Building the Modern American Orchestra:

Transcription

Building the Modern American Orchestra:
Significant Literature on Major Aspects of the
Orchestra Business Model
in the United States
Directed Research Project
by
Christopher A. Merkle
Submitted to the
Faculty of the College of Arts and Sciences
of American University
in Partial Fulfillment of
the Requirements for the Degree of
Master of Arts
in
Arts Management
Chair: _________________________________
Sherburne Laughlin
_________________________________
E. Andrew Taylor
2014
American University
Washington, DC 20016
Table of Contents
Introduction
Topic .......................................................................................................................................4
Value and Importance to the Field..........................................................................................4
Methodology ...........................................................................................................................6
Chapters
I.
Overview...............................................................................................................................10
II.
Customer Segments/Customer Relationships .......................................................................12
III.
Key Activities/Value Propositions........................................................................................18
IV. Channels................................................................................................................................26
V.
Revenue Streams...................................................................................................................31
VI. Key Resources ......................................................................................................................38
VII. Cost Structure........................................................................................................................50
VIII. Conclusion ............................................................................................................................58
Bibliography (by author) ...............................................................................................................60
Bibliography (by business model segment)...................................................................................69
Copyright © 2014 Christopher Merkle
2
Acknowledgements
The process of researching and writing this work was extensive and painstaking, and
certainly could not have been done without the unrelenting support from several individuals.
Sherburne Laughlin, Professor of Arts Management at American University was my primary
advisor throughout this process and was available anytime, day or night, weekday or weekend to
answer and questions, provide guidance, discuss ideas, review drafts, and much more. Professor
Andrew Taylor, also of the Arts Management department at American University, also provided
unique insight, directed me towards influential scholar and works, and was readily available to
assist in any other way I could ask.
To both of these individuals I am forever grateful. Not only during this writing process,
but during all of my time at American University they have been extraordinary role models and
sources of insight both on a professional and personal level. Whatever accomplishments I may
achieve will be thanks to the unrelenting support that they provide.
Additional thanks go to the other members of the faculty in the Arts Management
department at American University – Ximena Varela and Anne L’Ecuyer. Despite constantly
busy schedules and students of their own to advise, these individuals were always incredible
generous with their time and efforts, constantly welcoming to questions and open to providing
support in any way they could. A great thanks to both of these wonderful and accomplished
women.
Finally, thanks to Anna F. Kaplan for her time and efforts in providing reviews and
revisions. She helped provide a new and powerful perspective that gave this work the clearer
language it required. Sincere thanks for all of the assistance and ongoing support.
3
Introduction
Topic
This project investigates significant literature written on major aspects of business
models of professional orchestras in the United States since roughly 1980. The purpose of this
study is to encourage readers to make informed changes to their existing business models by
using the most current and relevant research in the orchestra field. Furthermore, this project
identifies gaps in the research that scholars might examine in the future.
Value and Importance to the Field
The structure and operations of symphony orchestras in the United States have remained
largely unchanged for many years. Jesse Rosen, the current President of the League of American
Orchestras, states:
The same predictably good outcomes have long held true for orchestras’ operational
structures. The modern American orchestra was built on a body of practice that
emerged to successfully deliver more and more varied forms of orchestral
experiences to a growing audience. …Yet as this goes to print, many orchestras are
struggling.1
Many aspects of American life – population demographics, use of leisure time and discretionary
income, work-life balance, popular culture, communication methods, and more – have changed
dramatically over time, yet ensemble functions remain virtually unmodified.2 New problems
should be met with new solutions.
1
Lela Tepavac, Fearless Journeys: Innovation in Five American Orchestras (New York: League of American
Orchestras, 2010) 6.
2
Paul DiMaggio and Toqir Mukhtar, “Arts Participation as Cultural Capital in the United States, 1982-2002: Signs
of Decline?” Poetics 24 (Princeton University, Princeton, NJ: Elsevier B.V., 2004) 184.
4
Changes within such organizations are risky and complicated, requiring not only support
from leadership, partners, and constituents, but also appropriate knowledge to recognize what
changes might be effective. Organizational theorist and orchestral consultant Paul Boulian
recently claimed that, “We must move from interventions in which each symphony orchestra
organization is viewed as unique to its community … to a set of institutionalized approaches that
can be adapted to the specific needs of an individual orchestra.”3
Answering the need for a more informed approach to organizational change is precisely
what this document will attempt. The business models of orchestras in the U.S. will be broken
down into components and recent significant writing on each will be identified and discussed.
While there seems to be relatively little written on the business model as a whole, there is much
that focuses on one or several pieces of the model at a time. Future readers may use it as a
compendium of major works on various aspects of their business model, from the product itself
to the way it is delivered to audiences.
It is important to note that a piece of literature rarely focuses completely on a single
element of the model, as each inherently affects the others. This work discusses aspects of the
literature in the most relevant areas possible, though certainly most, if not all, will cross
boundaries.
An example is the steadily growing expenses of orchestral organizations. While current
organizations face numerous trying issues, many believe one of the most critical is “cost
disease.”4 Since the Industrial Revolution, productivity in the U.S. has been gradually
increasing, thanks in large part to the use of technologies. However, the performing arts are such
3
4
Paul Boulian. “On the Path to Serious Organizational Change.” Harmony 5 (Oct., 1997), 45.
William J. Baumol and William G. Bowen. Performing Arts: The Economic Dilemma. New York: The
Twentieth Century Fund, 1966.
5
that, regardless of technological advances, productivity cannot significantly increase. A quartet
will always require four musicians. Simultaneously, in order to keep up with growing salaries in
other industries, those of musicians will likely rise as well. In order to survive, orchestras would
need to earn additional revenue to cover rising expenses, though most struggle to increase either
earned or contributed income to match. However, growing expenses is simply one issue facing
the modern–day symphony orchestra, and this document explores writings addressing a
multitude of issues.
The purpose of this work is not to provide answers to concerning circumstances facing
modern U.S. ensembles. Rather, this paper provides future practitioners with a resource for
identifying significant literature on major aspects of the orchestra business model, with an
emphasis on statistical data and measurable effects. This information will help boards and
managers to make strategic decisions for their organizations based on evidence and thorough
research.
Methodology
For analytical purposes, this study follows the framework as defined by Alexander
Osterwalder and Yves Pigneur in their 2010 book, Business Model Generation.5 In their text,
Osterwalder and Pigneur define each segment of the model and further explain how individual
segments work together to create a functioning model.
5
Alexander Osterwalder and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game
Changers, and Challengers. (Hoboken, NJ: Wiley & Sons, 2010).
6
Business Model “9 Building Blocks”6
•
Customer Segments
•
Value Propositions
•
Channels
•
Customer Relationships
•
Revenue Streams
•
Key Resources
•
Key Activities
•
Key Partnerships
•
Cost Structure
Above is Osterwalder and Pigneur’s list of the “9 Building Blocks.” What follows is a
reorganization of the categories, which provides the organizational structure for this text. Since
literature with which this study engages often combines the categories of “Customer Segments”
with “Customer Relationships,” they will not be separated in what follows. “Key Activities”
describe the actions taken to create a product and, as there is very little written on the process of
a symphony production, discussion of this will be omitted. Furthermore, literature regarding
“Key Partnerships” primarily takes the form of qualitative accounts and magazine articles, but
very little exists to deeply investigate these relationships. Therefore, writing on these
relationships will not be considered in the scope of this study. The combinations and omissions
above reduce the business model elements for this study from nine to the six listed below.
6
Ibid., 16-17.
7
Business Model Segments7
7
•
Customer Segments & Relationships
•
Value Propositions
•
Channels
•
Revenue Streams
•
Key Resources
•
Cost Structure
Based on Osterwalder and Pigneur, 16-17.
8
“If we can’t find a more productive way of working together toward genuine change,
we will eventually drive off that cliff…
We must create a new protocol.”8
Deborah Borda
8
Quoted in Douglas J. Dempster. “The Wolf Report and Baumol’s Curse: The Economic Health of American
Symphony Orchestras in the 1990s and Beyond.” Harmony 15 (October 2002), 1-21.
9
I.
Overview
In their 2010 publication, Business Model Generation: A Handbook for Visionaries,
Game Changers, and Challengers, Alex Osterwalder–author, speaker, and business model
advisor–and Yves Pigneur–professor of management information systems at the University of
Lausanne–assert that a business model “describes the rationale of how an organization creates,
delivers, and captures value.”9 This definition provides their justification for distinguishing
between different aspects of the model. To ascertain how an organization “creates, delivers, and
captures value,” Business Model Generation explores the interactions among pieces of the
model, in addition to the results of those actions. This approach allows practitioners to view the
model both as individual components as well as interactive elements, illustrating how
interconnected their fabric is.
Osterwalder and Pigneur’s categorical delineation provides the framework for classifying
literature under respective aspects of the business model. Business models codify processes
already at work, meaning that as an organization adjusts one piece of its model, the organization
will naturally experience repercussions elsewhere. The implication is that no single piece of
literature discussed will fit squarely into one category and have effects only within that domain.
Therefore, this paper discusses works in their most relevant area, while acknowledging their
border-crossing characteristics.
The studies included here emphasize professional orchestral ensembles, of any size and
location, within the United States. Except in the case of oversight, exclusions are the result of a
lack of available literature and will be identified as opportunities for future study. Certainly
9
Osterwalder and Pigneur, 14.
10
available literature does not specifically apply to all symphonic organizations, but a wider
knowledge of all available information will benefit practitioners within the entire orchestral
community.
Intentionally excluded from this synthesis is literature written prior to 1980. This allows
for the inclusion of a major portion of contemporary orchestral research with a business model
focus, such as DiMaggio and Mukhtar’s “Arts Participation of Cultural Capital in the United
States, 1982-2002: Signs of Decline?”10. As a major study of cultural economics, this pillar of
scholarship provides valuable insight into the state of the arts community, and is, therefore,
important to include in the scope of this study. A notable exception to this filter is Baumol and
Bowen’s 1966 work, Performing Arts: The Economic Dilemma. Despite being written prior to
1980, this monumental piece of scholarship has been at the crossroads of arts and economics
since its publication, and has been the subject of many subsequent works. Given its substantial
role in the field, it has also been included here.
While this study examines literature from as early as 1980, it makes a concerted effort to
include the most up-to-date and relevant information available.
Furthermore, this report neither proposes new ideas nor privileges existing opinions
regarding any piece of the business model or the functioning of U.S. orchestral organizations as a
whole. The goal is for readers to use the information contained within to make their own
determinations, founded on the information provided and knowledge of their individual
organizations. Readers should refer to the bibliography and further writings by cited authors for
additional information.
10
DiMaggio and Mukhtar, 169-194.
11
II.
Customer Segments & Relationships
Without the support–financial and emotional–of the community, orchestral organizations
will cease to exist. Therefore, it is important to understand who comprises existing audiences
and what their relationships are to the organization.11
In Business Model Generation, Osterwalder and Pigneur define Customer Segments as,
“the different groups of people or organizations an enterprise aims to reach and serve.”12 One
can then understand Customer Relationships as “the types of relationships a company establishes
with specific Customer Segments.”13 This section discusses literature regarding the audience for
U.S. symphony orchestras and the relationships that organizations attempt to form with them.
