Venture capitalist and investor in Seatwave Fred Destin explains why the recent Channel 4 Dispatches programme about ticketing was so wrongheaded, and why Seatwave should be celebrated as an innovative British business.
A couple of weeks ago, Channel 4 ran a pretty explosive (and sensationalist) piece of programming on practices in the live event ticketing business entitled The Great Ticket Scandal. The program, part of the Dispatches series, was primarily fuelled by the work of undercover reporters who posed as employees at the two leading secondary ticketing companies, Viagogo and Seatwave.
It garnered a ton of attention before airing because of an unsuccessful attempt in court by Viagogo to bar the content from airing (to “protect customer information from being made public“… I mean, c’mon). The program highlighted some pretty despicable business practices and made me squirm at times. It’s not pretty viewing.
I am an investor and board member in Viagogo’s main competitor, Seatwave, which was also portrayed in the program. We only got about ten minutes of exposure in a one-hour program and there wasn’t anything particularly juicy in it, although it clearly was not comfortable for those who found themselves on camera. It does not stop us being tarred with the same brush as our aggressive competitor, however.
Joe Cohen, the founder and chief executive of Seatwave, which we at Atlas Venture backed right at company creation stage, felt he had nothing to hide and took to Twitter and his blog to comment transparently and in real time on the program. As an investor, I don’t feel like I have anything to hide either, so I thought I would try to share my thoughts on the whole matter and the business model of Seatwave.
We created the company because we believe in the vision of a transparent and dynamic ticketing industry. We don’t see ourselves as selling tickets: we deliver a great experience around events. We want to take the stress away from buying that ticket, getting through the gates, and waiting for the lights to go down.
We believe in the disruptive power of marketplaces as an economic force of transparency. We believe in the disintermediation of opaque markets and in power to the people. We recognize that it takes time: that legislation will change well after the technology and behaviour have forced it to, and we recognise that right now we are the tip of the iceberg of an industry in flux. But our focus is on the long-term vision.
Let me take you through Seatwave in three points:
1. The driver: the existence of a thriving (offline) secondary market
We started Seatwave based on the simple observation that there was a thriving business on the other side of the Atlantic called StubHub which had an amazing net promoter score from its consumers and great economics. For the business opportunity to exist, we needed a large secondary market and that condition was met: we estimated at the time that there was a multi-billion pound secondary ticketing market in existence that was marred by extremely poor customer characteristics: offline (hence inefficient), ripe with fraud (hence a risk for consumers) and underground (sometimes forcing consumers into illegality).
2. The promise: ticket integrity
Our thinking was fairly simple: take this murky and inefficient market and transform it into an online marketplace built on a simple foundation: we will get you to the event that you want to get to and we will get you into the seat you paid for. This means doing something costly and complicated: moving the tickets from the hand of a willing seller, while ensuring they’re legitimate, and delivering them to a willing buyer.
3. The medium: a marketplace
Seatwave is a marketplace: sellers post tickets and decide at what price they are offering the supply, and buyers buy. Seatwave’s job is to present the inventory of tickets in the best possible way (in other words, to build a great website) and make sure tickets get sold (get traffic to the site and convert that traffic into sales).
We live in an age of markets. Pretty much everything can be priced dynamically based on supply and demand. Price discovery happens on tickets as it does on everything else. To get the market to be most efficient (that is, best for the end consumers) you need rich inventory: diversity and volume. At Seatwave we have always gone out of our way to get as many fans and sellers as we could, whether it’s people who cannot go or fans who decide to fund their addiction by reselling one of their tickets above face value when ticket prices have gone up.
There is an ample body of evidence that shows that marketplaces over time tend to drive optimal low pricing once they are highly efficient.
I won’t talk at all about Viagogo: you can watch the broadcast, or read this great summary from Clyde Smith at Hypebot, and draw your own conclusions. Let’s just say we always made it a policy at Seatwave not to be trading tickets, not to buy tickets for our own account except when filling in broken orders for our clients when tickets were not delivered or turned out to be fakes, which is thankfully rare. We don’t want to compete for ticket inventory, make money on tickets beyond the margins we charge, or to be speculating on ticket prices.
But let’s talk about some of the key issues raised by the programme.
1. We drive the secondary market
From the programme, you’d think we invented secondary ticketing. The reason our business was started was that (a) there is a need for the ability to resell tickets and (b) the secondary ticket market existed but represented a terrible and exposed experience for buyers. We took an existing market and made it visible and safe.
I found Paul Mills, writing for the Guardian, completely misguided when he blamed technology platforms for industry practice. It reminded me of when the French police accused the founder of DailyMotion of spreading anti-Semitism because of an offensive video on the site. (His name being Bejbaum, the whole affair was a bit surreal.)
