Ticketmaster Group, Inc. Business Information, Profile, and History

History of Ticketmaster Group, Inc.

Ticketmaster Group, Inc. is the largest ticket distribution company in the United States, completely dominating its market niche. The company distributes tickets for more than 4,000 clients whose events range from professional wrestling matches and rock concerts to Broadway shows and operas. Tickets are sold at more than 3,400 outlets nationwide, over the telephone, and through the Ticketmaster Online-CitySearch web site, which is run by a publicly traded affiliate of the company. Ticketmaster also has been branching out into international markets, making moves into Australia, Europe, and Latin America. Barry Diller's USA Networks, Inc. owns 100 percent of the company.

Early Years

Ticketmaster was started by two Arizona State University students who were looking for a solution to a problem they encountered when buying concert tickets. At the time, the buyer of a ticket was forced to select from the seats that had been allotted to the particular vendor from whom he or she was purchasing the ticket. If the vendor was nearly sold out, the buyer might be forced to buy bad seats even though better seats were available through other ticket sellers. Melees occasionally erupted when ticket buyers, after standing in line for hours at one place, found that the vendor was sold out or that better seats were available elsewhere. The system also was inefficient for promoters and owners of venues, who often had difficulty selling all of their tickets, despite unmet demand.

In 1978, the two budding entrepreneurs developed a solution to the problem. They created an innovative computer program that networked several computers in such a way that a person buying an event ticket at a box office could quickly select from the total reserve of seats available. Thus efficient computerized ticket vending was born, and Ticketmaster--the company that sprouted from student innovation--became one of several small vendors in the late 1970s and early 1980s that pioneered the industry. When it was starting out, in fact, Ticketmaster was just one of many small ticket-vending companies competing for a small share of the industry; the business had come to be dominated by ticket distribution giant Ticketron. Nevertheless, Ticketmaster, with its unique computer-based vending system, managed to increase its ticket sales to about $1 million annually by 1981. That amount was still less than one percent of the business controlled by Ticketron, however.

Ticketmaster's fate was changed in 1982, when Chicago investor Jay Pritzker purchased it. Pritzker, the wealthy owner of the Hyatt Hotel chain, paid $4 million for the entire company. He immediately brought in Fred Rosen as chief executive to manage the operation. Rosen, an attorney and former stand-up comic, brought energy and vision to the enterprise. He believed that the future of the ticket industry was in concert sales, rather than sporting events, in part because sporting event-goers often were able to circumvent service fees charged by ticket sellers by purchasing season tickets. But his feeling also arose from his observations about the dynamics of the concert industry. Indeed, if concert fans wanted to see a show badly enough, they would buy on impulse and would be willing to pay higher prices for tickets. Furthermore, the giant lines that formed at box offices for rock concerts indicated a great need for Ticketmaster's computerized service.

Aside from new computer and information technologies, other forces were at work in the ticket industry in the early 1980s that boded well for an innovator like Ticketmaster. In fact, the rock concert industry, among other entertainment businesses, was becoming much more complicated. Prior to the 1970s, bands were paid a lump sum--usually in cash just a few minutes before they went on stage--by the promoter of the concert. The promoter would agree beforehand to pay the band, say, $20,000, and any money left over would be used to pay the promoter's expenses and profit.

In the 1970s, however, bands started demanding more. They started charging minimum appearance fees, for example, and wanted a cut of the money generated from concessions and parking. The demands, in part, were the result of a feeling by top bands that promoters were taking advantage of them. But the increased cost of traveling and putting on a show also contributed the bands' desire for better compensation; fans came to expect much more in the way of expensive sound systems and special effects, for example.

One result of the new demands was that, after a concert, the band's manager and the promoter typically negotiated, or argued, about exactly how much the promoter and other involved parties would be paid. The new system increased the bargaining power of the bands, eventually boosting their take to 75 percent or more of the gross receipts. Meanwhile, the promotion industry was pinched. Many promoters saw their profit margins deteriorate to as little as one percent, despite the fact that they were still bearing much of the risk of a failed concert. To get the big name bands, however, promoters had to be willing to accept that risk and honor many of the group's requirements.

