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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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). Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 7 Business Model Segments7 7 • Customer Segments & Relationships • Value Propositions • Channels • Revenue Streams • Key Resources • Cost Structure Based on Osterwalder and Pigneur, 16-17. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Osterwalder and Pigneur, 20. 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. Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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 DiMaggio and Mukhtar, 183. 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 DiMaggio and Mukhtar, 184. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Osterwalder and Pigneur, 22. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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 Audience Insight LLC, 94. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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. DiMaggio and Mukhtar, 188-191. 58 Brown and Ratzkin, 13. 59 Ibid., 13. 57 Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Osterwalder and Pigneur, 26. 63 Justin Davidson. "The Sopranos on the Big Screen." The New York Times, January 7, 2008. 70-71. 62 Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Audience Insight LLC, 46. National Endowment for the Arts, How a Nation Engages with Art, 8. 68 Ibid, 12. 69 Davidson, 70-71. 67 Copyright © 2014 Christopher Merkle 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 Brown and Ratzkin, 5. Ibid, 6. 72 Ibid, 7. 73 Ibid, 9. 71 Copyright © 2014 Christopher Merkle 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 Brown and Ratzkin, 3. Ibid, 4. Copyright © 2014 Christopher Merkle 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 Osterwalder and Pigneur, 30. DiMaggio and Mukhtar, 169-183. 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 Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Flanagan, The Perilous Life, 98. 90 Dempster, 14. Copyright © 2014 Christopher Merkle 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 Flanagan, The Perilous Life, 114. 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." Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Osterwalder and Pigneur, 34. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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 Flanagan, The Perilous Life, 127. 128 Ibid., 130. 125 Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Osterwalder and Pigneur, 40. 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 Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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 Copyright © 2014 Christopher Merkle 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. Flanagan, The Perilous Life, 61. 151 Dempster, 7. 152 Flanagan, The Perilous Life, 60. 153 Wolf Organization and American Symphony Orchestra League, vi. 150 Copyright © 2014 Christopher Merkle 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 DiMaggio and Mukhtar, 169-183. Flanagan, The Perilous Life, 77. 156 Flanagan, “Symphony Musicians and Symphony Orchestras,” 28. 157 Woodcock. 155 Copyright © 2014 Christopher Merkle 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 Flanagan, The Perilous Life, 83. 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. Copyright © 2014 Christopher Merkle 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 Flanagan, “Symphony Musicians and Symphony Orchestras,” 24. 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 Flanagan, “Symphony Musicians and Symphony Orchestras,” 26. 161 Copyright © 2014 Christopher Merkle 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 Flanagan, “Symphony Musicians and Symphony Orchestras,” 25. Copyright © 2014 Christopher Merkle 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.– Copyright © 2014 Christopher Merkle 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. Copyright © 2014 Christopher Merkle 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). Copyright © 2014 Christopher Merkle 60 Boyne, Roy. "Beyond Price: Value in Culture, Economics, and the Arts." International Journal of Cultural Policy 19, no. 4 (2013), 531-533. Brooks, A. C. “Public Subsidies and Charitable Giving: Crowding Out, Crowding In, or Both?” Journal of Policy Analysis and Management 19 (2000), 451-64. Brooks, Arthur C. "Toward a Demand-Side Cure for Cost Disease in the Performing Arts." Journal of Economic Issues 31, no 1 (1997), 197-207. Brown, Alan and Rebeca Ratzkin. “New World Symphony – Summary Report: 2010-2013 Concert Format Assessment.” (San Francisco, CA: WolfBrown, June 2013). Brown, Alan S. and Kelly Dylla. Audience and Community Engagement in Practice: Case Studies. (ASOL Orchestra Leadership Academy, June 2007). 