Continue With the Arena Tour – But Go It Alone
There are twenty five destinations where she will be performing. Maximum 20,000 people and minimum 16,000 people can attend the concert. Ticket price will be between $100 and $150. Initial start-up cost of $12 million was paid by Kanye West. Lady Gaga and her teams were supposed to pay it to Kanye West. Per concert cost would be $750,000. Here we are assuming that maximum 18,000 people would attend the show, all tickets would be sold and ticket price would be $150. Development cost is 4,000,000 that Gaga has paid. (See Table 1 in the appendix)
Revenue would be $67,500,000 and Lady Gaga would earn $32,750,000; if she decided to continue with the arena tour alone. It’s a justifiable investment because a reward was high. Yes, Carter can reduce or minimize the risk associated with solo tour.
Carter has been in this industry for years; therefore, knows how to control every situation. Carter knows that people want to see Gaga live. They have listened to Gaga but they have not watched her yet. Carter always tries to do something new and he does not follow anyone. Carter and his team have potential to accept this challenge. There is high risk associated with this option but higher risk means higher return. Lady Gaga has never performed and never been a part of such a big tour. Start-Up cost is so high. On the other hand, Gaga will have a chance to proof herself that she is the best. She can also promote her upcoming album “The Fame Monster”.
Develop a smaller, Theater tour and adjust
There are twenty five destinations where she will be performing. Maximum 8,000 and minimum 6,000 people can attend the concert. Ticket price will be between $60 and $100. Initial start-up cost will be $6 million. Per concert cost will be $400,000. Development cost is $4,000,000. Here we are assuming that maximum 7,000 people will attend the show and all tickets will be sold out and ticket price will be $100 (See Table – 2 in the appendix)
Lady Gaga will lose $25,000,000, if she decides to continue with the second option. Revenue will be $17,500,000. It’s not a justifiable investment because there will be a loss. Carter won’t be able to minimize the risk, if Gaga chooses the second option.
Cancel any tour plan
In this option, Lady Gaga will lose $4 million. She should not select this option. If Lady Gaga and his team select this option, then Carter should pay attention on the promotion of her upcoming album “The Fame Monster”. (See table 3 in the appendix). If she cancels this tour, then it may have a negative impact on her career as well as on revenue from the second album.
So it has been cleared that option 1 will be the best option that Gaga and her team has. It is recommended that Lady Gaga should select the first option. There is a significant gain in option 1. Option 2 will be an unjustifiable investment. It will not increase the wealth. In option 3, Lady Gaga will lose $4 million.
Are Gaga’s main partners – Live Nation, WME, and her record label Interscope – likely to have the same preferences regarding the three options? Are the incentives generally aligned with Gaga’s?
Live Nation works as a promoter for Lady Gaga and WME works as an agent for her. Lady Gaga has contract with Interscope, which is a subsidiary of Universal. Yes, all parties have the same preferences as Lady Gaga and her team has regarding three options.
There service charges are associated with the earning of Lady Gaga. Hence, the higher Lady Gaga earns, the higher their service charges will be. It is because Promoters and agents fees are linked with Lady Gaga’s earnings. WME fees are based on Lady Gaga’s Gross Profit.
Option 1 generates profit for Lady Gaga. Partners will have the same preferences because it is beneficial for both of them. In option 2, Lady Gaga is losing money. Partners will not prefer to choose second option because it is not beneficial for both of them. They won’t earn any commission; as a result, Lady Gaga and her partners will have the same preferences on option 1. It has been cleared that partner’s incentives are linked with Gaga’s earnings...................................
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