How to Make $700 Million a Year

9:11 AM PST 05/19/2011 by Alex Ben Block

With other companies seeking strategic alliances, the show's producers have upped the ante on product placement, sponsorships and brand integration.

In the same way that Fox's American Idol and the 46 versions the format has spawned around the globe have revolutionized the way hit music is created and sold -- and how voraciously ad buyers are willing to fork over millions -- the show has broken new ground with its formula for integrating sponsorships, product placement, licensing and merchandising on and off the air.And we're not just talking about those ubiquitous Coke cups the judges sip from, either.

"The biggest thing Idol has pioneered is the way we embrace our advertisers and integrate them into the show," says  Keith Hindle, CEO of FremantleMedia Enterprises, the Americas.

Neither Fox nor Fremantle would comment on what the show's pioneering efforts are worth in total, but Greg Kahn, executive vp business development at Optimedia U.S., estimates Coca-Cola, Ford and AT&T each pay more than $50 million a year to be on the U.S. show. (Optimedia recently placed Idol at the top of its annual Content Power Rankings.)

One hint at how lucrative this is comes from revenues reported by 19 Entertainment, a division of Idol owner CKx, which is being acquired by Apollo Global Management for $511 million. In March, CKx reported 2010 revenue related to Idol at more than $91 million, and from international Idol spinoffs at more than $15 million. The deal by which 19 licenses Idol to Fremantle reportedly pays the producer between one-third and one-half of what 19 makes, which would bring the total for both to more than $120 million.

Factor in an estimated $135 million a year internationally and what Fox brings in from ads and sponsors, and you have a haul that likely looms between $600 million and $700 million annually, according to analyst Mark Argento of Craig-Hallum Capital.

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"Idol breaks every rule," says David Luner, Fremantle's executive vp of interactive and consumer products. "Everyone said you can't have a show that a 12-year-old and a grandparent would watch together and think it was equally cool. We broke that mold and have done the same thing on the product side."

Tony Lisanti, editor of License! Global, points to Idol's integration of exclusive content by way of its Ford video shoot, which star the season's current finalists and is worked into the weekly results shows as a major boon to product integration. "That's where they have been able to really stand out as a marketing juggernaut," says Lisanti. "It's really changed the game for a lot of these shows that have tried to copy variations on that success."

Consumer marketing is the other half of the equation, and according to analyst Kash, the show has really amped up its online component and social media elements.

Licensed merchandise over the years has included books, T-shirts (for the show and individuals), caps, video games, karaoke systems, water bottles, "Hollywood Week" Monopoly games, ice cream, summer camps, an attraction at Disney World in Florida, virtual world products and more. There are annual concert tours of the top 10 performers and a music distribution deal with Universal Music Group (separately reported by CKx).

"What they have really amped up in recent years," says Optimedia's Kahn, "is what's available online and through social media."

Not to be outdone by any would-be successor, Idol has also infiltrated the crowded market of massive fashion retailers like Walmart and high-end department stores and boutiques. The youth-leaning brand Lyric Jeans even released a line of jackets, pants and tops in 2008 that were swathed in song lyrics from Idol hits that sold for $10 to $40 apiece. Luner says Fremantle plans to "go out with a much larger 'inspired by' apparel line" that may include styles worn by iconic performers or inspired by the show.

-- Georg Szalai in New York contributed to this report

AMERICAN IDOL BUSINESS: By the Numbers

  • 624 million: Highest number of votes in a seas (8)
  • $175 million: Revenue since 2002 from annual American Idol Live! tours
  • $185 million: Raised for charity via Idol Gives Back
  • $254 million: Simon Cowell's reported net worth
  • 50 million: Albums sold by Idol contestants
  • 3.4 million: Tickets sold on summer tour since 2002
  • 1 million: Auditions over 10 seasons
  • 2,121: Contestants who have been invited to Hollywood Week
  • 55 million: Votes cast on March 30, 2011, the highest tally so early in the competition
  • 299: No. 1 hits by Idol contestants (60 by Kelly Clarkson alone)
  • 67: Number of cities visited over 10 seasons
  • 9: Grammy wins for Idol contestants
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