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.