaking, it copes well with demand. The fact that artists, including Taylor Swift, keeping coming back to Ticketmaster even when their promoter is not Live Nation as was the case with Swift (it was AEG, LNE's biggest competitor) is testament to the platform and its ability to get it done.

So, what's the takeaway here? For me, this is a case of an industry that's ruled by monetary incentives but sometimes masquerading as something more noble, more artistic, coming into a transactional contact with fans who feel partial ownership of the relationship and who are incredibly put off by the sudden, very commercial and very one-sided experience of having to pay a lot of money to see a show. And it's the case of a company that has, to a large degree, contributed to this ecosystem by encouraging artists to charge more and leveraging its brand to shield them from the backlash.

Ticketmaster isn't the bad guy. It often feels like it's more like the doorman at a club who looks like he decides who gets to come in and who doesn't, but in reality is just the customer facing part of a larger group of people who make up the rules. In my time at TM, a place that is full of passionate fans who love and live for live events, I heard a lot about this constant tension between money and music and between artists and fans. Fans want a fair deal but in an industry that's made on money, this isn't possible. Reality is, there will always be people willing to pay stupid money to go see a show. And because of this, others will not. The music industry will say that there is choice - in how to see the show (in person or on screen), or who to see, or even where to see it (some people flew to Europe to see Taylor Swift as it was cheaper there).

The government decided to ride the wave of anger towards Ticketmaster to score political points as it struggles to bring down inflation. Its case is designed to appeal to the widely shared frustration about the state of the live event industry but underneath it all are only a small handful of cases that can be evaluated and tried on antimonopoly grounds. In the court of law, that may or may not be enough to punish LNE and Ticketmaster, but what it will not do is make live events cheaper or easier to attend. At the end of the day, fans won't have much to celebrate regardless of the ruling.