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One-on-One With Ticketmaster CEO on Dynamic Pricing

Earlier this week, Ticketmaster announced that it was partnering with a company called MarketShare to bring dynamic pricing to the tickets it sells.

We've seen plenty of variable ticket pricing in which teams set different tiered prices, based on what team they are playing, but dynamic pricing is more like airline pricing. It takes into account the market factors that result in the difference between the face value of a ticket and what you'll find on secondary sites like StubHub.

By utilizing dynamic pricing, teams can benefit if the marketplace makes it a ticket that's more in demand than the initially set price. To learn more about the company's future plans in the space, we sat down with its Chief Executive, Nathan Hubbard.

Darren: How can Ticketmaster maximize revenue for bands and teams without hurting the fans?

Hubbard: On the high-end tickets, the amount a fan pays doesn't change that much. It's mostly about value transfer. The fan is paying market price today, but the teams or bands aren't participating, So in that case, the fan is unaffected and has the confidence and comfort from buying directly from the team or band. On lower-end tickets, the notion is that incremental tickets can be sold to more price-sensitive fans if the price is right.

This is the great hope for dynamic pricing — to get more people in seats. There are actually numerous segments of fans. We need price points and experiences to meet all of them and create new ones.

Darren: Obviously, if a ticket is in more demand prices will rise. How confident are you in the strategy that lowering the price of the ticket for a non-sold-out show will draw in consumers? What if that person would rather spend their money in a bar or wouldn't even go for free?

Hubbard: You are right. There is a percentage of the population who just aren't going to come to certain events. But we know there is latent demand that is unmet because of inefficient pricing. The data and testing is very clear on that. You just have to create an experience that can appeal to their wallet. On average today, a concert only has three price points — for 20,000 unique seats. There is a real opportunity there.

Darren: How wary are you of fans realizing some teams will lower prices later, and because of that, they wait to buy until that price drop happens?

Hubbard: There is certainly risk if content owners aren't disciplined. But just about every other industry in the world prices their stuff this way, from milk to gasoline to airlines. I think teams and bands are going to be wise enough to combine science with their guts and make good decisions that don't devalue their product.

But don't forget — so much of what we are trying to do is to set the prices right coming out of the gate at onsale, not after the fact. Yes, conditions change, and teams and bands will adapt pricing accordingly, but there is a reason why tickets get snapped up during the onsale and some fans get shut out. If we solve that problem through better pricing, we will significantly enhance the fan experience and optimize yield for the team or band.

Darren: You said on CNBC that 40 percent of tickets overall go unsold, mostly because they are priced too high. What is that number in sports?

Hubbard: We have not broken that stat out publicly. You can imagine it varies by sport. But for sports as a category, it is significant.

Darren: Is the season ticket in sports dead?

Hubbard: No.

Darren: Then why are tickets for the majority of individual games for non-marquee teams sold for less than face on the secondary market?

Hubbard: Because in a lot of cases they weren't priced right to begin with. That's exactly what we are trying to resolve.

Darren: Are there particular sports where your dynamic pricing model will work better than others?

Hubbard: We think it has applications across the board, any place there are pricing inefficiencies—and they exist almost everywhere, if you ask the teams.

Darren: What percentage of tickets in sports do you expect to sell for less than face with your new dynamic pricing?

Hubbard: What we are doing is re-imagining the concept of face value. We see an opportunity to create more price points and more options for fans.

Darren: How will the financial relationship work with this dynamic pricing? I assume you'll get a piece, MarketShare will get a piece and the team will get a piece?

Hubbard: We don't control the price of tickets, obviously content owners do. The trend in dynamic pricing has been to work on a licensing-free model. But we're going to be flexible. At the end of the day, we just want to get clients pricing their inventory this way.

Darren: In the dynamic pricing press release, you stated that brokers make large spreads on this risk arbitrage. Do you know the average gross margin that a mom-and-pop ticket brokerage runs at?

Hubbard: Nope.

Darren: Does the fan lease the right to the ticket or own it?

Hubbard: We think about it this way: Teams and bands know what is best for their fans. It is their business. They should be able to connect directly with their fans on the terms they see fit.

Darren: Ticketmaster has been criticized for restrictive paperless tickets that restrict the right of the fan to sell the ticket unless abiding to certain terms. What is the future of that?

Hubbard: Ticket scalpers criticize paperless tickets because they pose a threat to their business. The future of paperless ticketing is going to be determined by the artists, managers, venues and sports teams who choose to use the technology, not by us. Paperless tickets are most commonly used for really high-demand events — and always only by request — to ensure that fans can get an affordable ticket. Last year, they made up just 0.01 percent of all the tickets we processed.

Paperless tickets aren't right for all events or usually even all inventory in a given event. But they are a great way to take a section of tickets and get a kid a great seat at a reasonable price. Fans love it. Teams and bands who want to use paperless should have the right to do so.

Questions? Comments? SportsBiz@cnbc.com