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

2. Table of Contents Pricing strategies 3 Recommendatio ns 4 Introduction 1 Industry Structure 2

3. Why we chose the concert ticket industry Personal interest in concerts Creative and interesting pricing strategies Pricing influenced by a variety of factors Recommendations Introduction Industry StructurePricing Strategies

4. Revenue : $4.1B Background: Online concert ticket sales INDUSTRY BREAKDOWN SEGMENTOBSERVATIONS Profit: $338.8M Wages : $116.5M Annual Growth (2010 – 2015): 3.4% Annual Growth (2015 – 2020): 3.2% Businesses : 278 Source: IBIS World Recommendations Introduction Industry StructurePricing Strategies

5. Consumers and Major Markets: Consumers aged 35 to 44 are the major market Source: IBIS World INDUSTRY BREAKDOWN BY MARKET SEGMENTOBSERVATIONS Recommendations Introduction Industry StructurePricing Strategies Established career Disposable income highest attendance rate for nonmusical plays Most likely to attend concerts and sporting events 35-4445-64 25-34

6. Key Industry Drivers: Disposable income and leisure time Sources: IBIS World, Statista PER CAPITA INCOME TRENDSLEISURE TIME TRENDS Disposable income More likely to purchase concert tickets Leisure time More likely to purchase concert tickets Recommendations Introduction Industry StructurePricing Strategies

7. Current Performance: The industry has experienced strong revenue growth in the years following the recession Source: IBIS World INDUSTRY REVENUE GROWTH Technologica l innovation Dynamic 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 Recommendations Introduction Industry StructurePricing Strategies

8. Industry Outlook: The industry is expected to continue to grow in the coming years due to a variety of factors Source: IBIS World FORECASTED INDSUTRY REVENUEEXPECTED 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 Recommendations Introduction Industry StructurePricing Strategies

9. Cost Structure: Purchasing costs account for the largest expense category at 56.8% of revenue Source: IBIS World Average Costs of all Industries in sector (2015) Industry Costs (2015) Recommendations Introduction Industry StructurePricing Strategies

10. 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 Recommendations Introduction Industry StructurePricing Strategies

11. 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 Recommendations Introduction Industry StructurePricing Strategies

12. Competition: Moderate competition in this industry, but it is expected to continue to increase Source: IBIS World 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 Recommendations Introduction Industry StructurePricing Strategies

13. Competition: Moderate competition in this industry, but it is expected to continue to increase Source: IBIS World 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 Recommendations Introduction Industry StructurePricing Strategies

14. 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 Recommendations Introduction Industry StructurePricing Strategies

15. 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% Recommendations Introduction Industry StructurePricing Strategies

16. 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% 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% Recommendations Introduction Industry StructurePricing Strategies

17. 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% 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% 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% Recommendations Introduction Industry StructurePricing Strategies

18. 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% 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% 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% Recommendations Introduction Industry StructurePricing Strategies

19. Industry Wide Pricing Strategies Source: IBIS World Second Degree Price Discrimination Third Degree Price Discrimination Bundling Dynamic Pricing Capacity Constraint Recommendations IntroductionIndustry StructurePricing Strategies

20. 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 Recommendations IntroductionIndustry StructurePricing Strategies

21. Third Degree Price Discrimination: Concert venues sometimes offer discounts to selected demographics Source: Cornell Concert Series, Wall Street Journal, STUDENTS Lower willingness to pay, more free time Supplement 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 Recommendations IntroductionIndustry StructurePricing Strategies

22. 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/MEET- AND-GREET CONCESSIO NS 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 Recommendations IntroductionIndustry StructurePricing Strategies

23. Capacity Constraints Still remember capacity constraints for hotel pricing? Underage, Overage, Booking Limit, Protection Level Recommendations IntroductionIndustry StructurePricing Strategies

24. Capacity Constraints Revisited Recommendations IntroductionIndustry StructurePricing Strategies

25. Capacity Constraints and demand uncertainty Capacity constraints bind (sold out) Perishable goods and lose all value after the performance starts Costs of holding large inventories can be quite high Respond by constraining capacity/venue that might be too small Recommendations IntroductionIndustry StructurePricing Strategies Source: An economic guide to ticket pricing in the entertainment industry by Pascal Courty

26. Capacity Constraints for primary market Recommendations IntroductionIndustry StructurePricing Strategies Source: An economic guide to ticket pricing in the entertainment industry by Pascal Courty 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.

27. 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 Recommendations IntroductionIndustry StructurePricing Strategies Source: An economic guide to ticket pricing in the entertainment industry by Pascal Courty Factors including weather

28. 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. Recommendations IntroductionIndustry StructurePricing Strategies Source: An economic guide to ticket pricing in the entertainment industry by Pascal Courty Individual buyers do not plan ahead

29. 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 Recommendations IntroductionIndustry StructurePricing Strategies Source: Ticketmaster’s dynamic pricing effort relies heavily on secondary market by Alfred Branch

30. 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) 1 Early 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 Recommendations IntroductionIndustry StructurePricing Strategies Source: An economic guide to ticket pricing in the entertainment industry by Pascal Courty

31. 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 Recommendations IntroductionIndustry StructurePricing Strategies Source: An economic guide to ticket pricing in the entertainment industry by Pascal Courty

32. Prevention of scalping Recommendations IntroductionIndustry StructurePricing Strategies Source: An economic guide to ticket pricing in the entertainment industry by Pascal Courty 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 12 3

33. Relationship of price to number of days until event Recommendations IntroductionIndustry StructurePricing Strategies

34. Relationship of price to day of event Recommendations IntroductionIndustry StructurePricing Strategies

35. Relationship of price to genre/artist Recommendations IntroductionIndustry StructurePricing Strategies Alt-J Price = 4.89e+01 + 5.194e-04*Median Income Gaga/Bennett Price = 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))

36. Relationship of price to genre/artist Recommendations IntroductionIndustry StructurePricing Strategies

37. Relationship of price to number of tickets left Recommendations IntroductionIndustry StructurePricing Strategies

38. Recommendations IntroductionIndustry StructurePricing Strategies

39. Relationship of price to seating Recommendations IntroductionIndustry StructurePricing Strategies

40. Key takeaways for three different stakeholders TICKET BUYER The 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 INVESTOR From 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 RecommendationsIntroductionIndustry StructurePricing Strategies

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