The shifts in user consumption that decimated an unprepared music industry in the early 2000s and transformed the way we watch TV in the 2010s is now on Broadway’s doorstep. The live theater industry is completely unprepared to protect against it — or, more importantly, to gain from it.
Anchored in NYC and London, the live theater industry has remained fairly consistent in its practices for more than a century. Programming trends have come and gone, updates to regulations or to union agreements have caused the occasional ripple, but otherwise the Broadway/West End business model has not experienced disruption on a scale that we’ve seen in other corners of the entertainment industry. Let’s look specifically at Broadway, and primarily the lion’s share of the marketplace: musical theater. (As opposed to plays, which represent a far smaller subset of Broadway’s $1.3 billion annual earnings.)
Broadway producing remains the domain of an elite few, consisting of five main groups:
The Independents. Mom-and-Pop production shingles are still mostly the norm, with the principal’s name on the letterhead followed by “Productions.” This was the standard for most of Broadway’s “Golden Age” when the David Merricks and Kermit Bloomgardens of the world could singlehandedly develop and mount major productions with no other names above the title. The ever-rising costs of Broadway have mostly discouraged such practices: nearly all productions now feature a cavalcade of independent producers, often several dozen of them, in order to piece together the necessary capitalization for one show. Very few current producers — only Scott Rudin and Jeffrey Seller come immediately to mind — have the wherewithal to operate in the long tradition of the CEO-Producer.
The Theater Owners. Who could be more vested in the success of the live theater industry than the landlords, who collect rent only when their houses are occupied? Historically, the Shubert Organization and the Nederlander Organization, Broadway’s biggest landlords, have jumped into the producing fray as a means to keep their theaters full of patrons, and each has maintained an active role (along with Jujamcyn Theaters, the Main Stem’s third-biggest landlord) in keeping the content pipeline fresh and full. Between them, the “Big Three” Broadway theater owners control about three-fourths of all houses. Other theater owners include Disney Theatricals, which owns the New Amsterdam, and the UK’s Ambassador Theater Group, which owns the soon-to-be-renovated Lyric Theatre and is bringing back the historic Hudson Theatre to be a Broadway house.
Institutional Producers. This group includes Broadway’s four institutional nonprofits (Roundabout Theater Company, Lincoln Center Theater, Manhattan Theatre Club, and now, with its purchase of the Helen Hayes Theater, Second Stage) as well as several regional and Off-Broadway theater companies that often help to shape shows prior to their arrival on Broadway, such as The Public Theater, La Jolla Playhouse and Paper Mill Playhouse.
Content Impresarios. Traditionally, these have been the Rodgers and Hammersteins, the Andrew Lloyd Webbers (through his Really Useful Group) and the Cameron Mackintoshes of the world. Lloyd Webber and Mackintosh, in particular, own theaters in the West End, and all three control their show catalogs. This last distinction was a game-changer, and it directly paved the way for the newest kid on the block…
Big Media. Disney Theatrical Productions’ success during the past 20 years as all of the above — producers, theater owners, and, most importantly, content-owners in control of their show catalogs — has catalyzed many large media companies to take notice. Here is where the seeds of the paradigm shift are being sown.
Traditional Theater Distribution Cycle
Just as the film industry has distinct distribution windows, so too does Broadway. For the uninitiated, “windows” are simply the linear, exclusive periods of time when movies are released on different platforms. Traditionally, movies are released exclusively into theaters for several months, then they become available in-home via digital or physical ownership, then they can be rented physically or digitally, and then they are eventually licensed to numerous TV windows, including pay TV, cable and network. Movie studios view the monetization cycle for each year as part of a “10-Year Ultimate” — that is, how much revenue a film will earn across each window during its first decade of being consumed by the public.
In contrast, theater producers and authors also abide by a series of traditional windows, but, unlike the film industry, there has never been a holistic approach to managing the “Ultimate” for live theater.
In the meantime, for the past 10 years, due to the ongoing evolution of consumer behavior as well as advancements in technology, the film industry has been experiencing significant changes in the length of these windows. Not only have they decreased, but in some instances, with day-and-date releases, the windows have collapsed completely. Entities at the front end of the traditional cycle — namely, movie theater owners — have taken fierce steps to protect their domain, such as refusing to exhibit titles from studios that violate them. But generally, the industry knows that the collapse of these distribution windows is inevitable.
Again, in contrast, live theater distribution windows have not changed in decades. Traditionally the theater industry has enjoyed fewer bites of the monetization apple, and it still maintains a trickle-down approach to releasing their products. Here’s a refresher course in how this currently works — instead of the “10-Year Ultimate,” I call it “The Seven-Year Cycle”:
Broadway. This is the launching pad. For $20 million or so, you can open a show in NYC and be eligible for Tony Awards and 80% of productions will not earn back their initial investment.
