In the book business, the initial launch of E. L. James’s mega-seller: Peter Osnos, “How ‘Fifty Shades of Grey’ Dominated Publishing,” Atlantic, August 2012.
Carter and his team arranged for fifty popular music bloggers: Simon Owens, “The Secrets of Lady Gaga’s Social Media Success,” The Next Web, March 15, 2011.
Just Dance broke into major charts for dance airplay and club play: Jonathan Cohen, “Lady GaGa Dances to the Top of Hot 100,” Billboard, January 8, 2009.
Spending ramps up dramatically in the six to eight weeks before release: In a 2007 academic article, I present data for a sample of 280 films in which 91 percent of spending takes place in the four weeks before release, 81 percent in the final three weeks, 62 percent in the final two weeks, and 34 percent in the final week. For more information, see: Anita Elberse and Bharat N. Anand, “The Effectiveness of Pre-Release Advertising for Motion Pictures: An Empirical Investigation Using a Simulated Market,” Information Economics and Policy 19, nos. 3–4 (October 2007): 319–43.
In 2011, for example, the top hundred films, from Harry Potter: I conducted this analysis using rankings and box-office-revenues data pulled from boxofficemojo.com.
That, in turn, follows from the very nature of entertainment products: The economist Richard Caves has an in-depth examination of how properties of creative industries and creative goods drive business strategy: Richard E. Caves, Creative Industries: Contracts Between Art and Commerce (Cambridge, Mass.: Harvard University Press, 2000). Whereas Caves considers industrial-organization and contracting issues, my focus is on strategic marketing challenges.
For media products, initial success breeds further success: These ideas are explored in considerable detail in Robert H. Frank and Philip J. Cook, The Winner-Take-All Society (New York: Free Press, 1995).
When Disney’s $250-million-budget John Carter generated a disappointing: Pamela McClintock, “Box Office Report: ‘John Carter’ Earns Weak $30.6 Mil Domestically, $101.2 Mil Globally,” Hollywood Reporter, March 11, 2012.
Even products that have no discernible quality differences: Matthew J. Salganik, Peter Sheridan Dodds, and Duncan J. Watts, “Experimental Study of Inequality and Unpredictability in an Artificial Cultural Market,” Science 311 no. 5762 (February 10, 2006): 854–56; Matthew J. Salganik and Duncan J. Watts, “Leading the Herd Astray: An Experimental Study of Self-Fulfilling Prophecies in an Artificial Cultural Market,” Social Psychology Quarterly 71, no. 4 (2008): 338–55.
The ultimate success of an entertainment product, Watts and his colleagues: Duncan J. Watts, “Is Justin Timberlake a Product of Cumulative Advantage?,” New York Times, April 15, 2007.
In the movie industry, study after study has shown: See, for instance: Anita Elberse and Bharat N. Anand, “The Effectiveness of Pre-Release Advertising for Motion Pictures: An Empirical Investigation Using a Simulated Market,” Information Economics and Policy 19, nos. 3–4 (October 2007): 319–43; Anita Elberse and Felix Oberholzer-Gee, “Superstars and Underdogs: An Examination of the Long Tail Phenomenon in Video Sales,” Marketing Science Institute 4 (2007): 49–72; Jehoshua Eliashberg, Anita Elberse, and Mark Leenders, “The Motion Picture Industry: Critical Issues in Practice, Current Research, and New Research Directions,” Marketing Science 25, no. 6 (November–December 2006): 638–61; Anita Elberse and Jehoshua Eliashberg, “Demand and Supply Dynamics for Sequentially Released Products in International Markets: The Case of Motion Pictures,” Marketing Science 22, no. 3 (Summer 2003): 329–54.
Higher advertising expenditures help, too: Anita Elberse and Jehoshua Eliashberg, “Demand and Supply Dynamics for Sequentially Released Products in International Markets: The Case of Motion Pictures,” Marketing Science 22, no. 3 (Summer 2003): 329–54. (One study even finds that we have to look to screens to explain why co-financed movies do better. The idea is that when two studios co-finance a movie, they release their other movies further apart from the opening weekend of the movie on which they collaborate. That leads to softer competition, clearing the way for the co-financed film to play in more theaters. See Ronald L. Goettler and Philip Leslie, “Cofinancing to Manage Risk in the Motion Picture Industry,” Journal of Economics and Management Strategy 14, no. 2 [2005]: 231–61. Incidentally, Warner Bros. engaged in relatively few of such co-financing deals with other studios; it seemed to prefer to partner with third-party players such as Village Roadshow and Legendary Pictures.)
