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PRINT EDITION
Supply, demand and seat prices: the changing economics of ticketing
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Wild price swings, second-hand tickets mixed with originals on the same website: This is the new reality of getting into marquee events
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By JOSH O'KANE
  
  

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Saturday, July 7, 2018 – Page B6

When Dave and Marla Araki tried to get tickets to see the Eagles in Vancouver in May, what happened was more Heartache Tonight than Take It Easy.

As soon as tickets were available to the public, the Kelowna, B.C., couple logged on, clicked on "best seats" and bought a pair. For $1,360, they'd have the privilege of sitting at the back of the lower bowl of Rogers Arena.

Then, the Arakis checked the price of floor seats: Just 13 rows from the stage, they could get a pair for $67 more. They looked around the arena's seat map on the Ticketmaster website: It was a sea of magenta-coloured dots. Each one of those dots stands for a "verified resale" ticket - not an original ticket, but one being resold by its owner. Blue dots, or original-price tickets, were few and far between.

It turned out that the couple had bought resale tickets in the first place, at a huge markup. It was "ignorance on our behalf" for not seeing the signposts along the way, Mr. Araki admits - but still, he felt duped. "I'm not thinking, one minute into a sale, that I'm literally buying old tickets."

But because of concert ticket presales, such as for fan-club members and certain credit-card holders, reams of tickets were already posted for resale.

The Eagles, the couple decided, were too good to watch from far-away seats. In the end, they upgraded to floor tickets and tried to sell their lower-bowl seats.

Months later, as the show approached, Mr. Araki looked again and found originalprice floor seats on Ticketmaster for $99 each. "I feel horrible for anyone who's ever had the same kind of situation and unknowingly bought tickets under the perception that this was their only choice," Mr. Araki says.

Wild price swings, prices that fluctuate day-by-day in a live market, second-hand tickets mixed with originals on the same website: This is the new reality of getting into marquee concerts, theatre performances and sports games. Buying a ticket to a desirable event is, more than ever, like booking a hotel room or airline ticket, as the once-simple business model of live entertainment embraces digital disruption and turns to algorithms and freemarket pricing.

Virtually everyone in the live-event industry tells consumers they do all they can to get tickets into the hands of real fans instead of profiteering scalpers. But the industry has, at the same time, taken to playing the scalpers' game. Companies such as Ticketmaster are encouraging consumers to resell tickets while taking a piece of the profit, raising the upfront prices of many seats, and introducing socalled "dynamic pricing" programs of their own that jack up the cost of events when demand is high.

They do it because they know people will pay the extra few - or few hundred - dollars.

"They're learning what price the market will bear, and seeing how it changes in real time," says Catherine Moore, an adjunct professor of music technology at the University of Toronto. What's happening is the tech-driven reshaping of an industry that had long relied on guesswork to set prices. It has also left consumers confused and outraged, and governments everywhere baffled about what, if anything, to do about it.

The industry has been shifting toward this model for years, but is now speeding up, thanks in part to a battle between Ticketmaster (owned by U.S. entertainment giant Live Nation Entertainment) and marketplaces such as StubHub (owned by eBay Inc.) for supremacy in the market for online reselling of tickets. Ticket resale became an unlikely Canadian political issue in 2016, too, when the Tragically Hip's final tour with late frontman Gord Downie was met with massive demand and frequent scalping. When an MPP from the band's hometown of Kingston launched a private-member's bill tackling scalpers shortly after the band's final show, it grew into a full-scale review of Ontario's ticketing laws.

Other provinces soon jumped in. British Columbia is reviewing a survey of 6,500 consumers to see what it should do.

Alberta plans to force vendors such as Ticketmaster to pro-actively identify tickets acquired by rapid-ticket-buying "bot" software and cancel them. Quebec's National Assembly in June passed a revised series of rules that prohibit bots and guarantees refunds under certain circumstances. And when Ontario's review was finished, the then-governing Liberals opted for heavy regulation, including banning the resale of any event tickets for more than 150 per cent of the original price before taxes.