The long–held belief about symphony audiences is that they are elderly, white, and
financially well off; this is not altogether inaccurate. Sixty percent of symphony audiences have
a college education or higher, compared with 27 percent of the general public. Similarly, 72
percent of symphony attendees make over $50,000 per year, compared with just 52 percent
nationwide.14 Age and gender are other strongly indicative factors of participation. However,
this is true more so for direct hands-on participation than for live attendance or participation
through the media.15
While it is simple enough to determine who is attending symphony performances at a
given moment through surveys, attendance trends over a period of time are less understood.
Fewer and fewer of these “typical” orchestra audience members attend performances and non11
The words “orchestra” and “organization” are used interchangeably throughout this text. The use of one word
over another is not intended to delineate between the organization as a whole and the ensemble on stage.
12
13
Ibid., 28.
14
Tony Woodcock. “American Orchestras: Yes, It's A Crisis”. Blog post, Polyphonic.org. 2011.
http://www.polyphonic.org/2011/05/04/american-orchestras-yes-its-a-crisis/.
15
Kevin F. McCarthy. The Performing Arts in a New Era. (Santa Monica, CA: RAND, 2001), 24.
12
traditional consumers seem hesitant to attend for the first time. Despite occasional upticks in
attendance rates over the years, the overall trend is that, “Since 1982, audience numbers have
declined by 29%, with the sharpest fall in the period 2002-2008….”16 In 2002, 11.6 percent of
the American population attended a classical music concert; by 2012 that number had declined to
8.8 percent.17 A deeper dive into age segments finds that the largest declines were in the middle
age groups–those who have historically attended at the some of the highest rates.18 Between
2008 and 2012, the attendance rate by 35- to 44-year-olds dropped from 8.9 percent to 6.4
percent. Forty-five- to 54-year-olds also declined in attendance, from 10.2 percent to 8.2 percent
during that same period.19 While the average age of a symphony attendee has typically been
older than the average age of the population at large, that may change if this trend continues.
This drop in average age would not be due to increased ticket sales to younger audience
members, but to a decline in attendance by older audiences and, therefore, shrinking ticket sales.
Many studies show that education level is directly related to likelihood of attending a live
performance, though attendance rates have been changing dramatically in recent years.20 Now,
“attendance per concert is declining for virtually all types of concerts, despite steady increases in
the proportion of the population with a college education (the demographic most likely to attend
16
Woodcock.
National Endowment for the Arts. How a Nation Engages with Art: Highlights from the 2012 Survey of Public
Participation in the Arts. (Washington, D.C.: National Endowment for the Arts, written 2012 and revised October
2014), 11.
18
Novak-Leonard, Jennifer and Alan S. Brown. Beyond Attendance: A Multi-Modal Understanding of Arts
Participation. Based on the 2008 Survey of Public Participation in the Arts. Research Report #54. (Washington,
D.C.: National Endowment for the Arts, 2011), 38-42.
19
National Endowment for the Arts. How a Nation Engages with Art, 13.
20
McCarthy, 22.
17
13
concerts).”21 The “odds of a college graduate attending a classical music concert were 30
percent lower in 2002 than in 1982.”22 Decreased attendance was not only a trend with college
graduates but also less educated audiences. During the same time span in which attendance rates
for college graduates declined, “the rate for high school graduates fell by more than 40
percent.”23
The decrease in attendance by those with a college education is somewhat mitigated by
the fact that an increasing portion of the population now earns college degrees. By the year
2000, the percentage of population with at least an undergraduate degree by region of the country
rose anywhere from 29 percent (in the Northeast) to 44 percent (in the South) above 1990
levels.24 Even if the rate of attendance by those with a college education is lower, the percentage
of the population with those degrees has increased. The resulting question is whether or not
level of education will remain an effective indicator of symphony attendance.
Much more research is needed to make clear determinations about the causes of shrinking
attendance and what can be done about it. Surely many factors, from the decrease in leisure time
and discretionary income to an increase in women’s role in the workplace, contribute to
developing trends.25 With the prevalence of technology and streaming media in society, it is also
possible that audiences are not necessarily declining but are instead participating in new and
different ways. This trend will be investigated later in this study. In order to make effective
21
Robert J. Flanagan. “Symphony Musicians and Symphony Orchestras.” In Labor in the Era of Globalization,
edited by Clair Brown, Berry Eichengreen, and Michael Reich, (Cambridge: Cambridge University Press, 2008),
1.
22
DiMaggio and Mukhtar, 181.
23
24
Joanna Woronkowicz, D. Carroll Joynes, Peter Frumkin, Anastasia Kolendo, Bruce Seaman, Robert Gertner,
Norman Bradburn. Set in Stone: Building America’s New Generation of Arts Facilities, 1994-2008. (Chicago, IL:
Cultural Policy Center, Harris School and NORC, University of Chicago, June 2012), 8.
25
14
plans for the future, it is essential to have a clear understanding of where orchestra audiences
stand at present.
The news for symphony orchestras is not all bad. There is evidence to suggest that
audiences can actually grow. For example, while fewer adults claim to like classical music now
than in 1982, about twice as many claim to like it than actually attend performances.26 A 2002
study commissioned by the John S. and James L. Knight Foundation found that “Although more
people dislike going to classical concerts than like going, almost a quarter of adults expressed a
moderate or ‘above-average’ preference level for attending classical concerts (scores ranging
from six to eight out of ten).”27 These findings imply that, given the right impetus, there is the
potential to encourage a greater percentage of the population to try attending a performance.
While having an interest in attending symphony performances is certainly the most
important factor, it is not the only determinant of possible participation. Since 1965, the average
amount of leisure time available to participate in activities such as symphony concerts has
increased by five hours per week. However, during this same period, leisure time among
traditional concertgoers has simultaneously decreased.28 If the constituency attending classical
performances does not expand, shrinking leisure time could be detrimental to ticket sales.
An option for expanding audiences certainly exists within the rapidly changing
demographics within the United States. The minority population in the U.S., historically less
likely to attend live classical performances, is continuously growing and is projected to continue
26
National Endowment for the Arts. 2008 Survey of Public Participation in the Arts: Research Report #49.
(Washington, D.C.: NEA, November 2009).
27
Audience Insight LLC. Classical Music Consumer Segmentation Study: How American Relate to Classical
Music and Their Local Orchestras. Commissioned by the John S. and James L. Knight Foundation. (Southport,
CT: Audience Insight LLC, October 2002), 39.
28
Robert J. Flanagan. The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges.
(New Haven: Yale University Press, 2012), 59.
15
doing so.29 These growing constituencies indicate that, “Ethnic groups that do not trace their
roots to Europe will increasingly affect the definition of national cultural values” and, therefore,
what products are produced for sale to those audiences.30 Furthermore, “…non-whites (60
percent of population surveyed) agree more often than whites (48 percent) that they are always
looking for information about cultural activities to do,” which could increase audiences if
handled correctly.31 Orchestras may consider changes to their product or marketing efforts in
reaction to the changing demographics within the United States.
As demographics and other factors change, organizations must consider the value that
audiences place on the orchestra(s) in their communities. “Being perceived as ‘adding value’ to
the community in innovative ways is fundamental to making the community more engaged.”32
However, as public interests change, a larger chasm can form between the goals of the ensemble
and the interests of the population they serve. This issue is not necessarily falling on deaf ears.
In January 1997, the Andrew W. Mellon Foundation held a forum for orchestra administrators
aimed at understanding “the current dynamics of the orchestra field. … Forum participants say
that to be successful they must ‘work with the community to reach community goals’.”33 This
may require organizations to question their work and whether/how it will best serve the
community. Relevancy leads to survival because people are willing to support what they find
valuable and necessary in their lives. Too often ensembles are not particularly good at bearing
this element in mind:
29
National Endowment for the Arts. Audience 2.0: How Technology Influences Arts Participation. (Washington,
D.C.: National Endowment for the Arts, 2010.), 16.
30
Flanagan, The Perilous Life, 56.
31
Audience Insight LLC, 116.
32
Tepavac, 37.
33
Catherine Wichterman. “The Orchestra Forum: A Discussion of Symphony Orchestras in the U.S.” In Andrew
Mellon Foundation Annual Report, 1998.
16
The orchestra asked itself two questions: If the MSO [Memphis Symphony
Orchestra] were to go out of business, other than the four percent of the
population that is generally aware of the orchestra, would the other 96 percent
care? Why should somebody who doesn’t love (classical) music care whether the
orchestra lives or dies? The answers were neither pretty nor comforting.34
The MSO needed to find a way to increase their perceived value within the community they
served.
Communities provide civic and financial support to their orchestras because, in theory,
the organizations provide what is perceived to be a valuable service that would otherwise not
exist. Without constant re-evaluation of their position within a community, orchestras run the
risk of becoming disconnected from their constituents and losing their support. Certainly this
assessment must include constant reconsideration of who the organization’s constituents are and
how the local orchestra can best serve them.
34
Tepavac, 30.
17
III. Value Propositions
Symphony orchestras’ product or service has remained largely unchanged over the past
quarter century. Orchestras still exist primarily to present classical symphonic works to
audiences in concert hall settings. For example, the mission of the Chicago Symphony
Orchestra, one of the most prominent ensembles in the U.S. and the world, is “To present
classical music to Chicago, national, and international audiences.”35 Many ensembles now offer
additional programming as well, such as pops performances and family concerts, but classical
music continues to drive most symphonic organizations.
This section defines the service that U.S. symphony orchestras currently provide to their
audiences, what attempts organizations are making to expand this service, and why. Osterwalder
and Pigneur understand an organization’s “Value Proposition” as “the bundle of products and
services that create value for a specific Customer Segment.”36 For symphony orchestras, this
may include subscription concerts, family and pops performances, educational programming, or
anything else the organization produces for customer consumption. While there are accounts
available of various educational efforts, this study focuses largely on symphony orchestras’
concert programming. When audiences are increasing in diversity, limited in leisure time, and
concerned about the constantly fluctuating economy, ensembles must ensure that their product is
one that potential audiences still demand.
35
U.S. Department of Treasury (US). Form 990 [Internet]. Internal Revenue Service (US); 2013 June. Available
from: http://www.guidestar.org/FinDocuments/2013/362/167/2013-362167823-0a505e28-9.pdf.
36
18
Many theorize that the symphonic field is struggling due to, among other reasons, an
inability to keep up with currently trends in society.37 Despite continued high enrollment in
music schools and conservatories, there is little change regarding the orchestra product. For
example, “A recent ASOL [American Symphony Orchestra League] statistical report shows that
of the ten most often performed works by orchestras, five were written by Beethoven.”38
According to this same report, the number of living composers regularly performed by leading
ensembles is very low. A 2008 study in The Journal of Arts Management, Law, and Society
found that only seven percent of works performed by American orchestras were composed after
1981.39
It is an unfortunate truth that the pursuit of box office success “has led to a conservative,
even reactionary programming.” Ensembles often face the uncomfortable battle of programming
works they feel they should perform and that audiences should hear versus what they are
confident will sell tickets.40 Past ticket sales play a not insubstantial role in programming
decisions. However, audiences may purchase tickets based on any piece on a program or the
program as a whole and, therefore, it is impossible to tell what appeal a single piece may have
with potential ticket buyers.41 This would also explain the hesitancy surrounding newer music
by orchestral leadership. New music does not have the tried and tested evidence of appeal with
new audiences that orchestras seek when planning a season. “A programming manager aims to
37
Phillip Kennicott. "America's Orchestras Are in Crisis: How an Effort to Popularize Classical Music Undermines
What Makes Orchestras Great." The New Republic, August 25, 2013.
