This document discusses two non-technological innovations by Stage Entertainment, a large European live entertainment company, and how they impacted the company's strategy. The first innovation was combining venues, productions, and creative development under one company. This allowed Stage Entertainment to control more of the value chain and decrease risks. The second innovation was holding televised auditions to select the main character for a new musical, which generated free publicity. These innovations helped Stage Entertainment diversify risks, offer customers memorable experiences, and capture more value in the industry's selection and value chain systems. By combining assets like knowledge, artists, and venues across countries, Stage Entertainment has built competitive advantages of scale and resources that are difficult for competitors to copy

1. Strategy and non-technological innovation
Assignment for part-time MBA Competitive Strategies, week 6
By Gulcin Askin, Michelle Donovan, Kivanc Ozuolmez and Peter Tempelman
October 8, 2012

2. I. Introduction
This paper describes the consequences of a non-technical innovation for the strategy of
a firm that operates in cultural industry. The example chosen is that of the company Stage
Entertainment. In the first part of this paper we will provide a brief history of Stage
Entertainment, single out two non-technological innovations and discuss how these
innovations have affected the strategic behaviour of Stage Entertainment. In the second part
we will discuss both the horizontal and vertical competitive processes Stage Entertainment is
involved in and argue if one of these should be considered more important to Stage
Entertainment’s overall sustainable competitive advantage.
II. Non-technological innovations and strategic behaviour
Stage Entertainment is the brainchild of the Dutch creative entrepreneur Joop van den
Ende (born 1942). Stage Entertainment is the result of a merger of several other entertainment
companies owned and run by Van den Ende and was incorporated in 1999. It has seen rapid
international expansion and is now active in 9 countries, employing 4000 people. The
turnover is €600 million (Nispen, M. van, Jaekele S. and Charrington, J, 2009).
Van den Ende describes the strategy of Stage Entertainment as a strategy consisting of three
elements (Nispen et al 2009):
1. Venues: programming and managing a network of venues across Europe (i.e. theatres)
2. Productions: presenting a wide range of existing, leading international content. The
rights of productions are owned by other parties, but produced for a specific country
by Stage Entertainment (e.g. the theatrical distribution rights of ‘My Fair Lady’ are
owned by Paramount Pictures and CBS).
3. Creative development: creating and developing original new musicals. Stage
Entertainment also develops and owns new theatrical works, such as the Dutch
musical ‘Ciske de Rat’.
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3. The non-technological innovations of Stage Entertainment that we will discuss in this
paper have been selected due to their conformity to the following definition of innovation. ‘An
innovation is something new which is presented in such a way that the value will be
determined by the selectors.’ (Wijnberg, 2004, p.1416).The key elements in this definition are
‘something new’, ‘value’ and ‘determined by the selectors’. ‘Something new’ in the context
of this paper means that the ‘something’ was not there before, is actually introduced into a
market in an attempt to be commercially successful (Wijnberg, 2004). The concept of ‘value’
ties in with ‘commercially successful’. However, in order to have value, the value must also
be determined. According to Wijnberg (2004), the process of determination must take place in
a context of a particular set of consumer preferences: a selection system. Wijnberg (2004)
argues that in industries dealing with creative goods, the competitive process is governed by a
selection system comprising of the combined selection systems of peer selection and expert
selection. In the case of Stage Entertainment we have identified the peer selectors being ‘other
producers’. Examples of peers from the UK, are Cameron Mackintosh, with whom he has
worked on “Mary Poppins” and “Miss Saigon”, and Andrew Lloyd Webber, who gave his
approval for van den Ende to bring at least four of his musicals to the Netherlands (“Evita”,
“Jesus Christ Superstar”, “Aspects of Love”, “The Phantom of the Opera”). Several musicals
have won awards, which can be regarded as determining value through an expert selection
process. We consider jurors, journalists and critics in this case as the experts of the expert
selection system. The third selection system that applies is the traditional type (Wijnberg
2004): the audience being the selectors, Stage Entertainment is the selected. The audience
determines the value by buying tickets.