In the music industry, radio airplay: See, for instance: Wendy W. Moe and Peter S. Fader, “Modeling Hedonic Portfolio Products: A Joint Segmentation Analysis of Music CD Sales,” Journal of Marketing Research 38, no. 3 (2001): 376–83; Alan L. Montgomery and Wendy W. Moe, “Should Music Labels Pay for Radio Airplay? Investigating the Relationship Between Album Sales and Radio Airplay,” Working Paper, August 2002.
With so much money tied up in their projects: Richard E. Caves, Creative Industries: Contracts (Cambridge, Mass.: Harvard University Press, 2000). Higher interest rates exacerbate the importance of recovering investments in a timely manner.
experienced entertainment executives will favor a big launch: As explained earlier, advertising campaigns for wide releases can be relatively cheap. For instance, the cost per advertising exposure tends to be lower under national media buys than under a series of local media buys cobbled together in a limited release.
Amazon sold an estimated 440,000 units for just 99 cents: Glenn Peoples, “How Many Millions Did Amazon Lose on Two Days of 99 Cent Lady Gaga Sales?,” Billboard, May 27, 2011.
during the same period, eighteen million copies: Nielsen SoundScan, accessed December 2012.
James Diener never was your typical record-label executive: This section is based on: Anita Elberse and Elie Ofek, “Octone Records,” Harvard Business School Case 507-082; Anita Elberse, Elie Ofek, and Caren Kelleher, “A&M/Octone Records: All Rights or Nothing?,” Harvard Business School Case 511-031.
rose to the position of vice president of A&R/Marketing: A&R stands for “Artist & Repertoire.”
Smaller and larger content producers are different: Some general information on the music industry discussed here draws from Donald S. Passman, All You Need to Know About the Music Business, 6th ed. (New York: Free Press, 2006).
Moves Like Jagger, which became the ninth best-selling digital single: International Federation of the Phonographic Industry, “IFPI Digital Music Report 2012: Key Facts and Figures.”
Chapter Three: Investing in Superstars
In June 2009, Florentino Pérez, president of renowned Spanish soccer club: This section is partly based on John A. Quelch, José Luis Nueno, and Carin-Isabel Knoop, “Real Madrid Club de Fútbol,” Harvard Business School Case 504-063; and Anita Elberse and John A. Quelch, “Real Madrid Club de Fútbol in 2007: Beyond the Galácticos,” Harvard Business School Case 508-060. I identify each quote used from the case that I did not co-author.
Completing what Pérez described as a “dream move: Daniel Taylor and Jamie Jackson, “Manchester United Accept £80m Cristiano Ronaldo Bid from Real Madrid,” Guardian, June 11, 2009. All foreign currencies listed in this section have been converted into dollars using the historical currency rate for the midpoint of the relevant month.
Real Madrid purchased the twenty-four-year-old Ronaldo for a record transfer fee: I compiled all player transfer fee estimates in this section from www.transfermarket.de, and converted them to dollar amounts using the average exchange rate in the corresponding month (or months). Sherwin Rosen, “The Economics of Superstars,” American Economics Review 71 (December 1981): 845–58.
The UK’s Sun newspaper, meanwhile, set up a help line for distraught British fans: Stefano Hatfield, “As Becks Suits Up for Spain, Real Action Happens in Stores,” Advertising Age, July 21, 2003.
“We began to think of ourselves as content providers: The quotes in this paragraph stem from: John A. Quelch, José Luis Nueno, and Carin-Isabel Knoop, “Real Madrid Club de Fútbol in 2007: Beyond the Galácticos,” Harvard Business School
Case 508-060.
a couple of important features of the market for creative talent: Robert H. Frank and Philip J. Cook, The Winner-Take-All Society (New York: Free Press, 1995).
In 1995, Jim Carrey famously became the first star: “Pact Mentality,” Variety, October 16, 2006.
Tom Cruise reportedly earned more than $70 million: Edward Jay Epstein, The Big Picture: The New Logic of Money and Power in Hollywood (New York: Random House, 2005).
Most members of the Screen Actors Guild: According to data reported by the Screen Actors Guild itself. Granted, this covers not just actors who cannot find sufficient work, but also those who refuse work, or those who have moved on to other careers entirely but have kept up their membership dues. Also see: “Don’t Forget the Middle People,” New York Times, June 30, 2008.
