Blockbusters : hit-making, risk-taking, and the big business of entertainment

Chapter Two Launching and Managing Blockbusters Standing backstage at a sold-out concert in Boston’s TD Garden in March 2011 during Lady Gaga’s smash-hit solo tour, the Monster Ball , her manager, Troy Carter, took a moment to take it all in. “When Interscope celebrated its twentieth anniversary last year, Gaga was featured as one of its top acts in the past two decades. . . . It is amazing how far we have come in such a short time,” he told me. And he had a point: after emerging on the music scene in 2008—touring as a supporting act for New Kids On The Block, a former boy band beyond their glory years—Lady Gaga hit it big in the fall of 2009. Two short years later, she had become one of the biggest names in entertainment. Along the way, she collected multiple Grammy and MTV Video Music awards, garnering acclaim as both a singer and a songwriter. As Gaga’s musical star rose, so did her status in the fashion world, helped by her memorable appearance in a “meat dress” at the 2010 VMAs and, a year later, her red carpet arrival in an egg-shaped vessel held up high by latex-clad dancers. By 2011, Forbes ranked her first on its Celebrity 100 list, ahead of Oprah Winfrey. Working behind the scenes, the thirty-eight-year old Carter had also seen his fortunes dramatically improve. He had been introduced to Gaga by top producer Vincent Herbert a few weeks after Herbert had signed her to his label Streamline Records, a subsidiary of major record company Universal Music Group (to which the flagship Interscope label also belonged). “I wanted someone who shared my vision for Lady Gaga, and Troy understands it. We have been close friends for fifteen years, and I knew he would appreciate this chance,” recalled Herbert, who described Carter as “a little kid from Philly with a big heart and a dream to prove himself.” Although he looked much too young to have built a career in entertainment that spanned two decades, Carter had started out in the early 1990s carrying crates of records for Jeffrey Allen Townes and Will Smith, then better known as rap duo DJ Jazzy Jeff & The Fresh Prince. As the hub for all activities related to Lady Gaga (“I think of myself as the air traffic control center—just without the terminals,” Carter said about his job as manager), he himself had become a force to be reckoned with in the world of entertainment. Now, after a series of investments and new ventures in Silicon Valley, he was also a rising star in the world of new technology. “The reality of being a talent manager is that I risk my job every week,” Carter explained. “Lady Gaga trusts my decisions. We are about breaking boundaries, which means we do something different when we have a chance—we don’t just do what worked last time, or what was successful for someone else. But if something doesn’t work out, it is my responsibility.” Gaga’s ascent to the top may have been swift, but her artistry had been a long time in the making. Born as Stefani Joanne Angelina Germanotta in New York City in 1986, Gaga began playing the piano at age four, composed her first piano ballad when she was thirteen, and played open mike nights at venues around New York one year later. As a student at Covenant of the Sacred Heart, an all-girls Catholic school in Manhattan, she excelled in lead roles in several of the school’s musicals. In 2003, she was one of twenty students given early admission to New York University (NYU)’s prestigious Tisch School of the Arts, which allowed her to further develop her singing, playing, and songwriting. A year and a half after arriving, she withdrew from NYU to focus on her music full-time—but not before striking a deal with her father to re-enroll if her music career fizzled: a smart safety net but, needless to say, one that ultimately proved unnecessary. A day after hearing a recording of Gaga’s, Herbert flew her out to Los Angeles. “I knew she was a star,” Herbert said. “It was that simple.” To Carter, the woman who would go on to sell tens of millions of copies of songs such as Just Dance , Poker Face , and Bad Romance on her first two albums, The Fame and The Fame Monster , had “being a performer running through her veins.” Through a relentless touring schedule—for months on end, she put on seven to eight shows a week, sometimes performing three times per night, in different clubs around the United States and Canada—Gaga had built a fan base with a strong core. “This is not what pop artists usually do,” Carter remarked, “but we wanted to build her fan base from the ground up. . . . Once the audience feels they own something, they are going to run with it, and do the work for you.” Gaga heavily relied on Facebook, Twitter, and YouTube to further spread word of mouth and strengthen her connection with her fans—or her ”little monsters,” as she liked to call them. She turned out to be extraordinarily skilled at doing so: by 2011, Gaga was the most popular living person on Facebook and the most followed person on Twitter. (In typical Gaga fashion, upon receiving the latter distinction, she posted a live video and tweeted, “May you always have soft cuticles while tweeting. May you never have carpal tunnel,” to thank her fans for the honor.) But when Gaga was ready to release her third album, Born This Way , Carter and his team decided to rely much less on a grassroots approach to propel sales. Rather, the idea was to support the launch with an intensive marketing effort—“much like opening this as a movie blockbuster in the summer months, like Avatar ,” explained Interscope’s vice chairman, Steve Berman. Herbert added: “We can do that because of who she is—she is a part of culture now, and has an enormous platform.” But the strategy would be a significant drain on resources, Carter acknowledged: “With an artist of Gaga’s caliber, reaching full potential means doing