Dynamic Pricing: Ticketmaster to Tie Sports and Concert Prices to Demand

Airlines and hotels have long used dynamic pricing models that adjust prices to fluctuations in demand. The assumption is that such models smooth out sales and profit swings by lowering prices to fill seats whose value evaporates once the event date is past. It also raises prices, thereby bostering margins, when demand increases. Attendance and income have plunged in the concern industry in the last two years while professional sports have also seen a tail-off in demand. Dynamic pricing may enable Ticketmaster to reframe the economics of the business. Ethan Smith reports in the Wall Street Journal:

"Live Nation Entertainment Inc.'s Ticketmaster said Monday that it plans to develop "dynamic pricing" systems that would adjust the cost of sports and concert tickets in response to demand, a strategy airlines and hotels have long used to maximize profits.

In an interview Monday, Ticketmaster Chief Executive Nathan Hubbard said it was too soon to say when the company would roll out the new offering. But he said sports teams were likely to adopt the new system before concert promoters or Broadway producers.

Mr. Hubbard said his company considers dynamic pricing a key element in a broader strategy to revive sales of concert tickets, which have been stagnant or declining for years.

Last year was brutal for the concert industry, with ticket sales plunging 12% despite a modest decline in average prices. Recent price drops follow more than a decade of steady increases, a trend that helped mask fundamental problems.

"2010 taught us we have real challenges as an industry," Mr. Hubbard said. "One of them is pricing."

Echoing the frustration of executives throughout the concert industry, Mr. Hubbard said that the best seats appear to be consistently priced below what fans are willing to pay, leading to a multibillion-dollar "secondary market" in which scalpers can reap profits by reselling tickets above face value. At the same time, he said, 40% of concert tickets sit unsold industry-wide, meaning that the ostensibly cheap seats for many shows are simply not cheap enough.

Among the challenges to implementing dynamic pricing in the concert industry is the number of entities dividing up the financial pie in a concert tour.

"There's fragmented decision making and a lot of players," Mr. Hubbard conceded. "But 2010 gave us a window."

He added that the dynamic pricing initiative was the kind of business innovation that Live Nation and Ticketmaster hoped to find following their merger last year. Previously, the two entities often negotiated against one another, rather than collaborating, Mr. Hubbard added.

The dynamic-pricing initiative is being developed in conjunction with MarketShare Partners LLC, which specializes in analyzing business data. One of MarketShare's backers is Elevation Partners, a venture-capital fund that last week invested $32 million in MarketShare. The fund includes rock singer Bono, whose band U2 has a wide-ranging contractual relationship with Live Nation.