Wednesday, January 11, 2006

FOI: MarketWatch CEO of the Year 2005

Motorola's Ed Zander - sparked a turnaround in the tech giant to take sales up 60% to $37 billion and shares up 37% last year to be named MarketWatch CEO of the year 2005

Other finalists:

1. Carol Bartz - Autodesk, Inc.
2. Charles Schwab - Charles Schwab Corp. - came out of retirement back to the brokerage company he founded and built a stronger brand reputation, cut costs, and improved customer service
3. Jim Skinener - McDonalds, the world's largest fast-food chain
4. Bill Greehey - Valero Energy Corp, the now largest refiner of crude oil in North America (after takeover of Premcor in an $8 billion deal earlier this year


Sunday, January 01, 2006

SAP: How does Broadway price a ticket?

For those who've been wondering why a Broadway ticket is so expensive, here's why. In this post, let us analyze how Broadway Theatres prices a ticket for its world-famous live musical shows like The Color Purple and Dirty Rotten Scoundrels.

  • In this industry, the pricing strategy cannot be determined by looking at the competitors becuase there aren't many.
  • Although we have to focus on supply and demand to an extent to price a ticket here, the price-based costing technique will not work here too because there are no economies of scale in these plays. There are huge costs associated everytime a musical is performed, which cannot be controlled by demand.
  • So, that leaves us with one approach - to analyze the total costs involved with a musical and price the ticket accordingly.
Let us first break up the costs as follows -
(a) Costs in getting to the opening night
  • Sets, costumes and lights - $4 M
  • Salaries and expenses in the theatre - $2 M
  • Salaries for creative team, staff - $1.5 M
  • Rehearsal salaries - $1M
  • Advertising and promotion - $1M
  • Administrative - $700,000
  • Advances for writers, director and designer - $350,000
  • Casting / rehearsal expenses - $150,000
  • Reserve - $1M
TOTAL = $12M
(b) Costs per week in keeping the show on
  • Theatre expenses - $200,000
  • Salaries - $150,000
  • Advertising - $50,000
  • Maintenance of physical production units - $50,000
  • Administrative - $25,000
  • Fees and royalties - $5,000
TOTAL = $0.5 M / week

Let us assume an average play shows for around 5 months, successfully running 7 shows / week including weekend special shows.
A Broadway Theatre's capacity = 1750 (app.)

Total costs for this show = 12M + 0.5*20 = $20M

Estimate total tickets sold = 1750 tickets/show * 7 shows/week * 4 weeks/month * 5 months
= 245,000 tickets

So, Break-Even Price = $20M / 245,000 = $82

Let us assume Broadway wants to see a profit-margin of 20% per show, which is very reasonable. That brings the price of a ticket to $100

We know that there is pretty good demand for these shows and they run at full capacity most of the days in New York. Three-fourths of the demand is fulfilled by visitors to the city. So, as long as visitors rush to New York, Broadway will continue to survive even by charging these high prices.

What can it do to bring down the price? (1) Increase the capacity of the theatres? -NO, becuase those are historical landmarks. (2) Increase the number of shows per week? -NO . First, producers cannot add shows to the schedule as they like becuase of union rules and second since there are costs associated with every show, it does not guarantee more profits.

So, unf0rtunately, Broadway has to charge us around a $100 for its musicals.

NOTE: The numbers used in this post are estimates and assumptions


HOOK' EM: At Sanjay's party

At Sanjay's party (he's not there in the photo though) that happened sometime in early November last year, with my other B-school friends -
Read from left - Vivek, Shiv, Subodh, Anupam and Yours Truly.