COMPANY INVERSE: A MUSICAL THEATRE COMPANY OPPORTUNITY EVALUATION FOR STONNINGTON CITY COUNCIL

1. COMPANY INVERSE: A MUSICAL THEATRE COMPANY OPPORTUNITY EVALUATION FOR STONNINGTON CITY COUNCIL  Double i CMR Final Draft 3 July 2000

2. The Proposal For Stonnington City Council to support the establishment of COMPANY INVERSE, Australia’s first not-for-profit Musical Theatre Company in the Chapel Street Tourist precinct at Stonnington City Centre (Prahran). Company Inverse is seeking the following support :

3. The Proposal (cont…) • In return, Company Inverse will provide: • social and cultural benefits for Stonnington City Council and its community; • recognition and image for pioneering the initiative: associate the company logo with ‘an initiative of Stonnington City Council’, thereby providing council with national/international brand exposure • an opportunity for a nominated Stonnington City Council representative to sit on the Company Inverse board.

4. The Business Opportunity • Vision Company Inverse’s vision is to secure the future of Australian- created Musical Theatre by creating a one-stop shop for the evaluation and development of new Australian musical theatre product, and to enable best fit of such product with established networks, or the development of new market opportunities. • The opportunity To fill a gap in the arts industry to enable local creative talent to incubate and develop all aspects of musical production: by providing a network for collaboration and communication by Australian composers and lyricists and establish a sustainable framework for the creation, development and marketing of Australian musical theatre works (locally, nationally and internationally). This will increase the profile and market share of these musicals and increase the opportunities for Australian talent. Also there exists an advocacy role for the place of musical theatre within our national culture.

5. The Opportunity Evaluation Objective • The objective of this Opportunity Evaluation is to investigate whether Stonnington City Council should invest in Company Inverse as a Musical Theatre Company based in the Stonnington precinct. We have used an opportunity evaluation model to assess the benefits to Stonnington City Council and its community. Benefits have been categorised in terms of: • Social and cultural benefit; • Economic returns, and; • Recognition and image for pioneering the initiative.

6. Why should Stonnington City Council be involved? • Association with Company Inverse will provide the following benefits: • Alliance of the Stonnington Brand with innovative leadership in culture and the arts. • Attraction of media and focus to the Stonnington precinct, including media exposure on a national level. Potential to be one of Stonnington’s largest positive branding products, as ‘Company Inverse, an initiative of the City of Stonnington’ will be cross-promoted on all allied sponsor brandings, such as Ticketmaster mailouts and website.

7. Why should Stonnington City Council be involved? • Local community cultural benefit as it initiates a dynamic, broad appeal asset to local environment. • Entertainment industry ($3 billion industry - ABS 1996) focus to the Stonnington precinct and alliance with peak industry body • Positive market positioning for the Stonnington Brand within corporate market place, in terms of partners/networks. • Recognition and image for pioneering the initiative. • Utilisation of existing physical asset/buildings, including the presentation/marketing of these assets to the Entertainment Community. • Ideal match for contents of ‘City of Art ’ plan.

8. Why the Stonnington precinct? • Inner city precinct with national and international recognition as leading edge destination for shopping, dining, entertainment and cultural experiences. • Stonnington City Council has a reputation and a trade record as a visionary, progressive and innovative local government industry leader. • The high presence of Melbourne-based business and arts industry leaders.

9. Why the Stonnington precinct? (Cont…) • Stonnington City as Art Plan - 2000 & Beyond identified a strong, dynamic Cultural Industries Business Sector exists in Stonnington, evidenced by a total of 780 individual arts/culture related businesses and over 45 community and cultural venues and organisations • Two major segments within the plan support the city’s investment in this proposal, namely; • - ‘Creative Arts ’ - investing in creativity and developing opportunities for local artists and groups to create new works, and; • - ‘Business Arts ’ - adding value to the business of culture by creating a co-operative climate for innovation and investment.

