Tag Archives: consumer spending on the arts

Keep Those Entertainment Costs Down!

Is your nonprofit cultural organization looking to increase your ticket charges next year? Thinking of upping the cost of admission? Trying to build earned income to a higher level of your budget?

Don’t be too quick to go there. The analytics that came out late last month from the BLM show that for 2009 the second most depressed area of spending next to transportation was entertainment. Even when spending on eating out was rebounding, and expenditures on clothing were increasing, people were still cutting their entertainment spending way back. If one corrects the “transportation” statistic to remove purchases of cars or air travel and only focus on cost of operating vehicles or public transportation, entertainment lags even more. Ouch.

Entertainment spending goes way up – out of proportion to anything else – when times are good, but lag behind on rebounds. Consider this: in 2006, entertainment spending increased by a whopping 13.6% from 2005 – the largest single increase of any type of consumer spending that year. It went up another 5.4% in 2007. So by the end of 2007 as compared to the start of 2005, people were spending 18.6% more on their entertainment. Yikes, no wonder things were looking flush.

In 2009, the average consumer spent 2.9% less in overall expenditures as compared to 2008. Health care spending went up by 5%, the exact amount that entertainment spending went down last year. When we needed the cash to pay for the doctor visits, it came out of the household entertainment fund.

In my world of predicting the impact of factors like these on arts and culture nonprofit enterprises, these stats are important. We know that entertainment spending is a lagging factor – it takes much longer to come back than other spending. (Though, when it does, it really zooms up there, as per the 2006 increases.) Translate this: there will continue to be consumer restraint, even though the holiday shopping season is showing some pent up demand elsewhere.

The recent BLM analysis is additionally interesting in showing the best spending by age and income, among other demographics. While the arts have long held that older Americans are their best consumers, its worth while noting that the highest spending on entertainment in 2009 was among the 45-55 crowd. Of course, entertainment as a category is broad, inclusive of sports and other admissions. But the very significant drop in spending among the 55+ crowd as compared to their younger counterparts shows that the “traditional” audience by age group will likely take even longer to come back than the younger group.

Finally, let’s look at what BLM tells us about the ratio between household earnings and entertainment spending. As compared to households earning under $100,000, that group right at $100,000 annual income spends considerably more on overall entertainment. But then there is a drop. In other words, at a certain point just above $100,000 other expenses increased more and entertainment had to go down. Fixed costs cut a deeper wound for these households. It is only when household earnings get over $150,000 that entertainment spending comes back and exceeds the $100,000 earner levels.

Impacts:

1) Expect two years or more before there will be significant increases in entertainment spending.
2) That 55+ crowd, and especially the 65+ crowd, may simply not come back to their pre-recession spending levels on entertainment, especially as their fixed expenses such as health insurance continue to rise.
3) Those that can attract audiences in the 45-55 bracket, right at the $100,000 household income level, will do better than others.
4) Prospecting for new big ticket buyers needs to concentrate on the $150,000 household incomes and upward. The precipitous drop in entertainment spending from $100,000 HH income all the way up to $150,000 HH income shows that these long time good prospects simply are feeling the pinch too much elsewhere.
5) Volume will have to make up for margin in earned income. The way to success in building any sizable new earnings for culture and the arts will be to get more people through the door, not to charge them more. In fact, a continuation of significant discounting or deals will probably be necessary to win increased volume of traffic.

BLM tells us that the best spending in entertainment comes from people who live outside urban areas (beyond the suburbs), then from those in urban areas in the 2.5 million to 5 million range. Consumers in the Northeast and the West spend more on entertainment than those in the Midwest or South. And those with Master’s Degrees or more outspend those with Associates degrees 3:1. Education matters.

Yesterday’s announcement of a 2% reduction in withholding tax along with maintenance of the Bush-era tax rates are both good news in this realm, potentially spurring a bit more comfort. But remember, other areas of spending have rebounded faster and have some momentum going. Hang on, look to modest growth, and if you are betting on any particular market segment to fuel your rebound: find ways to connect to the spenders – 45-55, Masters Degress + , $150,000 HH income.