The $30 Million Musical Trend

If you were to ask practically every current Broadway producer, they would tell you that initial capitalization costs (that is the cost of a show to open on Broadway before a single ticket is sold) are way out of control. And they have a point, last season was the most expensive season on record, with the average initial capitalization of a new musical crossing over $19 million.

Maybe even worse, due to increases in running costs, only a small handful of the 15 new musicals have even made a dent in their initial capitalization costs, and fewer still are on the road to recouping that initial capitalization. This means that very likely over $200 million was lost on new musicals last season. The three remaining shows from the 2023-2024 season, The Outsiders, Hell’s Kitchen, and The Great Gatsby, will all have to make back their investments at least a couple times over to put a dent in that season wide loss, a tall order given that none of them have recouped their initial investment yet. 

Conventional Broadway wisdom suggests that 1 in 5 shows make their money back on Broadway. If we look back 21 years to the 2003-2004 Tony season, obviously costs were much lower. Average capitalization of a new musical was a little over $9 million, or just over $15 million today adjusted for inflation. There were only three new musicals last season capitalized for less than the inflation adjusted average from 2003, How to Dance in Ohio, The Days of Wine and Roses, and The Notebook. The average capitalization of a new musical from last season that is still running as of January 6 is $23.5 million (median $22 million). 

Spectacle driven shows are the shows that have scaled closest to inflation. Wicked’s $14 million capitalization in 2003 translates to a fairly standard $24 million today. The Phantom of the Opera’s capitalization of $8 million in 1987 would be about $23 million today. Many London transfers and mid-sized shows have been hit much harder. The original Les Miserables cost $4.5 million to stage in 1989 after running on the West End for four years, equivalent to $11.5 million today. 2024 Olivier Award Winner Operation Mincemeat is set to transfer from London later this season at a cost of around $11.5 million but with a cast and orchestra a tenth the size of the original Les Mis. 

There are many explanations for these increases. One thing that has affected things recently both in commercial theater and especially in the non-profit world is the cost of lumber. Lumber cost went from around $370/thousand board feet (tbf) in 2019 to a 2021 peak of over $1400/tbf. Even though that has since fallen to a more reasonable ~$550/tbf, that is still an increase of nearly 50% from pre-pandemic levels. This significantly increases both the cost of the set as well as the cost of rehearsal set pieces.

Additionally, advertising spend has also had to increase substantially over the last several years, with the number of tourists in New York City nearly doubling between 2000 and 2019, putting billboard space at a premium. The (relatively) new development of social media, while it has proven fruitful for some shows, is yet another budget line item. 

There is also the fact that there are only 41 Broadway theatres, the vast majority of which are owned by three organizations, who get to charge shows whatever they want for the privilege of being in that space. There are more shows that want to come to Broadway than there are Broadway theaters (we may even get all 41 theaters full this spring). Every time a show closes, it feels like no time at all before a new production is announced to be taking its place. 

Increases in labor cost (everything from actor salaries to setbuilders to general management) have gone up in accordance with the cost of living. These increases have led to an increase in rehearsal as well as running costs, with AFM 802 just recently announcing the largest pay increase for their members in history in their new Broadway contract. Increased running costs require a larger bank of reserve cash, which increases the capitalization. 

So perhaps capitalizations aren’t too high? If Hell’s Kitchen, The Outsiders, and The Great Gastby recoup, that will be 3 out of 15 new musicals from last season recouping, or 20%. Even if only two of the three recoup, that will bring the overall season total from last year to 7 out of 36, or 19.45% (based on the assumption that the commercial transfer of Appropriate and Stereophonic both recoup).

Even this season, the average capitalization of announced new musicals in the 2024-2025 season is $19.5 million, a slight increase from last season. This past fall Death Becomes Her was capitalized at $31.5 million, but is one of the major commercial successes of the season thus far. As long as shows keep bringing new audiences to the theater, it seems productions will continue to make their money back, come what may.