Ticketmaster, Taylor Swift, and antitrust — defined

This particular episode of Decoder dives deep into Taylor Swift, Ticketmaster, and the way a handful of coverage modifications within the Nineteen Eighties led to 1 agency so completely dominating the stay occasions enterprise in america that Congress held a listening to in 2023 as a result of Taylor Swift followers had been upset about antitrust regulation. That sentence is wild. We’re going to unpack all of this with the assistance of some specialists.

And since it’s a particular episode, we’re attempting one thing new. We produced a video you may watch on this submit or on YouTube. Tell us what you assume.

Okay, Ticketmaster and antitrust. Right here we go.

The next transcript has been flippantly edited for readability.

Sen. Dick Durbin (D-IL): I’d now like to show to the topic of at the moment’s hearings. The ticketing and stay leisure markets lack competitors, and they’re dominated by a single entity, Stay Nation.

Sen. Amy Klobuchar (D-MN): To have a robust capitalist system, it’s a must to have competitors. You’ll be able to’t have an excessive amount of consolidation, one thing that, sadly for this nation — as an ode to Taylor Swift — I’ll say we all know all too effectively.

Sen. Mike Lee (R-UT): I feel Swifties have figured one thing out. They’re excellent at getting their message throughout.

These quotes are from the Senate Commerce Committee listening to about Ticketmaster in January. Senators Durbin, Klobuchar, and Lee are speaking about what occurred to plenty of folks, together with me. I principally spent a complete day attempting to purchase tickets to Taylor Swift’s Eras Tour, and like tens of millions of different folks, I had a horrible expertise doing it.

The Ticketmaster website wasn’t geared up to deal with all of the demand, and it simply saved crashing. Individuals waited within the presale queue all day, solely to get kicked out once more. Just a few fortunate folks lastly bought to the entrance of the road, had tickets of their cart, after which bought kicked out and needed to begin once more. This occurred to me.

In the event you went by all this, you sort of know that it was like enjoying the world’s worst online game. And the prize for successful was attending to pay outrageous Ticketmaster charges. Now, the bizarre factor is that that is removed from the primary time Ticketmaster has failed on this method, and it’s actually not the primary time followers of a serious artist have been pissed on the firm. Individuals actually dislike Ticketmaster. They’ve low expectations, and by some means, the corporate nonetheless blew it.

Now, in any regular kind of enterprise scenario, being each costly and horrible on the factor you do, after which screwing up this badly on the most important potential stage, would have penalties. Artists like Taylor Swift would simply decide a unique ticketing firm subsequent time, and a bunch of these corporations would compete to supply essentially the most dependable service with one of the best person expertise for the bottom charges — you realize, capitalism.

However Ticketmaster sucks, and it will get away with sucking time and again as a result of there’s basically no competitors for ticketing. You’ll be able to complain all you need, however there’s no actual different, so Ticketmaster can simply make a nasty product and get away with it. Worse, as a result of there’s no competitors, Ticketmaster can suck and cost ever-higher charges for sucking, and that’s precisely what’s happening.

Everyone seems to be sad with Ticketmaster, however it nonetheless controls over 70 % of the marketplace for ticketing. In truth, it has had over 80 % of the marketplace for main ticketing — that’s the primary sale of tickets — since 1995. So how did Ticketmaster develop into the dominant market chief when it’s irritating, loaded with exorbitant charges at finest, and completely incompetent at worst? The reply, in fact, is Ronald Reagan.

Sandeep Vaheesan: The Reaganite-Borkian counterrevolution in antitrust is a vital cause why followers couldn’t get Taylor Swift tickets a month in the past.

That’s Sandeep Vaheesan, authorized director on the Open Markets Institute. To clarify what he means, we now have to again up a bit. In 1890, Congress handed the Sherman Antitrust Act, and President Theodore Roosevelt ran round utilizing it to interrupt up a bunch of monopolies.  They known as previous Teddy the Belief Buster. In 1914, Congress clarified the Sherman Act with the Clayton Act, which particularly prohibits anti-competitive mergers. Up till the ‘80s, this was all working. The federal government was fairly aggressive about breaking apart monopolies.

