How to really make money out of Music

Friday, October 17. 2008

How to really make money out of Music

I was listening to an article on BBC Radio 4 about people who have bought theatre and music tickets from eBay, only to find they were false. The people who were stung in the article were paying 4x the cover price.

But what really interested me was that they noted that about 40% of the UK ticket market goes through touts (people who buy tickets at face value, typically from organisations that get allocated tickets and then on-sell them). This creates the calculation below, where there is clearly far more money in touting than in actually being a musician.

Touting economics at 3x cover price

Shown here is the economics of a show where the market price is 3x higher than the cover price. The musician will make a % of the overall 100% of tickets - say 40%.

The tout industry will make, at 3x cover, an extra gross profit of 80% of the original 100% value from all tickets at cover price, ie twice what the musician is making. So for example, if you sell 500 tickets at £20 each (£10k gross income) and make 40% as the artist (£4k), the touts are likely to make £8k profit ( £12k sales less £4k ticket costs )

Two obvious conclusions:

(i) The tickets are underpriced in the market, the musician and promoter clearly should be extracting more revenue and selling the tickets for more

(ii) The Musician is probably better off being a tout and making music in their free time

What interests me about touting is its been around in London for the 20 years odd I've lived here, and probably far longer - you would have assumed, given the size of it, that the industry would try to stop it to get their hands on the surplus being given away.

Posted by Alan Patrick in Business Models at 11:24 | Comments (6) | Trackbacks (0)

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But what of the poor tout's risks - the gigs they buy up tickets for that fail to sell out?

More seriously, touting is a massive industry. I am told that up to 1/5th of the tickets at major venues are never put on sale - they go straight to e-bay and into the pockets of venue owners. That wouldn't be so bad if venue owners were independent entrepreneurs looking to make a dishonest crust. However, nearly all London venues are owned by about 5 companies.

#1 Ian Delaney (Homepage) on 2008-10-17 12:03 (Reply)

20% on-sell which would of course explain why there has been so little effort to stop it, as that income is pure margin to the venue owners, no muso fees there

Re touts risk - I wonder then if the actual market dynamic is a face price subsidy to bring in bulkload bums on seats, the real money is made in the aftermarket.

#2 alan p on 2008-10-17 12:45 (Reply)

Touts are simply salesmen.

The musician can pay someone to determine a better price than they could arrive at themselves, or they can save the money and risk setting a poor price themselves.

The musician can become a tout for their own music/events, taking their own tickets and seeing what the market will bear.

The musician has as much opportunity as the tout, but evidently the effort/labour involved isn't worth the compensation of higher prices.

This is a free market, and has the potential for the highest efficiency.

If you attempted to forbid touting, you involve an overhead in terms of policing, and also prevent the musician being informed by free market pricing. This increases costs and reduces information - a pretty bad outcome.

Touts should be embraced, and learnt from.

#3 Crosbie Fitch (Homepage) on 2008-10-17 13:51 (Reply)

The reason the tickets are underpriced is that the vendors don't just want any old person turning up to the gigs. No artist wants to play a gig to ten thousand middle-aged men; they want teenagers. And it's not just an aesthetic preference: if word got out that an artist's gigs were never attended by any kids, that would harm their record sales. You have to make it possible for the same people who are buying your records to come see you live, or lots of them will stop buying your records.

So the tickets aren't priced for working couples on two incomes; they're priced for kids with pocket money.

#4 Squander Two (Homepage) on 2008-10-17 13:58 (Reply)

Next, you'll be saying that musicians should be able to control who gets to listen to their music.

Where do the aspirations to such control over the public come from?

If it's a private party then you can pick and choose, but if it's a public event, then attempting to enjoy the benefits of a free market whilst simultaneously attempting to constrain it is going to end in tears.

Just look at the example of publishers; who are attempting to enjoy a free market in the sale of copies, whilst simultaneously attempting to prevent anyone apart from themselves from making them.

The harder they attempt to control the market, the more they alienate themselves from it.

You may as well attempt to stop people of a particular skin colour from buying tickets to your concert.

Do you want to get the best price for a public event, or do you want to hold a free/subsidised, but private concert for deprived kids?

Sell in a free market to the public (without discrimination), or subsidise/give away tickets to a private invite-only event.

The two shouldn't be confused.

#4.1 Crosbie Fitch (Homepage) on 2008-10-17 14:20 (Reply)

Firstly, Crosbie, I was answering the question of why the industry have traditionally priced tickets the way they have, and you're attacking me as if I made the decision myself. I could also answer the question of why the Nazis invaded France, but I hope you wouldn't therefore hold me responsible for it.

However, much as I deplore many of the record industry's actions in all sorts of ways, it strikes me that they'd be even worse if you were in charge.

The point of a free market is that it is free. That freedom includes the freedom of the vendor to sell at whatever price they damn well please for whatever reason they like. Yes, when the reason is to maximise profit, the free market works very well at efficiently finding the optimum price. But that doesn't mean that vendors should be disallowed from having other motivations. They are human, after all.

And I have no idea why you're giving all these examples of discrimination. Who, exactly, is discriminated against when tickets are sold below market value? You state that it's much the same as racism. Nice hyperbole, but would you care to explain that? I have a product that I could get £20 for on the open market, but choose to sell it for £15 for whatever reason, and that, according to you, makes me just the same as a pub-owner who puts up a "No Blacks" sign. Really? When you were typing that, you didn't have even the faintest inkling that it might be nonsense on stilts?

#4.1.1 Squander Two (Homepage) on 2008-10-17 18:52 (Reply)

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