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More Ticket Prices and Downloads

Some very interesting feedback on the increased concert ticket price story we discussed yesterday.

Nick Snow of Foundmusic.com points us to an article from last year:

    Members of the popular heavy-rock band Godsmack say they want to make tickets affordable for their current U.S. tour. But the economics of the concert industry may jar fans harder than the mosh pit at the band’s show.

    The face value of a general admission ticket to Godsmack’s concert Wednesday at Verizon Wireless Amphitheater is $20. But no one attending the band’s performance gets to pay that amount.

    Instead, fans who purchase tickets on the phone or online are socked with a series of surcharges that boost the price to $35.60. These added costs, tacked on by distribution giant Ticketmaster and concert promotion conglomerate Clear Channel Entertainment, include a convenience fee, a facility fee and a handling charge.

    Moreover, a hidden $3.50 parking fee is buried in the price of each ticket by Clear Channel, owner of the Verizon Amphitheater in Irvine. All told, the fees add a 116% markup to the cost of a $16.50 ticket.

    These special charges have jumped dramatically since a ticket-price controversy rocked the concert circuit seven years ago. At the same time, the face value of tickets before surcharges also continues to increase–about 7% over the last year and more than 73% since 1995, according to data compiled by Pollstar, the concert industry trade publication.

    Concertgoers, artists and booking agents are becoming fed up with a fee system they regard as price gouging.

    “It’s starting to spin out of control,” said Tommy Stewart, Godsmack’s drummer. “It’s disheartening to bands like ourselves that are trying to . . . give the kids a good product for not a lot of money.”

    Veteran manager Arthur Spivak is concerned that the higher ticket prices will make it even more difficult for developing acts to find an audience.

    “I think there are surcharges on surcharges,” said Spivak, who handles the careers of such acts as Tori Amos and Eve 6. “By the time a kid who is working at a restaurant looks at a $25 ticket and it’s 45 bucks, he starts to wonder, ‘How many shows can I really go to?’ ”

    Industry experts see signs that rising prices are beginning to turn off music enthusiasts. The number of tickets sold for the top 50 tours in North America is down 15.5% this year after increasing steadily the last three concert seasons, according to Fresno-based Pollstar.

    “The concert industry is trying to sell a more expensive product in a down market, and that’s just not going to fly as well as it did a year ago,” said Pollstar editor Gary Bongiovanni.

    A spokesman for Ticketmaster said the Los Angeles-based distributor has had to increase fees to recover the cost of credit card processing, bar-code machines and other technology.

    Executives at Clear Channel said additional fees are needed to recoup the more than $2 billion the company spent buying and maintaining 135 venues worldwide. They say continued consumer demand indicates that overall prices aren’t unreasonably high.

    “I’m not sitting here telling you that we don’t have some tickets that are overpriced, but we also know, based on sales, that we’re seeing positive trending,” said Clear Channel Music Group Chief Executive Rodney Eckerman, who oversees the concert division. “There’s demand way in excess over the number of tickets available.”

    Eckerman said concerts by superstar acts such as Madonna ($250 for the best seats) are selling briskly. But he acknowledged that Clear Channel has sold fewer tickets than a year ago. He attributed the drop-off to a 10% decline in the number of concert dates being handled by the company.

    “Clearly, so far this year, the total activity is lower year over year, but that is part of how our business cycles and it’s part of the touring pattern.”

    In recent years, Clear Channel has emerged as the dominant force in the $1.6-billion concert industry. The firm’s North American tours account for an estimated 35 million tickets a year, of which Ticketmaster sells an estimated 20 million. That represents about 25% of the tickets sold by Ticketmaster last year.

    The economic pressure to squeeze profit from Clear Channel concerts is immense. Clear Channel Entertainment (formerly SFX) spent an estimated $2 billion to acquire its portfolio of venues and promoters. And Clear Channel Communications, the San Antonio-based radio giant that bought SFX last year for $4.4 billion, has vowed to increase profit in its concert division by attracting corporate sponsors and additional advertisers.

    The company owns about 30 amphitheaters across the country and operates or exclusively books more than a dozen others. It also owns about 1,200 radio stations–more than any other broadcaster–and runs major tours by such popular acts as Destiny’s Child, Janet Jackson, Dave Matthews Band, U2 and ‘N Sync.