First National Tour. If your show has a successful Broadway run, and maybe even win a Tony or two, you can send a company around the country, bringing your show to people who can’t easily visit NYC and see it.
International Productions. If the appeal of your show is really broad, you may be able to produce a UK, European, Asian or Latin American tour of your show.
Direct Licensing. For those markets in which you can’t self-produce your show, you can start licensing your rights to other producers, both domestically and around the world, and participate in the revenues generated from someone else taking on the production risk.
Stock and Amateur Licensing. This is the equivalent of the home video market — and even today it’s the cash cow of the theater world. If your show appeals to the masses, it can be published and licensed to every professional regional theater, every amateur community theater and every school around the world.
Revivals. To avoid having your first-class rights — that is, the rights to produce on Broadway or the West End — expire, you need to mount productions of your show periodically. A successful Broadway revival of your show should then trigger the relaunch of the above cycle, positively impacting each of the subsequent windows.
What are the most significant differences between film and theater windows? There are two:
- Unsuccessful studio films can still participate in each window, albeit at lower numbers than any initial “Ultimate” projections. By comparison, theater flops are dead and buried. You lost your entire capitalization? Well, that’s that — chalk it up to the discriminating NYC audience and start raising money for your next show. This is not an exaggeration: as noted earlier, four out of every five Broadway shows won’t recoup its initial investment, much less make a significant profit.
- No one in the live theater industry creates “Ultimate” projections for a show to begin with. It’s all about the Broadway run — and crossing fingers that something will follow. This is because of the way that ownership and rights work in the theater, which is very different from the way it works in film.
Theater Intellectual Property: A Tale of Competing Interests
Why can’t the producers of every musical on earth devise “Ultimate” projections for their shows and work with distributors across the entertainment spectrum to monetize the shows they spend so much time developing and so much capital producing? Simple: they can’t.
The way that live theater operates right now, producers essentially lease production rights from authors for a period of time and need to meet certain requirements in order to maintain those rights. If a producer can keep a show running long enough, they will vest in additional – but passive – participation in other exploitations that the authors may eventually authorize. The key word here is passive as producers do not control those rights, but they may make money off of them if the authors choose to exploit them. Starting to see the issue here?
This is an anomaly in the theater, one that is rooted in the noble protection of the ideas of the playwrights, composers, lyricists and others. The theater long has been considered to be a writer’s medium, just as film is considered to be a director’s medium and TV is considered to be a producer’s medium. However noble the intent in the theater, what the compartmentalization of rights does to the overall property, however, is dilute its value. That results in each show not being managed optimally. In other words, the way that live theater operates right now, producers can only actively exploit a small subset of the total bundle of rights that each stage property inherently possesses.
Broadway is facing a real disruption in the way business is done.
- Mounting revivals of already beloved shows.
- Producing limited-run engagements with major stars in the cast.
- Adapting well known brands for the stage.
I believe #3 will be the straw that breaks the camel’s back.
Brands, Brands, Brands
In every major studio today, you will find executives in charge of “franchise management” or “brand management.” These are interchangeable terms, depending on the studio. And this is as things should be, since movie theater releases of already-beloved properties generate not only robust box-office revenue, which is important for later distribution windows, such as home entertainment and TV licensing, but they also fuel ancillary revenue streams from businesses that depend on studio content engines for their own success — like consumer products, parks…and live theater.
As globalization drives an expansion of theme parks — 20th Century Fox, Paramount and Dreamworks Animation are joining such longtime players as Disney and Universal in this space — and with growing consumer product licensing and social games added to the mix, what role can live theater play in this hyper-monetized content landscape? The studios intend to find out.
Wait a minute: you’re still a non-believer? OK, consider this: The Lion King is the most successful entertainment property of all time. Of all time. In any media. Why is that? From my own first-hand experience — I held two different positions at Disney — let me show you why.
The Lion King was conceived as an animated feature film musical, and it achieved its initial success as such. Indeed, it could very well have stayed just an animated feature film musical, earning a billion dollars at the box office and calling it a day. Then Disney adapted it as a stage musical and created animated sequels. They also developed consumer products and park attractions. Not only was The Lion King staged on Broadway (where it remains 19 years later) and the West End, but in Germany, in Spain, plus innumerable national and international tours, plus it has been adapted into dozens of local languages, plus it has been incorporated into a touring ice show and merchandise programs. Plus it has even been further adapted into versions that young kids in schools can perform in — thus restarting the cycle with each new generation of consumers and enthusiasts for the franchise. This is not by accident but by design. Disney employs dozens of people who work collaboratively and cohesively towards the common goal of managing both content generation and distribution plans for the property.
