Where is the Spotify of the ticketing industry?

By: Cherie Hu

Published: 2021-01-11

This is the first of several articles I hope to write in 2020 about opportunities for innovation in the live music industry. At the end of last year, I realized that I spent nearly all of 2019 focusing just on streaming, recorded music and digital media in my articles, with virtually no coverage on concerts and touring.

A few recent events and realizations persuaded me to shift course. Firstly, there’s no way I can fully understand the indie sector without understanding touring, an activity that comprises the majority of many artists’ revenues today.

Secondly, there was a lot of legal and financial activity among some of the world’s biggest promoters and ticketing platforms towards the end of last year that deserve more scrutiny. In November 2019, eBay sold StubHub — one of the world’s largest ticket resale marketplaces — to another resale site, Viagogo, for more than $4 billion. Less than a month later, the U.S. Department of Justice launched an investigation into Live Nation’s business activities, in part because the promoter wanted to use M&A as a tool for stealing venue contracts away from a Ticketmaster rival (that was literally named Rival). The DOJ ultimately reached a settlement with Live Nation to extend the latter’s consent decree by five years, from 2020 to 2025.

There are many important themes to unpack here: ongoing consolidation and anti-competition, the future of primary vs. secondary ticket marketplaces and the opportunities (or lack thereof) for new entrepreneurs to enter and innovate in the sector.

Today, I want to focus on that last point. In particular, after doing some preliminary research on the live sector and comparing its dynamics to what’s happening on the recorded side, I’ve come to the following conclusion:

The ticketing industry desperately needs its own Spotify.

What exactly do I mean by this?

While I don’t think Spotify “saved” recorded music, the company undeniably brought in a new paradigm shift centered around data-driven curation, marketing and business transparency. I break down Spotify’s impact into four main categories:

Now let’s take each of those bullet points, and reframe them as a persistent problem in the ticketing industry:

Theoretically, this is the perfect environment for a Spotify-type startup to come in and address one or more of these problems through a superior, transparent and tech-forward product.

Indeed, entrepreneurship in the ticketing sector is alive and well: According to my own research, nearly 20 new event-ticketing startups have launched globally over the past three years, with the sector as a whole attracting more than $330 million in venture-capital funding in that time period. Some notable funding rounds in 2019 included $15M for Lyte, $4.6M for Festicket and $73M for TodayTix.

Unsurprisingly, the vast majority of the newer ticketing startups founded in recent years incorporate blockchain. While “blockchain” has become a somewhat dirty word in music, ticketing platforms could nonetheless benefit from the technology in how it improves transparency on two fronts: on prices and fees for fans, and on customer data and ticket ownership for artists and promoters.

But here’s a big caveat: Despite this sustained entrepreneurial activity, ticketing still remains twice as consolidated as recorded music.

Interestingly, ticketing isn’t a cash cow for Live Nation on the company level: In Q3 2019, Ticketmaster accounted for just 10% of Live Nation’s revenue ($389M out of $3.77B) and 25% of the promoter’s operating income ($64.2M out of $260M).

But some industry estimates peg Ticketmaster’s current share of the ticketing market alone at a whopping 80% — even though the company hasn’t acquired a new startup since 2018.

The rough equivalent in recorded music would be if Spotify’s catalog of millions of tracks were 100% exclusive (i.e. couldn’t be accessed anywhere else), accounted for 80% of the entire sector’s streaming revenue and also happened to be completely owned by Universal Music Group. (Universal Music Group currently controls around 38% of the recorded-music market, according to Nielsen.)

Because the ticketing market remains so consolidated, it can be difficult for new startups to break meaningful ground, because they can’t get ahold of the inventory required to have a functioning, valuable marketplace. Much of that inventory is instead locked up in exclusive, long-term contracts that Ticketmaster and AXS pay top dollar to sign directly with venues (more on that later).

In my mind, this is why the ticketing industry hasn’t had its Spotify moment yet: The ultimate name of the ticketing game is more capital and more inventory, not better software.

Inventory is holding back the Spotify of ticketing

Why does inventory run the ticketing business? The underlying concept is simple: in order to build a proper marketplace, you need access to enough supply to match demand.

Through their respective ticketing platforms, Live Nation and AEG have a collective stronghold over some of the most valuable ticketing inventory in the world — thanks to exclusive deals with venues of all sizes, but especially with stadiums and arenas. The extent of their control is such that if you reach a certain career stage as an artist and want to embark on an arena tour, or even on a tour of 5,000-cap ballrooms, you basically don’t have a choice but to sell your tickets through Ticketmaster or AXS.

Sources tell me that Ticketmaster spends between $90M and $100M annually on venue advances alone — an amount of capital that’s difficult for an emerging startup to compete with.

“Even if you have the best technology or the best product, a venue might say, ‘That’s cool, but Etix is over there offering me twice the money in an advance plus higher fees, so we’re going to go with them,’” David McKay, cofounder/CEO of live-data startup Seated, tells me. “The people who are impacted the most by that are the fans, who have to deal with frustrating fees and overall terrible ticketing experiences.”

