Ticket Masters – Part 4: Online Ticketing and the Secondary Market

“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.

In the first decade of 21^st century the ticketing market was fundamentally changed by the launch of online ticket platforms on the Internet. In part 4 Ticketmaster’s strategy towards online ticketing is highlighted as well as the rise of ticket scalpers to secondary market ticketing firms is outlined.

 

In 1993, the Pritzker family decided to sell an 80 percent stake in Ticketmaster to Microsoft cofounder Paul Allen for $240 million. By this year, Ticketmaster was selling 61 million tickets world wide generating $1.3 billion in revenue (p. 227). Under the new ownership Ticketmaster was pushed towards the Internet. In 1995, a searchable database of events that the company was responsible for selling tickets was establised and a year later a transactional homepage was launched to sell tickets online (p. 228). However, despite the early move to the Internet, the company’s engagement in the new technology remained cautious and conservative. This could be blamed on CEO Fred Rosen, who hesitated to invest in an “uncertain” technology. In addition, Rosen showed the new majority owner little respect and ran the company as it were it his own (p. 232). Frustrated by the conflict with co-owner and CEO Rosen, Paul Allen decided to sell a 47.5 percent stake of Ticketmaster to Home Shopping Network in 1997, which was headed by Hollywood studio veteran Barry Diller. Diller bought more Ticketmaster stock on the open marekt to gain full control of the company with 50.1 percent. In October 1997, Home Shopping Network offered about $300 million for the rest of Ticketmaster’ stock, but Rosen and other co-owners rejected the bid. In March 1998, Barry Diller increased the bid to $400 million and Ticketmaster eventually agreed. For Fred Rosen it became clear that his days as Ticketmaster’s CEO were counted and decided to leave the company after 16 years. Barry Diller took full control of the company and subordinated it to USA Networks, which had been bought along with the Universal Studios, Inc. just months earlier from Edgar J. Bronfman Jr.’s Seagram. USA Networks itself was merged shortly before the Ticketmaster takeover with Home Shopping Network to USA, Inc. (later USA Interactive Inc. and eventually InterActiveCorp.). Barry Diller outlined Ticketmaster’s new strategy: To meet the challenges of the emerging Internet economy – e-ticketing.

Therefore, USA Inc. bought Citysearch – a website, which partnered with local newspapers in order to provide comprehensive listings of events, businesses and service in major U.S. cities as well as in Australia and in Europe. However, Citysearch was transformed into a website to sell tickets online. In 1998, the still existing online ticketing business of Ticketmaster and Citysearch were mergered to a new publicly traded company: Ticketmaster Online-Citysearch (TMCS). Ticketmaster Corp. remained part of USA Inc. (p. 235-237). TMCS could raise enough capital for further growth and to improve the technological basis for the exploding online ticketing business. By 2000, TMCS had sold 19 million tickets online (1999: 10 million), which resulted in a gross revenue of $864 million (1999: $440 million). Within a year online ticketing business nearly doubled (p. 244). Despite the burst of the dot.com bubble in 2000, online ticketing still prospered. Whereas in 1998 less than 10 percent of the tickets were sold online, the rate increased to more than 30 percent in 2001. By 2003 it was over 50% and by 2008 around 75 percent (p. 250). It is obvious that it made no sense to operate different ticketing companies – one for online tickets (TMCS) and the other one (Ticketmaster Corp.) for outlet and phone sales. In November 2000, TMCS purchased a controlling interest in Ticketmaster Corp. for $653 million, in order to merge the two companies simply called Ticketmaster. In 2003, USA Interactive bought the remaining shares of Ticketmaster and made it again a private subsidy of a publicly held company.

Despite the unprecedented growth of Ticketmaster due to online ticketing, competition on the ticketing market intensified. Several Internet start-up ticketing companies had entered the market since the late 1990s. The most successful and fast growing company was Tickets.com. In 1996, venture capitalist Dan Afrasiabi bought Hill Arts and Entertainment Systems – a Connecticut-based ticketing software firm and renamed it Entertainment Express (p. 239). With his business partner Thomas Gimple, Afrasiabi purchased with Advantix another online ticketing portal, which acquired another twelve companies within the next two years. However, the most important purchase happened in 1997, when Advantix bought the reanimated BASS ticketing company, which was still running on the Ticketmaster system (p. 240). Since the acquired ticketing companies ran on different hard- and software systems, there was a strong need to unify the operations. With financial support of private equity firm General Atlantic the online ticketing portal Tickets.com was launched. In January 1999, the merger between Tickets.com and Advantix was announced resulting in a new company now branded as Tickets.com, Inc. In November, Tickets.com used the booming stock market to go public.

