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Thursday
Dec232010

The Beatles Tell Us That We've Hit The Concert Price Ceiling

The recent release of the Beatles catalog on iTunes made me think - what did a ticket to see them at their live peak cost? 

Answer: a prime seat to see the Beatles in Chicago 1966 cost $5.75 - in today’s dollars this is $37.60 - almost ten times less than what you would pay for a huge act today. 

Things were different then of course - touring was done mainly to promote record sales and tickets were priced below market purposely to make sure shows were safely sold out and to reward fans for their record-buying loyalty.  This produced what economists call a consumer surplus.  Some of that surplus was soaked up by the secondary ticketing market.

Then things changed last decade as recorded music revenue declined, bands toured more, and ticket prices went up - dramatically. According to Pollstar, in 2000 the average ticket prices was $41.  In 2008, it was $67 - a 40% increase in just 8 years.

Normally when a price increases that much you’d think demand would go down.  But the total revenue for the concert industry kept going up - exploding, really. A couple explainations: 1) tickets were  underpriced 2) demand for concerts was relatively inelastic.  (Economists call demand inelastic when people’s demand for things isn’t that sensitive to the price - like beer and cigarettes.)

Plotting Pollstar data of the average ticket price vs. total box office gross from the years 2000 - 2010 revealed an interesting total revenue curve:

 

The data points create a nicely fitted trend line. On its own it says that the demand was there all the time and that the industry responded by providing the supply and upping the prices.  Promoters were increasing ticket prices and people kept buying more - the opposite of what you would expect from price increases of this nature.

But the upward price trend can’t go on forever.  Once you hit a certain price point you’ve soaked up the excess demand and now your good (concerts) is subject to more competitive alternatives for entertainment (i.e. movies, video games, booze).

The chart suggests that we’ve reached that price point.  In 2008 (during a raging recession) average ticket prices jumped at its highest rate in the decade to $67.  Gross box office revenue set a record of $4.2B.  But that was actually a softer revenue figure than the trend line - if you follow the line, at that price revenue should have been closer to $5B.  But it wasn’t - demand fell at that price.

In 2009 ticket prices declined (and for the first time) but the industry had its best year ever with $4.6B in box office revenue and a record numbers of tickets sold, even better than what the trend suggested would be the case.

In 2010 the industry experienced a well documented decline.  But looking at the graph the year 2010 looks like it is falling into line with the past years.  What I gather from this is that the concert industry as a whole cannot depend on continued price increases for tickets to grow the industry.  Once we get past the $60 mark for average ticket prices, you will start to see more unpredictable results than the world when tickets were safely underpriced.  We saw that this year with discounting after on-sale, excessive papering, and cancels - all things that have toxic effects for the industry as a whole.

So increases in total revenue are going to come from more shows and tickets, not price increases.  To increase profit in a slower growth industry, costs are going to need to come down, more efficiencies need to be wrung out.  (I’ll talk about the cost side of the concert industry in another article - do we really suffer from Baumol’s Cost Disease?)

Getting back to the Beatles - you obviously cannot pay $37 in today’s dollars to go see the 1966 Beatles.  However, you can go see the Beatles tribute act Rain (I hear it’s very good) for $129.

Brian Carpizo is the CEO of Eventric, a provider of software and online services for the professional live entertainment industry.  He can be reached at brian (at) eventric.com.

Reader Comments (13)

I remember my first-year Economics professor using concerts as a prime example of the disparity between supply and demand. Seems like we've hit the sweet spot for concert ticket prices now though if this data is any indication.

December 24 | Unregistered CommenterClayton Drake

At the Billboard Touring Conference in NYC in November, various industry pundits debated their theories as to why 40% of concert tickets were unsold, yet they bemoaned discounting. Here are a few DUHs from a ticket buyer standpoint:

1) When every ticket price is inflated with convenience charges, handling fees, facility fees, etc., so that a $50 ticket ends up being $65 or more, a lot of people can't afford those tickets. Stop socking ticket buyers with all those extra charges. You'll sell more tickets.

