Seatwave: Joe Cohen
Online veteran Joe Cohen on battling ticket touts and regulation to legitimise the market for secondary ticketing
Following stints at Ticketmaster and Match.com, Joe Cohen is an internet thoroughbred. He tells Growing Business why ticket exchange Seatwave is poised to knock the competition, and the touts, right out of the stadium
Gone are the days when waiting in the rain to pay a tout was the only way to catch a must-see show. Thanks to Cleveland-born Joe Cohen, and a few like-minded competitors, most sold-out tickets are now online. And with the promise of consumer protection and a fraud-free sale, Seatwave – a peer-to-peer marketplace that allows fans to exchange tickets – is changing the face of secondary ticket sales.
It’s not a new idea. The guaranteed ticket exchange model – with commission taken in return for protection – is an American one, and well established. US offering StubHub boasts seven million unique visitors a month. Now in the UK, Seatwave’s promise of a fair price and consumer protection is proving very popular, and the site currently enjoys just under two million unique visitors.
Since its launch in 2007, the company has managed to get between 35% and 50% more market share than any other secondary ticket exchange player. In its first year, 35,000 tickets were sold, generating an annual turnover of almost £4m. Last year saw an astounding 400% growth rate and, according to The Daily Telegraph, this could top £5m in 2009. Cohen is confident Seatwave will outperform this prediction. Regardless, with more than 700,000 tickets on sale at any one time, the company’s reach is steadily expanding, and with results for the first quarter of 2009 showing growth at 200% year-on-year, Cohen is definitely doing something right.
It all started in 2000, when “just about everyone” was thinking about floating their web business and making millions. A senior role at Match.com had been preceded by three years at Ticketmaster, where Cohen was responsible for setting up and running the internet business in Europe. While working with big promoters, such as Live Nation, he decided there was scope to exploit the UK’s gap in the secondary ticket sector.
“There was no efficient marketplace,” he explains. “Not even eBay, because of the way it’s designed. It’s hard to get all the tickets for one performance in one venue on one page to look at and compare. People charge what they want because there’s no pricing pressure.”
Globally, secondary ticket sales is a hotly contested space, and the UK is no different. Competitors such as Viagogo and Get Me In! are not to be sniffed at, despite Seatwave’s emergence as the market leader. But it’s his company’s focus on pricing pressure that Cohen believes marks the brand out.
“The big difference is we focus on driving prices down in the long term, while they concentrate on selling premium tickets for the highest price,” he explains. It’s not just bravado either. Before the shows were cancelled, Seatwave got more traffic for tickets for the late Michael Jackson’s concerts than the official secondary ticket retailer Viagogo. “It got traffic and link-throughs from the official site,” says Cohen, “yet our traffic in March was 30% higher.”
In fact, he’s so confident in Seatwave, that he can talk tough with promoters without risking a backlash. “When we sat down with AEG, which promoted Michael Jackson, I said: ‘Whether you like this or not, the tickets are going to end up on my site. Why should I pay twice?'”
Against the touts
But even if Seatwave is on the level with the big boys, competition doesn’t stop at rival online ticket exchanges. As well as legitimate exchanges, there is a stubborn tout culture that refuses to budge. However, Cohen believes the Seatwave business model has the potential to take the meat out of extortionate and illegitimate sales. Strict rules have been built into the platform, ensuring the tickets on sale are legitimate and, more importantly, actually exist.
Buyers pay Seatwave for their tickets plus a 15% fee, while sellers only receive their money, minus a 10% fee, after the event has occurred. The system is a reversal of the eBay method, where a buyer could be paying the seller months in advance of the tickets even being distributed by a promoter. “There’s no incentive for the seller to commit fraud,” Cohen declares, “because we’ve taken the profit load out of it.” And figures show fraudulent exchanges now make up less than 0.5% of Seatwave’s sales.
Whether you’d put money on the ticket exchange managing to edge out fraud entirely or not, venture capitalists believed in the idea from the start. Seatwave started life with $3m from Atlas Venture. It’s a rare occurrence in the VC world, where most entrepreneurs tend to bootstrap for at least a few months before seeking investment. However, Cohen says having Atlas on board from the outset had some phenomenal advantages. “We’re trying to legitimise a space that’s been a grey market,” he explains.
