Tag Archives: Philadelphia Orchestra

A Crisis of Audience

We have an audience crisis on our hands. More grim news in the performing arts field this week comes from the New York City Opera, which is leaving Lincoln Center for someplace, somewhere, sometime. It wants a smaller hall which it hasn’t yet found, and it wants to eliminate fixed operating expenses. Why? On any given great performance evening, it can only count on what is reported to be an audience so small that it fills no more than 40% of the hall.

Sound familiar? My blog on the Philadelphia Orchestra noted that in their case, too, small audiences are at the root of the problem. In too many American cities and for too many great American live performing arts institutions, ticket sales are now making up the decided minority of overall revenue. And that’s the most serious problem in the field today. Without regular, repeat buyers – and I’ll take any kind of repeater, not just a subscriber, but anyone who cares enough to come back a couple of times a year – organizations can’t build loyalty. Without loyalty, there is no real personal identification, involvement, and investment. And without that personal identification, there is no annual gift. Without annual gifts, there are rarely major personal gifts, and even more rarely bequests and planned gifts that have long been the foundation for endowments and special programs.

So eventually, smaller and smaller audiences spell fewer and fewer donors. This is particularly critical as we move toward 2012’s Federal proposed cap on itemized deductions, including those for charitable contributions, at 28% of personal income. Not only will this have a highly negative impact on larger gifts from more affluent donors, it will place the burden on more smaller gifts from more people who will be essential to the survival of nonprofit arts organizations. That means we really have to hustle to get more repeat ticket buyers that will make a greater quantity of albeit smaller gifts.

A lot of what is keeping people away from ticket buying is cost; even a musician in the New York City Opera orchestra was noted as saying that he didn’t blame folks for not being able to afford tickets to the organization that has employed him. He’d probably just go out for a beer, he said, if he had any extra change. A beer out is about as much as many arts lovers can afford these days, and that’s flat-out tragic.

But others are fortunate enough to be able to pay the price of admission. And right now, we have to connect to them, woo them, and win them. We need an audience that can and will pay, will come back, and will stay. That means we have to find them, first; then win them.

Typically, development officers are the ones that put stock in donor research. Here at ArtsMarket, we believe in starting prospect research much earlier than in the development office: you’ve got to find likely markets that will be able to buy tickets, and begin with getting them in the door. That takes a lot of research and analysis, and prospecting that is pinpointed.

Yes, social media and mobile-marketing and advertising can do a good bit to get the last-minute buyers to your box office. Both are essential in connecting to younger buyers, and particularly to impulse buyers. But maybe institutions that budget too little for arts marketing – arts marketing has remained perennially underfunded – need to think again. We know of too many organizations that have just been kidding themselves into thinking that more and more (even all) of arts audiences can be won through low-cost social-media based marketing, alone.

This has to be the time when solid research-based prospecting and communications that can be accurately predicted and managed comes into play. We have to build a new pipeline of prospective audience loyalists. Those who take marketing seriously and do it comprehensively stand a chance of winning. And right now, we need a field-wide commitment to winning – to winning people back and into halls for great art. Before for others, like NYCO, it is too late.

Arts Marketing and a Bankrupt Orchestra

Now we know what makes the perfect storm that topples arts organizations. Yesterday in the Philadelphia Inquirer, Philadelphia Orchestra Board Chair Richard B. Worley laid it out. The story is classically cautionary.

”Today, our unrestricted endowment is nearly exhausted, our emergency fund has also been depleted, and our cash reserve has fallen to $3 million. Absent additional funding, we will run out of money soon.

“Our costs are too high, but the basic cause of our financial problem is declining revenue. The audience is the lifeblood of the orchestra, providing ticket revenue and a vital donor pool. But over the last two decades, attendance has declined from 250,000 to 150,000 annually, and half of that decline has been in the last five years. As a result, ticket revenue has declined to only a third of expenses, and donations have fallen to half the level of other major orchestras.

“For years, our costs increased as revenues declined, and our operating deficit is expected to reach $14.5 million this year. In the face of such deficits, we drew down our unrestricted endowment and, as that dwindled, raised $15 million in emergency funding from the board and a small group of donors.

