Caught in the Middle
Last year when RAND released The Performing Arts in a New Era, (Performing Arts) the prediction that times were going to be particularly difficult for mid-sized performing arts organizations was widely quoted. It was prominent in press coverage of the report and quickly embraced as a fact by grantseekers and foundation colleagues. I was curious to return to Performing Arts and the conditions it cites for organizations in the middle, to see how they apply to readings of recent field reports for different performing arts disciplines. (See the bibliography at the end of this article.)
While I am still seeking information from other disciplines, I had at hand three different reports. John Munger, director of research and information for Dance/USA, wrote Dancing with Dollars in the Millennium, a ten-year study of trends that was inserted in the April 2001 issue of Dance Magazine. Munger's essay is rigorous yet accessible. It's based on financial survey information collected from Dance/USA's member companies, most of which are large or mid-sized, ballet or modern groups, and all of which are non-profit. It admits to not having "...sufficiently comprehensive data at this time to address most small companies, most companies rooted in culturally specific aesthetics...or non-company-oriented forms." Further, it reports on selective data — salary levels but not the full range of dance company expenses; trends in grant revenues but not the full picture of organizations' support systems. In spite of this narrow palette, Munger's broad perspective on the dance field is presented in a wise and lively manner, and his data tracks a fairly consistent group of companies over time, giving him a reliable view of trends.
Theater Communications Group's (TCG's) Theater Facts offers an annual compendium of data gathered from its field. Written for a professional rather than a general audience, and therefore drier than Munger's report on dance, it incorporates helpful charts, pull quotes, and sidebars to distill a copious amount of information. “Theater Facts” analyzes both a changing array of member and non-member theaters and a discrete set of theaters it has surveyed for many years. Because of Federal Accounting Standards Board (FASB) changes made in the mid-1990s that shape nonprofit financial reporting, “Theater Facts, 2000” can only confidently present trends since 1997. Hoping to take a longer view of the field, I also checked a few points in an earlier edition, “Theater Facts, 1995.” The year 2000 was generally a very good for theaters, with companies showing stronger cumulative net assets and growing endowments. It also was a watershed year in which income from single tickets surpassed income from subscriptions for the first time in the survey's history.
The apple among these oranges, Reaffirming the Tradition of the New, by Suzanne Callahan, reports on a series of five regional roundtables about the role and viability of the National Performance Network (NPN), a seventeen-year-old organization whose fifty-five partner/members present challenging new performance works. Originally a project of Dance Theater Workshop, after incorporating independently a few years ago, NPN sought to re-assess its mission and programs by hearing its partners' needs and concerns. While the report's ultimate focus is on NPN's future, its contents highlight current pressures lived by performing arts organizations.
Finding the Middle
An initial challenge was finding a working definition of mid-sized, which varies by discipline. At one point, authors of Performing Arts identify small-budget arts organizations as those with annual budgets under $500,000, but on page 93, they offer: “as a rough guide...a midsize live performing arts organization...relies on predominantly professional — that is, paid — artistic personnel and has a formal, paid administrative staff (probably including an artistic director and/or business manager, a development director, and various clerical workers), but is not in the very top ranks of its field.” For organizations in the American Symphony Orchestra League this would include organizations with budgets between $650,000 and $8.5 million.
This use of “mid-sized” or “medium” as a descriptive rather than fixed term recurs in Dance/USA's report, which varies the definition of “medium” by discipline within the art form. Large ballets are defined as companies with budgets in excess of $5 million, while large modern companies' budgets exceed $860,000. Medium ballet companies have budgets of between $1 million and $5 million, while medium modern dance companies range from $250,000-$860,000. Counting this particular “middle” in dance one finds approximately sixty ballet and sixty to eighty moderns.
Taking another approach, when TCG organized 159 surveyed companies by budget size, it divided them into six categories, with total expenses in the top two categories exceeding $5 million (forty-two theaters); total expenses in the next three categories ranging from $500,000 to $5 million (ninety-two theaters); and small-budget theaters (twenty-five organizations) with budgets under $500,000. Among the six financial categories, distinctive qualities are most evident for the two smallest (small and medium-small). Those two groups spend much less on development and marketing costs than other mid-range or large budget organizations, and the twenty-five smallest are the most dependent on federal and state grants and spend much less on administrative salaries, suggesting that staff members are playing dual artistic/administrative roles.
