Will the symphony fail? Thoughts on Michael Kaiser's blog.

I just finished an incredible book called The Art of the Turnaround by the President of the Kennedy Center, Michael Kaiser.  Michael Kaiser has gained the nickname of “The Turnaround King” since he rose to prominence by taking art organizations on the brink of bankruptcy and moved them back to profitability in short order.  He would then leave them in a position to be sustainable and move on to the next arts organization in crisis. I also follow Mr. Kaiser’s blog on the Huffington Post, and that’s what I want to write a bit about today.  I was actually quite amazed by the reaction his comments received.  I don’t believe that he said anything in that blog that was really out there, but it sparked a lot of debate – but debate on how to make the arts thrive is a good thing.

He started out by talking about the biggest challenge that arts organizations face – fixed costs.  The biggest cost challenge with orchestras and operas is personnel.  It takes the same number of people to perform opera and orchestral pieces as it did in the 1800s – there is no way around that if we are to maintain the experience.  That means that all of that personnel needs to be paid fairly.  Instrumentalists and singers put in a crazy amount of work to create the professional level performances.  (I think one of the problems is that they do so much work to make it look easy on stage that people automatically think it’s easy to do – it’s not.  Instrumentalists have to cultivate fine motor skills equivalent to that of a surgeon, and that just takes a lot of practice).

With many for profit organizations, as expertise develops, and efficiencies increase, fixed costs can be lowered, so the cost of production can be lowered, etc.  Arts organizations actually have the opposite problem – fixed costs rise because you are paying people to perform, and with inflation, pay has to increase so musicians can survive.  This means that the cost structure of a symphony orchestra and opera is such that fixed costs will constantly rise about the same amount as inflation.   (I’m simplifying, of course).

One way to fight this is to generate more income, which could mean increasing ticket prices.  The problem is that as you increase ticket prices, you make it tougher and tougher for people to attend concerts (so demand for tickets drops).  This also tends to play into the misconception that the classical arts are elitist and the play thing of the wealthy.  (Odd, especially when you consider the fact that the people who are probably the most passionate about the arts – the performers – are by no means wealthy).  The other issue that Mr. Kaiser mentions is that contributions will have to increase at a slightly higher rate than inflation in order to cover costs.  Seems like a no win situation, huh?

I honestly don’t believe that we’re about to see the death of the classical arts.  In fact, I think we’re seeing a very vibrant time for the classical arts purely because of the challenges we’re facing.  Arts organizations are forced to be more creative in the way they address their communities, and there is a great deal of experimentation in programming and outreach.  All of these can be very good things.  But, back to the business:

Economists talk quite a bit about positive externalities.  Positive externalities are simply good things that happen to/for parties that may not be directly involved in the transaction.  Let’s say that you own a house on a block.  Your neighbor takes incredible care of his/her yard.  That in some ways is a positive externality for you – you aren’t directly involved in the care of his yard, but you do benefit by his/her yard being kept spotless – it makes the entire block look better.  Arts organizations provide this to the communities they are in.  Operas, orchestras, museums, etc. create a myriad of positive externalities for the communities they are in – far beyond the benefits for those involved in the transaction.  I’ll talk a bit more about that in future blogs, but I’m way off my original topic of Michael Kaiser’s blog.

The basic point of Mr. Kaiser’s blog was that enlightened conversation and frank discussion is needed to figure out how to overcome this fundamental issue in the business model of orchestras, etc.  I was amazed at how many different stakeholders felt they were being attacked in Mr. Kaiser’s blog.  We do need thoughtful and enlightened discussion on how we’re going to make the arts viable going into the future.  It’s not new; about every 100 years, the funding model and the business model for the arts undergoes some sort of shift.  We need to take this on as an opportunity as opposed to a calamity.  Go!  Fight!  Win!