New York City is home to some of the most esteemed commercial and non-profit theaters in the world. While both contribute to the city's bustling performing arts scene, there is a clear distinction between the two sectors.

For anyone interacting with New York City's theater industry, it is important to understand the difference. In the most basic terms, commercial theater is motivated by generating profits for its investors. In selecting a play or musical, producers are largely focused on the bottom line, although artistic merit and entertainment value are certainly still considered. In comparison, nonprofit theater producers are driven by their mission, whether that is artistic innovation, cultural diversity, reviving classics, or something else.

Commercial Theater – Show Me the Money

Broadway productions are primarily commercial, as are many off-Broadway shows and touring productions. They are run like traditional businesses and are typically structured as limited liability companies or corporations.

The primary purpose of commercial theater is to produce a successful show that sells tickets and, thus, generates profits for investors. If a show is unsuccessful, there is a risk that its backers lose their investment. Because the large majority of shows do fail, producing commercial theater often involves greater financial risk than nonprofits. Of course, there is also the possibility of producing a hit show that generates profits for years to come. Original investors in "Rent" made back a staggering 675 percent on their investments.

In most cases, a new entity is formed for each individual show. When the show closes its commercial run, the company is dissolved, and any proceeds are divided among the investors based on the percentage of money that they initially contributed. Profits are then typically split among the producers.

Non-Profit Theater – Motivated by Mission

Non-profits rely on subscribers, donations, and public subsidies to fund their operations. Rather than form a new entity for each production, each show is part of a season of the non-profit company. Proceeds generated by each show are reinvested back into the nonprofit to fund future endeavors.

While many nonprofits are small, community theaters, others rival the country's largest commercial theaters. In New York City, the Roundabout Theater Company boasts 40,000 subscribers, while the Manhattan Theater Club has 20,000.

Due to their structure and diverse funding sources, nonprofits provide opportunities to do works that may not be viable commercially, but hold artistic merit. Because they are mission-driven, they are often more closely tied to the local community. Many offer educational programs, as well as programs for the elderly and disadvantaged.

While they are guided by their mission, nonprofit theaters are not averse to producing shows that will have commercial success. Many consider nonprofits to be the research and development arm of commercial theater. Major Broadway shows like A Chorus Line, The Lion King, and Hamilton were developed in nonprofits.

Nonprofits are attractive for development because they are often better positioned to absorb losses. If one production flops, other shows in the season can help offset losses, while the subscription base and other revenue sources can keep the entity afloat. In fact, many nonprofit theaters do not expect their more experimental, obscure, or edgier shows to be commercially successful. Instead, they count on such productions to further their artistic mission.

Blurred Lines Between Theater Sectors

Interactions between commercial and nonprofit entities are increasingly common. Many in New York City's theater industry, including actors, directors, composers, choreographers, and set designers, work across both sectors. Partnerships between nonprofit and commercial producers are also growing, fueled in large part by economic necessity.

For nonprofits, partnering with commercial production companies can significantly elevate the scale and scope of the production. Meanwhile, joining forces can help commercial production companies shoulder the growing costs of staging a large production.

Nonprofits can also generate sizable profits by licensing successful productions to Broadway. In some cases, shows will go full circle — being developed at a nonprofit, transitioning to Broadway, embarking on a national tour, and returning back to a nonprofit.

Of course, not everyone believes that nonprofits should partner with commercial producers. Critics argue that nonprofits are losing sight of their missions by being too closely associated with commercial producers. On the other side, commercial producers are wary about unfair competition from nonprofits, which benefit from their subscribers, donors, public funding, and tax-exempt status.

However, as the theater industry grapples with rising costs and declining audiences, the two sectors need each other to succeed. To forge successful relationships, all involved need to ensure that their legal agreements clearly establish the rights and obligations of each party, addressing issues ranging from creative control to marketing to licensing rights.

How We Can Help

Whether you are producing a small workshop or a full Broadway show, the attorneys of Scarinci Hollenbeck's Entertainment & Media Group are ready to assist. We understand the myriad of legal issues that can arise when producing theatrical performances and will work with you every step of the way to minimize risks and position your project for success.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.