    “They can pretty much dictate the costs, ad rates and ticket prices,” said Jon Stoll, president of Fantasma Productions, a competing promoter in West Palm Beach, Fla. “If one company controls the live-music industry, there’s nobody that can really bring ticket prices down.”

    As a venue owner, Clear Channel is well-positioned to collect added revenue from its concerts. The company establishes and takes in the facility surcharges and per-ticket parking fees. In addition, venue owners typically receive revenue from box-office sales, concessions, a “rebate” from Ticketmaster fees and often a share of band merchandise income. All of the fees result in an income stream for the venue over and above the rent that is paid by the act drawing fans to the building.

    In the case of Wednesday’s Godsmack concert, a portion of the $8.85 convenience fee is paid to Clear Channel to subsidize Ticketmaster’s contract for exclusive ticket distribution rights on the amphitheater. The rest covers Ticketmaster’s credit card processing costs, phone company expenses, anti-counterfeiting measures and profit.

    The $3.25 facility fee goes to Clear Channel to cover building maintenance, debt payments and profit. “It’s one of the revenue streams that keeps these multimillion-dollar facilities up and operating,” Eckerman said.

    The $3.50-per-order handling charge generates additional profit for Ticketmaster and covers the cost of mailing and processing the tickets.

    Clear Channel also adds a $3.50 parking fee to the price of each ticket instead of charging for each car arriving to a venue parking lot. In most cases, Eckerman said, the company doesn’t disclose that fee to the ticket buyer.

    “Is there a reason it’s not broken out? No. It’s just simplifying the process,” he said.

    Eckerman said having each ticket holder pay a slightly lower fee than the one assessed to each car “works out to the same economics.” Customers who purchase a ticket and then decide to park at a venue’s VIP lots essentially are paying for parking twice.

    “You’re paying to upgrade your parking, is how I would put it,” Eckerman said.

    The extra fees are imposed on all tickets purchased by telephone or on the Internet. Lower fees are assessed on tickets purchased in person at Ticketmaster outlets, where the $20-face-value ticket is sold for $31.35. Customers can avoid Ticketmaster charges by visiting the amphitheater box office, where Clear Channel charges a $3.50 fee. But the box office is open only on the first day of sales and the day of the show.

    Before Clear Channel began buying up promoters and concert venues in dozens of media markets, it was common practice for bands to compare the pricing practices and pay offered by competing promoters in each market. Some agents and managers fear that Clear Channel’s consolidation will lead to even higher fees on the price of each ticket.

    This is not the first time concerns have been raised about monopolistic practices within the concert industry. In 1995, the Justice Department considered filing antitrust charges against Ticketmaster. Seattle rock band Pearl Jam had filed a memorandum accusing the company of maintaining a monopoly on ticket distribution by locking up the nation’s venues under exclusive contracts. The department’s antitrust division decided to take no action.

    Stephen Brobeck, executive director of the Washington-based Consumer Federation of America, said the decision amounted to a green light to jack up surcharges. The increase in Ticketmaster fees, Brobeck said, is “the inevitable result of an unregulated monopoly. It’s an instance of consumers being nickel-and-dimed to death.”

    Ticketmaster’s service fee, which typically added $5 or $6 to the price of a ticket back then, now is often $9 to $11 for popular acts. And the facility fee charged by venue owners has risen just as sharply, from $1 or $2 up to $4.

    Artists attempting to hold down the price of tickets to their concerts can haggle with promoters over certain fees. But given Clear Channel’s size and clout, some artist managers say the choice is often to accept the promoter’s decision or stay home.

    Dan Fraser, manager of Canadian folk-pop act Barenaked Ladies, said he asked the promoters handling each date of the band’s North American tour to lower the facility fee on the cheapest tickets.

    Clear Channel’s tour division refused to budge on lowering the fees at 18 tour dates where the band requested it, Fraser said. House of Blues, which is promoting the band’s appearances at six venues, agreed to trim $2 off the price of the cheapest tickets at five of them, he said.

    For the band’s Aug. 14 concert at Clear Channel’s venue in Irvine, a ticket with a face value of $14.25 will cost $29.70 to purchase by phone or online.

