October 5, 2016:Analysis: what’s the real cost of secondary ticketing?

Chance The Rapper, Iron Maiden, Mumford & Sons, Pixies and more are getting louder and louder about what they see as the scourge of secondary ticketing. They feel fans are being fleeced and a stand has to be made.

Beyond the fan-centric altruism, there is a bigger story about the “dark economy” around secondary where billions of dollars a year are bleeding away from artists and into both the secondary platforms’ bottom lines as well as the hands of avaricious “power sellers”.

Just how much is at stake and what, if anything, can be done to cauterise this value gap that makes the record labels’ war on YouTube look like small beer?

Earlier this month, Chance The Rapper took a fittingly unconventional approach to addressing secondary ticketing around his Magnificent Coloring Day festival in his hometown of Chicago. He bought up around 2,000 tickets (some of which were going for as much as $200 each) from scalpers and then sold them back to fans at face value ($45 and $75).

“I took back almost 2k tix from fuckboy scalpers and made them into physicals. And these are just floor seats,” he posted on Twitter, his disdain for secondary ticketing more than apparent. It was a fine gesture of solidarity with his fans and helped push the issue of scalping into the mainstream again.

It’s just the tip of the iceberg in terms of the industry and artists kicking back against secondary. It is both an ethical issue as well as a financial one, with billions of dollars going into this grey economy and where (most) artists or managers are not seeing the fiscal upside.

At the same time as Chance The Rapper was making his very public statement against secondary, Black Francis of US rock band Pixies spoke about how his band worked with Songkick to sell half the tickets for their run at London’s Brixton Academy in November.

“Our fans mean an awful lot to us,” he told the Observer. “The fact that any of them would be taken advantage of by rogues and scoundrels trying to fleece them with wildly inflated ticket prices is simply not acceptable.”

This all comes in the wake of the FanFair Alliance, set up in July this year, where managers and artists are using it as a platform to both lobby government in the UK and change consumer attitudes to secondary sites, pushing “ethical exchange” platforms like Twickets as a place where fans can sell tickets at face value to other fans when they can’t use them (as opposed to acting like a clearing house for organised touts).

On 14th September, FanFair issued its guide to addressing touting (and offered Ten Tips To Beat The Touts), explaining how artists and managers can join their fight. This is a debate that will only get louder in the coming months, so what exactly is at stake here?

Forget about the value gap – secondary is costing artists a “blood fortune”

Mark Meharry, CEO of Music Glue, has been speaking to UK artist managers for the past six months about what he is terming the “ticketing paradox” and why artists need to pool resources and power to address it and drive positive change.

He adds that the money “lost” to secondary each year is bigger than the total size of the subscription streaming market – an area that invokes the ire of artists and produces substantially more column inches than secondary. Here, he argues, is the real “value gap” and is something the industry needs to tackle head on.

“Considering the amount of money being left on the table because of secondary ticketing, why is this model now in place?” he asks. “And do we need to do something about that?”

He has gone through the publically available company numbers for Ticketmaster (owners of Get Me In! and Seatwave) and eBay (owners of StubHub) to try to place a monetary value on the issue.

“Live Nation’s secondary ticketing revenue, as far as I can see, in 2013 was $400m; in 2014 it was $900m; and in 2015 it was $1.2bn.Good Lord! StubHub in 2015 made $1.06bn. The IFPI reports that the total trade revenue from music subscriptions last year was only $1.6bn,” he says.

“So for two companies, Live Nation and StubHub, the combined revenues from secondary ticketing last year were $2.6bn while subscription was only $1.6bn – and yet all we ever talk about in the trade press is, ‘Spotify this, YouTube that and how it’s not fair we are not getting enough money from these various services.’ Yet there are two companies operating away and earning a bloody fortune – and we are sitting by and watching it happen.”

Mumford and Sons

‘The numbers are huge’

The size of this “bloody fortune” is something Adam Tudhope, manager of Mumford & Sons, has also gone public on. He estimated that the band “lost” $3m to secondary on a recent US tour. This was money that went through secondary sites, none of which came back to the band.

“To me, that Mumford & Sons figure was shocking,” he tells Music Ally. “The secondary sites themselves are getting a quarter or third of that income – so they got around $1m of that $3m. Some of that $1m did go back into the music industry via Ticketmaster’s site, although it didn’t go back into the music industry via StubHub’s site as they have no relationship with the music industry.”

