Musicals are the biggest earners in theatre
Apart from speculative mining stocks, there are few more famous ways of losing your money than in theatre. So much so that a film, The Producers, was made about it. That film was turned into a stage musical – the irony being that both made their backers a fortune.
Of course, The Producers may well be in a minority. It's said that most shows lose money. There's no way of knowing for sure, as producers don't disclose enough data, but even if it's true, West End theatre is still a surprisingly important British industry. The Wyndham Report of 1998 showed that London produces more shows and attracts larger audiences than anywhere else in the world. A fortnight ago it was announced that London theatres had seen their most successful year on record, with attendances above 13 million for the first time and box office takings reaching almost £470m. As a net earner, West End theatre is as big as the entire British advertising, accountancy and management consultancy industries. The global earnings of the most successful British shows rival Hollywood blockbusters.
Some say theatre is going to take a big hit as this economic downturn affects discretionary spending. Producer Dafydd Rogers, one half of Dafydd Rogers and David Pugh Ltd, who brought us Art, Equus with Harry Potter star Daniel Radcliffe, and more recently God Of Carnage, says: "Things are tough out there. It's getting harder and harder to find shows that make financial sense."
However, the reverse could also prove true: recession has famously favoured theatre. In the 1989-94 recession, after an initial fall, West End attendance actually rose by 5%, going from just under 11 million to 11.5 million. Data is not available for earlier periods, but it is a time-and-again proven fact that people's need for entertainment and, in particular, escapist stories, increases during hard times. "When the economy dives, Hollywood thrives", runs the saying. The 1930s, for example, saw the rise of the Hollywood musical. More recently, The Rocky Horror Show opened during the 1973-4 oil crisis, and Jesus Christ Superstar just before; Cats – on which investors are reported to have made an annual dividend of more than their original investment every year for 21 years – began in the depths of the 1979-82 recession; Miss Saigon opened during the 1989-93 recession. All made lots of money for their investors.
This week, First Artist, the marketing agency behind many West End musical campaigns, has merged with Broadway counterpart SpotCo for £9.9m, "in a deal reflecting the globalisation of theatre productions", as The Times put it. CEO Jon Smith told the paper that "theatre was proving resilient during the credit crunch".
So how do you invest in theatre?
Producers need investors. "We have a pool," says Rogers, "from corporations who might put in hundreds of thousands to the proverbial little old lady."
A show will have set-up costs, then weekly running costs. Anything it takes at the box office above the weekly running costs goes to paying back the set-up costs, ie, the investors. Once investors have recouped, a show is 'in profit', with further spoils then divided 60:40 between investor and producer. Investors will also take 60% of anything the producer makes from further productions (tours or productions abroad, for instance); from the sale of film or TV rights; from performing rights on the music; and from any merchandising or commercial exploitation. "These spin-offs are where the real money is made," says Rogers. "Sometimes they're the safety net. Sometimes they're a huge bonus. There's no way of knowing... They could even be nothing."
Make no mistake, it's a risky business. "Theatre investment's a bit like backing a race horse. Rather than pick a specific horse in a specific race, you're better off looking at the record of a trainer, the stable, the jockey and betting on that. Of our investors, we've found that those who tried to pick and choose the winners have done less well than those who put a small amount into each production we've put on."
The money is in musicals
However, certain trends are apparent. Of all the genres, musicals are the biggest earners. The richest impresarios – Andrew Lloyd Webber and Cameron Mackintosh – made their money in musicals. Of the ten longest-running West End shows, nine are musicals – the only exception is The Mousetrap. In recent years musicals with some kind of brand awareness have dominated: perhaps they're a revival – The Sound Of Music or Oliver! – perhaps a 'juke box musical', such as Mamma Mia!; or, like Billy Elliot or Mary Poppins, they were a film.
But this cycle may be ending. The Lord Of The Rings was the most costly musical of all time, at a reported £12.5m. It is coming off. Similarly, Gone With The Wind closed after just 79 performances. So what sort of shows could be the next big hits? I am helping to raise money for a musical (for more, see www.kissesonapostcard.com, or call 020-7736 2450), so I have a vested interest here, but my view is that there is a genuine desire for something original. And that it is entirely possible to make good money from a good show.
There is no listed theatrical investment fund. But those interested in investing in theatre should join The Society Of London Theatres (www.solt.co.uk) angels list. Producers can then contact you with projects. Alternatively, contact production houses, such as Cameron Mackintosh (020-7637 8866) or Dafydd Rogers and David Pugh Ltd (020-7292 0390) directly – they are always looking for investors.
Published in How to invest
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Dominic Frisby
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