As the world becomes connected, unprecedented amounts of information is being created, shared and optimized. Analog devices are turning digital, and getting smarter along the way. Your house’s old electric meter is soon to be replaced with a small computer that will tell you in real-time exactly how much energy your home is consuming, as well as coordinate with small computers in your dishwasher and refrigerator to run them in the most cost and energy efficient way possible. Thus, saving you money and the world energy. Parking meters are being outfitted with sensors that can alert you when a space is available, as well as alert a traffic cop when a meter is overdue. This saves drivers from circling endlessly to find an open spot and allows police to dedicate man power to more high-value activities than aimlessly wandering the street looking for expired meters.
The successful companies of tomorrow will take advantage of new information and technology to do what they do today better, smarter. Over a series of posts, I’d like to highlight some media companies that are doing just that
Shout Out for Being Smarter, part 1: Live Nation
Live Nation is the 800 pound gorilla concert producer, artist management and ticketing firm of the music industry. Collectively it owns or operates over 120 venues, controls nearly every revenue stream of artists like Jay Z and Madonna, and has a near monopoly over concert and event tickets through Ticketmaster. Most people hate Live Nation. They blame the company for the skyrocketing price of concert and sports tickets. In many ways they are right, but as in all things, it’s a little more complicated than that. Many factors go into determining the price you pay for a concert ticket and while Live Nation has their fingers in just about all of them, they are not soley to blame for high prices. One major factor is the generally unsophisticated and outdated methods used to determine the face price of a ticket. The artist (or league or circus or whatever) gets together with the event promoter and determine a price. They base that price off of a few different factors such as how previous events for that artist were priced, how many sold, what other similar acts are currently charging, or how good the seats are. They set the price weeks or even months in advance, then ticketmaster slaps on a service charge and that’s what you pay. The problem is those few factors are generally a terrible predictor of real marketl demand and willingness-to-pay. As a result, they typically either price too low and scalpers swoop in, secure the best seats, and charge what the market is really willing to pay, or they price too high and no one (even scalpers) want the seats. There is no accounting for the way the value of a ticket changes as an event nears: is the show sold out or are there thousands of available seats? As of now it doesn’t really matter, the price is the price, and if the event is sold out then only the scalpers stand to gain (and the artist and fans stand to lose). The live events industry has been no where near as sophisticated in acurately pricing demand as, say, the airline industry. As a result there are huge inefficiencies.
Live Nation is all too aware of these inefficiencies. Luckily for them, its massive market share gives it access to tremendous amounts of data. Data on artists, on fans, on cities, on competitive events. They are combining that data with external sources like social media data and search engine queries to develop advanced algorythms that will more accurately model and predict exactly what the market is willing to pay for an event in real time. With that analysis they can constantly alter the price of a ticket and more accurately pair pricing with demand. The results is more in-demand seats will cost more for those that are willing to pay more, and less in-demand seats will cost less for those that are willing to pay less. This time and demand based price is known as dynamic pricing. The electric company and airlines have been using it for years.
Dynamic Pricing requires not only copious amounts of data, but incredibly smart PhD’s to write the algorithms that analyze the various data sources to accurately predict what someone is willing to pay. For this purpse, Live Nation teamed up with MarketShare Partners, a VC-backed analytics company, to spit out the analysis that will drive dynamic ticket pricing. MarketShare has been doing some extremely interesting things in marketing and advertising optimization so it’s great to see them exploring a new territory.
So whether you love or hate Live Nation, I respect that they see an opportunity to do something better, and are utilizing the tools and technology to do it smarter.