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.

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.

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.

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.

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