Proposed levy on secondary market in tickets

Yesterday the Music Managers Forum (“MMF”) unveiled the Resale Rights Society (“RRS”), which has been established to “license” the secondary market for live music tickets in the United Kingdom. Artist management firms representing more than 400 performers have confirmed their support for RRS, including the teams behind Robbie Williams, Arctic Monkeys and Radiohead.

RRS chairman-elect Marot explained that the body’s aims are two-fold. The first is to introduce uniformity in the sector through a kite-mark system for ticket sales Web sites. Secondly, the society pledges to fight on behalf of artists and the live sector by negotiating a share in the proceeds of those resold tickets.

It is believed that a levy of 15% on the resale value is being proposed by the Society although details are sketchy. The target is the £250m turnover on the secondary market exchanges.

Unsurprisingly the online exchanges are unimpressed. Joe Cohen, CEO and founder of Seatwave, commented, “This is a direct attempt by a few music managers and promoters to line their pockets at the expense of consumers.” He added, “Everyone in this value chain has already been fully paid for their work – this proposed tax is like BMW asking car owners for a cut every time someone resells a car. It’s laughable that rock managers and promoters are holding themselves out as consumer champions.”

Personally, I think the online exchanges hold the upper hand in the upcoming “discussions”. Other than for PR reasons of being seen to co-operate with artists, they have no reason to voluntarily pay away a percentage of the turnover, since the market exists anyway. If reports are accurate, the suggested percentage would take a big chunk out of the 25% tariff the online exchanges typically enjoy.

Other than the kite mark, what else do secondary market operators get out of it?

Well, perhaps one arrangement to motive the exchanges could conceivably involve managers guaranteeing a supply of tickets to major events to provide liquidity to the online markets, with primary market tickets being diverted directly into the secondary market, allowing the price to be set based on demand and “windfall” profits retained by the event promoter/artist? This practice is not uncommon in capital markets, with allocation of new equity granted to favoured parties who then enjoy windfall profits, and which was at its height in the dot-com boom in the late 1990s. However, this may be unpalatable in some quarters.

The key problem is that the tickets issued for most events are “bearer” tickets (admittance give to whomever presents the ticket at the door) over which great care has been made to evidence their authenticity via embedded security and anti-counterfeit measures. As such private transactions can be easily conducted away from the managers and promoters. Unless this is addressed by the Managers, and “bearer” tickets discontinued, the secondary market will be able to easily avoid the levy.

Furthermore, I’m not even sure that the “Prisoners dilema” applies in this case, were one of the online operators to break ranks and agree to participate, since the others could operate without penalty. Ultimately, consumers just want access to the tickets and I suspect are less likely to care about a kite mark if the online exchange provides money back guarantees.

The timing of this initiative is very interesting though, as the UK Govt Select Committee is due to report in early 2008. In launching the RSS, the MMF has effectively endorsed the principle of secondary markets, which is a reversal of the position presented to the Select Committee which proposed that they legislate against the secondary market and effectively outlaw the reselling of tickets for a profit in a similar manner to sports events such as soccer.

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