Ticketmaster Inc.'s purchase of online ticket reseller TicketsNow Inc. a kind of legitimized scalping marketplace may be the best way to start bringing in fast cash.
The $265 million deal comes on the heels of Ticketmaster losing its biggest client, concert promoter Live Nation Inc. The contract with Live Nation, which represents 20 percent of the company's $1.1 billion revenue, will terminate by the end of the year.
"They need a very quick replacement for that and online secondary ticketing is extremely lucrative," said Sucharita Mulpuru, analyst for Forrester Research. "It's the best replacement they could leverage for now."
The West Hollywood company last week agreed to buy TicketsNow, which runs the nation's second-largest Web site for reselling tickets to concerts and sporting events. The largest site, Stubhub, is run by eBay Inc.
Eric Korman, executive vice president of Ticketmaster, said buying TicketsNow and parting ways with a large client are unrelated.
"We've been looking at reselling for quite a while," he said. "We would have made the decision regardless of Live Nation."
Ticketmaster has had a modest presence in the so-called secondary ticket market through a product called TicketExchange, where season ticket-holders can post tickets for sale at other events.
The business has been encumbered by anti-scalping state laws, because the company actually issues the tickets resold through TicketExchange and there are strict regulations in a handful of states against how much tickets can be sold above face value. There are no resale price caps in California, and laws in other states are changing. Ten states have repealed or reformed anti-scalping laws in the past two years.
Meanwhile, resellers such as TicketsNow or Stubhub are not affected nearly as much by anti-scalping laws, because they don't own the tickets, but act as the marketplace.
"It's like an auction, and a lot of more tickets are sold above face value," Mulpuru said. "Everything they do is legal, but because Stubhub or TicketsNow is not ultimately responsible for the tickets, they can wash their hands of any irregularities."
These secondary-market sites have essentially legitimized scalping en masse. With Internet providing scale and ease of operation, online marketplaces have brought safety, efficiency and transparency to the reselling business as a whole.
And there are high margins, said analyst Rob Enderle.
"Reselling tickets operate on high demand, and the greatest margin is in the mark-up," he said. "And at the end of the day, you're still selling more tickets. Anyone who is selling tickets is a competitor for Ticketmaster. So you might as well own them so you don't have to compete with them."
The TicketsNow purchase is a part of Ticketmaster's aggressive expansion plan. The company expects to be in 40 countries in five years.
Today, the brand is in 20 countries, including China. The company has teamed up with two local ventures to host ticket sales of the 2008 Beijing Olympic Games. It also acquired an event promoter and ticketer Emma Entertainment last year and the merged company sold 25,000 tickets to a Linkin Park concert in Shanghai in November.
Domestically, Ticketmaster recently formed exclusive partnerships with the NFL and NHL, following similar agreements with the NBA last spring. Last year, Ticketmaster purchased iLike.com, a music and social networking site with 15 million registered users.
The company will spin off from its parent, IAC/InterActiveCorp. at the end of the second quarter this year to become an independent public company. Ticketmaster's 2,100 employees across the country and 520 in Hollywood are not likely to be affected, Korman said.
Mulpuru believes independence could be a good move for Ticketmaster.
"When companies are left to control their own destinies, they will often embark on many revenue-driving endeavors they may have stayed away from because of internal branding reasons," she said.
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