Inside The Sphere and the Future of Entertainment

a multi-billion dollar gamble

The Sphere’s backstory is full of bold ideas, big risks, and bigger budgets. It’s like a James Cameron movie; an ambitious project that drew plenty of skeptics because it had to be the biggest spectacle of all time to succeed. Boom or bust. There was no in-between.

Cameron got it right more often than he got it wrong. The verdict is still out on the $2.3 billion Sphere in Las Vegas, but we dug into its earnings to evaluate the current landscape.

Here are the revenue streams from Q2‘24:

- Experience (Postcard from Earth): $74.5M (208 shows)
- Events (concerts, other events): $58.4M
- Sponsorship (exosphere, signage): $15.9M

Sphere’s concert residencies with U2 and others may capture most of the headlines, but the venue’s core business is Experiences like Postcard from Earth, the 55-minute film made by Darren Aronofsky. Patrons pay $49 to $249 to attend the immersive show that runs several times per day and generated over $1 million in daily average ticket sales in the days it ran in Q2.

The Events and Experiences model is like the Nike and Adidas approach to selling sneakers. The most sought-after products, like Air Jordans and Yeezys, were high-priced, in high demand, but in limited supply. To capture the remaining demand, the big sneaker companies create a cheaper, mass-produced line that looks enough like Jordans and Yeezys to fit in, but not enough to cause internal issues. They cost less to produce and often contribute more to the bottom line given the quantities sold.

That’s the Sphere approach. In Q2 it hosted 22 concerts compared to 208 showings of Postcard From Earth. There are a lot more people to pay for each concert compared to each film screening. That’s why the Q2 costs for both were similar despite there being nearly 10 times as many experiences as concerts.

The approach fits especially well in Vegas, where tourism is high and pockets are deep. It’s a more accessible way to see the viral venue that everyone keeps talking about.

You can listen to the full episode here or read below for more highlights.

But how many people will need to see Postcard from Earth for Sphere’s revenue to exceed its costs? Here’s the Q2 expenses:

- Selling, general, and administrative: $102.1M
- Experience-related expenses: $22.1M
- Events: $22.2M
- Venue-operating costs: $16.8M

Those SG&A costs are high, which come from high employee compensation and professional fees. Running high-profile concert venues is expensive, especially when big names are involved.

U2, Phish, Dead & Company, and The Eagles are the groups who have booked residencies at Sphere, to date. Phish and Dead & Co are jam bands with free-flowing vibes, which allow the lights in the Sphere to add to the experience. They all attract fanbases that are older and have money. U2’s residency had an average ticket price of $369. It’s the fourth-highest grossing residency ever with $244.5 million but got there with a fraction of the shows (40) as any others on similar lists.

As lucrative as Experiences are, Sphere will likely replace Postcard from Earth eventually. There are Wizard of Oz rumors floating around. And generative AI may make the next Experience cheaper than Postcard from Earth was.

The part of the Sphere’s business with even higher margins than Experiences though, is Sponsorships. The largely visible ads on the “exosphere,” the outer layer that often goes viral, start at $450,000 per day (and rise during peak travel times). Those ads reach the millions of people in Vegas at any given moment, plus the millions more on social media who see the viral advertising campaigns.

One way to think about Sphere: the concerts are ads for experiences, and the physical venue is an ad itself.

It’s perfect for Las Vegas, but will it work elsewhere? Sphere London is a now-canceled project that cost the company millions in development. The London mayor, Sadiq Khan, and city officials said, ‘not in my backyard,’ in so many words.

Sphere Entertainment plans to expand in other “forward-thinking cities.” I bet we’ll see interest from Riyadh and Dubai, but in North America, the Orlando and Lake Buena Vista area in Florida seems inevitable. Like Vegas, these are destinations that already capture tourism from Disney and Universal attractions. Both Disney and Universal will likely welcome the attraction since new attractions in either competing park also boost tickets for the other since families will often try to visit both on the same trip.

Los Angeles now has Cosm, a Sphere-like experience that has its own expansion plans too. More of these will continue to line up as time continues.

If you enjoyed this breakdown, then this is only a fraction of what we covered in the episode. We also talked about:

- James Dolan and Sphere’s origin story
- sports and corporate events at Sphere
- should analysts value Sphere as a concert venue?

Listen to the episode here: https://link.chtbl.com/sphere