2. Secondary markets drive true fans away from events
As we know the music industry’s recorded media revenues seem to be trending to zero and hence live events are now where all the money is being made. Venue owners have become highly professionalised and look to optimise revenues.
I have a lot of sympathy with the complaint that live events are becoming increasingly expensive and end up being taken over by corporate sponsors who send employees in Siemens jackets who have no passion for the music. True fans often cannot get their hands on inventory and for heavily-sold events end up paying through the nose.
I have no easy solution for this. I suppose that if I were an artist I would pay close attention to the distribution of tickets and create a community of “VIP fans” around me that I could allocate tickets in priority at fair prices.
Right now, tickets go through a so-called “on sale” process which tends to be a free for all, favouring those who have developed expertise in getting their hands on tickets, not to mention of course the pretty systematic “ticket leakage” from those actually organizing the events.
I am not entirely sure how to solve that situation either, but it almost certainly starts with a clear plan on the part of the artist and their manager and promoter defining exactly how much money they want to make and how to adequately control the distribution and allocation of tickets.
To a certain extent, the discontent is also symptomatic of the fact that live events are becoming more expensive. The music industry is shifting from paid content to distributing music for free (or through subscription services), making up the shortfall on live events. Combine this with the increasing complexity of the shows, it is logical that prices in general trend higher.
In any event, you can shoot at the ticketing marketplace, but it’s just a place where people buy and sell tickets. We don’t invent the supply or set the prices.
3. ‘It’s unfair to resell above face value’
Pricing tickets is hard. Take airline tickets as a proxy. If you are an airline, you are selling a perishable item whose supply is limited. There is a reason why airfares are backed by some of the most complex mathematical pricing algorithms in the world: it’s really hard to do. Airline ticket pricing is incredibly dynamic.
Live event tickets are simpler (one location, one event) but they share many of the same characteristics. If concert organizers set the prices too high they don’t clear inventory, but it’s very hard for them to find out what the right clearing price is for a ticket. Fans will have a perception in their minds about what fair pricing is, based on history and perceived value, but sometimes that pricing is wildly off what some individuals are willing to pay for a once in a lifetime experience.
Take Michael Jackson as an example: who is to say what his final tour tickets should have been worth? Suitably expensive? Priceless? How much should AEG have paid in insurance? What would happen if Michael Jackson had not died but cancelled half of his shows? What is the marginal price for the last Michael Jackson at the O2? I don’t know the answers to these questions.
If you ask a trader to price the tickets, he will define algorithms based on a ton of data input to maximize his overall take. Only an artist and his manager can decide that they want to cap ticket prices and effectively “share the value” with the fan constituency. I think I would, too, if I were in that position.
The point is: face value is an arbitrary number, a construct enshrined in law a long time ago. But ticket values are dynamic, just like airline tickets. I can’t tell how hot the next Arcade Fire tour is going to be and, I believe, that if you think the tickets are too expensive you can always decide not to buy them.
Also remember prices go down as well as up. On Seatwave, we regularly get asked to shift so called “distressed inventory”, as promoters try to limit their losses on events that did not sell well.
4. Regulate! Cap ticket prices!
There are calls to cap ticket prices (including calls by Radiohead). You can always blame the marketplace that makes the price visible, but you’ll only drive the business underground again. Marketplaces are occurring everywhere: in fact, we truly live in an age of markets.
From airline pricing to online display ads to cars in reverse auction marketplaces, most things can be dynamically priced. Marketplaces drive transparency and fairness and push prices down because they reduce transaction costs. This has been true since the first exchanges sprung up for agricultural goods and it is still true today.
The future of live events
The ticketing industry of the future looks like this: tickets are all fully digital, they have no face value, they cannot be faked and they are freely transferable between holders. Artists decide together with the venues where their fan base gets privileged access.
There is a negotiation between the artist and the venue owner to decide to what extent they want to maximise profits and to what extent they want to offer access to fans of more limited means. Smart artists and venues recognize that true fans are the soul of the party and they go out of their way to provide access to their most loyal followers (who in turn tacitly agree not to consume pirated music… erm).
Live events are also broadcast in HD or 3D. Fans who could not attend set up parties where the concert is projected, holding a “mini live event” at outside premises. The venue sells access to the stream.
I cannot fix the current practices of the artists, promoters, venues and fans, but I firmly believe we are part of the solution and not the problem. We want to be everywhere there is a ticket to buy or sell and provide a transparent and secure experience to the fan, whether it be primary or secondary, premium or distressed.
This post originally appeared on Fred Destin’s personal blog.