However, when the Internet bubble had bursted in 2000, Tickets.com got in serious financial problems. In addition, Ticketmaster did everything to get rid off the annoying competitor. In July 1999, Ticketmaster filed for copyright infringement, charging Tickets.com’s practice linking to Ticketmasters’ sales webpages by bypassing the front page. In turn, Tickets.com sued Ticketmaster for misusing his monopoly power on the ticketing market. However, both lawsuits failed and Tickets.com had to carry high costs for lawyers and court fees. Tickets.com also failed to gain clients in and was outbid by Ticketmaster in acquiring TicketWeb in 1999, which was founded by Rick Tyler and Andrew Dreskin as an alternative online ticketing company charging lower service fees of about $1 per ticket. In 2000, it was eventually purchased by Ticketmaster for $35.2 million. The company retained its autonomy within Ticketmaster as a low-cost alternative for smaller venues (p. 248). Andrew Dreskin used the money to launch a new online ticketing company, Ticketfly, in 2008 (p. 249). Since Tickets.com suffered from several setbacks and financial problems, it was eventually bought by its most important client Major League Baseball Advanced Media (MLBAM) (pp. 247, 249).

When Ticketmaster tried to get grip of the online primary ticketing market, it was challenged by the emergance of resell-online platforms for tickets. One of the first webpages devoted to the secondary ticketing market was Needaticket.com, which was later renamed LiquidSeats and eventually StubHub. It was founded 2000 by two Stanford gradute students and grew big in a very short time (pp. 274-275). In 2006, tickets worth of $400 million were sold on the site, representing more than $100 million in revenue for the broker firm. StubHub was one of the most accelerating private businesses and attracted potential inventors. Eventually, Internet auctioning platform eBay acquired StubHub for $310 million in January 2007 (p. 287).

Another resell-webpage was founded by the ticket broker Dough Knittle, who had earned his living by buying and reselling tickets for the Super Bowl for twenty years (p. 279). He realized the economic potential of the Internet for his business in the late 1990s and acquired a software to handle inventory control. The webpage RazorGator was built around this programme and offered an exchange platform for sports and concert tickets (p. 284).

A third successful online resell platform was TicketsNow, which was set up by the university dropout Mike Domek, who started his career as ticket broker in 1992 (p. 288). Since TicketNow had excellent relations to the brokers, the online business boomed, reaching $300 million by 2008 (p. 288). This attracted Ticketmaster to get involved into the secondary ticketing market by buying TicketsNow for $265 million in January 2008 (p. 296).

Ticketmaster had realized that the secondary ticketing market could not be ignored any longer. In the decades before Ticketmaster did everything to fight scalping practices. It blocked brokers from selling tickets and even confiscated them if possible. However, with the emerging online ticketing business, automated selling software was operated, which resulted in the sell-out of large concert events within minutes. In 2007, Ticketmaster, thus, had filed lawsuit against RMG Technologies, which had created TicketBrokerTools.com that enabled its users to flood Ticketmaster with ticket requests (p. 290). Despite the fact that Ticketmaster eventually succeeded over RMG Technologies in court, the quasi-monopolist on the primary ticketing market thought about a strategy to get access to secondary ticketing market too. Since it had became usual for bands to buy the best seats themselves in order to resell it to family member, close friends and VIPs, Ticketmaster started an auction platform for a few seats of the Lewis-Klitschko heavyweight championship fight in June 2002. Later acts such as Madonna, Tim McGraw, Shakira, Kelly Clarkson and Red Hot Chilli Peppers also participated in Ticketmasters auctions (pp. 293-294). This auction platform eventually evolved into TicketExchange. However, TicketExchange was far less successful than other ticket resell-platforms on the Internet. Thus, Ticketmaster decided to buy a fast growing online ticketing portal and eventually purchased TicketsNow as a reaction to StubHub’s acquisition by eBay months before.

In April 2008, Ticketmaster also purchased SLO Limited, which was specialized in selling VIP ticket packages (p. 296). SLO Limited was founded by Shelley Lazar in the 1970s. A primary school at daytime, Shelley Lazar handled the guest lists for bands in Manhattan’s music clubs. She used her close relationship to the stars to offer them a catering service which evolved over the years to a VIP service with pre-show dinner parties and ticket packages for best seats. In summer 1988, Shelley Lazar left the classroom and started her full-time employment in the music industry. She joined the Amnesty International Human Rights Now! Tour in 1988, handled seating arrangements for MTV Music Awards as well as for two papal masses. Above all she continued to offer friends and family ticketing services for Paul McCartney , Bob Dylan, Barbra Streisand, the Eagles, The Who, KISS, Tina Turner, Paul Simon, Police and recently Lady Gaga. However, when competition in the VIP service business intensified, Shelley Lazar decided to sell its firm to Ticketmaster.

 

Part 5 will tell the story how a fragmented market of concert promoters was unified and revolutionized by Robert F. X. Sillerman’s SFX Entertainment.

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.