10. Industry Statement of Support and Need • ‘ I am writing to commit my strongest support to the proposal of establishing a company dedicated to the creation, support and development of new Australian musicals. Any efforts to help consolidate the foundations of new work development in this country would benefit the industry on all levels - producers, venues, artists and, ultimately, audiences. Ultimately this initial investment pays off many times over, for our industry, our culture and our nation. I wish you the best for your endeavours and offer any support that I can. You are filling a great need, one that has gone unserved for too long. ’ • John Frost Australian Theatre ’s Most Successful Commercial Producer.

11. Company Inverse 3 Year Financial Summary

12. Conclusions • The seed funding from SCC is required as a first step to realising the potential for Company Inverse. • The seed funding will enable Company Inverse to commence operations and begin the tasks of securing other sponsorship and revenue, developing a business plan, consolidating national and international partnerships and realising their market entry strategy. • Company Inverse has demonstrated support for its establishment evidenced by:- • Interest by key players to sit on a high level Board • Interest from high profile artists and business people to act as patrons and supporters of the company • Interest from nationally recognized arts organisations including Arts Victoria, MTC, VAC • Initial high level sponsor interest (including Ticketmaster, Millmaine Entertainment, SEL, Qantas, Marriner Theatres and Macpherson Promotions)

13. Conclusions (cont…) • Additional sponsorship will be required beyond the SCC ’s contribution. However a ground breaking initiative such as this requres a progressive community leader to provide the intial impetus to ‘get the ball rolling’. It has been evidenced that previous endeavors similar to Company Inverse have failed because the Arts and Entertainment Industries percieved them as solely commercial endeavours, and it is expected that the stage one commitment of Stonnington City Council will allay those fears and open other potential revenue opportunities for the company (Federal and State funding, philanthropic giving). It is expected that commitments from state, federal and philanthropic funding bodies and revenues from originating producer and publishing royalties will in time replace original sponsor load.

14. Recommendations Although the Opportunity Evaluation supports the view that there are very many good indicators for success for the establishment of Company Inverse, there are correspondingly a couple of risks that need to be mitigated before Stonnington City Council should provide full commitment to this project. We therefore recommend that a two stage approval process be adopted: • Stage 1: Stonnington City Council commits now to provide: • Stage 1 seeding grant of $30,000 to commence company operations and prepare a Business Plan • Fitted-out office space for three workers at Prahran Town Hall for a 6 month probationary period • Kris Stewart and Sam Schwarz provide Stonnington City Council with personal guarantees that should Stonnington City Council decide to provide full commitment to supporting Company Inverse that they will remain committed to the project for at least 3 years, and will leave the Council with no financial liabilities

15. Recommendations (cont…) • Stage 2: On the basis that within 6 months; • a detailed Business Plan has been prepared and the outcome supports the sustainability of Company Inverse, and; • Company Inverse has obtained formal commitment from major sponsors to at least $265,000 for the first year of operations, plus $175,000 for each of the next 2 years, then: Stonnington City Council would commit to provide: • Stage 2 seeding grant of $70,000 to continue company operations for the balance of the first year • Fitted-out office space for three workers at Prahran Town Hall for a guaranteed period of 3 years • Provide strong public support for the establishment of Company Inverse at the time of the public launch

16. Contents • The Opportunity Evaluation Screening Process • The 2-stage Screening Process • This is based on the work by Jeffrey Timmons and a frequently used investment evaluation tool. • Stage 1 – The First Cut • Stage 2 – Detailed Screen • Attachments • A. Opportunity Screening Benefits • B. First Cut Screen

17. The 2 Stage Screening Process • Stage 1 – The First Cut • Stage 1 of the screening process involves a quick audit of the knowledge of the opportunity from the key stakeholders. In this evaluation, the market, economics, competitive advantage, team, risks and presence of any fatal flaws are briefly evaluated using the Leichardt Scale to provide a visual appreciation of the broad merits of the idea. If most of the scores appear between 5 and 10, then the decision can be made to move to Stage 2. • Stage 2 – Detailed Screen • Stage 2 involves more detailed analysis on the basis of hard data and hard evidence. It expands on the areas of the First Cut. Although the Detailed Screen is more detailed than the First Cut, it does not go to the depth of analysis as required by a Business Plan. The key focus of our Opportunity Evaluation approach is to quickly show whether an opportunity exists before moving to the Business Plan.

