Big-Ticket Troubles -- Concert Industry Rolls In Money, But Where Is It All Going?

----------------------------- TOMORROW IN THE SEATTLE TIMES ----------------------------- A look at publicity-shy billionaire Paul Allen and the investment empire he's been building since leaving Microsoft. -----------------------------

On this hot August night, Troy Lee wears nothing above his waist except sweat, a goofy grin, a large tattoo, and paint smeared over his chest that says, "Soundgarden, Welcome Home."

It's mosh time in Grunge City.

Lee's here for a concert for which he paid $65, cash, for three tickets. For other shows, he once paid as much as $75 for a single ticket.

"It's worth it," says Lee, 21, from Olympia. "If you're a true follower, you gotta go every time."

Fans like Lee have made this the biggest season ever in the concert business, with year-end ticket sales at major venues projected at $1.5 billion, compared with $900 million last year. An unusual number of big acts like Pink Floyd, The Eagles and the Elton John-Billy Joel tour typically gross more than $1 million per performance.

But despite all the money, the concert industry is facing difficult long-term issues.

The big-name acts are getting old, and some industry observers say the younger bands as a whole lack the star power to replace them.

But the biggest worry among industry observers is that the economics of the concert industry is out of whack and pricing is abusing the fan, whose loyalty has limits.

Tickets for some shows have gotten very expensive - $85 for The Eagles, $100 for Liza Minnelli and $350 for Barbra Streisand - entertainers want too much money, promoters are getting squeezed, despite their efforts to find new dollars, and everyone is looking at the other guy for that extra nickel.

"Everybody kind of needs to readjust how they do things," says Kelly Curtis, manager of Seattle's Pearl Jam. "Everyone's got their hands in each other's pocket."

The discontent came to a head in June when Pearl Jam appeared before Congress to complain about TicketMaster, the single most-powerful force in the concert industry. The band - which planned to limit its tickets to $18 and wanted TicketMaster's service charge held to $1.80 per ticket - complained that the company was a monopoly that controlled the pricing and distribution of tickets. Some other bands publicly supported Pearl Jam but most bands have been content to watch prices soar for concert-goers.

Fans last year paid $160 million in service charges to TicketMaster, and, Troy Lee and many others felt they had been gouged. Lee says fans could go to more concerts if TicketMaster charges were lower.

FANS ARE INDIRECT PARTNERS

But if fans think they are being ripped off, they would be surprised to learn they are indirect partners in the deal. The public owns many of the concert halls, such as the Tacoma Dome, that split service charges with TicketMaster.

TicketMaster today is at the center of a web of interests that each play a role in driving up service charges - a system, say its defenders, created because bands got greedy.

"There is no clean player in this deal," says Jim Weyermann, deputy director of Seattle Center, home of rock concerts at the Coliseum and Memorial Stadium. "You can point the gun at any party and pull the trigger, including the consumer."

If fans don't like the prices, they can just refuse to go to a concert, he says.

TicketMaster is controlled by Paul Allen, the Mercer Island billionaire and Microsoft co-founder.

As a fan of rock, including Pearl Jam, the soft-spoken Allen is pained to be warring through surrogates with one of America's most popular rock bands. He has stayed above the fray by letting TicketMaster's abrasive chief executive, Fred Rosen, do the talking, some of it in shouts and expletives.

In a rare public appearance recently, Allen said he could not discuss the TicketMaster controversy because of various lawsuits and an antitrust investigation by the Department of Justice. But he insisted that TicketMaster has done nothing wrong.

He said some people (presumably Pearl Jam) just did not understand the industry.

"It's one of those things where you have people in different parts of the music business who don't necessarily understand all the components of each other's business," he said.

The concert industry used to be simple. Twenty-five years ago, a promoter paid a headliner band a flat fee, typically less than $10,000, in cash just minutes before the concert started. Any remaining money went to the promoter's expenses, then his pocket.

Beginning in the mid-1970s, bands wanted bigger minimum appearance fees and began demanding a percentage of gross ticket sales as well as a percentage of collections from parking, T-shirt sales, hot-dog sales and other concessions.

Promoters, who typically pay for security, rent, publicity and other expenses, had to pony up if they wanted the name acts. That led to a system where, following each concert when all the expenses are collected, the band's manager or tour accountant negotiates over what expenses are charged to the venue and promoter before the band's take, typically 85 percent or more of net receipts.

