For those of us old enough to be music fans and attending concerts in the mid-1990s, Pearl Jam and Ticketmaster will forever be inextricably linked. Pearl Jam became synonymous with anti-Ticketmaster venom from both artists and consumers during that period, who saw the ticketing company as a monopoly (even in the pre-Live Nation merger days) that charged egregious fees to the detriment of both parties. Beyond creating its own fan ticketing, inspired by the Grateful Dead, the band tried to tour without playing any Ticketmaster venues and they were the “star” witness in the DOJ investigation over those same two years.

With that long-ago period forever ingrained, it was hard not to take notice of the extent of cooperation between Ticketmaster and Pearl Jam, as tickets went on sale last week for Pearl Jam’s upcoming U.S. Spring tour. For this tour, Pearl Jam not only chose to exclusively play Ticketmaster ticketed venues, the band ceded control of its Ten Club ticketing to Ticketmaster.

On the surface, these moves are fraught with irony. However, they also represent a subtle but important shift by Live Nation/Ticketmaster over the past few years towards giving greater control of ticketing to the artist -- something Pearl Jam seemed to crave in its early years, as much as the debate was simply about ticket prices. Ticketmaster has improved its technology stack over the past several years, and in turn has been able to give artists more options for how they ticket and price their shows and the tools to make educated decisions. With Ticketmaster building further capabilities, especially around digital ticketing, we expect it to offer artists not only even more control, but rich data sets on their fans, helping artists to develop stronger relationships with those fans and marketing capabilities. The near-term result should be even more dominant global market share among concert ticketing for TM, and in the U.S. for the venues that are exclusive TM customers. In the longer term though, we wonder if it could further TM’s negotiating leverage with venues and even lead to a major change in the domestic ticketing model away from the venue exclusivity model TM created.

Extending the Ethos of the Live Nation Flywheel to Ticketmaster

The genius of Live Nation CEO, Michael Rapino, has always been that he has understood that the concert business began and ended with the artist. It was his job to convince artists not only to tour, but to do so with Live Nation. The often-cited Live Nation “flywheel” starts with catering to artists and in many cases paying talent more than competitors -- which it has been able to do because of the scale of its vertical integration; Live Nation’s promotion business on its own is not a profit center.

Since the 2010 merger, the ticketing business (largely Ticketmaster) has served as one of the key monetization engines in the flywheel. Its success in maintaining and extending market share was helped along by LYV’s promotion business. In the U.S., where venues sign exclusive deals with ticket providers, venues were aware that Live Nation could do what made the most sense economically in routing its tours (to the extent that artists complied), and as LYV built scale in new areas of the concert business, it unlocked further value through adding ticketing. For instance, as it acquired and built festivals, owned and operated ticketing was added.

There was historically nothing specific about Ticketmaster’s business that extended Live Nation’s goal of catering to the artist besides creating the ability to pay artists more because in the U.S. they owned the company ticketing many venues the artist played and internationally the promoter decides on ticketing allocation.

Meanwhile, technology mostly served to create headaches for artists, consumers and the company. For consumers, concert ticketing has been centered around the “onsale” and speed to buying tickets. As ticket sales moved online, ticket brokers have found ways to acquire mass quantities of underpriced tickets using software or “bots” and mark them up significantly on the secondary market. Ticketmaster attempts to thwart bots and legislation have generally been unsuccessful at stopping these bad actors. Really the only actions that have been effective to combat these issues, especially raising ticket prices, have given artists trepidation over their image.

However, over the last few years, technology has begun to offer alternatives. Ticketmaster is not the easiest battleship to steer, as it has been built and rebuilt upon legacy technology over a 40+ year period. But the company has begun to develop several tools to give artists the flexibility to ticket more on their own terms and to avoid the pitfalls of the online ticketing onsale if they want. Investors have heard about initiatives including Verified Fan, Platinum Seats, and more recently digital tickets (Safetix).

