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Investor Update - 3Q17

It is our pleasure to enclose a check representing your pro rata share of the $116,023.54 distribution from HJKS Partners II, LLC. This amount represents revenue received in 3Q17 (a 18.56% return of capital), bringing our total returned since inception to $287,518.23 (a 46% return of capital called to date).

We are also very pleased to make you aware of our redesigned website:

In case you are unfamiliar, “Starry Night” is our production company banner (i.e. the credited entity for theater playbills and television shows). Exploring our new portal, you can read frequently-changing news updates, watch media from our shows, and importantly, access a special confidential section just for HJKS II Members. Click the “Investors” tab and HJKS II icon, and enter the case-sensitive password also found on your Quarterly Statement in red:


You can now access exclusive content, request the occasional house seat to our shows, and soon be able to download previous statements. Please kindly note this password must be kept confidential as we do not want anyone but our Fund members accessing the information. We hope you will enjoy this new website and feel free to let us know if there are features you’d like to see added in the future.

And finally, in this quarterly statement, as you will observe from your Investment Statement, the Fund currently has several projects in its slate including the HAMILTON National Tour (“Angelica”) which has returned a sizable 251.48% since it started in March, HAMILTON London (“George III”), beginning at the end of 4Q17 (delayed two weeks due to a construction issue of such an historic building), OSLO on the West End, and LABOUR OF LOVE on the West End.

In what encapsulates the magic and danger of live theater, LABOUR OF LOVE had a small scare a few weeks ago when, just two weeks before first preview, its co-lead Sarah Lancashire had to regrettably withdraw from the production due to a health issue. As a testament to our frequent colleague Michael Grandage Company, however, the production managed to rapidly replace Sarah with perhaps an even more famous Tamsin Greig (star of EPISODES). Ten performances were delayed, which lost a little revenue, but we still sit at an advance of nearly £1.55M.

Reviews from Press Night on October 3 were very favorable, with 4 out of 5 stars nearly unilaterally across the board and pull-quotes including “A Brilliant New Play” (Guardian), “Freeman and Greig are Magic…” (The Times), “James Graham is British Playwriting’s Wunderkind” (Evening Standard).

Reviews from OSLO were equally glowing when it began its London run at the National Theatre before moving to the Harold Pinter Theatre on the West End: “Riveting” (Guardian), “Impressive…absorbing…watch, learn, marvel” (The Telegraph), “A remarkable play… a fast-paced, quick-witted intellectual thriller” (The Independent). The advance currently rests at £1.38M which is a very healthy number for this play.

It should be noted, however, that unlike on Broadway, where The New York Times wields sledgehammer power (former chief critic Frank Rich was notoriously called “The Butcher of Broadway”), the West End does not have such a reliance on one or two newspapers, nor do they publish weekly grosses. The collection of reviews count more, and they, like us, have a star-driven and word-of-mouth culture. On Broadway, it used to be said that the New York Times could kill a show with a bad review (google “Moose Murders review” for Rich’s infamous death blow) and cement a smash with a good review. However, although The Times still wields outsized influence, the demise of print, proliferation of social media and blogs (in which everyone is a critic) and a boom in a tourist-driven audience have made it far more complicated to push out good reviews in a way that translates to building an audience.

Frequently, this is most seen in the box office receipts (referred to as the daily “wrap”) the day after a show opens. 10 years ago, when you had 5-star reviews on a Sunday, and went to your marketing meeting on a Monday, you’d be congratulating each other when your wraps went from $80,000 on Sunday morning to $500,000 on Monday. Now, you are happy if your wraps double or triple following glowing reviews. This past season, for example, A DOLL’S HOUSE PART 2 opened cold on Broadway with Chris Cooper and Laurie Metcalf. It opened to some of the best reviews of the year and grossed an average of $300,000 a week, which must have been nearly a complete loss. The truth is, most box office smashes are cemented before first preview even begins (hence why the uber-successful producer Scott Rudin has a goal to sell-out a show before first preview. In truth, this is a double-edged sword as that all’s marketing money!). And, since Broadway publishes weekly grosses, legit (theater) reporters have fodder to publish weekly bylines speculating on a show’s success or failure following its first or second week of previews. In an age of such tremendous competition in entertainment, who wants to see a flop? So, how do you mint a hit prior to reviews? You need a star. And thus, a star-driven and branded content culture is borne.

Looking ahead to the 2017-2018 and beyond, the Fall Season is off to a promising start. Grosses are up ~20% over a year ago, while attendance is up 7% for the same period (the difference in percentages due to dynamic premium pricing).

There is still a logjam of shows vying for the precious few available theaters (Broadway currently has 41 houses but over 1/3 are taken by long-running hits including PHANTOM, LION KING and WICKED).

As Jimmy Nederlander just recently remarked, “We’ve got backups and backups and backups of shows waiting for a theater.” Shows on deck including PRETTY WOMAN, CHER, and MEAN GIRLS, are all titles that will be holding workshops and out-of-town tryouts (note, of course, these are all existing brands that tourists in particular might know). Of course, shows like FROZEN will be smash perennials but are not open to outside investors. Plays including METEOR SHOWER still show the reliance on tried-and-true star-power, not from its author (Steve Martin, who also penned last year’s “flop” BRIGHT STAR), but from its star, Amy Schumer, also making her Broadway debut (which is a hook that regularly translates into long-lead press and a feature “Arts & Leisure” cover story). Unfortunately, we believe that the incredible list of shows vying for theaters not only creates tremendous competition, but also a creative and financial conundrum – if your show is not-quite-ready-but-close and a Broadway landlord offers you a precious slot which, if you don’t take, drops you back to the bottom of the list for the following year or more, it’s very tempting to accept the bird in the hand and rush your show to Broadway.

Our strategy has always been three-fold:

1) Invest in or Co-Produce a few select “singles and doubles,” the star-driven, limited run play; 2) Limit our “home-run” opportunities in musicals only to shows about which we feel immensely passionate both artistically and commercially (in other words, chase the content, not the money, but be conscious of both); and 3) Strategically build relationships that can eventually pay off when we become General Partners, which is where the real profit potential rests for our Fund as the GP’s make a far higher carry than any investor. To refresh, in our Fund and its unique model, that GP profit gets passed back down to the Fund investors. Hence, we made our minuscule investment in OSLO because it was an artistic and financially sound decision that also allowed us to work directly with the heads of Ambassador Theatre Group, among Europe’s largest theater-owners who just bought their second Broadway house in New York (the Hudson Theatre, preceded by the Lyric Theatre).

And finally, we are pleased to advise that we should have some positive news on a few projects, one in particular, by next quarter! More on that in the months to come.

We do hope you enjoy our new website and, as always, we remain available at your convenience to answer any questions. Wishing you and your family a great Fall. Thank you again for joining us on this journey.


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