38
Wichterman.
39
Alex Turrini, Michael O'Hare, and Francesca Borgonovi. "The Border Conflict between the Present and the Past:
Programming Classical Music and Opera." The Journal of Arts Management, Law, and Society 38, no. 1 (Spring
2008): 72.
40
Rosanne Martorella. “The Relationships Between Box Office and Repertory: A Case Study of Opera.” Readings
in the Sociology of the Arts, edited by Arnold W. Foster and Judith R. Blau. (Albany, NY: State University of
New York Press, 1989), 314.
41
Turrini, O’Hare, and Borgonovi, 73.
19
serve an audience’s current tastes. Listeners pay for at least a share of the organization’s costs,
and if these tastes are ignored, the audience will abandon the organization.”42
However, it is not only new music that orchestras are finding difficult to make appealing
to current audiences. According to the Andrew W. Mellon Foundation, “participants [in the
previously mentioned orchestra forum in January 1997] agree that their organizations struggle
with programming—not simply with how to integrate new work but also with how to present
familiar and unfamiliar work from the past in new and enlightening contexts.”43 Studies, such as
those by consulting firm WolfBrown on the New World Symphony, show that new audiences are
very likely to try attending classical concerts when they are in new and unusual formats, such as
for 30 minutes immediately after work or connected to a happy hour.44 Hopefully, further
experimentation with such formats will encourage higher and higher turnout for orchestral
performances. Regardless of the numbers attending, it is essential that orchestras not overextend
the availability of their product past the point of true demand, thereby widening the gap between
expenses and earned ticket revenue.
A standard business model belief states that supply and demand have direct and
correlated effects on each other, influencing price. However, particularly in recent years, “The
decision on how many concerts to play seems not to be established by audience demand, but
instead by the collective bargaining with musicians.”45 Similar to weeks of guaranteed work,
discussed elsewhere in this report, it seems that determinations regarding number of
performances, programming, etc. are not necessarily made in response to the market but are
42
Turrini, O’Hare, and Borgonovi, 74.
Wichterman.
44
Alan Brown and Rebeca Ratzkin. “New World Symphony – Summary Report: 2010-2013 Concert Format
Assessment.” (San Francisco, CA: WolfBrown, June 2013), 3-5.
45
Dempster, 14.
43
20
instead based on internal negotiations. An increase in the number of performances results in
increased costs based on additional pay for musicians. Without increased ticket sales (demand)
to match these increased expenses, debt grows continuously. This trend becomes increasingly
concerning when combined with the decreasing attendance that many organizations are
experiencing across the country.
If organizations cannot or will not institute strategies for attracting new audiences, then
the alternative is increasing attendance by those already in your constituency. This effort
involves putting forth a product these consumers want to purchase. In his 2000 work Creative
Industries, author Richard Caves separates types of products through a process called
differentiation.46 He proposes that when two similar products of differing quality are sold for the
same price, consumers will select the one of higher quality (vertical differentiation). When two
similar products of similar quality are sold for the same price, consumers will be split between
them. This difference indicates that organizations would be wise to emphasize the quality of
their product if there are similarly priced substitutes available.
The production of a quality product creates a cyclical effect. Upon review of 128
orchestras, Mark Lang, William Luksetich, and Philip Jacobs discovered that “increases in
lump–sum grants are associated with increased quality across all orchestras.”47 But, how do
consumers rate quality and, therefore, perceived value? Regardless of familiarity with classical
music, subscribers tend to rate their local orchestra as a 9.2 out of 10 for quality. Former
subscribers rate the same organization at 8.9 and single ticket-buyers at 8.8.48 These high ratings
46
Richard E. Caves. Creative Industries: Contracts Between Art and Commerce. (Cambridge, Mass.: Harvard
University Press, 2000), 6.
47
Mark Lange, William Luksetich, and Philip Jacobs. "Managerial Objectives Of Symphony Orchestras."
Managerial and Decision Economics 7, no. 4 (1986): 273-78.
48
21
have a significant domino effect as, according to Dr. Michael Toma, Fuller E. Calloway
Professor of Economics at Armstrong Atlantic State University, improved quality increases the
likelihood of attendance by potential customers, which creates higher potential revenue from
ticket sales.49 Therefore, a quality product receives increased earned and contributed revenue,
with which the organization can further improve the product, and increase attendance.
Positioning the product positively in the mind of the audience is also important due to the
role that perception plays in decision-making. Caves points out that while audiences may agree
that one product is of a higher quality than another, that does not ensure that they are willing to
pay the higher price.50 The audience must believe that A) the product is of higher quality and B)
that the product is a better value for the cost. In his 2012 doctoral dissertation on the economics
of symphony orchestras, Michael Mauskapf states that, “Understanding how people measure and
perceive value is a crucial step in determining what conditions breed success.”51 Further
investigation of the perceived value of the orchestra product would surely enable organizations
to position themselves more effectively and hopefully gain additional support.
There is some evidence (though admittedly fairly little) that attempts to expand the
product of symphony orchestras pay dividends. For example, “From its inception, Walt Disney
Concert Hall [home of the Los Angeles Philharmonic] was imagined as a gathering place for the
people of Los Angeles to share musical and cultural experiences.”52 In that guise, ensemble
leadership made every attempt to diversify their products and make the most of their newly
49
Michael Toma and Holly Meads. “Recent Evidence on the Determinants of Concert Attendance for Mid-Size
Symphonies.” Journal of Economics and Finance 3, vol. 31 (Fall 2007).
50
Caves, 8.
51
Michael G. Mauskapf, “Enduring Crisis, Ensuring Survival: Artistry, Economics, and the American Symphony
Orchestra.” (ProQuest: UMI Dissertations Publishing, 2012).
52
Tepavac, 17.
22
welcomed constituents by “programming both horizontally and vertically.”53 This two-step
approach to programming attempts to capture both the attendee who prefers to see many of one
type of production, such as a symphony series subscriber, and those who wish to experience a
wide variety of performance types. The Los Angeles Philharmonic’s efforts were a success.
“The number of subscribers has risen from 18,000 at the Dorothy Chandler Pavilion to 23,000 at
Walt Disney Concert Hall. The orchestra regularly sells 90 percent of its tickets. It reaches
120,000 children through its education programs.”54
Another tactic for enticing new audiences is contextualization. A significant barrier to
entry can often be the feeling that understanding or appreciating a classical performance requires
prerequisite knowledge. “In bringing together victims of war, veterans, and community
members to generate a dialogue around the performances,” the Pacific Symphony attempted to
mitigate such preconceptions with the commission of Elliot Goldenthal’s Fire Water Paper: A
Vietnam Oratorio.55 Performances such as this create a context in which to consider the music
as well as various reasons why others may consider attending. Whether a classical music
enthusiast, a history buff, someone affected by war, or another relation altogether, these
performances create multiple entry points through which a diverse audience can appreciate the
same production.
This type of thematic program has become a mainstay with the Pacific Symphony and
has helped increase ticket sales, indicating that such productions are connecting with their
audience. “Pacific Symphony has balanced its budget for nearly 20 years, but has seen a 42%
increase in single ticket sales over the last two years; many of these new listeners signed on for
53
Ibid., 18.
Ibid., 23.
55
Ibid., 41.
54
23
thematic programs.”56 As many organizations face significant hardship, particularly with single
ticket sales, thematic programming may offer a way to entice previously untapped segments of
the population to attend performances.57
Regardless what programming strategy an organization takes, diversifying services has
proven to be an effective approach. Whether the diversification is in product, format, medium,
or some combination, this variety offers new and existing audiences the opportunity to
experience symphony products in a new fashion. At the New World Symphony, leadership
realized that, “Offering audiences a range of concert formats also allows for progressive
learning, another precept of well-designed pedagogy. … Patrons who feel that they have
‘graduated’ from a particular format can move along to something different.”58 Furthermore, the
WolfBrown report on concert formats at the New World Symphony discovered that “Theoretical
literature in the psychology field suggests that learning is optimized when learners are
challenged but not too challenged. In other words, the ideal place to learn is just beyond your
current liabilities.”59 Challenging audiences with new music, formats, venues, etc. is healthy,
though too many changes simultaneously is likely to cause stress and hesitation, possibly
resulting in the loss of some audiences members.
Appealing to audiences through product diversification also aids in reaching more
segments of the local community. As discussed previously, ensembles exist in and are supported
by their communities and, when working effectively, act as local citizens. Most believe that
56
Ibid., 52.
58
Brown and Ratzkin, 13.
59
Ibid., 13.
57
24
diversification is necessary (and inherently healthy) if orchestras are to avoid becoming
irrelevant to communities with other “strongly advocated values and pressing problems.”60
Serving the community, whether designated as the immediate area or extended further
through touring or online media, is what orchestras like the Chicago Symphony strive to do
every day. What a product is and how the organization delivers it is clearly a factor of
consideration for viability. Understanding an organization’s current state will aid in the most
effective communication with its constituency within the community and worldwide.
60
Wichterman.
25
IV. Channels
Since their inception, one of the most consistent aspects of a symphonic performance
remains the presentation format: a concert hall, musicians on stage, and consumers in the
audience.61 However, as audiences age and shrink, some symphony orchestras are considering
novel approaches to entice new attendees to performances, including new product delivery
methods. This section discusses alternative methods of delivering the orchestral product and their
effectiveness. In Business Model Generation, Osterwalder and Pigneur define “channels” as
“how a company communicates with and reaches its Customer Segments to deliver a Value
Proposition.”62 The traditional delivery method of concert hall performances is still alive and
well, although there is also little written on the effectiveness of this model. Therefore, this study
will highlight literature that focuses on alternative concert presentation methods.
Perhaps the most significant and publicized alternative concert delivery method, both
publically and financially, is the Metropolitan Opera’s “Live in HD” program. This innovation
broadcasts opera productions live in movie theaters across the country and streaming online.
The stakes for such a project are high as each broadcast costs roughly $1 million to produce, with
more than a dozen cameras creating 1600 individual shots for the director’s use.63 However,
these high–expense performances also have substantial potential return. By providing online
“streaming” subscriptions to opera broadcasts, the potential revenue gains are significant. It is
notable that, as opposed to concert halls that can fill up and require an additional costly
performance in order to gain more funds, an almost unlimited number of viewers can pay for and
61
Kennicott.
63
Justin Davidson. "The Sopranos on the Big Screen." The New York Times, January 7, 2008. 70-71.
62
26
enjoy a single production. Possible constraints include access to appropriate hardware and
software, internet connection, and so on, though the number of potential audience members with
this capacity is still incredibly high.
The broadcasting of classical productions is not a new concept. A generation of
Americans had access to high-quality classical music through radio broadcasts like those by the
NBC Symphony Orchestra. Even more remember Leonard Bernstein’s renowned “Young
People’s Concerts” with the New York Philharmonic, which were broadcast nationwide during
the early years of television and introduced a new generation to the world of Western classical
music. The Met’s “Live in HD” program and the wildly successful “Digital Concert Hall”—a
similar undertaking by the Berlin Philharmonic to broadcast symphonic performances live,
which require only an Internet connection for participation—are extending the promise of those
earlier efforts.64
Encouraging new audiences to attend their first classical performance, in a concert hall or
otherwise, may not be as difficult as previously thought. “There is little doubt that the total
‘extended’ audience for classical music has grown enormously as a result of electronic access to
a diverse range of high quality ‘classical’ music.”65 While this promising fact does not
necessarily mean that all who are exposed to classical music will attend performances, it stands
to reason that the more who experience the form, the more will consider attending. Thanks to
online streaming options, social media sharing, and other advancements, there is a larger
potential audience for classical music than ever before.
