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American Idol Finale: Results Show
Kevin Winter  /  Getty Images
Carrie Underwood sings one last song at the 2005 "American Idol" finale in Hollywood, but the company that owns the franchise is betting the curtain won't come down for at least five more years.
By Mike Brunker Projects Team editor
msnbc.com
updated 1/15/2007 3:05:40 PM ET 2007-01-15T20:05:40

Only those who spent the past five years living in a cave could possibly be ignorant of the phenomenon that is “American Idol.” But even the show’s most ardent fans — the ones capable of reciting Clay Aiken’s Season 2 song list by memory — are likely unfamiliar with the extent of the entertainment empire that has grown up in the long shadows cast by Simon, Paula and Randy.

One mind-bending gauge of the financial success of “American Idol” was provided this month by Advertising Age magazine, which reported that the show’s franchise is “conservatively valued at $2.5 billion” and climbing. If it’s not already, it will soon become the most lucrative multimedia property of all time, it said.

By way of comparison, that figure approximates the gross domestic product of Moldova, which, though it is Europe’s poorest country, is nonetheless a nation of roughly 4.5 million people, not a commercial enterprise.

“Idol,” which returns for its sixth season Jan. 16 on Fox, generates much of its value in traditional ways, earning $500 million a year in TV advertising, and many millions more selling music and managing its stable of stars.

Tapping new revenue streams
But it also has developed into a cottage industry that enables the show’s creator, owner and various affiliated companies to dip into revenue streams that its predecessors could only dream of:

  • “Idol” has introduced millions of Americans to text messaging and, in doing so, created a new revenue model. Last year, 64 million votes were cast for favored contestants using Cingular cell phones, more votes than have been cast for any U.S. president.  
  • ‘Idol’ by the numbersThe show is the runaway leader in television product placement, where advertisers pay to have their product mingle with the judges and contestants rather than be relegated to easily ignored commercial slots. Nielsen Media Research reported that advertisers paid to have their products featured on “Idol” 4,086 times last year, far surpassing runner-up "The Amazing Race," which notched 2,790.
  • Freemantle Media, which owns the licensing rights to “Idol,” is aggressively expanding its business. In addition to the 40 licenses already issued, it is working on deals for “Idol” ice cream, “Idol” Monopoly and an “Idol” theme park attraction, Advertising Age reported this month.
  • The company also is selling ads to the likes of McDonald’s and MasterCard to accompany an online version of the program that will be streamed over the Internet as soon as the TV broadcast ends, the magazine said.
  • The written word also is fair game. “Heart Full of Soul: An Inspirational Memoir About Finding Your Voice and Finding Your Way,” by 2006 winner Taylor Hicks is due out on April 3 (suggested retail price $24.95). Or for some lighter reading, perhaps a subscription to “American Idol: The Magazine,” at just $10 for four issues?

This uncanny ability to identify and exploit new sources of income is not just happenstance.

“Idol” creator Simon Fuller, a Briton who founded the company now known as 19 Entertainment in 1985, had just such a beast in mind when “Pop Idol,” the first version of the show, debuted in the U.K. in 2001.

Spice Girls an ‘Idol’ trial run
It was a vision that he had polished in earlier forays into the entertainment world with the 1990s pop group The Spice Girls and another British teeny-bopper act, S Club 7, which he catapulted to stardom through a television show, much as was done in the U.S. with “The Monkees” in the mid-1960s. Both The Spice Girls and S Club 7 also were managed by Fuller’s company, appeared in movies it made and entered into licensing agreements for spin-off products that it engineered.

The U.S. entertainment marketing firm CKX Inc., which purchased 19 Entertainment for $192 million in cash and stock in March 2005, described Fuller’s vision for all three “properties” in a recent corporate filing:

FULLER
Stefano Paltera  /  AP file
"American Idol" creator Simon Fuller, shown in 2005, has big dreams for the already successful franchise.
“Each of these was conceived as a multi-platform entertainment property and has experienced substantial success on a worldwide basis, generating multiple revenue streams, including recorded music, music publishing, television, film, merchandising, sponsorship, artist management and promotion.”

