Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment Read online

  Further proving the strength of Marvel’s characters, the first films to come out of the company’s deal with Paramount—Iron Man, Iron Man 2, Thor, and Captain America—performed well, together collecting over $2 billion in global box-office revenues, over three times their estimated production costs. Coming at a time when Disney was struggling to generate hits of its own, Disney’s bid for Marvel reflected the major studio’s eagerness—or, given the billions of dollars involved in the transaction, some might say desperation—to call some of those blockbusters its own. In October 2010, less than a year after closing the purchase, Disney gained further control of the Marvel portfolio by buying Paramount out of its worldwide marketing and distribution rights for The Avengers and Iron Man 3, in return for at least $115 million in distribution fees. Before long, no one at Disney had any regrets about the investments: in 2012, the first Avengers movie raked in a staggering $1.5 billion in tickets; in 2013, Iron Man 3 also crossed the $1 billion mark. Whatever the further fortunes of Marvel’s resilient superheroes, the evolution of the company and its new life as a subsidiary of Disney underlines Hollywood’s reliance on the kind of colossal hits that only Marvel’s superheroes and Hollywood’s smartest executives can make happen.

  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 success
ful 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.

  A Limited Release Strategy

  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 th
e 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.