In 1978, regulation college professor Robert Bork wrote a ebook known as The Antitrust Paradox, which primarily says we’ve been doing antitrust all flawed. Mainly, all Congress actually cared about in 1890 and 1914 was defending shoppers, and stopping massive corporations from getting actually massive prevents one thing he known as financial effectivity. His argument is that massive corporations typically develop into massive as a result of they’re good at what they do, and since being so massive makes them environment friendly, meaning folks will finally pay decrease costs.

Now, right here in 2023, I feel everyone knows how effectively that labored out, however put your thoughts again to 1978. This concept was thrilling and recent. Bork says an organization shouldn’t be damaged up simply because it’s massive, and antitrust regulation ought to truly shield corporations who win out there and develop into massive primarily based on their superior capability.

So Bork proposed a brand new strategy to antitrust regulation, which he known as the patron welfare customary. He stated that courts and federal businesses, just like the Division of Justice and the Federal Commerce Fee, ought to look out for client welfare, which he principally measured by costs. What meaning for us is that until a monopoly causes a rise in costs, it’s okay. That’s the Bork philosophy. Let the large companies get massive and keep massive, so long as they don’t hurt client welfare.

Now, Bork was a professor at Yale Legislation College when he wrote The Antitrust Paradox, however as a result of he went to undergrad on the College of Chicago, he will get lumped in with a bunch of different regulation students and economists from Chicago with related concepts. All of those theories come to be generally known as the Chicago College. A pair years later in 1980, Ronald Reagan was elected president. Reagan and his crew had been massive followers of Robert Bork and the Chicago College. Why does that matter?

SV: President Reagan was actually a key determine within the historical past of antitrust, and he remade antitrust in some main methods by doing two issues. First, he appointed Chicago College attorneys and economists to guide the Division of Justice and Federal Commerce Fee, that are the 2 major public enforcers of federal antitrust regulation. These officers had a really completely different view of antitrust than their predecessors.

They believed antitrust ought to be solely about client welfare, which they described as low costs, excessive output — so extra stuff, the higher — and practices that restrict the supply of stuff are unhealthy. In order that they remade the philosophy of antitrust regulation. 

Second, they stated, “Truly, mergers are typically good. Mergers are how companies get bigger, attain economies of scale, and probably even decrease costs for shoppers.” And so, they enormously cut back merger enforcement and adopted a set of pointers that had been extraordinarily tolerant of mergers and acquisitions.

By this level, the Supreme Courtroom has already began adopting Bork’s concepts, too.

SV: I ought to point out that among the modifications had been occurring even earlier than Reagan took workplace in 1981. 

Sandeep instructed us extra about this.

SV: Presidents Nixon and Ford appointed 5 justices between them to the Supreme Courtroom, and so they successfully remade the Supreme Courtroom of their two-plus phrases within the White Home. In the event you take a look at Supreme Courtroom selections within the late Seventies, there’s a lot larger emphasis on effectivity and the advantages of scale, and far much less curiosity in preserving alternatives for small companies and permitting small companies to flourish and thrive within the economic system. 

In 1979, the Supreme Courtroom determined Reiter v. Sonotone Corp. In that call, the courtroom formally endorsed Bork’s declare that Congress had truly supposed to undertake the patron welfare customary when it wrote the primary antitrust regulation within the nineteenth century. Once more, the patron welfare customary just isn’t in these legal guidelines. Bork simply managed to persuade everybody he might learn Teddy Roosevelt’s thoughts, and that that is what previous Teddy Bear wished. It’s sort of unimaginable.

A facet be aware: Bork forged such a spell on Reagan that Reagan nominated him to be on the Supreme Courtroom. That nomination failed partly as a result of Bork’s videotape rental historical past was leaked to the press, which finally led to a federal regulation making your video rental historical past non-public. That is true. It’s additionally the place the time period “borked” comes from — the ‘80s.