    “They’re making more money [in fees] than they are on the concert ticket,” Fraser said. “There’s nobody that controls that. I can’t say, ‘Hey, you’re charging too much.’ They won’t even talk to you about it.”

    Clear Channel and other concert firms say that, because artists on the tour circuit these days are demanding a bigger slice of concert profits, promoters and building owners have been forced to devise new revenue streams to keep up their profit margins.

    Ironically, booking agents and rival promoters say, Clear Channel is largely to blame for rising artist fees. The company offers artists huge premiums, they say, to secure control over an act’s entire tour instead of competing with other firms for individual dates.

    “They’ve been the ones propelling the costs upward,” said John Marx, senior vice president of contemporary music at the William Morris agency. “They’ve done so as an attempt to really corner the market, to run out the competition. They just come in with astoundingly big guarantees.”

    Eckerman said his company paid bands appropriately considering their increasing production costs.

    “We would like to pay the lowest guarantees possible,” he said.

    As for ticket prices, Eckerman said, further increases are hard to predict. “We live in a supply-and-demand economy.”

This would certainly imply that consolidation under Clear Channel is having more of an impact on prices than Krueger allowed, with built-in venue fees padding the ticket price markedly.

On the download side of the argument, JOHN VON SEGGERN, postgraduate researcher in postdigital music, has some fascinating insight into the process:

    MUSIC FILE-SHARING: IMPACTS ON THE MUSIC INDUSTRY

    Abstract: This brief paper is a summary of recent research on music file-sharing conducted by the international recording industry as well as a number of independent Internet research firms. Briefly stated, although the industry has blamed online file-sharing for recent drops in CD sales, independent researchers have consistently found a more mixed picture of file-sharing’s effects, with an overall upward bias; that is, music file-sharing on the Internet has been consistently found to actually increase the average amount of money which users spend on purchasing music.

    MUSIC FILE-SHARING AND CONSUMER SPENDING: THE CONTROVERSY CONTINUES

    Music file-sharing on the Internet via websites and networks such as the notorious Napster has become an extremely controversial topic in recent years. Since May 1999, when Napster began introducing millions of Internet users to the pleasures of trading music via a peer-to-peer network, music file-sharing has become ubiquitous online. 42% of the respondents in a June 2001 study of online behavior among American Internet users conducted by Jupiter Media Metrix indicated that they had downloaded music from the Internet.

    There has been a great deal of public argument over the effects of this phenomenon. The recording industry views Napster-style file-sharing unambiguously as stealing and have tried to enforce its view by filing lawsuits against Napster and other similar online services. Napster itself has been effectively put out of business by legal action since July 2001, and a number of other lawsuits against most of the other major file-sharing services are currently pending. Among listeners, however, there is little agreement on whether or not file-sharing is the equivalent of theft, with many contending that they are actually led to purchase more music in physical form such as CDs because of their music downloading.

    Many polls and surveys of online behavior have attempted to learn more about music fans’ actual online behavior in the past few years, but with ambiguous and conflicting results. Some studies, notably those commissioned by the recording industry as represented by the RIAA (the Recording Industry Association of America) or the IFPI (the International Federation of Phonographic Industries), have found that music file-sharing contributes directly to decreased purchases of music by consumers because it allows them to easily obtain the same music free of charge from the Internet. For example, a recent statement from the market research unit of the IFPI released on 16 Apr 2002 places the blame for a reported 5% overall decline in global sales of recorded music in 2001 squarely on Internet file-sharing and other forms of high-tech music piracy:

    Three of the world’s top five markets – the US, Japan and Germany – attribute a significant part of their sharp drop in recorded music sales in 2001 to the proliferation of free music and piracy.

    The effect was felt on CD sales, in most of the markets of North America, Europe, Latin America and Asia… The pressure from mass copying was aggravated in many markets by the global economic downturn, particular in the last quarter of the year.

    Surveys in the most affected countries, notably the US and Germany, show that mass copying and internet piracy is directly replacing sales of CDs.

    In the US, nearly 70% of people who downloaded music burned the songs on to a CD-R disc, while 35% of people downloading more than 20 songs per month said they now buy less music as a result.

