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

by Anita Elberse

  The involvement of stars like Jay-Z and Lady Gaga can lift the profiles of all the partners involved in a product launch. Droga5 of course also made a sizable gamble that the Decoded project would bring in new clients—forgoing profits on a $2 million project was quite a bet given that the company at the time had modest annual revenues of $24 million. And actual costs for one-off projects such as this one are hard to assess beforehand, as Essex knows all too well. “This isn’t like we are going to shoot a television commercial, where we know how much it is going to cost,” he explained. “But that is the beauty of doing something unique—some of us were saying, ‘This is going to be costly,’ and others were saying, ‘It will be worth it.’” Droga5 hasn’t looked back since—in late 2012, in fact, the advertising industry’s preeminent trade magazine AdWeek selected Droga5 as its Agency of the Year.

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  Starbucks works with musicians on an ongoing basis, so it’s not surprising that it expressed interest in being involved in Lady Gaga’s Born This Way launch. Each month, the coffee company features three or four new albums in its seventy-five hundred stores in the United States and Canada. According to Holly Hinton, entertainment category manager at Starbucks, the choice of which records to promote comes about after “lots of listening” by the Starbucks team members who are responsible for curating content. “There is a bunch of music fans making these decisions,” Hinton said. “We have conversations all the time about liking the Alabama Shakes’ record, or loving the new Katy Perry.” This is how Born This Way ended up on a counter display labeled “The Handpicked Sound of Starbucks”—right next to the biscotti and chocolate. Starbucks’s impressive retail footprint makes this kind of product placement a coup for any artist seeking to drive sales, and it explains why music-industry insiders work hard to get a foot in the door. In Lady Gaga’s case, Hinton recalled that the star’s producer made a big impression when he previewed Born This Way for the company’s team of curators. “Vince Herbert came to our Starbucks offices with a stereo system and played music louder in here than I think anyone has ever played music,” she said.

  But Starbucks went far beyond “business as usual” with Lady Gaga. The company also planned a daylong Lady Gaga “takeover” of the Starbucks Digital Network, which is accessible through the free Wi-Fi in stores. This initiative involved giving away a limited number of downloads of her song The Edge of Glory, and streaming both the album and an exclusive video for free. Taking a page from the “Decode Jay-Z” playbook, Starbucks even launched a scavenger-hunt-like game called SRCH (pronounced as “search”) around the time of the album’s launch. By distributing clues through QR codes on banners and posters in its stores—smartly, the My Starbucks iPhone app had an embedded reader of such codes—the company led players around the Internet (including Starbucks-operated pages on Twitter and Facebook) in search of prizes.

  For Lady Gaga, the partnership provided the obvious benefit of significant marketing and distribution support. But the deal offered important advantages for Starbucks, too. It enabled the company to build relationships with Lady Gaga’s “little monsters,” a large group of current or future coffee drinkers. It also allowed Starbucks to integrate its in-store and online experiences, showing customers the value of both. “This was the first time we played Gaga in our stores,” remarked Alex Wheeler, vice president of global digital marketing for Starbucks. “We were trying to bring an experience to our retail stores where customers could come in and just hear the music, purchase the CD and engage, go online and watch the exclusive video, or get involved in the game. We wanted to bring an experience that we thought only Starbucks could, and we wanted to drive people into our stores so they could experience it.” The company also used the SRCH game banners to promote its Frappuccino, using the buzz around Lady Gaga to draw extra attention to a seasonal offering that appeals to a younger audience.

  Perhaps most important, Starbucks found the wide-scale, blockbuster launch extremely attractive because of what it would do for the company’s brand. “This was about being part of an important cultural, global moment,” explained Wheeler. “A Lady Gaga record coming out—it was a big deal.” And Lady Gaga’s star power was key. “Like our brand she is innovative, she is very digitally connected, and she has a passionate fan base,” said Wheeler.

