By guest blogger Kevin Laws (former music industry consultant and current venture capitalist)

Many writers these days seem to be quite gleeful at the recording industry's current troubles, believing that their downfall will bring us relief from rapacious monopolists controlling the music industry. Unfortunately, all the fall of the recording industry will accomplish is to deliver the industry to a player with even more power: Ticketmaster.

File sharing is finally having the bottom line impact that the recording industry has been claiming for years. Whether information wants to be free or not, file sharing has definitely pushed it out the door.

This has turned the music industry on its head. It used to be that the Rolling Stones would tour in order to drum up publicity and demand for their album. No longer - concerts are now tremendous moneymaking opportunities for top artists. After all, while you may be able to copy "Satisfaction" for free online, nothing will replace the experience of Mick Jagger performing it 50 feet away (or more like a football field away if you buy the tickets I tend to get). The numbers support this trend: Ticketmaster's average ticket price jumped by 10% last year alone.

These days it may be hard to control information well enough to sell it, but you can still charge for experience. As one columnist pointed out recently, this is what has saved the movie industry from the same fate as the music industry so far.

Out Of The Frying Pan, Into The Fire

Unfortunately, this trend is just shifting the power from one set of players with massive market power to an even bigger monopolist: Ticketmaster. If you think the music industry's practices are hard to swallow sometimes, look at the complaints people have against Ticketmaster - most famously, Pearl Jam's failed boycott.

Ticketmaster recently started auctioning off the most valuable tickets instead of charging fixed prices, ensuring that they get an even greater portion of revenues - probably the right thing to do now that concerts aren't marketing vehicles anymore (though Dave Hornik disagrees). However, they are taking a huge portion of the revenues from both ends of the transaction and fighting both bands and consumers to keep hold of their monopoly.

Ticketmaster holds its monopoly because, like Ebay or NASDAQ, it's the place two sides of a transaction have settled on as the place to go. Don't be fooled, though - as a consumer you aren't one of the sides of that transaction. You will go wherever you must to get tickets, so they'll take you for everything you are worth. Instead, the two sides of the transaction are the venue or promoter that has the event (e.g., Madison Square Garden) and the ticket distributors (music stores, cigar stores, anywhere else you purchase tickets).

Ticketmaster was very smart about the Internet, seeing its potential to bypass their distribution network. They moved very quickly to use their existing monopoly to lock up the Internet channel as well - they purchased the new "local stores" online (CitySearch) and promptly sued anybody who tried to set up a new destination site for tickets. Most famously, they sued Microsoft for deep-linking into the Ticketmaster web site.

So far, they have been quite successful - revenues have been growing profitably at 15% a year or more, and more than half their sales are directly over the phone or Internet, leaving them with no other middleman to share the profits with. Despite the Justice Department concluding in the mid-90's that they weren't a monopoly because there were new enterprises coming into the arena, they have yet to see serious competition.

Toppling Ticketmaster

However successful they have been on the Internet, however, Ticketmaster still has a problem: the Internet cuts the number of middlemen. Their network of ticket outlets is becoming less important, and many of them (the retail music outlets in particular) are not doing well.

Ticketmaster's days as a monopoly are numbered, and there are two players in particular that are perfectly positioned to take them on; companies with established online presence, trust, and technology to handle sales: Ebay and Amazon. These days, primarily Internet-based sales would even work for major events whose audience is not on the Internet in huge numbers (think NASCAR) because there are enough people who are net-enabled to allow reselling. Simply provide volume discounts and distributors will automatically set up. Amazon could even resolve the off-line problem through its relationship with Borders - where, incidentally, music is also sold.

As Ticketmaster's exclusive contracts with venues expire, Ebay and Amazon should bid for the contracts, and do it in a way that slims the giant wedge in price between the ticket sellers and the ticket buyers. The Internet may yet deliver music consumers from the control of monopolists, but it is going to take more than the demise and reinvention of the major record labels to do it.
3:18:06 PM    

Joe Katzman has a link-fest and summary of issues and arguments at Winds of Change.
9:38:40 AM