Bork and the Chicago College had been in vogue from the Nineteen Eighties on, and actually, they’re nonetheless how we consider antitrust regulation at the moment. I went to the College of Chicago within the late ‘90s and early 2000s, and everybody knew the Chicago College was the winner. It was sort of wild, truly. Nobody cared in regards to the soccer crew, however we had rockstar economists. I beloved it there. Anyway, all of that is the context through which Ticketmaster grew into the monopoly it’s at the moment. 

Ticketmaster was began in 1976, however the trendy period of Ticketmaster kicked off in 1982. That’s when the Pritzker household acquires a dominant stake in Ticketmaster.  The Pritzkers usher in a brand new CEO named Fred Rosen, and the corporate focuses on software program for the computerized ticket enterprise. Rosen additionally began aggressively courting venues to signal unique contracts. His pitch is easy: “We’ll make more cash.”

Right here’s Dean Budnick, co-author of the ebook Ticket Masters: The Rise of the Live performance Trade and How the Public Acquired Scalped.

Dean Budnick: He noticed a chance, and so what he did is he went round, or his gross sales crew went round, to all the venues and stated to them, “What would you assume if we doubled the service charges?” They stated, “Effectively, that looks like a fairly unhealthy thought. Why would we wish to do this? It’s going to discourage folks from shopping for tickets.” What Ticketmaster stated was, “Effectively, if we do it, we’ll share the revenues from this new elevated service price.”

In trade for the additional cash that venues acquired from splitting ticketing charges, they agreed to solely use Ticketmaster to promote their tickets, and people charges are actually how Ticketmaster makes its cash. This fee-sharing association is how Ticketmaster is ready to compete with its major competitor on the time, an organization known as Ticketron. It began poaching Ticketron’s venue shoppers, and by 1991, Ticketmaster simply went forward and bought Ticketron.

Right here’s Yale College of Administration economist Florian Ederer to elucidate extra.

Florian Ederer: They had been direct opponents. So when Ticketmaster acquired Ticketron, they had been direct opponents, they had been in the identical business, and therefore, that may be a type of horizontal integration. Every time two corporations which are direct opponents, each time they’re merging, there’s a robust concern about abuse of market energy. Does this eradicate competitors? Every time we now have elimination of competitors, which will hurt shoppers, as a result of all of a sudden there’s not one other competitor round who might decrease costs, who might supply higher service, who might supply higher high quality.

Did you hear that idea? When an organization buys a direct competitor, that’s known as horizontal integration. That is necessary, as a result of later Ticketmaster goes to do some vertical integration as effectively, however we’ll get to that.

Okay, so now it’s the mid-’90s. In 1995, Ticketmaster.com launched, and all through the remainder of the ‘90s and early 2000s, Ticketmaster slowly gained increasingly energy. It launched in an rising variety of nations around the globe and inked partnerships for ticket resale with the NFL, the NHL, and the NBA. It even ticketed the Olympics. 

In 2001, Ticketmaster struck a cope with Clear Channel Leisure, which is now known as Stay Nation, to ticket their occasions. Clear Channel, or Stay Nation, by this time was turning into America’s largest live performance promoter. That’s the advertising for a live performance, principally filling seats. However Stay Nation additionally owns and manages the live performance venues, so it actually owns the entire stay occasion pipeline.

Within the 2000s, as music piracy upended the business, massive artists began signing large unique offers with Stay Nation. Jay-Z is a Stay Nation artist. So are U2, Madonna, and Miley Cyrus. By 2007, Stay Nation had a bunch of unique offers with big artists, possession of most main venues, and a lock on the live performance promotion enterprise. So then they did the following pure factor: they began engaged on a ticketing enterprise to compete with Ticketmaster to which Ticketmaster responded, “Why don’t you simply purchase us and allow us to do this for you?”

