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Can Ticketmaster’s Builder Now Unseat It?

FREDRIC D. ROSEN has winked through Steely Dan, blinked through Neil Diamond and nodded through the Rolling Stones.

Music, you see, isn’t his thing. Money is.

Concert
Ryan McVay | Stone | Getty Images
Concert

Mr. Rosen, 67, is the godfather of the $18-billion-a-year tickets business. Go to almost any big-name concert — or to a Dodgers game or to a Broadway show — and the odds are that you will pay dearly for his legacy.

Those you’ve-got-to-be-joking prices are, in good part, Mr. Rosen’s handiwork. Starting in 1982, he built Ticketmaster into the tickets giant that drives many people nuts. Even before the company merged with Live Nation Entertainment last year, fans and even some performers, like Pearl Jam, complained that it was a near-monopoly. Despite the protests and a nail-biting antitrust investigation, the Justice Department disagreed and approved the merger.

So it might come as a surprise that Mr. Rosen, of all people, wants to challenge this behemoth, which sells tickets for more than 80 percent of the major concert venues. Mr. Rosen walked away from Ticketmaster 13 years ago, after a love-hate relationship with one boss, Paul Allen, and then a battle of wills with another, Barry Diller. But now Mr. Rosen is back and is hoping to reinvent the global ticketing business again.

Just don’t expect cheaper seats for Lady Gaga, the Strokes or the Yankees.

Mr. Rosen wants to cut out the middleman — that is, Ticketmaster — by putting ticketing back in the hands of arenas, concert halls and clubs. Last year, he signed on as a partner at a start-up called Outbox Enterprises, which helps venues use their own Web sites to sell tickets, merchandise and services directly.

For all its success, he says, Ticketmaster seems outdated: “Did I really think the model that I created 30 years ago would last for 30 years? Nothing lasts for 30 years,” Mr. Rosen said.

Representatives of Live Nation and Ticketmaster declined to comment.

Industry analysts say Outbox looks like a long shot. Ticketmaster sold 25.1 million tickets to concerts globally in 2010, more than double its closest rival, the Anschutz Entertainment Group, which sold 12.5 million, according to Pollstar.

Despite the David-versus-Goliath odds, former business partners, analysts and even Mr. Rosen’s harshest critics aren’t betting against him. They say they believe that if anyone can challenge Ticketmaster, it just might be the man who built it.

“If any start-up has a chance, it would be his,” said David C. Joyce, a media analyst at the brokerage firm Miller Tabak & Company. “But it’s going to take years.”

THE YEAR was 1982. “Eye of the Tiger,” that “Rocky III” anthem, topped the Billboard charts — and Fred Rosen joined Ticketmaster.

Mr. Rosen shook up the ticketing industry by allying himself with venues and promoters. They were his customers — not the fans, and not the performers. He rolled out a centralized distribution system that let people buy tickets over the phone, through retail outlets and, later, online, saving them the trouble of having to line up at a box office.

He bet that arena owners and promoters would sign up in droves if they were offered a percentage of every ticket that was sold using a “convenience” or “service” charge, and he was right.

He secured exclusive contracts that made Ticketmaster the only game in town for tickets at many arenas and concert halls. Today, Ticketmaster accounts for roughly 70 percent of all tickets sold for American arenas, music clubs and professional sporting events, excluding all-season sports tickets, according to John Tinker, an analyst at the Maxim Group.

But now as then, Ticketmaster earns nothing from a ticket’s face value. That goes to the venue, the promoter and the talent. Instead, Ticketmaster makes its money from fees — lots of them. There is the service fee — basically a charge for using Ticketmaster. Then there is the processing charge, for handling the order. And the delivery charge, for mailing or e-mailing the tickets. There’s also a building facility charge, but this generally goes to the venue.

These fees add 15 percent to 20 percent, on average, to the cost of a ticket — sometimes more. Ticketmaster gives a cut of the fees to venues and promoters to keep them sweet.

