Can Blockchain Technology Fix Ticket Sales?

Blockchain technology has been called “a solution in search of a problem.” Though probably intended as a put-down, the comment does have some truth to it. As it’s a relatively new technology, people are still working to figure out what uses it can be put to. This is not necessarily a bad thing.

And with the term “blockchain” itself being a potential fundraising tool, slapped on virtually anything in an effort to lure investors, it becomes even more difficult to tell which projects are honest and well-considered attempts to use this new technological tool to solve a real problem, which are well-intentioned misapplications of the technology, and which are just, well, scams.

Some of us (myself included) are doubtful that technology ever solves more problems than it creates. Apparently detecting a dubiousness on the part of this writer about the likelihood of blockchain to help the music industry, Blockparty CEO Shiv Madan reached out, hoping to convince a skeptic that there is a problem that blockchain can solve – ticket sales.

“I think what we’re trying to do, it always came from a problem that we’ve thought about. It’s always come from a problem that I’ve had. Or that people have had experience with – attending festivals and being scalped. Or having fake tickets,” says Madan.

Describing itself as “an Ethereum-based blockchain ticketing company,” Blockparty claims it wants “to prove that powering an event using blockchain can be better for everyone – putting consumers and artists first, and removing third party incumbents like StubHub and fraudulent ticket scalpers.”

That does sound appealing. Neither ticket scalpers nor the major primary ticket sellers garner much affection. Despite that, the system has moved along fairly undisturbed for decades. Occasionally, a particularly egregious story will make headlines – ticket resellers offering Bruce Springsteen tickets for over $5,000 before the tickets have even been released – or someone will try (and fail) to change the system, like when Pearl Jam took on Ticketmaster in the 90s. But, over the last few decades, though the methods for buying tickets have changed – going from being sold in person, to over the phone, to online – the problems and abuses in the system have remained constant, despite technological changes.

In years past, scalpers may have had boiler rooms full of people buying up all the tickets they could get over the phone, while now tickets are snatched up online using bots. But what hasn’t changed is that large portions of tickets are reserved for industry insiders, with another huge batch bought up by scalpers, and only about a third available at face value for actual fans.

In 2007 New York state did try something new. The state replaced the outright ban on secondary ticket sales, which had been in place since 1922, with an attempt at regulation. Instead of banning the practice, “resellers” would be required to register with the state, post a bond to cover any possible counterfeit tickets, and pay $5,000 per year for a license. In 2010, New York added to this statute a provision outlawing the use of bots that automate the online ticket buying process.

To find out how effective the legal changes were, the New York attorney general’s office investigated the issue and released a report in 2016. The report found one unlicensed broker, a “large-scale illegal bot user,” had used more than 10,000 IP addresses and made an annual revenue of $42 million. Licensed brokers were also found to have used bots.

The report found that for most shows, large portions of tickets still weren’t actually available to fans. For some, over 50 percent of the tickets were never actually available to the public – the highest percentage cited was for a Jay-Z and Justin Timberlake concert for which 71 percent of the tickets were locked up before they had officially gone on sale.

Having the tickets on a blockchain could potentially address this problem, by making the ownership of tickets trackable.

“You’re also maintaining the identity of the ticket as it goes through multiple hands, as well as when it comes to the gate. The last person who was the owner of the ticket, their encrypted key is matched against the key which is stored on the blockchain,” Madan says.

But such a level of transparency may not actually be welcomed in the music industry, which is constructed to conceal the greed of the performers, who depend on the good will of their fans to continue their careers.

Ticketmaster (more properly called Live Nation Entertainment since its 2010 merger), for instance, has claimed it is a sort of PR shield for artists. Reviled for its numerous add-on fees that some believe drive up the price of tickets, it has claimed those prices are usually negotiated beforehand with the consent of the artists (or at least their management). So instead of an artist demanding $100 (or more) for a ticket, the ticket is said to cost $50, but then Ticketmaster adds on another $50 in absurd fees. The artist retains their fans’ goodwill, everyone hates Ticketmaster, everyone makes money. The system works.

Similarly, the role of scalpers is not accidental, and their disappearance wouldn’t necessarily make everyone happy. First, they function almost as insurance companies, by guaranteeing a large portion of tickets get sold (though whether anyone will actually end up sitting in those seats is another matter). When tickets go on sale, scalpers can buy thousands in a matter of minutes. What the scalpers do with those tickets may be of little concern to the venue, the promoters, even the artists. Either the tickets will be resold at a profit or it’s the scalper who’s out the money – and the artist has a profitable show, even if it’s in a half-empty arena.

Madan even claims that those secondary markets sometimes have direct arrangements with the artists, kicking back some of the profit from the drastically marked-up tickets: “The bots that buy up the ticket to a Taylor Swift concert – Taylor Swift’s getting a cut of the margin that the bots are flipping … So she’s making a cut on the upside. So what’s her incentive for disrupting the system that gets her a ton more money?”

That’s a good question. According to his account, the current system seems to benefit everyone (except fans) pretty well. So why would they want to change?

“They would benefit in that you could set a smart contract that enables a ticket to be sold at a 50 percent markup any time it is transferred. And Taylor Swift could instead earn a share of that secondary ticket sale. So she could have a much more vibrant secondary market for her tickets. Where there’s real price discovery, but at the same time, she would be able to earn a margin on any time that transaction happens. So there are other ways of compensating people for things that they are losing.”

At least for now, the major players in the industry seem interested in what Blockparty is doing.

“A lot of people have approached us, and the conversation is not competitive. They’re all happy we’re ticketing festivals and we’re demonstrating use case. And I think it’s more – how can we benefit from your technology?” he says.

That cooperative spirit may not last. Ticketmaster, for instance, owns two secondary ticket marketplaces (GetMeIn and TicketsNow), the “third party incumbents” Blockparty claims it wants to eliminate. Ticketmaster has even been accused of redirecting customers to its TicketsNow website, where ticket prices are higher, while there are still plenty of unsold tickets on the primary market. If implemented the way Madan describes it, the Blockparty system would discourage these kinds of transfers by making them transparent or would prohibit them outright through the terms of the EDCC.

“At the stage that we are competitive, I think it disrupts the major players. They have longer-term contracts with NFL teams and whatnot, so that they initially are not going to be concerned about us. I think they think of us as a potential partner. And we are not trying to discourage that, by providing open sourcetechnology or APIs that would enable them to thrive,” he says.

As long as the company is seen as producing applications that companies like Ticketmaster may want to play with, they represent no threat and will be seen as a “partner.” But Blockparty seems to want to go beyond that role, and in the long run it hopes to shake up a market that from the outside seems dysfunctional, but has been working for the major interests for a long time.

It’s easy to dismiss both the major ticketing organizations and small-time scalpers as vultures. But, like them or not, vultures play an important role in ecosystems, and have evolved into their role for good reasons.

Blockparty is offering a solution to several real problems. Having tickets on a blockchain could potentially limit the number of tickets purchased by a single entity. It could prevent counterfeit tickets. It could reduce price gouging.

But its implementation would involve upsetting multiple players that are thriving under the system as it currently functions. Getting them to accept a new model may be a problem that no technology can solve.