Podcast Summary: Freakonomics Radio Episode 630 - On Broadway, Nobody Knows Nothing

Episode Information:

• Title: Freakonomics Radio
• Host/Author: Stephen J. Dubner + Stitcher
• Episode: 630. On Broadway, Nobody Knows Nothing
• Release Date: April 18, 2025
• Description: Part 2 of a three-part series exploring the economics of the theater industry, delving into the financial challenges, unpredictability, and intricate ecosystem of Broadway productions.

1. Introduction to the Theater Universe

Stephen Dubner opens the episode by painting a vivid picture of the theater world as a "tiny universe" compared to more mainstream entertainment forms like TV and film. He emphasizes the resilience and passion of theater believers, highlighting how a single successful production can rejuvenate the entire Broadway scene.

Stephen Dubner [00:02:13]: "The theater universe looks like a distant and dimming star. And yet believers still believe."

2. The Miranda Family and Hamilton

Luis Miranda Jr., father of famed playwright Lin-Manuel Miranda, shares a personal anecdote about his son's passion for Hamilton and its profound impact on their family. Lin-Manuel's creation of In the Heights marked his entry into Broadway, which later evolved into the global sensation Hamilton.

Luis Miranda [02:49]: "I see hip hop singers jumping off the pages in my head. I'm like, he went crazy."

Hamilton's unprecedented success not only transformed Broadway's landscape but also elevated Luis Miranda's role to oversee his son's burgeoning empire.

Stephen Dubner [05:01]: "Luis Miranda himself had a dream for his son."

3. The Economics of Broadway Productions

The discussion shifts to the financial realities of producing Broadway shows. Jeffrey Seller, a prominent Broadway producer, explains the escalating costs of theater productions, citing higher labor, rental, and production expenses as primary drivers of inflation within the industry.

Jeffrey Seller [15:36]: "Because I employ all those people every night, almost 100 people. The good news is that every single one of those people is making well over $2,000 a week."

The traditional notion that Broadway can yield substantial profits is challenged by the increasing financial barriers, making the landscape more perilous for producers.

4. Cost Disease: An Economic Theory Explained

Economist Michael Rushton introduces the concept of "cost disease," a theory developed by William Baumol and William Bowen, which explains the persistent rise in costs in sectors where labor cannot be easily reduced through technology—such as live theater, education, and healthcare.

Michael Rushton [19:08]: "Technical change in labor-intensive sectors like live performing arts is rare."

This phenomenon elucidates why Broadway shows continue to grow in cost without a corresponding increase in productivity, placing immense financial strain on producers.

5. The Role of Major Broadway Landlords

The episode delves into the monopolistic control exerted by the three major Broadway landlords—the Shubert Organization, Nederlander Organization, and ATG Entertainment. Hal Luftig, a seasoned Broadway producer, explains how these landlords have significant leverage over theaters, including high weekly rentals and royalties based on show performance.

Hal Luftig [32:16]: "Theater owners now are very big profit participants. They get all of their expenses covered and then a royalty."

The landlords' control leads to increased production costs, as they pass rising expenses directly onto producers, exacerbating the financial challenges of mounting Broadway productions.

6. Interviews with Leading Producers

Jeffrey Seller recounts his experience in taking a chance on Lin-Manuel Miranda and In the Heights, highlighting the blend of artistic brilliance and financial risk involved in producing innovative theater pieces.

Jeffrey Seller [12:07]: "I thought, oh, Lin is a genius. How is he making these raps up on his feet?"

Sonja Friedman, a prolific producer with over 200 shows to her name, discusses her journey with ATG (Ambassador Theatre Group) and the delicate balance between creative independence and leveraging corporate support.

Sonja Friedman [37:05]: "I'm completely 100% creatively independent and raise the vast majority of the finance myself."

Hal Luftig shares insights into the unpredictability of Broadway success, emphasizing that even well-crafted shows can falter due to factors beyond creative control, such as audience preferences and market saturation.

Hal Luftig [51:20]: "Shows don't work on Broadway for a whole host of reasons."

7. High School Productions vs. Broadway

Stacy Wolf, author of Beyond the Pleasure and Promise of Musical Theater Across America, contrasts the Broadway ecosystem with high school and amateur theater productions. She highlights how shows like Newsies thrive in educational settings despite the financial struggles on Broadway, attributing their success to broader accessibility and lower production costs.

