We've Got Hollywood Covered
|

AEG Making The Very Best Out of a Bad Situation

With entertainer Michael Jackson’s untimely passing, many thought that it would be curtains for AEG Live, the promoter of Jackson’s impending 50 London concerts.

 

On the hook to refund $85 million to ticket buyers, the promoter had already reportedly invested $30 million into the tour for production costs.

 

And while AEG held a $17.5 million insurance policy with Lloyds of London, there seems to be a skirmish between AEG and Lloyds over whether the policy covers a drug overdose. Immediately after Jackson’s death, one concert executive commented to MSN Money, “It’s either horrible or really horrible” for AEG.

 

In response, Randy Phillips, AEG Live’s CEO, took the unusual step to declare, “For the record, this great company that I work for is not bankrupt.”

AEG’s keen understanding of value is turning what could have been a significant loss into a hefty profit. The promoter’s refund policy offers concert ticket purchasers the option to turn in their ticket for a full refund or keep the ticket (no refund) as a commemorative souvenir. AEG expects only 40% to 50% of fans to seek a refund.

 

A scan of recent eBay completed sales reveals that tickets ($100 face value) are being resold for between $150 to $510. The $510 sale was for the “opening night” concert — presumably the high price reflects the premium value of opening night.

 

AEG will also have the opportunity to sell a premium priced collector’s edition bundle that includes tickets to each of the 50 concerts, as well as possibly do a run of “special commemorative” London concert tickets.

 

With an expected pay-per-view of rehearsal video footage and an inevitable farewell concert tour of surviving Jackson family members, AEG Live is anything but bankrupt.

One pointer for those reselling their concert tickets, there’s probably a higher value for tickets closer to the stage than those in the rafters (I have yet to see any reseller make this distinction). There’s value in saying “this ticket would have been 10 rows away from the stage.”

 

This is similar to the value that buyers place on numbered lithographs. A lithograph that is number 1 out of 5000 is worth more than number 3754. Proximity to the stage is a similar way to differentiate tickets.

As millions of others have done, I recently purchased many of Michael Jackson’s greatest hits, which reveal his incredible creativity and drive. Today’s ceremony in Los Angeles will be a fitting farewell to the true King of Pop.

Rafi Mohammed, Ph.D. is a pricing strategy consultant and author of pricing strategy books, "The Art of Pricing" (Crown Business, 2005) and the upcoming "The 1% Windfall" (HarperCollins). He wrote his economics Ph.D. dissertation (Cornell University, 1994) on rock-concert ticket pricing and bundling. For more pricing-strategy insights, check out his website.