Transcription
Back in 1999, when I bought this CD. It cost $16. That's $31 in today's money. 15 songs for $31. Selling these tapes before that record. Before that is how artists used to make money. $0.15 of every dollar spent on an album went straight to the artist. Then it broke hard and fast. Napster, is now in the top 50 list of most visited sites on the web. AC/DC is finally coming to iTunes, starting today. Spotify launches in the U.S. Fans love that most albums didn't have ten good songs. Streaming solves that problem, guaranteeing that the streaming genie was not going to go back in the bottle and sending artists scrambling to figure out how to capture more of the money they felt they deserved. The answer turned out to be concerts. I love you so very much. The whole point of going on tour used to be about promoting a new album, not about making money from ticket sales, which is why the cost of a concert ticket has gone up by 175%. While the cost to you, dear music lover, to listen to as much music as you want in a year has gone down to $130. Putting artists, especially the big artists like Taylor Swift, at odds with the company that sells tickets to their concerts. Ticketmaster.
Stadium tours are not common. Not enough artists have enough fans to fill stadiums in every city in the country. So stadiums like this sit empty most of the year. Even here in Los Angeles, this stadium will have just seven events in all of July. If you get a stadium tour, you've made it in the music world. Ed Sheeran did 260 shows in 2019 for his divide tour. That was the previous highest grossing tour of all time until Taylor Swift. Welcome to the Eras Tour. The Eras Tour spread 152 shows over two years, having not toured in over five years, demanded to see her live and in person. Was absolutely off the charts. Tell me why I'm literally emotional. Swifties are out in force on social media. News anchors are giddy talking about it. Anyone can see the demand for this tour. Breaking pop star news. Oh, Taylor Swift just announced her Eras Tour. And then the big day comes. November 15th, 2022, 10 a.m. Every ticket for every stop on the tour goes on sale at the same time. My good, am I good? I'm gonna go. Oh my God, I'm going. This is a That much demand. Only 152 shows. Swift hasn't toured in five years and it all melts down into chaos. Millions of Taylor Swift fans left frustrated and disappointed after waiting hours in an online queue to get tickets, just to come up empty-handed. The website is crashing. 13 billion requests hit Ticketmaster servers over the course of a few hours. The line is up to the website, fully gratis. They waited in line like six hours. There are only 8 billion people on the planet. People are waiting in digital ticket queue lines for hours as they wait. Tickets are already popping up on resale sites like StubHub. $5,000 a ticket, $30,000 a ticket.
Swift cannot do anything but watch. She wants to blame Ticketmaster. Does blame Ticketmaster, who is partially at fault, but ultimately one choice by Swift guaranteed this was going to be exactly how it all unfolded. That two very different groups of people with two very different goals would be smashing a refresh button as hard and as fast as they could. Group one, the fans. Some get tickets, but most are a mixture of sad and rage as they try incessantly but fail to get tickets. Group two, the people that buy and resell tickets for a living. They've never had a day like this before. Ever. Saying it's their Super Bowl diminishes it. It's bigger than the World Cup. There really isn't a good comparison. Limited tickets to the most in-demand artist ever. And these tickets had one very special feature. And so, ladies and gentlemen, we move to the Leonardo da Vinci, the Salvator Mundi. Previously in the collections of three kings of England. $90,000,095. Many places still. 1/60 bid back to Alex at $160 million. This wasn't just any auction. This was an auction for Da Vinci's Salvator Mundi. The Mona Lisa might be Leonardo da Vinci's most famous work, but the Salvator Mundi is in the real art world. $200 million is bid. At $200 million. So many fakes of it have popped up over the decades that no one really knew if the original existed anymore. But then a potential original surfaced. In 2005. At $315. Are we all done now? Francois? $355 million is bid.
This is exactly what Taylor Swift did not want her fans to have to do. Now, most people aren't that into fine art, myself included, for the most part. But every now and again, there are moments in worlds you're not attached to that you can just respect. You get the gravity of the moment, even if you don't care about the subject. This was it for the art world. The auction room was packed. It was almost a holy experience for the people running the auction that day. Selling here at Christie's. $400 million is the bid. And the piece is sold. There would be no auction for her tickets. Effectively, she was implementing price controls. Her tickets were not to be sold for more than $449. The best seats in the stadium. That was the ceiling. The worst seats priced at $49. This is part of Swift's image. How protective of her fans she is. She wanted to make sure that anyone who wanted to go to one of her shows would be able to. Can you imagine floor seats to Taylor Swift for $450? No. Neither can anyone else. As nice and accommodating as that idea is, and even reduce the amount of money Swift would make from the tour. It's just not how the world works. Everyone instantly understood the real value of a floor ticket was in the thousands of dollars. Especially the people that make a living buying and selling tickets. The scalpers. As soon as it was known that Swift was going to disregard the advice of Ticketmaster to not do an auction, what they call dynamic pricing, and lock the price of tickets during the sale. The potential profit for securing one ticket became immediately apparent. About 15% of all tickets to a stadium show are premium. So for the Eras Tour, it's roughly 10,000 premium seats per show. These are the $450 tickets. When we add up all the shows, all the premium seats, there were about 1.5 million premium tickets being sold for $450. That's $675 million worth of tickets. But what do we know now? I mean, everyone knew this at the time, too. It's why Swift capped the price of tickets. The average resale price of floor seat tickets was close to $4,000. Some went over $10,000, which means those 1.5 million tickets were really worth somewhere between 3 and 5 billion. And that's just for the premium seats. That's how much potential profit was on the table. Get a ticket and you could send extra money, no questions asked. All you had to do was get a ticket in the regular sale.