That brings us to 2010, and now it’s time to speak about vertical integration, which will get even much less scrutiny than horizontal integration.

FE: Vertical monopolies, or vertical integration, actually, which is kind of an intermediate step to this, is when the gamers in a single explicit business then combine up or down the worth chain into different inputs or potential patrons of the merchandise that they’re promoting. Then the intense case, in fact, is a vertical monopoly, the place in any respect factors of the worth chain, there may be solely a single supplier. So that may, in fact, give that participant an amazing quantity of market energy, as a result of not solely are they the one vendor, however they’re additionally the one purchaser, and so they’re controlling all the inputs which are occurring alongside this worth chain.

In 2010, Ticketmaster and Stay Nation determined to merge and type Stay Nation Leisure. So Ticketmaster, which sells tickets, determined to merge with Stay Nation, which owns venues and places on and promotes live shows. In fact, promoters get a minimize of that ticket income, so principally each facet of a live performance is merged into one firm, and that firm makes cash at nearly each stage of the stack. Lots of people assume this created an unfair vertical monopoly, and the deal ought to have been stopped by the Obama administration.

Right here’s Jack Groetzinger, CEO of SeatGeek, one among Ticketmaster’s few opponents, at that congressional listening to earlier this yr.

Jack Groetzinger: Stay Nation controls the most well-liked entertainers on the planet, routes many of the massive excursions, operates the ticketing techniques, and even owns most of the venues. This energy over your complete stay leisure business permits Stay Nation to take care of its monopolistic affect over the first ticketing market.

A handful of states truly sued over the Ticketmaster-Stay Nation deal, as did the Justice Division. Senator Durbin talked about this on the listening to.

Sen. Durbin: The Justice Division and attorneys basic from many states, together with Illinois, sued to dam the merger. The plaintiffs finally allowed the merger to undergo, however put in place a consent decree with a set of situations and divestitures designed to make sure competitors.

To ensure that the deal to undergo, Ticketmaster promised the Division of Justice it wouldn’t do something anti-competitive. It was principally only a pinky swear — it’s fairly exhausting to implement. The corporate was pressured to promote one among its holdings, one other ticketing firm, to a rival agency, and it promised to license its ticketing software program to a different rival known as AEG, which is an enormous promoter and competitor to Stay Nation.

Right here’s Sandeep on how bizarre all of this was.

SV: In hindsight, it’s unimaginable that the Obama administration allowed Ticketmaster to amass Stay Nation. They had been each dominant of their respective markets, and beneath pre-Nineteen Eighties understanding of anti-merger regulation, the DOJ would have actually sued to cease that acquisition. Truly, in all probability, the events wouldn’t have even proposed the merger as a result of they’d’ve recognized they’d face authorized motion.

The phrases of the Stay Nation merger established by the DOJ lasted till 2019 once they had been reviewed. We talked about that with Dean Budnick.

Dean Budnick: In 2019, the Division of Justice once more seemed on the query of the merger between Stay Nation and Ticketmaster, as a result of a consent decree had been issued beforehand. In 2019, the federal government determined to resume that consent decree, primarily giving permission to this merger of those two corporations till 2025.

There hadn’t been a dramatic change when it comes to market dominance by Ticketmaster between these two intervals of time. So a minimum of the Division of Justice has examined this problem twice and determined, “Effectively, it looks like Ticketmaster does have traction right here and is actually the dominant participant within the ticketing realm,” however on two separate events, the federal government has opted to not step in and do something.

That brings us to at the moment. Ticketmaster and its guardian firm, Stay Nation Leisure, dominate the marketplace for stay live shows.

DB: In 2022, if an artist did wish to circumvent Ticketmaster, I feel primary, it will be actually exhausting if that artist had been enjoying stadiums. Primarily most, however not all, of the stadiums have relationships with Ticketmaster.

