Sunday, 3 February 2013

News from Broadway - Evita fails to show a profit

The Lost Angeles Times ran a story this week about Andrew Lloyd-Webber's hit show, Evita, closing its doors. This is interesting news for all of us and there are much we can learn from it, even if we are not playing in the same league. This revival of Evita has it all. Ricky Martin and Elena Roger as the stars, Lloyd-Webber's music, a movie to remember, and an advertising budget like never before. Yes, if any show had potential, that must be it.

In contrast, Lloyd-Webber's Phantom of the opera celebrated its 25th year in London last year and this same week, the 25th year on Broadway. Hope you have seen the show when it came to a theater near you. I was in second heaven when I saw it at the Teatro last year. If you do not have the celebration concert DVD, shame on you - you must get it.

What we can take out from this is important. Big budgets does not make a success - at least not always. The $11 million made sure that the show would be of greatest quality. Just remember, if you want to spend big budgets, you have to earn even more to pay it back.

Big names does not always make for big profits. The times reports in the story quoted above that shows staring Ricky Martin showed better ticket sales. What it does not say, but can be assumed, is that the bigger names also insist on bigger salaries. If you want to splash out on big stars, you will have to make sure that they can bring in more than what you spend on them. That is a most basic budget principle.

The story above also reports that the show ran for 46 weeks on Broadway, but it needed 63 weeks to recoup the costs. We can safely assume that the budgeting team did not make such simple mistake. What most likely went wrong is that the attendance was lower than expected. Mmmm. Looking at the gross figures as reported on The Broadway League for the previous week, this show ran to a crowd of close to 80% capacity. Mmmmm. Make me wonder. If the budget team made the assumption that they needed to contract their stars for 46 weeks only, and 80% attendance was not enough to make it, then what on earth did the budget team assume for attendance? A lesson to be learned, which I have learned in grade one of finance 101, is that you never budget  to sell at 100% capacity. Always make sure that you have some margin. I read on the internet and in learned books that a 60% attendance on Broadway is about average. In budgeting basics you learn that, when you draw up your budget, starts with a likely scenario (say 60%), contract your expenses to make sure you break even at a pessimistic scenario (say 50%), and then make sure your product quality and appeal aims for an optimistic scenario (say 80%). With this simple budgeting model you make sure that you will make big profits when your show hits it big. Yeah I know I am selling cars by daylight and musical theater on Broadway is something very different, but we are talking basic business principles here.

So much for complicated budgeting stuff for now. Until next time, and oh yes, I wish Ken Davenport all the best with his production of Macbeth on Broadway. There is one producer who will not make any such mistakes when drawing up a budget.

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