“Second, the orchestra does not have $140 million in assets to meet obligations. The orchestra and the Academy of Music together have $140 million in restricted endowments. We are limited by law and donor restrictions to spending only the income from endowments, not the endowments themselves. And spending the endowments, even if allowed, would be a path to ruin, shrinking income and our ability to attract endowment gifts.”

The absolute centerpiece of this is the second paragraph. The orchestra has lost on average 10,000 ticket buyers a year for the past five years, meaning that earned income has fallen to only represent a third of all revenues. So, you ask, can’t this be the new normal? Can’t organizations survive just fine on a 33% earned-66% contributed revenue split? I’ve actually seen plenty who are attempting to say this is the new model of health.

But it isn’t, and Worley’s well chosen words say why. When audiences get too small, they don’t provide the lifeblood or pipeline to keep an organization healthy. In any given year, there is always huge audience attrition. People die, move, put their leisure money elsewhere. As a result, every organization needs enough of those casually interested ticket buyers to survive the attrition and stick around, ideally now as a more regular attender, eventually even as a subscriber. And there have to be enough of those regular attenders who stick to become new donors, to replace the donors who every year also leave through attrition. If the system has too small a base, you are mathematically out of luck. For example, draw your attender triangle on its base, then split it into four segments. Label each segment from the bottom up as follows: casual, repeat, sustained, supportive. How broad is your base? Broad enough to make sure that top section is large enough to do its job?

In the new normal, that top section of the triangle now has to churn out – inspire, win, give, cause to give –the staggering portion of the budget that now has to come from contributions. How realistic is that when the base is shrinking faster than ice cubes in July?

A lot of people will blame the marketers for not doing their job, and as the musicians’ leader John Koen correctly points out in his own letter to the Inquirer, crucial marketing and development positions at the Orchestra have long remained unfilled. No doubt, as so often happens, this was in an effort to save salary costs – but at the peril of generating essential revenue, and even more so, at generating that base of the triangle that has to be rebuilt.

Yet, there is a far, far bigger issue at stake here. Quite simply, marketing has to emerge on such a scale, with such ability to change consumer behavior as we have never seen before to save this orchestra and hundreds of other arts organizations and entertainment presenters around the country.

The issue is as much one for Hollywood and movie theatres everywhere as it is for symphony orchestras: Consumers have changed the way they spend their leisure money, and techno-apps gains have been live entertainment’s loss. Just last week, I took a look at some recent household spending trends with data available from the Bureau of Labor Statistics. I chose three variables: entertainment tickets and admissions; spending on audio-visual equipment, and a relative constant – spending on women’s apparel.

The game changer, of course, is audio visual. Our insatiable thirst for new apps, new eReaders, new tunes and tablets and a million new games has grown and grown and grown. That’s just fine as long as household resources keep growing and growing along with it. But say you only have so much money to spend – ah, the recession – and then say you spend more of it on new gadgets than ever before. Something suffers, right?

Notice how closely spending on clothing and entertainment parallel each other all along the way, until suddenly at the $200,000 + household earning level, entertainment springs loose. But really examine how vastly different spending is on apps and stuff: look at that huge chunk of household money.
This relatively fresh data (it was released in October, 2010) spells out the new normal for all live entertainment: you’ve got a far smaller slice of your consumer’s budget dedicated to you than ever before. Given this, how realistic is it to expect to build the bottom of that triangle to the level needed?

When we talk about a structural problem in the arts, it begins right here, not just on the balance sheet at the Symphony. Perhaps, if the recession vanishes, there will be more household money, more ability to blur the stark numbers above. But a blur is all it will be.

Only with herculean marketing efforts to pry dollars away from the newest cool stuff are we likely to survive. Only with equally herculean investments that insert the arts into technology to create new revenue streams will the badly needed new revenue sources really open up. The entire consumer system around entertainment has to change. And somehow, we’ve got to make that happen. Or what we see in Philadelphia will just keep playing and playing, coming sadly and soon to a city near you.

So take a good, hard look at doing marketing the right way. Just how aggressive does your institution need to be to chip away that household spending on apps and tablets and move those dollars into the fees and admissions column? Just what needs to happen to ensure that you have the audience lifeblood that Philadelphia so needs and lost?

If this isn’t a blip, just what is it?

