Junk Fee Or Not Junk Fee?

The White House was the setting yesterday for a conversation among ticket sellers and others related to “junk fees.” These fees are the costs which are added on to a purchase at the final checkout page. This is endemic in many industries but the one which has been getting particular attention has been event ticketing. As a result, President Biden met yesterday with representatives from Live Nation/Ticketmaster, SeatGeek, TickPick, Airbnb and others. By the time the meeting took place there had been agreement among the attendees to move in the direction of up-front all-in pricing.

The question is whether this will make any change for consumers. The newspaper reports came out and said that junk fees were being addressed and that consumers would save money but that’s not what happened. Instead, what happened is an agreement to display at the initial screen shown consumers what their final price would be. The final price would still be the same as it would have been previously had they gone all the way through the checkout process before the additional fees populated in the last step. So, this new process creates no change in the price. But maybe it inspires a change in the consumer’s way of thinking though through the transaction.

Here’s what really happens: people are used to the idea that live event tickets are very hard to get. That’s been the case since lions ate Christians in the Colosseum of Rome. Fans go to the secondary market because they were unable to buy tickets at the initial sale. Alternatively, they go to the secondary market because the primary market distribution mechanism is so broken that it requires days of advance planning and two hours on a computer in order to buy tickets to a show in high demand. There is very little difficulty purchasing tickets to a show in which there is limited demand. This whole distribution crisis centers on the Taylor Swifts and Beyonce’s of the world who have more fans than they have seats to sell them.

I spoke today at length with Brett Goldberg, co-CEO of TickPick, a New York based secondary ticket market which has long led the charge in telling consumers what the upfront price is at the beginning of the transaction. For a long time TickPick was unlike almost everybody else by disclosing the final checkout price at the beginning of the transaction. Their strategy is creating affinity with its customer base by being truthful about pricing and then competing by utilizing the database of prior purchasers to drive future traffic. Everybody else is competing by showing the lowest possible price whether it’s truthfully the lowest price or if it’s manipulated down and then corrected at the checkout screen by moving the price up with an outsized service fee.

Because tickets are hard to buy, people who turn to the secondary market feel possessive about the tickets they select. They begin to panic during the checkout process that somebody else might buy their selected tickets before they complete the check out. There is an emotional shift in which the tickets selected become “my tickets” and as a result people complete the checkout process even though surprise fees which increase the cost as much as 35% are added to their total in the last screen.

This isn’t going to change as a result of the movement toward all in pricing. What is going to change is that the decision making process on the part of the consumer may be different when they understand just how much they’re paying for the tickets they selected.

Because people are prone to underestimate how many additional costs will be added to the price of a ticket, when they make their ticket selection they typically choose a more expensive ticket than they would have otherwise had they known the final checkout price. So, the only true change that may occur from this slow shift to all in pricing is that consumers may select worse tickets in order to get cheaper prices.

The deep secret about all of this is the biggest contributor to the cost of ticketing and complexity of distribution is Google
GOOG
. This is because consumers go to the Internet and type in the name of the performer they want to see thereby requiring markets competing with each other to spend ever more money on AdWords and keywords in order to be found in the top few results rather than on the 15th page.

The other deep secret is that people who wait until a couple of days before the event usually find that ticket prices soften. The reason is obvious. If the show hasn’t sold out the ticket is going to be worth zero once the show begins. Consequently, market makers move their prices down as showtime approaches.

I’ve written about this extensively in the past including this story below talking about how during the height of the Bruce Springsteen ticketing frenzy where tickets went as high as $5,000 apiece because of unrestricted dynamic pricing they got as low as $6 on the day of show in Houston, Texas and other cities.

MORE FROM FORBESBruce Springsteen Tickets For Houston Now Cost The Same As Two Gallons Of GasolineBy Eric Fuller

The promises which were made in the White House meeting are not as clear as the press has described them. For example, Live Nation is committed to all in processing for venues which it owns but silent as to venues which it does not own. This creates further confusion in the marketplace because consumers may assume all in pricing for any Live Nation ticketed event only to find out that on certain sports tickets or events held at venues not owned by Live Nation there are still additional fees added at the very last screen. Similarly, there will be consumer confusion because they may assume that everybody is moving to all in pricing when in fact the only secondary event ticket markets committed to it are TickPick and SeatGeek

It is also important to talk about what is a junk fee. A junk fee is a fee assessed in return for nothing. When a hotel puts a price on a room at $200 and then adds A mandatory fee of $35 per night for amenities like the swimming pool and the telephone is a junk fee. Everybody has a telephone in their pocket and nobody needs a swimming pool in the middle of winter or when they’re only checking in for the night and checking out immediately in the morning to catch a flight. This is very different than booking time in the spa. But, when you book time in the spa you pay for the service you are going to receive and if you are not going to the spa you don’t get charged at all. It’s similar to the idea that you shouldn’t get charged for a hotel to have a restaurant if you aren’t eating any food. You only get charged when you go in the restaurant or bar and order a drink or a meal.

In ticketing, there is tension because the historical way performers have been paid has been to take all the money which was the face value of the ticket leaving nothing to pay for the ticketing company or to pay to the venue or to pay the promoter. The long standing compromise was that the service fee was divided between everybody else other than the act so that they could afford to operate. There has long been fear that if the ticket price was consolidated into a single all in price that the act would just want all that money and there would be no way to pay the promoter, ticketer or venue. This is something they’re just going to have to work out between themselves. Airlines sell you a ticket for a single price but within that price is money that goes to the airline, money that goes to the airport and taxes which go to the government.

Ultimately, it’s in the best interest of everybody to understand what the full price is before they start a transaction. We do not want to create an entire economy based on artificially suppressed prices in which the reality intrudes only at the final stage of checkout. That’s bad marketing and it creates hostility between consumers and vendors. Unfortunately it’s hard for some vendors to be completely transparent about pricing while they are competing with other vendors who are playing hide the ball and thereby lose traffic because the Internet search returns prioritize lower initial displayed prices rather than final checkout prices.

Change is coming but it doesn’t come fast. Certain states like New York already have mandatory all in pricing requirements for event tickets. Others are considering it. Ultimately, the federal government will probably weigh in. In the interim use common sense. There are usually enough tickets in the secondary market that you have time to open two windows in your browser, pick two different sets of seats which are similar and see how they check out. Take the lower price. And set your expectations accordingly. Almost everyone forgets what they paid once the lights go down. What they remember instead was the experience of being at the event surrounded by sound, light and the energy of the crowd.