When David Beckham joined the Los Angeles Galaxy: Five players of the LA Galaxy had a base salary below $20,000 that year. See: Major League Soccer Players Union, “2007 MLS Player Salaries, By Club,” www.mlsplayers.org, August 31, 2007.
In these markets, the efforts of only a small number of people: In the 1980s, the economist Sherwin Rosen used the term superstars to describe the “relatively small numbers of people” who “earn enormous amounts of money and dominate the activities in which they engage.”
but when entire teams of creative workers come together: Economists call these “complex creative goods.”
why would anyone consider paying tens of millions of dollars: Several of the factors mentioned are adapted from Robert H. Frank and Philip J. Cook, The Winner-Take-All Society (New York: Free Press, 1995).
And since people are drawn to winners: Academic research provides lots of evidence for people’s “taste for winners.” For instance, psychologists have demonstrated people’s need to “bask in reflected glory” by communicating their associations with successful others: R. B. Cialdini, R. J. Borden, A. Thorne, M. R. Walker, S. Freeman, and L. R. Sloan, “Basking in Reflected Glory: Three (Football) Field Studies,” Journal of Personality and Social Psychology 34 (1976): 366–75: C. R. Snyder, M. Lassegard, and C. E. Ford, “Distancing After Group Success and Failure: Basking in Reflected Glory and Cutting Off Reflected Failure,” Journal of Personality and Social Psychology 51, no. 2 (1986): 382–88.
A reliance on popularity also characterizes the industry players: This phenomenon is even affecting on-the-field choices in sports, where, for instance, it could lead to the less-than-optimal tendency to give star players the clutch shot at the end of basketball games. Milwaukee Bucks assistant coach Jim Boylan once explained it as follows: “You’re down one. There are 15 seconds to go. You come down the floor, make a few passes. Somehow your best player ends up not getting the ball. Now there are five seconds left, four, three, two … boom. Got to shoot. You miss. After the game, everyone asks, ‘Why didn’t your best player, your highest-paid player, get the basketball? This is why he’s here. We’re paying him to get the ball at the end of the game and win it for us.’ As a coach, you’re stuck.” Henry Abbott, “Hero Ball,” ESPN The Magazine, March 19, 2012.
In some cases, however, the concentration of rewards: Another example here is the market for art. In auctions for art pieces, a few deep-pocketed buyers can really move the needle on fees for certain artists.
in each season since 2000, the team has spent significantly more: These are my conclusions from an analysis of data obtained from www.transfermarket.de.
Pérez pursued the strategy from the moment he arrived: John A. Quelch, José Luis Nueno, and Carin-Isabel Knoop, “Real Madrid Club de Fútbol in 2007: Beyond the Galácticos,” Harvard Business School Case 508-060.
as one club executive put it, “the best players pay for themselves”: Ibid.
total revenues had risen to over $600 million: In fairness, currency exchange rates contribute to the growth as reported in US dollars. However, when expressed in euros the data show impressive growth, too: revenues increased from 138 million euros in 2000–2001 to 292 million euros in 2005–2006 (with marketing revenues nearly tripling from 39 million euros to 117 million euros), to 442 million euros in 2009–2010.
Real Madrid sold some 350,000 jerseys in Britain alone: Emma Daly, “Real Madrid Learns to Win off the Field,” International Herald Tribune, August 15, 2003.
the 2011 winner of the European Champions League, for example: Deloitte Sports Business Group, “Fan Power: Football Money League,” February 2012.
Ashton Kutcher a reported $700,000 per episode: “Who Earns What: TV’s Highest Paid Stars,” TV Guide, 2011; “Ashton Kutcher’s ‘Two and a Half Men’ Contract Is Only One Year (Report),” Hollywood Reporter, May 22, 2011.
“The responsibility here is divided among multiple players: John A. Quelch, José Luis Nueno, and Carin-Isabel Knoop, “Real Madrid Club de Fútbol in 2007: Beyond the Galácticos,” Harvard Business School Case 508-060.
“The greatest players aspire to play with Real Madrid: Ibid.
“The fans are part of the show: Ibid.
Real Madrid itself is struggling with a sizable debt: Much has been written about the debt of Real Madrid (and FC Barcelona and Manchester United, for that matter) in the popular sports press. While debt is obviously not desirable, most of those reports seem to overstate the severity of the situation. For a comprehensive analysis of the clubs’ debt problem, see: the Swiss Rambler, “The Truth About Debt at Barcelona and Real Madrid,” swissramble.blogspot.com, April 30, 2012.
