Saturday, April 21, 2012

Can right-sizing be as sexy as expansion?

On Thursday of last week, Thomas Cott featured several articles on "right-sizing" in the arts in his daily "You've Cott Mail." As many of his emails tend to do, it has stuck with me for days. See his email came at an opportune time for me. I had just given the plenary speech at American University's Emerging Arts Leaders Symposium which partially focused on NEA Chairman Rocco Landesman's "supply and demand" speech, and soon thereafter, Rebecca Novick authored a blog entitled "Please, Don't Start a Theater Company."

A central theme from these various sources began to emerge, which was packaged quite nicely by Rebecca when she said: "In the past fifteen years, the number of nonprofit theater companies in the United States has doubled while audiences and funding have shrunk. Neither the field nor the next generation of artists is served by this unexamined multiplication of companies based on the same old model. The NEA's statistics on nonprofit growth, set against its sobering reports on declining arts participation, illuminate a crucial nexus for the field, a location of both profound failure and potential transformation."

If data indicates that the field continues to expand at an unsustainable rate propagating the continuance of a model that is considered by some to be out of touch with current realities, then why do we continue in such a manner? My thoughts below...

It's as American as apple pie. Let's face it, expansion is sexy. We are the children of manifest destiny. Starting from nothing and growing an empire. Conquering new frontiers. These are all American ideals. Hell, many of our childhood boardgames indoctrinate this philosophy. Is it any surprise that as adults we equate expansion with success? And this perception of success is handsomely rewarded. Grow your audience and your revenue, and you will increase your likelihood of additional contributed revenue. But if those metrics decline, you'll need to do some explaining.

Follow the money. In the 1990s, educational programming became a funding priority, so every theater across the nation rushed to create an education department. To some, it didn't matter if the programming was sub par, they just knew they needed a department to be competitive. In the 2000s, capital projects became a priority, and more than a decade later, we have new buildings all across the country. Some were desperately needed as aging infrastructure was failing, while others were less of a necessity but were built on hopes of significant future returns. After opening, some organizations thrived in their new facilities, while many others struggled almost from day one. In his article "New Facilities Aren't Always a Qualified Success" in the Kansas City Star, Scott Cantrell discusses the challenges of several major new performing arts centers, including Dallas's AT&T Performing Arts Center, Philadelphia's Kimmel Center and Miami's Adrienne Arsht Center. All of which opened without finishing their fundraising campaigns and operated with multi-million deficits. Two years into the new decade, it seems that funders have started to realize the magnitude of the problem, and are now beginning to focus on sustainability as a priority, providing working capital to companies to right-size, rather than providing incentives to expand.

Build it, and they will come. Prior to launching a capital campaign, most organizations commission at least one feasibility study to determine whether or not the company has the capacity to raise the necessary funds to pay for capital improvements. But how many thoroughly study whether or not there is enough support in their communities to sustain an expansion for decades to come? When Arena Stage opened the Mead Center for American Theater, I was thankful that the new building only increased overall capacity by 6% in comparison to the previous structure. Although renovations and improvements were desperately needed, I wasn't convinced that we could introduce a large amount of additional inventory into a city which was already trying to support five previously built new theater complexes. If desired and demand warranted, Arena Stage was able to increase inventory by expanding beyond its typical 9 month season, but they weren't forced into an expansion due to a large increase in the capacity of the new complex. The challenge for Washington at this moment is clear--we have dramatically increased supply over the past decade, and with our capital projects now complete, we must develop and support new audience development campaigns with as much gusto as our capital campaigns. We have to build our audiences, which up until now, we haven't successfully done in the last decade. This is the real challenge. Ten years from now, will our new theaters be empty?

Can you display it? I find it fascinating that many museums have an aggressive acquisition plan but only display a very small percentage of their current collection. There seems to be a commonly accepted premise that major museums only display 10% of their collection because they are limited in terms of space and resources. I can understand acquiring new objects that aren't in display condition for research purposes, but why expand a collection of display quality objects if you don't have the opportunities to display what you currently have? Again, I'm a novice in museum studies, but it would seem to me that before expanding, a museum might consider shifting its resources to developing traveling exhibits so its current collection can be seen. What's the point of acquiring items with very little likelihood of every displaying them to the public?

What's going on in Ohio? I've been closely following two non-profit arts organizations based in Ohio over the past few years, as I believe they can be an example to us all. The first, the Columbus Symphony, was featured in Thomas Cott's aforementioned email. After struggling for years, they conducted a study that indicated that the city of Columbus could only support a symphony with an $8 million operating budget instead of the $12.5 million budget they currently had. From this, they decided to "right-size" their organization to match the current demand in their market by joining forces with the Columbus Association for the Performing Arts. Meanwhile across the state, the 90 plus year old Cleveland Playhouse laid off several senior staff members, dropped two productions from its season and trimmed its budget by 18% in 2009, prior to moving to the newly renovated 515 seat Allen Theatre in 2011. Previously, the Allen Theatre boasted 2,500 seats, but when the Cleveland San Jose Ballet left town, the Cleveland Opera downsized and Broadway tours dried up, the Allen Theatre was only in use 90 days out of the year because it was too big for most productions. The solution--the Cleveland Playhouse, Cleveland State University and PlayhouseSquare partnered resulting in a newly renovated Allen Theatre with 1,985 fewer seats! And it seems that it has worked out quite well for all involved. Revenue for the Cleveland Playhouse more than doubled and an underused space became the new talk of the town.

