Honesty may be the best policy, but it is taking a toll on sales for the nation’s largest ticket reseller, StubHub. Attempt at Price Transparency Backfires, Hurting Sales

StubHub Sings the Blues After Shifting Fees

Attempt at Price Transparency Backfires, Hurting Sales

HANNAH KARP

March 25, 2014 5:42 p.m. ET

Honesty may be the best policy, but it is taking a toll on sales for the nation’s largest ticket reseller, StubHub.

Three months after StubHub, a division of eBay Inc., EBAY -0.37% eliminated what it said had been the single biggest annoyance to most of its customers—hidden fees—its sales have taken a hit.

The decision to move to an “all-in” pricing scheme in January followed years of consumer research showing that fans hate nothing more than to see their final ticket price jacked up with additional fees and service charges when they reach checkout.

But now that StubHub’s listed prices include the fees, they appear more expensive, and sales have fallen as fans gravitate to sites that list lower base prices and hide fees, the company said.

Some ticket brokers—who buy tickets on the primary market and post them on resale sites for a profit—said their StubHub sales have fallen by 15% to 50% since the pricing change took effect.

StubHub said its overall sales decline hasn’t been that steep and declined to be specific.

Professional brokers account for only 35% of the sales on StubHub; the rest are made by fans. E-commerce giant eBay, which acquired StubHub in 2007 for about $310 million, doesn’t break out StubHub’s financial results, but a person familiar with the matter said that StubHub sold about $2.8 billion in tickets last year, contributing more than $700 million to eBay’s revenue, which totaled more than $16 billion.

On some ticket-reseller sites, tacked-on costs include things such as $7.50 electronic-delivery fees, $11 shipping fees for paper tickets, and service charges, which start at about $12 and can rise sharply when they are based on the price of the seat.

At the VividSeats.com, an upper-level ticket to see Justin Timberlake perform in Kansas City, Mo., this summer has a price tag of $400, but then there is a $199.50 service fee on top of that. The site was charging a $95.82 service fee for $385 floor tickets to a Cher concert in Los Angeles.

To win back customers, StubHub has started cutting the fees it charges buyers and sellers—now folded into its listed prices—cutting into its profit margins.

Brokers said that in recent weeks StubHub has slashed buyers’ fees to as little as 2%, from 10% of the base ticket price, tweaking the fees daily for different events. It also has lowered the fee it charges sellers, which typically range between 6% and 15%.

StubHub spokesman Glenn Lehrman said the company had anticipated sales would dip initially after it adopted all-in pricing. StubHub’s Major League Baseball sales fell last season when the company first experimented with all-in pricing for those tickets. StubHub then started all-in pricing for other sports leagues as well.

He said early signs point to a rebound this season now that fans are more familiar with the new pricing system. The company is “definitely making money by going after volume in place of margin,” he added.

The volume of StubHub sales has recovered since the company lowered its fees, said Curtis Cheng, a partner at Dreamtix Inc., an inventory-management system that scores of brokers use to post tickets on multiple resale sites simultaneously.

“Whatever StubHub is doing is converting to more sales—whether they’re making money or not is another story,” said Mr. Cheng.

Kathy Derham, a business development executive for Los Angeles broker Barry’s Tickets, called the negative impact on sales of StubHub’s pricing change “a short-term issue.” She said Barry’s already had strong year-over-year growth in StubHub baseball sales.

Meanwhile, there are other factors contributing to StubHub’s struggles.

Ezra Azizo, president of S4K Entertainment, one of the country’s biggest brokers, said competitors are taking share from StubHub by making all their tickets available for instant download—a convenience once relatively unique to StubHub that has now been adopted by several big resellers.

Live Nation Entertainment Inc. LYV 0.00% ‘s new TM+ resale site that lists Ticketmaster’s face-value seats alongside tickets marked up by resellers, guarantees that all its tickets can be downloaded instantly. Mr. Azizo said TM+ now accounts for 25% of his NBA ticket sales, while his NBA ticket sales on StubHub have declined. Live Nation’s older resale site, TicketsNow, only ever accounted for 5% of his basketball sales.

Mr. Azizo added that he was skeptical that StubHub’s all-in pricing would pay off.

“People are not that smart,” said Mr. Azizo, adding that average ticket buyers will always be more likely to gravitate to the lowest listed price and are not “going to realize the added fees at checkout.”

StubHub wants to do more to make consumers aware of the difference.

Mr. Lehrman said StubHub is rolling out an advertising campaign to trumpet its new price transparency, but he concedes it could still take nine months to a year for sales to recover.

“People have been so conditioned to believe there is a surprise at check out—they still believe that there’s going to be,” he said.

Live Nation moved to all-in pricing on its primary ticketing site, Ticketmaster.com, in 2010, to avoid “pissing off the consumer with the trail of fees,” Live Nation Chief ExecutiveMichael Rapino said at an investor conference that year. Venues and artists had fought such a move, fearing that higher listing prices could hurt sales.

Live Nation declined to comment on the pricing change’s initial impact. But the company faced less of a competitive risk than StubHub in making the change, since Ticketmaster has exclusive, long-term contracts with its venues, making it the only place fans can buy primary tickets to those venues’ shows.