  Starbucks approaches these kinds of alliances with great care. “Brand partnerships are a bit snowflake-like, and each one has to be special,” said Wheeler. “We look for the right kind of opportunities.” But in Gaga’s case, the company felt that the expected rewards outweighed the risks. “We knew that she could be polarizing, and we prepared our organization for what that might look or feel like,” Wheeler recalled. “But we all felt it was the right risk to assume.” And she has no regrets: Wheeler looked back on the collaboration as her favorite among other activities her team had undertaken.

  Executives at Zynga are also very positive about their partnership with Lady Gaga. In advance of the release of Born This Way, FarmVille users were given a chance to expand their game-playing to a Lady Gaga–themed virtual farm community with items such as crystals, unicorns, and, in a play on the album cover art, leather-clad sheep riding motorcycles. In the week leading up to the record’s launch in May 2011, users could earn early access to its songs. They could also purchase special prepaid $25 Zynga game cards at Best Buy (a third partner in the deal) that included a free download of the album, as well as exclusive bonus tracks and virtual goods.

  No money changed hands between Zynga and Carter’s Atom Factory, but Zynga did pay Lady Gaga’s record company Interscope for the rights to the music. For Lady Gaga, the complex partnership deal helped drive album awareness and sales. For Zynga, too, the deal offered many benefits. Anders Klemmer, then Zynga’s global director for business development, told me: “We always looked for ways to inject pop culture into our games to make them more relevant to what is happening in the lives of our players, to keep them engaged and coming back for more.”

  Around the time of the album’s release, FarmVille attracted forty-six million players every month, but usage was down sharply from a year before, when nearly twice as many people played the game. “We are a hits-driven business, and we need these popular artifacts in our game,” remarked Klemmer, who described the partnership as a “high-water mark” for Zynga. Lady Gaga’s audience appeal was a big reason for the deal, he explained: “At the time, Gaga was by far the biggest, most talked-about artist in the world. We wanted to work with her. And our analytics told us that there was a great overlap in who played FarmVille and who liked Gaga on Facebook.” Zynga had earlier worked with the hip-hop artists Dr. Dre and Snoop Dogg on another game, Mafia Wars. “That performed well above the baseline,” said Klemmer, “so we thought, ‘Well, what if we went with a really strong name?’ It takes a special kind of artist to support a promotion like we did with Gaga.”

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  All in all, it makes sense to invest in blockbusters and superstars. The advantages of such bets are hard to deny. Advances in digital technology create exciting new content distribution and marketing opportunities, but can also seriously hamper existing business models, making blockbuster strategies more difficult and risky to execute. But both effects do nothing to lessen the need for big bets—in fact, blockbusters only gain power in a digital landscape.

  Partnerships between content producers and other types of companies make perfect sense in this new world. Such alliances are not a one-size-fits-all solution for every product in every setting, of course, but brand partnerships can help content producers gain distribution and marketing power and help them make better use of the wealth of possibilities that digital media offer. Two of the world’s biggest superstars, Jay-Z and Lady Gaga, have led the way in books and music, but there is no reason why other sectors of the entertainment industry can’t and won’t follow. Corporations crave opportunities to be associated with the strongest, most engaging brands, and many entertainment products fit that bill.
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br />   Precisely because partnerships allow for a “meeting of the best brands”—each partner selects the other based on brand strength and fit, after all—the growth of brand alliances may further fuel a winner-take-all trend in the entertainment business. We will soon see even bigger launches for the biggest bets involving the biggest superstars on the planet—backed by campaigns that skillfully capitalize on the dramatic changes that have transformed the media landscape.

  Epilogue

  NO BUSINESS LIKE SHOW BUSINESS?

  Sometimes, it seems, the best way to put your latest blockbuster bet to the test is by throwing an epic launch party. Nightlife impresarios Jason Strauss and Noah Tepperberg knew they had done just that as they looked out over a crowded dance floor where hundreds of revelers were enthusiastically ringing in the rebirth of their famed New York City–based nightlife establishment Marquee. The co-founders and co-owners had chosen this night in early January 2013 for a spectacular reopening after a costly, six-month-long renovation that, they hoped, would again place Marquee among the country’s most sought-after venues. If anyone could bring back the magic, it was the two of them: before Marquee temporarily closed its doors, the club had been going strong for almost nine years—an eternity for a venue in one of the world’s most competitive nightlife markets, where most clubs were over within a mere eighteen months.

