LONDON – With big productions always requiring a lot of money, a theater expert explains how investment in the sector works and how London’s West End is being used as a testing ground for its New York counterpart.
Live events took a massive hit during the Covid-19 pandemic, but now audiences are flocking to sporting events, concerts and live theater again. The latest figures from the Society of London Theater show that more than 16 million people attended a theater performance in London last year – a rise of 7.21% from around 15 million in 2019.
As investing in traditional asset classes has proven difficult in recent months as the market grapples with higher interest rates and increasing geopolitical risks, now could be an attractive time to invest in alternative assets such as theaters.
Non-profit vs. commercial
There are two main theater models in London: non-profit venues such as the National Theatre, Shakespeare’s Globe and The Old Vic, and commercial theaters such as the famous West End.
Eleanor Lloyd, theater investor and producer, explains that commercial theaters operate on a model that is all about private investment.
“So each show raises money for that show from a group, [a] Pool of private investors who do this partly for fun and art, but also because they hope the show will make a profit.
If you’re thinking about investing in theater, it’s important to understand how the economics of a particular show work.
Even if a show is successful from a ticket sales perspective, it will not be financially successful if it is too expensive, if it is too small, or if the run is too short.
So investors need to think about whether a show can make money.
The stakes are higher in New York
The bar for financial success is much lower in London than on Broadway in New York.
In London, investors can contribute as little as a few thousand pounds to buy into a play. But the larger the productions become, the more expensive they become to finance and produce. Budgets for West End shows can reach millions, while on Broadway in New York the stakes are even higher.
Producers often initially stage their productions in London and, if they are well received, move them to New York.
Lloyd said: “London feels relatively safer. New York feels like if it fails, it will probably fail big. But if it succeeds, it will succeed big, so it’s just a higher risk kind of game.”
She adds that a general rule of thumb for investing in the Big Apple’s theater scene is to convert a pound to a dollar sign and add a zero at the end.
“So if it costs £500,000, it costs $5 million. That’s the general rule of thumb. So the model is much stricter on Broadway, but because the phases are bigger and the ticket prices are higher, if it works on Broadway, the profit potential is also significantly higher.”
How to choose a winning show
It is very difficult to determine whether a production will be successful or not.
Having a big-name actor or writer on board is often a reliable way to generate interest before a show begins. Once a show begins, reviews and word of mouth are crucial to a production’s popularity.
“What is it about the show that on a Tuesday night someone wants to spend at least £30, £40, £50, £60 to buy a few tickets and see the show? There has to be something about it.” “We make them decide,” Lloyd explained.
But investing in art is not for the faint of heart. “You can have shows that are artistically great that no one wants to see, and you can have shows that you’re not sure are great but that everyone wants to see. So it’s kind of a game of trying to figure out what might happen. “Work,” Lloyd said.
She added: “Anyone who thinks they can predict what will happen is mistaken. But that’s part of the joy that keeps you going because the next thing could be the big success.”
Source : www.cnbc.com