Shark Fishing In The Arena
Ticketmaster was founded nearly forty years ago and for thirty of those years has famously dominated the market for live event ticket sales in the US and various markets around the world. Dozens of would-be competitors lay on the scrap heap of Wikipedia obscure-dom. Ticketron, Paciolan, tickets.com, Galathea, TicketsSelect are just a few of the companies that tried to hook Ticketmaster and failed – companies that were acquired and shut down or slowly sank to the sea floor. In the past fifteen years, I’ve been pitched by not less then forty start ups who all were going to catch the big Ticketmaster fish and not one of them is alive today.
So it was with high hopes that two ticketing upstarts: Songkick and Crowdsurge (if you can call a seven year old company an upstart) announced this week they were merging in a bid to take down the Great White of the ticketing world. Songkick has built a 10 million-strong following by creating a cool app for cool people to go to cool shows and CrowdSurge provides a platform for artists to sell tickets directly to fans. Paul McCartney, The Red Hot Chilli Peppers and The XX are a few of the artists who’ve used the Crowdsurge system to sell tickets without an agent.
Both companies have been built by founders who are passionate about music and the fan experience and both platforms have innovated in a market that’s been static for a long time. Songkick creates services that consumers love but doesn’t have much of a business model while Crowdsurge had some good industry relationships and what could be a business model at scale but not much of an audience to scale up. Many people believe that event ticketing, like many agency businesses, is really two businesses in one. There is the acquisition and management of tickets to sell (Crowdsurge’s specialty) and then there is marketing, selling and delivering tickets to the public (Songkick’s forte). Many companies do one or the other but to become a big fish in the market both are required; and this belief drove the strategy behind the announced merger.
The leaders of each company fit into this paradigm as well. Matt Jones of Crowdsurge is at his best when building contacts with artist management and agents while Ian Hogarth of Songkick plays better to the investor community and business PR world. Who knows whether both stick around post deal but on paper this combination makes a lot of sense. Alongside the merger the companies also announced $16 million in new equity funding and this is where the story begins to fray.
Event ticketing it turns out is not *two businesses in one*, it is actually *three* businesses. There are the two mentioned above and then there is the third in which few companies are ever able to compete. Ticketmaster is a bank.
Ticketmaster contracts with venues to act as their box office and sell all the venue’s tickets. Ticketmaster then adds fees (we all know) on top of the price of the tickets and gives the venue a portion of these fees. These payments are known in the industry as rebates. When Ticketmaster first sets up a contract with a venue for say ten years, Ticketmaster advances the first five years of rebate payments up front. In many cases these rebate advances equal tens of millions of dollars for a single venue.
For context, it’s rumoured that the Golden State Warriors (who play in a Ticketmaster contracted building) will gross $10 million in ticket receipts for a single home game during this year’s NBA Finals.
Once contracted, every ticket(PDF) for every event that is staged in that venue must be sold through Ticketmaster’s sales channels. There are some carve-outs so competitors can get access to 5–10% of the tickets to sell in a Ticketmaster venue but not much more. This exclusivity has been the subject of multiple, famous disputes and lawsuits over the years including the likes of. Pearl Jam, Louis CK, The String Cheese Incident and many more. Ticketmaster hasn’t lost one yet.
Being a bank requires a very large balance sheet, well beyond $16 million. Well beyond even the desires of artists like Sir Paul McCartney. If Songkick and Crowdsurge want to become a real player in this world (having raised more then $40 million collectively their investors certainly want them to) they’re going to have to come up with more then great relationships and a great product. They’re now fishing in the shark’s pond and they’re going to need a bigger boat.