Oceania!
Role of Seller, General Sales Manager, POP Productions
By Leigh Thompson & Jennifer Bloniarz

You are the general sales manager for POP Productions of New York. POP is one of the largest producers of live entertainment, including Broadway musicals, off-Broadway musicals, concerts, and classic and contemporary plays. As the POP Production sales manager, your key responsibilities are to book POP’s productions with the most prestigious theaters across the United States. Your goal is to structure contracts that are profitable for
POP.
After sell-out shows in New York, POP Productions is planning a national tour of the ever-popular musical,
Oceania! Based on a literary classic, Oceania! is a well-known, family-oriented musical featuring a full orchestra, a large cast, elaborate sets and lavish costumes. A Polynesian romantic comedy, Oceania! is appropriate for audiences of all ages.
It is now September. As your national tour dates for Oceania! are quickly filling up, you have limited availability for a week run in Chicago in your busy tour schedule. You have an open spot in the week of April
14th on your calendar. You have received inquiries from a number of theater houses in Chicago, and this area is a profitable market for your shows. You would prefer to have a show in Chicago rather than not scheduling anything. However, in order to justify the expenses of the show, you need to structure a deal that is profitable for POP.
You have talked with the three theater houses in Chicago about bringing in Oceania! for the week of April
14th. Specifically, you have spoken with the Rosalind House, the Aubert Auditorium, and the Grand Palace.
The Rosalind House is a little small for the show. The Aubert Auditorium has a likely scheduling conflict that is unclear whether it is resolvable. The Grand Palace is currently the most viable candidate. The Grand Palace
Theater has offered you a contract for Oceania! that your finance manager evaluates to be worth $300,000 in
POP profit. You have also talked with the general manager of the Windy City Theater (WCT) about bringing in
Oceania!. WCT is one of Chicago’s oldest and most prestigious theaters, boasting a decorative main floor and two exquisite balconies. The finest Broadway musicals and the most hailed entertainment masters from around the globe have performed at the WCT
You have a meeting scheduled with the general manager of WCT to discuss the possibility of bringing Oceania! to WCT next April. The purpose of negotiating with WCT is to structure a deal that would be more profitable to you than that offered to you by the Grand Palace. You have a long working history with WCT and particularly enjoy WCT’s elegance and reputation. If this is not possible, then bringing Oceania! to the Grand Palace is your best alternative.
As is customary in the live entertainment business, the deal that you will structure with WCT regarding
Oceania! will be a co-promotion, meaning that WCT and POP will share show expenses and ticket revenues.
However, the exact split of ticket revenues has not been determined. Once the box office revenues are settled, additional profit generated through the sale of show merchandise and memorabilia (e.g., t-shirts, souvenirs, etc.) is the sole profit of POP. Likewise, additional profit generated through special events, specifically catering and concessions profit, goes into the WCT coffers. Your job as the sales manager of POP is to get the best negotiated contract for your shows. In calculating the value of an engagement to POP, you realize that the value – determined by expected net ticket profits – is really a function of the ticket sales.

Although you expect Oceania! to do as splendidly as it did in NYC, drawing at least an 85% capacity house across performances, you know that realistically that ticket sales are uncertain. Your best estimate of the likelihood of ticket sales and their corresponding profits is the following:
Tickets Sold1
3600-4000
3000-3600
2400-3000

