Ticketmaster Corp.

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Ticketmaster Corp.

3701 Wilshire, 7th Floor
Los Angeles, California 90010
U.S.A.
(213) 381-2000
Fax: (213) 386-1244

Private Company
Incorporated: 1982
Sales: $200 million
SICs: 7822 Theatrical Producers & Services; 7999 Amusement & Recreation, Not Elsewhere Classified

Ticketmaster Corp. is the largest ticket distribution company in the United States, completely dominating its market niche. It was selling more than $1 billion worth of ticket annually in the early 1990s for events ranging from professional wrestling matches to rock concerts and operas. Ticketmaster fielded 30 million telephone calls in 1994 and generated revenues of about $200 million. Going into the mid-1990s, the company was expanding into other entertainment and media-related ventures. A privately held company, Ticketmaster’s employment statistics are unavailable.

Ticketmaster was started by two Arizona State University students who were looking for a solution to a problem they encountered when buying concert tickets. At the time, the buyer of a ticket was forced to select from the seats that had been allotted to the particular vendor from whom he or she was purchasing the ticket. If the vendor was nearly sold out, the buyer might be forced to buy bad seats even though better seats were available through other ticket sellers. Melees occasionally erupted when ticket buyers, after standing in line for hours at one place, found that the vendor was sold out or that better seats were available elsewhere. The system was also inefficient for promoters and owners of venues, who often had difficulty selling all of their tickets, despite unmet demand.

In 1978, the two budding entrepreneurs developed a solution to the problem. They created an innovative computer program that networked several computers in such a way that a person buying an event ticket at a box office could quickly select from the total reserve of seats available. Thus, efficient computerized ticket vending was born, and Ticketmaster—the company that sprouted from student innovation—became one of several small vendors in the late 1970s and early 1980s that pioneered the industry. When it was starting out, in fact, Ticketmaster was just one of many small ticket-vending companies competing for a small share of the industry; the business had come to be dominated by ticket distribution giant Ticketron. Nevertheless, Ticketmaster, with its unique computer-based vending system, managed to increase its ticket sales to about $1 million annually by 1981. That amount was still less than one percent of the business controlled by Ticketron, however.

Ticketmaster’s fate was changed in 1982, when Chicago investor Jay Pritzker purchased it. Pritzker, the wealthy owner of the Hyatt Hotel chain, paid $4 million for the entire company. He immediately brought in Fred Rosen as chief executive to manage the operation. Rosen, an attorney and former stand-up comic, brought energy and vision to the enterprise. He believed that the future of the ticket industry was in concert sales, rather than sporting events. That was partly because sporting event-goers often were able to circumvent service fees charged by ticket sellers by purchasing season tickets. But his feeling also arose from his observations about the dynamics of the concert industry. Indeed, if concert fans wanted to see a show badly enough, they would buy on impulse and would be willing to pay higher prices for tickets. Furthermore, the giant lines that formed at box offices for rock concerts indicated a great need for Ticketmaster’s computerized service.

Besides new computer and information technologies, other forces were at work in the ticket industry in the early 1980s that boded well for an innovator like Ticketmaster. In fact, the rock concert industry, among other entertainment businesses, was becoming much more complicated. Prior to the 1970s, bands were paid a lump sum—usually in cash just a few minutes before they went on stage—by the promoter of the concert. The promoter would agree beforehand to pay the band, say, $20,000, and any money left over would be used to pay the promoter’s expenses and profit.

In the 1970s, however, bands started demanding more. They started charging minimum appearance fees, for example, and wanted a cut of the money generated from concessions and parking. The demands were partly the result of a feeling by top bands that promoters were often taking advantage of them. But it was also caused by the increased cost of traveling and putting on a show; fans came to expect much more in the way of expensive sound systems and special effects, for example.

One result of the new demands was that, after a concert, the band’s manager and the promoter typically negotiated, or argued, about exactly how much the promoter and other involved parties would be paid. The new system increased the bargaining power of the bands, eventually boosting their take to 75 percent or more of the gross receipts. Meanwhile, the promotion industry was pinched. Many promoters saw their profit margins deteriorate to as little as one percent, despite the fact that they were still bearing much of the risk of a failed concert. To get the big name bands, however, promoters had to be willing to accept that risk and honor many of the group’s requirements.

That was the environment still evolving when Rosen took the helm at the fledgling Ticketmaster. Realizing the folly of trying to compete with the mammoth Ticketron using conventional industry tactics, he devised a strategy that exploited the frustrations of the promoters. He effectively offered to limit inside charges—the money taken from promoters and facility owners—thus reducing the promoter’s risk. He would accomplish this by raising service charges on individual ticket sales and giving promoters a percentage of the proceeds. In return, the promoters agreed to give Ticketmaster the exclusive rights to ticketing for their shows. To boost service fees, Rosen implemented new sales techniques, particularly telephone sales service that gave customers an alternative to standing in line. For the convenience, Ticketmaster was able to charge as much as a 30 percent premium, or higher in some instances.

Many promoters gave exclusive rights to Ticketmaster. Indeed, besides guaranteed fees, the promoters benefited from Ticket-master’s state-of-the-art ticketing system. The company’s computers could sell 25,000 tickets in just a few minutes, if necessary, which substantially reduced the promoter’s advertising and related costs and improved customer satisfaction with the overall event. The arrangement worked so well that Ticketmaster was eventually able to secure long-term contracts with several major promoters for handling ticketing for all of their events. Promoters also viewed Ticketmaster as preferable alternative to the giant Ticketron, which many promoters believed had become arrogant and sloppy.

