The Agony of Ticketing: Technology Worsens Scalping

Last month, tens of thousands of fans flocked to buy tickets for the German electronic band Kraftwerk’s eight shows in the Museum of Modern Art in Manhattan. The ticketing website ShowClix groaned under the pressure, sending the vast majority of seekers into fruitless, hourlong waits, and inspired a robotic lament based on the headliner’s sound.

MoMA limited people to two tickets each and required pickups on the day of each show, a system designed to discourage resales. But almost immediately, listings began appearing on Craigslist at prices exponentially above the $25 face value, along with desperate requests from buyers.

The Kraftwerk episode highlights the technical and marketing conundrums that confront concert promoters and ticket distributors. Even when a show is financially successful for the promoter and band, many fans can leave disappointed or feel cheated when scalpers have seemingly snatched the majority of tickets. New technology has accelerated the process, turning what was once a physical queue into digital gunslinging, where the fastest clickers hope for a successful purchase.

The ticketing industry has struggled to balance profitability with saving its reputation amongst consumers, and despite its efforts, controversy -- and prices -- continue to escalate.

Joshua Dziabiak, founder of the ticketers ShowClix, released a letter apologizing to fans the day after the sale.

Technical failures led to timeouts and dropped users, he said, and the inventory was sufficient to satisfied only 1.2 percent of the demand. (Based on the 700-person capacity of MoMA’s atrium, tickets for the eight shows would total roughly 5,600, minus space occupied by press, management and others. The museum didn’t respond to requests for comment.)

“It is my belief moving forward that we should not perform an on-sale all at once for an event or venue that has such small capacity restrictions,” wrote Dziabiak, who said Showclix would advise other options in the future.

Bigger, Not Better

Larger venues have also suffered from recent failings.

In January, Ticketmaster, now a division of Live Nation Entertainment (NYSE: LYV), said scalpers attacked the digital sales of three upcoming Bruce Springsteen shows at the Izod Center in East Rutherford, N.J., which has a capacity of 20,000. The attacks overloaded its servers, preventing fans from accessing sales for hours.

The experience isn't like to improve Ticketmaster's reputation, which has become synonymous with extortionate service and convenience fees that can drive the base price up as much as 50 percent.

Live Nation Entertainment is the largest live music company in the world, following the 2010 merger of concert promoter Live Nation and the technology base of Ticketmaster. Live Nation also includes Irving Azoff's massive artist management company Front Line, giving it intimate access to artists that include Journey, the Eagles and Christina Aguilera.

The new company has had its challenges. It announced in February it had lost $83 million in 2011, although that was better than a $228.4 million loss in 2010. Sales rose to $5.38 billion in 2011 from $5.06 billion in 2010.

Uneven Gains

Despite a sharp increase in ticket prices over the past two decades, promoting shows continues to be a low-margin business, with the organizer responsible for hiring security, concessions and renting or owning the venue.

Ticket prices have undeniably increased in the last two decades, but promoters haven't been enriched at nearly the same rate, because the top artists continue to receive the majority of revenue.

“As an industry, we have substantially increased our ticket sales,” said Gary Bongiovanni, editor in chief of Pollstar, a concert industry trade magazine and research firm. “The cash flow you can make in the concert world is much greater than 20 years ago.”

According to Pollstar, the average ticket for the top 100 U.S. tours rose to a high of $67.33 in 2008, more than double the average price of $25.81 in 1996, excluding fees.

Prices and attendance dipped following the recession, but aggregate U.S. sales rose from around $1.5 billion in 1999 to $4.6 billion in 2009, according to Pollstar. In 2011, the top 25 acts made a combined $2.1 billion worldwide, around the same as the previous year, but on fewer shows.

With recorded music sales continuing to deteriorate, concerts become even more important for artists.

In the touring world, the artist really holds the power, said Bongiovanni of Pollstar. In the recorded music world, they're lucky if they can pick the name of the album.

The biggest acts can command at least 90 percent of ticket sale revenues, said Josh Baron, co-author of the book Ticket Masters and editor of Relix, a music magazine. If they're particularly adept at driving alcohol sales, bands can take in more than 100 percent. Smaller acts usually get a flat fee or a much smaller cut.

