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I D E A S INNOVATION BROADWAY REACHES FOR THE STARS JULIÁN VILLANUEVA earing in mind that And what challenges does it cur- Professor of Marketing, the average price rently face? IESE Business School of a Broadway musical is $70 and NEW PRODUCTS FOR NEW that few have fared AUDIENCES JORGE GONZÁLEZ well on Wall St. l Innovation: The Show Professor of Marketing, over the last two Must Go On IESE Business School B years, many feel While the financial crisis has that the sector has done an excellent threatened almost all industrial job of making the period from May sectors, the inability to innovate 2008 to May 2009 its highest-earning has proven an even greater threat. Broadway has managed season in history. Broadway, however, has shown over the last decade that it can launch to hold its own despite the The area of Manhattan that falls around 35 new shows a year. There is chill winds that have been between 8th Avenue and Broadway always a fresh off ering. So the show blowing in these diffi cult and 41st and 53rd Streets is home to must go on. And it must go on with the densest concentration of the- receipts that are high enough to pay economic times. IESE Profs. aters on the planet. Every day of the the lease, wages and promotional Julián Villanueva and Jorge year, the theater district attracts an costs while hoping that something average of almost 34,000 people ea- better isn’t waiting around the cor- González unveil the secrets ger to pay a total of more than $2.5 ner. When audiences dwindle, so of Broadway’s success in million in tickets and dining, turn- does the producer’s confidence in ing Times Square into a giant human the show. this article, which draws on anthill under the bright lights of its their recent case study, huge billboards. Broadway is a Darwinian environ- “E Schubert Organization: ment; at least that’s what most the- However, this was not always the ater producers will tell you, given The Show Must Go On.” case. In 1993, the same theaters that that more than 60 percent of their are now playing to healthy houses investments lose money. The stakes were attracting audiences that were involved can range from $2 million 38 percent smaller. Bearing in mind to produce a new stage play to the that prices are now 81 percent high- $20 million it costs to put on a show er than they were 15 years ago, this like Shrek: The Musical. means that Broadway has practically tripled its turnover without increas- Reaching a Wider Audience: ing its capacity. Not bad, huh? What Long Live The Lion King! ENTREPRENEURSHIP • DECISIONS ANALYSIS • can we learn from this industry dur- In 1993, Broadway’s tills were INNOVATION AND CHANGE ing its period of constant growth? lyet again ringing to tunes from 28 JANUARY-MARCH 2010 / No. 116 Alumni Magazine IESE two successful musicals impor- ted from London’s West End: The Phantom of the Opera, with the eponymous hero’s tortured love for Christine, and Miss Saigon, a musi- cal inspired by Puccini’s Madame Butterfly. Fifteen years on we find that the most popular shows are Wicked, a Universal Pictures pro- duction that recounts a story pa- rallel to the one told in The Wizard of Oz, and the Walt Disney musical The Lion King, with songs by Sir El- ton John. This comparison shows how the development of a product aimed at more family-based audiences has reaped financial rewards for the industry. The Walt Disney Com- pany, whose three Broadway shows brought in receipts of $153 million in 2008, provides the clearest ex- ample of this. Apart from bringing a new audi- ence to Broadway, Walt Disney’s success has attracted other enter- tainment giants such as Universal, Sony and Dreamworks. Broadway now offers a wider range of shows than it did 15 years ago. A resident New Yorker from the Upper West Side who goes to an average of 12 shows a year will be more interested in buying a ticket for Race, the latest play by David Mamet, while a family with chil- dren who come to the Big Apple for a weekend will take the opportunity to see Mary Poppins. Another way of bringing Broad- way to a wider audience is to in- vite famous Hollywood actors to perform in a stage play for a few months. Jude Law, Catherine Zeta-Jones, Daniel Craig, Sien- na Miller and Hugh Jackman are just some of the stars who trod the boards in 2009. In short, while some bemoan the over-proliferation of popular entertainment and the ab- sence of more profound works, oth- er industry players simply respond that “a ticket is a ticket.” IESE Alumni Magazine JANUARY-MARCH 2010 / No. 116 29 I D E A S THE THE MARKETING CHALLENGE: at discounts of up to 50 percent. A COMPLEX ENVIRONMENT Perhaps you have stood in line at DEVELOPMENT Not long ago, there was a clear the “tkts” stand in Times Square, lstructure