ALL IN: The bigger the bet Hollywood makes, the better.

Photo courtesy of Anita Elberse

Offstage at a Lady Gaga concert seems an unlikely place for academic fieldwork. But that's exactly the kind of environment that allows Anita Elberse to examine firsthand the nuances in the business strategies behind one of pop culture's most successful icons. Over the past decade, Elberse, the Lincoln Filene Professor of Business Administration, has frequented star-studded galas thrown by LeBron James and Jay-Z, hung out with the CEO of Walt Disney Studios, and watched soccer matches from the Real Madrid presidential skybox for her research into the entertainment industry's most successful stars and products. Her brand-new book, Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment (Henry Holt), examines the behind-the-scenes decisions involved in creating and sustaining those blockbuster projects we just can't seem to get enough of.

Your book's thesis suggests that, in the business of entertainment, big moves are the best moves.

That's right. Many people think that making many small bets is playing it safe. They think that if you're a film studio with, say, a billion dollars to spend in a given year, you're better off making 100 movies that each cost $10 million, or 20 that each cost $50 million. But it turns out that it's much safer to make a handful of really, really big bets. On average, the biggest investments tend to have the highest returns. So what smart entertainment executives do is spend a large chunk of all their production and advertising budgets on a small portion of their total output. It can lead to big failures, of course, but it's the best strategy in the long run. When you look across hundreds of such investments, it becomes clear that making many small bets is actually much riskier. That's why Hollywood will keep making blockbuster bets even if the returns over the summer were rather disappointing.

Anyone with a smartphone and a computer is now a content provider. How has new technology impacted the entertainment market?

This question is one of the key reasons why I wrote my book. Back in 2006, Chris Anderson [author of the The Long Tail] got people thinking that new technology would change what consumers would be choosing and, therefore, what content producers should be making. His theory was that if there are online channels that allow for unlimited shelf space and access to whatever products we want, whenever we want them—and if technologies make it cheaper to produce these goods—then demand will shift to the tail of the demand curve. His suggestion was that retailers should offer more products in the tail, and content producers, instead of investing in just a handful of products and making them appeal to mass audiences, should spread their resources more equally across a larger number of smaller bets.

A lot of people in the media world and investors bought into that notion, but I looked at the numbers early on, and I just didn't see it happening. So I have been investigating market trends ever since. And in fact, there's now overwhelming evidence suggesting that despite digital technology really catching on, we see demand moving more to the head, to the top of the distribution. Markets for entertainment goods are becoming more, not less, concentrated.

What about someone like Lady Gaga, whose quick rise to fame came with no previously established brand? What did her management team do right?

It's hard to imagine that only 18 months before she was named one of the most powerful celebrities on the planet, she was touring as a supporting act for New Kids on the Block—a boy band beyond their glory years. Part of what explains her meteoric rise is her talent. But it's not sufficient to just have talent. Her manager did an excellent job, rolling out her music slowly but also not shying away from making bold moves. One of the bigger risks involved a tour she had planned with Kanye West. When West had to drop out, the question was, should Gaga go on the tour by herself? It seems a risky move for an artist who's not well known. But she and her manager took the gamble, structuring deals with the concert promoters very smartly, and that helped propel her into stardom.

They also used the Internet really well, communicating with fans on social media and using YouTube videos and other types of visual media much better and more forcefully than most other artists at the time. They realized that even if there was a long period between song releases, they had to make sure to fill that time with new visual stimuli for the fans.

Did you actually get to meet Lady Gaga?

I did. It greatly helps my research to get a true behind-the-scenes look, instead of just thinking about what it must be like to be a celebrity. I wrote a case study on Maria Sharapova, and her agent allowed me to shadow her for a day and a half. I saw her receive an award and give a speech at the United Nations, interact with sponsors, attend a party thrown in her honor by Vogue, and get ready for various activities in her hotel room. That Maria—who was 21 or 22 at the time—was able to address a room full of journalists at the UN and take questions about the war in Bosnia was eye-opening. I learned that, yes, she's an amazing tennis player and extremely beautiful, but there's something else about her. I understood why a sponsor might feel she's a safe investment. And I understood better what her life is like, what the value of time is for her, and what trade-offs she makes.

These are not necessarily things you can learn from academic articles. Or maybe I'm just making an argument as to why I should be invited to more parties or other cool events.

What got you interested in this research?

I've always been fascinated by the entertainment industry. I was trained as an empirical modeler—I develop econometric models to analyze data. What's great about the entertainment industry is there's a lot of data freely available. There aren't many industries that publish sales numbers on a weekly basis, for everyone to see, but the movie industry does. And when I started to analyze the data, I realized that there are fundamental problems in the entertainment industry that researchers did not yet have answers for—no one knew which strategies were winning strategies. We knew a lot about more mundane, predictable product categories. So it's a great area for research: It's a fun sector, and there were and are lots of big questions still up for grabs.

So what blockbusters should we look out for in the near future?

Well, there's a little-known book called Blockbusters that just hit the shelves, and I hope its success will be unlike anything anyone has ever seen before.

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