Pinpointing the Prediction
The strength of Performing Arts is its breadth, its offering an overview of some forty years of varied, sometimes contradictory research. This breadth also makes it challenging to bore deeper into its assumptions, including those leading to the prediction of hard times for mid-sized organizations. However, two pieces of key evidence are:
• More performing arts organizations are earning more money in total, but on average revenues are flat: “Over the past two decades, the number of live performing organizations has grown significantly but their average revenues — at least in the nonprofit sector have not.” (p. 70)
• In spite of significant efforts to strengthen earned revenues, the balance of earned to contributed income appears to be stable. “Nonprofit organizations appear to be about as dependent upon contributed income as they have been in the past. Moreover, this is true despite intensive efforts at marketing and audience development, and despite sharp rises in the cost of tickets. Average ticket prices for symphony orchestras, for example, increased 70 percent between 1985 and 1995.” (p. 89)
In this context of expanding competition and flat revenues, who will thrive? Performing Arts' theory of resilience emphasizes the importance of mastering one of two strategies. The first of these requires an occasional long-running hit show to renew the health of organizations. Large budget organizations are in the best position to take advantage of these “hits.” More of them own or manage long-term leases for facilities where the shows may be sustained; and their marketing budgets are adequate to the task of reaching large segments of the general public. The alternative strategy is to travel light and know your terrain. Organizations that minimize fixed costs through extensive volunteer labor and that have mastered niche marketing in their communities can thrive in spite of modest resources.
Where does that leave the middle? In the words of Performing Arts:
For live performing organizations in the mid-budget range...the relatively high fixed costs associated with administration and real estate mean they are quite vulnerable to even short-term shifts in earned or contributed income. To stabilize the earned income and perhaps also the contributed income components of their budgets, such organizations must either downsize in order to concentrate on niche markets, or position themselves to become acknowledged regional, national, or even global leaders, with the attendant increases in
revenues and costs. (p. 103)
Another well-known trend of the past decade has been the decline in federal support for the arts. While a substantial amount of funding from the National Endowment for the Arts was re-distributed at state and local levels, Performing Arts suggests that this local funding shows signs of being more conservative, and of forcing some organizations to re-focus their attention on community service or community development.
Finally, the report posits that dependency on touring (as described for the size-challenged field of modern dance) limits companies' vitality:
[being]...heavily reliant on touring, which typically involves fixed contractual fees for performances rather than box office ticket sales...restricts their ability to capitalize on a successful run because engagements are limited. Further, because modern dance companies are constantly on tour, they can find it difficult to build local constituencies for their work.
The “realities of aging audiences, escalating costs, and static or even declining funding streams” shape the report's prediction:
The biggest challenge we foresee relates to the middle tier of nonprofit arts organizations, particularly those opera companies, symphony orchestras, ballet companies, and theater groups that service small and medium-sized cities across the country. (p. 109)
Evidence and the Field Reports
It's much too soon to embrace or shun these predictions, to conclude whether the evidence amassed did, indeed, lead to the anticipated results. Rather, I propose parsing the evidence and using it as a lens for reading the recent “field reports” in dance, theater, and performing arts presenting. Published in 2001, these reports follow several years of remarkable economic boom that, no doubt, shapes the data. I've organized readings from the field studies around Performing Arts in a New Era's evidence and hypotheses.
1. The number of performing arts organizations has grown but average earned revenues have not.
First, as to numbers of companies, Dance/USA begins “Dancing with Dollars” with data about remarkable growth in numbers of professional dance companies in the United States as counted by applications to the NEA. These “numbered 37 in 1965 and 157 in 1975. By 1990 this figure had exceeded 400...In 1993 Dance/USA undertook a census of professional dance companies that identified over 650 serious companies and raised questions about broadening the definition of professionalism.” TCG reported that 230 members participated in its 2000 survey as compared to 215 participating in 1995. This may suggest modest, recent growth in the field but it's not a reliable measure. It is noteworthy that TCG's 2000 survey included some non-members and smaller companies for a total of 262 responses.
