So Ticketmaster wants to bring revenue management to a concert venue near you (Ticketmaster to Tie Prices to Demand, Apr 19, Wall Street Journal). This is in many ways long over due. Airlines and others have made a science out of pricing scarce resources in the past 20 years so it is not surprising that someone would eventually get around to concerts and sporting events. (Ticketmaster is also eyeing ballparks and teams such as the Giants are already using dynamic pricing. The Cubs actually auction off a few seats for each game.) The immediate impetus has been a disappointing year of ticket sales.
Last year was brutal for the concert industry, with ticket sales plunging 12% despite a modest decline in average prices. Recent price drops follow more than a decade of steady increases, a trend that helped mask fundamental problems.
“2010 taught us we have real challenges as an industry,” [Ticketmaster Chief Executive Nathan] Hubbard said. “One of them is pricing.”
Echoing the frustration of executives throughout the concert industry, Mr. Hubbard said that the best seats appear to be consistently priced below what fans are willing to pay, leading to a multibillion-dollar “secondary market” in which scalpers can reap profits by reselling tickets above face value. At the same time, he said, 40% of concert tickets sit unsold industry-wide, meaning that the ostensibly cheap seats for many shows are simply not cheap enough.
The article goes on to note that one complication in using dynamic pricing for concerts is the number of parties involved. Bands, promoters, venues etc would all have to be on board with the plan. Given that Ticketmaster is now one with Live Nation, which promotes bands and tours, they may be in a position to make this all happen.
There are some other potential stumbling blocks, however. One is data. Good revenue management systems are all built on great forecasting. If you can’t forecast demand at different price levels, then it’s really hard to think of optimizing prices. Sports teams should be in good shape. A given franchise already has a good idea of what visiting teams are a good draw and how attendance varies with team records etc. Concerts are a little harder. Superstar acts like U2 will sell out wherever they play and watching past action on StubHub should give an idea of what the ceiling on prices is. Of course, these are not the concerts for which tickets that are going unsold. One suspects that the real action for dynamic pricing is lesser acts that some times draw well and some times don’t. Now attendance will depend on reviews of the current record, when the band last played in the area, what other attractions are in town. There may be some learning across cities — using experience in Cleveland to forecast what happens in St Louis – but it still seems like a challenging problem.
There is also the question of consumer behavior, which Tickemaster’s Hubbard discussed in an interview with CNBC (One-On-One With Ticketmaster CEO on Dynamic Pricing, Apr 21).
How wary are you of fans realizing some teams will lower prices later, and because of that, they wait to buy until that price drop happens?
Hubbard: There is certainly risk if content owners aren’t disciplined. But just about every other industry in the world prices their stuff this way, from milk to gasoline to airlines. I think teams and bands are going to be wise enough to combine science with their guts and make good decisions that don’t devalue their product.
But don’t forget — so much of what we are trying to do is to set the prices right coming out of the gate at onsale, not after the fact. Yes, conditions change, and teams and bands will adapt pricing accordingly, but there is a reason why tickets get snapped up during the onsale and some fans get shut out. If we solve that problem through better pricing, we will significantly enhance the fan experience and optimize yield for the team or band.
So I am not sure that dynamic pricing won’t induce a significant change in behavior. Currently a hot act sells out in a matter of hours. A good chunk of sales go to brokers who then offer the tickets for resale. Otherwise, many of those who make an effort to buy early do so because they know they cannot afford the aftermarket. That is, these people have more flexibility in their time than discretionary cash in their wallet. A dynamic pricing scheme that quickly raises prices when demand is revealed to be strong will shut these people out. As will setting “the prices right coming out of the gate” if that means starting at higher prices. If those fans are needed to actually fill, say, the United Center, there are going to be lots of tickets hanging around as the date draws near. People will learn this and wait.
There’s an analogue here with the last-minute discounts airlines announce for weekend travel. These list of flights are inevitably relatively short (in comparison to the list of possible destination) and highly unpredictable. However, one has to suspect that a given airline must have some routes that are very frequently under-utilized on weekends. The airline cannot admit this by discounting every Friday; if it did, it would never have any non-discount travelers on Fridays. Bands are not bound by the same problem. They may be playing a given city only once on this tour. It is the venue and possibly the promoter who will face the reputational consequence of not sticking to prices. So either, concert goers will learn to wait like department store shoppers or those putting on the concert will manage not to bail on prices and dynamic pricing will just mean what any Ticketmaster innovation does: Higher face values on tickets.