Ticketmaster Going Once...

Ticketmaster has come up with an interesting idea that could wind up being one of its most important business developments in years. No, the company we love to hate is not going to add another predatory service fee to cover the cost of collecting all its other service fees (though I shouldn't give them any ideas). Instead, it will soon start auctioning some of its tickets rather than selling them. It's an idea that could be far more important than it appears.

Here's the scoop, as first reported by The New York Times. Later this year, the world's largest ticket distributor will auction choice seats to certain events on its ticketmaster.com website, in a process similar to eBay (Nasdaq: EBAY  ) auctions. There will likely be no "face value" assigned to the tickets; they'll just fetch what they fetch. The specific events and seats will be determined on a case-by-case basis, and the artists and promoters will have a large say in the matter.

Ticketmaster is owned by InterActiveCorp. (Nasdaq: IACI  ) , Barry Diller's identity-challenged entity that was previously known as USA Interactive, and USA Networks before that. (Don't get me started on that; how ridiculous are those name changes?) It sold more than 95 million tickets valued at more than $4 billion last year, and its reason for going to an auction format is obvious: Management thinks it can rake in even more money.

Pros
What's to like about this scheme (aside from the "more money" part, if you're a shareholder)? It will likely cut down on the scalping trade, for one. Scalpers, of course, wind up buying a lot of choice seats and reselling them at higher prices. They're the biggest reason the general public has little chance at buying the best seats to big events at face value.

Another plus is that the auction format is capitalism at its best. The seats are worth exactly what someone's willing to pay for them; thus, auctions are the best way to determine the real value of the tickets.

Cons
Some critics have pointed out that the auction format takes the best seats out of the hands of those who can't afford to bid up the prices. However, that's the case in just about any situation where items are priced efficiently. But the problem I have is that not all seats to an event will be auctioned off. I think if the best seats are going up for bid, so should the mediocre seats. That might allow for some relative bargains on the low end for those who can't afford the high end, and it would price the entire event at what the market is willing to bear.

Anyway, it appears that Ticketmaster's auction concept is going over like a lead balloon with many fans. An unscientific poll conducted by a Florida television station found an overwhelming 90% of respondents did not like the idea.

"There will be a huge backlash if people can't go to concerts they want to see because scalpers, or people who can pay the most, are getting first access to all the tickets," consultant Adam Cooper told the Toronto Sun. "Really, they are not in the business of trying to maximize profits by selling the tickets for as much as they possibly can."

That's the ticket
That may be true to a certain extent, but when you get right down to it, Ticketmaster exists to maximize its profits. And it happens to do a very good job of it. I really, really do not like the company as a consumer, but I can't blame it for wanting to test the auction waters.

And it's not much of a test, because the system already exists -- and works. I've purchased baseball tickets from sellers on eBay for a couple of years now. I'm able to buy good seats from season ticket holders who aren't going to certain games and are looking to get back some of their money. Usually I'm able to buy below face value, but tickets for big games normally sell for more than face. (Someone tried to get $1,200 for two seats to the last Phillies game to be played in Veterans Stadium in Philadelphia, but no one bit at the Buy It Now price.)

As I write this, there are 8,826 auctions for concert tickets on eBay, most featuring two or more tickets. There are 45 auctions for movie tickets, 641 for theater plays, and 17,861 for sporting events. It's a thriving trade, and you'll find many of the scalpers selling here. eBay will no doubt lose some business as a certain percentage of these auctions -- especially high-dollar ones -- move to Ticketmaster. That's not to say they won't wind up back on eBay, but probably at less profit to the seller than before.

If this proves successful with Ticketmaster, I can't help but wonder what other industries might do with the concept. For example, what if congressmen decided to vote the way their biggest donors wanted them to? Woops, bad example.

OK, so maybe this won't spread much beyond big-event ticketing. Most other pricing is fairly efficient, and most goods and services aren't subject to wild swings in value. Auctions work best when there are a limited number of items available, and especially when there is a specific date involved. It might be interesting for an airline to test the concept, for example, because there are a limited number of tickets available for each flight.

But in the end, a merchant must try to receive the maximum compensation it can for its goods, regardless of the method. And that's why Ticketmaster is smart to auction only choice seats and sell the rest as normal, regardless of what I or anyone else thinks about it. It is getting the most it can for each ticket... and that's the name of the game.

Rex Moore grudgingly contributed to Ticketmaster's revenue on his recent four-day, four-ballpark road trip. At time of publication, he owned shares of eBay. You can view all of his holdings, and the Fool's disclosure policy, for a small convenience fee.


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