Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, May 11, 1995 TAG: 9505110013
SECTION: EDITORIAL PAGE: A-19 EDITION: METRO
SOURCE: CHARLES BILODEAUX
DATELINE: LENGTH: Medium
According to Pearl Jam, Ticketmaster is intending to monopolize the ticket-service industry. In a memorandum filed with the Antitrust Division of the U.S. Department of Justice in May 1994, Pearl Jam asserted that Ticketmaster has a "virtually absolute monopoly on the distribution of tickets to concerts."
According to Rolling Stone magazine, Ticketron, the largest competing ticket service, sold out to Ticketmaster in 1991, after losing millions of dollars a year from 1988 on. Why would Ticketron lose millions of dollars a year, while Ticketmaster turned a profit? Ticketron must have operated less efficiently.
In ticketing, as in any contested market, the companies (or company) that survive will be the ones who best cut costs, find new markets and plan long term. In other words, the survivors will be the ones who make the best business decisions. Understanding this is vital to understanding the "anti-competitive" practices that Pearl Jam's suit hopes to stop.
What are these "anti-competitive" practices? The Rolling Stone article by Neil Strauss and Tom Dunkel provides some examples: "Ticketmaster, it's claimed, keeps ticket sales organized and revenue high. This is often at the expense of fans, however. The service charges that Ticketmaster adds to tickets range from $3 to $6 and can add more than 30 percent to a ticket's face value."
If you believe that having competition from other ticket services would drive down the price of Ticketmaster's fees, you are wrong. Why? Economies of scale. Ticketmaster was able to "monopolize" ticket sales because it was the most efficient in utilizing economies of scale. Its larger network of outlets operates at lower cost per ticket sold than smaller firms could manage. (If not, smaller firms could spring up to sell Pearl Jam's tickets). An antitrust ruling against Ticketmaster would work against the efficiencies that economies of scale allow.
Antitrust laws are at war with economic reality. The only way Ticketmaster could have allowed the "little guys" to remain in business would have been to raise its fees to match the inefficiencies of these "little guys." Such price fixing is no favor to consumers, and is also illegal in the screwy world of antitrust.
So what were Ticketmaster's options? Keep prices artificially high and be sued under antitrust statutes for "price fixing," or make use of economies of scale and be sued under those same antitrust laws for "intending to monopolize."
Consider what will happen if antitrust law is used to break up Ticketmaster. Remember that Ticketmaster's largest competitor (the one with the largest economies of scale) was losing millions of dollars a year trying to compete. What does this mean? Millions of dollars a year in extra fees will have to be paid to compensate for the inefficiencies of lack of scale. It is no coincidence that Ticketron finally gave up and sold its remaining assets to Ticketmaster in 1991. It is also significant that no potential competitor has stepped forward since the suit began, saying that it could do a better job than Ticketmaster.
Pearl Jam wants to use Ticketmaster's service while dictating to Ticketmaster what fees the company can receive, despite the fact that Ticketmaster makes its profit by decreasing the cost of tickets relevant to individual ticket buyers.
What can Pearl Jam do to keep the tickets cheap? They could take a lesson from the giant Lollapalooza tour, and lower their own base ticket price. That tour had six bands, an average ticket price of only $25, and it still made money during a recession. How? By not playing expensive venues. It was a tour of fairgrounds, where facilities, and correspondingly venue fees, were modest. Even if Pearl Jam takes along an opening act, it is unlikely that they would have more than one-third the number of musicians of Lollapalooza, so the gate will not have to split as many ways.
Pearl Jam does have alternatives to making an arena tour and using Ticketmaster's service. They have exercised one of them by not touring. If they truly want to provide a show at a low cost to their fans, they have options there, too. It is in both Ticketmaster's and Pearl Jam's best interest to realize exactly what they do for each other. Ticketmaster could not exist without entertainers, and Pearl Jam (and fans and venue managers) are better served by Ticketmaster than by anyone else who has appeared. It remains to be seen whether Pearl Jam will learn this before their fans desert them for bands that do tour.
Charles Bilodeaux, a free-lance writer from Winter Park, Fla., wrote the essay from which this is taken for the May edition of The Freeman.
by CNB