Credit Cards Take a Front-Row Seat

“Co-branded” credit cards, offering rewards such as air travel, gasoline and automobile discounts, are nothing new. They’ve become such a widespread part of the $798-billion U.S. credit card business in the last five years that consumers have gotten wise, and become increasingly choosy about which ones they use.

Now, into this already-crowded market, card issuers are betting on a new hook: entertainment. Ticketmaster, Universal Studios and BMG Entertainment are all launching cards this fall, with BMG solicitations courting potential customers this week. Among the rewards for using these credit cards: free videos and CDs, concert ticket discounts, backstage passes and signed memorabilia from music stars.

“Traditionally, credit card companies have focused on rational benefits: low fees and favorable interest rates. I think we’re looking now to have a lot more of an emotional connection,” explains Stu Upson, vice president of sports and entertainment marketing for First USA Bank. First USA is doing the co-branded card with Los Angeles-based Ticketmaster, the country’s largest event ticket agency.

“It’s marketing 101: you can have emotional benefits, and you can have rational benefits,” adds Upson, who sees the trend of banks linking with rock music as a sure sign that baby boomers have taken command of boardrooms.

The new cards will be competing against each other, and existing cards, to gain the attention of jaded consumers. There have already been disappointments. The Blockbuster Visa card, issued two years ago with much fanfare, is being phased out due to lack of response.

“How exciting is it to earn points toward a free video rental?,” sniffs one competitor. Visa reportedly paid Blockbuster several million dollars for the partnership, and projected first-year membership of 3 million; it never attracted more than 600,000 cardholders.

BMG’s first attempt at issuing a credit card, with MBNA America last year, fizzled for similar reasons: not enough goodies. “That first program really didn’t have rewards,” says Scott Richman, director of marketing for BMG North America. “We had discounts and sweepstakes. Those aren’t real strong in bringing in customers,” Richman now admits.

This time, instead of 15% discounts at select retailers, samplers of unknown artists and the chance to win free CDs, BMG is offering backstage passes and signed memorabilia to high-roller charge card customers. “People need to feel they’re getting a bang for their buck,” says Richman.

Although Richman declined to discuss specifics of BMG’s deal with Wachovia Bank--which is doing its first co-branded card with BMG--co-branded deals usually involve commitments from both parties regarding fees, marketing support and goods. Universal and Ticketmaster’s deals are part of larger, multimillion-dollar commitments with their credit card partners.

The entertainment companies stand to gain with a modest cash outlay. “It really doesn’t cost BMG anything to give away a backstage pass,” explains Pete Hisey, editor of Chicago-based Credit Card News. Says Hisey, “It doesn’t cost anything incrementally to give a free theme park ticket. It’s just another person in the park, who’ll pay for hot dogs, souvenirs and parking.”

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Hisey says that such low-cost, high-perceived value rewards make for “probably the only financial model that makes a lot of sense anymore for co-branding. You can’t give away the store and come out ahead.”

For the card companies, in addition to the emotional pull of music across generations--now being milked in TV advertising for products from Burger King to Nissan--BMG and Ticketmaster both offer credit card firms access to valuable lists of upscale potential customers. BMG has an 8-million member mail-order music club, and Ticketmaster mails out about 10 million ticket envelopes per year.

Universal, under Seagram’s ownership, has become known as research-intensive, run more like a packaged goods business than other studios. According to sources familiar with the deal, Universal chose NOVUS (parent company of Discover) after several months of discussions with Visa, when the former offered an unbeatable package including millions of dollars to be the “preferred card” of Universal Studios theme parks and to be a sponsor for all Universal concerts in the U.S.

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One possible pitfall for both sides is unrealistic expectations, a la Visa and Blockbuster. “Some bad marriages have been made. Going into this mature market, cards are really going to have to offer value that is easy to understand and access,” says Robert McKinley, president of Frederick, Md.-based credit card research firm RAM Research Group. In at least one case, a partnership gone sour--M & T Bank and Giant Food Corp.--dissolved into litigation after M & T lost $15 million on the program in a year.

Another is the possibility of credit card companies finding that their co-brands are not really brands at all, just corporations that live and die by their product. With BMG--whose labels include Arista, Tommy Boy and RCA--how do you market hip-hop alongside country and classical music?

With Universal, which is particularly pushing family entertainment, do you reward purchases with videos like “Bordello of Blood” and rap records containing obscenities from Death Row Records?

Finally, these deals could begin to bump up against each other, creating contractual nightmares. Trisha Yearwood, a country artist on Universal Music Group’s MCA Nashville label, is in a multiyear promotional deal with Discover. At some venues which have deals with competing cards, Discover has not been allowed to sign up new members at her concerts. And what about artists or their labels who have a deal with one card, but whose tickets go out to consumers with a Ticketmaster plug for MasterCard on the front?

Going in, both sides profess optimism.

“Entertainment-related companies are all looking to create new profit centers and revenue streams,” says Ticketmaster Chief Executive Fred Rosen, “and we think this is something we should put our time and energy into.”

Says BMG’s Richman: “Our industry is so competitive to get product heard and positioned. This is a way for us to introduce traditional marketing principles to our business.”

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Pick a Card, Any Card . . .

Entertainment co-branding is on the upswing for credit cards. An overview of some of the recent and planned entertainment cards, in terms of tie-ins to live entertainment, cable TV and video rentals:

Card: Ticketmaster MasterCard

Issuer: First USA

Rewards include: Ticket discounts on music, sporting events, plays, etc.; signed memorabilia from musicians

Introduced: Oct. 1997*

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Card: Universal

Issuer: NOVUS/Discover

Rewards include: Videos, CDs and books; preferred concert seating at Universal venues; Universal Studios theme park discounts

Introduced: Oct. 1997*

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Card: BMG Visa

Issuer: Wachovia

Rewards include: Music videos, books and CDs; preferred concert seating; backstage passes; signed rock memorabilia

Introduced: Sept. 1997

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Card: Branson Visa

Issuer: First USA

Rewards include: Discounts on shows, restaurants and hotels in Branson, Mo.

Introduced: July 1997

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Card: Comcast Rewards Visa

Issuer: Advanta

Rewards include: Cable TV discounts, restaurant vouchers, sports tickets and merchandise, Sony CD and cassette players

Introduced: March 1997

Card: Blockbuster Visa

Issuer: Nationsbank

Rewards include: Credit toward video rentals, Discovery Zone PlayCenters and Paramount theme parks

Introduced: March 1995**

* Cards will be introduced later this month.

** Rewards discontinued as of late 1997.

Source: Company reports.