Average earned revenues in dance have grown, but the earnings of mid-sized modern companies lag. In 1990, among dance organizations surveyed, 65 percent reported making a profit. After a sharp decline in 1991, many dance companies' profitability has improved. Large and medium ballet and large modern companies ended the decade better off than they started it (75 percent with profits). Medium modern companies showed much weaker results, with only 33 percent being profitable. Dance/USA's report looks at companies that developed surpluses over the course of the decade and again, only medium modern companies failed to increase their surpluses.
Average theater revenues also seem to have grown in the short term. In 2000, attendance for 262 surveyed theaters totaled 21,765,965 with average audiences per performance of 329 and average earnings of $7,042. Five years earlier, total attendance for 215 surveyed theaters was 18,617,787 with average audiences per performance also equaling 329, but average revenues per performance of $4,968 (not adjusted for inflation). The field-wide news in 2000 pointed to rising numbers of theater productions, audiences, and revenues.
2. Nonprofit performing arts organizations continue to be as dependent on contributed revenue as in the past.
An “Earned Income Ratio” (or EIR) expresses a relationship between an organization's earned and contributed revenue. A long-held assumption has been that a higher level of earnings is a sign of a healthy organization. Dance/USA's report takes pains to explain the limits of the EIR as such an indicator:
One major change occurring in the â€˜90s is that EIRs no longer serve as rigorously reliable indicators of financial health. For a number of financially complicated reasons, many companies with low EIRs have posted profits in the decade just ended. What's more, the number doing so is tending to increase. Further...the â€˜90s have surprised us by yielding a crop of examples where high-EIR companies have ended in the red.
Is heavy dependency on contributed revenue an inherent weakness? The answer appears to be, “not necessarily,” though “medium modern,” dance companies — which also showed the least profitability and fewest surpluses, posted the lowest EIRs. Dance/USA concludes,“...having a high EIR doesn't necessarily mean a likelihood of being profitable. But profitability and a high EIR make good bedfellows.” It points out that the dance economy of the 1990s mimicked the national economy in that “the rich, visible, and powerful became richer quicker while the poor languished.”
In general, the financial news for 2000 from TCG was quite positive. The average balance of unrestricted net assets rose from $2 to $4 million. TCG reports an average EIR of 59 percent for all theaters surveyed in 2000, and for its “trend” theaters — those tracked consistently since 1997, average EIR was 63.5 percent in 2000. This is stronger than 1991's EIR of 60.4 for trend theaters, though a straight comparison is not appropriate due to changes in FASB regulations.
If one assesses dependency on contributed income by theater budget size, one sees a dramatic difference. Small budget organizations are by far the most dependent on contributions (63.4 percent contributed income for those with earnings under $500,000). The contributed income of mid-sized theaters (budgets between $1 and $5 million) ranges from 33.9 to 47.2 percent, suggesting healthy EIRs.
3. Average ticket prices have risen sharply
Dance/USA does not provide a lot of information about changes in ticket prices except for citing steep increases in medium ballet companies' Nutcracker tickets. However, in theater, ticket income grew steadily over the past four years, “outpacing inflation by 18 percent.” Key to this increase in ticket income was ticket price increases. For sixty-five theaters tracked over time, average ticket prices rose from $20.30 in 1997 to $22.45 in 2000 — a rate equaling 4 percent above inflation.
4. Shifts in federal funding have been dramatic, affecting small and mid-sized organizations more than large-budget organizations.
Since the late 1980s and early 1990s, dance companies have received less money from the NEA (both smaller grants and fewer companies receiving grants). In 1992 large ballet companies reporting to Dance/USA averaged $312,000 of NEA support per company and averaged only $128,000 in 1999. Large modern companies experienced similar drops. “Medium moderns plunged from an average of $45,000 in 1991 to $9,000 in 1999...”
The prediction that a decline in federal funding would lead to increases at the state level has not held true in dance. State support has declined for most companies except for medium ballet. Local support has increased for most companies except large ballet, but the dollar amounts tend to be much smaller than state and federal grants. When “average government support” combines federal, state, and local funding, it shows public funding having declined for all types of dance companies.