2) If people have a limited budget, and have to choose between two acts they like equally, they'll choose the one with the lower ticket prices or the one who tours less frequently.

3) If agents/promoters/venues don't want to discount tickets to sell off their "distressed inventory," because people will try to wait until the last minute for those discounts, then here's an idea: When tickets go on sale, discount a limited number of tickets for a limited amount of time. Those will sell immediately, and people who couldn't get those tickets will pay full price, because they know the price won't be going down.

5) If 40% of a concert's tickets aren't sold, then that act shouldn't be playing a venue that big.

6) Promoters need to curb their greed.

December 27 | Unregistered CommenterKris DiLorenzo

Kris's comment holds many valid points. Discount your damn tickets. It's common sense leading to dollars and cents.

To add another voice to reinforce his points:

1) You like adding convenience charges and facility fees? Consumers do not think like the industry. They do not see overhead or costs hiring security or paying for riders. They see, pure and simple, consumer fleecing when their ticket price jumps from $50 to $65 when you're trying to purchase. Be upfront. Don't piss off the people purchasing, don't be AT&T.

2) Second. Sure, I love Deftones and Lady GaGa...but for the prices they charge, I will surely have more fun going to see a $20 show and spending the price difference on drinks and merch. Why? I see more benefit out of the cost. It's also called cost benefit analysis.

3) It's worked with Lollapalooza.

December 28 | Unregistered CommenterJohn

The cost of the tickets go up but so does the cost of the cost to tour. Gas in 1966 was around .32 a gallon.

how much was insurance in 1966?

How much was a PA?

How much were the Unions?

How many regulations did a venue have to deal with?

How much did ASCAP AND BMI take?

How much was security?

ETC.

December 28 | Unregistered Commentervinyl record fan

"Once we get past the $60 mark for average ticket prices, you will start to see more unpredictable results than the world when tickets were safely underpriced. We saw that this year with discounting after on-sale, excessive papering, and cancels - all things that have toxic effects for the industry as a whole."

Any evidence for that part? Not doubting, just want something with more meat than your say-so, and more actionable details.

December 29 | Unregistered CommenterJustin Boland

Uh, John-- Don't assume I'm a male. I'm not. I'm a smart woman.

Also, to address comments by both John and Vinyl Record Fan:

Prior to Ticketmaster/Live Nation becoming a monopoly, security costs were built into a promoter's budget, as were rider demands (even the red M&Ms --inside joke for old-timers). Those deals were negotiated by agents. The reason they're now foisted on consumers as extra costs is that promoters and middlemen (Ticketmaster) have gotten greedy. Either that or the agents are less competent. (Wish you were here, Bobby Brooks!) Only certain artists are greedy. In fact, early in his career Springsteen tried his damnedest to keep ticket prices down.

As for overhead costs: tickets used to be processed by human beings who, presumably, were on salary--necessitating more overhead than computerized ticketing does. Yet those ticket prices were in line with the general economy, and didn't have extra charges. Now that computers handle most of the labor burden and don't need medical benefits, and most communication is electronic, why should processing tickets cost more?

And what the hell is a "facility fee"? A charge to set foot in the venue? The cost of union labor, lighting, etc. should already have been figured into the ticket price.

The fact that touring costs have risen is the excuse given for the extra charges. In an age where corporate sponsors pick up a huge chunk of production and advertising costs for major acts, there's no excuse for extra ticket charges. Consumers basically now are reimbursing Miller Lite and other sponsors, who also profit enormously by selling insanely overpriced "merch" at concerts...where there is no choice of brands. No Coke-- Pepsi (another old-timer joke).

The acts whose tickets are most expensive don't pay for gas-- they take airplanes. The airline gouges the passengers for the cost of gas. Some acts bring their own PA system--paid for once, not over and over again (until it breaks down). A venue's PA is permanently installed; any "rental" costs should've been included in the agent's deal, along with union costs and security. The promoter pays for insurance, and it doesn't necessarily vary with each act. ASCAP and BMI have nothing to do with touring; they monitor publishing.

