Fortune and Shame

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http://online.wsj.com/article/SB123672740386088613.html

Concert Tickets Get Set Aside, Marked Up by Artists, Managers
By ETHAN SMITH

Less than a minute after tickets for last August's Neil Diamond concerts at New York's Madison Square Garden went on sale, more than 100 seats were available for hundreds of dollars more than their normal face value on premium-ticket site TicketExchange.com. The seller? Neil Diamond.

Ticket reselling -- also known as scalping -- is an estimated $3 billion-a-year business in which professional brokers buy seats with the hope of flipping them to the public at a hefty markup.

In the case of the Neil Diamond concerts, however, the source of the higher-priced tickets was the singer, working with Ticketmaster Entertainment Inc., which owns TicketExchange, and concert promoter AEG Live. Ticketmaster's former and current chief executives, one of whom is Mr. Diamond's personal manager, have acknowledged the arrangement, as has a person familiar with AEG Live, which is owned by Denver-based Anschutz Corp.

Selling premium-priced tickets on TicketExchange, priced and presented as resales by fans, is a practice used by many other top performers, according to people in the industry. Joseph Freeman, Ticketmaster's senior vice president for legal affairs, says that the company's "Marketplace" pages only rarely list tickets offered by fans.

The vast majority of tickets are sold by the artists and their promoters with the cooperation of Ticketmaster. In fact, he says that for any concert to which Ticketmaster carries so-called platinum seats, the Marketplace sells only artist-sanctioned tickets, not those resold by fans.

Though scalping tickets is legal in most states, the spiraling prices for tickets sold in the secondary market are frequently the target of ire from consumers, Congress and artists, all of whom say the practice takes advantage of fans while enriching third-party speculators.

Ticketmaster Chief Executive Irving Azoff said in an interview Tuesday that when ticket brokers resell tickets without permission from artists or promoters, it "drives up prices to fans, without putting any money in the pockets of artists or rights holders."

But Ticketmaster facilitates the secondary ticket market and profits from it. According to several managers of top artists and Ticketmaster executives, the company routinely offers to list hundreds of the best tickets per concert on one of its two resale Web sites -- and divides the extra revenue, which can amount to more than $2 million on a major tour, with artists and promoters.

These platinum seats are sold on Ticketmaster's TicketExchange, which describes itself as a marketplace for "fan-to-fan" transactions, using the slogan "Buy tickets. Sell tickets. It's that simple."

In addition to being Ticketmaster's CEO, Mr. Azoff also oversees the company's Front Line Management division, which handles the affairs of more musicians than any other competitor in the U.S. -- and represents Mr. Diamond. Ticketmaster is in the process of being acquired by concert promoter Live Nation Inc., an all-stock deal that is under intense regulatory scrutiny in part because it could affect competition in the music business, including the secondary ticket market.

Secondary ticket sales are viewed by Ticketmaster, concert promoters and artists as one of the biggest -- yet thorniest -- sources for revenue gains. In 2006, Ticketmaster launched TicketExchange in response to pressure put on its profit margins by secondary-ticket sellers such as StubHub. But in doing so, it opened the company to criticism by ticket brokers, fans and politicians, who accuse the ticketing giant of profiteering and obfuscation.

Ticketmaster is moving to distance itself from some parts of the secondary ticketing market. It is in the process of hiring an investment bank to try to sell another resale service, TicketsNow, according to people familiar with the matter.

Virtually every major concert tour today involves some official tickets that are priced and sold as if they were offered for resale by fans or brokers, but that are set aside by the artists and promoters, according to a number of people involved in the sales.

That includes recent tours by Bon Jovi, Celine Dion and Van Halen, and a current tour starring Billy Joel and Elton John. Spokesmen for Bon Jovi and Ms. Dion had no comment. A spokesman for Van Halen said that the band could not be reached. A booking agent for Messrs. Joel and John did not respond to requests for comment.

Tickets for a March 27 Britney Spears concert at Mellon Arena in Pittsburgh were priced earlier this week at $39.50 to $125 apiece on Ticketmaster.com. But some of those same classes of seats were being offered at the same time through the "TicketExchange Marketplace" for as much as $1,188.60. The link to the Marketplace page was marked, "Browse premium seats plus tickets posted by fans."

Ms. Spears' spokeswoman declined to comment.

The ticket listings are offered in small batches, each at a price, such as $1,164.01, that mimics prices set via online auctions. After inquiries from The Wall Street Journal, the "tickets posted by fans" message was removed from the TicketExchange Web site. Prices also fell, narrowing the gap between Ticketmaster and TicketExchange Marketplace.

Tickets that do not sell at the inflated platinum prices can also be moved between TicketExchange and Ticketmaster's lower-priced main inventory, without any signal to consumers that the ticket's status has been reduced.

Ticket brokers complain that artists sell their own tickets for inflated prices but rarely admit doing so, thus avoiding the appearance of gouging fans. "It's not fair for artists to hide behind Ticketmaster-TicketExchange," said Paul McCann, a broker near Baltimore. Ticketmaster says it is working to clarify the origin of tickets on TicketExchange. "It's cloudy and has to be cleaned up," Mr. Azoff said.

Bruce Springsteen recently decried a recent incident in which his fans were directed without his permission from Ticketmaster to TicketsNow.com, which caters to ticket brokers.

"As a matter of policy we do not ever release tickets to the secondary ticket market nor do we ever accept payment from them," said his manager, Jon Landau. Ticketmaster has said the incident was a mistake.

Ticketmaster says TicketExchange shouldn't be considered scalping. It says the site's "goal is to give the most passionate fans fair and safe access to the best tickets."

In a meeting last May with more than 100 ticket brokers, Ticketmaster's then-chief executive, Sean Moriarty, acknowledged that the ticketing giant had used TicketExchange to sell 160 Neil Diamond tickets over two shows at marked-up prices.

"That's a choice up to Neil and management," Mr. Moriarty said. He did not respond to messages left on his cell phone requesting comment.

"It's our job to make our clients aware of every opportunity that exists," Mr. Azoff, who is Mr. Diamond's manager, said in an interview last year.

Testifying before the House Judiciary Subcommittee on Courts and Competition Policy last month, Mr. Azoff said he believes the secondary market is currently flawed. "We agree that this model is broken," he told the panel, "and it needs a solution."