Today 19 Entertainment reflects the many facets of Fuller’s business model, with more than 20 divisions devoted to producing television projects, including the “So You Think You Can Dance” and “All American Girl” shows for the U.S. market; artist management; music recording (including a lineup of award-winning writers and producers available for hire); merchandising; and concert touring, among others.

In a recent expansion of its reach, the company has entered the sports arena, signing deals to represent and market Los Angeles-bound soccer star David Beckham and his wife, Victoria (formerly Posh Spice), England’s national soccer team and, beginning this year, Honda Racing’s Formula One team. 

‘Fashion is the final piece’
Fuller’s most recent enterprise, announced in September, is a partnership with fashion designer Roland Mouret that will market clothing under the 19 RM line.

In an interview with Women’s Wear Daily shortly after the announcement, Fuller said, “Fashion is the final piece of my 19 (Entertainment) jigsaw. It is the glue that brings everything together, the glamour that makes the soccer player an individual, the movie star a sex symbol and the musician a trend-setter and idol.”

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The acquisition of 19 Entertainment by CKX Inc., an entertainment marketing firm owned by American billionaire Robert F.X. Sillerman, offers intriguing possibilities for the future.

CKX owns the rights to the names, images and likenesses of Muhammad Ali and Elvis Presley (as well as the operation of Graceland) and a firm that manages such comic talents as Robin Williams, Billy Crystal and Woody Allen. Among the projects CKX has in the works is a Presley "extravaganza" that it is developing with the Cirque du Soleil acrobatic troupe. The show is planned to be a permanent fixture at the new MGM Mirage in Las Vegas when it opens in November 2009.

Both Sillerman, who made his money in radio and concert promotion, and Fuller have hinted that other great things are anticipated as the partnership matures.

The 19 Entertainment Web site says that Fuller expects to “create entertainment history and set the agenda for the 21st century,” while Sillerman told USA Today in October that his company will unveil a venture in 2007 that could “have a profound impact” on all forms of entertainment. He declined to characterize it.

In the meantime, though, “Idol” remains CKX’s cash cow.

Last year, 19 Entertainment contributed just shy of $135 million in revenue and $39.2 million in profit to CKX’s bottom line in the nine months ending Sept. 30, according to the company’s filings with the Securities and Exchange Commission. Both figures were substantially higher than the $64.5 million and $7.7 million, respectively, generated in the same period the previous year.

Calculating ‘Idol’ life span
The big uncertainty is that, unlike many assets, a television show has no reliable life span. Although CKX recently signed a deal with Fox Entertainment, Freemantle Media and SonyBMG to extend “American Idol” at least three and as many as five more seasons, it’s also possible the show could tank.

In its SEC filings, however, CKX is taking the optimistic view, estimating that the “Idol” assets have 5.5 years of “weighted average remaining useful life.”

And most entertainment sector analysts say financial indicators continue to be bullish for the show and its many corporate offspring.

Gary Bongiovanni, editor and chief of Pollstar USA, which tracks the concert industry in North America, said the “American Idols Live” tour did “considerably better” in 2006 than the previous year, finishing 19th among all performers.

“The average number of tickets sold per city was close to 12,000, which is maximum for a lot of arenas,” he said. “They average more people than Mariah Carey did, or The Who for that matter.”

Geoff Mayfield, director of charts and senior analyst for Billboard magazine, said that “Idol” artists racked up strong CD sales in 2006, led by Season 4 winner Carrie Underwood and Season 1 victor Kelly Clarkson, a two-time Grammy Awards winner.

Mayfield said he was a doubter when the show first aired, figuring the novelty would wear off during the second season. But not any longer.

“I no longer bet against the ‘American Idol’ franchise, and I will continue to bet with them for the foreseeable future,” he said.

© 2013 msnbc.com Reprints

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