    Although I do not have access to the full IFPI report on which this statement is based (Recording Industry in Numbers 2001), even a cursory glance through this article ought to give us grounds to doubt its conclusions. To take only the last point in the passage above as an example, the IFPI claims that 35% of those surveyed who reported downloading more than 20 songs a month also reported buying less music as a result. What is omitted here, however, is any mention of how the other 65% of the respondents answered this question. If 35% of these “heavy downloaders” reported buying less music, than it logically follows that the other 65% must either have maintained their music spending at the same level or increased it. In addition, we are given no information about the magnitude of the reported changes in spending in either direction; because of these omissions, it is impossible to draw any firm causal link between the behavior reported by the IFPI and the overall decline in global music sales in 2001.

    Indeed, independent researchers who have examined this issue have reached very different conclusions than the IFPI. In a study released on 25 Feb 2002, a private Internet research firm, Ipsos-Reid, concluded that music fans who download music from the Internet (whether legally or illegally) are actually more likely to purchase recorded music:

    …evidence shows that downloaders do not stop buying prerecorded compact discs when they discover downloading. In fact, 81% of downloaders report their CD purchases have stayed the same or even increased since they initially began downloading music from the Internet.

    Jupiter Media Metrix, another Internet research firm, has also done a number of studies about music file-sharing and reached similar conclusions. Jupiter’s most recent analysis, based on a national survey specifically focused on online music originally done in June 2001, concludes that music file-sharing actually has a polarizing effect on users, with some music downloaders reporting an increase in music spending while others reported a decrease. On balance however, Jupiter’s analysts report that file-sharing leads to an increase in overall spending on music, a conclusion which directly contradicts the IFPI’s claim that it is file-sharing and other forms of piracy which caused the 5% drop in global retail music sales in 2001. I quote extensively from Jupiter‘s results here as this study is the most in-depth survey on the topic which I have found in the literature:

    In the summer of 2000, Jupiter released research demonstrating that Napster, the pioneering file sharing network, seemed to have a salutary effect on music purchasing by consumers. Despite this and similar findings by other researchers, the recording industry has continued to scapegoat file sharing, even as record sales have fallen over the past year.

    Jupiter reexamined effects of file sharing and other potentially theft-enabling technologies on music spending, based on a survey of online music fans (i.e., users over the age of 18 who had visited a music site in the prior year) that was conducted in June of 2001—the year covered by the IFPI’s report. By cross-tabulating a question concerning shopping habits with separate questions about technology ownership and usage, Jupiter ascertained that technologies such as file sharing, broadband, and CD-writable drives influenced consumers’ music spending habits—in both directions. In essence, such technologies polarize the market.

    File sharing, for instance, had a net-positive impact on music spending—while experienced file sharers were 75 percent more likely than the average online music fan to report an increase in spending, they were only 27 percent more likely than the average online music fan to report a decrease. However, CD-writable drives and broadband were both net-zero technologies—they were equally likely to cause increases and decreases in music spending among online music fans with either/both of those technologies. All three technologies in conjunction represented a net- positive. While online music fans with all three technologies were 95 percent more likely than the average online music fan to report an increase in music spending, they were only 65 percent more likely than the average online music fan to report a decrease.

    Jupiter’s analysis here paints a much more complex and ambiguous picture of the effects of music file-sharing than does the report released by the IFPI, acknowledging that file-sharing can have both positive and negative effects on consumer music spending. Taken as a whole, this study provides the most detailed evidence yet that music file-sharing leads to net increases rather than decreases in consumer spending on music, and Jupiter’s analysts dismiss the 5% drop in global music sales in 2001 reported by the IFPI as being caused by other underlying factors such as the normal cyclicity of the music market, an overall drop in consumer spending related to the general economic slowdown in 2001, increasing competition from other entertainment product categories such as games and DVDs, the increasing reliance of the music industry on a small number of titles for the majority of sales, and the end of the initial CD growth period in which many consumers repurchased music on CD which they already owned in other formats.

    CONCLUSIONS

    While more research should be done in this area, it seems clear that the impact of music file-sharing is not so unambiguously negative as the recording industry would have us believe, and may even increase sales of recorded music overall. With these data in mind, it seems almost willfully perverse for the RIAA, the IFPI and other bodies representing the industry to spend so much time and energy targeting file-sharing companies and their users when they might be considering new ways to profit from the rapidly-changing business environment instead. In the long run, it seems doubtful that the industry will be able to control or even significantly slow down Internet file-sharing without imposing draconian controls on the flow of information of all sorts, the type of control envisioned by Microsoft in their recent Palladium proposal.