"There are days when you sit down and argue over rolls of toilet paper," says Weyermann of Seattle Center.

Promoters saw their profit margins squeezed to as little as 1 percent of gross ticket sales.

Bands see it differently.

Bands say they need revenue to keep pace with their expenses - agent fees, trucking, road crews, lighting and other rising costs of touring. On its last tour, Soundgarden had to price tickets at at least $15 just to break even, said band manager, Susan Silver.

Silver says every everyone has a right to make money, especially promoters who bear the risk of a loss. But as promoters and venues create new sources of revenue, such as "facility charges" added to tickets, bands should get some of the money.

"People are coming to see the talent so why shouldn't they get the larger share of the money?" she asks.

As bands became more aggressive about money, ticketing went through dramatic changes.

Fans used to buy tickets directly from a box office or through a few outlets like the old downtown Fidelity Lane or The Bon Marche ticket outlet. The Bon, for example, charged the public little or nothing and charged promoters 5 percent of gross sales.

Across the nation, the system helped promoters distribute tickets but no one was completely happy. Fans could wait in line for hours in one place, only to hear about better tickets for sale elsewhere. Sometimes, the best seats could only be bought at the box office. Police worried about the occasional riot. And promoters worried about the security of their cash.

In 1978, two Arizona State University students wrote a computer program that did a neat trick. It linked several computers so that a buyer at the box office, at any outlet or by phone could buy the best available ticket. Their system, compared to other systems, processed ticket sales faster and gave more detailed information to promoters. The students formed TicketMaster, which in 1981 did $1 million worth of sales, still a pittance compared to market leader Ticketron, which that year did 100 times that amount.

TicketMaster's challenge to Ticketron gained strength in 1982 when lawyer Rosen arrived as chief executive. Rosen, who once worked as a stand-up comic, brought hustle to the company, and vision. He saw the future of TicketMaster was concerts, not sporting events, where season ticket holders could avoid paying service fees.

Concert fans, by contrast, bought on impulse; if they wanted to see a show badly enough, they would pay almost anything. What's more, the long lines at rock box offices were a persuasive argument for using Rosen's telephone-sales service, even though fees could run as high as 29 percent or more of the cost of a ticket. Telephone ordering added more, says TicketMaster, because of the cost of maintaining a sales office as well as answering information-only calls. (To the Soundgarden show telephone and handling fees added $6 to the $20.50 ticket.)

Rosen is a legendary salesman and protective as a grizzly about turf. But his genius was in showing that his success would benefit those profit-hungry promoters as well as building owners. He offered to limit "inside charges" (money taken from promoters and venues as a percentage of gross ticket sales) and instead proposed raising service charges on the public and splitting proceeds among promoters and venue owners.

For promoters, Rosen was a gift.

In exchange for exclusive rights to handling their ticketing, he also offered computer technology that would simplify the distribution and accounting of tickets and guaranteed safekeeping of their cash. His computers could sell 25,000 tickets in a matter of minutes, which meant promoters could cut back on advertising and other costs.

In return for an exclusive arrangement with longtime Seattle promoters Ken Kinnear and John Bauer, TicketMaster paid them a minimum of $20,000 a month, plus 75 cents for each ticket sold.

For managers of municipal venues like the Tacoma Dome, TicketMaster offered cold cash up front.

When the Tacoma Dome agreed in 1993 to an exclusive with TicketMaster, for example, the city of Tacoma got an advance of $450,000 against future revenues. For every concert ticket sold for the Tacoma Dome, the dome collects 40 cents. Revenue from TicketMaster ranges each year from $80,000 to $120,000, says Jay Green, director of the Tacoma Dome.

As part of its contract, TicketMaster provides the equipment and people for a four-person box office at the dome and gets up to $8,000 of "inside charges" at the dome and the remaining revenue from service and handling fees. Handling fees vary by concert. But one big-name show at the dome can generate $75,000 in telephone charges alone.

Green says the TicketMaster revenue is important for sound financial management of the dome.

"Our costs escalate every year," says Tacoma Dome Director Jay Green. "Every area of our operation . . . becomes a profit center to help pay the bills. Ticketing is a source of revenue."

Under the contract, it's the dome, not TicketMaster, that decides how high service charges go.