All right, let's buy some tickets. Philadelphia Eagles are playing the Raiders in December. It's in Philly. It'd be better if it were in Vegas, but you got to do what you got to do. This is the event we are going to. There are not many tickets. All right, we're sitting in the end zone. So be it. Everyone have a good look at my credit card details. All right. That took about three minutes. When I followed the rules, I did the captions. They didn't use automated software, didn't refresh the page a lot, didn't access more than a thousand pages of the site. These rules are straight from Ticketmaster's lawsuit against Prestige Entertainment, the most notorious ticket scalper in the US. They're known to be able to buy hundreds of tickets a second using bots. Prestige and all its bots do not follow these rules. There was Hamilton the Musical in 2017. They acquired 40% of all the Hamilton tickets that were available. When the show first went to Broadway, they got the majority of tickets to the 2015 Pacquiao Mayweather fight. The majority, 50% of them. If you read through the case, which the two companies settled, it says ten unnamed people created thousands of verified accounts and purchased 300,000 tickets in two years. Here's how they do it. First, the actual bots. Bots are just code, a file or files of code that are written specifically to interact with the ticketing website and trick it into thinking whatever the bot is doing is something a normal human being on a computer would do. That's all a bot is, code. To get tickets, you need at least four different types of bots: one to create accounts, one to scan ticketing sites for ticket availability or presale codes, one to interact with ticketing queues. This is where bots find the most resistance. They have to be on their most human behavior here, and then one to do the checkout process. But then here is the hard and very interesting part. Ticketmaster can tell where the actual physical location of requests to its website is coming from. If it sees that it's coming from some data center, it's going to block it because it wants real people, not random servers, to be buying tickets. And real people don't make requests from data centers. That's one of the big things that will trigger one of these. So scalpers have to make it appear to Ticketmaster that the requests from their bots are coming from a phone or computer inside a house that someone actually lives in. Luckily for you aspiring ticket scalper, you can buy access to the internet routers that are actually getting 150 million real houses that have real, normal, everyday people living inside. Your bots running in the cloud or on a bot farm somewhere. Well, first send your request to this company. Write data. Write data will then forward it to one of 150 million houses. The house will then send the request on to Ticketmaster. Ticketmaster sees it as a house and lets them request in. Now I know what you're thinking, how did they have 150 million houses? You're not going to believe that's ready for this, right? Data buys access to millions of houses from this company. All Out VPN. All Out VPN is what it sounds like, a VPN service. If you don't know what a VPN is, it tricks websites you're trying to visit into thinking you're in a different location than you actually are. So if you're in the US and you want, say, access to the French version of Netflix, you install a VPN. And when you make a request to Netflix, All Out routes the request to the computer of one of their other users in France. Then on to Netflix. Back to the user in France, then back to you. Netflix only saw the request coming from the computer in France, so it sends back the French version, which is what you see. That service, All Out offers it's completely free as long as you consent to allowing them to route whatever other traffic they want to through your computer. All Out VPN then sells that what you just consented to allowing traffic to go through your computer to companies like Prestige. In short, the computers and phones of the people who have chosen to use the free version of VPN are sending the requests of Prestige to Ticketmaster. Hundreds of millions of people use the free version and frankly, ethics aside, it's actually quite impressive. It is a very clever business model by All Out VPN.
At minimum, the world of bots and scalping is a gray area. Exploiting loopholes and price controls exacerbate that. They make it worthwhile to find those loopholes for those that are willing to flirt with the law. The bigger the prize is made, either by limiting supply or limiting price, the bigger an underground operation will grow to serving. This is the world of cartels. Nowhere is it more apparent. Drugs are the most obvious and easy example. It is a $1 trillion per year business globally because a ban on something. Drugs. It's a price control. Pending the cost to obtain an extremely high price, jail time. New York City rent controls are another. Cap the price someone can charge in rent, and they'll find ways around it. They'll cut maintenance to a bare minimum. They'll charge massive upfront security deposits. Builders will stop building apartments in rent-controlled areas because they can make more profit in areas that are not rent-controlled. And renters that managed to secure a rent-controlled apartment will figure out how to sublet it at whatever the actual market rate is. Nixon put a price cap on gas in the 1970s during the Middle East oil embargo. What happened? Huge lines at gas stations that gave people reason to go out and steal gas and sell it on an underground market. And refineries had no incentive to produce more gas if their cost went up, but they couldn't raise prices. Why make more gas? Play the clip. The basic rule of incentives is you get what you reward for. So if you have a dumb incentive system, you get dumb outcomes. Now, of course, plenty of things shouldn't be for sale, but it can give us an idea of what's going to happen if you put an artificial price cap on something.
