How Lady Gaga Built a Business Empire

The origins of American success stories.
Oct. 31 2013 11:49 AM

How to Build a Fame Monster

Lady Gaga’s grassroots approach to stardom transformed into a blockbuster strategy.

(Continued from Page 1)

Social media activities helped reinforce that strong core. “Where other people see digital distribution as a source of cannibalization, we see it as an opportunity,” Carter said. Gaga began using Facebook and Twitter in March 2008, right before “Just Dance” was released. Carter and his team arranged for 50 popular music bloggers to interview Gaga in the six months following the Just Dance” launch; during that period, these interviews alone totaled over 10 million impressions. Gaga’s team also initiated a series of two-minute, behind-the-scenes webisodes dubbed Transmission: Gaga-Vision, on Gaga’s official YouTube channel. “It wasn’t overly produced, and in fact mostly shot on a flip-cam,” Campbell recalled. “The idea was to create intimate moments that make you feel like you were there with her.”

Despite all the advantages that go along with a grass-roots, limited-release strategy, however, most blockbuster bets in entertainment are wide releases. They are not designed with efficiency in mind; instead, the goal is to break through the clutter and immediately capture the attention of as large an audience as possible.

For products launched in this manner, distribution levels start at a high level, while most promotional activities are concentrated at the time of release—or, to be more precise, in the short period leading up to the release. As a result, sales often peak immediately after launch and then taper off quickly. A successful opening is seen as critical: A failure to reach an acceptably high level of sales early on generally dooms a widely launched new movie, recording, or any other type of entertainment product.

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Hollywood’s event films are perhaps the best example of products launched this way. Major studios have the scale needed to make high up-front investments in advertising and marketing at a time when no sales are being generated. They start promoting a film months—and, if we include teaser trailers, sometimes years—in advance of its opening weekend. Spending ramps up dramatically in the six to eight weeks before release: A studio will spend as much as two-thirds of its marketing budget on television commercials in the two weeks before a film’s opening. And since some of Hollywood’s biggest films open on 4,000 screens or more across the nation, their first week of release is often also their biggest week in terms of revenues. In 2011, for example, the top 100 films, from Harry Potter and the Deathly Hallows: Part 2 to The Iron Lady, collected 30 percent of their total of $9 billion in domestic theatrical revenues in their first week alone.

As soon as Carter and his team had the opportunity, they opted for a wide release for Lady Gaga’s music, too. Released in May 2011, Born This Way was shipped to an unprecedented 20,000 locations across the U.S.—not just conventional music retailers but also coffee chains like Starbucks, electronics retailers such as RadioShack, and grocery stores and drugstores such as CVS and Walgreens. A long lead time made this possible: In 2010, knowing they would need months to pull off a launch of this scale, Carter and Interscope executives convinced Gaga to push back the release date. “Normally there is a three- or four-month lead time, but we announced the album release seven months in advance,” Berman said. “We wanted to put a stake in the ground.” Gaga was initially less than thrilled about this plan, Carter recalled. “I still remember her crying her eyes out at the thought of having to wait this long.”

Why put Gaga through this misery? Why do Carter and almost every other executive and manager in the entertainment industry, when given the chance, prefer to push for big openings by spending heavily on advertising and distribution, rather than increasing marketing expenditures more gradually? The reason is simple: All else being equal, the odds of achieving success in the marketplace are higher with a wide-release strategy than with a limited-release approach.

One key factor here is that people like winners—they prefer to consume entertainment products that are also chosen by others. As a result, a solid opening is often a huge factor in a rollout. For media products, initial success breeds further success, while a failure to achieve success early on frequently means having no chance to succeed at all. Executives will do everything they can to gain the upper hand in a battle with their rivals right from the time of launch, which means opting for a wide-release strategy. In the case of Born This Way, for instance, it would be very risky to rely primarily on word of mouth: Any loss of traction with initial audiences could hinder the album’s launch. Especially with a high-profile artist like Lady Gaga, raising a high level of awareness among the largest possible audience ahead of a new product’s release is the safest approach. “Leave no stone unturned” was Carter’s motto ahead of the Born This Way campaign.

At first glance, pursuing such big openings may seem risky, but upon closer examination, a wide release in fact is the safer choice. Such launches are not for the faint of heart because they require huge up-front investments. But they also increase the probability of achieving mainstream market success.

The Born This Way launch illustrates that truth. Released on a wider scale than any other album in 2011, it sold 1.1 million units in its first week, making it just the 17th album to reach the 1-million-copies-a-week benchmark since Nielsen SoundScan began tracking such data in 1991. Some say the sales total paints an unfair picture of the album’s true popularity, as online retailer Amazon sold an estimated 440,000 units for just 99 cents to promote its new cloud-based music service. But Amazon paid the same wholesale price that other retailers did and fully absorbed the resulting loss—as good an indication as any of Lady Gaga’s star power. Within a year of its release, the album had sold well over 2 million copies; during the same period, 18 million copies of the album’s songs were sold. Whether Lady Gaga would have sold fewer copies had her team opted for a more gradual release is impossible to say, but her team did not want to risk finding out—and rightly so.

Anita Elberse is the Lincoln Filene professor of business administration at Harvard Business School.