Making Money Making Art

What drives profitability in the theatre?

First, let me be clear: the reasons to make profit are many fold: with this year’s extras, we can make better art next year, provide more for artists (and administrators), lower access barriers for audiences, ask less of our donors, and have greater economic and cultural impact in our communities. So we’re not making profits just for their own sake, but instead for sake of the art(ist).

One of the first issues to solve is data collection. Without clear and consistent variables across time and place, it’s hard to form any hypotheses about predictive drivers.

But let’s break down the competitive pressures in the theatre and see what we find.There’s a lot of juggling going on, and some of those balls are on fire (see how hard I’m stretching to make the picture fit?), so forgive my simplification. It should be the case that:

Buyer have very little power because there’s many more of them than there are us. But it turns out they don’t need much power because we’ve overbuilt seating capacity and there are an increasingly infinite* array of leisure time activities. We’ve tried to increase switching costs via annual subscriptions and membership programs, but those are clearly on the decline as well.

• From the perspective of an outsider, I’d like to find some predictive variables that drive ticket prices.
• From the perspective of an audience member, just how elastic are ticket prices?

Suppliers have very little power (again) because there’s many more of them than there are us. Even though on average 60% of a theatre’s budget is spent on personnel, the ratio of qualified people (artists and administrators) to available positions is very very high, and though execution is difficult to measure, rents tend to fall to the firm. Here’s what I’d like to know:

• What impacts salaries in the theatre? How do we identify the driving forces? Does the presence of other theatres in town drive the market price of talent up? Does the education level of applicants? Do annual ticket sales? If so, by how much? How does tenure have an impact?
• What objective impact does a change in Artistic Director (and Managing Director?) have on programming, ticket sales, and/or business strategy?

Barriers to entry are laughable. Anyone can start a theatre company; there’s no license involved (as in hospitals), it requires relatively little capital (compared to say manufacturing), and distribution channels are wide open (online ticket retailers are aplenty). Rarely do founders think of serving a target market with a niche product (though Single Carrot is off to a good start), thus many of us have drifted towards the center in our quest to capture market share. Here’s what I’d like to know:

• In theory, a mission serves 3 masters: donors, clients, and staff, for the purposes of evaluation, boundary setting and motivation. Everyone complains that mission statements “aren’t good” and/or “shouldn’t be changed (often).” But with these (at least somewhat) objective measures, I’d like to see an actual comparative study of missions across location and time indexing their impact for motivation, boundary setting, and potential for evaluation.
• Once a theatre enters a market, there is a fairly well documented organizational life cycle. We know that it exists, and we know what features characterizes each of the stages on a macro level, but we don’t know how organizations leap from one stage to the next, how long they can stay there, or what minimum efficent levels of scale are at each stage.
• There’s a clear selection bias of only looking at successful theatres (or even those still in existence) and interpreting cause based on effect (because it could be the case that theatres that have closed had the same cause with a different effect). But I’d like to know a little bit more about the path to extinction. Looking backwards, what were some of the key decision points where things could have gone either way?

Substitutes abound. Sort of. It all depends in how we define ourselves. Which we’ve always had trouble doing. Do folks buy tickets because they’ve learned to value the cultural opportunity via arts education at a young age? Or do they just want to take a few hours off in search of a good laugh/tear jerker? Does the reputation of donors increase in their community in line with the size/consistency/transparency of their gifts? Or are they just looking for a tax break? Clearly this is more of a spectrum, less of a dichotomy. But strictly speaking, a product or service is a(n economic) substitute only if a change in your price impacts a substitute firm’s demand (or vice versa). Simply: when you raise ticket prices $10, do more people start attending the local movie theatre? When donations increase at the symphony, are you left with fewer donors? If so, you’ve just found your substitutes.

Competitive rivalry is fierce. As one of my classmates proclaimed this morning, “a curtain is not a sustainable competitive advantage.” It is difficult if not impossible to achieve productivity gains in the theatre: in other words, we can’t replace actors with robots (yet?). With the constant turn over in Artistic Directors, our programming trends are in constant flux, and our mission statements are wide enough to drive a truck through. However, theatres also share resources via co-productions, a common artistic & admin pool, companies in residence, and the dispersion of ideas propogated through foundation grants. Here’s what I’d like to know:

• In theory, rivalry should drive innovation (for an industry seeking high returns on resources). Many believe that innovation can be systematized — that a focus on the process yields better results than restricting your eyes to the prize. One force shaping how much innovation an industry undergoes is the net entry rate of that industry. In short, if you have many firms entering and exiting the field, ideas flow more easily between the remaining firms. I’d like to see within particular regions the inflow and outflow rates of theatres, and how that impacts both programming and managerial decisions.
• More generally, what are the revolutionary ideas that have changed the theatre industry? Technical advances are a little easier to identify: the advent of electricity fundamentally changed our ability to manipulate light and sound; building an indoor stage expanded the length of time during the day and during the year that we could perform. Then there are the business model advances like repertory companies, subscription tickets, education departments, and co-productions. But I’ve yet to find a relatively comprehensive study of the economic (rather than simply artistic) shifts in modern theatre history. It’s a little overwhelming to think of, so in discrete chunks, on an industry-wide level, I’d like to know things like:
• The change in ratio of artists to administrators over time
• The change in ratio of earned to contributed income over time
• The change in total seating capacity over time (relative to the change in the nation’s population?)
• The change in the number of theatres per capita over time
• The change in average length of run (and actor weeks!) over time
• The ratio of rural:suburban:urban theatres over time
• The proportion of theatres at each TCG budget level over time
• The professionalization (proxied by graduate degree holders?) of artists, administrators, and boards
• We don’t often think of market share within the theatre, when it would seem to be fairly easy to do so. Within your city, do you know what share of arts-based revenue your theatre captures? Do you know when the entire pie expands (or shrinks)?

A little idea I’ve been kicking around for awhile is how to create a merger and acquisition market for the theatre, simply for the sake of data collection. Or maybe it’s a franchise market. In short, I want to know which theatres out there are figuring out ways of doing it better than the rest. Much like in my social media research, I want industry benchmarks that are simpler than the annual fiscal surveys. I want metrics driven by theory rather than history. I want case studies that highlight success stories. I want clearer bounds to capacity for growth in a particular area. I want to spot regions or customer segments that are under-served. I want theatres with R&D budgets attached to specific objectives. I want a web site that contains these resources and a community of art makers that embrace and critique it.

I’m not interested in data for the sake of collecting reams of paper terabytes. But I think that by looking at industry structure we can begin to seek out pockets of innovation that could make the field stronger (and maybe a few lucky theatres more profitable). No doubt some of this already exists on the interwebs, and I just haven’t happened upon it. And someday, someone will finally start paying me to do some of this research. Until then, I settle for work study grants and graduate research fellowships.

*not strictly mathematically possible