  Strauss and Tepperberg, who had both started as promoters at age fifteen, had already built up impressive résumés in the hospitality industry by 2003, when they set out to convert an old, five-thousand-square-foot Manhattan garage into a new nightclub that would become Marquee. “When we started, it wasn’t much of a neighborhood—just a lot of warehouses and housing projects across the street,” said Strauss. “But we thought that we would be strong enough to create a destination, and we saw the vision of the room, so we took out a lease on an old, broken-down garbage truck garage that had no plumbing, no electricity, and a roof that was partially open with pigeons and leaks going through it like you wouldn’t believe.” Tepperberg recalled their confidence: “We felt we knew what a clubgoer wants.… We knew how much bar space we wanted, how big the dance floor needed to be, where we had to have a coat check, where the bathroom needed to be—all the details that matter.”

  Marquee quickly became a magnet for clubgoers. The venue was notoriously difficult to get into, with a crowd of cars and people often blocking several lanes of traffic and a line of hopefuls usually stretching around the block. “Only the fashionable, famous, or financially secure need apply,” observed one insider. Over the next few years, Marquee’s neighborhood would see an influx of new and revamped clubs—so much so that it became known as “club row,” described as a “one-stop party shop” and “an amusement park for adults.” Strauss and Tepperberg were well aware of the club’s impact. “A whole neighborhood has erupted,” Strauss told me in 2007. “Everything from restaurants to galleries to a dozen other nightclubs trying to feed off of the energy that we brought to the area.”

  By then, the owners had Marquee’s operations down to a science. Each night, two managers, a doorman, six bartenders, six cocktail waitresses, thirteen other staffers, and twelve security people served Marquee’s customers. On a busy evening, the club admitted up to twelve hundred people. Of these, four hundred “bottle customers”—socialites, bankers, models, celebrities, and other jet-setters—would pay handsomely for the right to sit at any of the thirty-six tables. They were asked to purchase at least two or three bottles of top-shelf liquor, with prices ranging from $350 for a bottle of Absolut Vodka (which retailed for $25 at a local liquor store) to $900 for Cristal champagne. (For that price, customers got to mix their own drinks; juice, tonic, and an ice bucket were included.) The remaining customers—the “filler crowd”—paid a $20 cover charge to gain entrance, ordered their drinks from the bar, danced on the main floor, and moved around the establishment’s different rooms, perhaps hoping for a chance to rub elbows with a celebrity or VIP. “The filler crowd creates the energy,” said Strauss.

  By the time it closed for renovations in 2012, Marquee’s run had been a tremendous success. Strauss commented: “Eight and a half years is almost unheard of in New York City nightlife. We’ve had iconic events, top celebrities, and great press, and we think we’ve made a significant contribution to the nightlife culture. Marquee really was the staple. If we were open five nights a week, people were going out five nights a week.”

  Even while operating Marquee, Strauss and Tepperberg had also significantly expanded their portfolio of clubs, having launched three new establishments in New York City—Avenue, LAVO, and PH-D at the Dream Downtown hotel—while also managing the popular TAO, TAO Beach, LAVO, and a second Marquee in Las Vegas, and even launching a Marquee in Sydney, Australia. Located in the new $4 billion Cosmopolitan Hotel, the $50 million, sixty-two-thousand-square-feet Marquee Las Vegas with a capacity crowd of three thousand people in particular was a huge bet—and an undeniable success. In 2011, its first full year, it became the highest-grossing club in North America, with an estimated $80 million in revenues. A departure from the New York City–based Marquee, it embraced electronic dance music and featured a high-profile DJ every night.

