Strategic challenge #1
In which venue should the Fame Kills Tour proceed?
The original plan for the Fame Kills Tour was to hold the concerts in arenas in 34 target cities around the United States. Arenas have capacities of 16,000 to 20,000 seats, which can charge average ticket prices of $100 to $150 (Elberse & Christensen, 2011). Based on scheduled venues, the tour will be held in arenas with capacity of 12,000 (Mandalay in Las Vegas) to 23,500 (Greensboro Coliseum).
Kanye West tours, particularly those with appearances by Rihanna, N*E*R*D, and Lupe Fiasco logged the highest crowds in West’s history, ranging from 7,900 (Maverik Center in Salt Lake City) to 22,500 (Bristow) (Elberse & Christensen, 2011). It will be Gaga and West’s first tour together in the United States. However, after West’s withdrawal from the music industry and consequently from the Tour, the capacity of Lady Gaga to fill it alone or with a co-headliner is in doubt. Gaga’s headline performances had been seen only by a maximum of 2,700 seats (The Wiltern in Los Angeles).
The only available venue is the theater. Theatres have the average capacity of 6,000 to 8,000 seats with seat prices that could range between $60 and $100 (Elberse & Christensen, 2011). Otherwise, cancellation will have to be the only option left. But, that would mean taking on a loss of at least $4 million already spent. Concert halls are not even a better option as their capacity is so limited [Exhibit 4c] to recover the $4 million spent.
Barrier #1: Lack of Kanye West crowd drawing power. West’s top billed U.S. tours had attracted a maximum of 22,500 seats (Elberse & Christensen, 2011). Although his performances in the U.S. were supported by three recording artists, more than half of that crowd (15,000 seats) will be a reasonable estimate of his drawing power in the U.S. because these artists, too, have their own respective fans. At a $100 a seat, it represents a potential loss of $1.5 million to $2.25 million in ticket sales.
Barrier #2: The start-up costs of an arena tour are very high at $12.0 million with additional $750,000 per concert costs (Elberse & Christensen, 2011). A theatre tour costs run only at $6.0 million and $400,000, respectively [Exhibit 10].
Barrier #3: Lady Gaga’s headliner tours attracted only a maximum attendance of 2,700 seats (Elberse & Christensen, 2011). It is not even large enough to fill the minimum average capacity of theatre seats (as indicated in 2.a).
Recommendation #1: The Fame Kills Tour must cancel the arena venues and switch to theatre venues. That will only cost an additional of $2.0 million in startup cost and $400,000 in per concert costs (Elberse & Christensen, 2011).
Recommendation #2: Promoter Live Nation needs to look for one or two supporting performers, which, together, have the drawing power of at least 5,000 seats to attain a full seat capacity even in the largest-theatre capacity of 8,000 seats (Elberse & Christensen, 2011). These co-headliners could be persuaded to co-finance the tour to a limited capacity, e.g. half of the startup and per concert costs. That will save Live Nation another $2.0 million in startup costs and around $150,000 in per concert costs.
Recommendation #3: Live Nation should perform a thorough market analysis of each of the host cities to understand ahead of time, which cities have the potential to extend the concert for another day or two without diminishing first-day attendance at no more than 20 percent (Elberse & Christensen, 2011). It can virtually increase ticket sales without additional startup costs.
Strategic challenge #2
Which singer or singing group should co-headline the Fame Kills Tour with Lady Gaga?
The first Kanye West team up can act as strong crowd drawer for Lady Gaga. West can potentially generate an attendance of 15,000 seats [Exhibit 4d], which can overflow the largest theatre in the United States and covers almost the capacity of the smallest arena in the country (Elberse & Christensen, 2011). His withdrawal from the music industry virtually cancels the arena tour for Fame Kills.
A Lady Gaga solo act would limit the Fame Kills Tour’s income potential. Although Lady Gaga is capable of filling concert halls to capacity in her top-headlined concert tours in the United States, her largest crowd draw of 2,700 will be too low for a theatre tour (Elberse & Christensen, 2011).
There are a few candidates for a co-headliner with crowd-drawing history with Lady Gaga. Headlining artists who she worked with in the past as their supporting performer and who showed 90 to 100% capacity performance include New Kids on the Block and The Pussycat Dolls [Exhibit 4c] (Elberse & Christensen, 2011). Those which she worked as co-supporters, with 90 percent to full seat capacity, include Natasha Beddingfield and Ne-Yo.
Barrier #1: Past concert headliners who Lady Gaga had supportive performance (e.g. New Kids on the Block and The Pussycat Dolls) [Exhibit 4c] are proven crowd drawers with Gaga (Elberse & Christensen, 2011). However, since they are Lady Gaga’s previous headliners, this approach may result to unneeded compromises, particularly with regards to appearance fees or share in the ticket sales. Their managers are expected to get as much as they can from the Fame Kills Tour promoter unless the artists themselves demand that a more friendly arrangement be pursued to support Lady Gaga’s career. However, this barrier can be turned into an opportunity with effective marketing skills.