The first non-technological innovation of Stage Entertainment is combining the three
elements mentioned above: 1) venues 2) production and 3) creative development. As far as
our limited research has shown, no other musical producers in The Netherlands, Germany,
Spain, Russia, Italy and France have combined these elements. In combining these elements
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4. Stage Entertainment controls larger part of the value system (Mol, Wijnberg and Carroll,
2005). In other words, by applying different business models in terms of product development
(creative development), manufacturing (producing shows) and distribution (venues), a non-
technological innovation has taken place. The benefits of doing so are that Stage
Entertainment will be able to capture more value and decrease the risk of value chain envy
(Mol et al. 2005). Furthermore it could be argued that due to the complex nature of the
product, a theatrical good such as a musical, and the specific domain knowledge required to
create and produce musicals, internal coordination is a success factor (Grant, 1996). By
combining the three elements internal coordination will be easier.
This first innovation can be broken down into two elements. First there is the
combination of producing existing shows. By combining the production of musical shows
owned by other parties with the development of their own, original shows Stage
Entertainment diversifies its risks of not having (enough) theatre ‘hits’ to satisfy customer
demand. By combining these shows with the venues it manages, Stage Entertainment can
offer the customer a memorable experience for which there is a high willingness-to-pay
(Brandenburger and Stuart, 1996) or in other words, an important opportunity cost for
consumers (Dempster, 2006). The importance to make the visit to a musical show a
memorable experience is important in order to control the nobody knows (Caves, 2003) risk of
consumer demand (Dempster, 2006). The venue can have some influence on audience
composition (Dempster, 2006), one of the three key determinants of consumer demand. Also,
the shows can be tailored to suit the venues. As well as this, Stage Entertainment has its own
call centre for ticket sales, TopTicketLine (and for a time had similar ventures in the UK and
Germany) allowing it to keep profits in-house.
The second non-technological innovation by Stage Entertainment is the selection of
the main character for a new production, e.g. for the musical ‘Tarzan’. In 2006, for the first
time in Dutch television history, auditions for the part of the character ‘Tarzan’ were held
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5. during a series of television shows. One of the professional jurors was Joop van den Ende.
During the last episode the television audience could also cast a vote. By getting involved in a
televised audition show Stage Entertainment organized free media coverage, a second key
determinant of consumer demand (Dempster, 2006). Since the participants in the talent
scouting television show were non-professional musical stars, it can be expected that there
will be asymmetrical information (Caves, 2003) between artist and Stage Entertainment,
putting the artist in a position where he will likely not be able to capture more value than he
adds to the value system (Mol et al. 2005). Furthermore, the contract between Stage
Entertainment and the winner of the talent scouting will probably have the property of art for
art’s sake (Caves, 2003). This will also help Stage Entertainment to capture a larger part than
‘1’ in the value chain (Mol et al. 2005).
What the exact influence of these innovations is on the strategic behaviour of Stage
Entertainment must be studied in further research. The mere fact that Stage Entertainment has
30 venues and 4000 employees suggest that a positive feedback loop of increasing returns
may be applicable to Stage Entertainment: ‘Increasing returns are the tendency for that which
is ahead to get further ahead…’ (Arthur, 2000, p.100). From a Resource-based-view
perspective the knowledge to create and produce musicals, have the artist network and control
the venues to perform are resources that constitute ex-post limits to competition. Stage
Entertainments combine these intra firm knowledge and assets to create higher economic
value on the grounds that their nature of being hardly to copy and substitutable by competitors
(Peteraf, 1993).
If we refer to the above mentioned definition of innovation, from our limited research
we can conclude that the two innovations discussed in this paper to some extent cover the key
elements of the definition: ‘something new’ (the combination of the three elements), ‘value’
(awards and turnover) and ‘determined by the selectors’ (awards and the decision of the
audience to buy tickets).
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6. III. Vertical and horizontal competitive processes
The vertical competitive process that Stage Entertainment is involved in is the
production of musicals, concerts, shows, shows on ice and events. In this this paper we will
focus on musical shows, e.g. ‘My Fair Lady’, ‘Tarzan’ or ‘Ciske de Rat’.
We have derived a basic value system of a musical show from Mol et al. (2005),
Depster (2006) and Caves (2003). The basic value system, containing multiple value chains,
is as follows:
Playwrights/composers → producers/directors/actors → venues → advertising →consumers.
Between the parties involved with each element a tug of war (Mol et al, 2005) to
capture a larger part of the value can be expected to go on. However, since the strategy of
Stage Entertainment is to control or own a relatively large part of the value system, the main
tug of war will likely go on upstream in the value chain: between playwrights and composers
(or the parties that hold the right to a show, e.g. Paramount Pictures / CBS) and Stage
Entertainment. The question that must be answered by Stage Entertainment is how much they
are willing to pay Paramount Pictures / CBS to produce e.g. ‘My Fair Lady’. This example
makes it clear how beneficial it can be to produce original work. In that case, Stage
Entertainment is able to capture the highest value possible. A down side to producing original
works may be that advertising costs for an unknown, new original musical will likely be
higher than for an established musical ‘hit’.