The strategy worked. When Mr. Rosen joined Ticketmaster, the company had about 25 employees and annual ticket sales of less than $1 million. When he left, in 1998, it had 5,000 employees and sales of $2.4 billion. In 2010, the combined Live Nation-Ticketmaster had 6,500 employees and sold $7.2 billion in tickets.

“He built that whole industry,” David E. Liddle, a partner at U.S. Venture Partners and a former member of Ticketmaster’s board, said of Mr. Rosen.

And his goals with Outbox are ambitious: Mr. Rosen expects it to generate $1 billion in sales and employ 500 people within three years.

Live Nation’s merger with Ticketmaster created considerable discontent among venue owners and promoters who oppose market dominance. And Mr. Rosen is hoping to cash in on this unrest.

“The merger really set off all kinds of bells and whistles in my head,” Mr. Rosen said. He likens Live Nation to Ticketron, which was the dominant player until Ticketmaster came along. (Ticketmaster bought Ticketron in 1991.)

“You have to remember that Ticketron was around for 25 years,” Mr. Rosen said. “I made everyone change how they buy tickets.”

Prefering the Underdog

FRED ROSEN talks New York fast. He leans back in his chair tells stories. Like the one about waiting tables and doing stand-up comedy as a teenager in the Catskills.

“You haven’t lived until you’ve died at 3 o’clock in the morning at the Bungalow Colony where the woman is hitting her husband in the side, going, ‘Morris, was he funny — what did he say?’ ” Mr. Rosen recalled.

A product of comfortable middle-class surroundings in New Rochelle, N.Y., and a graduate of Brooklyn Law School, Mr. Rosen started his business career as a lawyer. Then a meeting with Jay Pritzker, founder of the Hyatt hotel chain, changed his life.

Mr. Rosen was working as a lawyer for a little-known, struggling company called Ticketmaster when he came up with an idea: create a centralized system, tack on fees to every ticket sold and give venues a cut. Mr. Pritzker agreed to finance the plan, on the condition that Mr. Rosen become Ticketmaster’s chief executive, not just its lawyer. The deal was struck on a handshake, and the two remained friends until Mr. Pritzker’s death in 1999.

Friends and former colleagues have no shortage of adjectives for Mr. Rosen: combative, charming, profane, genius, controlling, intimidating, as well as a few best left unprinted. All agree that his larger-than-life personality was the force behind Ticketmaster’s success — and is likely to be pivotal in the ultimate success or failure of Outbox.

“Fred is a bulldog,” said Timothy J. Leiweke, the C.E.O. of the Anschutz Entertainment Group, or AEG, which operates, among other things, the Staples Center in Los Angeles. “When he gets hold of your leg, he’s not going to let go so easily, and you better have a tetanus shot.”

Venue owners and promoters loved Mr. Rosen because he cut deals that allowed them to collect profits — some fans called it kickbacks — from each ticket that was sold. Mr. Rosen bristles at the word kickback.

“It’s a rebate, and it’s legal,” he growls.

Still, Mr. Rosen played tough. Jerry Seltzer, whose Bass Tickets teamed up with Mr. Rosen in 1982 to expand Ticketmaster’s service into California, witnessed Mr. Rosen’s business style early on.

He recalled Mr. Rosen telling one promoter that if he didn’t sign up with Ticketmaster, then “don’t ever think you can play in one of my buildings ever again.” As the two were leaving the building, Mr. Seltzer said: “Fred, what the hell are you doing? We don’t have any other buildings!” Mr. Rosen replied: “We will someday.” The promoter, in any case, signed on.

Mr. Rosen wouldn’t take no for an answer. And his language could make a sailor blush.

“It was a pretty bawdy office,” recalls Alan Citron, who ran Ticketmaster’s online operations from 1995 to 1998. “Fred used to say the only four-letter word you weren’t allowed to say in the office was ‘free.’ ”

Mr. Rosen’s door was always open, but patience wasn’t his strong suit. He kept an egg timer on his desk and gave employees three minutes to explain problems. “I just didn’t want to wait 20 minutes to get to the punch line,” he recalls. He says he has since mellowed.

