Inflation ruins Broadway’s romance with the ‘Phantom of the Opera’

The stage chandelier will fall for the last time when The Phantom of the Opera, the longest running musical on Broadway, shuts in February after 35 years. The curtain is descending on Andrew Lloyd Webber’s work, with its 130 cast members, crew and orchestra, 230 costumes and 6,000-bead replica of the Paris Opera House light.

The entire production defies gravity, really. Musical theater has been the mainstay of Broadway since the 19th century, and London’s recent revival of Cabaret shows how important it is to the West End. But the business of running grand musicals that require huge audiences to pay steep ticket prices is quite a gamble.

Cameron Mackintosh, joint producer of Phantom with Lloyd Webber’s Really Useful Group, is fond of quoting Alan Jay Lerner, the American musical librettist. “You know what a succes d’estime is, don’t you? A success that runs out of steam.” Mackintosh and Lloyd Webber’s financial achievement with shows such as Cats and Phantom was to stop them from doing so.

Phantom had been seen by almost 20mn people on Broadway by earlier this month, grossing $1.3bn. It is still running in the West End, after closing temporarily during the pandemic, and has played to 145mn people in 41 countries since opening in London in 1986. It might not match classical operas as a work of art, but you cannot argue with a cash machine.

However, the machine can suddenly break down, as Phantom has found on Broadway since it returned post-pandemic last year, with a $10mn grant from a US government fund to revive theaters. “Phantom is an enormous beast of a show, with a lot of staff and performers, and costumes and wigs.” Mackintosh told me this week. “To start it today from scratch would be prohibitive.”

The biggest difficulty is not the initial investment in a new production, enormous though this can be; it is that musicals are very costly to keep going. Mackintosh compares them with yachts. “It is like owning a boat: the happiest days are buying and selling it. It is extremely expensive to run.”

Musicals are a prime example of the “cost disease” in performing arts identified by the economist William Baumol in 1966. Rising salaries and other costs cannot be offset by higher labor productivity because each performance requires the same number of people for the same output. Short of losing the chandelier, it is a struggle to make Phantom more financially efficient.

The drag has become greater with high inflation. Mackintosh estimates that the weekly cost of putting on Phantom on Broadway has risen from about $850,000 before the pandemic to nearly $950,000, with further rises in energy and other expenses to come. Since it has been grossing only an average of $850,000 weekly this year, the sums no longer add up.

This is reinforced by the fact that long-running musicals in cities such as London and New York tend to become increasingly dependent on tourists. Locals will be attracted to limited runs of new shows, and revivals such as The Music Manbut shows such as Phantom rely more on visitors. Fewer have been visiting New York than before Covid hit, particularly from Asia.

As demand falls, tickets get discounted and the economics of the older musical sag. Phantom has played to 71 per cent capacity audiences on Broadway this year, compared with Hamilton‘s 96 per cent, at an average ticket price of $93 against Hamilton‘s $213. Announcing that it will shut in February should make it a hotter ticket as the deadline approaches.

This will probably not be the last New York has seen of the lovestruck masked man; Phantom may be revived in the future, perhaps in a more viable form. It will carry on touring the world for limited runs in cities from Sydney to Vienna. If the tourists will not come to Phantom, it will come to them.

“The Broadway musical is not dead but things will be tougher. There will be more pressure to have smaller casts and orchestras,” says Matthew Rousu, a fan of musicals and professor of economics at Susquehanna University. The band will play on, but with fewer players.

That raises an existential question about the future of spectacular musicals on the scale of Phantom or Les Miserables. Musicals tend to be venture financed, with a syndicate of investors bearing the high risk of closure before a new production earns back its initial outlay, for a small chance of getting very rich (Cats‘ original London investors received a 60-fold return).

The halo effect of a huge hit on Broadway has historically been enormous: it is the reason why there are so many productions of Phantom. Making musicals smaller will limit the risks, but it will also reduce the chance of a new one becoming a global phenomenon and generating cash for decades.

Mackintosh did very well at the peak of the grand musicals business: his production company paid him a £35mn dividend at the end of 2019, before the pandemic and today’s inflation surge, then none as the crisis struck. When the curtain finally falls on Phantomhe may shed a tear.

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