A New Strategy in the Late 1970s and the 1980s

That was the environment still evolving when Rosen took the helm at the fledgling Ticketmaster. Realizing the folly of trying to compete with the mammoth Ticketron using conventional industry tactics, he devised a strategy that exploited the frustrations of the promoters. He effectively offered to limit inside charges--the money taken from promoters and facility owners--thus reducing the promoter's risk. He would accomplish this by raising service charges on individual ticket sales and giving promoters a percentage of the proceeds. In return, the promoters agreed to give Ticketmaster the exclusive rights to ticketing for their shows. To boost service fees, Rosen implemented new sales techniques, particularly telephone sales service, which gave customers an alternative to standing in line. For the convenience, Ticketmaster was able to charge as much as a 30 percent premium, or higher in some instances.

Many promoters gave exclusive rights to Ticketmaster. Indeed, aside from guaranteed fees, the promoters benefited from Ticketmaster's state-of-the-art ticketing system. The company's computers could sell 25,000 tickets in just a few minutes, if necessary, which substantially reduced the promoter's advertising and related costs and improved customer satisfaction with the overall event. The arrangement worked so well that Ticketmaster eventually was able to secure long-term contracts with several major promoters for handling ticketing for all of their events. Promoters also viewed Ticketmaster as preferable alternative to the giant Ticketron, which many promoters believed had become arrogant and sloppy.

Despite steady gains, Ticketmaster lost money in the late 1970s and early 1980s as it scrambled to implement its expensive strategy. By the mid-1980s, though, the company was posting profits. To boost sales and market share, Ticketmaster began buying out smaller competitors in an effort to broaden its reach into major cities. It acquired Datatix/Select-A-Seat in Denver, for example, and SEATS in Atlanta. As it bought up more companies and drove others out of business, the number of competitors in the industry declined. At the same time, Ticketron's supremacy was rapidly waning. Aside from complacency, part of Ticketron's problem was that it lacked the investment capital afforded by Ticketmaster's deep-pocketed owner. Its ticketing systems soon became obsolete in comparison with those in use at Ticketmaster.

By the late 1980s, Ticketmaster had become a top player in the ticketing business and Ticketron was scurrying to duplicate Rosen's successful revenue-sharing strategy. But it was too late; Ticketmaster had mastered the recipe and was rapidly increasing the number and size of its contracts. In fact, Ticketmaster's relationship with, and control over, its promoters had evolved to the point where Ticketmaster was deeply entwined in the promotion business. That involvement was evidenced by a relationship in Seattle that finally ended in a lawsuit. In 1989, Ticketmaster made a loan and credit line guarantee valued at $500,000 to two of the area's top promoters. The promoters used the money to start a new operation promoting concerts in The George, a facility in central Washington. In that same year, one of the promoters launched another venture, PowerStation, to sell tickets in competition with Ticketmaster. Enraged Ticketmaster executives responded by withholding cash from the promoter's ticket sales through Ticketmaster. The promoter sued and finally settled with Ticketmaster out of court, but the PowerStation was shuttered and both promoters left the concert business.

Market Dominance in the Early 1990s

By the end of the 1980s, Ticketmaster was selling more than $500,000 worth of tickets annually. Ticketron was still considered an industry power, but its status was diminished and its long-term prospects were dismal. The only other competition consisted of a smattering of local and regional companies struggling to combat Ticketmaster. Ticketmaster finally delivered the crowning blow to Ticketron in 1991, when it purchased some of the company's assets and effectively rendered the company no more than a lesson in corporate history. Questions were raised about whether or not the buyout would give Ticketmaster a monopoly on the industry, but the U.S. Department of Justice approved the deal. With Ticketron out of its way, Ticketmaster was virtually dominant and its sales began rising rapidly toward the $1 billion mark.