As Dean instructed us, Stay Nation’s dominance of ticketing and promotion has allowed it to close out opponents. Jack Groetzinger, the CEO of SeatGeek, talked about this on the January listening to as effectively. He claimed that when venues change to SeatGeek or one other Ticketmaster competitor for his or her ticketing, Stay Nation, which controls the artists and their promotion, stops giving live shows to these venues.

Jack Groetzinger: I might be aware that the DOJ report in 2019 discovered quite a few cases of Stay Nation threatening and retaliating towards venues as soon as that they had moved away from Ticketmaster. In a single case, the Stay Nation president instructed the venue that they’d, quote-unquote, “go nuclear” in the event that they left, so the risk is actual. It’s been documented. It occurs throughout many venues.

With Ticketmaster’s rising dominance and lack of significant competitors, ticket costs and the charges that accompany them have drastically elevated. Prospects are pressured to pay these costs as a result of so many venues have unique contracts with Ticketmaster or are owned by Stay Nation outright.

The place this will get even deeper is that plenty of folks resell their tickets, and Ticketmaster has an enormous chunk of that market too. In the event you attempt to use one other service like StubHub to purchase a ticket that Ticketmaster initially bought, you continue to must have a Ticketmaster account and enter their ecosystem. So now they’ve your information, even in the event you didn’t wish to work together with them within the first place.

Right here’s Senator Josh Hawley speaking about that on the listening to.

Sen. Josh Hawley (R-MO): When you concentrate on it, it’s actually one thing. You’re forcing everyone who simply desires to get this ticket on the resale market, who hasn’t purchased from you to start with, to develop into your buyer with the intention to take possession of this ticket. I imply, that’s actually one thing. Hats off to you, I suppose, for being modern and utilizing your monopoly. However I’ve to let you know, from a contest standpoint, this actually, actually worries me, as a result of this seems to be like a approach to, once more, additional leverage your market energy in a single market to broaden it into different markets, and I simply don’t see how shoppers win out of this trade.

I’ve to be sincere, it’s uncommon that I agree with Josh Hawley, however he’s proper — shoppers don’t win. Ticketmaster opponents have give you some higher alternate options although. 

We’ve talked so much about what’s flawed with Ticketmaster. The actually irritating factor about all that is that the unhealthy Ticketmaster expertise that’s loaded with charges is simply not the way it needs to be. There are many methods to create higher ticketing experiences for folks, even for large artists with big demand like Taylor Swift. Ticketmaster tried to handle the demand for Taylor Swift tickets with verified fan codes, however that went horribly flawed.

Right here’s Dean Budnick once more.

DB: Ticketmaster gave out roughly 1.5 million codes, after which finally, it acquired roughly 14 million requests, however not all of these requests got here from people who had codes. Loads of these had been individuals who had been attempting to avoid the truth that they didn’t have codes and had been sneaking in. I imply, finally, the rationale the on-sale kind of tanked because it did was as a result of there have been so many individuals who didn’t have codes who had been looking for their method into the system in an effort to buy tickets.

By saying all 52 dates directly, Ticketmaster created untenable demand that crashed its web site.

DB: It will’ve been completely different if that they had unfold these out over the course of per week, which is commonly what occurs. I feel perhaps on some stage they had been attempting to push again towards scalpers, as a result of in any other case you could possibly have individuals who wish to resell the tickets all targeted on a handful of exhibits. Then in the event you unfold them out, you could have those self same individuals who wish to get these tickets to these few exhibits coming in on daily basis over the course of per week. However it simply appeared a bit like a cluster-F to me when it comes to what was going to occur and what the calls for on the system had been going to be.

So, Dean Budnick has concepts for a way Ticketmaster might have carried out higher. However he’s not the one one. A few senators on the listening to additionally had some concepts about how one can regulate Ticketmaster into working higher — which is principally the federal government redesigning how Ticketmaster works to make it friendlier to shoppers.

That’s one approach to do it. I suppose. The opposite method is extra competitors. 