Mr. Rosen was never star-struck by performers, and sometimes even napped in the middle of big-name shows.

Mr. Allen, the Microsoft co-founder, reminisces in his book “Idea Man” about attending a Steely Dan show at the Hollywood Bowl where “Fred slept through most of the concert.” Mr. Rosen disputes that account but admits to having fallen asleep during a half-dozen other concerts, including ones by the Rolling Stones and Neil Diamond.

Mr. Rosen confused and frustrated Mr. Allen, who bought a controlling stake in Ticketmaster in 1993. In his book, Mr. Allen recalled how Mr. Rosen fought him over taking Ticketmaster online.

“He’d metamorphose into a high-decibel, old-school promoter and I’d hold the phone three feet from my ear as I tried to get a word in,” Mr. Allen wrote.

(Mr. Allen declined to comment for this article.)

Mr. Rosen eventually agreed to sell tickets online. He says that he never opposed the idea, but that he was just worried that someone might hack into Ticketmaster’s system. “Some kid could go, ‘Hey, I’ve got all the tickets to U2,’ ” he says.

In the end, “Rosen fatigue took its toll,” Mr. Allen wrote, and he sold his stake in Ticketmaster to a Barry Diller company, USA Networks, without telling Mr. Rosen until the deal was done. Mr. Rosen offered to buy Ticketmaster himself, but was told that it was too late.

When Mr. Diller took control, Mr. Rosen met his match. Two alpha dogs wanted to control one company.

Mr. Rosen quit in 1998.

AFTER that, Mr. Rosen moved in and out of a number of sectors with little success. In 2000, he jumped into the trade show business through Key3Media, which owned the Comdex technology show, among other events. But the tech bust and the travel downturn after Sept. 11, 2001, forced the company to seek bankruptcy protection in 2003.

“That was my lowest moment,” Mr. Rosen recalled. Shortly thereafter, he entered, of all things, the traveling carnival show business. But that didn’t take off, either.

In 2007, his thoughts turned again to tickets. The explosion of Internet sales and sites got him thinking. He joined AudienceView, a Toronto ticketing company, but left after eight months. Then, last year, after sensing the discontent over Ticketmaster’s merger with Live Nation, he approached Jean-Francoys Brousseau, a former chief technology officer at Ticketmaster who had started Outbox.

“There was nobody out there that knew the business as much as he did,” Mr. Brousseau said of Mr. Rosen. Outbox had already signed up Cirque du Soleil, and, with Mr. Rosen onboard, managed to sign up AEG as a partner as well.

When the Justice Department approved the Live Nation merger, it stipulated that AEG would be allowed to use Ticketmaster’s technology for five years, at which point it must switch to an independent platform. This was intended to ensure that competition remained in the ticketing industry. Outbox gives Mr. Leiweke and AEG a head start.

“I’m cheering Fred on mightily,” Mr. Leiweke said.

Many of the venues, however, are locked into long-term contracts with Live Nation — five years, on average, according to Benjamin Mogil, a director at the Stifel, Nicolaus brokerage firm.

Mr. Rosen said that about 20 percent of those contracts, which represent more than 100 venues, come up for renewal annually. He said new approaches to ticket pricing — like selling tickets, parking and food as a package — and flex pricing could tip the scales. He is also in talks with phone companies to put mobile ticket purchases on a person’s phone bill, which would make it easier for people to buy tickets using cellphones.

Even Mr. Diller, who resigned as chairman of Live Nation last year after a boardroom struggle, isn’t ruling out Mr. Rosen’s new venture.

“It’s what he knows, and he knows it awfully well,” Mr. Diller said.

Mr. Rosen, for his part, just seems happy to be back in the ticket game. “I always prefer to be the underdog,” he said. “As the underdog, no one expects anything.”

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