Microeconomics of Broadway Theatre

Broadway has gone through many different business models in order to make an attempt to maximize revenue. "The average price set - which is different than the average price paid was about $55 the best price to maximize revenue would be about $60." Broadway has the difficult task of appealing to all economic classes because their ticket sales are equally distributed among the upper, middle and lower economic classes, according to Hal Varian. The way this market is by offering discounts to their tickets at the price of spending a little extra time to obtain these tickets. Broadway has who a 31 percent increase since 1998. However, because of these discounts, the actual price paid has only risen by 24 percent. These discounts come in the form of coupons, different prices of students, buy-one-get-one deals and many other special offers. However, the only way to get these deals what through a booth in Times Square called the TKTS booth. This booth was incredibly inconvenient for those that would take advantage of it, but that was the gimmick. One could not get these amazing discounted tickets that were so high in demand yet so expensive due to scarcity, so the lines these customers waited in acted as a sort of justification for the prices being so steeply discounted. This is how the theatre could appeal to all economic classes.

Most of Broadway's best theatres were built in the 1920s. Back then, theatre was such a fruitful business that many of these theatres made enough money to begin making profit within just a couple of years of operating. The cost of new productions would break even in just a couple of weeks of shows.

Broadway, although probably assumed to be a monopoly all on its own, it was actually, surprisingly, a part of a monopolistic competition type of economy. Just about all of the theaters belonging to Broadway productions, were owned by three firms. These firms did not compete by offering a flat rate rent price for Broadway productions, but instead they competed by offering what they demanded as their cut of the profits the shows had generated. If they really believed in a production, the three firms would likely lower their percent cut of the profits to attempt to persuade a production to choose their theatre. However, these firms hardly shook below a 50% cut of the profits from their productions since they would rather have dark theatres while they wait for a hit, successful production to come along. Along with the issues of trying to negotiate with the stubborn firms in a competitive monopoly, the workers of Broadway had been constantly demanding higher wages since they prefered to be paid a lot for little work than to be paid moderately for consistent work. "Today, Broadway theatres sit empty for long periods of time, many of them for years. Some have been torn down. A typical season consists of two dozen new productions rather than two hundred. When profits decline, it is much easier just to raise prices than to overhaul your operation. Higher prices lead to a decline in sales, which, in a vigorous industry, would lead to price cuts, but in a decrepit one bring on further price increases, in a vicious circle," says Hal Varian. For decades, Broadway experienced a consistent decline because of their stubbornness when it came to economic remodeling. They have continued to raise their ticket prices while the firms controlling the theatres continued to refuse productions they did not believe in to use their facilities. It seemed like Broadway would perish because of their refusal to change, until recently. A new funding plan, called the Broadway Alliance, was able to cut theatre ticket prices nearly 50% while cutting costs elsewhere as well. Hal Varian says, "under the Alliance, it was $637, which is a significant drop, yet more than an actor can make off-Broadway, and a lot more than he or she can get on unemployment," The alliance took this precaution in order to prevent any further wage increase demands from the actors and other workers in the theatre. When it came to negotiating a compromise with the firm leaders in the theatre facility competitive monopoly, that was not as easy. According to Richard Hornby, "In two years of negotiations with owners, producers, and the theatrical unions, Robert Whitehead, the most enlightened of New York producers, managed to hammer out a plan whereby everyone - playwrights, actors, directors, designers, technicians - took a cut in pay. For example, the Actors' Equity minimum for Broadway actors this season was $850 per week. As for the theatre owners, they agreed to make available three theatres (the Belasco, the Nederlander, and the Walter Kerr) for no rent until a production recovers its cost." This brought Broadway Theatre out of its potential economic downfall by taking all the aspects that come together that make Broadways what it is, and compromising with all of them to unify them as one, profitable business.

As expected, Broadway was a major contributor to the United States economy throughout its years of operation, and still to this day. The Economist says, "Broadway can make a claim to generating more than $15 billion for the U.S. economy." Although Broadway has an exceptional profit margin, the production costs of just one season is astonishing. However the production costs have been able to be reduced over the years. "The 2012-13 season encompassed 46 new productions as well as 35 ongoing titles, with total productions costs, according to the report, coming in at $201.1 million ??” a notable dip compared to the $218.5 million from 2010-11, when there were 43 new productions. The difference seems to indicate that producers are being a little tighter with their production and operating budgets in an effort to make profitability more likely."

Broadway's newest hit show, "Hamilton" has taken the world by storm with it's innovative music that has never really been seeing on Broadway before, as well as its insanely priced tickets. However, the ticket prices are so high because "Hamilton" has been so popular since its release. According to The Economist, "Revenues of $80m since opening last summer, averaging $1.7m a week, put it on track to break the billion-dollar barrier in just over a decade. Once productions open in Chicago, Los Angeles and London, returns could triple for the show's creators and backers." However, despite "Hamilton's success, one may think that Broadway cannot compete with everyday movie theaters. This is not true. Broadway theatres seat at most 2,000 people each night, and their high prices of roughly $100 a ticket or so, is about five times the price of a regular cinema ticket. On top of that, a popular movie only runs in theaters for a few months before it is released on DVD. Many Broadway productions run for many months, or for many years for some of them. "Phantom of the Opera" still takes over $1 millions in a good week."

Economically, Broadway has been through a lot. A lot of hardships, a lot of successes, failures, as well as a lot of changes to make it the long-running, iconic, successful business that it has been for the last nearly three centuries. Broadway has produced hundreds of shows and made impacts on thousands, if not millions of people's lives with the art of theatre. Not only do the attendees of the theatre feel the impact from Broadway, but the actors and other workers of the theatre have their lives significantly affected by Broadways gateway to Hollywood. Show business would not be the same without this incredibly significant theatre, and thankfully, due to their openness to economic compromise, they will continue to impact lives for centuries to come.

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