18. The 2 Stage Screening Process (cont…) • The difference between the Opportunity Screening and Business Planning approach is that Opportunity Screening focuses more on the Why? and the What? of the Opportunity rather than the implementation. If the Opportunity is not there, then there is no need to go to the trouble of doing the detailed planning. • Further reasons for carrying out Opportunity Screening rather than Business Planning are summarized in Attachment A.

19. Stage 1 - The First Cut • From the First Cut Opportunity Evaluation (details are contained in Attachment B), the following conclusions were drawn: • Market: Needs seem clear, Customers are identifiable, and Products are able to value-add to customer needs; Risks to success are associated with the large market size, low growth rates & low gross margins • Economics: The opportunity will have low commercial return, low capital cost but will generate high strategic value • Competitive Advantage: Company Inverse is able to control distribution channels and marketing; it has a strong management team, and it should be able to create high barriers to entry; • Risks and Fatal Flaws: Although a number of risks could be identified, there appeared to be nothing which would constitute a fatal flaw which would prevent proceeding to the next stage.

20. CHECKPOINT! • Do the broad merits of the First Cut Opportunity Screen warrant moving to Detailed Screening? • Yes - many of the ‘First Cut’ scores were at the higher end of the scale, therefore lending support to making a more detailed evaluation of the opportunity ?

21. Stage 2 - The Detailed Screen In proceeding with the Stage 2 - Detailed Screen, the Company Inverse opportunity was evaluated under the following headings: • Description of the business opportunity • Description of the product • Opportunity Conditions • Evidence • Total market size & trends • Primary customers • Competition - vulnerabilityi.e.s?

22. Stage 2 - The Detailed Screen (cont...) • Window of opportunity - perishability? • Market Structure • Entry Strategy • Competitive Advantages - Sustainable • Economics • Degree of Control • Team capabilities • Programme • S.W.O.T. analysis

23. Stage 2 - The Detailed Screen (cont...) • Financials - Margins, Cash Flow, Profit, Start Up Capital, P&L, Sensitivity • Harvest Potential • Exit Mechanism • Major Assumptions & Risks • Fatal Flaws / Issues

24. The Business Opportunity • Vision Company Inverse’s vision is to secure the future of Australian created Musical Theatre by creating a one-stop shop for the evaluation and development of new Australian musical theatre product, and to enable best fit of such product with established networks, or the development of new market opportunities. • The opportunity To provide a network for collaboration and communication by Australian composers and lyricists and establish a sustainable framework for the creation, development and marketing of Australian works (locally, nationally and internationally). This will increase the profile and market share of these musicals and increase the opportunities for Australian talent. Also there exists an advocacy role for the place of musical theatre within our national culture.

25. The Product • Company Inverse will provide the following Products and Services to the Australian musical theatre industry: • A. Assisting the development of composers and lyricists of New Australian Musicals • B. Promoting, developing and marketing New Australian Musicals nationally and internationally • C. Producing small to medium scale productions for on-selling • D. Advocacy of the Musical Theatre industry in Australia

26. The Product - Writers and Scripts • With regard to assisting with the development of writers and scripts for new Australian musicals, the nature of the product, tools and the various sources of income are summarised below: Product Nature Tools Income Source • Establishing focus for the Australian Musical industry, building interaction and facilitating collaboration • Providing a referral service for authors, producers, set and costume designers • Acting as a national and international conduit for collaboration and Co-production • Review, mentoring, workshops, collaboration, networking • Review, mentoring, workshops, collaboration, networking • Based on annual sponsorship and funding levels • Based on annual sponsorship and funding levels • Based on annual sponsorship and funding levels • Based on annual sponsorship and funding levels • Between different writers • Between writers and producers • The evaluation of new Australian musicals, and workshopping to develop potential • The skill development of Australian authors, producers, set and costume designers