He continued, “What Ticketmaster did with that money, I have no idea. Kept it, I presume – because none of it came to us and it didn’t, as far as we know, go to the promoters. For the other $2m, where if we take the rule of thumb that we have been told, which is about 10% of all the activity on secondary sites is fan-to-fan, so 90% is tout-to-fan or broker-to-fan, that means 90% of $2m went to touts. That is on one tour by one band. The numbers are huge.”

There is an argument, proposed by Brian Message of Courtyard/ATC, that touting is the live music business’s “Napster moment”. If we pursue this logic, then it should follow that a disruptive force could come along, as Spotify did, and disrupt the disruptors. So, to follow this to its logical conclusion, should artists and managers seek some kind of profit share with a new wave of secondary sites (say 70% like Spotify does) rather than shut them down? The secondary sites can continue providing their “consumer-facing solution” (their phrase) but artists benefit financially.

Tudhope is utterly opposed to a solution like that.

“Our point of view is that we set the ticket price and we don’t want it to be resold for anything higher than that price,” he says. “That is the point of FanFair and that is my point of view. I would want to participate in the uplift from ripping off fans, no.”

A technical solution to an ethical and financial conundrum?

While lobbying is a big part of the fight back against touting, the UK government is not yet tackling it head on. Those opposed to secondary are saying something needs to give before things get as entrenched as they are in the US.

“The brokering of tickets on the secondary market in the US is a massive and very well-established business,” says Tudhope. “Or a pandemic disease, depending on how you look at it. The issues of the venue ownership and venue deals is much more monolithic in the US. It feels like there are a few really massive players and a lot of it is pretty sewn up. So the way that you deal with the US is going to be very different to how you deal with other territories.”

He continues, “While one can take what you might consider a moral stand, there are practicalities that you have to deal with in certain territories. In other countries where secondary is illegal, like Denmark and Norway, you have obviously got the government on your side – which is awesome. My opinion is that here in the UK, where the brokering of tickets either by touts or by brokers, is not quite yet endemic and is still an emerging business, I think we have the opportunity to make a call on it as a business and say, ‘Let’s stop this before it gets to like how it is in the US.’”

Players here will naturally claim this is an issue created by technology (the rise of remote touting and no longer a few people outside venues on show day hawking tickets) and so technology can and should address it.

“If you sell your tickets on Dice, none of them will appear on the big reselling websites,” says Phil Hutcheon, founder and CEO of Dice. “We always check and we have machine learning-based touting procedures. When you do sign up to Dice, you go into an agreement that you are not an arsehole. For those people looking to hoover up tickets, it’s pointless doing it on Dice. By making it mobile and by limiting the ticket, by having those cross-checks and by also using technology, we have been able to stop any Dice tickets from being resold.”

fanfair-site-1

Technology may not be the panacea

Matt Jones, CEO of Songkick, is not so gung-ho about the power of technology to fix everything, but feels it has a role to play here.

“It’s a big enough industry for everyone to play in, I think, and the more people that are doing innovative great things to solve the greater problem, the better,” he recently told Music Ally. “I’m not for a second going to sit here and think we can solve everything. It’s great to see people looking at it in different ways [such as Dice and Twickets]. Everyone deep down is doing the same thing: they’re trying to sell more tickets and they’re trying to make sure they go to real fans.”

Meharry, however, is adamant that technology will not be the panacea here and feels that the industry needs to stop pinning its hopes on a disruptive platform fixing everything for them overnight and instead focus their efforts on lobbying both government and the secondary sites.

“There are a lot of tech companies who will say they have a solution to this problem – but that’s all a lot of nonsense,” he says bluntly. “We are a tech company and I have got some of the smartest minds available and we have looked at everything that you can possibly do to try and control secondary; but if you do not control the access at the doors you cannot prevent secondary ticketing.”

He adds, “That is why the airline industry controls its ticketing as you have got to have ID to get onto that aircraft. Unfortunately, the doors are controlled by the same companies who own the secondary ticketing companies. They have no interest in trying to prevent it and that is fundamentally the issue.”

Estanis Martín de Nicolás, international general manager at StubHub, says this is simply unworkable at scale (although critics would argue that his company has a vested interest in it not working at scale).

“Based on the evidence, punitive or complex ID restrictions can work for some extremely popular or high profile events in terms of limiting resale,” he argues. “Unfortunately, they also require extra staffing at the venue and a lot of extra time to allow for customer entry.  While this is happening, customers are not in the venue buying T-shirts or drinks which would limit venue enthusiasm for this approach in our view.  It still ignores the issue of customer refunds should they no longer be able to attend the show they bought tickets for.”

