Problem:

Ticketmaster is the leading live entertainment electronic ticketing service in a very competitive marketplace. How could Ticketmaster use contract law to increase its market share?

Strategic solution:

Ticketmaster designed and implemented unique contracts that make it extremely difficult for competitors to compete with Ticketmaster in this industry.

To understand how Ticketmaster strategically uses and leverages contract law, it is necessary to understand how the live entertainment industry operates and how Ticketmaster departed from the industry$$s traditional business model and contracting promises. First, it is important to assess the various players in the live entertainment industry as depicted in the following industry value chain.

Traditionally, ticketing companies charged venues an inside charge, for each ticket sold to fans. This was normally limited by contract to $$1$ per ticket. The convenience charges assessed against fans were likewise kept to a minimum and retained by the ticketing company. These two relatively modest fees were the primary sources for ticketing companies before Ticketmaster$$s arrival. Ticketmaster$$s pioneering model, however, challenged these practices and used contracts to preserve its competitive advantage.

First, Ticketmaster did away with the inside charge so that the venues would never have to pay to use Ticketmaster$$s service and technology. To earn profits, Ticketmaster negotiated with each venue the contractual right to obtain the complete an exclusive inventory of ticketing for all the venues live entertainment events for three to five years. In exchange for this major concession Ticketmaster promised to assess convenience and order processing fees against the fans that would then be shared with the venue at a guaranteed percentage reflected in the written contract between Ticketmaster and each venue. The ticket receipt below demonstrates the two charges assessed by Ticketmaster against a ticket purchaser the convenience charged and the order processing fee.

The following contract term standard among Ticketmaster$$s contracts was negotiated between Ticketmaster and a county owned venue in Florida:

Principal $($the venue$)$ shall be entitled to receive ticket sales royalties from Ticketmaster with respect to each convenience charge and processing fee; all to the extent received $($and not refunded closed parentheses buy Ticketmaster. The amounts of the royalties are set forth below.

Type of royalty Amount of royalty

Convenience charge $35\%$ of the convenience charge

Processing fee $35\%$ of the processing fee

Convenience charge $35\%$ of the convenience charge

Processing fee $35\%$ of the processing fee

This unique rebate model allowed Ticketmaster to contractually lock in all the major venues across the nation. Eventually Ticketmaster signed similar rebate contracts with all the major promoters who represent the most popular artists. This locked in all the key industry players and prevented the venues from negotiating directly with the promoters.

$1.$ What types of contracts are used by Ticketmaster?

$2.$ What is Ticketmaster$$s source of competitive advantage?

$3.$ How did Ticketmaster use contracts to preserve its competitive advantage?

$4.$ If you had a superior electronic ticketing technology how might you compete against Ticketmaster?

$5.$ Is it fair for companies to be able to use contracts such as these to preserve their market leadership position?

$6.$ Can you think of other businesses that employ the $$rebate model$$ that Ticketmaster used in the electronic ticketing industry? What role do contracts have in these industries.