64
Elizabeth Withey. "From the Concert Hall to Your Computer; Berlin Philharmonic's Webcasts Unique."
Edmonton Journal, September 3, 2009.
65
Dempster, 17.
27
With the ever-extending opportunities to participate in classical music through various
forms of media, audiences are expanding.
Among the large base of potential classical customers (defined as those who rated
their interest five or above out of 10), fully 72 percent report having ever listened
to classical radio, 66 percent say that they’ve ever listed to classical recordings,
64 percent say that they’ve ever watched a classical music program on television
or VCR.66
These numbers are promising. When available through an easily accessible medium, potential
consumers experience classical music in large numbers. The most recent “Survey of Public
Participation in the Arts” by the National Endowment for the Arts cites that 71 percent of
individuals consume the arts through electronic media.67
Despite scant evidence to support the claim, it is possible that there is a direct relationship
between increasing electronic consumption and decreasing live attendance.68 If audience
members who once attended live classical performances instead consume the same product
through digital means, perhaps this shift illustrates an opportunity for growth in the streaming
media sector.
Whatever the reason for increasing electronic participation in the performing arts, it is
undeniably a popular trend. From the very beginning of The Met’s “Live in HD” broadcasts, the
institution saw significant results. Early in the 2008 season, only the second of the “Live in HD”
programs, nearly 100,000 people in total “attended” a December 15th matinee of Gounod’s
Roméo et Juliette worldwide – only 3,800 of those sat in the hall.69 With 97,200 cinema
attendees at $22 apiece, the event earned over $2.1 million in additional revenue. Of course, a
66
National Endowment for the Arts, How a Nation Engages with Art, 8.
68
Ibid, 12.
69
Davidson, 70-71.
67
28
portion of the profit went to production costs, movie theater rights, promotion, and more, but
gains were still potentially significant. In addition, The Met also gained a huge potential
audience base for future performances both in and out of their New York City home.
While not necessarily a completely new system of delivery, as performances still take
place in the concert hall, the New World Symphony (NWS) is also on the cutting edge of concert
format experimentation for encouraging first–time attendees. The WolfBrown study referenced
earlier focused on four new concert formats at the NWS, all of which add a twist to the
traditional concert setting. “Mini-Concerts”, thirty-minute performances at 7:30pm and 9:30pm
with tickets for $2.50, offer patrons an opportunity to have a new experience without a heavy
time or financial commitment.70 Hour–long educational programs called “Encounters” introduce
audiences to classical music by incorporating narration and visual elements around a theme, such
as “Concert Hall Cool: Jazz Goes Symphonic.”71 “PULSE” performances completely reimagined the classical music delivery system by “integrating live classical music with a DJ
playing electronic dance music” within a late–night club atmosphere where audiences can sit and
listen, wander, drink, mingle, and dance at will.72 Finally, “Journey Concerts” act as in-depth
looks at the works of a single composer, crossing genres from full orchestral to sometimes
chamber and solo music.73 These are not all necessarily new channels for delivering a product to
audiences, but ways to re-imagine the concert experience and perhaps increase first–time
attendance.
70
Ibid, 6.
72
Ibid, 7.
73
Ibid, 9.
71
29
Creating new formats through which audiences can experience classical music did in fact
succeed in encouraging new patrons to attend. All of the performance types had first–time
attendees (patrons who had never attended a New World Symphony performance previously)
were found at all performance types to varying degrees. Of all those in attendance, 47 percent
were first-time visitors at Mini-Concerts, 40 percent at PULSE, 28 percent at Encounters, and 10
percent at Journey performances.74
These are significant figures, as encouraging first–time attendance is paramount to
growing audiences. However, a simple increase in first-time attendance was not the only benefit
to new concert formats. The WolfBrown study also asked attendees to rate the impact of the
performance on the “Emotional Resonance – Strength of emotional response” and “Aesthetic
Growth – Better equipped to appreciate classical music.” On a 1 to 5 scale (1 being weak/not at
all and 5 being strong/a great deal), all formats received an average rating of at least 3.5 for both
questions, with the exception of Aesthetic Growth at PULSE performances, which received
roughly a 3.3. The “Emotional Resonance” rankings of three formats (Mini-Concerts,
Encounters, and Journey) received a rating over 4 and Mini-Concerts were ranked 4.5.75
These examples of alternative product delivery methods, or “channels” as Osterwalder
and Pigneur define them—The Met’s “Live in HD” and various formats at the New World
Symphony—display ways in which organizations are attempting to reach new and expanded
audiences. Encouraging more first–time attendees through new formats or delivery methods
may be one way to help ensure that support for symphony orchestras exists well into the future.
74
75
Ibid, 4.
30
V.
Revenue Streams
In order for symphony orchestras to exist at all, their income that comes in the form of
earned revenue (ticket sales and other program services) and contributed revenue (donations and
other gifts) must cover their expenses. Osterwalder and Pigneur define these streams as “the
cash a company generates from each Customer Segment.”76 As expenses continue to grow,
revenue will also have to increase if organizations are to avoid substantial deficits and
skyrocketing debt.
While orchestras gain earned revenue through educational programs and the sale of
occasional recordings, the crux is ticket sales. Unfortunately, as revenue from ticket sales
continues to decline, the portion of expenses they are able to cover declines as well:77
Back in the 1930’s, the top orchestras could cover 85% of their total budgets
through earned income, with the rest at 60%. By the beginning of the 21st
century, earned income for the top orchestras was in the 50th percentile, with other
orchestras coming in between 45% and 52%. Today nearly all orchestras are in
the 30th percentile.78
A 1937 report by Margaret Grant and Herman S. Hettinger cited that the three most successful
orchestras earned “only an average of 85 percent of their total budgets while … the whole group
averages 60 percent.”79 While earned revenue still counts for a significant portion of ensemble
earnings, this shrinking figure leaves an increasingly expanding gap for contributions to fill.
Orchestral organizations clearly feel the effects because “between 1987 and 2000, 46 of the 62
largest orchestras ran overall deficits on average.”80
76
78
Woodcock.
79
Margaret Grant and Herman S. Hettinger. America's Symphony Orchestras, and How They Are Supported. (New
York: W.W. Norton & Company, 1940).
80
Flanagan, “Symphony Musicians and Symphony Orchestras,” 7.
77
31
While ticket sales do not account for the highest portion of all symphony orchestra
revenue, they are the direct earnings from the sale of product. It is important, therefore, to
increase ticket sales whenever possible. However, as noted above, more performances
inherently means more services required of ensemble members, and salaries consistently rank as
the number one expense for orchestras. In his 2000 book Creative Industries, Caves suggests
one creative method for increasing revenue from ticket sales without significantly increasing
musician expenses. He proposes that ensembles offer more performances of the same production
in order to sell more tickets without dramatically increasing the services for ensemble
members.81 Traditionally, orchestras hold rehearsals throughout the week to prepare for a single
Friday and Saturday performance, and an occasional Sunday afternoon concert. At best, this
schedule means there are three opportunities to earn enough revenue to cover expenses from six
services - one concert per two services. Caves approach suggests that an ensemble considers
having additional performances, perhaps six. Now there are twice as many concerts to cover
expenses from nine services or one concert per 1.5 services. Skeptics may argue that there is
insufficient demand for six performances, but it is a strategy to consider nonetheless.
The same argument applies for performances that are available through online streaming,
such as the Metropolitan Opera “Live in HD” broadcasts discussed earlier. While such
productions are quite expensive to produce, they do enable the organization to reach a practically
unlimited number of paid audience members with little incremental cost per production.82
Another strategy to increase the revenue from ticket sales is simply to increase prices.
This idea is controversial as, particularly with engagements that are also time–intensive,
81
82
Caves, 224.
David Throsby. "Economic Circumstances of the Performing Artist: Baumol and Bowen Thirty Years on."
Journal of Cultural Economics 20, no. 3 (1996), 225-40.
32
audiences are less flexible with increased prices. When compared with possible substitutes,
potential audiences are increasingly likely to be critical of increased prices when leisure time is
limited.83
In their 1979 cornerstone publication, The Economics of the Performing Arts, economists
David Throsby and G. A. Withers also found that ticket prices for the performing arts were
relatively inelastic, due to the fact that such a genre is generally an acquired taste.84 In a
fascinating 2005 paper, Bruce Seaman of Georgia State University gathered many additional
publications discussing the elasticity of ticket costs in the performing arts, largely to reach the
same conclusion.85
Evidence of the inelasticity of performing arts ticket sales has not resulted in steady
prices; they have in fact been steadily rising. Despite the increasing cost of tickets, resulting
revenue from concert tickets has barely kept up with inflation and still lags well behind the
relative increase in concert expenses.86 Higher ticket costs may be especially tolerable in small
and mid–sized orchestras, where studies show that price elasticity is higher than it is for major
ensembles.87
However large the orchestral audience and, therefore, the revenue it draws, many
organizations still find it wise to diversify their revenue streams. Particularly due to the volatility
83
Glenn A. Withers. "Unbalanced Growth and the Demand for Performing Arts: An Econometric Analysis."
Southern Economic Journal 46, no. 3 (1980), 741.
84
C. D. Throsby and G. A. Withers. The Economics of the Performing Arts. (New York: St. Martin's Press, 1979),
27-29.
85
Bruce A. Seaman. “Attendance and Public Participation in the Performing Arts: A Review of the Empirical
Literature.” Andrew Young School of Policy Studies, Research Paper Series. (Atlanta, GA: Georgia State
University, August 2005), 48-58.
86
William J. Baumol, and William G. Bowen. “On the Performing Arts: The Anatomy of Their Economic
Problems.” The American Economic Review 55, no. 3 (1965): 495-502.
87
William A. Luksetich and Mark D. Lange. "A Simultaneous Model of Nonprofit Symphony Orchestra Behavior."
Journal of Cultural Economics 19 (1995): 52.
33
of the financial sector in recent years, having many options for income ensures that the overall
health of the organization will remain higher if one or two streams take a hit. As the financial
crisis in and around 2008 exemplified, contributed and investment income is persistently at risk
of falling short of projections. Angela Besana investigated 145 symphony orchestras and found
that 54 diversified into all seven categories she identified: government contributions,
private/grant contributions, program service revenue, interest on savings and temporary
investments, dividends and interests from securities, net gain/loss from sales of assets, net
gain/loss from fundraising events, and other.88 Organizations with more and more revenue
streams will be in the best position to remain stable if and when one falls short of projections.
A notable example is the fluctuating levels of funding provided by various levels of
government to the nonprofit arts sector. While the government’s contributions to symphony
orchestras shrank overall between 1987 and 2005, the levels of government from which it came
varied significantly. In 1987, government support was fairly even among levels with 28 percent
coming from the federal government, 40 percent from the state, and 32 percent from the local
level. These numbers shifted dramatically by 2005, perhaps due to a change in the political
climate. By then only 15 percent of government funding came from the federal level, 40 percent
again from state, and 45 percent from local municipalities.89 To put it in a larger perspective,
between 1991 and 2001 federal funding dropped from nine to only six percent of an
organization’s total revenue for a year.90 While the decrease in government funding is a
worrying trend, private–sector contributions continue to be a substantial source of support for all
88
Angela Besana. "Alternative Resources: Revenue Diversification in the Not-for-Profit USA Symphony
Orchestra." Journal of Arts Management, Law, and Society (2012), 87.