Of course, opponents of secondary will argue that sites like Twickets work as a refund platform by proxy, although that does mean that the primary sellers need to address the notion of direct refunds themselves otherwise this will allow the secondary sites to justify their activities by providing a solution that primary outlets do not yet offer themselves.

Iron Maiden tackle touts – with Ticketmaster

If that will ever change permanently, given that Ticketmaster is easily the biggest primary vendor in the market and runs two of the biggest secondary sites (Get Me In! and Seatwave), is unclear. But there has been a significant recent development that could suggest, in light of the groundswell of industry action around FanFair, Ticketmaster is – if not going to jettison secondary completely – looking at and testing its options.

Iron Maiden are vocally anti-reselling and have worked with Ticketmaster for their 2017 tour, implementing a paperless ticketing policy for their UK shows, whereby fans will have to present photo ID or a credit/debit card linked to the ticket purchase to get into the venue. Ticketmaster’s own secondary sites are included in the ban on resale listings from paperless tickets.

The band issued a statement on their official site explaining the move, why they are opposed to the “ludicrously inflated prices prevalent on many secondary ticketing sites” and how the whole system works.

“We do not want our fans being ripped off either by counterfeit tickets or through costly mark-ups on so called secondary ticketing websites,” said Rod Smallwood, the band’s long-term manager. “These problems now affect the UK more than any other country outside of the U.S.A. We believe the most successful way to prevent this is by implementing Paperless ticketing. This proved highly successful in reducing piracy at our previous London shows in 2013 and on our North American tours since 2010. This is a simple procedure and goes a long way to minimising the resale of tickets and reducing fraud by requiring the original cardholder purchaser to be present at entry.”

Andrew Parsons, MD of Ticketmaster UK, issued a company statement on this. “Paperless ticketing is a proven way of getting tickets directly into the hands of genuine fans whilst ensuring they pay the price intended by the artist,” he said. It is not, for now, clear if this is a one-off experiment or if other major acts will move in Iron Maiden’s slipstream.

iron-maiden-2017-tour

A stacked deck?

The whole point about the biggest primary seller operating two of the biggest secondary platforms is a point Meharry gets highly animated about, suggesting their efforts are trying to undermine someone who is playing, on their own terms, with a stacked deck.

“Michael Rapino’s [president and CEO of Live Nation, owners of Ticketmaster] argument is this: if you have a business where the situation is that demand outstrips supply and there is technology that allows the consumers to freely trade the products or services from that business, this means there is significant revenue being left on the table that is not going into that particular business; so the only real solution to fix this problem is to create some kind of dynamic pricing model. So you increase your pricing up to a level that is in line with supply and therefore readdress the equilibrium between supply and demand. That is what he is saying. That is what you have to do.”

He adds, “That is a valid argument from a commercial perspective if you come from a capitalist background. It makes sense legally. Technically that is the obvious alternative. However, if you apply that argument to other businesses [there are issues].”

Here he runs with an extended hypothetical parallel to illustrate what opponents of secondary are railing against.

“Say I lived in the Highlands of Scotland and there is no dentist for 200 miles – but I am a dentist so I have decided to set up a dental practice in the village I live in and I want to sell hourly slots for £50 and provide this service to the local community,” he says. “I am a really good dentist and people start coming from far and wide to my clinic because of this amazing service I have. Huge demand is being created. I create an online booking system where you can book appointments to come to my clinic. We start getting booked up weeks in advance. However, some clever guy in London has worked out I am doing this and buys up all the slots between now and Christmas. He puts them on the resale market and resells those slots for £400 a ticket. I complain, ‘This isn’t fair. I am providing a service and I want to set my pricing.’ And the local mayor says, ‘Well what you have to do is increase your prices.’ So I put my prices up to £400 a slot to cover that demand and now I have got equilibrium between supply and demand and the local community can no longer buy appointments at my clinic and have to travel hundreds of miles away in order to go to the dentist.”

Parallel established, he continues by exploring the implications. “If you ask a reasonable person if this seems right, I think they would say that it sounds absolutely ridiculous,” he proposes. “If I want to run a clinic for the local community, I should be able to do that. The economic argument is solid. The legal argument is solid. But there is a moral argument that is not being considered. This is morally wrong. If I want to provide that service because it is important to me, I should be able to set the prices and provide the service I want. I would argue there is a culture in music where that same moral argument is not being heard and is being promoted by those capitalist companies who have so much PR and much spin available that they can drown out the moral arguments.”

