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

‘Oldies’ are golden in pricey concerts

http://www.nypost.com/p/news/business/oldies_are_golden_in_pricey_concerts_GrxNWFQSLF9h4CWQ1axujK

The rising cost of a concert ticket has fans singing the blues — but it is the music industry’s saving grace amid slowing worldwide ticket sales.

This year’s average ticket price for the biggest worldwide tours jumped 13.6 percent to $84.92, according to new figures from Pollstar, which tracks the concert business. That increase was enough to allow the concert business to avoid an overall drop in total ticket dollars.

The top 50 tours, including U2, Bon Jovi and Lady Gaga, grossed $1.65 billion in the first half of 2011 — an 11.2 percent jump over last year despite a 2.1 percent decline in total ticket sales. So the rising cost of each concert ticket is the only buffer between a dwindling number of concert-goers and a bigger yacht for pop stars like Ricky Martin.

The concert business showed a slightly more upbeat trend in North America, where the average price of a ticket jumped 10.2 percent to $67.02. That didn’t seem to hurt total ticket sales, which were up 5.3 percent compared to last year, bringing the industry’s total gross profits this year to $1.12 billion, a 16.2 percent gain.

The figures suggest that the music industry’s old timers are more likely to charge a premium than newcomers such as Katy Perry or Justin Bieber. Topping the list of highest ticket prices were oldies but goodies like The Eagles and Paul McCartney. Celine Dion’s $167.56 average ticket led the pack as the priciest.

The Eagles brought in an average of $150.27, while the former Fab Four bassist averages $152.38 per ticket.

By comparison, pop tart Perry charged just $55 on average, while it cost an average $67 to take in one of teen idol Bieber’s worldwide shows.

http://www.ams-online.com/trends/ticket-pricing.php

Trends in Ticket Pricing

It is conventional wisdom in the arts and culture sector that ticket prices are determined based on “a sense” of what the market will bear as opposed to a clear understanding of market value and price elasticity.

For the past several years, AMS has been tracking ticket pricing at major U.S. performing arts centers and the data (see chart which follows) reveal several interesting facts.

For the period from FY 2004 through FY 2007, ticket prices in some centers ranged from a low of just over $30 to a high of $48.50. While recognizing that many factors affect ticket pricing — most especially program mix, our analysis showed that prices were more closely correlated to the overall budget of the performing arts center than to actual programming expense.
Over the past four years, the greatest increase in ticket prices was seen between fiscal 2006 and 2007 when prices gained 8.6% on average. This confirms anecdotes that suggest that ticket prices increase in “stair steps” every couple of years.
Compared to data available from Pollstar, arts and cultural events are priced, on average, at approximately 70% of the cost of a typical concert ticket.
For the first time since we have been tracking this data, arts and cultural ticket prices increased at a faster rate over this 4-year period than concert tickets (18% vs. 16%)

One thing that concert promoters have long known is that fans will pay significant prices to attend concerts by their favorite artists. It seems this concept has only recently been adopted in the arts and cultural space — with variable or demand based pricing, “Inner Circle” tickets and the like, a relatively new phenomenon.