Ticket market meets its digital future

Companies such as eBay and Ticketmaster think they've got the hot ticket for sales growth. But they could stub their toes on local laws and fraud fears.

6 min read
The sidewalk ticket scalper is getting some competition online, with eBay, Ticketmaster, Tickets.com and several start-ups all hoping to get a piece of the action.

eBay has been signing deals in recent months with start-up ticketing companies to bring concert and sporting event tickets to the auction site. In January, Ticketmaster began working with a professional hockey team to pilot a ticket-trading site, following earlier efforts by Tickets.com and start-up LiquidSeats. The ticketing giants plan to unveil these sites to larger audiences within the next year.

"There's always been a black market for tickets. It's just becoming digital," said Carrie Johnson, an analyst with Forrester Research.

The rise of this market parallels similar growth in the exchange of airline tickets and vouchers on the Internet. A thriving market has been developing for the sale of airline tickets and frequent-flier credits on eBay, angering the airlines, many of whom have tried to ban customers from trading the credits.

That's not the only potential snag for those reaching for a piece of the pie. Contenders also have to worry about counterfeit tickets, local scalping laws, and hesitant consumers.

Online ticket sales still constitute a relatively small portion of overall sales of event tickets. But the numbers are growing.

Online ticket sellers, for example, sold nearly $1 billion worth of concert tickets in 2001, or about 14 percent of the total U.S. market, according to Jupiter Media Metrix. The research company expects that amount to grow to $2.48 billion in 2006, or about 29 percent of the total market.

Meanwhile, ticket sellers sold about $300 million worth of tickets online to sporting events in 2001, or about 4 percent of the market. Jupiter projects that number will grow to $1.1 billion in 2006, or about 12 percent of the market.

Although many consumers are still reluctant to shop online, they are much more likely to become regular shoppers once they buy something over the Internet. And consumers who have bought movie tickets or sports tickets online often find that buying tickets that way is easier and quicker than waiting at the box office or being on hold at a call center.

In some cases, the Internet is becoming the predominant way to buy tickets. At some movie theaters, for instance, the majority of advance tickets are being sold online. Some individual theaters reserve the right to set aside tickets for customers who come to the box office, but many have opened up their entire inventory of available seats to online dealers such as Moviefone, Fandango and MovieTickets.com.

For blockbuster films such as "Harry Potter and the Sorcerer's Stone," "Lord of the Rings: The Fellowship of the Ring" and "Star Wars: Attack of the Clones," the strategy has resulted in millions of dollars worth of ticket sales online and, at least in the case of the new "Star Wars" film, has helped produce sold-out performances across the nation.

eBay wants in
Now, eBay is positioning itself to cash in on the booming market. The company has a self-stated goal of reaching $3 billion in revenue--on $30 billion to $40 billion in gross merchandise sales through its site--by 2005, and ticket sales could prove to be a key part of reaching that target.

"This is a market we're very optimistic about," Jeff Jordan, general manager of eBay's U.S. operations, said at a conference with analysts last fall.

Last year, in one of eBay's first big ticketing deals, the company teamed with the Salt Lake Organizing Committee to offer seats to this year's Winter Olympics events, such as figure skating and ice hockey, through eBay's site.

In recent months, the company has stepped up its ticketing efforts, signing deals with OnlineTickets.com and LiquidSeats. Both companies help ticket holders sell their tickets online and have begun to help them sell on eBay.

Working with 22 traditional ticket brokers nationwide, OnlineTickets.com allows sellers to list tickets either on its site or on eBay. The Houston-based company makes a commission on each ticket sold through its site or through eBay. The company has more than 500 sets of tickets listed on eBay and plans to bump that up to 6,000 to 8,000 sets by the third quarter, company President Ali Fazeli said.

Meanwhile, LiquidSeats' site is open to any ticket holder. People can list tickets on its StubHub site, on eBay or on the sites of local newspapers or sports teams that have partnered with the company all at the same time. LiquidSeats charges a 10 percent fee for buyers and a 15 percent fee for sellers on tickets sold through its system. LiquidSeats has nearly 1,700 sets of tickets listed on eBay.

Despite these partnerships, eBay may soon find some big-name competition.

In January, Ticketmaster, for instance, set up a marketplace for the Columbus Blue Jackets of the National Hockey League that allows season-ticket holders of the Ohio team to resell excess game tickets through the Blue Jackets' Web site. Meanwhile, Tickets.com set up a similar marketplace on the Web site of Major League Baseball's San Francisco Giants two years ago.

Neither company released numbers on how many tickets have been sold through their marketplaces, but on the Giants' site, at least, season ticket holders have listed hundreds of tickets for a number of upcoming games. Both companies say their pilot sites have been successful and that they plan to expand them to other teams later this year.

"This is not only a technology that works very well, but the marketplace is demanding it," said Eric Bauer, chief financial officer of Tickets.com.

eBay's success in the secondary market for tickets is by no means assured. Although the company brings to the table its 42 million registered members and a thriving marketplace, turning tickets into a big business could prove to be tricky.

Worries about scalping and fraud
Ticket scalping is highly regulated in numerous cities and states around the nation, some of which forbid ticket holders from selling tickets for more than face value. Earlier this year, eBay put in place a system to try to prevent members from breaking local laws.

But since the system works by examining a member's billing address, members may be able to circumvent it by falsifying their addresses. eBay's system will in some cases even allow a bidder in one state to pay over the face value for a ticket but block a bidder in another state, thereby both distorting the bidding process and possibly circumventing local laws.

"There absolutely are legal issues," Forrester's Johnson said. "If this ever got to be a big enough business, they're going to run into jurisdictional issues."

But even if eBay is able to navigate the legal implications, the company may have problems persuading large numbers of members to buy tickets through its site. Although eBay says that less than one one-hundredth of 1 percent of its auctions end in confirmed cases of fraud, it still amounts to hundreds of potentially fraudulent auctions on the site each day. And tickets, which can fetch big bucks and be counterfeited relatively easily, could represent a new, lucrative market for scam artists.

"This is one area where eBay faces more fraud than any other category," Johnson said.

The fraud issue is something the traditional ticketing companies think they've figured out. Because Ticketmaster and Tickets.com often are the same companies that issue the tickets in the first place, they can verify the authenticity of tickets sold through their marketplaces using bar codes. When a customer buys one of these tickets, the companies cancel the original tickets and issue the buyer replacement tickets.

"That's one thing we can offer," Ticketmaster spokeswoman Hannah Kampf said. "That's why we are used so heavily by consumers, because they know they are buying a legitimate ticket."

eBay has made an effort to tackle the fraud issue. On its travel site, the company will soon require members to verify that they are either employed by a legitimate travel company in order to sell airline tickets or hotel rooms on its site. The new restriction will not apply to sellers of frequent-flier miles or travel vouchers, however.

The company is also putting in place a new system to authenticate all sellers. Developed by VeriSign, the authentication system should be in place next month and will rely on credit reports and databases of phone numbers and addresses to verify that sellers are who they say they are.

Meanwhile, eBay's efforts in ticket sales already seem to be paying off. Ticket sales through its site grew 141 percent year over year in the fourth quarter of last year, said Jeetil Patel, an analyst with Deutsche Bank Alex Brown.

"The attraction is that it's a highly inefficient and fragmented market," Patel said. "Those are the areas that eBay does best at."