  “We already had two clubs in Vegas, and didn’t want to compete with ourselves,” said Strauss, an early believer in the growth of the electronic dance music genre. For Marquee Las Vegas, the Cosmopolitan shelled out $3 million for a top-notch lighting and sound system. “The room is designed to give it a festival feel, in a coliseum-like setting, with sight lines to the DJ booth,” explained Strauss. “We created a throne for our DJs—in a way, we said, ‘Let’s give [superstar DJ] Kaskade a Maybach to drive.’” Tepperberg added: “There wasn’t a club that had well-known electronic DJs every night. Everyone told us we were crazy to try. Within a month, a major competitor had switched to headlining electronic DJs, too. The market exploded—now, Vegas is all about the DJs.”

  Their success in Las Vegas led the two nightlife entrepreneurs to set their sights on a new goal: they wanted to bring the model of focusing on electronic dance music and star DJs to Marquee New York City. “We want to make it less about who is who, about seeing and being seen, and make it more about the show—about who is playing,” Tepperberg commented. “There is so much competition for bottle service now—everyone has copied our model.” Renovating the old space had cost nearly $3.5 million (one especially expensive change was—literally—raising the roof), but a focus on star DJs would have high ongoing expenses, too. “Well-known DJs make up to four hundred thousand dollars a night,” said Tepperberg—a sizable sum given Marquee’s capacity. But he believed in the new model: “If you are open three nights a week, or a hundred and fifty nights a year, it is difficult to make each night special. DJs are a way to program a venue. The idea is to open when we have content.” Strauss reflected on the task in front of them: “Being in the hospitality industry is about doing good work. We know how to manage the operations side. The challenge is to remain relevant.”

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  Could it be that the hospitality industry is putting down big bets on potential blockbusters and superstars, too? Although we might not readily associate nightlife establishments with the film, television, publishing, music, sports, and other entertainment businesses examined in this book, they have much more in common than may be immediately apparent. The same is true for many other sectors of the economy. Pharmaceutical companies, for instance, have long been known for their blockbuster products; in fact, the term is common parlance in that industry. But features of the entertainment industries transfer to a wide variety of other sectors, and each day new examples emerge.

  The nightlife industry deserves a closer look first. Anyone with a serious inclination to party will have heard of at least one of the clubs managed by Strauss and Tepperberg. But even some of the most hard-core revelers might not appreciate exactly how successful the two men are as entrepreneurs. In the business of nightlife, clubs can go from being “hot”
to “not” in a heartbeat. The best clientele will only go to of-the-moment clubs—a distinction each venue by definition can hope to have for only a matter of time. Much like word of mouth for a movie or a new album, the sizzle can quickly subside. As a result, although revenues for clubs can start at a high level, they usually quickly taper off, leaving the owners to scramble to recover their high up-front costs.

  Not so in the case of Strauss and Tepperberg’s clubs, though. Both Marquee New York City and Marquee Las Vegas beat those odds in a big way. Revenues for Marquee New York City even trended upward in its first years, from just under $10 million in 2004 to more than $15 million, and a net income of around $2.5 million, three years later. Although revenues declined in subsequent years, the club remained profitable throughout its run. And yet, with their renovation of Marquee New York City, Strauss and Tepperberg are significantly altering their formula, inching ever closer to the practices of some of the world’s biggest entertainment businesses.

  The new model developed by the two entrepreneurs promises to transform the nightlife business from one that is all about selling high-priced alcohol delivered to table customers seated at hot spots, to one that is at least as much about selling tickets to heavily marketed events featuring superstar DJs. Marquee Las Vegas was their first big foray into that new era—and it certainly proved the value of the concept. In part, the move may have been driven by the recession, which didn’t exactly help grow the bottle-customer market. (In the old Marquee New York City, bottle customers accounted for a third of all customers but as much as 80 percent of revenues.) But Strauss and Tepperberg’s decision to focus on electronic dance music was a clever bet on a trend that emerged years ago in Ibiza (still the bastion of that music genre), conquered most of Europe next, and is now taking over the United States.