Hot Tours: Bon Jovi, Tiesto, Scorpions
EAST RUTHERFORD, NJ - MAY 26: Bon Jovi performs at New Meadowlands Stadium on May 26, 2010 in East Rutherford, New Jersey. (Photo by Theo Wargo/Getty Images) Theo Wargo/Getty Images

Philosophies differ but scaling ticket price points can make or break a show.

Bon Jovi's upcoming Because We Can tour will ­feature more than 1,000 tickets in each market priced for less than $20 before service fees. The low-cost seats are part of a multitiered strategy engineered to both optimize revenue and stage a broadly inclusive, affordable event with as many as seven price points available.

Ticket prices remain the most controversial aspect of the concert business, with fans, promoters, artists, agents, venues and managers all publicly professing concern about the price of attending a live show. The general consensus is that prices for the average tour doubled in the decades before and after the new millennium, while the price for most of the touring elite left the glass ceiling in pieces years ago. Tickets to "special" concerts like Paul McCartney, Madonna or the Rolling Stones are now routinely priced at $250 to upwards of $1,000 for top-tier acts, and VIP packages for $1,000 and more are becoming increasingly common. And that's not counting service charges, parking and facility fees, which can easily add one-third in costs--meaning that even tickets that fans initially perceived as being reasonably priced can provoke sticker shock at online checkout.

What's to be done? As ticket prices have risen, some bands and promoters have tried to counteract consumer price resistance by offering multitiered pricing, or "scaling." When it works, consumers have a chance to pick the price point that best fits their budget. Scaling, which can be as simple as advance versus day-of-show pricing, is as old as the concert business. Today's artists, managers, agents and promoters have a wealth of history, comparable data, market conditions and digital tools to tap into for maximizing sales and optimizing profits. So one would think the pricing/scaling process is as sophisticated as Bon Jovi's.

One would be wrong. Despite all the data and tools at hand, it seems the primary gauge used by industry stakeholders in setting price points is also the most primitive and unscientific: gut instinct.

"This industry has been historically under-researched in terms of comparables in the marketplace, income, demographics, past history, et cetera," says Marc Geiger, head of contemporary music at William Morris Endeavor (WME). "A lot of it has been gut feel, and then gut feel plus some new tiers."

That situation is changing in a bumpy process fraught with numerous intangibles ranging from market specifics to the secondary market, along with the wild-card but considerable factor of artist ego (full houses bring rewards beyond the financial, and half houses bring the pain) and concern for how they're perceived by fans.

The concept of premium pricing for the best seats to meet demand for the well-heeled and the hardcore fans thereby helping to underwrite more affordable prices throughout the house also isn't new. In a best-case scenario, high-priced premium seats help make the math for lower-priced tiers, particularly at the bottom end, not only tenable but also helpful in optimizing income for a night's work. In fact, one of the reasons Bon Jovi can charge $20 for a decent chunk of the manifest is through more aggressive pricing for the top 10% of the house.

Offering a sizable number of tickets for less than $20 is a statement-making move for a band that owns the global touring gravitas of Bon Jovi, and the multiple price points aim for inclusivity. "With seven price categories, it's almost like dynamic pricing," says Randy Phillips, CEO of AEG Live, Bon Jovi's promoter for four consecutive runs. Seven price points is a lot, and Phillips says the strategy comes straight from frontman Jon Bon Jovi. "Jon's theory is there should be something for everybody," he says.

Some say concert pricing was due a restructuring 20 years ago, when ticket prices fell far below what premier sporting and Broadway events were charging. The reasoning is that higher prices enable acts, promoters and venues to reap the benefits that often go to scalpers, who for years have charged several times the face value for tickets while contributing nothing to the concert equation. History has shown that the secondary market just adds on to premium prices, though sometimes to the seller's detriment and panicked fire sales.

Ticket prices are generally hammered out by a consortium of the act's manager, business manager and agent. In the end, though, the final prices are set by the talent buyer, promoter or producer--the person who writes the check. Bottom line, ticket prices are most often based on how much an artist wants to be paid, how elaborate a production the act wants to stage and how much it will cost to move that production, all encompassed as show costs. Then the promoter sets a ticket price based on what it will take for the promoter to make money off the show after costs, with the artist reps signing off.

Geiger says, "The buyer typically suggests the price, with very little backup thought put around it relative to what needs to happen in the industry.

"I would tell you, doing this 30 years, that there are very few buyers who have submitted comps with their offers," he says. "They may do the research on the back end, but it's rarely submitted, unless we ask for it."

Two basic schools of thought in pricing are determining what the market will bear and price accordingly, and determining what the artist will be paid and price tickets so that the buyer profits, or at least doesn't lose money. (Some say national promoters are sometimes willing to lose money at the box office if they own the venue and can get by on sponsorships, beer sales and various add-on fees.) National or international tour buying, with one promoter steering the tour and paying the act, has further changed the pricing dynamic, not only by (some would say falsely) inflating prices through competitive bidding, but also by offering promoters the opportunity to amortize underperforming dates with big winners.

For his part, Phillips says, "From the very beginning of my tenure as CEO, I refused to allow us to 'back into' tour ticket scaling based on a guarantee that is derived from pulling a number out of the sky. You have to evaluate an artist's commercial appeal on a market-by-market basis, including individual market-centric scaling. If we do not hit the sweet spot in each market on pricing, then the artist will sell less tickets to less fans, and the result will manifest itself in purchase resistance on future tours and a declining fan base."

AEG's tour offers are "debated in our internal approval process, based on historical data, where it exists: contemporary social media numbers, sales of music and airplay," Phillips says. "We almost never consider what our competitor is offering, since we are not in a market-share race."

Though comparables exist in multiple databases, those numbers aren't easily obtained, secrecy being a trump card in a competitive marketplace. So the consistency of Bon Jovi having the same promoter in AEG Live for four tours allows the band to market, route and strategically scale the house while possessing a depth of knowledge about what pricing models work well, with cross-collateralization of dates also coming into play.

One buyer who says comparables and historic data play a significant role in pricing is Live Nation Global Touring chairman Arthur Fogel. "My philosophy has always been 'build from the ground up,'" he says.

Fogel, too, sees flaws in how prices are determined, calling the process "ass-backwards" in many cases.

There has to be some point of reference to begin, Fogel says, and that comes from the "costs" side of the ledger. "When you start from the costs to actually do it [including talent costs], at least then you have a legitimate starting point, as opposed to just coming at it as a number that someone is looking for that might be based on any number of things that are out of touch with reality, like last time, or other similar artists in the marketplace, et cetera," Fogel says. "'What's the historical pricing model for a particular artist? What are other similar artists charging in the marketplace?' You have to create price points that make sense in today's world."

Most see the trend swaying toward multiple price points. "There's not a lot of sophistication yet, there's not a lot of comps yet, there's not a lot of what the market will bear versus what people's sensitivities are," WME's Geiger says. "There are evolving programs for sections of the house-VIP or whatever-and we're in the middle of getting smarter."

Fogel believes that "extreme scaling more often than not makes complete sense." But the more extreme the scaling, the closer the market edges toward a form of dynamic pricing where the fans ultimately determine the ticket prices, creating a new set of problems. "I wouldn't want to manage that," Fogel says, "and those things have a way of taking on a life of their own."