89
90
Dempster, 14.
34
nonprofit organizations. On the whole, contributions to nonprofits in 2013 totaled over $335
billion, 72 percent of which came from individual donors.91
More specifically for symphony orchestras, there was significant shift in the source of
symphony funding between 1987 and 2005. In 1987 contributions from individuals accounted
for 38 percent of all private giving while 29 percent came from businesses, 8 percent from
foundations, and 25 percent from all other sources. By 2005, of all private contributions to
orchestras, half (50 percent) came from individuals while 16 percent came from business, 15
percent from foundations, and 19 percent from other sources. Notably, even though the
percentage of private giving from each source changed during this time, all increased their
contributions.92 In an examination of records by the American Symphony Orchestra League, the
Wolf Foundation found that between 1970 and 1990 private contributions increased by 139
percent.93
The period between 1970 and 2005 saw its share of ups and downs in the economy, yet
private contributions continued to grow. More recently, the economic recession noticeably
affected contributions as overall charitable giving between 2007 and 2009 was down by roughly
$50 billion. However, since 2009, total contributions to nonprofits have grown steadily. From
2012 to 2013, total giving rose an inflation–adjusted 3.0 percent and, if this trend continues,
estimates show that giving could return to the pre-recession peak levels of 2007 in just one to
two years.94
91
"The Annual Report on Philanthropy for the Year 2013." Giving USA, (Indiana University: Lilly Family School
of Philanthropy, 2014).
92
93
Wolf Organization and American Symphony Orchestra League. The Financial Condition of Symphony
Orchestras. (Cambridge, MA: Wolf Organization, 1992), v.
94
"The Annual Report on Philanthropy for the Year 2013."
35
For many decades, foundations have also provided a significant portion of private
contributions to symphony orchestras in the U.S. According to the “Foundation Grants to Arts
and Culture, 2012” report from Grantmakers in the Arts, the 1,000 largest foundations “awarded
20,412 arts and culture grants totaling $2.2 billion, or 10 percent of overall grant dollars.”95
However, foundation funding fluctuates year to year and there is no exception for the arts.
Foundation giving to the arts in 2012 was down by 5 percent compared with 2011, but this dip is
in contrast to the 10.3 percent reduction in overall grant dollars.96 Another promising sign is
that, while dollars to the arts did decline between 2011 and 2012, the actual number of grants
increased by 3 percent.97
One must also consider the particular foundations that are giving to the arts. Of the $2.2
billion in grants for the arts in 2012, only 25 separate foundations contributed $728 million of
that total in the form of 3,751 grants. Of this smaller group, five foundations (Andrew W.
Mellon, Greater Kansas City Community, Ford, Edward C. Johnson, and Donald W. Reynolds)
alone contributed $340 million, or 15 percent of all foundation giving to the arts.98 Foundations
have also contributed heavily toward the general expenses of arts organizations, including fixed
expenses. Second only to those for program support, contributions to general support of arts
organizations totaled 30.4 percent of all foundation giving, or over $655 million in 2012.99
According to arts consultant and former President of the Kennedy Center, Michael
Kaiser, when considering if and from where to make budget cuts, “It is preferable to cut
95
Steven Lawrence and Reina Mukai. "Foundation Grants to Arts and Culture, 2012: A One-year Snapshot."
Grantmakers in the Arts - GIAreader 25, no. 3 (Fall 2014), 3.
96
Ibid, 3.
97
Ibid, 3.
98
Ibid, 6.
99
Ibid, 5.
36
everything but art and marketing—anything that does not create revenue.”100 It seems that
foundations agree; in 2012 grants to program services accounted for $864.5 million, or 40.1
percent of all arts funding.101 Directed contributions encourage arts organizations to continue
pursuing the purpose for which they were founded—the creation of art for public consumption.
Inherent to their nature, nonprofit organizations rely on revenue not only from program
services, but also from public and private contributions in order to exist. As the field gains an
improved perspective on how arts organizations have weathered the recent financial crisis—as
well as tracking the results of future strategic financial decisions—and recognize that such a
thing is possible in the future, there may be increased attendance paid to sustainable revenue
streams.
100
Michael M. Kaiser. Leading Roles: 50 Questions Every Arts Boards Should Ask. (Brandeis University, 2010),
97.
101
Lawrence and Mukai, 5.
37
VI. Key Resources
In order for symphony orchestras, or any business, whether nonprofit or for-profit, to do
their work, they require resources from people to materials. Businesses invest in resources and,
through work, create a product that they can sell to consumers and thereby earn revenue.
Business Model Generation defines resources as “the most important assets required to make a
business model work.”102 This definition is quite broad and, where orchestras are concerned,
encompasses everything from human capital (staff, musicians, etc.) to physical assets (real estate,
buildings, equipment) to intangibles (cash, investments, intellectual capital, etc.).
As this study is intended to act as a tool for orchestral leadership or others inside the
organization looking out, discussions of the literature will focus on that perspective. While
orchestras require a great many resources in order to function, the preponderance of available
and significant literature focuses on only a handful of these. Partnerships with outside
organizations, best practices in investment for orchestral organizations, etc. are all valuable
topics, though little significant literature is available to fully explain them. Instead, this study
focuses on areas of resources for orchestral organizations about which there exists a substantial
body of work. These categories include the relationship between the organization and musicians,
the handling of financial assets, and more.
Arguably a symphonic organization’s most significant resource—one without which
performances cannot occur and, therefore, no revenue earned—is its musicians. Particularly in
recent years, there have been many very public examples of discord between symphonic
102
38
administration and musicians, too many of which resulted in lockouts and bankruptcies.103
Sticking points in negotiations may include rate of pay, work hours, guaranteed weeks of
employment, required non-concert commitments, increased Pops programming, and more.
Management often feels so driven by musician unions that they act outside of the organization’s
best interest in order to keep the doors open. One study sites that, “The decision on how many
concerts to play seems not to be established by audience demand, but instead by the collective
bargaining with musicians.”104 The stretch to provide ever more concerts naturally increases
expenses and puts amplified strain on orchestra budgets.
Points where disagreements arise are typically matters of legitimate concern:
A recent study comparing the motivation and satisfaction of musicians in 78
American, British, and German orchestras with those of employees in 12 other
occupations shows that orchestra musicians’ ‘internal motivation’ is very high,
but their general job satisfaction is modest (ranking seventh out of thirteenth
behind airline flight attendants and even Federal prison guards.105
Additionally, musicians without job security are continuously at risk due to the flooding of the
orchestral labor force. While in the last 30 years the need for orchestral musicians has increased
by 23 percent, the number of musicians in the market has also increased by 37 percent.106 A
greater number of musicians, playing at a higher level than at any other point in history means
much greater competition among them. Based on the general unease surrounding their
103
Trend illustrated by:
Charles Ward. "Musicians Orchestrate Full Strike / Last Offer can't Stop Symphony Walkout." Houston
Chronicle, Mar 09, 2003.
James R. Oestreich. "San Francisco Symphony Musicians Go on Strike." New York Times, Mar 14, 2013.
John von Rhein. "CSO Players Tune Up for Strike ; Work Stoppage may be 'Imminent and Protracted'." Chicago
Tribune, October, 29, 2004.
Mark Stryker. "DSO to Talk it Out in Sept.: Managers, Musicians Try to Negotiate Labor Dispute." McClatchy Tribune Business News, August 22, 2007.
104
Dempster, 6.
105
Wichterman.
106
David Throsby. "Economic Circumstances of the Performing Artist: Baumol and Bowen Thirty Years on."
Journal of Cultural Economics 20, no. 3 (1996), 225-40.
39
employment situation, it is unsurprising that musicians and union representatives stand
steadfastly for change.
Administrators seem to understand that musicians play a crucial role in shaping the
artistic product, but rarely do they give their musicians any real say in the artistic conversation.
A panel of orchestra leaders claimed that “Artistic quality will not be enriched … by giving more
concerts, but rather by giving musicians a greater role in shaping the institutions in which they
work.”107 How can organizations achieve a more democratic balance? How will a more hands–
on approach to programming by symphony musicians affect the product? Examples offer insight
on how shared control of the artistic product benefits organizations across the board.
Nationwide, there are examples of musicians gaining increased control over the artistic
product they produce, both inside and outside the concert hall. For many examples of evolving
administration–musician dynamics, one may look no further than leadership consultant Lela
Tepavac’s report Fearless Journeys: Innovation in Five American Orchestras, commissioned in
2010 by the League of American Orchestras. Much of this section is indebted to her exhaustive
work. The St. Paul Chamber Orchestra (SPCO), for example, is completely re-thinking the idea
of artistic control, putting much of it into the hands of musicians. The SPCO believes that “The
essence of the model is the transfer of significant (though not all) artistic decision-making
authority to musicians, vesting them with control over their artistic future.” Says one musician,
“We together pick the conductors. We together pick the soloists. We together decide the fate for
the organization in many ways. When the organization does anything of gravity, there are
musicians involved in it.”108
107
108
Wichterman.
Tepavac, 63.
40
The musicians of SPCO use this artistic control to ensure that their product remains on
the cutting edge of hot trends and creativity. Instead of a music director, the SPCO “engages a
rotating group of Artistic Partners,” who help lead the vision of the organization during their
temporary stay. “It gives the SPCO access to a pool of artists that would be unavailable in any
long-term traditional leadership capacity.” The temporary state of this position also allows the
ensemble to change directions and receive new insights at their will. The flexibility inherent in
the Artistic Partners program encourages a fresh product for audiences at all times.109
It is clear that more inclusive artistic approaches have had proven effects across the
board. Musicians report being more satisfied, the organization has balanced budgets for 14 of
the last 15 years, and the audience has become more diverse and increased by 50 percent.110 A
better relationship between orchestra musicians and administration can make for improved
working conditions and an increasingly open line of dialogue for all.
As many organizations struggle to fill halls for traditional subscription concerts, they
often ask musicians to work in new ways, such as increased educational outreach efforts, sideby-side performances, chamber performances, and more. However, these new initiatives do not
necessarily have to create strife between musicians and leadership. For example, the Memphis
Symphony Orchestra found an effective way to both increase outreach efforts and include
musicians in the planning process by allowing musicians themselves to plan such community
partnership programs.111
This approach proved beneficial to all, as “Together they drafted a side letter to the
existing collective bargaining agreement that permitted service conversions and allowed the
109
Tepavac 63-64
Ibid., 69.
111
Ibid., 34.
110
41
orchestra to deploy musicians individually throughout the community.”112 The ensemble also
found it helpful, if not necessary, that several union representatives were members of the
ensemble as well. The existing addendum allowed for its smooth integration into the new
collective bargaining agreement when it came up for discussion the following year.
