Concert Ticket Industry Yuki Iwase, Michael Saridakis, Cynthia Sun, Chloe Tao AEM 4160 – Spring 2015

Concert Ticket IndustryYuki Iwase, Michael Saridakis, Cynthia Sun, Chloe

TaoAEM 4160 – Spring 2015

Table of Contents

Pricing strategies

3

Recommendations

4

Introduction

1

Industry Structure

2

Why we chose the concert ticket industry

Personal interest in concerts

Creative and interesting pricing strategies Pricing

influenced by a variety of factors

RecommendationsIntroduction Industry Structure Pricing Strategies

Revenue:

$4.1B

Background: Online concert ticket sales

53.5%

22.0%

13.5%

11.0%

Online ticket sales for concertsOnline ticket sales for sporting eventsOnline ticket sales for the theater and operaOnline ticket sales fairs, pageants and other events

INDUSTRY BREAKDOWN SEGMENT OBSERVATIONS

Profit:

$338.8M

Wages:

$116.5M

Annual Growth (2010 – 2015): 3.4%

Annual Growth (2015 – 2020):

3.2%

Businesses:

278

Source: IBIS World RecommendationsIntroduction Industry Structure Pricing Strategies

Consumers and Major Markets: Consumers aged 35 to 44 are the major market

Source: IBIS World

INDUSTRY BREAKDOWN BY MARKET SEGMENT

OBSERVATIONS

26.1%

24.0%16.8%

14.1%

11.8%

Consumers aged 35 to 44 Consumers aged 45 to 54

Cosumers aged 55 to 64 Consumers aged 25 to 34

Consumers aged 65 and older


Established career

Disposable income

highest attendance rate for nonmusical plays

Most likely to attend concerts and sporting events

35-44

45-64

25-34

Key Industry Drivers: Disposable income and leisure time

Sources: IBIS World, Statista

20102011

20122013

20142015

20162017

20182019

2020

5.15

5.2

5.25

5.3

5.35

5.4

Hou

rs (

per

day p

er

cap

ita)

PER CAPITA INCOME TRENDS LEISURE TIME TRENDS

20102011

20122013

20142015

20162017

20182019

2020

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

% C

han

ge

Disposable income

More likely to purchase concert tickets

Leisure time

More likely to purchase concert tickets


Current Performance: The industry has experienced strong revenue growth in the years following the recession

Source: IBIS World

2008 2009 2010 2011 2012 2013 2014 20153100

3300

3500

3700

3900

4100

3412.5

3233.5

3448

3618

3697.2

3827.8

3941.8

4082.4

Reven

ue (

$m

n)

INDUSTRY REVENUE GROWTH

Technological innovationDynamic

pricing & other software

CURRENT TRENDS

Increase in disposable Income

Increase in profit margins since the recession to 8.3% in 2015

Use of smartphones Mobile

friendly


Industry Outlook: The industry is expected to continue to grow in the coming years due to a variety of factors

Source: IBIS World

2016 2017 2018 2019 2020 20214100

4200

4300

4400

4500

4600

4700

4800

4900

5000

4217.2

4347.8

4478.3

4621.6

4769.2

4918.6

Revenue (

$m

n)

FORECASTED INDSUTRY REVENUE EXPECTED TRENDS

Increased consumer sentiment, spending power, advertising expenditure

Expected increase in profit margins to 8.9% of revenue by 2020

Expected increase to 303 ticket-selling companies by 2020

Customization &

Personalization

Social networks


Cost Structure: Purchasing costs account for the largest expense category at 56.8% of revenue

Source: IBIS World

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

3.5% 8.3%9.1% 2.9%

74.0%

56.8%

0.9%

2.2%

2.0%

16.0%

4.0% 10.8%6.5% 3.0%

Profit Wages Purchases DepreciationMarketing Rent & Utilities Other

Average Costs of all Industries in sector

(2015)

Industry Costs (2015)


Barriers to Entry: Overall, the industry has moderate barriers to entry, with lower barriers for ticket resellers

Source: IBIS World

BASIC TECHNOLOGY

Internet provides electronic access to ticket purchasing, event information, etc.

Initial investment in website development is crucial

CAPITAL & LABOR COSTS

Low capital and labor costs required

BRAND EXPOSURE Large firms

benefit from brand exposure and large consumer base

Multi-year contracts represents a significant barrier to entry


Government Regulation: Enforcing consumer privacy laws and dealing with mergers in the industry

Source: IBIS World

Merger approved if

A few subsidiaries were sold to create competitors for the industry giant

Certain technology was disseminated to the company’s existing competitors

Privacy laws

Federal, state and international laws regarding privacy and storing, sharing, use, discloser and protection of consumer information and user data


Competition: Moderate competition in this industry, but it is expected to continue to increase

Source: IBIS World

25.9%

20.7%

2.0%1.0%

50.4%

Live Nation eBay EventbriteSFX Other

MAJOR PLAYERS BY MARKET SHARE

~278 businesses

Product differentiation- Scope of events offered, price,

convenience, customer base and branding

Low globalization- StubHub expanded into the UK- Live Nation sells overseas tickets