The net: extra ticket charges are bogus, and I hope there's a mole in Live Nation who will tell us all the breakdown of where exactly the money goes. The "convenience fees," etc. are just pseudonyms.

Yep, just like AT&T, T-Mobile and all the other carriers whose extra fees jack up a $29.99 monthly fee to $45...and claim that the money goes to the government, to paying for 9/11, for Emergency Services, etc. It's still coming out of our pockets, not theirs.

Oh yeah, and what do the execs at these institutions make as a yearly salary, plus incentives, stock options, etc., that they can't allow a $10 ticket reduction? Some nitwit at the Billboard Touring Convention asked, "Does $10 really make that much of a difference?"

Yeah--to the majority of ticket buyers. Buying one ticket a month at a moderate price would save someone $2000 a year-- multiply that by however many millions of ticketbuyers, and they could buy a lot more tickets--which takes care of that 40% unsold inventory.

"Losing" that $10 per head (which they're not really losing, because that $10 is part of the extra fees) won't kill a promoter or Live Nation (which is gradually taking over the concert promotion business, anyway).

December 29 | Unregistered CommenterKris DiLorenzo

I did an econometrics analysis my senior of undergrad on a very similar topic. I'll revise it and send it in to MTT

December 29 | Unregistered CommenterReid Martin

Live Nation / Ticketmaster are publicly traded. Direct operating expense is the biggest line item on the income statement (look NYSE:LYV on Google Finance). I am assuming that's the operating fees paid to venue owners (public and private) for the cost of operating an entire facility?

It seems as though the comments here would have more value if they were supported by the actual numbers and some detailed analysis. Cheers.

December 29 | Registered CommenterBruce Warila

I forgot to mention... Nice post and I like your company. It looks like you have a great application.

December 29 | Registered CommenterBruce Warila

Anyone paying more than twenty UK pounds to see a band needs their head examining. No band is worth more than twenty of your hard earned pounds!

December 30 | Unregistered CommenterStu

I guess I'm a bit thrown by the analysis. First, we're comparing a Beatles ticket in 1966 to the average ticket of a concert today (which includes lots of bands). What was the average price of a concert ticket in 1966? I'm not sure if the Beatles $5.75 price was above that or below that average in today's dollars.

My thought on Rain getting more than the Beatles did in today's dollars is that people are paying for an experience they either never got when the real Beatles were around or they are trying to relive a piece of history and Rain is as close as you'll get. People are willing to pay more for that experience and it's in high demand.

I'm sure there's a study somewhere going more into why the average ticket price has gone up. I would assume that better venues, sound systems, more staff, and greater security all go into the equation as to why concerts cost more relative to 1966.

Brian Franke, SInger/Songwriter
www.brianfranke.com
@bfrankemusic (Twitter)
www.brianfranke.com/ThinkingAloud (blog)

January 2 | Registered CommenterBrian Franke

$67 bucks is a lot of money. Almost all the artists I like can be seen in a theater of less than 500 seats for less than $30. I'll take Richard Thompson over Bob Dylan any day!

The concert business, like many businesses, was not nearly as corporatized and consolidated in 1966 as it now. It's the nature of consolidated businesses to push prices to the highest possible, And corporations have a bad track record for understanding the deferred effects of their actions, often sowing the seeds of their own destruction.

Meanwhile, the facilities fees, convenience fees, etc., are margin builders for the promoter, who does not have to share this revenue with the artist.

January 2 | Unregistered CommenterBruce Kaplan

I saw the Beatles twice - in 1965 and 1966 - Comiskey Park, Chicago, 8/20/65, International Ampitheatre, Chicago, 8/12/66. In 1965 I entered a contest sponsored by the Chicago Sun-Times and won two box seat tickets - $5.50 each! To see THE BEATLES for heaven's sake! I feel sorry for the kids today who have to cough up the equivalent of a car payment just to see their favorite performers for a few hours. Ridiculous and just plain GREEDY!

September 30 | Unregistered CommenterLaura Mitchell

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