The holidays aren't so hot...

for most arts organizations. More news from around the nation on the impact the economic crisis has had on arts organizations:

Shakespeare Santa Cruz Has 1 Week To Save Its Own Life
Ailing California Orchestra Cancels Season
KC Symphony Hit By Economy And Competition
More Trouble For Ballet BC As Bank Freezes Funds
A First Glimpse Of Houston Ballet's New HQ (Or Not)
NPR Cuts Two Programs And 7 Percent Of Staff
Tough Times Get Tougher In Charleston
Miami City Ballet Resorts To Taped Music
Baltimore Opera Company Filing For Bankruptcy Protection
Filling The House: Met To Offer Subsidized $25 Tickets
Broadway Musicals Dropping Like Flies
Las Vegas Philharmonic Musicians Lose Confidence In Management
Art Basel Miami Slowdown
A Formerly Secure Arts Venue Takes A Dive
Las Vegas May Lose Children's Concerts
Virginia Symphony Cuts Concerts, Salaries
Las Vegas Art Museum Chief Steps Aside; Cuts Ahead

There was one piece of good news:
Minnesota Orchestra Defies Recession, Posts Surplus

Round Two: Arena Stage's New Deal Program

When designing the Arena Stage "New Deal" One Day Only Sale, I knew that we were applying a temporary band-aid to a relatively large problem, and we would have to take a more systemic approach to dealing with the issues ahead of us. To keep the analogy going, I didn't expect the one day only sale to be the knock out punch in the first round, so here we are in round two (actually probably round 3).

In our response to the economic crisis, we have done the following:

Round 1: Arena Stage "New Deal" One Day Only Sale (November 14, 2008)

Round 2: Adjusted income projections and decreased expense budgets. Senior staff and members of the board formed three committees--the earned revenue committee, contributed revenue committee and an expense reduction committee. Each committee met several times over the course of a month to develop a recommendation for action for the full board. Both the earned revenue and contributed revenue committees readjusted their projections from the approved FY09 budget, presenting to the full Board conservative estimates on the impact the current economic crisis will have on the company. To match these adjustments, the company reduced its expenses and raised additional contributions. (November 21, 2008)

Round 3: Launch of the Arena Stage "New Deal" seats for all performances (December 12, 2008). Arena Stage previously operated on two classes of seats: A seats (prime seats) and B seats (economy seats). We were finding that we weren't having problems selling prime seats, but that our seats at the lower end of our pricing chart weren't moving as quickly as usual. To create a lower entry point while trying to avoid upsetting our subscribers who purchase early and therefore get the greatest discount, we created a new section of seats, called the NEW DEAL seats and set a price of $25. The NEW DEAL section would be limited to the last four rows in our Crystal City venue and the upper balcony in our DC venue. These areas of the each house didn't contain any subscribers, and therefore they wouldn't be upset by a mid-season change in pricing. To further address any subscriber concerns, we sent each subscriber a letter outlining the new program and giving them access to purchase NEW DEAL seats a day before the general public. The new $25 ticket price is 47-64% off what those seats previously cost, offering a significantly lower entry level price to all our performances. No other discounts can be applied to these tickets, and subscriptions aren't available in this price category (to prevent B seat subscribers transitioning to NEW DEAL seat subscribers). So far this move has garnered us some press attention from the Washington Post and our local NBC affiliate, and although I suspect these tickets will be quite popular, they won't sell at the pace of the previous offer. Where Round 1 was a sprint, this is more like a marathon.

I will keep you updated on the results. We opened NEXT TO NORMAL at Arena Stage last night, and I was really struck by one of the lyrics--"even the darkest night will see light."

The rules are changing, and changing quickly

I have always believed that marketing success starts with the product. If the quality of the artistic product isn't there, there is nothing a marketing director can do to put more butts in seats. Audiences will leave no matter how thought out or brilliant the marketing strategy. That being said, if the product is strong, a primary function of a marketing director is eliminating the barriers to purchasing.