The horizontal competitive process that Stage Entertainment is involved in concerns
competing with other musical production firms. It can be expected that in established musical
markets, such as the London’s West End or New York’s Broadway, there may be fierce
competition for the audience. Broadway currently offers 24 shows according to the Internet
Broadway Database (IBDB, 2012). London’s West End currently offers 37 shows according
(London Theatre Guide, 2012). In the whole of the Netherlands a total of 13 musical shows
are currently offered (Musicalfriends, 2012).
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7. According to Dempster (2006) risks involving creative industry entrepreneurship are
nearly impossible to predict. Caves (2003) used the catchphrase nobody knows to describe the
fundamental uncertainty that is part of the production of a creative good. Entrepreneurship
(Jacobson, 1992) and luck (Arthur, 1996) are therefore important factors for Stage
Entertainment, engaging in horizontal competitive processes.
A case can be made that both vertical and horizontal competitive processes are
important to Stage Entertainment’s overall sustainable competitive advantage. A compelling
argument about which competitive process should be considered more important cannot be
given and could be the subject of further research. Within the limitations of this paper we can
conclude the following.
In musical markets where there is not an established musical tradition (The
Netherlands, Germany, Spain, Russia, Italy and France - in Germany their subsidiary based in
Hamburg has a near monopoly). The emphasis on ‘winning’ in the vertical competition
process may prove to be the most important overall sustainable advantage. In doing so Stage
Entertainment will capture more value than it creates in the value system. For example, other
parties such as musical actors in the value system in these countries will be in a disadvantaged
position due to asymmetric information and the attitude of the actors towards their work - art
for art’s sake - (Caves 2003).
In established musical markets (Broadway, West End), Stage Entertainment will likely
endure tough competition in the theatres. The public has many musicals to choose from. The
selection system will most likely be of the traditional type (Wijnberg, 2004), where the
consumers are the selectors and Stage Entertainment is a producer selected. To remain
competitive in these markets ‘winning’ in the horizontal competitive process will likely be
more important to Stage Entertainment’s overall sustainable advantage.
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8. References
Arthur, W. Brian (1996), Increasing Returns and the New World of Business, Harvard
Business Review, (July-August): 100-109.
Caves, R.E. (2003) Contracts Between Art and Commerce, Journal of Economic Perspectives,
17(2): 73-83
Dempster, A (2006) Managing Uncertainties in the Creative Industries: Lessons from Jerry
Springer The Opera, Creativity and Innovation Management, 15 (3): 224-233.
Jacobson, Robert (1992), The “Austrian” School of Strategy, Academy of Management
Review, 17(4): 782-807
Mol, J.M. and Wijnberg, N.M. (2005) Value Chain Envy: Explaining New Entry and Vertical
Integration In Popular Music, Journal of Management Studies, 42, (2): 251-276.
Nispen, M. van, Jaekele S. and Charrington, J. (2009) Stage Entertainment corporate brochure
Peteraf, Margaret A. (1993), ‘The Cornerstones of Competitive Advantage: A Resource-based
View’, Strategic Management Journal, 14: 179-191.
Wijnberg, N.M. (2004) Innovation and Organization: Value and Competition in Selection
Systems, Organization Studies, 25 (8): 1469-1490.
http:/ / www.musicals.nl/wicked-nieuws-nieuwsberichten-wicked-miss-saigon-next-to-normal-en-
de-musical-droomvlucht-grote-winnaars-musicalworld-awards.asp (visited October 7, 2012)
http://www.ibdb.com/advSearchShows.php(visited October 7, 2012)
http:/ /www.londontheatre.co.uk/londontheatre/whatson/musicals.htm (visited October 6, 2012)
http:/ / www.musicalfriends.nl/musicals (visited October 7, 2012)
http://www.musicals.nl/marypoppins-home.asp (visited October 7, 2012)
http://nl.wikipedia.org/wiki/Miss_Saigon (visited October 7, 2012)
http://en.wikipedia.org/wiki/Stage_Entertainment (visited October 6, 2012)
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