things on an enormous scale.” He knew that the launch he had in mind would have to go beyond traditional music-distribution channels and would test the limits of what a record label, even one the size of Universal, could afford. Now, as Carter made his way through TD Garden’s hallways to the stadium floor—“the best place to experience the concert,” as he put it—he wondered whether an expensive launch akin to that of a “tent-pole” movie was the right way to capitalize on Gaga’s popularity. Or was a more moderate approach—much like the one that Carter had employed so successfully for her first albums—the best way to proceed? Not only do entertainment businesses make risky bets on the development of a select few products, they often further increase the stakes by investing a great deal of money in distributing and promoting those products as widely as possible, all with an eye toward opening as big as they can. And companies set those marketing budgets at high levels often well before they know how those products will be received in the marketplace. Why? Why would the team behind Lady Gaga want to move away from a word-of-mouth-driven launch that worked so well for them in the past? With Gaga’s new album likely to sell like hot cakes, would record label executives not prefer to save on any unnecessary marketing expenditures? It is hard to argue with anyone who has been as successful as Gaga—when I spoke with Berman, he noted that “she could be a chief marketing officer for a big corporation, because she understands the brand, and how important it is to stand by that brand.” All evidence indeed points to team Gaga’s approach to releasing Born This Way being the wisest course of action. To understand why, it is necessary to take a closer look at the pros and cons of the different ways in which entertainment products are launched—and how, more specifically, media producers decide to allocate their marketing dollars over time. Most albums, movies, television shows, video games, and books—and, in fact, the majority of goods not produced by entertainment businesses—are launched using what marketers call a “limited” or “grassroots” release strategy, as illustrated in the chart above. The basic idea behind such an approach is to gradually discover what level of marketing spending is most appropriate. It is all about being as efficient as possible with the available resources. How does this work? When products are introduced using a limited release strategy, initial distribution and advertising levels are relatively low. For instance, in the context of the film industry, this could mean that a film debuts on only a few screens in major cities, and is supported with print and online advertisements in those regions. The primary goal of these efforts is to attract not the largest, but rather the right audience to the product, in the hopes that those early customers will in turn spread positive word of mouth and help draw in new audiences. Only if the product takes off—or shows some signs of being on the verge of taking off—will the producer gradually increase the distribution coverage or intensity and support the product with more advertising to further enhance growth. Getting a positive response from the market is critical: if the product fails to impress, the producer will cease to invest, and copies will be pulled from shelves (or, in the case of a movie, from theaters). The principle is to spend sizable amounts of money on the marketing of only those products that are worth it—those that truly have a chance of success in the marketplace. Some of today’s biggest entertainment hits were launched using a limited release strategy. My Big Fat Greek Wedding is a classic example: a so-called sleeper movie that originally appeared on only a hundred screens in April 2002, it was initially promoted via a word-of-mouth campaign targeted at Greek communities in the United States. As the film caught on, the executives behind the film slowly expanded its distribution footprint and advertised the film to a wider audience. Not until August of that year was the film shown on a thousand screens—still a low number for a typical release in Hollywood, where films often play on three to four thousand screens at once—and made more than $10 million a week. The film remained in theaters until April 2003, nearly a year after its opening week, and ultimately grossed $240 million domestically. Not a bad haul, given its production costs of only $5 million. Lady Gaga’s first recordings were also released in this fashion. Her first single, Just Dance , a glam-influenced pop song co-written with R&B artist Akon and producer RedOne that also featured up-and-coming artist Colby O’Donis, was released in April 2008. Gaining traction proved difficult: “We could not get it played on pop radio,” Carter recalled. “Mainstream radio stations told us it was too much of a dance song for them.” Bobby Campbell, chief marketing officer at Carter’s management firm Atom Factory, chimed in: “Dance music simply was not on the air in Top 40 Radio. Radio stations were saying no to such music.” To overcome the problem, Carter followed a release plan that, inspired by successful rap artists’ launches, relied on an intense schedule of live performances targeted at communities that seemed especially receptive to her music. “The gay community seemed to stick to her, and that resonated with her personally. So gay clubs were a natural fit to start the work. We gave them full access to her,” explained Campbell. “It was about finding different groups: the gay community, the dance community, the club-going community, the fashion community, the art community, and developing those into a larger pool of Gaga fans. So when Interscope made some headway with radio later on, we had this really strong core of fans who had been following her for months, and who felt they were part of the reason