TCG's picture of public funding looks different from Dance/USA's. State and local funding does seem to fill in the gap left by declining federal funding. However, both disciplines show a distinct decline in federal funding. For eighty-three trend theaters, in 2000 (as compared to 1997) with percentages adjusted for inflation:
• Federal funding declined by 11.3 percent
• State funding increased by 20.3 percent
• City/local funding increased by 140 percent
This changed pattern translates to actual growth in public dollars, with a total average of $206,125 in combined public funds in 1997 and a total average of $337,192 in combined public funds in 2000.
The pattern of declining federal funds also was noted in the 1995 “Theater Facts,” when, between 1991 and 1995, federal funding dropped by 14.6 percent for 66 trend theaters.
In TCG's data, dependency on federal funding does not relate clearly to an organization's total budget size. (Federal funding represents between .5 percent and .9 percent of theaters' total contributed income.) Mid-sized theaters derive very modest percentages of their total contributions from state and local sources. By far, small theaters are the most dependent on state funding (averaging 7.8 percent of contributions).
Part of the RAND report's prediction about the shift in public funding from federal to local sources is that the art supported would be more conservative or favor art with social benefits. NPN's “Reaffirming the Tradition of the New,” suggests this is true. In the roundtables, “Considerable cynicism was expressed about the trend toward funding that prioritizes social impact over the art itself, as well as the growing emphasis on outreach activities more than the creative process and new work.”
5. Mid-sized arts organizations face relatively high fixed costs for real estate and personnel.
This theme rings loud and clear in the Bay Area where real estate costs for nonprofits of all types have not been “fixed,” but rising in the last five years. Facility and management costs are serious pressure points in NPN's roundtables, with some organizations (like Dance Theater Workshop) undertaking dramatic building expansion and facing the challenge of greater management costs in exchange for a stable space. The cost of space is a critical issue for NPN:
For these organizations, space has become an enormous crisis as it is being “snatched back” by developers who close out leases and then reap hefty profits by selling. The boom economy taxes alternative arts organizations, prompting them to build or buy structures they don't have the capacity to sustain. While obtaining one's own building has historically been viewed as a measure of success, it instills great responsibility on those who need to finance, manage and maintain the space.
When it comes to fixed costs, personnel expenses consistently represent 50 percent or more of dance companies' operating budgets. Large ballet companies spent 59 to 61 percent of their budgets on personnel for most of the 1990s but this percentage slipped after 1997 to 56 to 57 percent. Slight growth was demonstrated in administrative staffs for dance companies — from an average of seven full-time and three part-time in 1991 to eight full-time and four part-time in 1999. For most of the last ten years, wages kept pace with inflation, and there was no decrease in the workweeks for dancers.
Similarly, Theater Facts notes, “...how labor-intensive theater is an artform and industry.” More than 54 percent of theater budgets went to compensate personnel and, when royalties to playwrights are included, that figure rises to 57 percent of total expenses. Personnel and occupancy/facility expenses were the two fastest-rising expense categories for theaters.
Another pressure point on fixed costs is the trend of single tickets outpacing subscription revenues. Theaters reported increases in marketing costs which may reflect how much more expensive it is to market single tickets than subscription series.
6. Mid-sized arts organizations must downsize to focus on niche markets or grow to compete with larger organizations.
None of these reports specifically tracks strategic downsizing, however an interesting “niche” marketing story appears in NPN's report, “Audience Building as Community Activism,” from John Herbert of Legion Arts in Cedar Rapids, Iowa. This is illuminating as a tale from a smaller metropolitan area. Through presenting performance and visual arts works by prominent artists like Tim Miller, Holly Hughes, and Craig Hickman,” Legion began to approach nontraditional community partners. The results of these “niche affiliations” were remarkable:
Once this groundwork was laid, gay and lesbian issues became part of an open forum for discussion in the community, and later some individuals formed a gay and lesbian resource center. While not directly correlated with people seeing these performances, â€˜Legion introduced a new way of talking in the community.' And, five years later, Cedar Rapids became the third city in Iowa to add sexual orientation to its civil rights ordinance.