Because it had so much control in the ticket industry, Ticketmaster came under fire from numerous critics following the demise of Ticketron. Some fans complained that Ticketmaster was raising its fees, reflecting a monopoly on the industry. Similarly, some promoters argued that Ticketmaster wielded too much power and that it was willing to abuse that power to get its way. Finally, some rock bands complained that Ticketmaster was gouging their profits with excessive fees, knowing that the bands had nowhere else to turn. Ticketmaster countered, citing rising operating costs and relatively modest overall company profits. Still, criticism continued.

Band discontent with Ticketmaster's tactics culminated in one of the most visible disputes with Ticketmaster on record: a complaint filed with the Justice Department by the popular rock band Pearl Jam, alleging that Ticketmaster engaged in monopolistic practices. Pearl Jam wanted Ticketmaster to drop its service fees to $1.80 per ticket, but the company refused to drop below $2.50. Pearl Jam rejected the offer and threatened to work without Ticketmaster. The band planned to find venues, such as fairgrounds and racetracks, that were not subject to Ticketmaster's exclusive contracts. Their efforts eventually failed and their concert tour fell apart. It was then that the band filed the complaint, and the Justice Department launched an investigation.

Ticketmaster argued that from about $1 billion worth of tickets sold in 1993, it generated revenues of $191 million in 1993, only $7 million of which was earned as net profit. That amounted to less than ten cents in profit per ticket. Critics complained that Ticketmaster was simply concealing the profitability of the business, but Rosen and his fellow executives were adamant that the industry was still competitive. 'Fifteen years ago, there was another company everybody said had a monopoly--Ticketron,' said Larry Solters, Ticketmaster spokesperson, in the July 31, 1994 News & Observer. He added, 'Ticketmaster did ticketing better. And I wouldn't be surprised if somebody else comes up with a better system someday. There are a million ideas out there. ... It's not that tough.'

After posting record sales and profits in 1993, Ticketmaster's fate was changed again when Paul Allen beat out several big media players in a bid to purchase controlling interest in the company. The 40-year-old Allen, who had gained fame as the cofounder of Microsoft, paid an estimated $300 million for his stake. Following his departure from the software giant, he had assembled an interesting portfolio of investments, many of which were related to the emerging information highway. He also owned the Portland Trailblazers basketball team and a charitable foundation, among other interests. Allen retained Rosen as CEO, but he had new plans for the company. In fact, he wanted to increase its sales threefold to fivefold within five years and expand into different distribution avenues.

Ticketmaster sold a whopping 52 million tickets to entertainment and sporting events in 1994 and captured about $200 million in revenues. Having nearly cornered the ticket market, it was setting its sights on several other media-related ventures. The company already was distributing a regional monthly events guide to about 600,000 customers, and it planned to use that as a base for creation of a new entertainment magazine. Ticketmaster also was working on a new on-line service, hoping to position itself as a one-stop shopping center for entertainment and event needs.

The company launched its new magazine, Live!, in February of 1996. Critics saw the publication as a thinly veiled attempt to brighten Ticketmaster's tarnished image. The magazine field was definitely a difficult one to break into, and Live! lost money from the start, costing its owners $11 million in the first two years. Other ventures introduced during 1996 included a hotel and airline reservation service, Ticketmaster Travel and Ticketmaster Online. The latter was an instant success, topping $3 million a month in revenues within a short time.

1996 IPO and Bright Prospects for the 21st Century

The biggest story for Ticketmaster in 1996 was its decision to go public. Paul Allen kept his stake, retaining control of 54 percent of the company after the IPO. The initial offering price had been considered high by many analysts, and it soon fell off. Within a year it recovered, however, rising to nearly double the original figure.

On April 28, 1997, Ticketmaster filed suit against Microsoft over that company's practice of 'deep linking' from its web site to an inner page of Ticketmaster's site, bypassing the company's home page and its logo and advertising content. To some users, it could appear that the Ticketmaster page was generated by Microsoft, rather than Ticketmaster. The suit was later settled out of court, with Microsoft agreeing to link only to Ticketmaster's home page. The year also saw the company's on-line ticket service merge with CitySearch's entertainment guide web site, and new investments in Australian and French ticketing companies. A joint venture with Jack Nicklaus's Golden Bear Golf to market golfing reservations was launched as well.

