Claremont Colleges Scholarship @ Claremont CMC Senior Theses CMC Student Scholarship 2016 Music Festivals: A Secondary Market Analysis Julian Perez Claremont McKenna College Recommended Citation Perez, Julian, "Music Festivals: A Secondary Market Analysis" (2016). CMC Senior Theses. Paper 1338. http://scholarship.claremont.edu/cmc_theses/1338 This Open Access Senior Thesis is brought to you by Scholarship@Claremont. It has been accepted for inclusion in this collection by an authorized administrator. For more information, please contact [email protected]. Running Head: MUSIC FESTIVALS 1 Claremont McKenna College Music Festivals: An Online Secondary Market Analysis Submitted to Professor Richard C. K. Burdekin and Dean Peter Uvin by Julian Manuel Perez for Senior Thesis Spring 2016 April 25, 2016 MUSIC FESTIVALS 2 42 MUSIC FESTIVALS 3 Acknowledgments I want to thank Professor Richard Burdekin for his guidance throughout the process of writing this thesis. From brainstorming topic ideas over a year ago to helping me analyze data and improve my writing, he has consistently offered me valuable support and assistance. I would also like to thank Professor Yaron Raviv for helping me with my statistical analysis and for expressing so much interest in my topic. In addition, a thank you is also merited to Rachel Doehr for helping me with STATA. I am also enormously grateful to TicketCity for supplying me with data as I would not have been able carry out this study without it. A special thank you goes to Whitney Roberts, who kindly responded to my initial request for information and ultimately facilitated the data collection process. Finally, my biggest thank you goes to my family for their unconditional support and love over the years in getting me to where I am today. 42 MUSIC FESTIVALS 4 Abstract While the majority of the literature on secondary markets for tickets in the entertainment industry focuses on concerts and sporting events, this study aims to shed light specifically on the music festival resale market. Music festivals have risen in prominence in recent years, particularly among millennials, during the time that the internet has dramatically facilitated the resale of tickets through online marketplaces. With many of the top festivals selling out rapidly, a great deal of music fans turn to secondary markets for tickets. However, very little is known about the behavior of secondary markets for music festivals due to information not being readily available to the public. This study uses demand-side data including transaction prices and quantities acquired from one of the largest online secondary ticket marketplaces to examine market behavior. My findings show that on average, prices decline for music festivals as they approach, but that there are years for certain festivals where this isn’t the case. Other results show that markets for festivals with multiple weekends operate differently and that special artist performances such as band reunions can have a significant positive effect on consumer demand. Lastly, the majority of all ticket sales are found to take place in the final 30 days before music festivals transpire. 42 MUSIC FESTIVALS 5 Contents Introduction ......................................................................................................................... 6 Literature Review................................................................................................................ 8 A. The Market ........................................................................................................... 8 B. Underpricing....................................................................................................... 10 C. Social Welfare .................................................................................................... 15 D. Market Trends .................................................................................................... 17 Empirical Analysis ............................................................................................................ 20 A. Data & Descriptive Statistics ............................................................................. 20 B. Observed Trends ................................................................................................ 26 C. Weekend Comparisons ....................................................................................... 31 D. Year Comparisons .............................................................................................. 34 E. Statistical Analysis ............................................................................................. 37 Limitations ........................................................................................................................ 45 Conclusion ........................................................................................................................ 46 References ......................................................................................................................... 48 Appendix ........................................................................................................................... 52 42 MUSIC FESTIVALS 6 Introduction Rapid sellouts for music festivals are increasingly common. Some of the most well-known festivals like Lollapalooza sellout within hours of tickets going on sale, reflecting a massive demand for tickets that leaves many people empty handed (Marotti, 2015). The live music industry’s expansion has been fueled in part by rising attendance at festivals, as 32 million Americans attended at least one of the United States’ 800 music festivals in 2014 (Nielsen, 2015). Festivals are most frequented by millennials (age 18- 34) which, according to a survey by the research firm Nielsen Music (2016), spend nearly twice as much money on music festivals as the overall population. Music fans are also highly dedicated to attending festivals, as the same report found that the average distance traveled to a festival was 903 miles (Nielsen, 2016). The evolution of technology has played an instrumental role in contributing to the growth of live music events by allowing consumers to discover more artists. Streaming services are growing rapidly, as the number of streams increased by 93% from only 2014 to 2015 (Nielsen, 2015). Streaming shifts consumer spending away from purchasing albums and exposes them to upcoming bands because they can listen to unlimited amounts of music, which draws more interest to large festival lineups. Social media has also become a large component of festival popularity due to festival attendees eagerly sharing their experiences with friends through their social networks. The economic importance of festivals has also expanded as sponsors funnel millions into branding initiatives, local communities benefit from tourism revenue, artists receive larger 42 MUSIC FESTIVALS 7 paychecks and fans receive good value for their money in terms of the number of artists they see and stage production quality (Reddy, 2014). The growth in demand for popular music festivals has led to an active secondary market for tickets. The internet’s largest contribution in this regard is that it has made it simple to connect buyers and sellers through digital marketplaces. Individuals resell festival tickets online for a myriad of reasons. Some purchase tickets in the initial sale craze to simply make quick arbitrage profits once tickets sell out, while others sell their tickets because they simply may no longer attend the festival. Regardless of the motives behind a sale, buyers in this market have very little information to go off of. Online marketplaces only display the prices for tickets at the moment customers log onto their websites. Some websites are more progressive, like the ticket aggregator “SeatGeek” that allows users to set price alerts for certain events, but it still is not open access to information that would be helpful when making purchasing decisions. Due to the differing natures of concerts and music festivals, their resale markets may behave in different manners and this thesis will address this issue. I will first examine the underlying literature for secondary ticket markets in the entertainment industry in order to lay a theoretical framework from which to approach the festival ticket secondary market. Next, an overview of the data and discussion of price trends will follow. Finally, a regression analysis will test for variables that may be influencing prices in order to predict price trends we may expect in future years. 42 MUSIC FESTIVALS 8 Literature Review A. The Market Before diving into the secondary market, it will be helpful to understand how concert tickets are sold in the music business. Artists are represented by agents, who negotiate with promoters and venues to coordinate performances. Artists oftentimes include ticket prices in their negotiation with promoters, who also handle marketing and general logistics for the events.1 In the case of music festivals, tickets are priced solely by festival promoters and artists have no influence on prices. Tickets are then sold through online ticket agencies such as Ticketmaster, and this is what is officially known as the “primary market.” Sometimes, tickets are withheld for managers, news media, record companies or fan clubs for exclusive sales or giveaways. Ticket agencies merely act as mediums that facilitate a transaction and exert no influence on pricing decisions. The “secondary market” refers