Sales probability
60%
30%
10%

Expected Profit2
$1,200,000
$1,000,000
$800,000

Thus, you compute the likely show profits for Oceania! as follows: (0.60 x $1,200,000 + 0.30 x $1,000,000 +
0.10 x $800,000) = $1,100,000. This figure is projected to be highly accurate (within a 98% confidence interval) by your financial analysts. Although profit sharing is a matter of negotiation, you would like your share of the profits to be 50% (which would be $550,000 in this case). The lowest you are authorized to go is 25%, or in this case, $275,000.
Your calculation of profit is based upon 9 performances of Oceania! (6 evenings and 3 weekend matinees)3. In some cases, theater companies request production companies to stage weekday matinee performances in addition to the regular performance schedule. However, the deep ticket discounts necessary to lure patrons and groups to the theater during weekday matinee times are so steep as to make additional profits minimal.
Your financial analysts don’t include weekday matinee profits in your financial projections because the profits are so minimal. Further, because cast and crew salaries are based upon a week run (regardless of the number of performances), additional performances do not represent another source of income for POP in the way of salaries. Adding extra performances to an already heavy run places wear and tear on the actors, the crew, the scenery and props. You place some significance on not tiring out the cast and crew. After you factor in all the real and psychological costs, you estimate that each additional performance in addition to the regular 9-performance schedule would cost POP approximately $10,000.
The above ticket profit projections do not include salaries for the cast and crew which are added to POP revenues as the theater company pays for salaries. Per union guidelines, the Oceania! cast is paid a weekly salary by the host theater (rather than on a per show basis so as to prevent theaters from closing shows after a poor opening night). Thus, cast and crew salaries are the same no matter how many performances are made.
POP production has set the minimum salary for the Oceania! cast for one week to be $200,000. This is a lump sum that is paid by the theater to the production company according to a sliding fee schedule to the actors and crew members. Ideally, you would like the Oceania! cast and crew salary to be $300,000.
The other issue that you must discuss with WCT concerning the run of Oceania! is lodging and board for the cast and crew while the show is in Chicago. You would prefer that WCT make, handle, and of course, pay for the Oceania! cast and crew lodging and board. However, on occasion you have had to absorb this expense.
You have lodged various POP performers at a number of downtown hotels. You know when the theater company takes care of the arrangements, they choose the hotel. You have spoken with the reservation department of the hotel that you are most familiar with, the Marquis. The Marquis, a four star hotel, is of comparable quality to other hotels in the area. You have lodged your cast and crew in the Marquis for other

1

Whereas the size of a house can vary, your projections are based upon a 4,000-seat house, which is typical in your New York City and Chicago theaters
2

. Profit based on $75 ticket, for 9 performances less performance costs, advertising costs, and ticket discounts. Figures have been rounded. 3

These scheduled performances cannot be changed

shows and were favorably impressed. As a return customer, the Marquis Hotel has quoted you the following rates for food for a 100-member cast and crew, 7-days, and 50% prepaid at time of booking: breakfasts: lunches: dinners: all meals:

$7,500
$15,000
$20,000
$35,000

The Marquis has quoted you the following room rates, based upon a block of 100 rooms, 6-month advance booking arrangement, 7-night stay, and 50% prepaid at time of booking: rooms: rooms w/continental breakfast: rooms w/all meals:

$80,000
$85,000
$115,000

You would like things to work out with WCT so that you can bring Oceania! to Chicago. Oceania! is extremely popular among theater subscribers and the general public. A major secondary profit center for POP
Productions in addition to ticket profits is profit from show memorabilia and souvenirs. During the Broadway run of Oceania!, you worked with the theater company to co-host a “meet-the-cast” autograph party for the theater’s most valued longtime patrons and donors. In the 2-hour opening night party, you sold over $2,500 worth of show memorabilia. You calculate that the profits earned from souvenirs would be $2,500 per autograph party in the Chicago run of the show.
Although you would like the best deal possible, you also know that your relationship with WCT and other
Chicago theaters will continue as new shows for future seasons become available. For example, POP has another show, Bugles, currently on Broadway that has been doing well. Though much smaller in cast and crew,
Bugles draws nice audiences. You have talked with the Rosalind house about bringing Bugles to Chicago for a weekend next summer; they have offered to pay $75,000 in cast and crew salaries, profit sharing, and other show expenses. Anything less than $75,000 in cast and crew salaries would result in negative profit for POP.
You are about to meet with the General Manager of WCT to discuss Oceania! At a minimum, the agreement should specify the items listed below:
• Profit sharing: How much of the expected net ticket profits should be allocated to POP?
• Salaries for cast and crew: How much should WCT pay for Oceania! cast and crew salaries?
• Lodging/Board costs: Who will pay for the lodging and board costs for the cast and crew?