That rule came into effect July 1 - and lasted for three days until Doug Ford's new Progressive Conservative government hit pause on that portion of Ontario's new ticketing laws to review it. In the meantime, ticket resellers can return to charging however much the market will bear. Consumers, meanwhile, are left in the lurch, stuck between a ticketing industry that is enthralled with benefits of freemarket pricing and a series of governments that can't agree on how the industry should be regulated.

Mr. Araki is a former radio personality who used to interview people camping out in box-office lines to get tickets to see their favourite artists. He thought the onerousness of ticket-buying had disappeared thanks to the internet. He now believes he was wrong.

As quickly as ticket-selling websites emerged to get rid of the hassle of waiting in line, so did ways to resell tickets - first on classified-ad websites such as Craigslist, and later on more formalized marketplaces such as SeatGeek and StubHub, which created a lively secondary market for tickets. But scalpers embraced digital technology, too, and the stereotype of loudmouths outside arenas eventually gave way to coders making "bot" software to buy as many tickets as possible to sell.

The ticket industry has tried to beat these new-age scalpers - usually by besting their tech with more tech, such as Captcha puzzles and letter-scrambles designed to prove a buyer is human - to give fans their edge back. Ticketmaster blocked five billion bots in 2016 alone and says it's halted many more since.

Lately, however, the company has been shifting its story. Higher prices, it says, will cure the problem by cutting into scalpers' profits.

"These things that we're trying to fight,

and have fought historically with technology, with Captcha tools and with data science - all of those things are symptoms of a disease and a bunch of medicines to treat the symptoms," says Jared Smith, Ticketmaster's president. "The reality is: The disease itself is pricing. The reason that all of that stuff exists is because we classically underpriced tickets."

In an interview, Mr. Smith was unequivocal about raising ticket prices to cut down on scalping. While lower-cost tickets for less-desirable seats and events will always be available, he said, the secondary market for tickets is becoming a ripe revenue source for companies such as his.

Ticketmaster estimates the North American ticket-resale market is worth US$8billion. Half of that accounts for original face-value ticket prices, but it still leaves US$4-billion on the table.

Scalpers profit from the spread between the original price of a ticket and the price people are willing to pay. Charging more for a venue's best seats right from the outset reduces that spread - and ensures the customer who is willing to spend $1,000 to see Justin Bieber from a few metres away spends it directly on Ticketmaster. In turn, more money flows into the live-event industry, including the artist or sports team, their business backers, promoters, venues and, of course, Ticketmaster.

But that's just the start. Dynamic pricing, already common in sports, allows ticket prices to go up and down based on demand, letting the vendor move the price higher if demand is there (and lower if it's not). Many Ticketmaster tickets now have this kind of dynamic "flex" pricing in small ranges, Mr. Smith says.

For a handful of a venue's best seats, though - about 2 per cent to 4 per cent for a given event - the company introduces "platinum" tickets, which it prices according to the market, varying it over time to see what rate consumers are willing to pay. Ticketmaster hopes more performers and sports teams become comfortable with the pricing model and give their permission to use it for as many as 10 times the seats they do now, bringing more revenue to the whole live-event chain.

Factions of the live-event industry have played with dynamic pricing for decades, although on a smaller scale. The San Francisco Giants began tinkering with it nearly 10 years ago and now the practice is common in Major League Baseball and other pro sports. In 2001, when the producers of Mel Brooks's The Producers in New York decided to nearly quintuple prices for high-demand seats to US$480 to fight scalpers, doubts rumbled throughout Broadway - but now premium-priced tickets there are the norm.

One of the biggest artists pushing shows toward market value is Taylor Swift. For her Aug. 3 show at Toronto's Rogers Centre, you can still buy original tickets, right next to the stage, for $1,125.

Some critics on social media have suggested such high prices will leave a raft of seats empty - but a person familiar with the tour, who was not authorized to discuss it, told The Globe and Mail that her Reputation tour is expected to draw significantly more revenue than her previous one, for the album 1989. In this new liveevent reality, a few empty seats aren't worth worrying about.

