Ticketmaster Interview Part 4

The Markup (continued)

I'm trying to lower the price of the tickets - but Ticketmaster's not
being reasonable. It's sort of disingenuous because Ticketmaster's cut
is always the same. It's 15 - 20 percent of the face value of the ticket
up to a certain price. It's not 15 - 20 percent of $100. But where you
get these 30-40 percent service charges - the problem that you have
is, that everybody's participating. So if a promoter says, I want to
lower the service charge. I want YOU to lower the service charge. It
means: You take it out of your pocket, I don't want to lose it out of
mine. The music business was all driven by the following axiom:
What's mine is mine, what's yours we'll negotiate for. And so
everything was: I think your service charges are too high. Leave my
rebate in place, but you lower your charge.

My premise when I built the business was look: I'll provide all the
services you need; I'll provide the backroom; I'll even take the heat -
which I did. I mean, we were the catalyst and the lightning rod for
the heat when these charges got high. But the very essence is, that
all the charges weren't ours. We took the heat for the industry, for
the arenas and the venues. And we took the heat for many of the
promoters. Because ultimately promoters would say, "I gave away
too much on the show, can you help me?" And I said, "How much do
you need?" The promoter would say, "Can we get $2 a ticket; can we
get $0.50 a ticket; can we add $1 a ticket?" (Not to the face value,
but to the service charge, on top of the market). And so it sort of
evolved like that, and of course we took the heat. And the great
funny comments you'd make is - a promoter or a building - a music
reporter would say to them, "How come Ticketmaster service charges
were higher to this concert than the others?" And invariably, the
client would say, "You know, I don't know. I gotta look into this. You
know, this is - those guys, you really gotta keep an eye on 'em." So
here you have the public saying this for public consumption, and then
the other side (which no one ever got really connected), was we
never lost a client. And the reason you never lost a client was, that
was the solar system that was created. So the very essence was: if
you overpaid for an act, the one part of the ticket that the act
couldn't control was a service charge. That was the dynamic! -
Neither good nor bad, just a fact of life. It was a business, and you
were there to take the heat. And so, you know, I'm sure we'll get into
that later. But the dynamic behind all of that was: who had control of
the money? That was the real issue underneath all of this. And what
ultimately happened was: as new buildings got built; and new arenas
got built; and as the acts got smarter; and their representation got
smarter. You went from 60/40 deals between the act and the
promoter, and you'd pay the rent (you know, fair rent) - they went to
70/30. Then 80/20. Then 95/5. Then none. Then a fee. So basically,
all of these things don't happen in a vacuum, they happen where the
act says, I'll take all the money. Or I'll take most of the money. You
have the risk. And then the promoter and the building - the
representation of the acts is very good, and you've got multiple
buildings and cities bidding for an act. So they say, You want me to
play in your building? I'm going to cap your rent at $10,000. The
guy's giving up $20,000 - he knows what it costs to open the door.
That service - he's gotta ~build~ us. So in the end, all this gets
passed along to the public.

My view was - and lets go back to this: Nobody paid more for a ticket
than they wanted to. So when you would read some of those crazy
headlines, "Ticketmaster's charging 50 percent for a ticket." Yeah it
was a $3 ticket with a $1.50 service charge - I mean, it was crazy
stuff. It wasn't like you had a $50 ticket and a $25 service charge. It
was more driven by moments of - you know, the smaller tickets we
had very low service charges for, but as a percentage they were high,
right? And when I sold the company in '98 and I left, service charges
have gotten significantly higher then from when I was there. And you
know? That's the nature of the business. But it's a business
underneath all of this, and the creation underneath all of this was
driven by the fact that (and this is something to think about): our
clients were the venues and the promoters. We served the public. But
our clients were the venues and the promoters. People assumed that
Ticketmaster served the public and you could go through a process
where you'd - you know, we weren't warm and fuzzy as a company.
But the real reality is this: half of what you sold, people don't want to
sit in if they had a choice. You're selling the back half of the house.
And in some cases - not some cases - in every case in a sellout,
you're selling the last 1/3 of the house. And after you've been selling
the last 1/3 of the house for a long time, people aren't going to like
you.

If you buy a tie, or a shirt, or a pair of sneakers and they're new,

you're going to get the same quality and the same content. Any
commodity you buy - you buy a plate, you buy a glass, whatever it is,
it's the same. A ticket? It moves. You buy a ticket on an airline; it
doesn't make a difference if you sit in the first row of coach, or the
last row of coach. Buy a ticket at a concert? It makes a difference if
you sit in the first row or you sit in the last row. So there's huge
emotion attached to the process. Huge! And most people don't come
to the store who fully think that out, in terms of understanding the
dynamic that goes with that as a business. In other wards, to really
understand - there are companies like Coke. There are companies
like Microsoft. There are companies - when you read the "Top 10
Companies" (the brands that America loves), well they're selling the
same thing. When you have that Coke, it's that refreshing - it's
terrific. You know. Microsoft's giving you a product - take whatever
you want, it's consistent. What Ticketmaster gives you is a service. It
doesn't give you the same product because the seat moves. You can't
put 10,000 people in the same seat, or in the first three rows unless
you have a row that's 12 miles long. Doesn't work like that. So you
have to understand what you are. And interestingly enough, when we
went into e-commerce, and I'll get into that - we'll get into
advertising later - the truth is, and it's the same today -
Ticketmaster's not a company that's going to be liked - but it will be
trusted. And trusted in the following sense: you're giving them your
credit card - they know they will get their product, which is a ticket.
And no matter where it is, they know that ticket will be good. So
Ticketmaster was an early e-commerce mover, which we can discuss
later. And the reason it happened was because people ultimately
[trusted us]. People really trusted us because they knew we were
very careful with the information we had.

Dealing With The Heat

I can't tell you honestly, that when it first started, that I handled it
very well, because I didn't understand it. And this was way before the
controversies with the government, just in general: my theory was
that music writers don't understand business. They also thought
there was some evil thing attached to people paying a lot of money
for a ticket, or a service charge for a ticket, and they didn't
understand the economics. And Ticketmaster got treated differently
after it went public because people saw it as a business, and you had
business writers writing about it, as opposed to music writers who
were always on some crusade.

And look, lets face it, what was Ticketmaster? Ticketmaster was a
backroom. It was the gateway. If you're not versed in terms of
understanding law, it's easy to call it a monopoly (although it doesn't
fit any definition of a monopoly, because it doesn't own anything).
It's an agent; it's an agency. So one of my lines used to be to these
guys [media/public] is: I have seven buildings as the major buildings
in a city. If I lose two, am I still a monopoly? I mean here's the point
- new contracts come up three to five years. They're always rolling.
You always have 15-20 percent of your contracts coming up every
year. So the very essence of that makes it impossible to think you
have a stranglehold on the business. And the problem here is,
businesses were no more going to have multiple ticketing companies
in their building than you'd have multiple operating systems in your
computer. It's insane! There's one inventory control system. And we
were very careful and calculated to make it a closed system (a closed
architectural system). Other ticket companies wanted to use our
distribution system and I wouldn't let 'em. And because my thought
was: you either buy the whole package or you don't buy anything.
And by the way, that's totally legal! Music writers didn't understand
that.