Case Study Ticketmaster Exclusive Dealing
TIC’S fundamental claim was that TM’s long-term exclusive contracts with venues foreclosed ETC from competition, resulting In harm to ETC and consumers. ETC wanted to be a venue’s Internet ticketing company, while TM serviced the other three methods of distribution, but this was not possible because of TM’s exclusive contracts.
The “consumers” of ticketing services are venues: stadiums, auditoriums, theaters, sports arenas, etc. For large venues, there are four methods of selling tickets: box office, retail outlets in the community, telephone, and the Internet. In 2001, the
Internet was the fastest growing method of ticket sales. But, phone, retail outlet, and Internet ticket sales sully each accounted for roughly one-third of ticket sales, excluding box office which was less than 10% of total ticket sales. TM and ETC Histories TM was not always the dominant ticketing company in the industry.
When TM started in 1978, the dominant ticketing company was Ticketing. At that time, in terms of market share Ticketing was about as large as TM is now. Ticketing used to allocate blocks of tickets to Its phone bank and each local retail outlet.
If a customer t one retail outlet wanted a certain seat whose ticket was at another location, the customer would not be able to buy it without traveling to that location. The founders of TM believed this system was inefficient and set out to develop a new computer program that networked several computers together so that a customer could purchase the best available ticket at any sales terminate.
Throughout the asses, TM’s market shares rose dramatically, culminating in its purchase of Ticketing in 1991. ETC began doing business in 1995. Its initial business focus was on Internet ticketing.
ETC quickly shifted from an Internet ticketing service provider to a full-service provider, purchasing and combining a number of ticketing companies and software 1 OFF platforms. Wendell Internet sales Ana Eden growing rapidly, as AT 2001 ten Internet still only accounted for roughly one-third of ticket sales across the three major distribution methods.
The Ticketing Market TM and ETC were the two national full-service competitors in the industry. “Full- service” means that they setup and maintain all four distribution methods for their customers. Optional was also a national competitor.
However, Optional was know as self-supply’ because it licensed its ticketing software to a customer, and the customer then set up and maintained its own distribution methods using the Optional software; I. E. , the customer establishes their own phone banks, signs up their own retail outlets, and sells tickets on their own branded website.
There were also smaller local and regional ticketing companies in many markets. TM’s market shares across local market areas were such that, “In 31 of the 41 regional areas, of the larger arenas, TM has exclusive contracts which cover 75% of the tickets sold.
In 25 of the regional areas, TM’s market share was about 90%. Ticketing for Venues The bidding and contracting process was as follows: When a venue such as Staples Center needs a ticketing service provider, it typically issues a Request for Proposals (“REF’) to the three major ticketing companies, TM, ETC, and Optional, as well as other local and regional ticketing companies. The ticketing companies meet with the venue manager and describe their systems, capabilities and benefits, phone banks, local retail outlets, Internet website.
They also propose convenience and handling fees (“C&H fees”), the split of those fees, as well as any up-front payments. Typically, all companies proposed long-term exclusive contracts across all four distribution methods. The length was generally 3-10 years with the average being 5-6 years. Thus, on average around 20% of venue contracts came up for bid each year. According to ETC, it competed with TM for every large-venue contract that came up for bid since 19984.
The relevant “price” a venue pays a ticketing company is the split of the C&H fees.
For example, suppose the average per-ticket C&H fee for Staples Center is $15. During the REF process, Staples Center negotiates with each ticket company over the hare of the C&H fee Staples would keep and the share that would go to the ticket company. The amount of C&H fees that goes to the ticket company is the relevant price paid by Staples Center for ticketing services. Thus, off $15 C&H fee, if Staples Center gets $7 and Taskmaster gets $8, the relevant price paid by Staples for ticketing services is $8.
If Staples chooses the Optional self-supply option, it pays a licensing fee and then keeps the entire $15 C&H fee for itself. Sometimes up-front payments are made too venue such as lump-sum payments (e. G. , $1 million upon entrant signing), cash advances, or low interest loans that are paid back to the ticket company Day Torture c In addition to contracts with individual venues, both TM and ETC competed for long- term exclusive contracts with multiple-venue owner/managers such as SF (now a division of Clear Channel), House of Blues, Spectator Management Group (SMS), and Metropolitan Entertainment Group (MEG).
Rather than negotiate each venue separately, these companies negotiated for all of their venues in one contract. TM won the competition for all of these multiple-venue contracts.
Major League Baseball Advanced Media (“MELBA”) was an entity formed by Major League Baseball. One of its tasks was to collectively negotiate an Internet ticketing contract for all baseball teams. ETC won this contract, the term of which was approximately three years. As its individual team contracts expired, TM refused to bid for the right to ticket the other three distribution methods for MOL teams.
In other words, TM refused to operate non-exclusively. When Mammal’s contract with ETC expired, it chose not to renew with ETC and to switch to TM.
TIC’S Allegations and Complaint TIC’S main complaint was that “The use by TM of long term exclusive contracts have o reasonable economic Justification and provide barriers to entry into the ticket business by their long term and exclusive nature. ” ETC claimed the relevant market was “… The market for full service ticket distribution services purchased by major venues.
By full service ticketing, Professor Refined means the selling of tickets by all four methods (venue box office, retail outlets, telephone sales, and internet sales) for arenas with a capacity of over 5,000 reserved seats which sell over 100,000 single tickets annually for live events.
” In addition to its main complaint, ETC believed that four other factors further exacerbated the barriers to entry created by TM’s exclusive contracts. According to ETC, “The barriers to entry are exacerbated by: 1. The business power of TM’s name 2.
The difficulty of establishing retail outlets before bidding 3. The web of long term contracts with multiple venue producers and venue managers (e. G.
, SF, House of Blues) 4. And the desirable retail establishments… (TM has contracts with the desirable retail outlets in many markets)” Thus, “Entry by a newcomer (I.
E. , ETC) is virtually impossible and TM has the power to raise its rates above competitive levels and well as exclude others. Questions 1 . Summarize the economic argument of Tic’s main complaint. M Is presently ten largest telling service provider In ten US.
It rose to dominance over Ticketing in the asses. Was this rise economically harmful or beneficial? List all points supporting your answer. 3. ETC claimed that TM showed MOL teams “who is boss” by refusing to service MOL venues after it lost the initial MELBA contract. Is this a valid example of foreclosure of competition by TM? List all points supporting your answer.
4. Do TIC’S four “exacerbating factors” make economic sense (with respect to long-run anticompetitive harm)? List all points supporting each answer. 5.