For Real Madrid, that figure was as much as 90 percent: Real Madrid annual reports.
When British newspaper the Observer asked readers: This section is based on: Anita Elberse, Alberto Ballve, and Gustavo Herrero, “Club Atlético Boca Juniors,” Harvard Business School Case 508-056.
“The rivalry between Boca and River Plate is the most intense: Gavin Hamilton, “50 Sporting Things You Must Do Before You Die,” Observer, April 4, 2004.
Juan Román Riquelme, one of Boca’s former stars: “Riquelme Doesn’t Rule Out Returning to Argentine team,” Goal.com, February 24, 2007.
Boca Juniors is the most popular club in soccer-mad Argentina: Based on data supplied by Octagon, adapted from TNS Gallup 2004.
“I’m comfortable here,” he stated: “Palacio Option Tougher Than Ever,” Goal.com, January 4, 2007.
Over the decade in which Macri was in charge: I compiled data from Deloitte’s “Football Money League,” February 2007; BBDO’s “Brand Equity Ranking of European Football Clubs,” September 2007; individual clubs’ annual reports; and www.forbes.com. For more information, see: Anita Elberse, Alberto Ballve, and Gustavo Herrero, “Club Atlético Boca Juniors,” Harvard Business School Case 508-056.
Real Madrid alone made $90 million from selling broadcast rights: “Soccer: Real Madrid Agrees to Sell TV Rights for €1.1 billion,” International Herald Tribune, November 20, 2006.
Similarly, Brazil’s soccer industry would quickly: “S. America Soccer Relies on Player Sales for Profit, Study Says,” Bloomberg, December 22, 2006. The article describes the results of a proprietary study by Deloitte & Touche LLP.
Real Madrid was rumored to have offered Fernando Gago: “Not the New Maradona, but the New Redondo,” Guardian, November 29, 2006.
“Lorne has had a seismic impact on comedy: Both Conan O’Brien and Tina Fey are quoted in: Stacey Wilson, “A Rare Glimpse Inside the Empire of ‘SNL’s’ Lorne Michaels,” Hollywood Reporter, April 22, 2011.
Many children hoping for a career in show business: Neil Swidey, “What Does It Take to Become a Disney Star?,” Boston Globe, May 27, 2012.
the journalist Peter Bogdanovich disclosed some years ago: Peter Bogdanovich, “SNL’s Killer Contract,” New York Observer, August 16, 1999.
Under the contract described by Bogdanovich: Ibid.
“I challenge you to name a network, much less a show, that has created: Ibid.
“Would she be in a position to play in front of: John Jurgensen, “The Lessons of Lady Gaga,” Wall Street Journal, February 5, 2010.
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In the end, Boca Juniors did indeed sell Fernando Gago: I obtained estimates from www.transfermarket.de.
The club currently occupies second place in the “football money league”: FC Barcelona and Real Madrid’s annual reports; Deloitte’s “Football Money League,” February 2012.
“For lovers of the “beautiful game,” Barça’s onslaught: Jimmy Burns, “Who’s the Greatest of Them All? Barcelona!,” Newsweek, June 13, 2011.
The performance owed much to FC Barcelona’s youth academy: “A Different Perspective: More Than a Club, but Also More Than a Business,” Pictet Report, Winter 2012; ESADE, “Carles Folguera, Director of Barcelona FC’s La Masia,” December 20, 2011.
Messi has star power, too: when he joined Facebook: Alana Fisher, “Lionel Messi Joins Facebook, Reaches 6.7 Million Fans, Gains 40,000 Interactions in a Few Hours,” Brand New Directions, April 7, 2011.
The club invests heavily in its youth program: “A Different Perspective: More Than a Club, but Also More Than a Business,” Pictet Report, Winter 2012; ESADE, “Carles Folguera, Director of Barcelona FC’s La Masia,” December 20, 2011.
“That is why giving them an education is so essential”: ESADE, “Carles Folguera, Director of Barcelona FC’s La Masia,” December 20, 2011.
“in the choice between buying talent or growing it in-house: “A Different Perspective: More Than a Club, but Also More Than a Business,” Pictet Report, Winter 2012.
In the five seasons before the summer of 2011: All player transfer fee estimates in this paragraph were compiled from www.transfermarket.de and converted to dollar amounts using the average exchange rate for July 2011.
In fact, Barça is estimated to be the world’s best-paying sports team: “200 Best-Paying Teams in the World,” ESPN The Magazine, May 2, 2011.
Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment Page 31