As a result, there’s a littered history of tech-forward ticketing startups who think they could corner the market with a superior product, only to fail to get the hands on the supply that would make their product functional in the first place.

“This was the shortcoming with a lot of blockchain ticketing companies: they thought issuing a token was a way to make quick money, but then realized they didn’t figure out how to actually fulfill the utility of that token,” Josh Katz, founder/CEO of ticketing startup YellowHeart, tells me. “They launched an ICO [initial coin offering], but then realized that they couldn’t actually get access to the Adele tickets they promised.”

With StubHub, SeatGeek and other secondary marketplaces, it’s also a game of better capital, not just better product. “You’re listing the same inventory that everyone else has, which means you have to outbid everyone else for eyeballs on Google, which is also a race to the bottom,” says McKay. “There’s a reason why SeatGeek is getting into buying up exclusive rights to the Dallas Cowboys and [New Orleans] Saints — they’re diversifying because they’re predicting the future, that they can’t just be a marketplace forever.”

What’s the alternative?

So if you don’t have the inventory as a ticketing startup, where do you go?

One potential solution is to focus on smaller or more unconventional venues. Companies like Sofar Sounds, Sidedoor and even Airbnb Concerts have opened up the world to the power of opening up nontraditional real estate — like apartments, boutique clothing stores and tech offices — for performance opportunities for artists. A few ticketing platforms like Withfriends source their inventory exclusively from DIY and nontraditional venues.

Financially, though, scaling that approach can be difficult. For instance, Sofar Sounds recently revealed in a blog post that it makes only around $176 in profit per show — and that’s for the small minority of its shows that fans pay to attend.

That said, it might be better for a new ticketing platform to target concertgoers who prefer smaller venues because that’s more likely to attract repeat business.

Take Dice, for example — a five-year-old mobile ticketing startup headquartered in London, which formally launched in the U.S. in March 2019. Like Ticketmaster, the biggest chunk of Dice’s inventory comes from exclusive venue contracts, rather than from the artists directly — but most of those venues are smaller in size, such as Public Records and Chelsea Music Hall in New York City.

“What we found with bigger artists and bigger venues was that audience retention was super low, compared to people who go out to Public Records on a regular basis,” Phil Hutcheon, founder/CEO of Dice, tells me. “It’s all about repeatability. We have thousands of people on Dice who go to 200 to 300 events a year.”

Dice is also drawing inspiration directly from Spotify and making discovery a core value-add of its platform. One-third of Dice’s sales come from in-app recommendations — a proportion that’s “going up one point per month,” Hutcheon tells me.

A second potential alternative is to pivot away from ticketing, and to focus instead on general audience development, fan engagement and customer relationship management (CRM) around tours.

For instance, while Seated has a few ticketing clients, the vast majority of its business comes from powering tour listings for artists like the Jonas Brothers, Green Day, Christina Aguilera and John Mayer, and helping these artists capture fan data via presale signups before tickets are released. “The goal is to put artists in control over their own destiny, and to rely less on data owned by third-party ticketing and promotion companies,” says McKay.

Artists can then utilize that demand data to make more concrete financial decisions around their shows. For instance, if an artist is performing at the Red Rocks Amphitheatre, which has around a 9,500-person capacity, but then receives 12,000 fan signups to obtain a presale password, the artist can either “confirm a second show, or raise prices and try to maximize efficiency of revenue for that single show,” says McKay.

Audience transparency would be especially useful and powerful on resale platforms, as the vast majority of artists have historically had no control over how their tickets were sold on the secondary market.

YellowHeart, which also includes The Chainsmokers’ manager Adam Alpert on its founding team, hopes to provide this transparency by giving artists the option to govern how their tickets are resold after purchase via a smart contract — e.g. determining profit splits for each secondary transaction, or setting a price ceiling for resales, disincentivizing scalping in the process. “I think having true fans in your seats, and being able to dictate how much your seats get resold for and where that money ultimately goes, is way more valuable than saying you sold out your show in five minutes to bots,” Alpert tells me.

It’s interesting that an act like the Chainsmokers is associated with YellowHeart, given that the electronic duo is already working with the likes of Live Nation and AEG on their arena tours. In this vein, Katz sees Ticketmaster “as a partner, not a competitor. We can work with certain artists who have an existing deal with Ticketmaster, but who want a more secure ticketing platform. And the venue contracts are not important to me today; that’s a conversation for 24 months from now.”

Under that model, the relationship between Ticketmaster and YellowHeart might be somewhat similar to that between a major label and Spotify: Ticketmaster would still own the inventory, but would be incentivized to make it available on YellowHeart because the latter has a better user experience and/or better audience data.

But again, that assumes that the No. 1 player in the market who controls 80% of the inventory will want to open up that inventory to competitors. An innovative, new ticketing product without the right supply is like Spotify’s shiny user interface without the catalog; an unfulfilled promise of disruption.