Small websites are steadily increasing, and larger companies continue to consolidate

- 2010: Live Nation merged with Ticketmaster

- M&A activity as an attempt for firms to expand their array of services and increase their customer base

IMPLICATIONS


Competition: Moderate competition in this industry, but it is expected to continue to increase

Source: IBIS World

25.9%

20.7%

2.0%1.0%

50.4%

Live Nation eBay EventbriteSFX Other

MAJOR PLAYERS BY MARKET SHARE

~278 businesses

Product differentiation- Scope of events offered, price,

convenience, customer base and branding

Low globalization- StubHub expanded into the UK- Live Nation sells overseas tickets

Small websites are steadily increasing, and larger companies continue to consolidate

- 2010: Live Nation merged with Ticketmaster

- M&A activity as an attempt for firms to expand their array of services and increase their customer base

IMPLICATIONS

CR4 of 49.6%HHI of 1,105.85


Organization: The online concert ticket sales segment of the industry is broken down into a primary and secondary market

Sources: IBIS World, FromThisSeat.com

Secondary Market

Primary Market

StubHub, eBay & Craigslist

- Sell tickets that were purchased on the primary market and then resold

The seller determines the ticket prices and adjusts prices according to demand

Ticketmaster/Live Nation

Box offices and ticket booths at venues

Partner with bands and venues to offer first access to tickets

Prices are fixed and set by the event provider

PROS CONS

Will not pay above face value

All tickets are legitimate (no fake tickets)

Tickets are often sold out

Cannot buy tickets below face value

Convenience of buying and printing tickets at home

Tickets are more often available

Tickets often sold above face value

Tickets aren’t always immediately available after initial sale on primary market

CHARACTERISTICS


Major Companies: Live Nation and eBay are the largest players in the online ticket sales industry

Sources: IBIS World, Yahoo Finance

Primary market Largest US online distributor through Ticketmaster In 2014, 69% of sales from websites, 18% from

mobile apps Has plans to introduce dynamic pricing Market Share: 25.9%





mobile apps Has plans to introduce dynamic pricing Market Share: 25.9% Secondary market Entered the online ticket sales industry in 2007

StubHub StubHub allows consumers to buy and sell tickets in

the secondary market Market Share:20.7%







the secondary market Market Share:20.7% Primary market Allows consumers to create events, and sell tickets

online $1.5bn in global sales in 2014, and estimated to

generate $91.3mn from US ticket Market Share: 2%







the secondary market Market Share:20.7% Primary market Allows consumers to create events, and sell tickets

online $1.5bn in global sales in 2014, and estimated to

generate $91.3mn from US ticket Market Share: 2% Primary market Acquired Paylogic in 2013 and Flavorus.com in 2015 Electronic music Forecasted to generate $41.8M revenue from US

ticketing Market Share: 1%


Industry Wide Pricing Strategies

Source: IBIS World

Second Degree Price Discriminatio

n

Third Degree Price

Discrimination

Bundling

Dynamic Pricing

Capacity Constraint


Second Degree Price Discrimination: Consumers self-select based on seat location and timing

SCALING THE HOUSE

Price levels by seating in relation to time sold

Ticket prices increase as purchase date closes

- Buyer uncertainty decreases, price sensitivity decreases

Common in secondary markets- Possible in primary markets,

release tickets in “waves” and adjust price

Price levels by seating in relation to stage

Each seat offers a unique difference- Promoters cannot offer slightly

different price for each seat, so resort to “levels”

- Consumers must self-select Common for indoor seated venues

- Difficult for standing concerts and outdoor festival venues

Source: TickPick Blog

ADVANCED SELLING


Third Degree Price Discrimination: Concert venues sometimes offer discounts to selected demographics

Source: Cornell Concert Series, Wall Street Journal,

STUDENTSLower willingness to

pay, more free timeSupplement

education found in cultural performances

Sponsored by universities, often bundled with tuition in return for varied discounts

SENIOR CITIZENS Similar strategy

with student discounts

Discounts start from > 50 years old

- Ex. 4 Live Nation Concert tickets for the price of 3 through AARP

VETERANS Improves brand

image of the business

Often more philanthropic than profit-oriented

- Ex. GOVX provides a platform for veterans to receive pre-purchased tickets


Bundling: There are two ways of bundling: offering multiple perks or multiple artists (or both!)

MULTIPLE PERKS

Source: The Price of Ticket by John Seabrook

ARTISTS

FAN MERCHANDIS

E

PARKING FEES

BACK STAGE ACCESS/MEE

T-AND-GREET

CONCESSIONS

VIP TREATMENT

Bundled with

unrelated artists

Appeal to heterogeneity of tastes

High fixed cost•Venue & equipment

•Personnel•Headliner

Low Marginal cost of adding smaller artist


Capacity Constraints

Still remember capacity

constraints for hotel pricing?

