In defence of Ticketmaster’s ‘dynamic pricing’ model for concert tickets

Earlier this summer, Bruce Springsteen fans were shocked to find nosebleed seats for his 2023 tour selling for as high as US$5,000. Cue the outrage. It certainly seemed that someone was engaging in a little price gouging. And in the dog days of summer, this story became low-hanging fruit for multiple news stories over a couple of weeks.

How could Springsteen, this man of the people and working class, be charging so much for tickets, especially when he got US$550 million for selling his catalogue? How could Ticketmaster be brazen enough to charge these kinds of prices? And why didn’t Springsteen speak out? His silence says he must have been complicit! It’s greed, I tell you! Nothing but over-the-top greed!

Hang on, bucko. There’s more to the story — and the overall result is actually good news for music fans, great news for artists, and bad news for scalpers. Let’s start from the beginning.

Before an act goes on tour, there are meetings with agents and promoters to determine how much it will cost and how much of a profit everyone hopes to make. Many spreadsheets are filled with calculations involving everything from how many trucks and roadies will be needed to the number of dates that have to be scheduled and the percentage of tickets that need to be sold for each date. The net result is a tiered set of ticket prices. The closer you are to the stage, the more expensive the ticket’s face value.

Science, educated guesses, wishful thinking, and voodoo are all involved in striking the perfect balance between maximizing profit and not exploiting fans. In short, the goal is to find an equilibrium between supply (the limited number of seats available) and demand (the larger number of bums that want to occupy those seats).

Demand has always been high for Springsteen tickets largely because he doesn’t hit the road that often. And given that The Boss will turn 72 in September (not to mention that the rest of The E-Street Band is also getting up there), fans have to wonder if this might be the last go-around. This prompted extra demand right out of the gate.

When the on-sale date arrived, fans — thousands and thousands of them — rushed to Ticketmaster en masse. That’s when they got a severe case of sticker shock. Cue the outrage.

But then a strange thing happened. When people refused to pay, the price of those nosebleed seats started dropping. And they kept dropping. After the dust settled and the news cycle moved on, some interesting figures started appearing.

• 88 per cent of tickets were sold at set prices, ranging from US$60 to $US399 (before taxes and fees). The average price paid? US$202.
• 56 per cent of fans paid less than US$200.
• 11 per cent forked out between US$150 and US$200
• 27 per cent parted with between US$100 and US$150
• About 18 per cenbt of all available seats sold for less than US$99.
• Only one per cent of all tickets sold for more than US$1,000.
• The average price of a ticket for the entire tour was US$262.

Huh. Where was the follow-up? Nowhere. Raging against greed makes for a much better story. Here’s what really happened.

Ticketmaster has adopted something called “dynamic pricing.” This is when the price of a commodity rises and falls with demand between the date the commodity goes on sale and the date it expires. It’s used in a ton of industries. Hotels use dynamic pricing to determine the room rate for a given night (I learned that from the Trivago guy). You may have found yourself on an airplane next to someone in an identical economy seat who paid less than you because they booked early and you had to buy yours closer to the departure date. And have you ever used Uber when surge pricing is in effect? That’s dynamic pricing.

Acts, managers, agents, and promoters are keen to adopt these principles because this could be the most accurate way to determine the true market value of a concert ticket. At the same time, this could deal a death blow to secondary ticket sellers and scalpers.

Artists are always concerned about appearing to be greedy, so they underprice their tickets, potentially leaving a huge amount of money on the table. Inevitably, a chunk of tickets ends up in the hands of the secondary market, which then charges a premium on top of the face value. Once that ticket is sold, that premium — which could be many, many times the face value of the ticket — is pure profit for the secondary seller. The artist, promoter, and venue get none of that cash.

In other words, the scalper makes money on the labour of the artist while not compensating the performer. That doesn’t seem fair, does it?

If you study the secondary market, you’ll see it has its own dynamic pricing practices. In the early days, prices can be insane. And yes, the closer we get to showtime, the price of a ticket can go up — we only hear about those situations — but the price can also go down if demands soften and the seller needs to unload the ticket at any cost to mitigate potential losses.

If you take a macro look at things, we arrive at the true market value — the perfect price fans are willing to pay and the amount of money a performer deserves to make — around 24 to 48 hours before the performer steps onstage.

Ticketmaster has merely taken this model and applied it right from the moment tickets go on sale, using a variety of analytic tools involving real-time data and historical models to monitor the push-and-pull of supply and demand. The theory is that this allows the artist to capture the full value of a ticket. And this means they get paid what they deserve for their talent and labour.

In Ticketmaster’s words, this “captures more value for the artist at the initial onsale vs. that value going to people reselling tickets on the secondary market.” Seems fair to me.

Yes, $262 is a lot of money. But given that a Springsteen show in your town isn’t something that comes around that often, that’s not out of line with other rare entertainment or sporting events that happen on a regular basis.

In his newsletter, music commentator Bob Lefsetz points out (among other things with this story), that a ticket to this Springsteen tour is cheaper than the World Series or the Super Bowl.

Music fans should get used to the realities of dynamic pricing for concert tickets. There’s nothing special about this particular commodity. No one deserves to go to a show at a cut-rate price.

Tickets are purchased with discretionary income with after-tax dollars, just like any other luxury item. You pay what you have to or you don’t pay at all. Concert tickets are perishable things. In the end, it doesn’t matter who is selling them. They can be worth a lot. But once the show starts, they’re worth zero.

Dynamic pricing works just fine in other industries and we’ve adapted. So why not with concerts?

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Alan Cross is a broadcaster with Q107 and 102.1 the Edge and a commentator for Global News.

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