It took digital resale websites to finally reveal how ticket markets really behave.

Ticketmaster first got into resale when it bought the marketplace TicketsNow in 2008, quickly leading to buyer's remorse.

When Irving Azoff - coincidentally, the Eagles' long-time manager - took over as Ticketmaster chief executive shortly thereafter, he said he "never would have bought it" and that resale should be illegal. Those comments were made at a U.S. Senate committee hearing on another proposed M&A move - a merger with megapromoter Live Nation - that was completed in 2010.

By 2013, Ticketmaster was selling original and resale tickets on its website; the system is now the standard for many of its large-scale events. The reasoning is simple: "It was obvious that there was money left on the table," says Pascal Courty, an economics professor at the University of Victoria who studies ticketing.

A 2017 Research and Markets report forecast the ticket resale market will have a compound annual growth rate of 13 per cent through 2021. Live Nation filings show Ticketmaster's transaction volume for second-hand tickets - the sheer dollar amount worth of resale tickets it sold - grew 16 per cent last year. StubHub, meanwhile, processed US$4.52-billion worth of tickets in 2017, up about 5 per cent from the year before, netting US$1-billion in transaction-fee revenue along the way, according to parent company eBay's annual report.

In Ontario, the Attorney-General's office estimated last year that about 80 per cent of ticketing in the province takes place through Ticketmaster and StubHub, the latter of which has aggressively invested in Canada since 2015.

Where primary vendors such as Ticketmaster treat tickets such as licences that should be centrally managed, StubHub sees them as commodities to trade freely.

Devin Wenig, CEO of StubHub's parent, eBay, described this ethos in an interview with The Globe last year: "I think efficient markets are good for consumers."

Notably, the free-marketfocused marketplace actually doesn't like the word "scalper" and the connotation that comes with it - because, StubHub senior manager of government relations Laura Dooley says, "there's nothing illegal about reselling tickets" now in many North American jurisdictions, which benefits many "small businesses" - usually brokers. "I think the term 'scalping' perpetuates the notion that it's not legal."

North America has a patchwork of different laws relating to ticketing, some more hyperspecific than others. The resale marketplace SeatGeek outlines a number of them: The resale of tickets is legal in Hawaii, for instance, except for boxing matches; Illinois requires anyone reselling tickets to be registered with the state as an official broker; New York State just revised its laws, including a mandate for resale websites to disclose the total price of tickets including fees.

In Canada, it was the illness of a Canadian icon that thrust ticket reselling into the political arena.

After Mr. Downie announced he had terminal brain cancer in 2016, the Tragically Hip's final tour with him turned into a collective, national moment - with scalped tickets at times going for up to $5,000 for the final show in Kingston.

Music Canada Live, the concert-industry association, has pointed out that the tour's troubles were related to massive demand - four million people tried to buy 200,000 or so tickets. Even so, the Ontario government openly cited the Hip tour last year as a reason to reexamine its ticketing laws.

Slightly more than a year ago, in the shadow of Toronto's Rogers Centre, one of the country's largest venues, then-attorney-general Yasir Naqvi trotted out a series of new regulations that came into force on July 1. "Bot" software often used by scalpers would become officially illegal. Numerous transparency measures would come into force, asking the likes of Ticketmaster and StubHub to list the total cost of a ticket, including service fees, upfront.

But the crown jewel of the new legislation was a rule that tickets could not legally be resold for more than 50 per cent of the original price, minus taxes. (Until 2015, it had been illegal to resell tickets with any markup at all.) Mr. Naqvi, who was not available for an interview before he and the Liberal government were voted out of office in the June provincial election, said last year that the measure prevented bad actors from jacking up prices, but allowed fans to continue going online to resell tickets for a reasonable amount.

A year later, it's unclear how much the law will change for consumers. The bureaucrats in charge of the law won't say whether the funding Mr. Naqvi once promised to enforce the ticket laws will actually come forward. A government spokesperson said by e-mail the Ministry of Government and Consumer Services will "exercise its authority and use resources" to review complaints and enforce rules and that police will "continue" current efforts to fight bots. Meanwhile, the new Ontario government of Mr. Ford said this week it will hold off from enforcing the 50-per-cent price-cap rule as it reviews whether it will actually protect consumers, putting at least a temporary stop to one of the law's biggest changes.