You’ve already heard from among the opponents on this episode: SeatGeek is one other main ticketing website that has struggled to compete with Ticketmaster. Ditto for Eventbrite and StubHub. In our reporting for this story, we additionally talked to Russ Tannen, president of DICE. DICE is a enterprise backed startup that’s made its tickets are nontransferrable — a QR code together with your ticket seems proper earlier than the occasion to stop scalping.

In a purposeful market, some artists would select to make use of DICE’s system that doesn’t enable resale, some would use SeatGeek, and a few would nonetheless use Ticketmaster — and all of them would compete to construct a good system that made followers the happiest. With out that competitors, loads of the issues that Ticketmaster must do to not suck require the corporate to make selections that no publicly traded firm with a accountability to its shareholders might moderately make.

Ticketmaster must enhance the price of app improvement and servers whereas limiting the income from all these charges, and that’s simply not going to occur until one thing makes it occur. It’s actually one possibility or the opposite.

We will settle for that Ticketmaster is a monopoly and have a bunch of weirdos in Congress attempt to regulate it instantly, or we will determine how one can inject some extra competitors into the market so Ticketmaster makes higher selections simply to remain within the sport. See, what Bork and Reagan didn’t take into consideration once they rewrote antitrust regulation, is that when corporations get so massive they don’t have any competitors, they don’t have any extra incentive to be good at what they do. They don’t have any extra incentives to be environment friendly.

Lately, there was loads of pushback towards the Chicago College and Bork’s concepts particularly. The brand new chair of the Federal Commerce Fee is called Lina Khan, and she or he’s written at size about the issue with Bork’s strategy. 

I truly talked to Lina on The Vergecast about her Yale Legislation Journal article “Amazon’s Antitrust Paradox.”

Lina Khan: The present framework in antitrust, the patron welfare framework, actually fails to seize types of market energy and types of dominance that ought to be related to antitrust and do increase competitors issues.

It makes me optimistic that an individual who thinks that’s now working the FTC. There are different glimmers of hope beneath the Biden administration. Sandeep actually thinks so.

SV: I’m hopeful. President Biden has made antitrust reform a key a part of his administrative agenda and has appointed numerous progressives to the DOJ and the FTC, so the appointments have been optimistic. I feel progress has occurred a bit of bit slower than all of us anticipated, however we’re seeing some optimistic indicators. I feel the Division of Justice has made reining in employer energy a key a part of its enforcement program. They’ve gone after many managers and companies for participating in wage fixing, no-hire agreements, no-poach agreements.

However all that’s simpler stated than carried out. Below Commissioner Kahn, the FTC has aggressively gone after massive tech, however its first makes an attempt at lawsuits have been busts. The courtroom retains knocking them down as a result of they’re simply not agreeing with Kahn’s new model of antitrust. They’re caught within the client welfare customary.

There’s one other prong of assault happening over on the Biden Justice Division, which is investigating Ticketmaster and Stay Nation, seemingly asking whether or not Stay Nation Leisure is a monopoly in any respect. Senator Klobuchar nudged the Justice Division to take motion on the listening to.

Sen. Klobuchar: I do know you, Ms. Bradish, talked about this concept of spinning off corporations. We’ve all seen that as a treatment that may most probably be coming from the Justice Division. So all we will do right here is put ahead the proof, and these are sworn testimonies backwards and forwards beneath regulation, in order that the Justice Division can take a look at this dialogue.

Look, it looks like all this stress pressured Ticketmaster to a minimum of perform a little higher with Beyoncé’s upcoming tour, however the underlying issues are all nonetheless there. We’ll see if the Swifties can push the Division of Justice into breaking apart Ticketmaster and Stay Nation. Something is feasible.

And we’ll see if Congress does something to replace our antitrust legal guidelines. Senator Klobuchar has been pushing to do precisely that for some time now. Within the meantime, the query we must always all be asking ourselves is, can we wish to stay within the Bork-Reagan world of bizarre, regulated monopolies, or do we wish these corporations to truly compete?