27. The Product - Promoting, Developing and Selling • With regard to promoting, developing and selling new Australian musicals nationally and internationally, the nature of the product, tools and the various sources of income are summarised below: Product Nature Tools Income Source • Promoting the excellence of new Australian musicals internationally • The marketing of Australian works to producers / presenters and performing arts bodies • Providing development services to the industry • Marketing, promotion and collaboration • Marketing, selling. collaboration, Co-production, contracting • Development workshops • Requires funding from industry, training and arts bodies • Revenue raised by royalties split between Company Inverse and authors • Fee for service

28. The Product - Producing • With regard to producing small to medium scale productions for on-selling, the nature of the product, tools and the various sources of income are summarised below: Product Nature Tools Income Source • Producing concerts and full productions of new Australian musicals - productions for whom opportunity doesn’t currently exist • Script development, production development workshops, final production • Revenue raised by ticket sales and commissions • Economies of scale require scaled-down operations / costs • Revenue raised by ongoing Originating Producer’s Royalty • Revenue raised by Publishing rights

29. The Product - Advocacy • With regard to advocacy of the Musical Theatre industry in Australia, the nature of the product, tools and the various sources of income are summarised below: Product Nature Tools Income Source The advocating of musical theatre as a major form of art, entertainment and a significant industry • Establishing focus, promotion, collaboration, lobbying • Funding from industry and training bodies

30. The Product - How it Works • Company Inverse will work through initiation of the following key programmes to support its core business: • The American Society of Composers, Authors and Publishers Program (ASCAP), which will take worlds-best artists and bring them to Australia to work with our emerging authors; • The Ferrier Prize, which will be an award for unproduced new Australian musicals that will help us discover the as-yet unknown talents in Australia; • The commissions, which will seed-fund new Australian musicals from industry professionals (allow us to develop works that target perceived industry and cultural needs); • The workshops programs, which will develop works and make them industry ready;

31. The Product - How it Works (cont…) • The national marketing of developed works to performing arts organizations; • The presentation of new Australian musicals at International Festivals and Industry Conventions and our cultural exchange programs with international companies; • The company’s mounting of full-productions/co-productions of new Australian musicals, potentially in partnership with National Festivals or touring networks.

32. Key Market Information • The place of culture, performing arts and musical theatre in Australia: • Arts and Culture industry within Australia had a turnover of $19.6B on 1996/97 (equivalent of 2.5% of GNP and larger than the industries of road transport and house building). • · 7% of Australian workforce is employed in Arts and Cultural activities (ABS 1996/97). • · 1399 businesses currently operate in the performing arts (ABS 1996/97), with 881 of these working in music and theatre. • · Most popular of the performing arts (ABS 1996/97) was Musical Theatre with 3.3m attendees, surpassing pop music, which had 3.1m. • In 1995 ABS survey, 2.7m Australians attended a musical theatre event, the equivalent of 21% of Australia ’s adult population.

33. Evidence of Market Demand • General Market Needs • Currently an identifiable market need in Australia for musical theatre (3.32m attendees in 1996/97 Financial Year). • · Due to lack of Australian product, the musical theatre market is being filled largely by American, British and European product. • · The Australian audience wants more varied product at reasonable cost, as well as product outside of metropolitan centres. • · There is also an identifiable need from producers and presenters for new works. They want polished and developed Music Theatre product that matches producing organisation needs for less investment than doing it individually. Such users include: • commercial producers • subsidised theatre companies • Arts centres • regional touring networks • educational touring programs • educational institutions • amateur theatres • casinos

34. Evidence of Market Demand (cont…) • Stonnington City Council Needs • To contribute to its mission to work in partnership with the community to add to the quality of people ’s lives through the preservation and enhancement of Stonnington ’s assets and the provision of innovative, equitable and quality services. • · To enhance the amenity of the precinct so that is remains a sought-after location in which to live, work and do business. • · To develop Chapel off Chapel as the Council ’s major Arts Centre to play a significant role in assisting creativity through a diverse range and style of performances. • · To generate opportunities for creative collaborations with key arts organisations and theatre companies.

