Gaga Case Study
Lady Gaga Case
1) As Troy Carter the option I would pursue for Lady Gaga is the first one which is of continuing with the arena tour. It does not make any financial sense to cancel the show completely given the fact that they have already incurred sunk cost of $4 million in developing the Fame Kills Tour with Kanye West and this amount cannot be recovered. So the third option is out of the picture. In any business, those who take risks can reap great rewards than those who are afraid to do so. Therefore it’s better to build upon the already laid foundation and proceed with the tours than cancelling because of fear of incurring more loses.
The other option is to go for a smaller theater tour. Usually in the music industry upcoming artist do not attract large crowds and that is why they team up with established or well known artist in doing big arena tours. This is a marketing tool which is used to expose them and as a result they gain experience and a huge fan base. Therefore this option seem alright given the fact that Lady Gaga was still an upcoming artist and the cost of reworking the tour was going to be $6 million less than using the big venue.
However, looking at the economic side of this second option, as Troy I would think otherwise. This is because doing a small venue tour means a reduction of seats and ticket prices which negatively lowers revenues and eventually affects profitability especially if expenses incurred exceed revenues gained. As a result the artist then gain a lower share of profits so as her agents, promoters and record label. Exhibit 1 below shows the economics of the big and small venue. The small venue tour is not profitable as shown by the loss of profit/show (due to high cost incurred) and overall show profitability loss of $ 3,450,000 against $6 million start up costs. However the big arena tour is profitable because if promoted well, it attracts large crowds who are willing to pay a high price for the ticket and most
1) As Troy Carter the option I would pursue for Lady Gaga is the first one which is of continuing with the arena tour. It does not make any financial sense to cancel the show completely given the fact that they have already incurred sunk cost of $4 million in developing the Fame Kills Tour with Kanye West and this amount cannot be recovered. So the third option is out of the picture. In any business, those who take risks can reap great rewards than those who are afraid to do so. Therefore it’s better to build upon the already laid foundation and proceed with the tours than cancelling because of fear of incurring more loses.
The other option is to go for a smaller theater tour. Usually in the music industry upcoming artist do not attract large crowds and that is why they team up with established or well known artist in doing big arena tours. This is a marketing tool which is used to expose them and as a result they gain experience and a huge fan base. Therefore this option seem alright given the fact that Lady Gaga was still an upcoming artist and the cost of reworking the tour was going to be $6 million less than using the big venue.
However, looking at the economic side of this second option, as Troy I would think otherwise. This is because doing a small venue tour means a reduction of seats and ticket prices which negatively lowers revenues and eventually affects profitability especially if expenses incurred exceed revenues gained. As a result the artist then gain a lower share of profits so as her agents, promoters and record label. Exhibit 1 below shows the economics of the big and small venue. The small venue tour is not profitable as shown by the loss of profit/show (due to high cost incurred) and overall show profitability loss of $ 3,450,000 against $6 million start up costs. However the big arena tour is profitable because if promoted well, it attracts large crowds who are willing to pay a high price for the ticket and most