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Broadway VARS Model.

Today we’re going to examine the business of the Broadway industry through the lens of the VARS model, developed by Deepak Somaya, Professor at University of Illinois @ Urbana-Champaign.  Introducing… the Broadway VARS Model.

One of the first lessons taught in Professor Somaya’s class on strategic management is the VARS model.  I would know because full disclosure, I just completed Professor Somaya’s class! This post is the first in a series I’m called my “MBA Perspective”. I’m going to take concepts learned in business school, and apply them directly to the business of Broadway. Starting with VARS:

V.  Value Proposition (What is my product service worth to people?)

A. Activities, Resources, and Capabilities (What abilities do I have to perform this business?)

R. Revenue Realization (How do I make money from this business?  Through what kind of sales?)

S. Scope of Enterprise (How much of the business tasks will I take on vs. hire others to perform?)

Basically these four points would fully comprise what a business is capable of.  And any business venture could be looked at through this lens.  So why not apply this framework to a Broadway show, or few?

Value (Don’t Touch Someone Else’s) Prop

Value proposition is about what you can offer that’s special or unique in creating an experience, service or item that folks want to spend money on.  Each show creates its own value prop through the story it’s written to tell.  Why not Wicked for example!

Wicked is a musical by Stephen Schwartz and Winnie Holzman and it opened on Broadway on October 30th, 2003.  It’s the untold stories of the witches of The Wizard of Oz, and spans multiple worldwide companies which have collectively generated more than $1 billion dollars in gross ticket receipts to date.  

In terms of value proposition, Wicked offers guests a highly unique and live theatrical experience, that can only be seen in one place at one time.  Wicked also values from being able to market alongside the Wizard of Oz brand.  The film is over 80 years old and spans generations, and when families seek Broadway entertainment all ages can enjoy, a show like Wicked creates an even greater value proposition as it’s appropriate for a wide span of ages to enjoy together.

Another way a show might offer value proposition is with celebrity casting, or stunt casting, an emphasis on scenic and production elements, through celebrity authors or directors, etc.  

Basically, the things that make each show unique are their value proposition!

Activities You Can Do, I Can Do Better 

Looking at the Broadway VARS Model Wicked’s greatest resource starts with the amazing company of trained professionals that perform and run the show each performance.  These performers make the experience truly magical, which also speaks directly to the value proposition.  The excellent sets, lights, and costumes are an incredible capability of the production, as audience members often marvel at the well-made and maintained physical elements of the show.   

Shows like Wicked also have deeply integrated capabilities to collect certain aspects of consumer data at the point of purchase – i.e., zip codes, gender, age, etc.  All of this data helps inform the marketing lens, and allows Broadway shows to try and hyper target potential ticket buyers through a mix of different advertising mediums.  By better understanding their prospective buyer, the show knows how to better market itself.  

For example, owing to the fact that a large number of tourists visit New York City and see Broadway shows like Wicked every year, those shows will find ways to specifically reach those buyers, maybe by advertising in In-Flight materials- or if the show itself has overseas companies (typically wholly owned subsidiaries, joint ventures, or strategic alliances) they can use the appeal of their worldwide brand to market an enjoyable theatrical experience relative to the price of the ticket.

Of course, often times a show’s most powerful resource lies in the intellectual property itself.

A show like Beautiful for instance had a long and successful Broadway run prior to the pandemic, a whole lot to do with the association of Carole King (it is the Carole King musical after all!).  

No other show could replicate those same songs, or use the likeliness of Carole herself without express permission- permission they are almost certain to never ascertain because those resources are proprietary to Beautiful itself via a strict legal arrangement with the life rights subject (Ms. King).

It Took Me A While To Realize (Profits)

And it’s true, it often takes a Broadway show months and months to realize profits for their shareholders and investors because of the limited seating capacity of theaters and incredibly tight margins that leaves the business model with very little room for error.

As a slew of new Broadway shows hits the boards every year, we often see shows become massive hits or tremendous flops.  Gone are the days when a show might coast at an even profit and realize a small margin of return over a long run of production.

Wicked falls in with the former and has been tremendously successful over 17 years in an industry where 2/10 shows recoup their capital investment.  Wicked plays the largest theater on Broadway (The Gershwin 1,800+) and thus has many seats to sell.  Ticket prices range from $79 to $199.  Wicked tends to gross over $1 million dollars per week over 8 performances, with operating costs of roughly $700,000 to $800,000+ in the same span.  