Several weeks ago, I began to feel that even with a strong product, in today's economy, we must give people a reason to buy. No longer would a strong artistic product marketed well be enough. I tested this hypothesis by developing the NEW DEAL program at Arena Stage, which resulted in sales significantly beyond our expectations. The reduction in ticket price, even if for a day, gave potential patrons the reason they needed to make the purchase, especially on something that was dependant upon very limited discretionary spending.

So I wasn't surprised by an article in the Washington Post entitled "Holiday Shopping in a Downturn: Deals or Nothing at All." The basic rule of retail businesses on Black Friday is to offer highly attractive "door buster" sale items to lure customers in the door. The idea is that even after the "door busters" are sold out, customers will stay and purchase non-sale items. It has worked well for retail businesses for over a decade. But it didn't this year. The rules have changed. Customers showed up for the "door busters" as usual, but once the deals were gone, so were the customers. They didn't stay and shop. Once the "reason to buy" was eliminated, the sales stopped.

It seems like all the rules have been thrown out the window. We know the small profit margin on new car purchases, right? Dealerships make most of their money on the financing. But to get people to purchase, there are several dealerships offering "buy one, get one" deals on cars. When have you ever heard of that?

Budgeting and the artistic product

I had the pleasure of hearing Karen Hopkins speak at the National Arts Marketing Project Conference in Houston. During her speech, she said several things that caught my attention. Because the conference centered around how marketing and development departments could work together to maximize revenue, she outlined the revenue breakdown between earned vs. contributed sources for the Brooklyn Academy of Music:

Brooklyn Academy of Music
Expenses $38 million
Box office income: $11.9 million (31% of expenses)
Other earned revenue: 4.6 million (12% of expenses)
Contributed revenue: $22 million (private and public) (57% of expenses)
Programs:
· The Next Wave Festival
· Spring season of theater, opera, dance
· Education—serving 25,000 students at 219 schools

I have always admired the artistic work of BAM, and some of the nation's most creative work from the past several decades have been created and/or featured at BAM, including Peter Brooks' epic Mahabharata and Philip Glass's Einstein on the Beach.

One of the struggles that we are facing at Arena Stage is an imbalance between earned and contributed revenue. Arena Stage is more reliant on earned revenue than most regional theaters, and it puts the marketing department in conflict with the artistic department. I joined Arena Stage because of its long heritage of superb artistic work, and our artistic strategic plan calls for the exploration of new and challenging work in the future. However, the more reliant a company is on earned revenue, the less risk and new work the company can take on because it is reliant on steady box office revenue. Thankfully the communications department and the artistic department at Arena Stage work very well together, and we are in the process of hiring a chief development officer to increase our contributed revenue streams.

To test my hypothesis about how an imbalance between earned and contributed revenue streams can affect programming, I took a look at two institutions--one known for artistic risk taking and new play development (The Public Theater), and one known for presenting/producing only well known, less risky work (Walnut Street Theatre).

Here are their breakdowns:

Public Theater (New York Shakespeare Festival)
2006 990Expenses: $17 million
Box Office income: $5.2 million (31% of expenses)
Other earned revenue: $1 million (6% of expenses)
Contributed revenue: $8.6 million (51% of expenses)

Walnut Street Theatre (from their 2006 990)
Expenses: $13.5 million
Box office income: $11.5 million (85% of expenses)
Other earned revenue: $500k (5% of expenses)
Contributed Revenue: $1.4 million (10% of expenses)

To quote Michael Kaiser from his new book, "Not-for-profit arts organizations should be doing work that commercial producers won't consider either because the work is too large or too risky. This is what justifies the use of tax-deductible contributions." As I look at Walnut Street's financials, they are very close to operating like a for-profit institution, with only 10% of its budget coming from contributed revenue. So, don't look for them to do anything "too large or too risky." They can boast that they have the world's largest subscription base, and although I like Ralph Weeks (their Director of Marketing), it isn't because they figured out the "subscriber problem" or have exceptional marketing, it's because of their programming. Their shows for this season include 5 shows: State Fair; Hairspray; A Streetcar Named Desire; Born Yesterday; and The Producers (all musicals and/or well known products).