`I'D LOVE TO HAVE LOWER FEES'

"All of us would love to have lower fees," Green said. "I'd love to have lower fees. I'd love to park for $1 and have a 25-cent hot dog. The fact is, with the economics today, that ain't going to happen."

Seattle Center rejected a proposed exclusive deal with TicketMaster, knowing that the decision possibly reduced the center's potential revenue.

The center did not want to be tied to one ticketing company, did not want to be negotiating service fees charged to the public and had some worries about the potential antitrust issues involving an exclusive relationship with TicketMaster, said Weyermann of the center.

The exclusive relationships, however, were the very leverage TicketMaster used against rival Ticketron, whose business shriveled. In 1991, TicketMaster bought up the ailing company's assets, a deal that arguably diminished competition in ticketing, but was cleared by the Department of Justice.

TicketMaster, which last year sold $1.1 billion worth of tickets, is so embedded in the financial structure of the industry that you cannot function without them, says Ed Beeson, owner of The Backstage in Ballard, which sells tickets through TicketMaster and its own box office. Beeson says he has no complaints about TicketMaster and doesn't fault them for making money on their service.

A promoter's dependence on TicketMaster was displayed in a 1992 lawsuit filed against TicketMaster by Bauer and Kinnear, then the Seattle area's top promoters who did more than 100 shows a year. TicketMaster sold more than 90 percent of the promoters' tickets.

When Bauer and Kinnear started producing concerts in 1989 at The Gorge in central Washington, TicketMaster put up cash to launch the operation. It lent them $100,000 and guaranteed a line of credit for $400,000, documents show.

The relationship soured when Kinnear and others that year launched The PowerStation to sell tickets. The new company claimed its computer software could improve service to customers and give promoters detailed marketing data.

TicketMaster struck back by withholding cash from Kinnear's ticket sales through TicketMaster, court documents show. In a cash-flow business where ability to pay bills promptly is critical, the hold-back crippled Kinnear's business, he said. The two parties eventually settled. Kinnear and Bauer are out of the concert business, and The PowerStation was shut down.

Rosen, however, has not been content with his success in ticketing. Believing that death comes to those who slow down, he has long wanted to take TicketMaster into sales of other products. He found a perfect big wallet last year in Paul Allen, who paid $300 million for an 80 percent stake in the company.

Allen hopes to leverage TicketMaster's grip on concert sales into various forms of home shopping, including cable-TV services. But Rosen faces what appears to be a thorough antitrust probe by the Justice Department, based on the number of people already contacted.

The case is likely to settle on the question of whether TicketMaster's network of relationships with venues and promoters constitutes an anti-competitive arrangement, a point claimed by Pearl Jam.

TicketMaster says its average service charge per ticket is $3.15.

Consumers can save the phone charge by buying tickets at a TicketMaster outlet or going to a venue's box office. Sometimes, however, a box office does not open until most tickets are already sold.

Rosen declined to be quoted for this article, but told Congress in June that TicketMaster faces a host of competitors and its exclusive contracts regularly expire, giving competitors an opportunity to take his business.

TicketMaster says it only made a $1.4 million profit, or about 10 cents a ticket. However, the company's profitability last year was significantly dampened by acquisitions, including $16 million in increased administrative costs, according to its financial statement. With TicketMaster in court and facing government lawyers, the company for now is grist for attorneys skilled in the arcanum of antitrust law.

For an unvarnished opinion, stop Jim Heath, also known as the Rev. Horton Heat, as he walks off stage at Memorial Stadium before Soundgarden takes the stage.

Heath has been singing and playing guitar at a frantic pace for more than an hour. His sweaty body still pulses from the energy from more than 18,000 fans who moshed and cheered. It's hard for him to stand still, but he's eager to talk about TicketMaster.

"TicketMaster, man, they're a monopoly," he says. "Our manager says we either work with them or with nobody. Somebody's got to have the guts to stand up to them. They have a monopoly."

Somebody walks by and hands him a ticket for his backstage dinner. The metaphor captures what Heath sees as TicketMaster's place in the music industry:

"Everyone makes their meal ticket off them."

-------------------- WHERE THE MONEY GOES -------------------- Each event is individually negotiated, so there is no average price breakdown. There is usually only one handling fee, regardless of how many tickets are purchased. Assume a show at the Tacoma Dome costs $22 and was purchased by telephone through Ticketmaster. With a $3.50 per-ticket service charge and the $2 handling fee, the total cost would be $27.50.