Great New HBS Business Case on Lady Gaga

I thought we might have a little holiday fun with a different kind of business analysis from Harvard Business School. At HBS, all teaching is done through the “case method,” where real business situations are described up to a decision point, then discussed in the classroom where the focus is on thinking through what the next steps might be. A recent issue of HBS Working Knowledge detailed the first of two cases on Lady Gaga.

Here’s the article’s Executive Summary:

What goes into creating the world’s largest pop star? Before her fame hit, Lady Gaga’s manager faced decisions that could have derailed the performer’s career. A new case by Associate Professor Anita Elberse examines the strategic marketing choices that instead created a global brand. Key concepts include:

  •  In 2009, rapper Kanye West canceled plans to coheadline a big arena tour with Lady Gaga, just weeks before launch.
  • The case discusses the pros and cons of possible next steps for team Gaga: continue the arena tour without West, design a solo tour with smaller venues, or cancel plans to tour entirely.
  • Her hands-on approach to social media helped cement a bond between Lady Gaga and her fans.

The article was so great, I thought I’d include the rest below:

Celebrated for both her outré style and musical prowess, the recording artist known as Lady Gaga is not only one of the world’s biggest pop stars, but also one of the most recognized brands. She’s garnered five Grammys, holds two spots in the 2011 Guinness Book of World Records including “Most Searched-For Female,” as recorded by Google, and made international headlines for donning a dress made of red meat, which Time Magazine called the top fashion statement of 2010.

So it’s almost shocking to recall that in the autumn of 2008, Lady Gaga, born Stefani Joanne Angelina Germanotta in New York City, was merely a supporting act in a reunion tour of the erstwhile-boy band, New Kids on the Block.

“When you tell that to people now they look at you like you must have your dates mixed up,” says Harvard Business School Associate Professor Anita Elberse. “That was just three years ago, and now she is, by many measures, the biggest celebrity on the planet. Gaga is a marketing phenomenon.”

This fall, Elberse will teach a case on Lady Gaga’s meteoric career in her popular second-year MBA course, Strategic Marketing in Creative Industries, which focuses entirely on the media and entertainment sector, and which includes sessions on basketball star LeBron James, online video aggregator Hulu, the NFL, and the Metropolitan Opera, among other cases. The first part of the new case, dubbed Lady Gaga(A), places students in the shoes of the pop star’s manager, Troy Carter, who faced the daunting and sudden task of launching the performer’s first major solo concert tour in 2009.

Elberse developed the case based on extensive interviews with Carter and several other executives who are part of team Gaga, including Interscope Geffen A&M Vice Chairman Steve Berman, Live Nation’s global touring CEO Arthur Fogel, William Morris Endeavor agent Marc Geiger, and producer Vincent Herbert.

Go big or go home?

In the autumn of 2009, Lady Gaga was set to go on the road with rapper Kanye West for a multimonth coheadlining arena concert tour, “Fame Kills.” The event was supposed to launch in November but, on September 13, West famously stormed the stage at the MTV Music Awards, just as the young country star Taylor Swift was accepting the award for Best Female Video. West grabbed the microphone from Swift to announce, “Yo Taylor, I’m really happy for you, and I’mma let you finish, but [fellow nominee] Beyoncé had one of the best videos of all time.” Millions of viewers were turned off by his impulsive bullying, and Carter and Lady Gaga, both in the audience, knew instantly that West’s actions could threaten their plans for “Fame Kills.”

Sure enough, a media attack ensued. West pulled out of the painstakingly planned tour. And Carter had to mull a decision that would have major implications for Lady Gaga, for concert promoter Live Nation, and for her publicity arm, the William Morris Endeavor agency. Should the performer continue with the arena tour solo? Should she develop a small tour for smaller venues? Or should she cancel the concert series entirely?

The case, which Elberse coauthored with Michael Christensen (HBS MBA ’11) and which also benefited from research assistance by Kimball Thomas (HBS MBA ’11), prompts an evaluation of the pros and cons of each possibility.

“Above all else, I hope the case will help students understand the economics and intricacies of the concert business,” Elberse says. “When it comes to touring, the risks increase as the venues get larger, but the potential rewards increase, too.”

With arena performances, the Gaga team was looking at some $12 million in start-up production costs alone. And for someone who had never played such large halls, jumping headfirst into a solo tour would be a huge challenge. On the other hand, with ticket prices averaging $100 to $125 each, the prospect of a sold-out 20,000-seat arena was tempting.

By developing a smaller schedule for smaller venues, the financial risks would decrease, but so would the financial incentives; ticket prices would likely vary between $60 and $100, with seating capacity maxing out at 8,000 per theater. The team also would face the challenge of redesigning a scaled-back tour in a matter of weeks. And her one previous headlining experience, a one-month circuit called “Fame Ball,” involved small venues and was not profitable.

If they flat-out canceled the tour, team Gaga could certainly prevent losses beyond the $4 million already spent on “Fame Kills.” But in delaying concerts indefinitely, they risked the prospect that Lady Gaga’s star might fade without a tour to guide it.

“This became a crucial bet on the development of the artist Lady Gaga,” Elberse says. The decision was vital because concerts are not only a great publicity tool for recorded music, but also an increasingly important source of income in their own right. As revenues from recorded music steadily declined from 2004 to 2008, concert revenues steadily rose, according to data presented in the case.

“Advances in digital technology have had a strong negative impact on recorded-music revenues,” Elberse says. “That makes it all the more important for managers in the music industry to understand how to effectively manage touring.”

As is the way of HBS cases, Lady Gaga(A) ends with a cliff-hanger, laying out the manager’s choices without revealing which path he chose, so students can relive the decision process. However, it is no secret that Lady Gaga’s star has continued to shine and thrive. A follow-up case, Lady Gaga (B), focuses on the release strategy for her latest album, Born This Way, and the brand partnerships that were born in the wake of her successes—including a sponsorship by Virgin Mobile, an opportunity to develop “Gaga-esque” products for Polaroid, and a spot in MAC Cosmetics’ “Viva Glam” advertising campaign.

Connecting on social media

Lady Gaga’s success was built on more than just her considerable abilities as a master entertainer, the case notes. Carter and his client saw early on the power of using popular social media avenues such as Facebook and Twitter to build a strong support base, fan by fan.

Starting in March 2008, to publicize her first single “Just Dance,” Lady Gaga took to the social media airwaves with a decidedly handcrafted approach: she wrote (and continues to write) her own Tweets, and maintained close control over her other social media accounts.

Team Gaga’s social media strategy also included syndicating her content—from videos to social messaging—for other media to point to, setting up personal interviews with influential music bloggers (the interviews generated 10 million impressions in a short time), and recording “webisodes” with low-budget flip-cams that followed her behind the scenes.

It all worked, but only because the passion between herself and her fans is genuine, a bond that social media helped forge. “They feel a sense of ownership,” Carter says about Lady Gaga’s fans. “They rally around her.”

For entertainment executives reflecting on how the digital age is changing the ways they market their clients, Lady Gaga might represent a winning strategy from which to learn, Elberse believes. As Interscope’s Vice Chairman Steve Berman observes in the case:

“[Lady Gaga] could be a chief marketing officer for a big corporation, because she understands the brand, and how important it is to stand by that brand.”

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