Stacy Wolf [56:41]: "Musical theater is thriving and continues to thrive in spite of all the odds against it."

Wolf emphasizes that the real lifeblood of theater lies in its grassroots productions, which sustain the art form's relevance and innovation.

8. The Unpredictability of Theatrical Success

The episode explores the inherent unpredictability of producing theater, where even high-profile shows like Tommy can fail financially while unexpected productions like O Mary achieve significant success. This unpredictability is encapsulated in the adage, "Nobody knows nothing," originally from Hollywood but equally applicable to Broadway.

Stephen Dubner [52:22]: "It just proves nobody knows nothing."

9. Navigating Flops and Financial Losses

Producers like Richard Winkler discuss strategies for dealing with failed productions, such as taking shows on tour to recoup investments. Touring allows productions to reach diverse audiences and reduce operational costs, offering a lifeline for shows that falter on Broadway.

Hal Luftig [53:35]: "Tours usually cost a whole lot less and are more focused."

The variance in financial outcomes between Broadway and touring productions underscores the complex economics of theater production.

10. Labor Unions and Production Costs

Labor unions play a significant role in Broadway's cost structure. Hal Luftig explains that union contracts are designed to protect workers, which often leads to higher production costs. While these protections are essential for ensuring fair labor practices, they contribute to the overall financial burden on producers.

Hal Luftig [42:44]: "Every rule that exists in every union is there because at some point somebody tried to screw them over."

11. The Future of Broadway and Theater Economics

As the episode concludes, the focus shifts to the future prospects of Broadway amidst soaring costs, monopolistic theater ownership, and an unpredictable market. The producers express a mix of optimism and realism, acknowledging the challenges while striving to innovate and sustain the art form.

Jeffrey Seller [41:57]: "I choose to be a producer seven days a week, 365 days a year."

12. Conclusion and Teaser for Part 3

Stephen Dubner wraps up the episode by previewing the next installment, which will explore solutions to the financial challenges faced by Broadway producers and introduce the new actors stepping into pivotal roles within productions like Three Summers of Lincoln.

Stephen Dubner [66:32]: "Coming up next time, in the third and final part of our series, we will meet the new Lincoln."

Notable Quotes:

• Stephen Dubner [00:02:13]: "But believers still believe."
• Luis Miranda [02:49]: "I see hip hop singers jumping off the pages in my head."
• Jeffrey Seller [12:07]: "I knew I was in the presence of sheer brilliance."
• Michael Rushton [19:08]: "Technical change in labor-intensive sectors like live performing arts is rare."
• Stacy Wolf [56:41]: "Musical theater is thriving and continues to thrive in spite of all the odds against it."
• Jeffrey Seller [41:57]: "However, I wouldn't turn it down. It's a fantastic business."

Key Insights:

1. Economic Pressures: Broadway faces significant financial challenges due to rising labor and production costs, making profitability elusive for many productions.
2. Cost Disease Impact: The theory of cost disease aptly explains the persistent rise in production costs within live theater, paralleling trends in other labor-intensive industries.
3. Monopolistic Landlord Control: The dominance of major Broadway landlords contributes to increased financial burdens on producers, limiting the diversity and number of productions.
4. Unpredictable Success: The episodic nature of Broadway's success underscores the high-risk, high-reward environment, where even well-crafted shows can fail, and obscure productions can triumph.
5. Grassroots Vitality: High school and amateur theater productions form the essential backbone of the theater ecosystem, ensuring the continuity and evolution of the art form despite Broadway's economic hurdles.
6. Future Outlook: Producers remain passionate and resilient, seeking innovative approaches to sustain and grow Broadway amidst mounting challenges.

Conclusion:

This episode of Freakonomics Radio offers a comprehensive exploration of the intricate economics underpinning Broadway theater. Through interviews with key industry players and the application of economic theories, listeners gain a nuanced understanding of the financial dynamics, challenges, and resilience that define the world of live theater. As the series progresses, the final part promises to delve deeper into strategies for overcoming these economic barriers and the evolving landscape of Broadway productions.