This isn't to say that expansion is always bad,  sometimes it is absolutely necessary. However, it isn't always beneficial, even during moments of great success. If your theaters are playing to capacity, perhaps you have discovered the sweet spot for your organization. Push just a little further, and too much of a good thing could tip the scales in an unfavorable direction, leaving you wondering how you managed to snatch defeat from the jaws of victory. Expansion can be attractive, but stability is pretty damn sexy too.

Sunday, April 08, 2012

Purposeful Acquisition

Several years ago, I wrote a post entitled "You want to get into trouble? Concentrate on new audiences." At the time, I was confused and frustrated with the relentless focus on developing new audiences. The field's obsession with the new to the detriment of the loyal seemed illogical. My good friend Laura Willumsen, senior consultant at TRGArts, summed it up quite nicely by saying "we should find a way to love the one we're with, before we start courting others." Pretty safe advice that came at the perfect time for me.

Three years later, I have come to realize that healthy arts organizations have equally robust campaigns focused on new acquisition and retention, and increasingly we are focusing on improving the overall lifetime value of our customers.

For those with retention problems, I would still advise spending a majority of your resources reducing attrition before launching costly acquisition campaigns. There is nothing worse than spending a significant amount of resources enticing new patrons in the front door while your current customer base runs out the back door. And from a financial perspective, that is one of the easiest ways to sink the ship.

That said, if attrition and renewal rates are within the range of industry standards, more than likely it is time to concentrate on acquisition. Here are a couple of thoughts...

Programming. If you are looking to acquire new audiences, either you can dig a little deeper in your current well, or you can dig a new well altogether. If untapped audiences remain within your core programming, then continuing to dig deeper in your current well probably makes the most sense. If however, you find that your current programming has tapped out its audience base, digging a new well with expanded programming might be the key to acquiring new audiences. Digging a new well requires developing mission driven programming focused on an unmet need within your community. New programming initiatives are usually costly, and often times are prematurely abandoned when they don't hit a desired net revenue goal in a short period of time. Arts organizations need to view new programming initiatives as an investment in future audiences which will pay out over years instead of months. While digging new wells, it is important to maintain and cultivate your current well. Don't abandon the old for the new--let the returns from the old provide the investment capital for the new. Often times marketers are afraid of new programming because they don't want to risk offending current subscription audiences, but if you maintain a base level of traditional programming while offering an opportunity or two to test drive new programming, you will mitigate your risk of subscriber attrition. And for those who have highly subscribed houses, new programming might be the only opportunity that you have to get new audiences into your theaters which would otherwise be mostly sold out on subscription. During my final week at Arena Stage, I had to chuckle when a reporter asked me if we increased our number of musicals in the upcoming season because they were "cash cows." If only he knew that most musicals we produced actually lost money. Aside from artistic reasons, from a marketing perspective, we increased the number of musicals to attract more first time audiences, which we will then try to convert into lifetime patrons.

Direct Marketing. During the last year, I have heard of several companies eliminating acquisition efforts entirely due to budget cuts, thinking that investing exclusively in retention campaigns would result in higher returns over time because the ROI was better than comparable acquisition campaigns. Unless you are in desperate shape, please do not kill your acquisition efforts entirely. And here's why--if you currently have a healthy 80% renewal rate for your members/subscribers, it means every year you will lose 20% of your base. Statistics show that even if you have a flawless renewal campaign, you will still lose 10% due to changes in lifestyle or death. To replace those lost, you must invest in acquisition or budget for a reduced base each year that you don't. If you cut acquisition entirely, with an 80% renewal rate, you will lose half of your entire base in three years. And getting them back is going to be incredibly expensive! When looking at acquisition costs, often times it will take two to three years for a new member/subscriber to produce a net positive result, but over a lifetime, these new acquisitions will be responsible for years of renewal revenue.

Robbing Peter to Pay Paul. When the economy took a nosedive in 2008, marketers responded by looking for places to cut by thoroughly monitoring the cost of sale for individual campaigns. Normally, I would encourage such behavior. But I believe it has resulted in a zero sum game of gains and losses among the various theaters in the Washington, DC area. Studies show that even as venues have dramatically increased their capacities, theater audiences in our nation's capital have not grown. And as we all looked for opportunities to reduce our marketing expenses, we refocused our acquisition campaigns to aggressively target the list segments that performed the best, which frequently were qualified leads of theatergoers from other companies. The most cost effective means of acquiring "new" audiences was soliciting patrons from other theaters. Acquiring "new" audiences didn't actually mean developing new theatergoers as much as it meant marketing to previous theatergoers who had never visited your theater before. This wasn't dirty pool. It is standard operating procedure in any highly competitive marketplace. But as I left Arena Stage, being incredibly proud that we had almost doubled our subscriber base in three years, I found myself being more interested in the number of none theatergoers we were able to convert into theater patrons. And the truth is I don't know because we never tracked it. As a community, the greatest challenge we have is developing truly "new" audiences in Washington, DC. If we are using each other as a primary source for our "new" audiences, then we aren't creating a healthier community as our individual successes come at the expense of others. Therefore I encourage marketers to look at acquisition in terms of developing completely new audiences for the community as well as acquiring new audiences for your organization. The latter will improve your individual health, while the former the health of the artistic ecosystem.