INVESTMENT: Cash behind the curtain

By Susan Butler

Despite the associated risks, musical theatre is attracting an upturn in investment

By Susan Butler

The RISK OF FAILURE IS EXTREMELY HIGH. The relative number of successes falls in a range between 20% and 30%. The recession lingers on and recorded music sales continue to slide. Yet private investors are still funding musical theatre. Indeed, music still reigns in the West End and on Broadway.

Theatre producer and investor John Gore, who was the largest shareholder in the original Cats and The Phantom of the Opera, put together financing for the UK production of Wicked and launched in 2005 his New York-based Key Brand Entertainment, claims people are becoming aware of a successful musical's potential.

"For years, musicals have sort-of been below the radar", he says. "People heard about the success of Phantom of the Opera, but when it was reported [last year] that Wicked was [one of] the most successful things that Universal Pictures ever made [is has already surpassed gross revenues of Universal's top five films, excluding ancillary revenues], it changed everyone's dynamic. So what we're seeing is a lot of stars and other types of talent focusing on [musical theatre] as an industry because they realise how valuable it can be. A lot of people who would not have come to the table are now coming to the table."

For composers and lyricists, musicals present a unique opportunity. For investors, they are potentially lucrative commercial enterprises. But for pop music writers, becoming part of a hit musical is still as elusive as ever.

The writers

Unlike film composers and pop songwriters, theatrical composers and lyricists hold enormous control over their work. The authors of a musical - the writers of the book, the music and the lyrics - and the director have creative approval rights, says top theatrical lawyer Seth Gelblum, a partner with Loeb & Loeb in New York.

The writers have the right to approve any changes to their work as well as selection of the director, choreographer, cast, designers and others. And everyone continues to work closely together until opening night.

As a result, musical theatre "is much more of a collegial, collaborative business," according to Gelblum. "The combination of [approval rights] and it being a back-end business, where nobody makes any money unless everybody does, makes people tend to really work together," he adds.

Creators have long been sceptical of back-end business models. Most songwriter and recording artist attorneys want large advances for their clients from publishing and record deals, and most publishers and labels want big advances from those companies that license songs and recordings. Complaints about motion picture companies offering a share of back-end profits are legendary, calling them illusory.

The theatrical back-end is completely transparent, says Gelblum. There is no "overhead" and expenses are all spelled out.

Writers receive certain fees during their years of work up to opening night, which tend to be rather low, so they also share in weekly operating profits (box office receipts less specific expenses). For the US, their royalties are typically 15.56% to 17.78% of the weekly operating profits (shared between all writers) with a $6,000 (pounds 3,600) minimum weekly guarantee, with the producer first recouping 110% of the amount before payment is due, says Gelblum. Each company that is producing the musical would pay these royalties.

In return for waiting to receive back-end payments, writers own their work and simply license it to producers rather than granting all rights to the company as they do for films. The producer's right to produce the play expires when the producer ceases to present the play on a continuous basis.

While the "first-class producer" of the West End or Broadway production will also license touring rights, authors grant separate rights to stock and amateur licensing houses.

"There are writers of successful musicals with multiple companies that are earning $10m (pounds 6m) per year, every year," says Gelblum.

Investors

Despite the recession, audiences continue flocking to West End and Broadway musicals.

During the 2008-2009 Broadway season, theatres reached a historical high of $943m (pounds 562m) in gross ticket sales, with musicals generating more than 82% of this total. Although corresponding figures for West End productions were not readily available, the Society of London Theatre previously reported box office receipts for 12 months ending in July up 3.5%.

Yet for investors, the risk factor is as high as ever. Ted Chapin, president of New York's The Rodgers & Hammerstein Organization, which was acquired earlier this year by Imagem Music Group, says, "Costs are extraordinary. I went to the last performance of Brighton Beach Memoirs, which just couldn't find an audience. The producer said they were losing $200,000 per week for the play. Once upon a time you could produce a small musical for that amount."

Indeed, today it costs more than $10m (pounds 6m) to get a Broadway musical up and running. According to Gore, a Broadway blockbuster will cost $15-$20m (pounds 9-pounds 12m), while a West End equivalent will cost about pounds 5m.

With lower costs in London, a new musical has a better chance for a longer run.

"A show can last longer in the West End if it's not instantly strong out of the gate," says Gore. "Broadway costs are so much higher that chances of failure are higher."

Despite the risk, there always seem to be new investors for first- class productions and tours.

Broadway Across America, acquired by Key Brand Entertainment, promotes and produces theatrical events in 42 North American markets. It also owns or operates six theatres.

"The theatres across Broadway are full, and the theater owners have never had such a long back-up list during my 25-year career," says theatrical producer and Key Brand COO Beth Williams, who reveals that theatres have musicals ready to hit the stage as soon as theatres become available through 2011.

The music

With the ongoing successes the Abba-based Mamma Mia! and Four Seasons musical Jersey Boys, pop music rights holders have been hoping for similar successes with their catalogs.

"In retrospect, it's clear that the phenomenal success of Mamma Mia! was perhaps a lucky one-off," says Gelblum. "As much money as it has made, it may have caused other people to lose even more money. The street is littered with dead catalog shows."

These flops include Lennon, Good Vibrations, Ring of Fire and The Times They Are A-Changin, all based on rock legends but failing to translate at the box office.

"Mamma Mia! has nothing to do with Abba, apart from the tunes," notes Gore. "The reverse is Jersey Boys, but one of the secrets is that no one had any concept of that story. It wasn't out there. Everything you watch is fresh, yet the songs are so familiar."

Gore and other producers are betting on Million Dollar Quartet to capture that same emotion and box office. The musical, set to begin previews this spring on Broadway, is about Christmas Eve 1956, when four musicians - Jerry Lee Lewis, Johnny Cash, Carl Perkins and Elvis Presley - showed up at the home of Sun Records founder Sam Phillips and began an impromptu jam session. The musical is currently playing in Chicago.

"Every musical has a slightly different path these days," says Chapin. "That is a good thing because it shows there are a lot more ways you can get shows to Broadway [and the West End]."

Susan Butler is executive editor of Music Confidential. This article is an excerpt from a feature appearing in the November 19 issue.

pounds Music Week 21.11.09

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