Making It with Jon Davids: Episode 187 - The Crazy Way to Make Millions on Broadway

Release Date: April 22, 2025
Host: Jon Davids

Introduction

In Episode 187 of Making It with Jon Davids, host Jon Davids delves into the lucrative yet complex financial ecosystem of Broadway. By comparing Broadway shows to startups, Davids uncovers who truly profits in the theatrical world and extracts valuable business lessons applicable to entrepreneurs and investors alike.

Broadway's Financial Landscape

Cost of Producing a Broadway Show

Jon Davids begins by breaking down the financial requirements to launch a Broadway production.

• Startup Costs:
  “Startup costs can range from 3 to 5 million dollars for plays and 10 to 20 million for musicals.” [01:47]

• Operating Costs:
  “Once it's in production, you're looking at 200,000 to 500,000 per week in operating costs, maybe a lot more.” [02:00]

These substantial investments underscore the necessity for significant capital to enter the Broadway scene.

Revenue Streams

The primary revenue for Broadway shows comes from ticket sales, supplemented by ancillary sales.

• Ticket Sales:
  “The average ticket price might be 125 bucks, although it's gone up a lot post pandemic.” [02:45]

• Ancillary Sales:
  Merchandise, food, and beverages contribute to roughly 10-20% of total revenue. However, ticket sales constitute 80-90% of income. [02:30]

Profit Distribution

Profit allocation is critical in understanding where the money flows post-revenue.

• Investment Returns:
  “65% [of profits] going to the investors and 35% going to the production team.” [04:00]

• Profit Thresholds:
  Upon reaching certain revenue milestones, the production team can negotiate up to a 50% share of the profits, akin to revenue-sharing models in private equity. [04:15]

Who’s Really Making Money?

Jon unravels the financial beneficiaries within the Broadway ecosystem.

• Performers:
  Generally, performers do not make substantial profits unless they are major stars. [05:15]

• Creators and Investors:
  Creators can profit significantly if the show succeeds, with investors often seeing returns that outperform traditional markets like the S&P 500. [05:30]

• Theater Owners:
  Surprisingly, the primary profit-makers are the theater owners. With only 41 Broadway theaters, owners charge hefty rents ($10k-$20k weekly) plus a percentage of box office gross, ensuring steady income regardless of the show's success.
  “If you sell a ticket for 200 bucks, I want my 5%.” [07:15]

Business Lessons from Broadway

Davids extracts strategic business insights from the Broadway model.

• Foundational Investments:
  Like the gold rush's wheelbarrow sellers, theater owners capitalize on providing essential infrastructure, ensuring consistent profits irrespective of individual show performances.

• Consistency Over Reinvention:
  “If you can figure out one product that really works well and just keep doing it... you can do really, really well.” [08:30] Broadway successes like The Lion King and Hamilton exemplify the power of refining and consistently delivering a proven formula.

Spotlight on Off Broadway: Interview with Adam Levowitz

Jonathan Davids introduces Adam Levowitz, an Off Broadway producer, to provide a grassroots perspective on show production.

What is Off Broadway?

Adam explains the distinction between Broadway and Off Broadway:

• Seat Capacity:
  “Broadway is theaters that are 500 seats or over... Off Broadway is anything between like 100 to 499.” [10:07]

• Nature of Productions:
  Off Broadway tends to be more experimental with smaller scopes, lacking the grandeur of Broadway spectacles. [10:22]

Differences Between Broadway and Off Broadway

Adam emphasizes that Off Broadway is not merely a stepping stone to Broadway but a distinct segment within the theatrical industry.

• Venue Characteristics:
  His production, Mozart's Don Giovanni: A Rock Opera, is staged in a venue like the Cutting Room—a cabaret-style space that fosters an intimate audience experience.
  “It's a much more intimate experience.” [11:14]

Budgeting and Innovative Production Strategies

Adam shares his innovative approach to minimizing production costs while maintaining quality.

• Budget Constraints:
  Typical Off Broadway shows require $2-3 million, but Adam's production operates on a significantly lower budget by limiting the number of performances.
  “We're running two nights a week over the summer... to eliminate the need for... buy out the whole theater.” [12:19]

• Flexible Performance Scheduling:
  By opting for fewer performances, Adam reduces fixed costs and relies heavily on word-of-mouth for audience growth. [13:00]

Flexibility and Business Models in Show Production

Approaching his show as a startup, Adam adopts a flexible and scalable business model.

• Startup Mentality:
  “I'm approaching this as a startup company... the typical business model for recoupment...” [14:03]

• Revenue Reinvestment:
  Ticket revenues are reinvested to sustain and expand the show, allowing for gradual growth without massive upfront investments. [14:30]

Challenges and Growth Plans

Adam discusses the hurdles of Off Broadway production and outlines his strategic growth plans.

• Union Constraints:
  Actors are salaried and cannot partake in profit sharing due to union rules, although musicians in his show are not unionized and can receive fair compensation.
  “Actors don't... musicians are not... going to pay them fairly.” [15:19]

• Expansion Strategy:
  Adam plans to incrementally increase performances per week, potentially expand to other cities, and eventually take the show to larger venues or international stages within three years.
  “I'm hoping we can make enough money in six shows a week... eventually... all over the world.” [18:02]

Investor Profiles and Financial Models

Adam outlines the typical investors backing Off Broadway productions.

• Investor Types:
  Investors are often art enthusiasts looking to support the arts while potentially earning returns. The Broadway investment model is likened to venture capital, where few high-performing shows generate substantial profits offsetting numerous less successful ones.
  “It's a venture capital model... if you can just get past that one point, you're ahead of... 99% who have stopped.” [20:00]

Conclusion

Episode 187 of Making It with Jon Davids offers a comprehensive exploration of Broadway's financial dynamics, revealing that theater ownership is the most profitable venture within the industry. Through his interview with Off Broadway producer Adam Levowitz, Davids illustrates innovative, startup-like approaches to show production, emphasizing flexibility, word-of-mouth marketing, and scalable growth.

Key Takeaways:

• Theater Ownership:
  Owning a Broadway theater is the most lucrative position within the Broadway financial hierarchy.

• Consistent Excellence:
  Replicating proven success formulas can yield ongoing profitability, as demonstrated by enduring shows like Hamilton.

• Startup Approach in Production:
  Treating show production like a startup allows for cost-effective, scalable strategies that can adapt and grow organically.

• Investor Dynamics:
  Broadway and Off Broadway investments resemble venture capital models, where high-risk investments can lead to high rewards for those who persist through initial setbacks.

This episode not only demystifies the profitability of Broadway but also provides actionable business insights applicable beyond the theatrical world.

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