35. Evidence - The Customers • Who are the Customers? • Creative-Industry Professionals • writers, directors, performers • 50% of the new business focus. • business growth will rely on quality networks of contacts in Australia and overseas. • Business - Producers and Promotors • commercial producers, presenters, funding bodies, sponsors. • 30% of the new business focus. • growth is limited, however opportunity will grow as the business gathers a strong reputation. • Public Audience • large and diverse. • 20% of new business focus. • highly competitive market due to wide range of other • entertainment options.

36. Evidence - The Competition Where is the Competition? • The main competion comes from overseas sourcing of product, and local production, such as Sound of Music. • Producing organisations (can be either competitors or collaborators) such as Cameron Mackintosh, Edgley International, David Atkins, Jacobsen, Melbourne Theatre Company. • Non-live entertainment. • American productions, such as Disney.

37. Market Value What Value is Added for Customers? • For the creative industry professionals, provide a one-stop-shop to create more of a ‘sellers’ market for their creations. • For producers and presenters, Company Inverse can polish and develop musical theatre product to the required standards, but at less cost than doing it individually (introduce some economy of scale). • For Australian audiences, create a focus / outlet for creative expression re research and development of new Australian musical product. • General by providing: • An advocacy role in the promotion of the cultural necessity of Australian product - need to address the perception that overseas product ‘must be better’. • An education role in skill development of training musical theatre artists. • A networking role in linking artists to the market and providing an information exchange.

38. Market Window Window of Opportunity? • Current opportunities exist due to recent United States venture by Company Inverse. • Potential to ally international activities with increased post-Olympics knowledge of Australia and its comtemporary culture. • Political climate seems right at this time: • Would lose energy and support from some major sponsors if this venture does not become reality in six months and the potential remains to lose key personnel. • focus on regional / outer suburb producing networks • Stonnington City Council has good match in terms of aspiration. • Overall the window of opportunity seems no more than 3 months due to potential to lose the support of key personnel.

39. Market - Product Substitutes What Product Substitutes Exist? • Producing organisations (can be either collaborators or competitors) • Non - live entertainment • American productions • Overseas sourced, local productions

40. Market Structure How is the Market Structured? • Creative - Industry Professionals • Small select • Easy to identify and target • Largely creative - writers, composers, directors, performers • Limited growth • Target - best of the best, best of the emerging • Business - Producers and Promoters • Small select • Easy to identify and target • Highly competitive • Limited growth • Fickle market - investors prone to move with entertainment fashion • Public Audience • Large and diverse • Traditionally aged 28-70 • Consumer choice largely driven by the female partner • Opportunity to expand audience participation beyond one • show per year

41. Market - The Value Chain THE TRADITIONAL VALUE CHAIN Script Idea First Draft S C R E E N I N G S C R E E N I N G Collaboration FINAL PRODUCTION Large investment, taken to audiences with sets costumes, cast etc. Producing & Presenting Organisations (John Frost, MTC) Developmental Workshop Process Producer Funded. (repeated many times) Review Cycle REJECTION REJECTION PHASE C PHASE A PHASE B Eight Weeks Rehearsal Many months Pre-production Nine Months to Three Years Nine to Eighteen Months COMPANY INVERSE VALUE-ADDING ACTIVITIES

42. Market - The Value Chain (cont…) For Phase A of the Value Chain: • Market Gaps identified in Phase A of the Tradition Value Chain are: • Little matching of Industry needs with writer activity. • Little return / investment to skill development. • No focal point or support system. • Works not completed as no financial support at early stage. • Fitting the Gaps and Value Adding of Company Inverse are by: • Investment in skill development (ASCAP, Ferrier Programs). • Linking Artists to the Market. • Seeding Projects. • Servicing of script ideas to meet market needs. • Providing network and information exchange. • Advocating cultural necessity of Australian Musical Theatre. • Opening new stakeholders in Aust MT (non-commercial funders).