The news about the bankruptcy filing that will be made in Philadelphia court tomorrow by the venerable Philadelphia Symphony Orchestra has stirred angst around the globe. But the bigger news is hidden in the comment made by the American Symphony Orchestra League’s Jesse Rosen: “This is not a blip.” No, it isn’t, and that’s the real story. So far this year, both Honolulu and Syracuse have seen their orchestras go bankrupt. The eyes of the arts world have been on Detroit for months now, waiting to see if the inevitable will happen there as anticipated. Louisville’s fine orchestra filed for bankruptcy in December, not even making it to the New Year, bailing before those critical last few weeks of the calendar year when big donors in search of tax benefits often save nonprofits. Rumors swirl that the Indianapolis Symphony Orchestra, another wonderful ensemble, may not be far from taking the big step. And there are many other cities large and small throughout the United States where business and civic leaders, board members and donors are having plenty of sotto voce conversations about just what to do when the inevitable hits their back yard.

Bankruptcies aren’t new to the performing arts. Every recession in recent history has forced a few organizations that are under-endowed and over-contracted to face the music. Theater companies, ballet companies, opera companies, orchestras and performing arts venues themselves have all been victims.
But now that we all see the world in the post-Wisconsin-public-employee-union-pension world, different questions are being asked about the long term viability of performing arts institutions.

This is an industry that is firmly union based. When they are asked to save performing arts organizations from bankruptcy, many donors know that what they are really being asked is to maintain union agreements – often agreed upon in far rosier days – and in some cases to preserve or potentially bail out union pension funds. With the Philadelphia Orchestra – as with most of the organizations that have gone to Bankruptcy court before and those that are contemplating the move today – overly generous union contracts that can’t be met in today’s economy are the central issue. Sound familiar?

If you read last week’s post to this blog – and a lot of you did – you’ll remember that we’re thinking a lot about the sea changes impacting the arts. So rather than look at the Philadelphia Orchestra bankruptcy as just another blip, we’re pretty convinced that it is potentially, tragically, better described as a “new normal.” Simply put, too many contracts have promised too much that can’t be met. Too many pensions are underfunded, and depend on the continuation of current generous contract agreements to fund past agreements. Also, endowments are restricted in purpose and can’t be drawn down to meet crises. (Though, truth be told, plenty have been borrowed against steeply enough to cause their own set of problems.) At the same time, performing arts halls that have also granted their own unions lavish contracts – such as the Kimmel, the home of the Philadelphia Orchestra – need to charge every penny possible to stave off their prospective bankruptcies. Operating costs are through the roof. For large systems of performing arts organizations and their halls, the performing arts financial model is barely working, and only for those with the very largest endowments.

At ArtsMarket we’ve been increasingly asked to examine solutions to these developments in many different markets. Business leaders who are increasingly shaking their heads and refusing to bail out individual institutions are seeking larger, systemic adjustments. We’ve heard from many – corporate leaders in particular – that they’ve had it. Many understandably worry at the signals they send to their own employees when they step in to bail out arts union jobs providing six figure wages and generous pensions for jobs that often allow for or even further additional earning opportunities at universities and conservatories. Politicians feel the same way: How can tax payer dollars go to bailing out private sector union workers when public sector unions are up against it? Donors feel it, too. When institutions as venerable as the Philadelphia Orchestra declare bankruptcy – potentially making it possible to liquidate endowments that were never to be liquidated – why would any individual of means write that seven or eight figure check for an endowment meant to keep organizations safe forever? Why not give those dollars to something more pressing, more immediate, and possibly more honest in intent?

Are there solutions to this mess? Sure. But just as the citizens of Wisconsin have learned over their season of public employee union battles, the adjustments are nasty business, no matter what side you are on. First, you have to face reality, hard and uncompromising as it is. As the old saying goes, you have to raise the dragon to slay the dragon. One of our field’s many dragons is that we want a mid-20th Century performing arts system in a 21st Century world. We don’t want the pain of recognizing that our consumer tastes, interests, budgets, and technology have so dramatically and fundamentally changed our arts consumption and behavior that we aren’t ever going back.

We’re living in a time warp of about 1975. Are we ready to live in 2011? Because if we are, and we recognize that this Philadelphia story is not a blip, we better get busy in rethinking the entire financial and operational model of the performing arts while it is still possible to restructure outside of bankruptcy court.