why she was successful.” Most content producers opting for a limited release do so because they lack the funds necessary for a wider rollout. Getting broad distribution for a product tends to be costly, partly because of the additional demands that many retailers make. In the film industry, for example, cinema exhibitors often insist that a film producer or distributor spend a certain amount on marketing before they agree to show a film; these stipulations are frequently a part of the contract between both parties. In the book business, the initial launch of E. L. James’s mega-seller Fifty Shades of Grey , which the British working mother of two wrote in her spare time, was remarkably modest: lacking the support of a publisher, James published the book’s first volume as an e-book and print-on-demand paperback in May 2011. She chose to release the book with a small Australian company called Writers’ Coffee Shop, and published two more novels by the same method over the next six months. Excitement about the books soon began to build on blogs and in social media, prompting an executive at major publisher Random House to sign James in early 2012 and give the trilogy a much stronger distribution and marketing push. Having some control over which audiences become early adopters is another important advantage of a limited release. It is no coincidence that highbrow films are usually released in more upscale neighborhoods in New York City and Los Angeles before they are rolled out to other parts of the country. Producers and distributors know that audiences there are most receptive to those kinds of films, and count on the positive word of mouth from these audiences to then spill over to other markets and help propel sales to greater heights. Jimmy Iovine, Interscope’s chairman, talks about capitalizing on “sparks”: the idea is that if an entertainment product resonates with audiences in a given market, that market can, with the right kind of support, become a launching pad for a wider rollout. In the case of Gaga’s debut album, for instance, Iovine and his colleagues thought initial conditions were most promising in Canada and Australia, which is why they rolled out the album there first—not in the United States. By their very nature, social networks and video-sharing sites are uniquely suited to enhance any early buzz around a product or artist; indeed, such sites now play a critical role in many grassroots releases. That certainly was the case for Gaga. “Where other people see digital distribution as a source of cannibalization, we see it as an opportunity,” Carter said. “The Beatles, Michael Jackson, and Madonna didn’t have Facebook or Twitter. We wanted to use those new tools.” Gaga began using both sites in March 2008, right before Just Dance was released. Carter and his team arranged for fifty popular music bloggers to interview Gaga in the six months following the Just Dance launch; during that period, these interviews alone totaled over ten million impressions. Using a more novel tactic, Gaga’s team also initiated a series of two-minute videos, dubbed Transmission: Gaga-Vision , on Gaga’s official YouTube channel. “There were fans that discovered her as early as April, and others that came on board months later,” recalled Campbell. “Because she is such a visual artist, we felt we had to keep the visual fresh even if we did not release another single. So we put out a series of ‘webisodes’ that followed her around and gave a peek behind the scenes. It wasn’t overly produced, and in fact mostly shot on a flip-cam—the idea was to create intimate moments that make you feel like you were there with her.” Atom Factory’s digital team worked to syndicate Gaga’s content, from her tweets to her music videos, as widely as possible and made sure it got covered by other media. As is the case with most limited releases, success came gradually. Just Dance broke into major charts for dance airplay and club play two months after its release; another two months passed before it entered the Billboard Hot 100, the main singles chart in North America. The song then spent the next five months working its way to the number one spot, which it reached in January 2009. Just Dance ’s nine-month-long journey up the charts was the second-longest climb to the top spot in Billboard’s history. By that time, Poker Face , a second single from the album that was marketed in much the same way, was moving up the charts right behind it. Despite all the advantages that go along with a limited release strategy, however, most blockbuster bets in entertainment are released using what is known as a “wide” or “mainstream” release strategy. Wide releases, as suggested by the chart below, are not designed with efficiency in mind; instead, the goal is to “break through the clutter” and immediately capture the attention of as large an audience as possible. For products launched in this manner, distribution levels start at a high level, while most promotional activities are concentrated at the time of release—or, to be more precise, in the short period leading up to the release. As a result, sales often peak immediately after launch and then taper off quickly. A successful opening is seen as critical: a failure to reach an acceptably high level of sales early on generally dooms a widely launched new movie, a new recording, or any other type of entertainment product. Hollywood’s event films are perhaps the best example of products launched this way. Major studios have the scale needed to make high up-front investments in advertising and marketing at a time when no sales are being generated. They start promoting a film months—and, if we include teaser trailers, sometimes years—in advance of its opening weekend. Spending ramps up dramatically in the six to eight weeks before release: a studio will spend as much as two-thirds of its marketing budget on television