43. Market - The Value Chain (cont…) For Phase B of the Value Chain: • Market Gaps identified in Phase B of the Tradition Value Chain are: • Reject Rate too high. • Evaluation and development very financial, labour and skill intensive. • Focussed solely on commercial (not cultural needs). • Process repeated by each individual Producer. • Fitting the Gaps and Value Adding of Company Inverse are by: • Creating a sellers ’ market, by establishing a one-stop shop. • Creating economy of Scale - focus to produce critical mass. • Identifying Centralised skill base for evaluation and development. • Packaging and marketing finished works to appropriate producers.

44. Market - The Value Chain (cont…) For Phase C of the Value Chain: • Market Gaps indentified in Phase C of the Tradition Value Chain are: • Simpler to import rather than invest in Australian Product. • The scale of projects needed to generate a profit. • Fitting the Gaps and Value Adding of Company Inverse are by: • Providing full production for audiences that otherwise may not have access to Musical Theatre.

45. Market Entry Market Entry Strategy • Identify & target key producers, presenters, funding bodies - both government & non government, venues and presenting venues, and sponsors. • Identify key date for launch of company. Must fall prior to opening of next major musical in Melbourne - November 2000. • Launch company with media driven campaign spanning four weeks, so as to heighten expectation and develop curiosity. • Together with launching kit, provide mission statement, strategy, major activities, values and role to be filled within the industry. • Launch company in 2 stages, a media announcement launch followed by an afternoon of discussions, networking and Q & A.

46. CHECKPOINT! • Do we have sufficient market (rather than product) focus to support the venture? Yes, there appears to be identifiable market gaps for which Company Inverse can provide significant value.

47. CHECKPOINT! • Do we have enough experience to tackle this venture? Yes, Kris Stewart and his team have much hands-on experience with the successful production and presentation of musical theatre events. Kris is a multi-award winning director for his work in new musicals (1997 Emerging director Prize, 2000 Murdoch Prize, 2001 Churchill Fellowship) and is widely respected as a leader within the industry, as is attested in the letters of support for this project and an article on Kris from Feedback, the Musical Theatre and Cabaret Industry Journal. He has obtained an in-principle commitment from Sam Schwarz to work as General Manager, and Sam has many years of experience across Musical Theatre, including currently working as Major Events Manager for the Australian Entertainment Industry Association (AEIA).

48. Competitive Advantage Issues • Company Inverse will generate competitive advantage through having the following attributes: • Providing the only one-stop-shop for collaboration, networking and workshopping of Australian musical theatre for production and presentation. • The people resources available now to create strong leadership in the industry. • Strong contacts and networks in the musical theatre industry to influence the channels of distribution. • The following issues need to be addressed in managing the financial return on investment: • Product produces a limited commercial return. • Limited opportunity for ‘premium’ pricing. • Good control over expenses, but sustainability dependent upon obtaining ongoing commitment from sponsors.

49. Competitive Advantage Issues (cont…) • Fixed And Variable Costs It is of great benefit in a business start up to have a low ratio of fixed to variable costs. For 2000/01, Company Inverse projects the following position: • Fixed Costs • Office Fitout $ 31,900 • Total $ 31,900 • Variable Costs • Project Costs $220,000 • Sponsorships/Administration $ 83,000 • Artistic/Project Development $ 73,440 • Publicity $ 45,000 • Total $421,440

50. CHECKPOINT! • Do we have sufficient competitive advantage? • Although there appears to be some weaknesses in the degree of control over the financial return for this investment, the overall conclusion is that Company Inverse will have sufficient competitive advantage to underpin the success of this venture through the use of: • The one-stop shop approach • Its people • Its contacts ?