(1) Commercial Appeal
(2) Operating Costs
(3) Artistic Merit
(4) Investor Interest
Each day this week, I will cover one topic and, using a well known example, explain how my thought process would work in evaluating a property.
When a producer tells you that a play has a $3 million capitalization or a musical has a $10 million capitalization, what he or she is essentially telling you is that this is the amount of money it will cost a show to get to opening night. This includes what it costs to build sets and costumes, rehearse the actors and musicians, rent facilities during rehearsals and previews, etc. This figure does not include what it costs to run the show after opening. That being said, operating cost is the amount of money it takes to run the show from week to week following the opening of the show. And obviously, these costs have a direct impact on the profit margins of the show.
Not a day went by in business school where we weren't asked to calculate profit margins. The lower the weekly operating costs, the higher the profit margins, and the faster a show can recoup. A good producer must pay very close attention to weekly running costs when evaluating what shows to invest in.
Example: Spider-Man Turn Off the Dark
Everyone has heard of Spider-Man. Most of the news covers its $75+ million price tag, technical problems, and injured actors. This huge price-tag aside, the real kicker is its operating costs. The New York Times reported the show costs $1.2 million a week to run. Last week, the show took in $1,295,190. It's going to take a hell of a long time to recoup $75 million on $95,000 of profit a week.
While Spider-Man is seeing a fairly long run, it hasn't seen a profitable one.
A good businessman looks to optimize profit. On Broadway, like in every other business, the key is keeping operating costs as low as possible.