Broadway is the new Silicon Valley

He left Italy as a student, bound for San Francisco, to breathe the air of web-based start-up companies. And after having founded a successful one that was sold to Microsoft for around 100 million dollars, 32-year-old Lorenzo Thione decided to throw himself back into the fray. Internet again? No way. He packed up, lock, stock and barrel, for Broadway, to start a new entrepreneurial adventure in the musicals business. A sector that is little-known, but where a successful production can make as much as 600 million dollars. And he is also holding out a hand to investors in Italy.

Why go from the web to musicals?

Two years after Microsoft bought my Powerset, I found myself in a position that was too managerial for my tastes. I needed to feel that start-up thrill once again. So, after having evaluated a number of options, I began to look into how the theater business works. There is a very strong entrepreneurial component with significant margins for gains and profit, even for someone like me, from a very different sector. In 2010 I left Microsoft to dedicate myself full-time to this project.

Suddenly, just like that?

No. The idea was born in August 2008, but it took two years for it to develop and, at the same time, prepare the changeover within Powerset.

What was it that sparked your interest in Broadway?

A few years ago, a friend of mine left his job as a criminal lawyer to dedicate himself to theatrical production. After having helped him put together a small show in San Francisco, we went to New York to make contacts with some of the most important people in the sector. One of these was George Takei, the actor who played Dr. Sulu in Star Trek, today very active in this industry. He told me about the concentration camps for the Japanese on US soil during World War II. And this led to the idea of creating Allegiance, a high-level musical about an American family of Japanese origin that was held in one of these camps.

So, you're telling me that you started right off with a colossal?

No, things always proceed gradually. I had to create a network of contacts within the sector, also in order to get to know it better. I began financing smaller projects as an associate producer. So, first there was American Idiot and then Catch Me if You Can, which has recently won four Tony Award nominations, the Oscar of musicals.

All on your own?

Me and my partner, with whom in 2008 I founded Sing Out, Louise! Productions, which is our production company. The name is derived from a line in Gypsy, a hit musical. We hope it brings us luck.

Although there are two of you, it's still not very much for a colossal, is it?

In this sector, companies are always very small. They expand only when a project goes into full production, with the addition of the cast, technicians and operators. For Allegiance, for example, we already have a staff of 30 people which will further expand over the next few months.

How much does it cost to produce a musical?

It depends. The smaller ones start at 4-6 million dollars, and can reach even 30-40 million. Spider Man, the most expensive in history, cost 75 million dollars. But the average is 18-20 million.

What about Allegiance?

We're at about 11 million.

How does financing for musicals work?

Normally, you start with a small amount of personal capital that is used to try out the initial, high-risk concepts. When the project has become better-defined, it is presented first to just a few known investors and this is why you need to immediately establish good contacts. In the case of Allegiance, the first round brought in 2 million dollars, which we used to produce the experimental version of the musical. We will need to attract the interest and financing of new investors this year and into the early months of next year, in order to reach 11 million.

When will it officially open?

Late 2012, beginning 2013.

For a total of nearly five years from the initial concept ...

A musical requires from three to seven years to be finalized, so we're within the average.

How long does it take, then, to reach break-even?

A hit will break-even in about 7-9 months, but the average is 15-18 months. If it's a flop, the show closes after a year, but you can almost always recover a good part of the capital.

You make it seem easy...

Musicals are a niche sector compared, for example, to movies, but they are also less volatile from a financial standpoint. It's unusual to vary from the original business plan.

So, you can make a profit?

Once break-even has been reached, average weekly costs are between 400,000 and 700,000 dollars. Everything else is profit, and normally this means several million. Hundreds of millions if the show lasts for a number of years. Like Phantom of the Opera, which since its official opening in 1986 has made 600 million dollars.

What differences are there between the software and musical industries?

The former is based on capital-intensive companies, with everything paid out at the beginning and investors who expect a return on the basis of share sales or acquisition by other companies. A theater production company focuses on cash-flow, i.e., ticket sales. Investors remain project financers and earn profits throughout the life of the show. With Phantom of the Opera, for example, we're talking about 25 years.

How has your experience with Powerset helped you?

In making the most of my internet and social media contacts from a marketing standpoint, given that the majority of traditional Broadway producers are not at all masters of these tools.

Are you open to foreign investors?

Of course. In the first round we already gathered investment from European investors as well as Japanese investors, of course, which was to be expected.

Riccardo Meggiato