Block by Block: Ticketing

Block by Block is a series where we dive into different industries and examine the entry-points for decentralization.

Ask any hard-core concert-goer about the worst part of the event, and they will likely tell you a war story about buying a ticket. 

The ticketing industry is incredibly flawed. Ticket-buyers face high-fees and have to compete with bots who buy up tickets seconds after they are on the market. And that is if they are even lucky enough to purchase tickets on the primary ticketing platforms. Event-goers who are forced to look to the secondary markets for their tickets are immediately thrown into a world of fraudulent ticket sales and scalpers that resell tickets at absurdly high marked-up prices. For an industry as broken as ticketing, it is no surprise that the industry has attracted a swarm of startups and entrepreneurs offering solutions. These startups include both centralized ones like SeatGeek and decentralized ones like Aventus. This piece will explore firms leveraging crypto to remedy the headaches of ticketing. 

Where are the points of entry for decentralized ticketing platforms?

  • Obscure Monopolistic Markets: To sell and distribute their tickets, event organizer and content creators (i.e., artists and performers) will typically issue their tickets onto the primary market. Primary markets include ticket box offices, venue websites, and primary authorized sellers like TicketMaster. Primary authorized sellers generate their revenue through the fees they charge to consumers. A single ticket can have multiple fees. For example, a consumer could end up paying a service fee, a processing fee, and a convenience fee on top of the price they are paying for the original ticket. There are also multiple cases of “hidden fees,” that buyers are paying for their tickets. Some studies have suggested that fees charged to a ticket buyer average 27% of a ticket’s face value, with some sellers charging fees as high as 58%. The reason why ticket fees are so high is due to the monopolistic nature of the industry. In 2009, two of the most dominant companies in the live music industry, TicketMaster and Live Nation, agreed to a $2.5B merger. Live music is by far the most dominant segment of the event ticketing industry, with a nearly 50% market share. The merger of TicketMaster and Live Nation created what some might call a monopoly that facilitates ticket sales for 80 of the top 100 arenas in the U.S. Live Nation and TicketMaster have little incentive to decrease the fees it charges for ticket sales.
  • Scalpers & Secondary Markets: The ticket resale market is estimated to be worth $8B. While scalpers, or ticket resellers, play a large role in the industry, they greatly disrupt the economics and user experience of the ticket purchasing process. Professional scalpers create unnecessary scarcity in the ticket purchasing process. Scalpers acquire large quantities of tickets from the primary market with the intention of selling them at higher prices. Some estimates suggest resale ticket premiums can reach as high as 143% of a ticket’s face value. Furthermore, due to the monopolistic nature of the secondary event ticket industry — StubHub owns a 50% market share — buyers can be forced to pay fees averaging between 27% to 31% of a ticket’s face value.
  • Fraud & Bots: Fraud and bots are problems found in many industries. However, for ticketing, they are more prevalent. According to the AARP, nearly 5 million people receive fraudulent tickets, annually. Furthermore, according to TicketMaster, bots are used to purchase over 60% of its most desirable tickets for events. And with regulators have attempted to ban the use of botting software, bots are still widely used in the industry.

With the problems facing centralized ticketing platforms, how do decentralized ticketing platforms solve them?

  • Obscure Monopolistic MarketsTransparent Market: A decentralized ticketing platform could, in theory, disincentivize some activities found in monopolistic markets. Because of the radical transparency that a blockchain network would bring any insider dealing on ticket prices would be publicly available to ticket buyers. One major issue with the ticketing industry is presales. Even before the release of tickets to the general markets, some event organizers and artists sell their tickets through presales. It is estimated that between 10%–30% of tickets for major concerts are sold through presales. A transparent blockchain would disincentivize the preselling of tickets and use of hidden fees.
  • Scalpers & Secondary MarketsLimited Resellers: Decentralized ticketing platforms enable ticket issuers to sell their tickets through smart contracts. Issuers can set clear rules on how these tickets are sold on secondary markets. Such rules can include whether a ticket can be sold on secondary markets and even if they are transferable. Total control of the ticket resale supply chain could limit the number of resellers on the market.
  • Fraud & BotsAnti-Fraud & Anti-Bots: Decentralized ticketing platforms enable ticket issuers to issue a digital version of their tickets that have unique identifiers. As tickets are tracked on a blockchain network, ticket issuers and buyers can track that the provenance of a specific ticket. With this ability, they can validate whether or not a ticket is authentic when they purchase them. Furthermore, to prevent botting, decentralized ticketing platforms can also enable staking or proof-of-work systems — forcing botters to contribute “stake” or pay fees, in the form of tokens, before being allowed to purchase tickets. By introducing staking or fee payments, decentralized ticketing platforms introduce a financial disincentive to bot. If nodes on a blockchain network discover a bot, they force it out of the network, causing botters to lose their financial stakes.

What are the barriers to entry?

  • Issuer’s Choice: Event organizer and content creators still decide the distributors of their tickets. Due to the market dominance of platforms like TicketMaster, ticket issuers will essentially have no options but to sell their tickets on these platforms. To break TicketMaster’s dominance of the market, decentralized ticketing platforms will have to disrupt TicketMaster’s network effect (buyers go on TicketMaster to buy tickets because that is where the tickets are; tickers are sold on TicketMaster because that is where the buyers are) — which will be difficult. Decentralized ticketing platforms face an uphill battle to convince both buyers and sellers to use their platforms.
  • Adoption: The ticket purchasing experience is already difficult for ticket buyers. Adding more difficulty will disincentivize the adoption of decentralized ticketing platforms. As with new technologies, decentralized ticketing platforms are not user-friendly. Current platforms require users to download and sync nodes, buy tokens, load tokens, and pay blockchain transaction fees. This process, in itself, would likely turn-off the average ticket buyer.
  • Startup Competition: Decentralized ticketing platforms face not only the 800-pound gorilla in the room — TicketMaster — but also a wave of startups trying to take market share. These startups have raised hundreds of millions of dollars to compete for market share in the $47B ticketing industry.

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Block by Block: Ticketing written by Steven Zheng @ December 4, 2018 Steven Zheng

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