At SoFi Stadium in Los Angeles during the tour, there was so much demand, and she ended up adding a sixth night. The seats up here during the original ticket sale sold for about $100. Seats in this area went for $250, and the seats down on the floor for $50. But what do we know now? The prices, Taylor said, were nowhere near the price millions of people were willing to pay. That ticket up there resold for $1,000. $1,600 right here went for $2,400, and the floor $4,650. If you add up how much all the original tickets for the tour sold for and then compare it against how much the ones we sold on sites like StubHub went for, over $1 billion in profit was made just by buying tickets at the artificially low price, Taylor said, and then relisting them. It would not have mattered if the tickets were sold through Ticketmaster, Amazon, a crypto market, or some new startup. Capping the initial sales price put way too much profit incentive on the table. Ticketmaster suggested this to Swift to use what they called dynamic pricing. Let the price rise and fall with demand for tickets during the initial sale. If they did that, scalpers and their bots wouldn't be able to make as much profit, because that is exactly what the scalpers do. Buy the tickets at the original price and then list them on sites like StubHub, where the price of them is allowed to rise with demand. A second alternative would have been to disable the resale of tickets. The ID shown at the gate has to match the one that originally bought the ticket. A third alternative would have been to only allow resale on Ticketmaster's marketplace, but artists don't want to give Ticketmaster more power.
The Department of Justice wants the courts to break up Live Nation, parent company of Ticketmaster. That merger was illegal. It should have been blocked by the government. Live Nation-Ticketmaster is an example of a very traditional monopoly. Is that true, though? Politicians would say anything that might get sports fans on their side. But really, will it be forced to split? Is it a monopoly? According to the official complaint from the U.S. Department of Justice, Live Nation-Ticketmaster has engaged in anti-competitive conduct to cement their dominance of the live concert market. Now, there are two businesses inside Live Nation. The concert venue segment. This is the Live Nation brand, which owns or controls about 300 concert venues across North America, including well, known brands like The Fillmore and House of Blues. And then Ticketmaster, which handles the actual selling of tickets for these venues, as well as thousands of others and many other types of events that aren't live concerts, making this a very narrow definition of the market Ticketmaster operates in. Because when you consider all live events, concerts, sports, theater, there are many competitors. SeatGeek won the ticketing business of the Dallas Cowboys and a few other pro teams. It also powers ticketing for Broadway shows and a bunch of festivals. AEG Tickets, Crypto.com Arena in LA, and O2 in London. And then when you open up and you look at all artist tours, not just major stadium tours, the scope of dominance in the concert business shrinks again. There are over 2,500 music venues in the U.S. Live Nation only controls about 300. Now, they are some of the nicest venues. But maybe, and most importantly of all, the concert business. The Live Nation brand in its history has never turned a profit. Ever. It loses money year after year. Only the ticketing business, Ticketmaster, makes money. If Ticketmaster wasn't there and wasn't able to throw cash to Live Nation, almost certainly some of the dozens of festivals they run would stop running, like so many other festivals that have been canceled over the years. The venues that many people like, Fillmore and House of Blues, often get very high reviews, 4.5 stars or higher. They may very well be worse fun than they used to be. Concerts, festivals, and arts promotion are an extremely hard business. They're capital intensive, littered with decades of bankruptcies and ownership changes prior to Live Nation and Ticketmaster. At minimum, prices on the concert side would have to go up. So the outrage at Ticketmaster, predictable. People hate airlines, too. Something bad happens to a person's experience. Flights delayed. Can't buy tickets to go to the concert, and social media lights up with outrage. It is a pattern that continuously pops up and will continue to pop up for consumer-facing, high-profile businesses, even if they're not huge or making much money.
But really, the rub between artists and Ticketmaster is the money. They don't like when scalpers buy their tickets low, only to sell them high somewhere else. They see none of that profit. And artists really don't like the fees. An artist charging $100 for a ticket to their show sees the actual checkout price is $135. The artist knows that hurts demand for their ticket, just like free shipping incentivizes you to buy something. But if they lowered the price of the ticket to $65 to make the checkout price $100, they lose out on $35 per ticket. Concerts are now their livelihood. And Ticketmaster sits in the middle and collects a fee for their service, a fee that could, in theory, go into the pocket of the artist. Ticketmaster has just become a new record company. Artists and record companies really did not get along back when selling albums was their livelihood. So this tension between Ticketmaster and artists is probably not going to go anywhere. Will they be broken up? I don't know, but I think it's unlikely. The stock market definitely doesn't think they will be, and the betting markets don't either. But that is it, ladies and gentlemen. I've got to get back to my ticket scalping business. Business is absolutely booming, so thank you for watching. Hit that subscribe button and I will catch you in the next video. See ya.