Before the lights go down, Ken Davenport, a producer scouting for Broadway hits, is figuring that Wood has some things going for it: a story based on Shakespeare's A Midsummer Night's Dream, a Tony Award-winning actress, and early buzz. 

"The question for me as a Broadway producer is not just finding a great show. It's finding a great show that's going to work in the 13-block radius known as Broadway," says the 36-year-old, who has had three Off-Broadway hits, including Altar Boyz. He is producing David Mamet's Speed-the-Plow and Jason Robert Brown's 13 on Broadway this fall.

Wood, part of the New York Musical Theatre Festival, turns out to be a disappointment. "Some of the music is quite lovely," Davenport says. He appreciates the cast and some of the one-liners, but "there's nothing commercial about this piece at all…I think they were too distracted by the codpieces and the blue humor instead of finding the real true heart of the story."

To sell $125 tickets, Davenport says he looks for an ineffable quality that "can incite passionate word of mouth," as well as music with popular appeal and an accessible, heartfelt storyline. "Sixty percent, at least, of most Broadway musical audiences are from out of town—they are not hip young New Yorkers in the East Village."

That would seem to make the New York Musical Theatre Festival, with its hip young composers ( view slideshow), an unlikely source for Broadway musicals. But Broadway's limits are constantly under revision—Rent and Spring Awakening have younger, edgier sensibilities—and the occasional N.Y.M.F. musical has hit the big time.

One of those, [title of show], a meta-musical about making a musical, has been playing Broadway's Lyceum Theatre but will close October 12. Davenport interprets the closing as part of a market correction spurred by the current financial crisis. But he says it won't affect his choice of shows or keep him from N.Y.M.F. (pronounced "nymph"). "I don't time the market," he says. "I look for quality shows that appeal to people, just like I look at a quality stock."

N.Y.M.F., now in its fifth year, has earned a reputation as the Sundance of musical theater, a place where artists can workshop their visions with top-flight performers for a bare-bones budget—and where savvy producers shop for potential hits. The three-week festival, which runs through October 5, offers 24 fully staged musicals and four dance musicals, as well as a developmental series for less finished work, and a variety of special events.

With a $1 million budget, N.Y.M.F. covers shared costs, such as advertising and technical support, while each show contributes $15,000 to $30,000. By special agreement, Equity actors—including top stars—perform for $500 per project. Compare those figures with the cost of mounting a full-scale Broadway musical, which Davenport estimates at $8 million to $20 million.