From the opposite perspective, the Public Theater can do "large and risky" productions, which they are well-known for because more than half of its budget comes from contributed sources. For comparison purposes to Walnut Street, check out the Public Theater's season: Road Show; If you see something, Say something; Taking Over; The Good Negro; Why Torture is Wrong; The Singing Forest; Khartoum; The Native Theater Festival. As a theater insider, I have only heard of three of these projects, mostly because Arena Stage has a history with two of them.

The more a company is handcuffed to its earned revenue streams and box office, the less it's able to concentrate on its non-profit mission. And in this economy, a heavy reliance on either contributed or earned revenue isn't a good idea since an organization's revenue streams should be diversified, so as not to put all your eggs in one basket.

More news from around the world...

As the economy gets worse, the impact is starting to become apparent, even at some of the largest institutions in the nation:

Tennessee Company Calls Off All Opera For Next Season
Vancouver's Ballet BC Lays Off Everybody
Fundraising For Orlando's New PAC Falls Short
Detroit Symphony In The Red, And It Could Get Worse
Public Postpones 2009 Production of Guare's Free Man of Color
Young Frankenstein Folds, & Schadenfreude Strikes B'way
As Baltimore Orgs Face Cuts, Opera Co. Is On The Brink
Minn. Museum of American Art To Close, Reopen Eventually
Canadian Arts Groups Hurting As Stock Investments Plummet
Struggling Broadway Sees Two More Shows Close
MOCA Considers Selling Itself To LACMA
Madison PAC Cutting Staff

Results from the Arena Stage New Deal

Round 1: Economy vs. Arena Stage

Tactic: Arena Stage's New Deal--25,000 tickets at $25 each for 24 hours
Good for the first week of any remaining production in 2008-09

Results: 6,661 tickets sold for almost $200,000 in revenue in a 24 hour period

Notes:

• The previous highest grossing day at Arena Stage was $90,000 in 2002, which we more than doubled.
• We created 229 entirely new patron accounts.
• Several preview performances sold out, and the remaining shows have very healthy houses which should go a long way in boosting word of mouth early.
• We sold 1,400 tickets in two hours from 12am-2am on Friday morning.
• We had a line at the box office at 12am, including a woman in her sleeping bag.

ROUND 1 GOES TO ARENA STAGE

Asking the unpopular--is there too much art?

The economic crisis is starting to trickle down to arts organizations all over the nation. Recent casualties of the crisis include Opera Pacific, Milwaukee Shakespeare Festival, and several Broadway shows. To adjust for the weakening economy, planned productions have been abandoned at Seattle Repertory Theatre, Washington National Opera, the New York City Opera and even at the seemingly untouchable Metropolitan Opera. Not to mention the St. Louis Museum of Art postponing its $125 million expansion or the Shakespeare Theatre missing its gala goal by $300,000.

The impact of the crisis will be felt in communities all around the country. Quite simply, the casualties listed above won’t be the last. Arts organizations will fail and close as contributed income dries up, and earned revenue weans. Although tragic for the artists connected to these organizations, the unpopular question that continues to emerge with my colleagues from around the nation is: are the closings of these organizations necessarily a bad thing?

Is there just too much art? Take for example an article written in the Washington Post on April 23, 2008 which cites a study by the Helen Hayes Organization that says in 2007, there were 402 more performances by theatre companies than the previous year but attendance was down by 36,000 patrons. From this report, it would seem that supply has significantly surpassed demand, and this isn’t surprising when you take into consideration the boom of new theaters in the Washington metropolitan area.

Artists, including myself, like to point to ways to increase demand, revitalize arts education, court younger audiences, launch massive outreach programs—as the answer to this problem. But the supply and demand conundrum that many communities face can also be solved by eliminating the excess supply. This crisis will create a de facto “survival of the fittest” culture for arts organizations. Those organizations that are financially sound and create consistently good product might feel a pinch but should weather the storm. Those organizations who were limping along prior to the crisis will probably cease to exist, thereby eliminating the surplus in supply in competitive markets and returning the community to a sustainable stasis.
In the end, although painful in its process, this crisis might create stronger artistic communities throughout the nation.