Wednesday, July 10, 2013

The Business of Broadway

I am often asked why the Orpheum (actually the Theatre’s parent company, the Memphis Development Foundation) invests in Broadway shows.  Well, there are many reasons, but it starts with the industry itself.  When Broadway shows became more sophisticated, they also became more expensive, and the industry needed outside investors.  

This was prompted by the increasing cost of putting a show in a Broadway theatre after it was written, designed, choreographed, and cast, in addition to the cost of marketing the show.  This is just to get the show off the ground.  It then has to be funded for the first 6 months of production or at least until ticket sales can carry the burden of keeping the show operational.

A full-scale musical in New York can cost as much as $18 million on the front end, and non-musical plays will usually cost less than half of that at $6 to $7 million.  New York is a very expensive place to produce and present a show.  First there is the high cost of renting one of the theatres, and then there are the personnel costs of hiring union employees: musicians, actors, stagehands, hairdressers, wardrobe, ushers, and a myriad of other people that are needed to stage 8 shows per week.  As you can imagine, this adds up quickly. 
By investing, we stay “in the know” as to what the show needs to breakeven.  Of course there is always the hope that the show will be successful and make a profit, but that isn't always the case.  Only about 30% of all productions turn a profit, leaving 70% to experience a full or partial loss.  For example, the recent Broadway production of JEKYLL & HYDE closed soon after it opened, and its investors lost 100% of their contributions.  In case you were concerned, no, the Orpheum did not invest in JEKYLL & HYDE.

Most recently, the Orpheum invested a small amount of $25,000 in this year’s Tony Award winning musical KINKY BOOTS.  This show not only won 4 Tony's, but it's grossing a very impressive average of $1.5 million a week.  To put this in perspective, our last major Tony Award winning investment, MEMPHIS, took 12 months to break even and three years to turn a small profit of just over 12% on our investment.  KINKY looks like a home run, and I'm certain this show will be on Broadway for years.

These investments give the Orpheum the inside scoop on where the money goes, but equally important are the more practical reasons we invest: 
1.  We want to support our industry and encourage new products that will eventually tour to the Orpheum Theatre. 
2.  When the show begins its national tour, we - as an investor - usually receive consideration as to when the show will be presented in our theatre, allowing hit shows to come to the Orpheum early on in the tour.  This of course depends largely on the tour's route since the cost of transporting the set, the actors, and the production staff from one city to another has to make sense with the tour schedule.
3.  When I negotiate deals with production companies, knowing the expenses enhances my negotiating position on what we will pay to bring the show to Memphis, and this advantage has a positive effect on our bottom line.  During my 33 year tenure, the Orpheum has been unusually successful in realizing a profit in probably 95% or better on the shows we have booked.  In 2012 we only lost money on one show, CATCH ME IF YOU CAN, and even then it wasn't a significant loss.
Outside of the Orpheum, I personally get the opportunity to invest is shows.  The first show I invested in was the national tour of SUNSET BOULEVARD back in the 1990s.  I invested $10,000 and made a profit of a whopping $845 after four years.  Not a home run like KINKY, but it was a great learning experience, and I was hooked.
I recently joined in with the Orpheum in investing in FIRST DATE, which will open on Broadway August 8th.  This musical comedy is being produced and managed by our MEMPHIS production partners.  It's great to be working with them again, further cementing our relationship with this first class production team.  I invite you to monitor the success of this new show and see for yourself how well we do.  I always say “we” when I’m holding my breath and crossing my fingers... and my eyes.
Pat Halloran
Orpheum President and CEO    

No comments:

Post a Comment