• Entrepreneur of the Month

Celebrities as Entrepreneurs

By Adam Gordon, PhD Executive Education Director Cardiff University

Harvard Business School (HBS) Professor Anita Elberse has a decade of research charting the great rise in power enjoyed by top-tier celebrities in the entertainment industry, both in commanding ever-higher pay and as moguls in their own right, able to dictate the terms of engagement and define new business models for themselves.

If stars are becoming power brokers of their industries, it makes sense to get them into the mix of a business school course that looks at strategies for success in the entertainment industry.

Last year when HBS executive education ran its four-day Business of Entertainment, Media and Sports (BEMS) course, basketball star Dwyane Wade was a student delegate, alongside other stars who have sought anonymity. In 2014, linebacker Brandon Marshall and supermodel Karlie Kloss were in the class. When I interviewed Elberse for Forbes.com, she said: “If you compare the world of entertainment now with the world of entertainment 25 years ago, you see that some individual stars can get things done now and can wield an influence now that they couldn’t in the past.”

Superstars are getting smarter about how much new-found power they have.

Wanting to know how to best use that power is what brings people like Wade into the HBS classroom. “They want to know how they can best monetize their brand enterprise and leverage their influence.”

Says Elberse: “If you want to understand the world of entertainment, you cannot just have people from the big (conventional entertainment industry) companies in a room, and have them try to figure out what’s the future. You have to also incorporate the perspective of people like Wade or Kloss, and get an understanding of what it is they want to achieve and how they want to achieve it. Because increasingly they are shaping this space. That’s why we are keen to have these people in the room.”

This is an arrangement that is obviously also valuable to the standard agents, managers, and entertainment executives the course attracts, who get to hear the perspectives of talent from the very source. Executive Education always justifies its value in part by who else is in the room — the cross fertilization, networking value proposition. Other than sourcing the perspectives of star talent, BEMS carefully assembles a classroom of executives across the worlds of film, television, music, book publishing, sports, and allied sectors.

Following the famous HBS “case method,” where learning is achieved by close study of past real-world situations (a pedagogic style B-schools learned from law schools), the BEMS program uses cases studies of stars who have flexed their power — for example the HBS Beyoncé Case, which looks at the company Sunday’s Super Bowl halftime show the star built around her brand, which sits outside the traditional record-label structure.

The program also pivots on Elberse’s other main research theme: the rise of blockbuster economics in the entertainment industry.

“Increasingly companies, and even individuals, have to make bigger bets in order to stand out in this space. So this is where you get film studios making ‘tentpole films’ or record labels spending an insane amount of money to try to market someone’s album,” says Elberse.

“That creates a new competitive environment in which there is increasingly a difference between companies that have scale and can do those things and companies that cannot — which are increasingly locked out of that space. “Increasingly these markets are winner-take-all, where a few people at the top get all the rewards and are increasingly powerful.”

In her book, “Blockbusters,” Elberse tells the story of Alan Horn. In 1999, new in his role as president and chief operating officer of Warner Bros., he singled out five event films among his annual output of more than 20, and steered a disproportionately large portion of production and marketing budget to them. Making big-budget movies and lavishly marketing them was not new; what was novel when Horn did it was building an entire strategy on selective disproportionate budget allocation. The recent wall-to-wall tsunami of media during the launch week of Star Wars 7 is the poster event for this approach.

Blockbusters contrasts this strategy, which was wildly successful for Warner Bros., with that of Jeff Zucker, CEO of NBC Television Group and NBC Universal in 2007, who pursued the opposite strategy: placing a larger number of smaller bets and guarding against deep investment on any single project. “During Zucker’s tenure, NBC fell from its perch as the highest-rated television network to fourth place, behind its three broadcast rivals — ABC, CBS, and FOX — a demise once unthinkable.”

Blockbuster strategies almost always go hand-in-hand with eye-popping investments in top creative talent, which is how these two themes of the BEMS course come together. According to Blockbusters: “The focus on star talent now extends into virtually all sectors of the entertainment industry. A Spanish businessman single-handedly raised the bar for investments in A-list talent in the world of soccer. Bringing a show-business mentality to his renowned soccer club, Real Madrid’s president, Florentino Pérez, started pursuing what he called his ‘galácticos’ strategy, a reference to the star power of the players he sought to recruit.” (Galácticos is the Spanish word for “galactics” or “superstars.”)

The celebrity pay scales and tsunami marketing budget required of a galácticos strategy puts huge pressure on the business models of studios, record labels, and sports teams, and it flies in the face of conventional business logic, which is to spread rather than concentrate risk, and limit investment to a level that won’t break the bank.

Yet not doing galácticos appears an even surer route to failure, not only inside but also outside entertainment. One need only think of the many that have fallen or can’t now get into the industries where Uber, Twitter, Airbnb, and Facebook are winner-take-all.

Not one to undersell itself, Harvard’s marketing for the BEMS course tells paying executives they will learn to “assess different strategies, including when to bet on a blockbuster versus a number of smaller ‘plays’”; “discover when it pays to bet on A-list talent”; and “evaluate the effectiveness of strategies that play to the value of star talent.”

Meanwhile, crossing both themes of star empowerment and blockbuster economics is the not-insignificant matter of digital technology evolution.

The entertainment industry is ground zero for digital disruption because so much of the product can move in digital form, and because social media allows stars and fans to disintermediate the corporate broker. The program has case studies on Facebook and BuzzFeed, among various players that are changing the way either stars or producers can market and distribute content.

The big question currently facing entertainment companies is how digital technology will affect their bets on blockbusters and superstars.

Does it increase or decrease the power of talent? Does it make the blockbuster strategy obsolete, or more necessary?

Elberse explains: “Some industry insiders have suggested that digital technology will spell the end of blockbusters — and, with that, the effectiveness of blockbuster strategies. … But a closer look reveals that the reality isn’t quite so simple. In fact, in today’s markets where, thanks to the Internet, buyers have easy access to millions and millions of titles, the principles of the blockbuster strategy may be more applicable than ever before.”

Her conclusion: “There are fundamental laws of consumer behavior that explain the strategy’s enduring appeal — the kinds of laws everyone with an interest in the entertainment industry should be aware of, in other words. The blockbuster strategy’s continuing importance to the success of entertainment companies is made abundantly clear in the enormous amounts of data that online channels generate.”

Click here to read Adam Gordon’s Tips for Entrepreneurs.

Note: This article was first published Forbes.com on Feb 9, 2016.

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