Now contrast The Lion King with Hamilton, which is, without question, the largest and most successful musical out of the gate in the modern history of Broadway. Will it achieve the $6 billion in box-office earnings racked up so far by The Lion King? Will it achieve the breadth of brand exploitation? Of course not. To be sure, it will do a better job than most new musicals in this regard, and it does have one key advantage that may allow it to be managed more effectively than any other musical. Can you guess what it is? Hamilton is owned by Lin-Manuel Miranda. As the sole author of the show’s book, music and lyrics (although based on Ron Chernow’s biography, Chernow doesn’t control the property), Miranda alone (and his agents) are positioned to exploit it optimally for generations, right?
Why not? This is the fundamental problem with franchises spawned by the live theater: authors are always looking to the future, to their next project, and so are agents for authors, who are understandably motivated by securing the next opportunity for their clients. Who is the franchise manager for Hamilton? I’d wager there isn’t one.
Who is the franchise manager for Hamilton?
So why isn’t Seller the franchise manager for Hamilton?
Because he doesn’t own it. Seller’s rights to Hamilton most likely don’t go beyond stage rights. While he may be rolling out one of the most aggressive theater releases ever (a Chicago production, a US tour, a West End production, and more), he doesn’t necessarily control any other rights to the show. Why would he want a movie to be made from it? What would be in it for him?
Even if Miranda wanted a network broadcast of Hamilton, Seller could block it while his tours are out — it’s part of the approved production contract between Broadway and the Dramatists Guild. All of this is well-intentioned, yes. But it doesn’t allow for an original Broadway musical to reach the heights of big media-owned properties like The Lion King (Disney) or Wicked (Universal) or any of the dozens of new musicals being created by large media companies, most of which are adapted from hit films and benefit from an existing awareness of, or even an affinity for, by theatergoers.
Then there’s the prevailing wisdom among theater producers that seeing a show, particularly a musical, in any context other than their production, on their designated stage, will cannibalize their ticket sales. To put this another way, the real reason that stage musicals are neither efficiently nor effectively managed as broad entertainment properties is because the producers inherently operate at odds with the overall success of the property, especially with respect to protecting the usual initial distribution window: a Broadway (or West End) production.
Not all musicals are managed this way. Look at those created, owned and managed by such media companies as Disney — their ability to roll out, exploit, maintain and measure the success of their franchises is the industry’s gold standard.
If such heights can’t be achieved by Hamilton, what chance does any other independent producer or original musical have? They don’t: they’re playing for singles and doubles while Disney, Universal, Warner Brothers, Sony Pictures, 20th Century Fox, and others are playing for home runs — for hits that feed their TV studios, film studios and theme parks; their consumer product divisions, music labels and publishing; their book publishing units, and digital studios. They can play for home runs because they own these franchises, often tied to their ownership of the underlying film, tv show, or book; or the rights they originally acquired in order to make that film, show, or book.
I Want What I Want, When I Want It, Where I Want It
Consumer expectations today have fully evolved into an on-demand mentality. If one wishes to see an episode from the fourth season of The Wonder Years, one need only open up Netflix and press play on their phone, laptop or over-the-top on their TV.
How does someone wishing to consume a live musical satisfy such a craving? If they’re in NYC or London, and if the show they wish to see is running, they may have the privilege of shelling out the highest entrance fees in all of the media-entertainment complex to see it — at 8pm, I should add, and generally not Mondays. What happens if such a consumer is not so geographically endowed? What happens if such a consumer is priced out of the live experience? What happens if their show of choice isn’t playing anywhere?
What if you’re simply a super-fan of, say, Matilda the Musical — like my young daughters, who are obsessed with the show? They’ve seen it three times on Broadway, and have their tickets for the final performance scheduled for next month. How are the owners of the property effectively monetizing this real consumer demand? They aren’t. And that’s a problem.
A cursory search of YouTube brings up a few TV appearances of the same two or three songs from Matilda. Perhaps there’s a behind-the-scenes video in there somewhere to help drum-up box-office interest. But further investigation will show that you will find no pre-roll ads and few banners, which leads me to believe that those videos are there for purely promotional purposes — as many agreements between producers and theater writers (or the Roald Dahl estate in this case) would no doubt stipulate. Those videos are therefore not monetized, despite the fact that digital video advertising dollars have upended traditional TV advertising. How there is no Broadway VEVO Channel on YouTube is simply beyond my comprehension, especially with musical content having among the highest monetization rates across the digital video landscape. But you have to have the rights to turn that monetization on.
True, there is an increasing trend of live TV broadcasts of musical — like The Sound of Music Live on NBC or Grease! Live on Fox. Unfortunately, these are limited to a handful of shows several decades after their initial runs on Broadway. Hairspray Live, airing on NBC on Dec. 7, is the newest kid on this playground, a mere 14 years after the Tony-winning Best Musical opened on Broadway. Filmed adaptations of musicals, meanwhile, are also few and far between — not to mention risky for a studio. Some of them in recent years have proven successful, like Les Miserables and Mamma Mia! Some of them have not, like Rent and Rock of Ages.
