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.

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The following is excerpted from Blockbusters: Hit-Making, Risk-Taking, and the Big Business of Entertainment, by Anita Elberse, published by Henry Holt & Co.

Standing backstage at Boston’s sold-out TD Garden in March 2011 during Lady Gaga’s smash-hit tour, the Monster Ball, her manager, Troy Carter, paused a moment to take it all in. “It is amazing how far we have come in such a short time,” he said.

After emerging on the pop-music scene in 2008—touring as a supporting act for New Kids on the Block, a boy band beyond its glory years—Lady Gaga broke through in early 2009, when her singles “Just Dance” and “Poker Face” topped international charts. She rapidly became one of the biggest names in entertainment, sweeping up Grammys and Video Music Awards and selling tens of millions of singles. In 2011, Forbes ranked her first on its Celebrity 100 list, ahead of Oprah Winfrey.

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As is the case with most “overnight successes,” Gaga’s ascent had been a long time in the making. In the early days of her career, through a relentless touring schedule—for months on end, she put on seven to eight shows a week, sometimes performing three times per night, in clubs around the U.S. and Canada—Gaga had built a fan base with a strong core. “We wanted to build her fan base from the ground up,” Carter said. “Once the audience feels they own something, they are going to run with it, and do the work for you.” She relied heavily on Facebook, Twitter, and YouTube to spread word of mouth and strengthen her connection with her fans—her ”little monsters,” as she called them. She turned out to be extraordinarily skilled at doing so: By 2011, Gaga was the most popular living person on Facebook and the most followed person on Twitter.

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Given her extraordinary success with a grassroots approach to launching her music, one might have assumed that Gaga, Carter, and her label, Interscope, would stick with such a strategy in 2011 for her third album, Born This Way. Yet the Born This Way launch compared more to “a movie blockbuster in the summer months, like Avatar,” as Interscope’s vice chairman Steve Berman put it. “With an artist of Gaga’s caliber,” Carter said, “reaching full potential means doing things on an enormous scale.” He knew that the launch he had in mind would have to go beyond traditional music-distribution channels and would test the limits of what a record label—even one the size of Universal Music Group—could afford. Carter and his team likewise pursued a blockbuster strategy for Gaga's forthcoming record, ARTPOP, due Nov. 11.

Most leading entertainment businesses operate on such a blockbuster model: making risky bets on the development of a select few products, then increasing the stakes by investing a great deal of money in distributing and promoting those products as widely as possible, all with an eye toward opening as big as they can. Companies often set marketing budgets at high levels well before they know how those products will be received in the marketplace. But what’s the rationale? Why would the team behind Lady Gaga want to move away from a word-of-mouth-driven launch that worked so well for them in the past? With Gaga’s new album likely to sell like hot cakes, wouldn’t record label executives prefer to save on any unnecessary marketing expenditures?

Launching entertainment products—albums, movies, television shows, video games, books—using what marketers call a “limited” or “grass-roots” release strategy has undeniable advantages. The basic idea is to gradually discover what level of marketing spending is most appropriate. It is all about being as efficient as possible with the available resources. For a movie, for example, a limited-release strategy generally means that it debuts on only a few screens in major cities, and is supported with print and online advertisements in those regions. The goal is to attract not the largest but rather the right audience to the product, in the hopes that those early customers will in turn spread positive word of mouth and help draw in new audiences. Only if the product takes off—or shows some signs of being on the verge of taking off—will the producer gradually increase the distribution coverage or intensity and support the product with more advertising to further enhance growth. The principle is to spend sizable amounts of money on the marketing of only those products that are worth it—those that truly have a chance of success in the marketplace.

Lady Gaga’s first recordings were released in this fashion. When her first single, “Just Dance,” was released in April 2008, gaining traction proved difficult. “We could not get it played on pop radio,” Carter recalled. “Mainstream radio stations told us it was too much of a dance song for them.” Bobby Campbell, chief marketing officer at Carter’s management firm Atom Factory, agreed: “Dance music simply was not on the air in Top 40 radio.”

So Carter relied on an intense schedule of live performances targeted at communities that seemed especially receptive to her music. “The gay community seemed to stick to her, and that resonated with her personally, so gay clubs were a natural fit to start the work,” Campbell said. “It was about finding different groups: the gay community, the dance community, the club-going community, the fashion community, the art community, and developing those into a larger pool of Gaga fans. So when Interscope made some headway with radio later on, we had this really strong core of fans who had been following her for months, and who felt they were part of the reason why she was successful.”

Jimmy Iovine, Interscope’s chairman, talks about capitalizing on “sparks”: The idea is that if an entertainment product resonates with audiences in a given market, that market can, with the right kind of support, become a launching pad for a wider rollout.