And what if mid-sized organizations chose a growth strategy? According to the Dance/USA report, no mid-sized ballet companies broke into large ballet ranks in the last decade. NPN's report spends considerable time on the topic of progression and growth, assessing it from the point of view of artistic growth and development, and re-evaluating the terms “emerging” and “mid-career,” which suggest a functional career ladder for artists and arts organizations:
There was widespread agreement that adhering to this terminology and the assumed structure from which it came does more harm than good. There was consensus that the NPN should remain flexible in its definition of emerging as artists: who create vital work that is “searching,” regardless of their age; who exude curiosity about the artistic process; who are established yet challenge themselves with something new; who create work with challenging political content; who are regionally-based and are emerging on the national scene.
7. Key to large-budget organizations' vitality is successful mounting of blockbuster performances.
None of these reports pays significant attention to the mounting of blockbusters, although Dance/USA's report includes a fascinating section on the history and role of the Nutcracker which suggests that every “blockbuster” has its limitations and that mid-sized organizations can effectively exploit these opportunities. Nutcracker productions and audiences grew rapidly from the 1960s through the 1980s but dropped off sharply near the 1990s. For large ballet companies, total Nutcracker audiences peaked at an average of 111,300 in 1993, while average audiences in 1998 and 1999 were only 75,000.
Medium ballet companies held on to the power of their Nutcrackers (more effectively than large ballet companies) by raising ticket prices and sustaining audiences. While Nutcracker revenue accounted for about 20 to 21 percent of total income for ballet companies in general, by the end of the decade that figure had dropped to 16 percent for large ballet and held at 19 percent for medium ballet companies.
7. Touring deters mid-sized organizations from growing and from developing local audiences.
Since the early 1990s, with changes in NEA funding, touring revenue for performing arts organizations has declined. Last year for theaters, “booked-in” events averaged $21,966 in earned revenues, with only the largest theater companies making a significant portion of their annual earnings from presenting shows by other companies. Tour underwriting — support for taking productions to other theaters — also was modest (ranging from .2 to .4 percent of annual earnings).
Data from the presenting field is needed for a deeper exploration of this topic. I'm moved to venture some personal observations and questions. In looking at San Francisco-based artistic companies, I am aware of groups that have worked to compensate for the loss of national and international touring revenue by managing their own regional tours, but none has assumed that they could mount a multi-concert season in their hometown and thrive. The strongest produce a fall and spring “home season” of two or three weeks' duration. For many, touring is a way of living out their “hits” or what might be their “blockbusters.” They use the road for their “long runs” and are relieved to receive guaranteed revenues from presenters rather than to self-produce; and they use their time on the road to participate in critical conversations and exchanges with other artists. An assumption behind Performing Arts is that it would be economically healthier for them to have a stronger presence at home. Living in a dense marketplace, I wonder if that's feasible.
A nagging, inevitable question remains when trying to predict the health of performing arts. While these service organizations have worked hard with a consistent set of organizations, when one of them dies, its condition, needs, and opinions disappear from the database and the roundtable discussions. In the long run, to track the verity of Performing Arts' predictions we need both more of this research and more autopsies.
Frances Phillips is senior program officer, Walter and Elise Haas Fund and co-editor, GIA Reader.
The Performing Arts in a New Era, Kevin F. McCarthy, Arthur
Brooks, Julia Lowell, Laura Zakaras. RAND, supported by
the Pew Charitable Trusts, 2001. Available from RAND, or 1-877-584-8642.
Dancing with Dollars in the Millennium, A Ten-Year Summary
of Trends, John Munger, a co-publication of Dance Magazine
and Dance/USA. April 2001. Available from Dance Magazine, firstname.lastname@example.org or 1-800-331-1750.
Reaffirming the Tradition of the New: A Report on the National Performance Network's Regional Roundtables, Suzanne Callahan, Fall 2001. Available from NPN or 504-595-8008.
Theatre Facts 2000: A Report on Practices and Performance in the American Nonprofit Theatre, based on TCG's Annual Fiscal Survey, Zannie Giraud Voss and Glen B. Voss, with Christopher Shuff and Dan Melia, 2001. Available from TCG or 212-697-5230.
Theatre Facts 1995: A Report on Performance & Potential in the American Nonprofit Theatre, based on TCG's Annual Fiscal Survey, Steven Samuels and Alisha Tonsic, 1996. Not available.