Furthermore, musicians had freedom to opt in or out of the program as the organization again
relinquished power to them, potentially putting out any fires before they started. Musicians were
satisfied because they had the ability to decide what they would and would not be asked to do;
leadership got both happy musicians and the flexibility to offer new programs to the
community.113
A similar approach to inclusive engagement can be found at the Atlanta Symphony
Orchestra (ASO), though this time not restricted to just musicians. At the ASO, “All the
organization’s work is done in cross-constituent teams” and “Participants join discussions as
equals – regardless of their titles or roles within the organization.”114 This model allows for a
greater diversity of ideas and wider variety of experiences to contribute to the end product. The
process encourages participation by all, as “People are willing to expose themselves and their
ideas because they know they are respected and trusted.”115 The initiative has generated not only
a significant dedication to new music and American music, but also no less than 12 Grammy
awards in the last 15 years and the sixth American Society of Composers, Authors, and
Publishers (ASCAP) award in the organization’s history.116 Certainly, the Atlanta Symphony
112
Ibid., 34.
Ibid., 37.
114
Ibid., 76.
115
Ibid., 77.
116
Atlanta Symphony Orchestra. "About Us." Awards & Recordings. Accessed November 19, 2014.
http://www.atlantasymphony.org/About/AwardsAndRecordings.aspx.
113
42
Orchestra, like many other ensembles, has also faced gridlock in recent years, several resulting in
delays or lockouts.117 However, this strife does not discredit the unique approach they are taking
to programming decisions and the inclusion of artistic partners beyond senior management.
In many circumstances, creating new partnerships or strengthening existing ones proved
essential to organizational advancement. Tepavac explains that “Successful partnerships in these
orchestras were reciprocal, based on mutual respect and interests, and idea-based. They were
established for cultural and identity purposes, fueled by artistic creativity and invention, and key
to helping organizations push past constraining orthodoxies.”118 A deeper inclusion of
constituencies both inside and outside the organization provide a more intimate feeling of
ownership and control, encouraging all involved to become more engaged in the overall state of
the organization.
Of course musicians account for only a portion of the resources required to produce the
value propositions that customers seek. It is also essential, especially during periods of
economic uncertainty, that managers implement effective strategies for handling the assets over
which they have more direct control. As will be discussed later, expenses have dramatically
increased since the 1970s and 1980s with no sign of slowdown in the immediate future. In fact,
between 1971 and 1991, industry expenses rose overall from $87.5 million to $698.8 million – a
swell of almost 800%.119 Unfortunately, industry deficits simultaneously increased by 830%,
indicating that revenue has obviously not grown at the same pace.120 As this trend continues,
117
Geoff Edgers. “Atlanta Symphony Orchestra Struggles During Second Lockout In Two Years.” The Washington
Post, October 9, 2014.
118
Tepavac, 93.
119
Wolf Organization and American Symphony Orchestra League, iii.
120
Ibid., iii.
43
organizations are focusing on how they manage their assets, ensuring their most effective
usage.121
An organization’s most direct support from owned assets might be revenue from
endowments and investments. Endowment funds can be quite valuable because “If successful,
such funds can provide an organization with an additional income in the form of interest earned
on the sum.” Particularly during periods of economic instability, a strong endowment can be
supremely beneficial as it can be “converted into accumulated goods devoted to the production
of either future or present goods.” Recessions notwithstanding, organizations able to build up a
sufficient endowment can look forward to steady returns from the fund, decreasing the expenses
they must then cover through earned and contributed revenue. Rarely does revenue from
endowments and investments ever cover a significant portion of expenses, but it is a welcome
boost to other means of revenue. Not to mention they can serve as a basis on which an
organization may receive a loan or open a line of credit.122
Recognizing the significant role that endowments can play in the long–term health of an
organization, the Andrew W. Mellon Foundation pushed to provide substantial funds to the field
to help ensure the continued existence of orchestras for a number of years. “In 1977, concerned
about the steadily worsening net current liability position of orchestras, the [Foundation] began
making endowment grants to a limited number of orchestras to help them improve long-term
stability.”123 However, “that program was suspended in 1994 after an investment of nearly $10
121
Dempster, 9.
J. D. Glenn. "The Relationship between Endowment Funds and the Support of Selected Non-Economic Goals in
the Arts." Order No. 9238182, (Ohio State University, 1992), 12-15.
123
Wichterman.
122
44
million failed to change the situation measurably.”124 This outcome is unsurprising as their
contributions—roughly $10 million in total—increased the size of overall symphony
endowments by only about 1.1%.
Despite periods of general economic expansion in the U.S. during the 1980s and 1990s,
symphony orchestra earnings from endowments and investments shrunk from 18 percent of total
revenue to 12 by 2001.125 In 1991, the total of orchestra endowments across the United States
reached $876.5 million, which was smaller than the individual endowments for several major
universities.126 However, that perspective has not stopped orchestral organizations from filtering
funds into endowments. Forty-nine orchestras reported endowments between $2.0 million and
$353.5 million to the League of American Orchestras during the 2005 concert season, the median
of which was $23.6 million. Income from these funds varied greatly as well, as this revenue
accounted for anywhere from 5 to 17 percent of all earnings from the endowment.127
To reach this point, most endowments had been growing between 1998 and 2005.
Though the range for endowment change was -10.2 percent to 101.4 percent, the median of
reporting orchestras increased by a substantial 11.6 percent.128 Of particular interest is that there
is not necessarily a dramatic difference in endowment growth between small and large orchestral
organizations. During periods of strong economic growth, endowments increased anywhere
from low single digits to almost 30 percent; even during more trying periods some ensembles
still increased the size of their endowments by over 20 percent. In general, however, the
124
Ibid.
Dempster, 14.
126
Wolf Organization and American Symphony Orchestra League, v.
127
128
Ibid., 130.
125
45
endowments of larger organizations performed best in a good economic climate and small
organizations were stronger during economic slumps.129
As Robert Flanagan, Harvard University professor and industry consultant, explains,
“Preserving the purchasing power of an endowment so that it provides future generations with
the same level of artistic experiences enjoyed by the current generation has considerable intuitive
appeal.”130 The fund should simultaneously provide ongoing support for current ensemble
operations and remain substantial enough to ensure its continuation as a valuable source of
revenue in the future. This possibility comes down to how well the organization manages their
endowment.
The organization must decide how much of the capital they want to spend annually and,
based on that figure, how much they must earn in order to retain the full value of the fund.
Flanagan suggests that the amount spent should be determined by what expenses it will cover,
not necessarily a revenue gap or current economic trends. If the rate of that expense’s growth
occurs at greater than the rate of inflation, the fund will shrink. Flanagan explains that:
If an endowment supports a $300,000 salary for a concertmaster in 2005, the
endowment should be managed so that it will support a much larger salary 10
years hence. If the salary of a concertmaster is expected to increase by 50 percent
over the next decade, then the endowment principal must increase by 50
percent.131
However, this is not the only figure for organizations to consider. Managers must account not
only for the amount of the capital spent yearly, but also for the rate of inflation. If the
organization plans to spend 5 percent of the capital each year and there is an additional inflation
129
Ibid., 130.
Ibid., 135.
131
Ibid., 135.
130
46
rate of 4 percent, the portfolio must incur a 9 percent rate of return to mitigate a shrinking
fund.132
Investment strategies for carrying out this process are simply too numerous to discuss in
detail and must judge the role that each individual organization wants its endowment to play.
Most agree that, regardless of the specific investments made, diversity within the fund is
essential for creating a more general state of stability. As any economic advisor will attest, there
are many investment options with varying levels of risk and, therefore, various potential
earnings. Investments with the highest possible yield are also the most risky and prone to
instability. Having a variety of investments—risky ones with high return and secure ones with
low—helps ensure that as one area goes particularly sour it does not cause the demise of the
entire portfolio.133
In the past, a common method for identifying how much of the endowment fund to spend
was to look at investment yields for the previous three to five years. Practitioners used an
average of this figure to project potential earnings, determining how much they believed could
be safely spent without the fund shrinking. However, Flanagan is quick to point out that this
approach does not take into consideration several key factors. For example, it is clear from
recent events, such as the financial crisis, that past performance is not necessarily an indicator of
future trends. Furthermore, yield percentages in the past do not accurately indicate how the size
of the fund has or will change. If, for example, an organization typically spends four percent of
its $1 million endowment ($40k) per year, that percentage grows if the investments made from
that endowment itself do not yield a high enough return. If the fund shrinks by 10 percent then
132
133
Ibid., 135.
Ibid., 132-133.
47
the spending rate is effectively 4.4 percent ($40,000/$900,000). It is essential that organization
leadership and portfolio managers determine the function of their endowment in their overall
funding; how to invest it in a way that attains those goals and simultaneously retains value for
the future with potential strategies for mitigating crises should they arise.134
While the effective planning for and management of an endowment fund is essential, it is
not the only asset regularly handled by orchestral organizations. Many organizations must care
for buildings, equipment, and much more. However, much less has been published on strategies
for the effective management of such tangible items, particularly in regards to their function for a
symphony orchestra. A good place to start may be Theatre Management by long–time
Broadway theatre manager David M. Conte and former president of the Association of Arts
Administrator Educators, Stephen Langley. This formidable work of scholarship discusses
valuable topics such as budget planning, cost control strategies, audience management, etc. and
is a ready resource for all arts managers.135
Conte and Langley’s book is merely a start for thoroughly understanding how the
management of large assets has affected the overall wellbeing of symphony orchestras. One of
the most substantial of these assets is concert halls, which were constructed in greatly increased
numbers between 1994 and 2008. This period saw the erection of 725 cultural institutions, the
largest portion of them being performing arts centers (PACs) with an average cost of over $21
million.136 Many cities of less than 500,000 people were building facilities for the very first
134
Ibid., 133-136.
David M. Conte and Stephen Langley. Theatre Management: Producing and Managing the Performing Arts.
(Hollywood, Calif.: EntertainmentPro, 2007).
136
Woronkowicz, Joynes, Frumkin, Kolendo, Seaman, Gertner, and Bradburn, 9.
135
48
time, sometimes without a clear understanding that there was a substantial enough audience to
support it.137
Another very recent book, Building for the Arts by Peter Fumkin and Ana Kolendo,
professor of social policy and research fellow respectively at the University of Pennsylvania, is
also a valuable tool for better understanding cultural facility construction. From initial plan to
financial support to maintaining perspective, Frumkin and Kolendo provide a unique look into
the building process. The investigation of case studies results in 15 conclusions about cultural
building, from “Don’t ask for community input unless you are ready to listen and respond” to
“supply does not create its own demand,” that will hopefully encourage leaders to think carefully
about their goals and whether a new building is the best way to achieve them.138
It is not simply the building of a new facility that garners large expenses—such costs will
continue throughout the building’s lifetime. As facilities age, their upkeep becomes gradually
and sometimes prohibitively expensive. A clearer understanding of how the construction and
maintenance of a facility affects the rest of the organization would surely benefit future
practitioners as they consider heading down the same path.
137
138
Ibid., 3.
Peter Frumkin and Ana Kolendo. Building for the Arts: The Strategic Design of Cultural Facilities. (Chicago,
IL: The University of Chicago Press, 2014), 225-242.
49
VII. Cost Structure
Symphony orchestras inherently face a number of significant expenses that fluctuate
based on many independent factors. The Cost Structure, according to Osterwalder and Pigneur,
“describes all costs incurred to operate a business model.”139 This work does just that –
discusses the expenses incurred by symphony orchestras in the process of creating a product for
public consumption. Some expenses are variable, others are fixed. Certainly this section will
not cover all possible expenses, but it includes the major literature that gives significant insight
into the bigger picture of symphony expenditures.