commercials in the final two weeks before a film’s opening. And since some of Hollywood’s biggest films open on four thousand screens or more across the nation, their first week of release is often also their biggest week in terms of revenues. In 2011, for example, the top hundred films, from Harry Potter and the Deathly Hallows: Part 2 to The Iron Lady , collected 30 percent of their total of $9 billion in domestic theatrical revenues in their first week alone. As soon as Carter and his team had the opportunity, they opted for a wide release for Lady Gaga’s music, too. Released in May 2011, Born This Way was shipped to an unprecedented twenty thousand locations across the United States—not just conventional music retailers but also coffee chains like Starbucks, electronics retailers such as RadioShack, and grocery stores and drugstores such as CVS and Walgreens. A long lead time made this possible: in 2010, knowing they would need months to pull off a launch of this scale, Carter and the Interscope executives convinced Gaga to push back the release date. “Normally there is a three- or four-month lead time, but we announced the album release seven months in advance,” Berman said. “We wanted to put a stake in the ground.” Gaga was initially less than thrilled about this plan, Carter recalled: “I still remember her crying her eyes out at the thought of having to wait this long.” Why put Gaga through this misery? Why do Carter and almost every other executive and manager in the entertainment industry, when given the chance, prefer to push for big openings by spending heavily on advertising and distribution, rather than increasing marketing expenditures more gradually? The reason is simple: all else being equal, the odds of achieving success in the marketplace are higher with a wide release strategy than with a limited release approach. That, in turn, follows from the very nature of entertainment products—and, in fact, from several of the same characteristics that drive major media producers’ taste for blockbuster portfolio strategies. First, because people like winners—because they prefer to consume entertainment products that are also chosen by others—a solid opening is often a huge factor in a rollout. For media products, initial success breeds further success, while a failure to achieve success early on frequently means having no chance to succeed at all. Alan Horn knows all too well how this dynamic works in the film industry. “We always found out how we did on opening weekend,” he explained. “For a film released on a Friday, I’d get a call that same night at eleven o’clock saying ‘Well, it is over.’ And I’d say, ‘When you say it is over . . .’ but before I could even finish they’d go, ‘No, no, it is over!’ For some of our event films, they’d tell me, ‘We are done. We have just lost $100 million.’ ” When Disney’s $250-million-budget John Carter generated a disappointing $30 million in revenues in its first weekend, trade magazines called it a “fiasco”—a full two days into its run—and audiences fled. Within a week, Disney had issued a report stating it would take a $200 million write-down. In the film industry, with its tradition of publishing sales figures weekly, each weekend’s winner is ensured a great deal of free publicity. Opening-weekend revenues are a quality signal for subsequent moviegoers, and most customers (and indeed most reporters) pay little attention to the fine print, such as how many theaters were necessary to achieve the total grosses, or how much was spent on advertising. By contrast, the movies that, for whatever reason, fail to open well in their first week are immediately considered “losers.” They are quickly whisked away to smaller screens at the theaters or disappear from view altogether, only to make room for a new set of movies hoping to capture people’s attention from the very start. But even in sectors where sales figures are harder to come by, we see similar patterns. In book publishing, if new titles fail to catch on, they are often pulled from the shelves in a matter of weeks. Extensive marketing campaigns and the star power of established authors can help place books in prime spots in bookstores across the country, but they suffer the same fate if they do not open well. On Broadway, underperforming plays, no matter if they cost millions of dollars to produce, are regularly replaced after only a few weeks of disappointing ticket sales. Even Lady Gaga, for all her success, scrambled to release a third song in advance of her album Born This Way when the second, Judas , underperformed in the market. Social influence is a powerful force in markets for popular culture. Because we are social beings, people tend to want to listen to the same music that others listen to, read the same books, and see the same movies. Simply put, we repeatedly show a preference for popular products. That tendency, economists have shown, can tip the scales in favor of those products that perform well at the outset—even if the difference between the top performers and the next level down is slight. If one product edges out a rival for the number one position in its first week, that success may become a topic of conversation at the water cooler and ultimately make a huge difference across a product’s entire run. Even products that have no discernible quality differences can, as a result of these forces, experience very different outcomes in the marketplace—luck alone might lead to an early break. The sociologist Duncan Watts has proved this point convincingly. By conducting a set of experiments involving an artificial market for songs, he and his colleagues found that social influence played as large a role in determining the market share of successful songs as actual differences in quality. The experiment was designed to measure varying degrees of social influence: for instance, some respondents could see how