to the way a new thinking that this was the place to OF A PRODUCT Broadway show was marketed: ads buy tickets, and were pleasantly in The New York Times, and perhaps surprised to find that the price was AIMED AT some on the radio and TV. There lower than you expected. Or per- was a public relations campaign and haps you got to the head of the line FAMILY-BASED previews to allow the critics to have only to discover that you could only their say. People bought their tic- buy tickets for that day and there AUDIENCES kets at the theater box office. They were none left for the Broadway saw the show and told their friends show you wanted to see. HAS REAPED about it. Word of mouth, discount coupons in Times Square and hotel How To Improve Channels and FINANCIAL concierges did the rest. Promotional Activity? It’s true that a ticket is a ticket, REWARDS FOR The current period of growth lbut what if someone who only on Broadway has coincided with a has $100 to spend is faced with a THE INDUSTRY. multitude of changes in marketing. price of $120 on Broadway.com, Adapting to this new environment doesn’t know that there are che- is one of the greatest challenges that aper channels available and ends the theater industry has faced. up not buying. And what about those people who are willing to pay Managing sales channels and prices higher prices but find themselves The three main theater owners in the “tkts” line, disappointed l(Shubert, Nederlander and Juja- with the long wait but ultimately mcyn), control 82 percent of all seats, perhaps happy with their 50 per- along with a large part of the distribu- cent discount? In short, how can tion network: the box offi ces at their the design and management of dis- own theaters and direct sales via Te- tribution channels be matched to lecharge and Ticketmaster. However, pricing policy? if you search for “Broadway musicals” in Google, the fi rst page that appears Approximately one in four tick- is Broadway.com, a company which, ets are sold at a discount, and the despite appearances, does not belong average discount is between 35 to these operators but is instead an and 40 percent. The industry uses independent broker that will sell you “tkts” as the main channel for price tickets at way above the list price. Ne- reductions, but it also distributes vertheless, many people buy their tic- coupons in the areas around Times kets here thinking that it is the main Square, as well as circulating e-mail ticketing channel. lists. Another creative approach is the “Kids Go Free” campaign, The role played by brokers and aimed at attracting families to see resellers is a controversial issue in musicals. Nevertheless, list prices the management of ticket sales. On usually remain fixed, though there the one hand, they buy a lot of tickets. is of course some variation depend- On the other, they can generate consi- ing on where you are sitting (up to 5 derable anger among theatergoers, as different prices in a theater like the these resellers buy up tickets for the Majestic) or whether you go at the most popular shows and then re-sell weekend. them at higher prices. For example, the markup added by Broadway.com However, the theater industry is around 30 percent. does not use techniques like yield management the way some hotels Another important source is do, whereby different prices are “tkts”, a channel that sells same-day charged depending on the season tickets to under-subscribed shows and how many days in advance you 30 JANUARY-MARCH 2010 / No. 116 Alumni Magazine IESE buy your ticket. Both industries In Search of Lost Audiences share two particular characteris- Although there is no questio- tics, though: high fixed costs and lning the theater industry’s suc- low variable costs. cess in developing new audiences over the last decade, there is still Added to the confusion with the work to do. For a start, there is a very ticket distribution channels, the low turnout among people between heavy promotional activity and the the ages of 18 and 34. proliferation of websites that publish the various discount codes (such as According to Coyne, “This age broadwaybox.com), one could ex- group is more interested in other pect greater price sensitivity among forms of entertainment and they consumers. But the fact is that the also don’t have the money.” Some industry has been able to increase time ago, however, many people the average price of tickets in recent were using similar arguments re- years despite a slight drop in audience garding under-18s, but Disney has numbers, something that would indi- demonstrated that you can extend cate that theater managers, or at least the industry’s reach with the right some of them, have been doing their product and communications.

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