Live Nation is trying to change that. Beginning in 2007, it paid millions to Madonna, Jay-Z and Shakira for a percentage share of virtually all of the artist's future revenue, ranging from tour merchandise to album sales. The arrangement is similar to the so-called 360 deals in which record labels offer bands upfront financial support for a slice of ticket and merchandise revenue, which traditionally go exclusively to bands.

New Rivals

Although it has dominant access to major artists and events, the Live Nation-Ticketmaster merger in 2010 may have actually created an opening for small companies, as promoters have moved away from doing business with Ticketmaster now that it is affiliated with a rival promoter.

“I think the merger has invigorated other ticketing companies,” said Baron. “You’ve seen a real growth in the ticketing market.”

Upstarts such as Eventbrite, FanFueled, and Ticketfly have emerged in recent years to provide alternatives.

San Francisco-based Ticketfly was founded by Andrew Dreskin and Dan Teree, the veteran founders of TicketWeb, which was sold to Ticketmaster for $35 million in 2000. After raising $15 million in investor capital, the company doubled its staff to 70 in 2011, with engineers and technology making up around 30 percent of employees.

“It's one of those rare situations where there's opportunity for major disruption in a fairly established industry,” said Gannon Hall, senior vice president of marketing at Ticketfly.

Hall said that instead of focusing on just the transaction, Ticketfly looks at the entire concert experience, integrating marketing with sales. Fans can also broadcast their purchases through social media and recommend shows to friends. It also provides website development and database integration for venues and promoters.

Ticketfly declined to provide exact figures but said clients experienced 16 percent ticket sales growth in 2011, compared to the prior year, beating the industry average of 2.7 percent.

It added 120 percent more clients in 2011 and sales and revenue more than doubled, Ticketfly said. Some of its partners include venues like the 9:30 Club in Washington, D.C., and the Troubadour in Los Angeles.

Hall said there was no plan to go public, but also that the company was committed to long-term growth.

“We want to be the ticketing company of the future,” said Hall. “We think the industry is demanding it.”

Going Paperless

Some promoters are experimenting with eliminating the physical ticket completely.

In December, Jam Productions Ltd., one of the largest independent promoters in the U.S., sold paperless passes to four of five Chicago performances by the hometown band Wilco. Fans had to show identification when they went to the venue, and the system virtually eliminated scalping.

“It was extremely well received,” said Andrew Kaplan, a talent buyer for Chicago-based Jam.

In recent years, Jam has expanded its business to promote special festivals, such as one with the Dave Matthews Band, and worked with other bands around the country.

It has also taken an active role on the political front, joining the Fans First Coalition, a non-profit group of promoters and bands that has pushed for more paperless ticketing. One of the largest members of the group is none other than Live Nation Entertainment.

Live Nation allocated a fifth of the upcoming Bruce Springsteen tickets in New Jersey to be paperless, which it says will expand access to regular fans and discourage scalping.

But StubHub, which is owned by eBay Inc. (NASDAQ:EBAY), said the move would “destroy the secondary market,” which is worth an estimated $4 billion annually. Critics argue that LiveNation is promoting its own reselling site, TicketsNow. StubHub is involved in its own nonprofit lobbying group, the Fan Freedom Project, which opposes paperless ticketing.

A recent investigation by the UK’s Channel 4 found widespread scalping by the ticket websites including Viagogo, which sued unsuccessfully to have the footage blocked, and Seatwave. The sites market themselves as fan-to-fan exchanges, but employees were filmed buying tickets themselves and reselling with high markups.

Scalping has resisted legislative remedies in the U.S. because ticketing often transcends interstate commerce, which complicates regulation. LiveNation and StubHub alike have also lobbied to prevent additional regulations, and the secondary market shows no signs of slowing.

And while fans may bemoan the ticketing process, they continue to attend concerts.

The live music business is definitely sustainable because it's the experience that can't be replicated, said Jam's Kaplan, but he added, There's still plenty of competition.