A Profile of the Performing Arts Industry
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A Profile of the Performing Arts Industry

David H. Gaylin

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eBook - ePub

A Profile of the Performing Arts Industry

David H. Gaylin

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About This Book

Attending a live concert or theatrical performance can be a thrilling experience. At their best, the performing arts represent the height of human creativity and expression. But the presentation on stage, whether it is Shakespeare, Beethoven, or The Lion King, depends on a business backstage. This book provides an overview of both the product on stage and the industry that makes it possible. While the industry's product is unique—with unique supply and demand characteristics—it is still an industry, with supply inputs, organization structures, competitors, business models, value chains, and customers. We will examine each of the major segments (Broadway, regional theater, orchestra, opera, and ballet) along these business dimensions. This book will give lovers of the performing arts an understanding of the business realities that make live performances possible. Managers, board members, and performers will be better equipped to take on the strategic challenges their companies face. People contemplating any of these roles will have a better idea of what to expect. Business analysts and students of strategy will discover how economic frameworks apply in this unique setting where culture and commerce converge.

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Chapter 1
The performing arts include music, theater, and dance, and reflect some of humankind’s most essential activities. The format was set in ancient times—live performers, a space to perform in, and a live audience. Indeed, the arts predate civilization. Archeologists have found flutes made of mammoth ivory and bear bone that are 42,000 years old, with carefully carved finger holes and mouthpieces. The earliest cave drawings are equally old. By comparison, farming and domestic animals did not appear until about 10000 BC and writing not until 3000 BC. Some anthropologists even hypothesize that language began as a mixture of singing and speaking.
Miraculously, our Paleolithic art evolved into the works of Sophocles and Shakespeare, Bach, Beethoven, and Balanchine. It is one of civilization’s great achievements and transcends its cultural origins. Shakespeare is by far the world’s most produced playwright, in both English and translation. Tokyo has more professional orchestras (eight!) than any other city. China reportedly has 50 million piano students, and there are opera houses in Bangkok, Hanoi, Kuala Lumpur, and Ulan Bator. The uniquely American inventions of jazz, modern dance, and the Broadway musical likewise can be seen and heard around the world. The performing arts that developed from Western culture have demonstrated close to universal appeal and staying power.1 The industry that sustains it, however, is in transition.
Turbulent Times: Winners and Losers
Spending on live entertainment in America was almost $29 billion in 2013. According to government statistics, it has been the fastest-growing form of recreation since 2005 and one of the fastest-growing segments of the entire economy. But growth has been uneven. Pop-rock concerts have had banner years, with the top acts filling 50,000-seat stadiums at ­hundreds of dollars per ticket. Broadway is setting records, led by The Lion King and Wicked, and comedy is also strong. But traditional ­performing arts companies are fighting to hold their own. Theater, ­symphony, opera, and dance companies, which expanded during much of the 20th ­century, are facing serious challenges. While almost 50 million U.S. adults attended a performing arts event in 2012, the participation rate has been declining for more than a generation. Like other ­entertainment segments, the ­performing arts have also been affected by the ­ubiquity of digital media and changing consumer behavior.
The plodding general economy has amplified areas of weakness. The industry was still recovering from the 2001–2002 recession when the 2008–2009 financial crisis hit. Some companies felt the need to cut back the number of productions or to present less expensive works. But cost-cutting efforts often triggered labor disputes in this highly unionized industry. There was a rash of lockouts, strikes, and even bankruptcies.
In April 2011, the venerable Philadelphia Orchestra, long ranked among America’s “Big Five” symphony orchestras, declared bankruptcy under Chapter 11. Unable to get costs and revenue in balance even as the economy seemed to be rebounding, the company’s board of directors concluded it faced a “structural deficit” that could only be solved in court. During the contentious, 15-month legal process that followed, Philadelphia still managed to maintain its concert schedule and payroll. Orchestras in Detroit and Minnesota cancelled entire seasons; the New York City Opera closed down entirely in 2013, and the San Diego Opera’s board voted to close in 2014 but reversed itself only after a communitywide rescue effort.
For long-standing institutions like the Philadelphia Orchestra to declare bankruptcy came as a shock to some and a huge warning to all. But theater, music, opera, and dance companies are businesses subject to the laws of supply and demand. Bankruptcy rates among the 8,500 performing arts companies in America rose after the Great Recession just as in other industries. Companies like Philadelphia, Pasadena Playhouse, and Louisville Orchestra were able to use Chapter 11 to reorganize and cancel debts. But others, such as the American Musical Theater of San Jose, Ballet Florida, Opera Boston, and New Mexico Symphony, had to liquidate under Chapter 7 and disappeared.
Yet amid these struggles, some companies are enjoying box office and financial success. The Los Angeles Philharmonic, with a $110 million budget in 2013, has had operating surpluses in 10 of the past 11 years and sells more than 90 percent of its seats. Every year, New York City Ballet, a $60 million business, sells more than 45 performances of George Balanchine’s classic choreography for Tchaikovsky’s The Nutcracker in a city that supports six or more competing productions. On Broadway, Phantom of the Opera has played more than 11,200 performances since it opened in 1988 and is still playing. Off-Broadway, The Fantasticks ran for more than 17,000 performances between 1960 and 2002, was revived in 2006, and has, so far, earned its original investors an estimated 24,000 percent return.