Despite steady gains, Ticketmaster lost money in the late 1970s and early 1980s as it scrambled to implement its expensive strategy. By the mid-1980s, though, the company was posting profits. To boost sales and market share, Ticketmaster began buying out smaller competitors in an effort to broaden its reach into major cities. It acquired Datatix/Select-A-Seat in Denver, for example, and SEATS in Atlanta. As it bought up more companies and drove others out of business, the number of competitors in the industry declined. At the same time, Ticketron’s supremacy was rapidly waning. Besides complacency, part of Ticketron’s problem was that it lacked the investment capital afforded by Ticketmaster’s deep-pocketed owner. Its ticketing systems soon became obsolete in comparison to those in use at Ticketmaster.

By the late 1980s, Ticketmaster had become a top player in the ticketing business and Ticketron was scurrying to duplicate Rosen’s successful re venue-sharing strategy. But it was too late; Ticketmaster had mastered the recipe and was rapidly increasing the number and size of its contracts. In fact, Ticketmaster’s relationship with, and control over, its promoters had evolved to the point where Ticketmaster was deeply entwined in the promotion business. That involvement was evidenced by a relationship in Seattle that finally ended in a lawsuit. In 1989, Ticket-master made a loan and credit line guarantee valued at $500,000 to two of the area’s top promoters. The promoters used the money to start a new operation promoting concerts in The George, a facility in central Washington. In that same year, one of the promoters launched another venture, PowerStation, to sell tickets in competition with Ticketmaster. Enraged Ticket-master executives responded by withholding cash from the promoter’s ticket sales through Ticketmaster. The promoter sued and finally settled with Ticketmaster out of court, but the PowerStation was shuttered and both promoters left the concert business.

By the end of the 1980s, Ticketmaster was selling more than $500,000 worth of tickets annually. Ticketron was still considered an industry power, but its status was diminished and its long-term prospects were dismal. The only other competition consisted of a smattering of local and regional companies struggling to combat Ticketmaster. Ticketmaster finally delivered the crowning blow to Ticketron in 1991, when it purchased some of the company’s assets and effectively rendered the company no more than a lesson in corporate history. Questions were raised about whether or not the buyout would give Ticketmaster a monopoly on the industry, but the U.S. Department of Justice approved the deal. With Ticketron out of its way, Ticketmaster was virtually dominant and its sales began rising rapidly toward the $1 billion mark.

Because it had so much control in the ticket industry, Ticket-master came under fire from numerous critics following the demise of Ticketron. Some fans complained that Ticketmaster was raising its fees, reflecting a monopoly on the industry. Similarly, some promoters argued that Ticketmaster wielded too much power and that it was willing to abuse that power to get its way. Finally, some rock bands complained that Ticket-master was gouging their profits with excessive fees, knowing that the bands had nowhere else to turn. Ticketmaster countered, citing rising operating costs and relatively modest overall company profits. Still, criticism continued.

Band discontent with Ticketmaster’s tactics culminated in one of the most visible disputes with Ticketmaster on record: a complaint filed with the Justice Department by the popular rock band Pearl Jam, alleging that Ticketmaster engaged in monopolistic practices. Pearl Jam wanted Ticketmaster to drop its service fees to $1.80 per ticket, but the company refused to drop below $2.50. Pearl Jam rejected the offer and threatened to work without Ticketmaster. The band planned to find venues, such as fairgrounds and racetracks, that were not subject to Ticketmaster’s exclusive contracts. Their efforts eventually failed and their concert tour fell apart. That’s when the band filed the complaint, and the Justice Department launched an investigation.

Ticketmaster argued that from about $1 billion worth of tickets sold in 1993, it generated revenues of $191 million in 1993, only $7 million of which was earned as net profit. That amounted to less than ten cents in profit per ticket. Critics complained that Ticketmaster was simply concealing the profitability of the business, but Rosen and his fellow executives were adamant that the industry was still competitive. “Fifteen years ago, there was another company everybody said had a monopoly—Ticketron,” said Larry Solters, Ticketmaster spokesperson, in the July 31, 1994 News & Observer. He added, “Ticketmaster did ticketing better. And I wouldn’t be surprised if somebody else comes up with a better system someday. There are a million ideas out there. ... It’s not that tough.”

After posting record sales and profits in 1993, Ticketmaster’s fate was changed again when Paul Allen beat out several big-name media companies in a bid to purchase a controlling stake in the company for about $300 million. The 40-year-old Allen had gained fame as the cofounder of software superstar Microsoft. Since cashing out of that venture, he had assembled an interesting portfolio of investments, many of which were generally related in some way to the emerging information highway. He also owned the Portland Trailblazers basketball team and a charitable foundation, among many other interests. Allen retained Rosen as CEO, but he had new plans for the company. In fact, he wanted to increase the company’s sales three- to five-fold within three to five years and expand into different distribution avenues. Potential sales routes included interactive television and on-line computer services, among others.

Ticketmaster sold a whopping 52 million tickets to entertainment and sporting events in 1994 and captured about $200 million in revenues. Having nearly cornered the ticket market, it was setting its sites on several media-related ventures. Ticket-master already was distributing a regional monthly events guide to about 600,000 customers, and it planned to piggyback off of that venture to create a new entertainment magazine. The company was also working on a new online service, in essence hoping to position itself as a sort of one-stop shopping center for entertainment/event needs, although Rosen had yet to reveal his specific strategy by the mid-1990s.