We are finally getting to the point where Live Nation can extend its artist-first ethos to ticketing -- offering artists the ability to successfully create and execute on their own objectives. Ticketing can become more than just a dumb revenue center for LYV. And, LYV can add value to more than just its venue clients.

How Ticketmaster Solved Pearl Jam’s Objectives for its Upcoming Tour

Live Nation tickets shows for a continuum of artists across different level of success ranging from a new artist playing a small club to the likes of Pearl Jam in stadiums. Different artists have different objectives. For some, it is simply about maximizing revenue. For these artists, Ticketmaster has worked to improve yield management through the likes of Platinum Seats, which are dynamically priced inventory based on demand. Some artists are interested in ensuring a sellout and want brokers to be involved to take inventory away. They may opt for a more traditional onsale. Other artists are more interested in keeping prices low and ensuring that its best fans get the best seats -- for image or altruism.

Pearl Jam falls into the latter bucket. They have always believed in the democratization of the ticket. They significantly underprice tickets and aim to get them into the hands of their fans at all costs. To that end, the band started utilizing Ticketmaster’s Verified Fan for its 2018 tour. Verified Fan is a presale whereby prospective ticket buyers must register their accounts with TM to participate. TM marries the account information with first and third party data to determine the likelihood that the ticket buyer will attend the show. It then “verifies” a number of prospective buyers and passes back a unique presale code to the buyer. TM has been able to customize Verified Fan for different artists, depending on the weight they want to assign to different data sets -- such as listening and purchasing behavior.

The band used Verified Fan for a portion of seats this tour. However, the majority of tickets (perhaps up to 2/3 -- an astounding figure as fan clubs typically receive 8% of tickets) were sold in a presale to members of its Ten Club. Since 1992, Ten Club presales have historically been handled in house and by hand. On this tour, Pearl Jam ceded control to TM, which built a custom ticketing algorithm to ticket with the same rules that the Ten Club has had since 1992 -- with a lottery for all interested members to get tickets and ticket locations assigned by seniority in the club.

Finally, Pearl Jam sought to make tickets non-transferrable to ensure brokers never got their hands on tickets to resell. Non-transferrable tickets are controversial, especially as buyers who cannot attend a show lose out. To capture the best of all possible worlds, Ticketmaster built Pearl Jam a custom secondary ticket exchange whereby tickets could only be sold at face value.

The Role of Digital Ticketing

Underpinning the secondary exchange was Ticketmaster’s use of Safetix this tour -- its digital ticketing product. The use of the term “digital ticket” often confuses clients who assume all “mobile tickets” are digital. However, what makes digital tickets different is that they are tokenized and tied directly to an owner’s identity.

As one output, a standard mobile ticket will have one bar code. The ticket is easily transferrable between attendees simply by sharing the barcode through a screenshot or otherwise. In the case of Safetix, the bar code is dynamic, with a new one generated at regular intervals. This makes the ticket impossible to counterfeit, and tightens artist/promoter/ticketer/team/venue control over how, when and at what price a ticket can be transferred. This was the primary use case for Pearl Jam -- allowing the band to control resale.

But the digital ticket opens many more opportunities for participants in the event ecosystem. The digital ticket is assigned to a unique owner, and as a ticket is passed on to subsequent owners, an ownership ledger is created. So, the exact identity of every holder of every ticket, and most importantly of every attendee, is known.

The implications are numerous. The phrase “data is the new oil” is tired. But the holy grail of commerce in 2020 is knowing and understanding your customer and having the ability to communicate directly with her. Digital ticketing will create a powerful data set for Ticketmaster, which it theoretically can share with artists to that end. Pearl Jam has a fan club with several hundred thousand members. And there are a handful of bands like Phish or the Grateful Dead that have built a direct to consumer relationship over many years through fan clubs and self-ticketing. But most artists know very little about their fans. Digital ticketing offers the possibility to help change this.

