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Stray notes from SXSW III: Ticketmaster's trickery

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As I continued mulling over what really bothered me most about Friday's interview with Ticketmaster CEO Sean Moriarty, it finally struck me: the slight of hand comparing Ticketmaster fees to cable TV and ATM fees, which hits at the heart of the lie behind the company's PR efforts.

Ticketmaster provides a service, as does the cable company and a bank ATM. But the cable company charges the same every month, no matter if you watch one hour of TV or 100, and if you watch a movie on demand, it's the same price, whether it's a blockbuster or an obscure indie film. Similarly, the ATM charges the same fee whether you're withdrawing $20 or $200.

In the end, it costs Ticketmaster no more money to provide the service of selling a $30 ticket or a $300 ticket, yet the fee for the former might be $7.50 and the fee for the later $37.50.

Of course, the company needs to maintain and upgrade its infrastructure; no one denies it that, just as no one denies it should be reasonably paid for the service it provides. But wouldn't one ATM-like fee across the boards and per transaction be much clearer and more fair? Moriarty's arrogance toward journalists aside, why shouldn't consumers keep questioning the price of those service fees and demanding the pie-chart breakdown — how much goes to Ticketmaster? the artist? the venue? — when no one can see any logic behind the differing fees other than kickbacks to promoters and artists on one hand, or Ticketmaster's greed on the other?

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If Barry Diller expects to make $22.50 per ticket, do you think it's better that $30 ticket customers pay a 75% surcharge, while $300 customers pay a 7% surcharge? It does not bother me that people dumb enough to shell out for $300 seats at the Allstate Arena are taking a bath, while the people paying to go to the Metro are skating.

Mull harder, Jim. The problem isn't Ticketmaster's absurdly high pricing (movie ticket services, operating at drastically higher loads with retail kiosks in hundreds of locations, charge a tiny fraction as much, to say nothing of ATM networks). In an efficient market, prices will rise to the level the market will bear. It's not even their pricing structure, which is simply market segmentation 101, and is the same reason I get mugged every time I book a flight for business, but vacationers pay only a couple hundred: because if I didn't, the bottom-end price would rise, and I can afford the penalty and the vacationer can't.

The problem is that Ticketmaster is a monopolist, with exclusionary, predatory relationships with venues and promoters. So we have no idea whether Ticketmaster's pricing is reasonable --- just a strong guess --- because Ticketmaster has been allowed to subvert the market.

@ Thomas H. Ptacek

You didn't like up the first part of your thought with the second part of your thought. I think Jim is saying that because Ticketmaster is "a monopolist, with exclusionary, predatory relationships with venues and promoters," they are able to practice some pretty absurd "market segmentation."

The over-arching point is that the segmentation makes no sense to the value of the product delivered. A drive through fast food window could segment it's prices based on the value of the car the customer drove, selling "expensive" hamburgers to expensive cars, and "value" hamburgers to everyone else. That practice would implode when customers compared their hamburgers and found out they were the same product.

And, the same rational could be used-- we charge a percentage of the customer's car value to determine how much we charge for the hamburger.

You pay more for your business tickets because you fly "business class." That's at least a marginally different product. If you wanted to, you could take the down market option, i.e. coach.

No, I don't fly business class --- I simply pay more for tickets because airlines have figured out how to isolate me and the other purchasers who will bear higher prices, without snagging retired couples who will not pay through the nose. Both parties get to fly for the price they are willing to pay. There is no alternative in this situation --- short of altruism on the part of the airline --- that gets us both in the air as efficiently.

Read the boldface text in Jim's posting: what bugs him is that whether it's Hannah at the Allstate or Colin Meloy at the Metro, Ticketmaster is providing exactly the same service at exactly the same quality with exactly the same cost structure, and charging wildly different amounts.

The fact is, pricing your services based on what they cost you --- "cost-based pricing" --- is literally Marketing 101 "How NOT To Price A Product". It's not an effective criticism of Ticketmaster to accuse them of practicing market-based pricing. And just like with the airlines, the market-based pricing system has benefits: if you'd really rather see Hannah than Colin, I'm happy to have you subsidize Ticketmaster's earnings-per-share numbers by paying Ticketmaster through the nose.

What everyone's going to agree with is that the numbers Ticketmaster gets to feed into this formula are obscene, and that they're getting away with it because they subvert the market. That's the point that needs to be boldfaced. The Hannah Montana Tax is a red herring.

Jim DeRo replies: Actually, I have problems with TM at every step of the way: The market-based pricing AND the monopolistic control of the market via the exclusivity agreements with venues AND the lack of responsiveness to the customer AND the smokescreen of "Well, the promoter gets a portion of the service fee kicked back to them" but TM refusing to spell out exactly how that works. TM has indeed subverted the market. But now they're going to have some real competition from Live Nation. And it will be interesting to see if Live Nation's fees are substantially lower -- or if they play the same game as Ticketmaster.

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This page contains a single entry by Jim DeRogatis published on March 15, 2008 9:31 AM.

SXSW Dispatch #7: Chicago rising: The Frantic, the Cool Kids, and Kid Sister's Pro Nails Salon was the previous entry in this blog.

SXSW Dispatch #8: The kingdom of heaven and the best band in the world is the next entry in this blog.

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