Barrier #2: Fellow recording stars who co-supported headliners in their local or foreign concert tours may be easier to convince to guest or co-headline the Fame Kills Tour with Lady Gaga, but their drawing power could be as limited as Gaga’s herself as both had been in the industry as early. They could also have limited budget to help with expenditure by sharing with the startup and per concert costs; thus, saving more cash for the Gaga camp.
Barrier #3: Recording artists with no history of working with Lady Gaga may present personal, financial, and transactional barriers when invited to provide a guest appearance or co-headline in the Fame Kills Tours. The personal barrier may consist of unexplored performance chemistry, which could limit instead of enhance audience impact. The financial barrier may present in the form of limited financial capacity to share with Lady Gaga in the concerts’ startup and per concert expenses. The transactional barrier may include disagreements in revenue and cost sharing, which is crucial at this point due to the $4 million already spent in preparatory costs.
Recommendation #1: The best supporting performer groups for Lady Gaga are male bands and must be considered for Fame Kills Tour. Bands, e.g. Chester French and The White Tie Affair, helped her concert hall tours filled up at least 91% of seat capacity (Elberse & Christensen, 2011).
Recommendation #2: The Pussycat Dolls, which Lady Gaga single-handedly supported in eight foreign concert tours [Exhibit 4c] (e.g. the UK and Australia), may consider helping in Gaga’s Fame Kills U.S. Tour (Elberse & Christensen, 2011).
Recommendation #3: Rihanna is a promising guest performer who can co-headline the tour if better financial arrangements can be obtained. Aside from topping the song downloads in 2008 [Exhibit 2a] (Elberse & Christensen, 2011), ranking fifth I other female pop artists in album unit sales in 2009, and had guested in many of West’s full capacity concert tours in the U.S. in 2008, she could be less amendable to guest or co-bill in the Tour.
Strategic challenge #3
What is the least costly option combination to pursue with the least additional cash outlay in addition to those already spent while optimizing the Fame Kills Tour’s income capability?
A 25-concert tour in arenas with an average seat capacity of 18,000 would have startup costs of $12 million. The additional cost per concert of $750,000 would cover the facility rent, advertising, personnel and equipment, and other costs and contingencies [Exhibit 10] (Elberse & Christensen, 2011). By this time, Lady Gaga already spent $4 million, leaving additional cash outlay for startup costs of $8million.
Conversely, a 25-concert tour in theatres with an average seat capacity of 7,000 will have startup costs of $6 million while the cost per concert will be $400,000 (Elberse & Christensen, 2011). With the $4 million already spent, Lady Gaga still has to pay an additional sum of $2 million in startup costs plus another $2 million as costs for plan rework. She will receive 85% of the net profits plus a guarantee.
Cancelling the Fame Kills Tour completely will cost Lady Gaga the $4 million she already spent to-date.
Barrier #1: Proceeding with a theatre tour instead, Fame Kills Tour will cost Lady Gaga additional $4 million in cash, which will total the startup costs to $8 million instead of $6 million [Exhibit 10] (Elberse & Christensen, 2011). Even if she can get the venues sold out, at a maximum of 8,000 seats, the revenue will only reach $800,000 and can only cover the cost per concert, while receiving only a guaranteed 85% of the ticket prices (or $680,000) as standard cut for performers in theaters.
Barrier #2: Lady Gaga’s fans, like fans in general, can be very fickle and may not turn up in the concert, further eroding the concert’s revenue potential, and deepening the losses (Elberse & Christensen, 2011).
Barrier #3: There is a sense of desperation in looking after co-headliners to join the Fame Kills Tour, which can significantly share in the startup costs because without such contribution, the concert tour will be an expensive loss. If potential co-headliners sense this, they may use it as a leverage to get more money for their appearance without contributing significantly in sharing the financial burden of the Tour.
Recommendation #1: Cancel the Fame Kills Tour if either of these two conditions occur:(a) No confirmed co-headliner becomes available to join the tour with personal share in the setup costs; (b) No possibility of at least one repeat performance in the venue for at least a day more. It is wisest to cut losses when all that can be promised in the pursuit are further losses, growing in proportion with each concert conducted.
Recommendation #2: An alternative American concert halls tour can be held optionally. Lady Gaga has historically proven her ability to sell out concert venues (Elberse & Christensen, 2011). She can choose larger capacity concert halls to perform in. That added capacity could provide more room for more audiences than she had before for an additional but manageable cost.
Recommendation #3: Focus on regaining the lost $4 million from the canceled Fame Kills Tour. She may still be busy in producing albums. However, it will also give her a less high-pressured environment while recording her new albums and perhaps conducting concerts at concert halls.
References
Elberse, A. & Christensen, M. (2015, October 15). Lady Gaga (A). HBS Case Studies, 9-512-
016: 1-28.