As outlined in Performing Arts: The Economic Dilemma and reaffirmed by many studies
since, symphony orchestras suffer from the dreaded “cost disease.” In their landmark 1960s
work, economists William Baumol and William Bowen identified that, despite dramatic
advances in technology in everyday life, the service sector, which includes symphony orchestras,
will not become significantly more efficient. While technology may allow one person in many
sectors to now do the work of several, the arts are different. The performance of a Schubert
string quartet will always require four players and they cannot perform it substantially faster each
time. Income potential, therefore, remains the same. However, expenses such as musicians’
salaries, rental space, etc. have risen. This discrepancy creates an ever–widening “income
gap.”140 Without dramatic adjustments to either expenses or revenues, deficits may spiral out of
control and create ever–mounting debt, as already evidenced by some orchestras across the
country.141
139
Baumol and Bowen, Performing Arts: The Economic Dilemma.
141
Trend demonstrated by J. D. Wakin, “Details emerge of an orchestra’s bankruptcy plea.” New York Times, April
21, 2011.
140
50
The “income gap” is the difference between how much it costs to produce a product and
how much its sale earns back.142 For example, in 1971 it cost $5.00 per audience member to
produce a symphony season, taking into account the entire organization budget and not simply
performance expenses. At the time, ticket sales earned $2.22 per audience member, leaving an
income gap of $2.78 which other sources of income, such as contributions, were required to
cover. This ratio worked out to roughly 45 percent of revenue earned through concert programs
and 55 percent contributed. However, in 1991, once expenses had taken off dramatically, it cost
an average of $26.17 per audience member to provide the same service, taking into account
salary increases, longer seasons with more performances, and non-performance cost increases.
At that time, services only returned $10.26 per audience member, leaving a gap of $15.91, or
61% of total expenses for contributions to cover.143 While these figures tell the story of radically
increasing expenses, it would be beneficial to have updated figures on which to base effective
change. In order for this gap expansion to cease or even to reverse, dramatic steps have to be
taken—steps that require concessions from administrations, musicians, and audience-members
alike.
In “The Cost of Producing Symphony Orchestra Services,” authors Mark D. Lange and
William A. Luksetich point out that many “studies of orchestra costs have used performances,
essentially the number of concerts, as the output measure,” which is an inefficient way to gauge
of productivity.144 For various reasons, the number of performances has steadily increased
despite no noticeable increase in demand. By the time of Douglas Dempster’s 2002 report on
142
David Throsby. "The Production and Consumption of the Arts: A View of Cultural Economics." Journal of
Economic Literature 32, no. 1 (1994), 1-29.
143
Wolf Organization and American Symphony Orchestra League, iv.
144
Mark D. Lange and William A. Luksetich. “The Cost of Producing Symphony Orchestra Services. Journal of
Cultural Economics 17, no. 1 (1993), 1.
51
The Economic Health of American Symphony Orchestras, “the number of concerts presented has
grown nearly 50% over 10 years … even though total audience participation is stagnant.”145
Expenses rise dramatically as the gap, which already existed for one performance, stretches
further and further. This expansion occurs because, as expenses increase, income does not
increase in tandem. In fact, while the average expenses for orchestras have grown from $5
million to $7 million since 1991, income has barely increased (between $2 million and $2.5
million).146
Rather than number of performances, ensembles must look to indicators such as
percentage of seats sold, repeat attendees, subscription sales, etc. to determine success:
Orchestras serving major markets benefit from scope economies to a far greater
extent than those who service smaller markets. Policies which encourage the
diversification of services of the larger orchestras and encourage specialization of
smaller orchestra services would appear to be efficient from a cost of providing
services perspective.147
The study by Lange and Luksetich shows that larger ensembles serving a wider potential
audience are most efficient when they offer a variety of programming in order to engage as large
a portion of this potential market base as possible. Those in small markets are best served by
providing a niche product to those loyal patrons who will continuously support its production
rather than attempting to serve all segments of a population.148
These findings may cause the field to reconsider how it approaches expenses and
revenue. At the time of Baumol and Bowen’s substantial work, orchestras noted that, “Even if
every major orchestral concert were sold out, the consequent increase in receipts would cover
145
Dempster, 16.
Mauskapf, 226.
147
Lange and Luksetich, “The Cost of Producing Symphony Orchestra Services, 13.
148
Ibid., 1.
146
52
much less than one third of the total financial gap.”149 Moreover, in 1970, the Cleveland
Orchestra noted the flaw in its own working model. They recognized that the weekly payroll of
their musicians was $33k, whereas the potential box office returns should all performances sell
out could only reach $20k. “Before the orchestra plays a note, we are $13k a week in the red.”150
One would think this realization would be taken as a dramatic wake-up call to the field, an
opportunity for re-evaluation of current principals and experimentation with new models that
may prove more feasible. However, almost 50 years after Baumol and Bowen, symphonic
organizations continue making the same mistakes with even higher risks.151
A sustained issue within symphony orchestras, greatly contributing to the expanding gap
between expenses and revenue, is the separation between demand for services and supply of
them. Collective bargaining agreements have pushed for an increase in the guaranteed number
of concerts and weeks of employment, despite no obvious boost in audience demand.152 The
availability of significantly more tickets than the market will support on its own requires greater
efforts by the organization to sell them, meaning increased expense. “In an industry where the
number of services is not determined by audience demand but by labor requirements, the
marginal cost of selling more tickets and raising more money may be approaching a point of
significantly diminishing returns.”153 The fear is that symphony orchestras are reaching a point
where there is a much greater supply of tickets than there is demand. Perhaps that point has
already been reached.
149
Baumol and Bowen, Performing Arts: The Economic Dilemma, 240.
151
Dempster, 7.
152
153
Wolf Organization and American Symphony Orchestra League, vi.
150
53
Efforts within the symphony orchestra field thus far have shown some positive results.
During the 1980s, average orchestra attendance did rise by a dramatic 20 percent, from 1,200 to
1,500 attendees per performance. However, the trend of such dramatic growth in ticket sales did
not continue, instead it leveled off or even declined in later decades.154
The single greatest expense for any symphony orchestra is personnel, specifically the
salaries of musicians. For many years the rate of salary increase for musicians lagged behind
those for unions in general. Since 1987, the average salary bump for orchestra musicians has
been 4.2–4.5 percent, compared with the 3.6 percent increase for all other union workers.155 In
fact, “Between 1987 and 2003, the salaries of symphony orchestra musicians also increased more
rapidly than the wages and salaries of white-collar, blue-collar, and service workers.”156
Before even considering the increase in base salaries, simply sustaining a 4.2 percent
salary growth for each musician each year is a substantial burden. A hypothetical ensemble of
85 full-time members with a base salary of $80k pays $6.8 million in musician salaries over a
year. The next year, with a salary increase of 4.2 percent, those same musicians would cost the
organization $7.1 million, nearly an additional $300,000.
While there is a wide range of base salaries for symphony orchestra musicians, this wage
expansion included a “particularly competitive rush across the top-tier orchestras throughout the
1990s.”157 Abrupt salary increases, particularly those at these top ensembles, which grew at the
fastest pace, had a trickle–down effect throughout the field. As salaries increased at top
ensembles, more and more musicians felt slighted by the lower rates at their resident companies,
154
156
157
Woodcock.
155
54
and the International Conference of Symphony and Opera Musicians (ICSOM) agreed. As
musicians reached re-negotiation of their collective bargaining agreements, a sticking point
became, among other things, base salaries. Musicians believed they should receive comparable
salaries to colleagues at other orchestras, regardless of their ensemble’s comparable abilities.158
In order to keep musicians from leaving to pursue more equitable opportunities, and even to
ensure that they would appear on stage at all, concessions on salaries were made across the
country.159
Salaries, however, have not been the only area of contention during collective bargaining
in recent years. Often more litigious is the dispute over number of guaranteed weeks of work.
Musicians with part-time appointments frequently must find additional income through playing
with other ensembles, maintaining a private studio, teaching at a local university, or other
endeavors. However, as weeks of work are increased to year-round or almost, salaries increase
accordingly and musicians are less likely to need these additional streams of revenue. While
many top-tier ensembles had 52–week seasons before, more and more ensembles began
guaranteeing this full-time employment year-round to their musicians. This trend toward longer
seasons increased costs to ensembles and simultaneously forced the hand of many smaller
organizations.
During the 1993–1994 concert season, musicians in 40 percent of the ICSOM
orchestras were guaranteed 52 weeks of employment. By the 2003–2004 seasons,
158
159
Trend demonstrated by:
Lee Gay Wayne. "Major Symphony Expansion Proposed Fort Worth Musicians Expected to Accept Contract
Adding 23 Full-Time Positions, Raising Ensemble's Salaries." Fort Worth Star - Telegram, Sep 26, 2000.
Ronnie Cohen. "San Francisco Symphony Musicians Strike Over Salaries and Management 'Foot Dragging'."
Oakland Tribune, March 13, 2013.
Stephanie Simon. "THE NATION; A Crescendo of Budget Problems; A Labor Dispute between St. Louis
Musicians and Symphony Officials Reflects the Financial Difficulties Facing 90% of the Country's Orchestras."
Los Angeles Times, January 9, 2005.
Chris Pasles. "Pacific Symphony Commits to Raising Musicians' Pay." Los Angeles Times, September 21, 2007.
55
… collective bargaining agreements negotiated over the intervening years had
increased the guaranteed weeks for musicians at other orchestras.160
These orchestras may not have the resources or audience demand to require such a commitment,
but without it there would be considerable strife among musicians, potentially leading to strikes.
Salary and weeks of work were some of the most contentious issues within organizations during
the spate of strikes and lockouts from the mid-2000s through today.161
While increased base salaries and weeks of guaranteed work put a significantly larger
burden on administrations, personnel expenses do not end there. A significant number of
musicians in an ensemble receive a rate of pay sometimes much higher than the base salary,
known as “over–scale pay.” Over–scale pay “consists of salary payments above minimum scale
and seniority increments to compensate musicians with titled positions (e.g. “first-chair” or
“principal”) for their more prominent roles and musical leadership responsibilities.”162
Technology also plays a role in increasing personnel expenses, as the widespread
availability of digital media creates circumstances previously never imagined by musicians or
administrations. More and more musicians’ unions are negotiating Electronic Media Guarantees
(EMGs) into collective bargaining agreements, which promises them, in addition to their
standard salaries, portions of recording sales, proceeds from online streaming content, and more.
For the 18 of 51 ICSOM orchestras with an EMG, musicians received an “average payment of
just under $2300. For individual orchestras, the EMG raises the minimum annual salary from
160
Trend illustrated by:
Charles Ward. "Musicians Orchestrate Full Strike / Last Offer can't Stop Symphony Walkout." Houston
Chronicle, Mar 09, 2003.
James R. Oestreich. "San Francisco Symphony Musicians Go on Strike." New York Times, Mar 14, 2013.
John von Rhein. "CSO Players Tune Up for Strike ; Work Stoppage may be 'Imminent and Protracted'." Chicago
Tribune, October, 29, 2004.
Mark Stryker. "DSO to Talk it Out in Sept.: Managers, Musicians Try to Negotiate Labor Dispute." McClatchy Tribune Business News, August 22, 2007.