    I believe that now is the time to ask ourselves: is this the kind of future we want? Or is there still any life left in the 1990s conception of the Internet as a freely accessible forum for the exchange of human creativity and ideas? As many commentators have observed, the burst of creativity which accompanied the exponential growth of the Internet in the 1990s has seemingly lost momentum in the past few years, a phenomenon which some (most notably Stanford law professor Lawrence Lessig) have blamed on the increasing colonization and control of the Net by governmental and corporate interests. The choice is ours to make, but if we (music listeners and creators alike) fail to act now, the industry may well succeed in their attempts to maintain and tighten their control over the global distribution of music.

    As we observe the rapid changes the Internet is causing in the world of music, it is also interesting (and perhaps a bit frightening) to reflect on what Jacques Attali wrote about the role of music in anticipating social change in his influential book Noise (1977):

    Music is prophecy. Its styles and economic organization are ahead of the rest of society because it explores, much faster than material reality can, the entire range of possibilities in a given code. It makes audible the new world that will gradually become visible, that will impose itself and regulate the order of things; it is not only the image of things, but the transcending of the everyday, the herald of the future (Attali, p. 11).

In an email, VON SEGGERN also adds:

    Although I don’t have the numbers to prove it, my guess is that the
    teenybopper top 40 acts (Britney, ‘N Sync, Eminem, etc.) are suffering the most, if anybody is, for a few reasons:

    1 their fans are young and have less disposable income for CDs.
    2 young people are also most likely to have the technical savvy to download music.
    3 Britney Spears fans are less likely to care about the low audio fidelity of her recordings than, say, Miles Davis fans, and thus would care less about buying the CD to get a high-quality copy of the music.

    If I’m right, my reading of this situation is that the big pop artists like Britney — the main income earners of the industry as it is currently structured — stand to lose a lot, while independent music stand to gain a lot from the increasing opportunities for cheap promotion and exposure that the Internet provides. In my mind, this is what explains a lot of the resistance the majors have put up to new business models, new distribution methods, etc…

I am amazed that the mainstream media, such as Krueger in the NY Times and Reuters as discussed here, seem to buy without question the music industry’s position that downloading has had an unambiguous negative effect on record sales when there is so much evidence to the contrary, or at least to muddy the waters.

UPDATE
Check out Jim Schwab’s thoughts on the realities of downloading:

    That’s the real consumer power of “try and buy.” If it sucks, then it gets penalized by try and buy. If it is good, it benefits. I see music try and buy as very similiar to those publishers who send you a book with a “30 day money back guarantee.” Obviously, you have enough time to read the book, then send it back. However, if you read the book and like it, do you send it back? I don’t. I send them a check back.

    I know my decline in music purchases has been for two reasons:

    Less disposable income. I now have a family and a house as well as a car payment, etc. I simply don’t have the money to spend on music like I had when I didn’t have the above things. I used to spend $300-$400 a month on music, between CD’s (or tapes, records, etc.) and live shows and all that goes with them (t-shirts, drinks, dinner, etc.). I now spend about $30-$40, if that. But it is due to circumstances in my life, not downloading.

    ….Try and Buy. I find a LOT of crap out there that in the past, I would have bought the CD listened to it and hated it but the money was already spent.

    ….If they interpret that correctly, they would adopt the “try and buy” concept and give me a bigger pie to sample from, thereby guaranteeing my $30-$40 a month. I sometimes go many months where I can’t find something that justifies my money, so I don’t buy.

Sounds very sensible Jim.

About Eric Olsen

Career media professional and serial entrepreneur Eric Olsen flung himself into the paranormal world in 2012, creating the America's Most Haunted brand and co-authoring the award-winning America's Most Haunted book, published by Berkley/Penguin in Sept, 2014. Olsen is co-host of the nationally syndicated broadcast and Internet radio talk show After Hours AM; his entertaining and informative America's Most Haunted website and social media outlets are must-reads: [email protected], Facebook.com/amhaunted, Pinterest America's Most Haunted. Olsen is also guitarist/singer for popular and wildly eclectic Cleveland cover band The Props.

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