Real identity will also improve venue security, help promoters to market and open new sponsorship opportunities for Live Nation -- marrying the online and offline worlds. But those are stories for another day.

A Slow Move Away from the North American Exclusivity Model?

The idea of the artist taking more control of the ticket is a fascinating one, because nowhere in the world is the artist the true end customer for the ticketing company right now. In international markets, concert ticketing allocation is determined by promoters, who do work closely with the artists. However, in the North America, most venues have an exclusive relationship with a ticket provider. Every event (save some loopholes) is ticketed by that ticketing company. If an artist wants to play a particular venue, she must use the exclusive ticketing provider.

The exclusive ticketing model has been a boon to Ticketmaster. In fact, Ticketmaster is responsible for the existence of the model. In the early 1980s, former Ticketmaster CEO, Fred Rosen, came up with the idea of creating exclusive ticketing relationships with venues in exchange for a ~50/50 split of the service fee. This swift execution of this business model change was almost completely responsible for Ticketmaster building its ticketing dominance, and it has continued to work in Ticketmaster’s favor post the Live Nation deal, even as new competitors have emerged.

In the near-term, we believe as Ticketmaster better serves artists, benefits will accrue both to LYV and its venue partners -- strengthening LYV’s hold on venues. If artists prefer Ticketmaster, surely they will have a hand in routing tours to Ticketmaster venues, as did Pearl Jam, further growing those venues’ market share.

However, if Ticketmaster is able to gain more and more concert market share through the combination of its vertical integration and artist demand, we wonder if LYV might want to do the unthinkable and work towards undoing the business model that has been its golden goose.

Under the venue exclusivity model, concerts are very profitable for Ticketmaster. However, in deals with arenas and stadiums, Ticketmaster is responsible for ticketing all of the sporting events as well -- accounting for most of the tickets sold in these venues. Yet what nobody likes to talk openly about is that sports ticketing is not very profitable for Ticketmaster. Exclusivity agreements usually include ticketing seasons tickets, which account for well over half of tickets sold for the four major sports, with no service charge. Obviously not all from sports, but LYV’s Ticketing division sold 265mm non-fee bearing tickets in 2018 versus 217mm with fees. Perhaps a domestic business where LYV ticketed all of the concerts it promotes, regardless of venue would be a better one than the model which made Ticketmaster what it is today. Then the Live Nation flywheel would truly be complete with the artist at the center.

A Word On Unhappy Pearl Jam Fans

Given our personal fandom and the fact that we follow Live Nation stock closely, we are frequently subject to unhappy calls and texts from friends and clients when they fail to get tickets to a show. The amount of texts we received last week during the Pearl Jam onsale was unprecedented, with, to no surprise, most blaming Ticketmaster and/or Pearl Jam when they came away empty handed.

Our favorite text read:

I have been a paying member of the Ten Club since 1993 and got shut out of MSG and Baltimore. And didn’t even get a Verified Fan Code for MSG. Where I live!

F*cked?

I can’t believe I didn’t get my first or second choice through Ten Club.

27 years paying them!

Shut out.

27 years!!!

Sure Verified Fan could improve and it will with time, as all software does with iteration. But the fact of the matter is Pearl Jam did everything they could to make it easier for its biggest fans to get access to tickets. We believe they sold close to two thirds of tickets in their fan club presale. And the rules of the presale were exactly the same as they always were. The problem was that especially MSG was a major undersell for the band. We estimate that Ten Club requests were many many times that inventory available. And, this inventory dwarfed Verified Fan inventory, leading very few fans to be “verified.”

We have all complained that we wished for ticketing to become more fair. Maybe we should be careful what we wish for.

Brandon Ross is a partner at LightShed Partners, a technology, media and telecommunications research firm based in New York City. LightShed provides its institutional investor subscribers differentiated insights and offers unique corporate access and events to its clients. This article was originally published on by LightShed Partners.