many previous participants had downloaded a particular song while others could not, and some respondents saw a list ranked by song popularity while others saw a random listing. In one study, Watts and his colleagues presented respondents with false information—they showed a ranking that was completely inverted from what the download pattern of previous listeners actually looked like. What the study revealed was that while the “best” songs never did very badly and the “worst” songs never did terribly well (even when the rankings began inverted, the very best songs eventually made their way back to the top), any other scenario was possible. The ultimate success of an entertainment product, Watts and his colleagues revealed, is extremely sensitive to the decisions of a few early-arriving individuals: if consumers making decisions about a product later in its life cycle can see whether that product is popular, they amplify the choices of those early consumers. The result is what Watts calls a “cumulative-advantage process,” which helps explain the high unpredictability of the demand for popular-culture goods. Successful songs, movies, books, and artists are not necessarily “better,” Watts argues; rather, what people like depends on what they think other people like, and what the market “wants” at any point in time depends on its own history. Faced with this dynamic, executives will do everything they can to gain the upper hand in a battle with their rivals right from the time of launch—which means opting for a wide release strategy. Achieving scale from the moment of introduction is critical. In the case of Born This Way , for instance, it would be very risky to rely primarily on word of mouth: any loss of traction with initial audiences could seriously hinder the album’s launch. Especially with a high-profile artist like Lady Gaga, attempting to raise a high level of awareness among the largest possible audience in advance of a new product’s release is in fact the safest approach. “We chose a big launch because we could,” is how Interscope’s Berman put it. “Leave no stone unturned” was Carter’s motto ahead of the Born This Way campaign: in other words, use every opportunity to make the launch as big as it could be. Similarly, no film-studio executive in his right mind will launch a $200 million movie on a few screens in the hope that word of mouth carries the picture to a wider audience. Smart executives will do what is in their power to create buzz and open big, so as to avoid their products losing the battle for early adopters. The preference for a so-called push strategy involving wide distribution and high advertising intensity has everything to do with a second characteristic of entertainment products: their experiential nature. This is not to say that consumers will mindlessly choose whatever is put in front of them just because they cannot reliably assess product quality before the moment of consumption, but wide distribution and marketing can make a substantial difference. “In the business, we say ‘you can buy an opening weekend,’ ” Horn said. “You can spend so much that audiences will show up. It will be disappointing for you and for them, but you can get them in those seats.” In the movie industry, study after study has shown that the best predictor of a movie’s revenues is the number of screens on which it plays. Sophisticated statistical models (some of which I developed in my own research) that are designed to tease out the tangled effects of factors such as genre, star power, seasonality, competition, and advertising invariably demonstrate that, all else being equal, an increase in the level of distribution is the most effective way to increase sales. Higher advertising expenditures help, too: advertising not only directly increases sales by triggering audiences to buy tickets, it also indirectly drives sales by reassuring theater owners that dedicating screens to a movie will be worth their while. In the music industry, radio airplay—the main way through which new music is promoted—continues to be a critical predictor of recorded-music sales. And in book publishing, distributing a large number of physical books remains a classic tactic. The fact that entertainment products are experience goods also explains the important role critics can play. Potential customers typically value the opinions of others who have already read, listened to, watched, or otherwise interacted with a product. Because judgments about the quality of these products are inevitably subjective, people tend to trust experts to tell them what to like. But the tastes of regular consumers matter as well, which is why Facebook, Twitter, and other online sharing tools, although mostly associated with grassroots releases, are just as relevant to wide releases. Because social networks make it possible to spread information and opinions about new products across the globe instantaneously, and because entertainment executives are often keen to benefit from that buzz, online sharing mechanisms can fuel ever bigger releases. A third feature of entertainment goods is that in general they are relatively expensive to produce but cheap to reproduce. The first copy of an album (the “negative”) often costs hundreds of thousands, if not millions, of dollars to produce. But once a record label has the first copy in hand, the company has to spend only a fraction of that amount to create more copies and distribute them—each physical record sent to retailers costs a few dollars at most, and even less if the album is distributed online. Not only does this make blockbuster products disproportionately profitable (the more copies sold, the lower the production and distribution costs per copy sold), it also makes media producers eager to earn back their investments sooner rather than later. With so much money tied up in their projects, time is of the essence. In