Squeezing Scalpers is Backward Integration

The WSJ reports that scalpers are less important to Taylor Swift's current "Reputation" tour. About 3% of the tickets find their way to stubhub versus the usual 30%-50%. Previously, scalpers would purchase tickets to performances by high demand artists and resale these tickets at a markup. In essence, the promoter "outsourced" the task of price discrimination to scalpers. Scalpers were able to capture a margin but bore the risk of unsold seats. Since there is virtually free entry into scalping, I suspect they earn very small economic profits. Promoters would be happy with this if scalpers were better at price discrimination and so were able to pay higher prices up front.

"The primary market has been ceding pricing control to secondary markets," said David Goldberg, a former senior Ticketmaster executive.

But CRM technology has come to concert promotion. Taylor Swift's promoters now have the edge in ferreting out which fans are less price elastic.

For the current Taylor Swift tour, would-be concertgoers were encouraged to register for Ticketmaster's Verified Fan program months before tickets went on sale. They could boost their standing in the ticket queue by watching music videos and purchasing the "Reputation" album or merchandise. Users then received codes that allowed them the chance to purchase discounted tickets over a six-day presale period.

By exploiting this information, they can publicize discounts to hardcore fans while raising overall prices.

The best seats--some with added VIP perks--cost $800 to $1,500 at face value for a given show, with those immediately behind them at $250 each. Spots in the back of the house go for about $50. Regular tickets for Ms. Swift's tour three years ago cost about $40 to $225, according to Pollstar data

Dress it up as cutting out the middleman but this tour "has already grossed 15% more." This is because her organization is now even better at price discrimination than these middlemen had been.