Ticketmaster - a Beneficial or Abusive Monopolist?

Ticketmaster:

A Beneficial or Abusive Monopolist?

David Ulrich

Claremont McKenna College

December 9, 2010

Abstract:

This paper examines how Ticketmaster, through its revolutionary economic model that capitalized on consumer demand for convenience, became a monopolist in the entertainment ticketing industry. Initially the positive network externalities of one global ticket provider warranted the monopoly, largely because Ticketmaster did not control the supply of tickets, which limited its abusive potential. However in 2009, Ticketmaster merged with Live Nation, the largest concert promoter and venue owner, vertically integrating and further preventing competition in the industry. This paper examines the merger and the potential for monopolistic abuse that Ticketmaster now possesses.

Introduction:

Ticketmaster is one of the most recognizable companies in the entertainment industry. Founded in 1976, Ticketmaster did not assume its dominant position in the entertainment industry's primary ticketing market until the late 1980s, when the company introduced its revolutionary model for ticket selling, charging consumers service fees. Ticketmaster grew rapidly in the 1990s securing a greater and greater percentage of the market by signing prominent venues to long term contracts. Today, Ticketmaster sells tickets in 19 countries through its website, 6700 retail outlets and 17 call centers. Currently, Ticketmaster is contracted with over 10,000 of the most prominent venues in the entertainment industry, which represents over 70 percent of the concert ticket market. In 2009 Ticketmaster sold over 130 million tickets valued at $8.0 billion, reporting a profit from ticketing of $1.29 billion.

Indisputably, Ticketmaster monopolizes this market. There are no well-known competitors to Ticketmaster in the primary ticketing industry; primary tickets are tickets sold to a consumer from their source, not resold by an individual through a service such as Stubhub.com. Many individuals, recording artists specifically, have spoken out against Ticketmaster's monopoly and antitrust investigations have been undertaken; yet no penalties have been brought against the firm. Most recently, in 2009, Ticketmaster merged with Live Nation to become Live Nation Entertainment, the largest firm in the entertainment industry. The full effects of this merger have not yet been realized as the two companies are still integrating. The aim of this paper is to examine Ticketmaster and determine whether in fact it is a beneficial or abusive monopolist. This is done twice, once retrospectively, before the merger and once looking forward post-merger.

It is shown that Ticketmaster, pre-merger, was a beneficial monopoly to consumers because of its numerous positive externalities. Ticketmaster's exclusivity promoted significant service provision which, in this industry, was greatly valued. The notion that Ticketmaster was a beneficial monopoly is entirely predicated on the fact that Ticketmaster did not control the supply or the price of the tickets that it sold. Thus, one can see that Ticketmaster was not a traditional monopolist; it did not markup its product to abuse consumer welfare. Rather, Ticketmaster charged fees based on the belief that there was demand for convenience, and there was. Nevertheless, as Pearlstein (2010) points out, the overall risk of monopolistic abuse is very high in industries such as the entertainment industry where economies of scale and long term contracts are commonplace. Following last year's merger with Live Nation, Ticketmaster appears to have potential to become an abusive monopolist in the future largely because Ticketmaster now controls the price of many of its tickets and has further limited competition in the industry. The vertical integration that resulted from the merger looks to in no way benefit consumers since certain vertical relationships were already in place, namely resale price maintenance and exclusive dealing.

Much has been written about Ticketmaster in the last twenty years and recently about the potential effects of the new, merged, Live Nation Entertainment, yet almost exclusively as commentaries in newspapers and magazines. These writings have mostly cast a negative light on Ticketmaster as a monopolist while little economic analysis has been done to show why its monopoly was either beneficial or harmful. This paper seeks to add perspective by not only proving Ticketmaster to have been a beneficial monopolist in the past, but also to show the monopoly's potential threat to consumer welfare post-merger.

Ticketmaster Pre-Merger

Era before Ticketmaster's Rise

Before Ticketmaster's rapid rise to a monopoly position in the ticketing industry in the early 1990s, ticketing was only a marginally profitable subsector of the entertainment industry. Concert tickets were priced on a "one price fits all" notion. Music at this time (1970s and 1980s) was very popular, yet concert promoters were not scaling prices to discriminate consumers, even though the secondary market was rapidly doing so. Prices ranged from $5-$25, but tickets were consistently changing hands for over 4 times the face value in the secondary market, predominantly to consumers that were willing to pay for the convenience of buying tickets last minute or avoiding standing in line at a box office.

The dominant ticketing firm at this time was Ticketron, who brought in revenue by charging venues for their service. Ticketing is a labor intensive task with expensive technological infrastructure. In addition to providing labor and technology, Ticketron provided select outlet locations separate from the venue's box office where consumers could buy tickets. However, a shift in the entertainment industry in the late 1980s opened the door for a new economic model of ticketing and challenged Ticketron's dominant position.

In the late 1980's musical artists and promoters began to seek greater profits from headlining tours; previously tours were viewed as a means of promoting an album. Artists began to view tours as their main source of revenue and sought to capitalize on the strength of consumer demand through price discrimination. A new philosophy emerged for ticket pricing; anyone can share the experience of being at a concert, but not the same type of experience.

A New Model for Ticket Selling

This change in pricing philosophy