14
Sep
11

Ticket Masters – Part 2: The Rise of Ticketmaster

“Ticket Masters. The Rise of the Concert Industry and How the Public Got Scalped” by Dean Budnick and Josh Baron is one the first books that highlight the emergence of the modern concert industry by telling the story of the rise of its main players: Ticketmaster and Live Nation. It gives a deep insight into the processes within the network of concert promoters, ticketing firms and artist agencies and how this network has evolved over the decades.

After the main players of electronic ticketing service in the 1970s established a modern ticketing market, only Ticketmaster survived. In part 2 the “Rise of Ticketmaster” into a more or less monopolistic market position is highlighted.

 

Ticketmaster was founded 1974/75 by university graduates Albert Leffler, Gordon Gunn and Peter Gawda inspired by the Select-A-Seat software solution (p. 53-54). However, the Ticketmaster founders lacked investment capital. They even could not afford an appropriate mini-computer. It took more than a year to find sufficient financial backing by the owner a direct mail marketing company, Charles Hamby (p. 58-59). On the new financial basis, clients all around the U.S.and even in Norway could be acquired. However, Hamby had underestimated the financial resources to compete with Ticketron. Additional capital was needed and provided by Hyatt Management Corporation, which ran the newly opened Superdome in New Orleans. Hyatt Management Corp. was controlled by the Pritzker family, who ran the world-wide Hyatt hotel chain (p. 81). They bought out the initial investor Charles Hamby, but failed to set up a sustainable business model. In early 1980, the Pritzkers decided to find a buyer and sold the company to their tax adviser and lawyer Burt Kanter. Burt Kanter hired Frederic Rosen as special counsel, who should observe the dozen systems in operation. Rosen quickly found out that Ticketmaster was mis-managed and had a high economic potential. Early in 1982, he decided to buy Ticketmaster and approached Jay Pritzker to invest $1.0 million if he could raise other $3.0 millions. Eventually the Pritzker family decided to support Rosen and became majority owner of Ticketmaster with Fred Rosen as president and former BASS founder Jerry Seltzer as vice-president.

Within a short period of time Fred Rosen revolutionized the whole ticketing process and thus challenging the market giant Ticketron. The only parallel to Ticketron was that Ticketmaster also started to establish company-owned operations rather than striking licensing deals (p. 69). In all other aspects, Rosen diverged from Ticketrons blue-print: Ticketmaster required full inventory from any facility or promoter in exchange for a share in the service fee charged (p. 72). Therefore the service fees had to be doubled. In addition, Ticketmaster encouraged its clients to close their box offices on the first day of sale, since the whole ticketing process could be handled by exclusively by Ticketmaster. Thus, no tickets were available anymore without service charges (p. 73). A Ticketmaster employee is cited by authors to outline Rosen’s business model in contrast to Ticketron’s: “So Fred [Rosen] came in and said, ‘Right now you have a cost center, it’s called your box office. You pay for the equipment and you have to pay for the labor to sell the tickets. I’m going to give you the equipment for free. I’m going to equip your entire box office with terminals. I’m going to teach your people how to sell tickets over those terminals, and I’m going to support those people. What I’m going to ask you to do is close down the first day of sale on concerts and let me sell those tickets through my outlets. So now you don’t even have to pay the labor on the first day of sale. But if that’s not enough, I’m going to give you a piece of every ticket I sell. So I’ve just turned your cost center into a profit center.’ (…) [T]hat was the difference between Ticketmaster and Ticketron and why Ticketron lost the entire business.” (p. 75).

Within three years as CEO of Ticketmaster Rosen redefined the ticketing business. Instead of simply charging ticketing fees – as Ticketron did – Ticketmaster started to pay advances against proceeds to the venue holders and promoters. The upfront payments made it easier for the promoters to budget and to meet the demands of the bookers on the one hand. On the other, they became dependent on the cash injunctions by Ticketmaster. However, Ticketmaster went a step further and provided also marketing and advertising sources to promote the events (p. 78).

The impact of these efforts was mirrowed by the sales figures: “In 1982 the company’s sales hovered around $1 million, supported by twenty-five employees. Three years later that number jumped to just over $200 million, a vast improvement but still only about a third of Ticketron’s efforts. Then in 1987 Ticketmaster finally eclipsed its competitor, with both selling just under $400-million worth of tickets.”

In the late 1980s Ticketmaster was the main force in the U.S. ticketing market, and competitor Ticketron lagged behind. Budnik and Baron identify several reasons for this development: (1) Ticketron was a computer firm that sold tickets, but Ticketmaster was an entertainment firm, which used computers to sell tickets. (2) For Ticketron’s parent firm Control Data electronic ticketing was only a side-business in its portfolio, which did not contribute much to the company’s profitability. (3) Ticketron positioned itself as the “fair” market force by protecting the interests of the promoters and ticket buyers by keeping the service fees low. However, this was the wrong strategy in a concert business that changed its nature fundamentally in the late 1980s. The top music acts had become more and more demanding and received 85 to 90% of the gross ticket sales. The promoters and venue managers found themselves in a very competitive environment, in which the acts and their bookers defined the rules. In this strained situation Ticketmaster once more provided helping hands – in order to get even more control over the promoters. It offered its clients the possibility to establish service charges by contract. That means it raised the service charge in favor of the promoters and on the back of the ticket buyers (p. 84). This new Ticketmaster price policy cannot be overstated in its long-term significance for the ticketing business according to the authors: “With the ability to earn extra funds from heightened service charges, promoters now had the freedom to match the ever-amplified demands by booking-agents, in a sense overpaying for the acts and then making up the difference by taking additional expense onto the service fee. The consumer was hit twice.” (p. 84).

Since Ticketron was not prepared to adopt Ticketmaster’s business practices, the former main force in electronic ticketing lost ground and produced annual losses. In 1989, Control Data sold Ticketron for $16 million to a group of investors backing Abe Pollin, who ran the Capital Centre in Washington D.C. and was also the owner of the Washington Capitals and the Washington Bullets. However, the new management team failed acquire important new clients and to contract out Ticketmaster clients (pp. 85-89). On February 27, 1991 Ticketmaster announced the purchase of the Ticketron assets for $11 million (p. 89). In 1992, the combined Ticketmaster/Ticketron concern reported a total revenue from ticket sales of $1 billion (p. 90).

However, the acquisition of Ticketron by Ticketmaster was allowed by the U.S. antitrust authorities if Ticketron would sell the Ticktron system of Hackensack to the Shubert Organization, which controlled 17 Broadway theatres and had automated its ticket sales with support by Ticketron branded as Telecharge service (p. 81).

Part 3 will highlight how The Grateful Dead, Pearl Jam and The String Cheese Incident challenged Ticketmaster’s exclusive position in ticket sales.

Budnick Dean and Josh Baron, 2011, Ticketmasters. The Rise of the Concert Industry and How the Public Got Scalped.New York: ECW Press. ISBN 978-1-55022-949-3, EUR 18.99.


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