162
161
56
two to eight percent.”163 If the $80k base salary of the hypothetical orchestra discussed earlier
increases by 5 percent for an EMG, the new base salary is $84k, raising overall personnel
expenses from $6.8 million to $7.14 million.
Symphony orchestras exist in a world with rapidly growing expenses, regardless of how
an organization is managed. Salaries will continue increasing, technologies evolving, and that
Schubert string quartet will always require four musicians. This section outlined many of the
issues facing present–day organizations, with the hope that knowledge of the state will help
inform effective management decisions.
163
57
VIII. Conclusion
This report provides a perspective on the current state of business models utilized by
symphony orchestras in the U.S. by focusing on significant and current literature. While
categorized into six distinct areas, most if not all of the information is relevant in other areas and
decisions concerning one will certainly affect other aspects of an organization. Many passionate
and intelligent scholars and practitioners have worked to make such information available to the
field at large, though much more work is needed to ensure that managers are in the best possible
position to make informed decisions about the future of their organizations.
From the investigation of this substantial body of literature several clear themes have
emerged for each segment of the orchestra business model. First, it is clear that demographics
within the U.S., and the interests of that changing population, have been and are projected to
continue changing for years to come, affecting the base of potential audience members. One
might consider that the product being offered by U.S. orchestras would adapt to these changing
demographics, but largely this has not been the case. While attempts at various new forms of
performances have been tried at times, the traditional concert format remains the most common
by far. The historic format by which these performances take place also continues to be standard
practice, but there are also many other delivery methods–such as those by the Metropolitan
Opera and New World Symphony–that have seen early success.
Trends are not only apparent on stage, but behind the curtain as well. For example, while
revenue from all sources is increasing, it still lags far behind both growing expenses and even the
rate of inflation, which creates an ever–growing income gap. In order to protect from periods of
unexpected revenue shortfalls in one area–ticket sales, contributions, investment returns, etc.–
58
most sources encourage a diversification of revenue streams. Security is also gained through
careful utilization and management of existing resources, such as the investment of endowment
funds or facility construction.
Finally, and most prominently featured in literature, is the continuous increase of
expenses. Costs for orchestras have been rising dramatically for many years and are projected to
continue doing so into the future. Without careful financial planning and management of all
pieces of the business model, the gap created by growing costs could become increasingly
burdensome to symphonic organizations across the United States.
What follows is a bibliography of literature that discusses elements of the model of U.S.
orchestras in the present day. The bibliography has been included twice—once by author and
once by subject area. Given that many sources discuss multiple pieces of the model, the
segmented version is much longer and many sources are listed more than once. The frequency
of newspaper articles illustrates certain trends and, as such, those articles have been included in
the bibliography by author. However, as they are much narrower in scope, these sources have
been excluded from the segmented version.
It is imperative to review much of the available literature and to follow the work of many
renowned scholars and practitioners closely before taking action. The League of American
Orchestras also acts as a source of knowledge, empowering organizations to make sound
business decisions. With informed approaches to orchestral management, organizations can and
will exist to serve constituents well into the future.
59
Bibliography – sorted alphabetically
Aldrich, Richard. “‘Permanent Orchestra’ Season A Bad One: Poor Financial Returns for Most
Cities That Support This Form of Music." The New York Times, May 3, 1903. Accessed October
22, 2013.
American Symphony Orchestra League. Americanizing the American Orchestra: Report on the
National Task Force for the American Orchestra, an initiative for change. (Washington, D.C.:
American Symphony Orchestra league, 1993).
"The Annual Report on Philanthropy for the Year 2013." Giving USA, (Indiana University: Lilly
Family School of Philanthropy, 2014).
Atlanta Symphony Orchestra. "About Us." Awards & Recordings. Accessed November 19,
2014. http://www.atlantasymphony.org/About/AwardsAndRecordings.aspx.
Atlanta Symphony Orchestra. “Atlanta Symphony Orchestra Musicians Join ASO Executive and
Artistic Leadership and Administration Compensation Reductions.”
http://www.atlantasymphony.org~/media/Sites/www.atlantasymphony.org/Newroom/Press%20R
eleases/ASOBudgetCuts%20ORCHESTRA%20FINAL%204%207%2009.ashx, April 7.
Audience Insight LLC. Classical Music Consumer Segmentation Study: How American Relate
to Classical Music and Their Local Orchestras. Commissioned by the John S. and James L.
Knight Foundation. (Southport, CT: Audience Insight LLC, October 2002).
Baumol, William J., and William G. Bowen. “On the Performing Arts: The Anatomy of Their
Economic Problems.” The American Economic Review 55, no. 3 (1965), 495-502.
Baumol, William J., and William G. Bowen. Performing Arts: The Economic Dilemma: A Study
of Problems Common to The Theatre, Opera, Music and Dance: A Twentieth Century Fund
Study. (Cambridge, Massachusetts: MIT Press, 1968).
Beene, M. Melanie, Patricia A. Mitchell, and Fenton Johnson. Autopsy of an Orchestra: An
Analysis of Factors Contributing to the Bankruptcy of the Oakland Symphony Orchestra
Association. San Francisco, Calif. (2195 Green St., No. 6, San Francisco 94123, 1988).
Besana, Angela. "Alternative Resources: Revenue Diversification in the Not-for-Profit USA
Symphony Orchestra." Journal of Arts Management, Law, and Society 42, no. 2 (2012), 79-89.
Boulian, Paul. “On the Path to Serious Organizational Change.” Harmony 5 (Oct., 1997), 40-45.
Boyden. John. “Old Practices, New Ideals: The Symphony Orchestra in the Modern World.” In
Reviving the Muse: Essays on Music after Modernism. Ed. by Peter Davidson. (Brinkworth;
Claridge, 2001).
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Orchestras." Managerial and Decision Economics 7, no. 4 (1986): 273-78.
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Channels
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Offline.” Paper read at the annual meeting of the American Musicological Society in San
Francisco, 11 November 2011.
Davidson, Justin. "The Sopranos on the Big Screen." The New York Times, January 2008, 70-71.
Heyer, Paul. "Live from the Met: Digital Broadcast Cinema, Medium Theory, and Opera for the
Masses." Canadian Journal of Communication vol. 33, no. 4 (2008), 591.
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Symphony Orchestra." Journal of Arts Management, Law, and Society 42, no. 2 (2012), 79-89.
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January 1, 2012.
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Journal of Policy Analysis and Management 19 (2000), 451-64.
2004), 169-194.
Flaccus, Gillian. 2009. “Recession Is Bitter Music for Performing Arts in United States.”
Associate Press report, January 27. Available at http://www.today.com/id/28875681/ns/todaytoday_entertainment/t/recession-bitter-music-performing-arts/#.UzS45Nzq68M.
74
Kaiser, Michael M. Leading Roles: 50 Questions Every Arts Boards Should Ask. (Brandeis
University, 2010).
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Snapshot." Grantmakers in the Arts - GIAreader 25, no. 3 (Fall 2014).
Luksetich, William A., and Mark D. Lange. "A Simultaneous Model of Nonprofit Symphony
Orchestra Behavior." Journal of Cultural Economics 19 (1995), 49-68.
75
National Endowment for the Arts. How the United States Funds the Arts. 2nd ed. (Washington,
D.C.: National Endowment for the Arts, 2007).
40, no. 2 (1997), 351-76.
Smith, Thomas Moore. “The Impact of Government Funding on Private Contributions to
Nonprofit Performing Arts Organizations.” Annals of Public and Cooperative Economics 78, no.
1 (2007), 137-60.
Woodcock, Tony. 2011. “American Orchestras: Yes, It's A Crisis”. Blog post, Polyphonic.org.
76
Key Resources
Conte, David M., and Stephen Langley. Theatre Management: Producing and Managing the
Performing Arts. (Hollywood, Calif.: EntertainmentPro, 2007).
Edgers, Geoff. “Atlanta symphony orchestra struggles during second lockout in two years.” The
Washington Post, October 9, 2014.
Frumkin, Peter, and Ana Kolendo. Building for the Arts: The Strategic Design of Cultural
Facilities. (Chicago, IL: The University of Chicago Press, 2014).
Oestreich, James R. "San Francisco Symphony Musicians Go on Strike." New York Times, Mar
14, 2013.
77
Years on." Journal of Cultural Economics 20, no. 3 (1996): 225-40.
Houston Chronicle, Mar 09, 2003.
Robert Gertner, Norman Bradburn. “Set in Stone: Building America’s New Generation of Arts
Facilities, 1994-2008.” (Chicago, IL: Cultural Policy Center, Harris School and NORC,
Cost Structure
Reviving the Muse: Essays on Music after Modernism. Ed. By Peter Davidson. Brinkworth;
Claridge, 2001.
Boyne, Roy. "Beyond Price: Value in Culture, Economics, and the Arts." International Journal
of Cultural Policy 19, no. 4 (2013), 531-533.
78
Burkholder, J. Peter. “The Twentieth Century and the Orchestra as Museum.” From The
Orchestra: A Collection of 23 Essays on its Origins and Transformations. Edited by Joan
Peyser. Milwaukee: Hal Leonard, 2006: 409-32.
Cohen, Ronnie. "San Francisco Symphony Musicians Strike Over Salaries and Management
'Foot Dragging'." Oakland Tribune, March 13, 2013.
Cooper, Christopher and John Sparks. “Show Them the Money!: Calculating the Economic
Impact of American Orchestras.” Published by the League of American Orchestras’ Resource
Center, 2010.
2004), 169-194.
Flaccus, Gillian. 2009. “Recession Is Bitter Music for Performing Arts in United States.”
Associate Press report, January 27. Available at http://www.today.com/id/28875681/ns/todaytoday_entertainment/t/recession-bitter-music-performing-arts/#.UzS45Nzq68M.
79
Lange, Mark D., James Bullard, William A. Luksetich, and Philip Jacobs. “Cost Functions for
Symphony Orchestras.” Journal of Cultural Economics 9, no. 2 (1985), 71-85.
Lange, Mark D. and William A. Luksetich. “The Cost of Producing Symphony Orchestra
Services. Journal of Cultural Economics 17, no. 1 (1993), 1-15.
Mauskapf, Michael G., “Enduring Crisis, Ensuring Survival: Artistry, Economics, and the
Oestreich, James R. "San Francisco Symphony Musicians Go on Strike." New York Times, Mar
14, 2013.
Pasles, Chris. "Pacific Symphony Commits to Raising Musicians' Pay." Los Angeles Times,
September 21, 2007.
Schwarz, Samuel. “Long-Term Adjustments in Performing Arts Expenditures.” Journal of
Simon, Stephanie. "THE NATION; A Crescendo of Budget Problems; A Labor Dispute
between St. Louis Musicians and Symphony Officials Reflects the Financial Difficulties Facing
90% of the Country's Orchestras." Los Angeles Times, January 9, 2005.
80
Wakin, Daniel J. “Talks Break Down at Cleveland Orchestra.” New York Times, January 7,
2010.
Houston Chronicle, March 09, 2003.
Wayne, Lee Gay. "Major Symphony Expansion Proposed Fort Worth Musicians Expected to
Accept Contract Adding 23 Full-Time Positions, Raising Ensemble's Salaries." Fort Worth Star
- Telegram, September 26, 2000.
Woodcock, Tony. “American Orchestras: Yes, It's A Crisis”. 2011. Blog post, Polyphonic.org.
81

Building the Modern American Orchestra:

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