Pricing, Scalping, and Concert Business Models

This isn't a core Copyfight story but I continue to be interested in business models.

Start with the classic economic understanding that most tickets to most live events are underpriced. Those of you, like me, who balk at paying 100 dollars and up for a concert probably think I've lost my mind, but bear with me. Theories of supply, demand, and markets say that if something is sold too cheaply someone will realize that and take advantage by buying at the lower price then turning around and re-selling the item at the higher price. In the live music business these people are called "scalpers". Depending on the jurisdiction and even the venue/concert rules scalping may be more or less legal. Sites like Stubhub don't make a big deal about this, but buried in their ToS is this language:

You agree to comply with all applicable local, state, federal and international laws, statutes and regulations regarding use of the Site and Services and the listing, selling, buying, and use of tickets and related passes. This includes, but is not limited to, laws pertaining to pricing your tickets.

That said, the trend nationally has been toward loosening laws on ticket reselling, even as scalpers have developed sophisticated strategies including automated bots and banks of humans to sweep up desirable tickets as soon as they appear. In economic terms, acts that price their tickets below "market" or below the most they could get, are leaving money on the table and the scalpers are picking that money up.

The problem with this isn't just economic, it's also cultural. Musical acts in particular thrive on having a wide and varied fan base, often grown by word of mouth and the connections that develop at live shows. If your friend tells you there's this great singer you have got to see, but your only way of getting in to hear her is to drop $250 for some scalped ticket you may be reluctant to do that. The artist loses out twice - once in that they aren't getting the extra money for that ticket and again when they lose the chance to attract a new fan.

NPR's Planet Money team spent some time with Kid Rock over his war on the scalpers. Kid Rock sings music designed to appeal to a blue-collar audience - exactly the kind of fan that would be shut out by tickets priced at whatever the market could bear. Yes, there are fans who will pay lots more for a Kid Rock show, but Kid Rock can't afford to cater just to them. Doing that would contradict the messages of his music, and frankly it offends his artistic sensibilities. As he says, he's in this business to make a lot of money but not to squeeze every possible dime out of every fan. So what to do?

In response to this situation, Kid Rock has deployed a variety of strategies. One is simply economic: he's flooding the supply side of the market. He'll do more shows and do shows in bigger venues in order to ensure that the supply of tickets is larger. That itself ought to drive down some prices but even then there are more and less desirable seats. The front seats always sell for more. Well, OK, if you pay for it, you ought to be the one picking it up. Using electronic ticketing, artists like Kid Rock (*) and their host venues can require people to show picture IDs and produce the credit cards used to secure the tickets. This effectively removes many of the routes ticket resellers use.

They can also deploy the same electronic tools that scalpers are using, but in reverse. Tickets for concerts can be priced more dynamically, somewhat like the way airline seats are priced. If certain nights aren't selling, the prices can be dropped. Shows in places or on nights that are likely to sell out can be pre-priced higher, but if sales are lagging the prices can be adjusted downward.

I think there are valuable lessons here. Live performance is a key part of many creative artists' business plans. Those performances need to bring in money AND grow the fan bases. They need to be sustainable AND meet the artists' aesthetics. Somewhere in the intersection of economics and culture lie answers and maybe Kid Rock has found one.

(*) I recently went to a show headlined by How To Destroy Angels, Trent Reznor's project/band with his wife. They offered seats to the NiN fan club using very similar terms. Our group had to enter together, show ID's, and couldn't use the "Will Call" facility at the club, in exchange for which we got the tickets at a discount off the general price.