Taking down TicketmasterNovember 26, 2013: 3:44 PM ET
Want to challenge the companies that dominate the online ticket sales business? Get in line. A new generation of upstarts is using tech and trust to upend the status quo.
FORTUNE -- It was 1995, and Pearl Jam's Eddie Vedder was addressing the crowd at the Rock and Roll Hall of Fame. "Speaking of feisty, some smartass who arranged the tables put our table right next to Ticketmaster's table over here," he said, pointing and grinning as the audience erupted in laughter. "So I predict a food fight by the end of the evening."
Several months prior, Vedder's band had gone head-to-head with the 37-year-old ticketing company, demanding (and receiving) an antitrust probe under the argument that Ticketmaster controlled too much of the business. The ticket prices were too high, Pearl Jam argued, and Ticketmaster made too many unreasonable demands around the exclusivity of its services. It was, they argued, a monopoly.
After a year of investigation, the U.S. Justice Department dropped its inquiry. Then-U.S. Attorney General Janet Reno said the department "found that there were new enterprises coming into the arena" and that the ticketing business was sufficiently competitive. Ticketmaster and Pearl Jam lived to fight another day.
Almost two decades later, Ticketmaster (LYV) controls more than 80% of primary ticketing at major venues. (U.S. peer StubHub, which is owned by eBay (EBAY), dominates the "secondary" ticketing market.) Prices are steeper than ever, and pre-sale practices are increasingly convoluted: this fall, for example, it was reported that just 7% of tickets for a Justin Bieber concert in Tennessee were made available on the primary market, with the rest reserved for fan clubs, credit card member promotions, and resellers. Fans, predictably, were enraged. (Ticketmaster did not respond to requests for comment.)
The rise of the Internet has democratized many industries since the '90s, but event ticketing remains surprisingly resistant. That may not be the case for much longer. Smaller companies, empowered by the low barrier for entry on the Internet, are focusing on the giants' weakest areas. With time, a David may topple Goliath.
"Ticketmaster doesn't understand the social web," says Andrew Dreskin, founder of primary ticket seller Ticketfly. "If we can harness the fans as ticket promoters, then we win." Dreskin, credited with selling the first ticket online in the '90s, sold his company TicketWeb to Ticketmaster for $35 million in 2000. But the Internet has since evolved, and Dreskin founded his new company in 2008 to leverage the mobile, social, and big data influences that are reshaping the way we interact online.
Ticketfly, which has exclusive sales rights to the venues that partner with it, differentiates itself with its lower fees and social capabilities. The goal: woo venues and promoters away from Ticketmaster. To date, it has stolen some 100 clients, including the Preakness Stakes, The Roxy on L.A.'s Sunset Strip, and New York venues such as the Bell House and Brooklyn Bowl.
Many buyers feel Ticketmaster and StubHub have become bloated and complacent. "If I were running ship at these companies, one urgent task would be to address the image, remind people there's a human element," says Brett Goldberg, founder of TickPick. "Both have probably become a little bit faceless to the general population."
Given their largeness, it may not matter. Ticketmaster brought in $1.37 billion in revenue in 2012. StubHub does not share revenue, but has 1,300 employees and 8 million daily visitors; it is widely considered to be larger than Ticketmaster, even though it sells in the secondary market.
Andrew Group, a graduate student in New York, is often tasked with reselling his family's season tickets to the Yankees. He considers StubHub to be "the king of the game," he says. "It has a track record of reliability. One thing I've noticed with a lot of other sites that makes me wary of using them is that their websites just look shady." When he wants to buy tickets, he uses Ticketmaster. Sure, "the fees suck" for both, he says -- but they are a small price to pay for confidence in the transaction and a large audience. "As a seller, you need to put your tickets on the place that has the most eyeballs. With StubHub, you know they're going to sell."
Challengers know they can't win against the incumbents on scale, so they are learning to offer more than tickets to thrive. Ticketfly markets itself as not just a ticketing site but a tech engine that powers all parts of a venue's web presence. Fanbase, the company's customer relations management tool for promoters, shows a listing of every individual that has purchased a ticket to a venue or band, offering details such as whether the person shared their purchase on social media, whether they resold their ticket, and even what time they showed up for the concert. The granularity allows venues "to identify and reward mavens," Dreskin says. FanFueled, another primary marketplace, offers "return on influence" by doling out cash and rewards to customers who use social media to promote an event.
TickPick seeks to differentiate itself from StubHub with lower fees (10% for seller, vs. StubHub's 15% for seller and 10% for buyer) and the ability to bid different prices on different seats at the same time, technology for which it has filed a patent. "You're the seller, and you list a ticket for sale on StubHub at $100," Goldberg says. "But I'm the buyer, and I'm thinking, 'I'd pay $80,' but there's no way for you to hear me." You can also set an expiration date for an open bid.
For some upstarts, the big ticketing companies are treated as more friend than foe. Jack Groetzinger's free ticket index SeatGeek is like a Kayak or Priceline for tickets, scouring a number of partner sources -- from StubHub to lesser-known secondary sellers like Razorgator -- for all available tickets to a given event. Each partner kicks a small fee to SeatGeek for the referral.
Are any of these companies making a dent in the incumbents' market share? Yes, but not a large one. Ticketfly, which has raised $37 million in funding and has 105 employees, will do $250 million in sales for 2013. Its mobile sales are up 100% since January 2012, and its percent of sales from mobile devices is double that of Ticketmaster: 20% to 10. As for TickPick, the upstart has grown 1,000% in the past year, but it clears less than $1 million each month in transactions and sold only 5,000 tickets in October. To compare, SeatGeek manages $6 million per month and sold 52,000 tickets in October.
Some believe that the fragmentation of the market suggests consolidation down the road. "I see a potential big merging of the primary and secondary sites," Goldberg says. "A lot of the general public already sees Ticketmaster and StubHub as the same -- they don't know the difference. That's a big problem right there."
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He has a point. Ticketmaster already does some reselling through scalper site TicketsNow, which it bought for $265 million in 2008; it also owns "ticket exchanges" for the NBA, NFL, and NHL. And yet the company's biggest rival is not any of the companies mentioned, but rather AEG. That company, which owns the Staples Center, has traditionally provided white label technology used by other sites but plans to grow a consumer-facing business with Fair AXS, an advance-purchase lottery system. And still there are more: Tickets.com, another big primary, is owned by MLB Advanced Media.
At the end of the day, "fans want to get in to see the bands they love," StubHub brand director Michael Lattig acknowledges. "Whether that's through a primary or secondary, I think at this point they're comfortable either way." Which means "there's definitely the potential" for consolidation -- making it all the more crucial for the smaller companies to attract customers before the larger companies wise up to their innovations and copy them. (Or buy them, as StubHub did in 2011 when it acquired events-listing site Zvents.) And there's always the risk of homegrown innovation from the larger company, as StubHub hopes to demonstrate with its ShowDrift mobile app, which scans a person's music library to notify them when favorite acts come to town.
"We're always watching to see what the competition is doing," Lattig says. After all, no one wants to throw second in a food fight.