Nor is success found only in New York and Los Angeles. ­America’s 1,800 not-for-profit professional theater companies, located in all 50 states, have collectively generated operating surpluses in 10 of the last 11 years, too. Dozens of ballet companies stage their own productions of The Nutcracker for the Christmas holiday period every year—43 performances by Boston Ballet, 33 by Houston Ballet, and 20 by Atlanta. Many midsized and small companies are also thriving. The Omaha ­Symphony performs more than 200 concerts each year on a $7 million budget and typically runs a modest surplus. Jackson, Michigan, 80 miles west of Detroit, supports a professional orchestra, a music school, and a ­composer in residence on an $800,000 budget. Turnarounds are also possible. The Charlotte and Louisville symphonies, with budgets of $9 million and $6 million, respectively, each ended FY2014 with their first surpluses in more than a decade.
No performing arts company is resting on its laurels in these challenging times. Yet, while some companies struggle to survive, how is it that many are holding their own or even thriving?
Key Drivers of Economic Performance
A company’s economic success is driven by three sets of variables and their interactions:
1.The nature of the product or service sets intrinsic parameters for the structure of cost and revenue. Every performing arts company is a service business, providing a particular form of consumer ­entertainment at a particular time and place. The “product” is labor-intensive, highly perishable, and a discretionary purchase, competing with many other recreational options. Beyond this common baseline, however, each performing art form has specific production requirements and audience expectations (e.g., musicals are more complex and costly to produce than plays; opera singers are expected to perform without amplification). In addition, there are unique characteristics of producers and consumers of performing arts that affect supply and demand (e.g., the job market is full of aspiring performers despite the low success rate and below-market compensation).
2.The market and competitive environment is dynamic and presents potential opportunities and threats along multiple dimensions. Since live performance is location specific, geography is a key driver. Big-city markets, with more wealth and diverse buyers, are often at the extremes, with a few top-level companies and a large number of niche players. Smaller metro markets are more likely to have a few midsize companies trying to gain critical mass and highly subject to local conditions (e.g., in a college town, home football is a competitor). The U.S. business cycle and the slow recovery of real household income is another key driver; people are more careful about how they ration discretionary spending. But long-term changes in consumer behavior are having even more profound effects as demographics shift, recreational options expand, and cultural and lifestyle preferences change.
3.A firm’s business model reflects long-term strategic choices made to support its mission. The delivered product requires a work of art, artists to perform it, a venue, and an audience. The value chain, consequently, includes creators, performers, facilities, and a variety of production and marketing inputs. How much of the value chain should a firm control? Companies can be vertically integrated, with their own theater and box office services, or they can focus on producing what appears on stage and leave the rest to others. There is also a wide range of choices in scale, scope, and quality. Performers are central, but companies can hire them for full-time or part-time; they can contract star performers years in advance or hire freelancers on the spot market. The advent of mobile, social, and online media is making additional permutations possible.
Management’s adaptation to change is implicitly a fourth performance driver. Management needs to address changing environmental realities and make thoughtful strategic adjustments. At a simplistic level, success means presenting shows and concerts that people will pay to attend, but even the joy of a full house is not always enough. The performing arts business model that worked well for much of the 20th century is under siege. Management and boards of directors share responsibility for adapting to change, communicating the change, and executing effectively. Despite important factors that appear uncontrollable, it is a thesis of this book that management decisions have a major impact on economic outcomes.
Market and Competitive Forces
At the firm level, the size and location of a performing arts company’s venues substantially define its potential market, since performance revenue depends far more on ticket sales than on other sources, such as recording or broadcasting. Geography is especially critical for resident companies, which operate from a fixed home base, in contrast to touring companies, which play at multiple venues.
At a macro level, the market is a function of the amount of leisure time and income available for recreation and the demand for different forms of entertainment. These variables are in turn affected by two sets of forces: (1) cyclical trends, such as ups and downs in the economy, unemployment, and the stock market, which are relatively short term; and (2) structural trends, such as demographic and behavioral changes that are relatively long term and independent of the business cycle (e.g., the aging and growing ethnic diversity of U.S. population).
The cyclical impact of the Great Recession has already been noted. Most companies saw attendance and revenue decline in 2009 or had to work harder to maintain them.2 Based on data from 1988 to 2004, ­Robert Flanagan in his book The Perilous Life of Symphony Orchestras calculated that a 1 percent rise in the unemployment rate corresponds to a 4 percent decline in attendance and revenue.3 Ticket sales are a discretionary pu...

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