There is another form of the Broadway revenue model however where a show will market itself as a “limited run” experience, often playing only 16-19 weeks on Broadway in the full lifespan of the show.  These shows often have a “hook” that is meant to incentivize buyers to prioritize seeing the show in its shorter Broadway run.  The strategy here generally involves a celebrity performer, or cultivating an experience that becomes a “can’t miss” event.

My favorite example of this in recent years was the historic Broadway run of Heidi Schreck’s What The Constitution Means To Me.  This show played a limited run at the Helen Hayes Theater on Broadway in Spring & Summer 2019.  The Helen Hayes is the smallest theater on Broadway at just over 500 seats- which might make you think, “huh, then there’s no way they could return a large profit to their investors, right?”

Broadway VARS Model

Not quite!  See the thing about the realization of profits on Broadway is that it’s a supply and demand business.  So actually, sometimes having fewer seats can work in your favor.

Constitution had much lower operating costs than a show like Wicked, and thus was able to capitalize on profits even in a smaller house setting. As the show took off and became a darling hit of the season, audiences that neglected to buy tickets early and ahead of time found themselves paying a premium for a tighter inventory as performances began to sell out.

Also wanting to satisfy your theatre itch?  Head to Amazon Prime and check out the filmed version of the live stage show here at this link.  You will not be sorry.

Side By Side By Scope Of Enterprise

Wicked, and other shows like it, have a fairly limited horizontal scope of enterprise.  They offer the one product (the performance) and very rarely realize significant revenues on ancillary products like merchandise or cast album sales.  

One way to expand the horizontal scope of enterprise which Broadway is beginning to explore are Audio/Visual adaptations and licensing rights to do so (like that Constitution film above!).  

More Broadway shows are now being filmed inside the theater for live capture and distribution, for example most recently David Byrne’s American Utopia also did this with HBO.  Otherwise, a film adaptation can also be produced which would yield royalties back to the mother company, or original Broadway entity.  

The other means through which successful Broadway brands can be expanded and monetized are by launching national touring productions, or international productions.  Wicked has launched productions all over the world that would both present the same version of the play seen on Broadway, by using a nearly duplicate business model, adjusting mostly for local advertising, casting, and marketing.

How does a show like Wicked become a multinational enterprise?  In short, it’s a mix of an international/localization strategy.

Mostly international in the sense that they are essentially selling the same “product” in domestic and foreign markets.  When a show moves from Broadway to the West End of London or vice versa, usually the exact same creative team is involved in staging the show to match the likeliness of the original production.

However, consider a show like Waitress which just opened very recently in Japan!  Waitress is able to leverage all its core competencies that made the Broadway, US National Tour, and West End productions so successful, but in a market that is primarily non-English speaking a touch of localization becomes necessary for example in changing text and lyrics from English to Japanese.     

Finale Thoughts

If the pandemic has taught us anything about live theater, I can confidently make two points today.

First, live theater is irreplaceable.  If it wasn’t, we would have found a way to replace it this past year.  There’s a reason it’s been around for thousands of years, and will be around for thousands to come!

Second, and in addition to the first point, theatre must continue to find ways to expand horizontally in their scope of enterprise.

There has been a longtime fear amongst producers and theatrical officers that by leaning into Audio/Visual mediums, theater would somehow lose its core buyer base and ultimately dilute the value of the experience in going to see a show live.

But so many productions have shown us a way this past year to successfully realize these horizontal expansions.  Remember the magic of 4th of July last year and watching Hamilton on Disney+ stuck inside our homes?  I don’t know about you, but that experience made me pine for the day we get to sit inside the Richard Rodgers and watch Hamilton onstage again.

We can have it all (I want it all!), and ultimately the industry will continue to grow as a result. Just like other businesses grow, and even the way we grow our wealth through investing (take a look at Make Our Garden Grow for a refresher!).

I hope you enjoyed today’s “MBA Perspective” in applying the Broadway VARS model to some of the shows we know and love.

A Broadway show is a business, like any other enterprise.  And what makes businesses successful in the long run is how they adapt and change as the world changes around them.

Coming out of the pandemic we shouldn’t be looking to just “return” to what we knew.  We need to imagine a new future that continues to innovate and refocus what Broadway and the power of live story-telling is capable of. We can use the Broadway VARS model to do just that.

Then we’ll have new ways of understanding How To Succeed In Business.  But guess what? It’s not going to be easy. We’re going to have to try really, really hard.

Did you enjoy today’s post on the Broadway VARS model? How do other Broadway shows find unique ways of creating Value Proposition? What are their specific capabilities to offer? Comment below with your thoughts!

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