Service Rant: Ticketmaster

The music industry has seen an unbelievable amount of change in the last decade, mostly brought about by the advent of file sharing. First, music was tied into expensive bundles on hard media distributed through tightly held channels. Then it was free and distributed by anyone with a T1 line. Now it costs money again, may be as expensive as before, but since the bundled offerings (CD’s / LP’s) have been pulled apart to allow consumers greater choice over what they purchase, overall value has risen dramatically.

Personally, I love it.

It moves an experience (what else is music but an experience) from a product-based environment to a service-based environment.

But it has also changed other elements of the business model. The profit comes less from record sales and much more from live entertainment. Today’s most successful acts are those with the largest live audiences / followings. Because the new success formula requires a heavy touring schedule, audiences are treated to more of their favorite artists on a regular basis. More touring bands increases the available supply of live music options, keeping ticket prices very reasonable through a period of growth.

The problem that exists in the new model is similar to what it was in the previous one – the distribution channel using its relative power to extract margin from a consumer base with few short-run alternatives. It’s an extremely shortsighted strategy, given that it recently led to the downfall of the media product-based business model of the recording industry.

A recent example: Floor tickets to a recent arena show cost $45.25 apiece, which I would say is fair for the experience. Add to that a convenience charge of $10.05 each and an order processing charge of $2.60. That’s 28% in add-on fees!

Surely something as well-named as a “convenience charge” has tangible value tied to it, right? Actually, the convenience charge covers Ticketmaster’s costs of providing tickets at local ticket outlet locations, staffing call centers and ongoing maintenance of its website. So I’m essentially being charged for Ticketmaster’s costs to hang their shingle in public.

The processing fee? Covers Ticketmaster’s costs for taking the order, arranging for shipping or coordinating with the box office will call – essentially the cost elements of fulfillment, less the cost of shipping, which will cost extra, even if your tickets are emailed to you – the marginal cost of which has to be approaching $0. (In all fairness, standard mail is free, so at least Ticketmaster is willing to front you a 1st class stamp, if you’re not in a hurry)

Cost-plus pricing models seldom work in manufacturing industries, and far less in service industries. That Ticketmaster hasn’t found another way to extract margin or consumer surplus shows them as unimaginative.

Their defense is that they have the right to seek fair return on their investment and efforts, which to me sounds a lot like the point-of-view that the RIAA members had before their business model was made obsolete and they started suing their customers for leaving rather than improving their service / product mix.