“Being able to point to Atlas, reputable people who’ve had numerous exits, makes a big difference to your credibility.” The cash also meant tough sacrifices weren’t as necessary early on. “If you’re not funded, the temptation is to cut corners to focus on cash,” says Cohen. “We knew we were going to make payroll, so we didn’t have to become friends with the big ticket brokers trying to sell at high prices. It’s easier to act with principle when the wolf’s not at the door.”
A year after the initial $3m, Seatwave took on a further $8m, led by Mangrove Capital. With the original round, Cohen put a team together, built the platform, established initial liquidity and brought the business to market in the UK. The second round was all about bringing the product to market and helped launch a full-blown advertising campaign in the UK, which elevated Seatwave’s profile above Viagogo and Get Me In! A 2008 radio campaign paid for itself within six weeks, while London Underground advertising has also driven a lot of traffic to the site.
Cohen believes high-profile advertising fuels consumer confidence in the offering – something that Seatwave has had to work very hard to win, given the strong black market in tickets. “We created protection schemes called Ticket Integrity, and we’ve raised the bar of consumer protection, even for the primary market,” he explains. The package not only includes a refund in case of fraud, but you also get your money back if your car breaks down on the way to the gig. Needless to say, all those who bought tickets to see Michael Jackson at the O2 from Seatwave will get a full refund. However, despite his efforts, Cohen says the tout association remains so strong that the battle is far from won.
While advertising ate a big chunk of the early capital raised, subsequent funding (a further $25m from Fidelity in February 2008) has fuelled aggressive European growth, with operations simultaneously launched in Germany, Holland and Italy. And despite the downturn, Seatwave recently announced a successful fourth round of funding led by Accel Funding, securing another $17m. Cohen appreciates how much Seatwave has benefited from having backing all the way through, but hasn’t his own stake in the business suffered? “I haven’t been able to retain as much as if I’d taken the business to a VC at a later stage, but I’ve got far more than a hired-in CEO,” he explains.
Funding, however, doesn’t change the environment in which your business operates, and Cohen has a bone to pick with the British system, but it’s nothing to do with regulation. The company has been engaged with the Department for Culture, Media and Sport (DCMS) from the start and Cohen feels he has received a fair hearing, despite the perceived efforts of music promoters, sporting bodies and long-established ticket retailers to lobby competitors like Seatwave out of the picture. As an American who has spent 10 years in the country, Cohen feels the UK could learn from the US in terms of incentivising entrepreneurial activity. It’s too difficult to start up here in Britain, he says. Labour, real estate and tax costs are astronomically high for small businesses. It’s not just a tax problem, but a cultural issue, according to Cohen.
“There has never been an effort to help middle classes to grow up economically and build up wealth,” he complains. “To say we want a system that protects wealth at the top and have a safety net at the bottom, and have people in the middle pay for both feels 200 years behind the times.” Cohen cites “the golden nugget” of the US tax code – a tax allowance enabling individuals to deduct interest from the mortgage of their primary home – as one example of why the US is a lot more encouraging of entrepreneurship.
The government should also be doing more to promote innovative new business models, according to Cohen, who recently had dinner with Lord Carter, the man behind the Digital Britain Report. The pair debated the government’s apparent desire to protect existing business models, regardless of their sustainability. “I said I wouldn’t try to defend peer-to-peer file sharing, but for the government to say it wants to support business models based on DRM [digital rights mangement] is ludicrous,” says Cohen. “Even Apple, the world’s biggest seller of online music, is moving away from DRM.”
He believes protecting the record and film industry as it exists today doesn’t help artists in the creative industries, claiming it criminalises a huge percentage of the population and damages innovation. “Skype is probably one of the most innovative companies to come out of this country in a long time, and it was created by the guys behind Kazaa,” he adds. “They would have been prosecuted under new proposals to force ISPs to turn over records of people who are file sharing.”
Despite his criticisms, Cohen looks set to stick around. He loves the energy of London and feels very much at home. The real reason might have something to do with the wave of success Seatwave is currently riding. It was recently named Europe’s fastest growing digital company at the Media Momentum Awards, and has a firm grip on the UK’s £1bn secondary ticket sales market, despite the fact that most of the space is offline.
Cohen now has his sights on the £6bn primary market, too. “Half of all tickets in the primary market go unsold and that number hasn’t changed for the past 10 to 15 years. Increasingly, primary market promoters are turning to us to help them with yield management,” he explains.
With Seatwave’s increasing dominance in its own market, the promoters may soon find Cohen’s proposition a little too hard to ignore when seats are left unfilled.