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One of the most risky and expensive parts of any product oriented business is new product development. You invest hundreds of thousands or millions of dollars on a product you are not even sure will have strong demand in the marketplace. Oh sure, you have focus groups and surveys, years of experience among your marketing staff, and on occasion, a strong gut feeling by an anonymous someone that's just sure this product is going to take the marketplace by storm. Once in a great while a business finds a way to mitigate these risks.

Once in a lifetime they not only find a way to mitigate the risks, but turn the product development itself into a profitable business, one that generates millions of dollars, and, in so doing, generates a groundswell of consumer demand for the product being developed. The demand generated is so great that when the product is released, it generates huge sales figures right out of the gate. When that occurs, you have the phenomenon that is American Idol.

It's just plain brilliant marketing. Why pay armies of A&R guys to hang out in dank clubs throughout the nation, hoping to discover the next big thing, when you can create it? Not only that, but create it in such a way that will be immensely profitable and guarantee tremendous popularity from the get go. It's normally a tremendous risk for the major manufacturer (record label) to develop a new product (artist). Typically a new artist must sell about 500,000 copies of their debut album before they turn a profit for the label (This is for the major labels. Small, indy labels can do it with fewer sales). Sure, some will sell without requiring the mountains of marketing and promotion dollars, or endless hours of expensive studio time that normally precede such success in the marketplace, but those successes are few and far between.

Where American Idol really exhibits it's genius is not only the way Simon Fuller has managed to eliminate the inherent risk from the new product development cycle, but to do it in such a way that creates tremendous demand for the product. In addition, the show has a myriad of revenue streams that are actually created by this very process. Pure genius. Take the voting system, for instance. Each night, the viewing public (future customers) call in to choose the winner, or rather determine the loser of the evening. They actually pay $.99 for the privilege of doing so. I don't know the exact revenue sharing arrangement that Idol's producers have with the telephone companies, but at 25 to 35 million votes per show, their take amounts to a pile of cash. See, have your future customers choose what product you should concentrate on in the development cycle, and make them pay you to do so! Amazing.

Due to the show's immense popularity, they are able to charge top dollar to advertisers as well. According to Advertising Age, 30 seconds on American Idol costs advertisers about $600,000 so far this season This is about 50% more than the number 2 in cost per 30 second spot, ABC's Desperate Housewives. There are quite a few of those slots available on a 1 or 2 hour show. Ca-Ching! There's another revenue stream for Fuller and company. Then you have the sponsorships and product placement revenue. If you've ever seen Idol, you've no doubt noticed that the judges have Coca-Cola cups prominently featured on the tables in front of them. No accident, that. Notice too how the label is always turned so as to be visible to the cameras. Who knows what beverage is actually in those cups, but at least the label generates a solid hour of exposure for Coca-Cola.

To top it off, the show does create good product that sells well, generating even more money for the show's producers. Reportedly the contestants contracts guarantee that even non-winners will be contractually bound to the Fuller & company for an unspecified period. Previous show contestants have turned out 42 singles that have spent time on Billboard Magazine's Top 100 singles chart, with 6 reaching the top 10. Six of the contestants are also multi-platinum album sellers, with season 1 winner Kelly Clarkson selling, to date, about 8.5 million albums. Two of the contestants, season 1 winner Clarkson and season 4 winner Carrie Underwood, have won industry leading awards, the Grammy and CMA, with Underwood winning both awards. The show airs in about 30 countries, ensuring that the demand for the show generated stars will be truly international.

In another bit of marketing savy that generates ever more money for the producer's coffers, and bolsters contestants visibility, the top 12 contestants embark on nationwide tour to typically sold out arenas. Backed by major sponsors, the tour generates additional millions of dollars, both directly and through the additional record sales produced by the performances. This is to say nothing of the dollars created by that traditional concert revenue stream, product merchandising. Sales of promotional items bring in more cash, and the marketing machine rolls on.

Pure marketing genius!