No business like show business
Our analysis of the art and science of creating a hit show
Bastard, orphan, hero, scholar “HAMILTON”, a hip-hop musical about one of America’s founding fathers and the architect of its financial system, is an unlikely smash.
“HAMILTON”, a hip-hop musical about one of America’s founding fathers and the architect of its financial system, is an unlikely smash. Lin-Manuel Miranda’s creation has been the hottest ticket on Broadway since the show started in July last year. On June 12th it won 11 Tony awards, theatre’s equivalent of Oscars. Michelle Obama called it “the best piece of art in any form that I have ever seen in my life”. Its success is widely credited with convincing the Treasury to keep Alexander Hamilton on the $10 bill. But if its cultural heft is clear, its commercial achievements may be just as remarkable.
“Hamilton” serves as a reminder that although Broadway is rarely regarded as a big business in the same way as Hollywood is, the most successful musicals can outperform the silver screen. No film has ever banked $1 billion at the box office in North America, but three musicals—“The Phantom of the Opera”, “The Lion King” and “Wicked”—have exceeded this benchmark on Broadway, admittedly over long runs. The gap widens further when counting performances worldwide. Andrew Lloyd Webber’s “Phantom”, began life on the London stage in 1986 before transferring to Broadway and beyond. It has earned $6 billion globally, more than twice the worldwide take of “Avatar”, the film industry’s record-holder.
“Hamilton” may cement Broadway’s lead. Revenues of $80m since opening last summer, averaging $1.7m a week, put it on track to break the billion-dollar barrier in just over a decade. Once productions open in Chicago, Los Angeles and London, returns could triple for the show’s creators and backers.
At first glance, it is hard to fathom how theatre can compete with film’s economies of scale. Many more people can see a movie; the biggest venues on Broadway seat fewer than 2,000 people a night. But scarcity also means prices are high: $100 a ticket for two hours of entertainment is common, about five times what it costs to go to the cinema. And popular shows run and run. “Phantom” still takes over $1m in a good week.
Theatre is a risky business, however. Just one in five shows make a profit and musicals, though usually far more lucrative than straight theatre, are lucky if they run for six months. Actors and landlords must be paid regardless of how many seats are filled. Even popular shows can shut down early if cash is tight after a few bad weeks. That makes investing a gamble.
So what can would-be backers trying to replicate the success of “Hamilton” learn from Broadway’s biggest hits and misses? The data are detailed enough to make some suggestions. The Broadway League, a trade group, has published weekly revenue and attendance figures for every show going back to 1984. The Economist has analysed data from past shows alongside various attributes, including genre, cast size, reception by critics and star-quality of actors involved, to estimate the probability of a show selling out in a given week and potential revenues in that week. We limited our data mostly to those available to investors at the start of a show’s run.
Given what people knew about “Hamilton” when it first launched, there was little hope of foreseeing the scale of its success. Two approaches appear relatively reliable paths to triumph on Broadway. One is to put successful films on the stage. Disney’s “The Lion King” has delivered steady profits since 1997. Musicals based on films have grossed $145,000 more on average during their opening weeks than those that were not. “Hamilton”, by contrast, is based on a stodgy 832-page biography.
A second tried-and-tested approach is to bring in a Hollywood star: “Lucky Guy”, with Tom Hanks, rapidly sold out its entire three-month spell in 2013. James Ulmer, an entertainment analyst, has compiled an index which rates Hollywood actors on their “bankability”. Using those data, we were able to calculate the total star power of the casts for each of the Broadway shows in our database. The presence of a well-known actor can be expected to elevate a musical’s probability of selling out in its opening week from 21% to 59%, while an A-list actor can bring the odds up to 92%. Yet “Hamilton” has no big stars.
One thing that “Hamilton” does have is a proven hitmaker in Mr Miranda. His previous musical, “In the Heights”, won four Tony awards and its total revenues exceeded $100m. But the past success of a show’s writers and composers matters little. Even Broadway’s biggest winners have trouble repeating past glories. Lord Lloyd Webber’s “School of Rock”, has played to houses that are just over 70% full since it opened in December. For a typical musical, a celebrated impresario increases the probability of selling out in its opening week by just four percentage points.
Good reviews do not contribute as much to success as the critics would like. Data from Jeffrey Simonoff of New York University and DidHeLikeIt.com, a review aggregator, show that, all else being equal, a musical with a rave review in the New York Times is less than six percentage points more likely to sell out in a given week than one with a neutral review.
Our model would have projected a reasonable performance for Hamilton at best, taking perhaps $1.3m a week while paying rent, wages, marketing and the like of around $600,000. Despite not conforming to the template for commercial triumph, it has achieved the highest average weekly revenues of any Broadway show ever and is one of the biggest outliers of the past 30 years (see chart).
The reason it has not done even better is Broadway’s squeamishness over charging high prices. Demand for “Hamilton” far exceeds supply but the additional revenues either go to scalpers or are not realised at all, as lucky theatregoers enjoy a bargain.
In order to “take the air out of” brokers, on June 9th Hamilton’s producer, Jeffrey Seller, raised the price of “premium” tickets to $849, and cranked up most seats closer to $200. Coincidentally, the next week “Hamilton” broke the $2m-a-week barrier for the first time. One producer estimates the show could quintuple its revenue if it charged what the market would bear. Such pricing would bolster the industry’s economics just as Hamilton solidified America’s financial system. And by paving the way for bigger profits, more shows would get funded in the hope of achieving Hamiltonian riches.