In May of 1997 Barry Diller's HSN, Inc. (soon to be known as USA Networks, Inc.) announced plans to buy out Allen's stake in Ticketmaster. The following year the company became a subsidiary of USA Networks when the remainder of its stock was acquired. After the acquisition, Fred Rosen stepped down as CEO, allegedly due to clashes with Diller. He was replaced by Terry Barnes. At about this time Diller acquired City Search, Inc., merged it with Ticketmaster's online operation to form Ticketmaster Online-CitySearch, Inc., and spun it off as a public company, retaining 60 percent ownership. In December a contract was signed with event promotion giant SFX Entertainment that guaranteed Ticketmaster exclusive ticketing rights for seven years. Diller and SFX Chairman Robert F.X. Sillerman had earlier engaged in a very public battle of words, but were able to bury the hatchet when it came time to do business.

A lawsuit over Ticketmaster's alleged monopoly on ticket distribution reached the Supreme Court in 1999. The court let a prior ruling, which was in Ticketmaster's favor, stand. Also during the year, an attempt to merge Ticketmaster Online-CitySearch with Lycos and USA Networks failed when Lycos shareholders rebelled.

In late 1999 and early 2000, Ticketmaster acquired several more of its competitors. These included Alabama-based TicketLink, multilingual ticketer Admission Network, Inc. of Canada, and ETM Entertainment Network, Inc., which had contracts with the Los Angeles Dodgers and New York Mets, among others. The company also sued Tickets.com, in conjunction with Ticketmaster Online-CitySearch, over alleged deceptive practices involving its web site. The appeal of buying tickets online was growing steadily, with 40 percent of some events' seats selling over the Internet. As a result, Ticketmaster's telephone operators were taking fewer orders, and the company shut down several of its call centers. Tickets purchased on-line were still mailed to customers, but new technology was being tested that would allow them to be printed at home, further streamlining the process.

At the start of a new century, Ticketmaster's dominance of the ticket distribution business in the United States looked unassailable. With its exclusive agreement to sell tickets for SFX Entertainment events, its successful co-venture with Ticketmaster Online-CitySearch, and the favorable resolution of antitrust allegations, the company's future seemed bright.

Principal Subsidiaries: Ticketmaster Ventures, Inc.; Ticketmaster Corp.; TMC Realty Holdings, Inc.; Ticketmaster Publications, Inc.; Ticketmaster Travel Corp.; TM/Video International, Inc.; Ticketmaster Advertising, Inc.; TMC Consultants, Inc.; Ticketmaster Tell Ltd.; Ticketmaster-Direct, Inc.; Cinema Acquisition Corp.; Ticketmaster Cinema Group, Ltd.; TM Movie Tix Holdings, Inc.; TM Marketing, Inc.; Ticketmaster Merchandising Corp.; Ticketmaster-Golf, Inc.; MFG Management Corp.; TM Flowers; TM National Flora LLC.

Principal Competitors: LM Loyalty Management; Neighborhood Box Office; NEXT Ticketing; Prologue Systems; Tickets.com, Inc.

Chronology

• Key Dates:

• 1978: Ticketmaster is founded by two Arizona State University students.
• 1982: Jay Pritzker purchases company, beginning a period of growth.
• 1991: Main rival Ticketron is acquired, giving the company market dominance.
• 1996: Ticketmaster goes public, launches on-line, travel, and magazine ventures.
• 1997: On-line service merged with CitySearch; Barry Diller acquires 47 percent of company.
• 1998: Diller's USA Networks acquires remainder of Ticketmaster; spins off on-line operations.
• 1999: U.S. Supreme Court refuses to review antitrust lawsuit appeal in a victory for company.
• 2000: Acquisition of Admission Network and ETM Entertainment Network.