Underage, Overage, Booking Limit, Protection

Level


Capacity Constraints Revisited


Capacity Constraints and demand uncertainty

Capacity constraints bind (sold out)

Peris

habl

e

good

s and

lose

all v

alue

afte

r

the

perfo

rman

ce

star

ts

Costs of holding large inventories can be quite high

Respond by

constraining

capacity/venue

that might be

too small


Source: An economic guide to ticket pricing in the entertainment industry by Pascal Courty

Capacity Constraints for primary market



Not all tickets

are sold to the

general public

and usually

those best seat

are withheld.

Season tickets holders,

performers, the venue

operator, news media, the

manager and the agent,

the record company, the

fan club, the promoter

and/or the tour sponsor.

Unsold tickets are called

deadwood. The fraction of

unsold tickets may be

substantial.

Capacity Constraints and Aggregate demand uncertainty

Capacity constraints

Aggregate demand uncertainty

Secondary market

Peak load pricing: Supply cannot be adjusted in real time to respond to demand changes



Factors including weather

Capacity Constraints and Individual demand uncertainty

Capacity constraints

Aggregate demand uncertainty

Secondary market Peak load

pricing: supply cannot be adjusted in real time to respond to demand changes

Individual demand uncertainty

The firm may optimally

ration the market and

underprice

Total revenue depends on

whether consumers are

allowed to resell implying

that producer will try to

control resale markets.



Individual buyers do not plan ahead

Dynamic Pricing is a highly useful tool

DYNAMIC PRICING is difficult to

engage

Practice of raising or lowering the cost of a ticket

in real time, based on demand and other factors, such as the weather, team

standings or sales of an artist's most recent single,

among others

Ticketmaster continue to roll out its dynamic pricing model, which relies heavily

data analytics and secondary market

“Generally we see the really good seats are

underpriced. The dynamic pricing is a way ... to really

take the money on the secondary market and get

that in (promoters‘ and artists’) pockets instead” -

Forese


Source: Ticketmaster’s dynamic pricing effort relies heavily on secondary market by Alfred Branch

Scalping is a form of arbitrage that leverages demand and supply

Promoters encourage

arbitrage when they do not

price tickets according to

market forces (house is not

fully scaled)

1Early buyers may not be

those consumers who value

the ticket the most at the

consumption date

2

Efficient allocation of resources by capitalizing on

willingness to pay

Hurt bottom line of primary market

players

Charge more than face value



Resale laws in general are lax

Places like

Knoxville,

Clemson, and

Auburn have

ticket-scalping

markets that

operate openly

with a great deal

of breadth to the

market

In other

places

enforcement

of laws

constrains

behavior

even if not

eliminating

the practice

Different legal jurisdictions treat

ticket reselling differently,

ranging from entirely legal, or,

while nominally restricted,

enforcement is lax



Prevention of scalping



Rationing the

quantity a single

buyer can get

Requiring that buyers

pay with a credit card

to control large

purchases

In extreme cases, selling

non-removable bracelets

and admitting only

bracelet- wearers at the

consumption date

1 2 3

Relationship of price to number of days until event

0 20 40 60 80 100 120 140 160 180 2000

50

100

150

200

250

300

f(x) = 0.295823267186707 x + 64.6076563434824R² = 0.091588657656842

Relationship price vs. number of days until event


MON TUE WED THU FRI SAT SUN0

10

20

30

40

50

60

70

80

90

62.66

72.76 74.02

84.86

72.9977.43 76.65

Average Ticket Price Per Day

Relationship of price to day of event


Relationship of price to genre/artist


Alt-JPrice = 4.89e+01 + 5.194e-04*Median Income

Gaga/BennettPrice = 1.751e+02 -1.320e-01*(Number of Tickets Left) + 1.05e-05*(Population)

Imagine Dragons

Price = -52.396096 -.004638*(Number of Tickets Left) +11.098599*(LN(Median Income))

Jazz Rock Country Hip Hop Indie Rap Pop0

20

40

60

80

100

120

140

160

Average Price vs. Genre

Relationship of price to genre/artist


0 1 2 3 4 5 6 7 8 90

50

100

150

200

250

300

f(x) = 1.40933888981092 x + 69.325659365959R² = 0.00283429045580885

Price vs. LN (number of tickets left)

Relationship of price to number of tickets left



Relationship of price to seating


Key takeaways for three different stakeholders

TICKET BUYERThe closer the date

it is to the event, the cheaper the price will be (Exceptions do exist)

Pricing and seating highly correlated

Capitalize on scalping and secondary market

INVESTORFrom a stock market

analyst view: not the best industry for stock market because not many publicly traded firms

Smaller startups that sell tickets for niche events have become more prevalent, so this could be interesting from a venture capital perspective

TICKET SELLER Trend of increase use of

social media and mobile apps

Primary seller: - Utilization of

dynamic pricing- Need for tighter

regulation for scalping

Secondary seller- Keep innovating

alternatives of engaging buyers

- Potential tighter regulation


THANKYOU

Documents

Concert Ticket Industry Yuki Iwase, Michael Saridakis, Cynthia Sun, Chloe Tao AEM 4160 – Spring 2015