The companies that operate ticket-selling websites argue that the Liberals left vague instructions about how they're supposed to comply with the new laws. While Ticketmaster says it had everything on track to be ready by July 1, StubHub management told The Globe it would need more time on some matters - and that price caps, which many consumers were looking forward to, would be up to individual ticket sellers to enforce themselves.

Another secondary market, Vivid Seats, had effectively stopped operating in the province as of July 1, telling consumers the new law "limits the ability of fans to buy and sell tickets." By Friday, Vivid Seats was operating in Ontario again. In an e-mail, its vice-president of legal affairs, Chris Libertelli, said: "We appreciate the government's willingness to address provisions in the law that may not work for consumers."

At a Canadian Music Week panel on ticketing this May, executives and experts from across the live-event industry united in their frustration with Ontario's new regulations. Price caps, it turns out, were one subject on which competitors Ticketmaster and StubHub actually agree.

"Regulating supply and demand is futile in the passion-based ticketing world," said Patti-Anne Tarlton, Ticketmaster's Canadian head. Jeff Poirier, StubHub's general manager for music and theatre in North America, echoed her: "It's a futile effort." So the Ford government's move this week gave the industry what it wished for, at least for now.

As the Eagles concert approached, Mr. and Ms. Araki struggled to resell their highpriced tickets, even at a steep discount. In the end, they decided to use the floor tickets they had paid for and wound up giving their lower-bowl tickets to friends.

When The Globe described Mr. Araki's experience to Ticketmaster's Mr. Smith, he defended the company's resale practices as tools to prevent fraud and deliver more revenue to artists. "If we say, 'Hey, we're not going to do resale,' it's not going to stop resale," Mr. Smith said. "What we have done is created a product ... that is fully transparent, unlike anything else in the industry."

But there are concerns within the industry that a strategy of pursuing higher prices and nurturing an open market in which ticket prices can fluctuate wildly could serve to undermine the business as a whole.

"If you make it more complicated, people will say, 'Enough - I can watch Netflix,' " says John Karastamatis, head of communications for Toronto's Mirvish Productions. While the company does price tickets based on demand - premium seats for hot-ticket musical Come From Away range from roughly $200 to $250 depending on the dates of booking and performance - Mirvish uses its own proprietary ticketing system that does not do ticket resale. Companies that do, he says, "are providing a platform to hoodwink the potential customer."

Trust is already wearing thin among some consumers, even when the industry makes amends. A few weeks after the Eagles show, Mr. Araki got some reprieve.

Following endless calls with Ticketmaster customer service, he says he finally got through to another department and received a full reimbursement. But after months of fighting to get his money back, Mr. Araki has lost some faith in online ticket-buying. "I really felt completely ripped off through that process," he says.

"We've always seen them as a trusted source."

Associated Graphic

Fans gather to see the first stop of the Tragically Hip's Man Machine Poem Tour outside the Save-On-Foods Memorial Centre in Victoria on July 22, 2016. Ticket resale became an unlikely Canadian political issue that year, when the Hip's final tour with late frontman Gord Downie was met with massive demand and frequent scalping.

CHAD HIPOLITO/THE CANADIAN PRESS

Dynamic pricing, already common in sports, allows ticket prices to go up and down based on demand, letting the vendor move the price higher if demand is there (and lower if it's not).

DAN HAMILTON/USA TODAY

Concert sold out? Not a problem. Secondary ticket marketplaces, such as StubHub, SeatGeek and even Ticketmaster, have become a multibillion-dollar industry, allowing tickets to change hands several times - although sometimes at a hefty mark-up. Case in point: Tickets don't come cheap for three of Toronto's biggest coming concerts (Drake, Bruno Mars and Taylor Swift), according to sales data from SeatGeek as of July 3.

PHOTO ILLUSTRATION


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