And none of this solves my daughters’ un-monetized Matilda demand problem.
Why is there no Broadway VEVO Channel on YouTube?
Now imagine a major media company, one that owns and controls brands or franchises, with its army of Franchise Managers ready to decide how to exploit intellectual property across all channels. They come to the theater and learn that, at least on Broadway, they cannot own the derivative stage copyright of their brand. It is the property of whomever they’ve hired to do the adaptation. Not in any other medium is it forbidden to own an adaptation of company-owned intellectual property. Not film, not TV, not publishing, not music, not anywhere. Just theater.
What will happen once Big Media has been around the block a bit longer? These are my predictions:
On to the Crystal Ball
There will be an increased entry of large diversified entertainment brands onto Broadway. The presence in NYC and London of the major studios, music publishers, game companies and even consumer brands will continue to grow. Right behind Disney is Universal, Warner Brothers, Columbia, 20th Century Fox, CBS, Hasbro, Universal Music — they’ve all entered the fray, either through partnerships with established producers or on their own. They’re exploiting live-broadcast rights, film-remake rights and consumer product/merchandising rights.
There will be a major shift in copyright control and ownership of derivative copyrights. Big Media will create stage adaptations outside of Broadway to avoid authorship restrictions — and they’ll start doing this either outside the US, or else at regional theaters unbound by such rules. Once their authorship is established, they will come to Broadway only in success. Theater authors will remain in control of their original plays and musicals — or even author-conceived adaptations — but the days of being the “lucky hire” to retain a copyright that is inherently worth hundreds of millions of dollars is nearing its end.
There will continue to be expansions in the windows of live entertainment. For example, there will be more live broadcasts of musicals on sound stages and live-streaming of live theater in actual theaters — even as many barriers continue to exist against filming inside of theaters, many of them union- and guild-related. The transfer between distribution windows will happen much faster: TV versions will air while the live show is still running; stock and amateur publishing will happen nearly as fast. There will be more video clips and even full-length shows available on YouTube and other streaming sites, and the advertising monetization for those clips will be turned on. Clips and shows, in other words, will be no longer just for traditional promotional purposes. There will be more digital remakes for non-broadcast purposes, such as online multi-channel networks and over-the-top (application-based) content providers.
The independent producer will become an endangered species. Or, to put this differently, there will be more producers who belong to large media organizations, or operating segments of well-diversified entertainment companies. Mom-and-Pop producers won’t be able to hang with them — very few will be able to get one of the 40 Broadway theaters as the major theater owners increasingly make pacts with Big Media, for whom a presence on Broadway is but a phase of a multimedia content plan — one that factors in the possibility of financial loss while still scoring an overall win for the franchise. By contrast, independent producers will still be putting all of their eggs into the Broadway basket — and that is simply bad business.
There is a corollary to this: new original work will become, almost exclusively, the domain of nonprofits, whether they operate on Broadway, Off-Broadway or even Off-Off-Broadway. Their risk is spread over their subscriber base, shorter runs and lower critical and financial expectations. For every Hamilton that comes out of that process, there will remain five to ten top independent producers available to shepherd them onto longer commercial lives. But for every Hamilton, there are going to be 1,000 Amazing Graces. For every Jeffrey Seller, there are going to be 1,000 investors who think they are producers. They’re not. The landscape won’t be able to accommodate them any longer. Ditto for vanity projects. Maybe they’ll nab a small playhouse in the summer, but major musical houses? No way.
There will be industry consolidation. I would not be surprised to see significant acquisitions and/or consolidations in the live theater industry, whether it’s buying out some of content impresarios like Really Useful Group or R and H, buying out publishers like MTI or Samuel French, or, most likely, buying out the theater owners themselves. The best and most talented of all the independent producers will gravitate toward strategic partnerships with Big Media, but the rest of the independent producer longtail will disappear. Maybe they’ll cherry-pick revivals, special events or mount limited runs with star attachments, but that is likely it. Most of them simply won’t have sufficient savvy to manage entertainment franchises — and that is what will be required of the theater producer of the future.
So, how will the future play out? Will the disruption I’m describing overthrow the status quo — or peter out? Who among the Big Media players will emerge as a viable competitor to Disney? Will we see Broadway VEVO in the next five years? Will the next round of live musicals on broadcast networks include a currently running show? Will select Broadway theaters get swept up by Hollywood Studios to serve as their highly-visible NYC outposts?
I say yes, but what do I know? I’m just a theater producer.
This article was partially drawn from the author’s recent lectures to graduate arts management students at Baruch College in NYC, and to undergraduate arts management and entrepreneurship students at Suffolk University in Boston.