So, what now?

The route taken by Chance The Rapper was great at gathering headlines but is unsustainable and also ends up rewarding the secondary sites by ensuring that all their tickets are sold. The organised touts still get their mark up.

“The challenge for Chance is how does he do that in every city in the world and how does he protect his ticket?” asks Dice’s Hutcheon. “If he partnered with Dice, we would keep all those tickets off there. We are trying to solve the problem at source with technology.”

Meharry feels that artists are only just waking up to the power they wield here and their ability to make a difference for the industry in general and their fans in particular.

“I think they underestimated the value of their muscle from a marketing perspective,” he suggests. “This is the approach I am trying to take – to educate managers and artists that in 2016, if the artist doesn’t promote the show, no one will come. The artist is still just learning and understanding the level of direct marketing power they have through their social networks. But they are learning and they are understanding that. Once they understand their market reach they can start pushing back.”

Martín de Nicolás passes the buck firmly back to the primary market. “We believe in free and open markets and feel that legislation should only be used for more transparency in the space,” he says. “For example: why do customers never know precisely how many tickets are available for sale on each primary channel, or how many have been held back for sponsors, presales or guests? It’s deliberately opaque.”

There may, however, be ways to play the touts at their own game, creating a new type of cat and mouse. For a recent Massive Attack show in their hometown of Bristol in the UK, Crosstown Concerts, Team Love and Twickets worked together to drip a number of face-value tickets into the market closer to show time, thereby disrupting the touts.

Tudhope says this is something Mumford & Sons have done in the past but, given the scale of the “lost” revenue he identified in the US, this is not going to eradicate secondary overnight. It does, however, help educate fans about what he sees as the pernicious nature of secondary and shows there are ways around it.

“It is one of the measures that we employ, for sure,” he says. “You obviously have to be careful that when you put them back into the market at face value you aren’t just suddenly inviting another tranche of brokers and touts to buy those tickets at face value. We tell fans that when we go on sale we will be holding back face-value tickets to put into the market nearer the time.”

He adds, “We don’t specify the date or the numbers because we don’t want the touts to be waiting for them. When the day comes, which is usually two, three, four or five weeks before the show, we message directly to the fans again and tell them that tomorrow more face-value tickets are coming. If you’re a fan who’s alert to this, then it makes you think that you don’t have to spend over the odds as there will be another bite of the cherry for you to get it at the right price. Therefore, it brings the prices down on secondary – which is a good thing.”

Dice ticketing app

Legislation, education and technology

For Hutcheon of Dice, it’s a three-part issue and all parts need to be moving at the same time.

“The first is legislation; there needs to be legislation around this and that needs to be pursued –  and it might take a long time because there are lots of political forces,” he says. “The second is education; so the likes of Chance The Rapper or Adele going out and saying that they don’t want to do this and being very vocal about it is educating the venue, the promoters and the audience. The third is technology; you can solve it with technology.”

Maybe, as with most things technological, the industry needs to be looking to Japan for the solution. In the country, demand for concert tickets massively outstrips supply and makes the issues in the West seem benign. Live industry trade title IQ recently reported on precisely what is happening there.

“Competition is fierce when it comes to buying concert tickets, especially for bigger acts,” it wrote. “The country’s unique ticket-purchasing process further complicates matters. Only Japanese residents with memberships to local concert agencies or fan clubs can apply for tickets. And applying doesn’t guarantee admittance. Members must win ballots where the odds of securing tickets are sometimes close to zero. To increase their chances, some fans create ‘ghost memberships’ using details of their family and friends.”

Scalping is so bad, as a result, that tickets for the most popular shows can go for 40 times their face value. To counter this, promoters are starting to use facial recognition technology, such as NEC’s NeoFace, at venues to ensure the tickets are in the hands of the original purchasers. It is seen as helping speed up audience entry into venues, but the implementation costs are so high that adoption is far from widespread.

Wheels are in motion at a lobbying, a technological and an education level; but it still feels like we are some years off from – to go back to the Napster parallel where it now seems archaic that someone would want to bloat their hard drive with snide MP3s when streaming exists – where secondary ticketing becomes a curio of the past. Until then, the grey economy and a different type of value gap will continue to divide the industry.

Eamonn Forde
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