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. Carsman, Sarah. “The YouTube Symphony: Orchestrating An Image of Inclusion On and Offline.” Paper read at the annual meeting of the American Musicological Society in San Francisco, November 11, 2011. Caves, Richard E. Creative industries: contracts between art and commerce. (Cambridge, Mass.: Harvard University Press, 2000). Cohen, Ronnie. "San Francisco Symphony Musicians Strike Over Salaries and Management 'Foot Dragging'." Oakland Tribune, March 13, 2013. Conte, David M. and Stephen Langley. Theatre Management: Producing and Managing the Performing Arts. (Hollywood, Calif.: EntertainmentPro, 2007). 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. Courty, Pascal, and Mario Pagliero. “The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry.” CEPR Discussion Paper no. 7120. (London: Centre for Economic Policy Research, 2009). Davidson, Justin. "The Sopranos on the Big Screen." The New York Times, January 2008, 70-71. Dempster, Douglas J. “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. Copyright © 2014 Christopher Merkle 61 DiMaggio, Paul 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), 169-194. Dobrin, Peter. “Orchestras Need to Program a New Business Model.” The Philadelphia Enquirer, April 4, 2009. The Economist. “Soft Power and a Rapturous Ovation.” February 28, 2008. Edgers, Geoff. “Atlanta symphony orchestra struggles during second lockout in two years.” The Washington Post, October 9, 2014. Flaccus, Gillian. “Recession Is Bitter Music for Performing Arts in United States.” Associate Press report, January 27, 2009. Flanagan, Robert J. “The Economic Environment of American Symphony Orchestras.” 2008. Available at http://www.gsb.stanford.edu/sites/default/files/research/documents/Flanagan.pdf. Flanagan, Robert J. The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges. (New Haven: Yale University Press, 2012). Flanagan, Robert J. “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), 264-94. Frey, Bruno S. Arts & Economics: Analysis & Cultural Policy. (Berlin: Springer, 2000). Frumkin, Peter, and Ana Kolendo. Building for the Arts: The Strategic Design of Cultural Facilities. (Chicago, IL: The University of Chicago Press, 2014). Galinsky, Adam D. and Erin V. Lehman. “Emergence, Divergence, Convergence: Three Models of Symphony Orchestras at the Crossroads.” The European Journal of Cultural Policy 2, no. 2 (1995). Gapinsky, James H. “Do the Nonprofit Performing Arts Optimize? The Moral from Shakespeare.” The Quarterly Review of Economics and Business, (Summer 1985), 27-37. Garrett, Charles Hiroshi. Struggling to Define a Nation: American Music and the Twentieth Century. (Berkeley and Los Angeles: University of California Press, 2009). Glenn, J. D. "The Relationship between Endowment Funds and the Support of Selected NonEconomic Goals in the Arts." Order No. 9238182, (Ohio State University, 1992). Copyright © 2014 Christopher Merkle 62 Grant, Margaret, and Herman S. Hettinger. America's Symphony Orchestras, and How They Are Supported. (New York: W.W. Norton & Company, 1940). Guillard, Jean-Pierre. “The Symphony as a Public Service: The Orchestra of Paris.” Journal of Cultural Economics 9, no. 2 (1985), 35-47. Hansmann, Henry. “Economic Theories of Nonprofit Organizations.” (New Haven, CT: Yale University Press, 1989), 27-43. Hansmann, Henry. “Nonprofit Enterprise in the Performing Arts.” In Nonprofit Enterprise and the Arts, edited by Paul DiMaggio. (New York: Oxford University Press, 1986). Heilbrun, James, and Charles M. Gray. The Economics of Arts and Culture. 2nd ed. (Cambridge: Cambridge University Press, 2001). 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. Ivey, William J. "Bridging the For-Profit and Not-for-Profit Arts." The Journal of Arts Management, Law, and Society 29, no. 2 (1999), 97-100. Jensen, Michael, and Bo Kyung Kim. “Great, Madame Butterfly Again! How Robust Market Identity Shapes Opera Repertoires.” Paper presented at the annual meeting of the American Sociological Association Annual Meeting in Boston, July 31, 2008. Judy, Paul R. "Symphony Orchestra Organizations: Employees, Constituencies, and Communities." Harmony 3 (October 1996). Accessed on Polyphonic.org. Judy, Paul R. "Organization Change." Harmony 5 (October 1997). Accessed on Polyphonic.org. Kaiser, Michael M. Leading Roles: 50 Questions Every Arts Boards Should Ask. (Brandeis University, 2010). Kamerman, Jack B. and Rosanne Martorella. Performers & Performances: The Social Organization of Artistic Work. (New York, NY: Praeger, 1983). Kennicott, Phillip. "America's Orchestras Are in Crisis: How an Effort to Popularize Classical Music Undermines What Makes Orchestras Great." The New Republic, August 25, 2013. http://www.newrepublic.com/article/114221/orchestras-crisis-outreach-ruining-them. Kolb, Bonita M. “The Effect of Generational Change on Classical Music Concert Attendance and Orchestras’ Responses in the UK and US.” Cultural Trends 41 (2001), 1-35. 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. Copyright © 2014 Christopher Merkle 63 Lange, Mark D. and William A. Luksetich. “The Cost of Producing Symphony Orchestra Services. 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Martorella, Rosanne. “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. Mauskapf, Michael G. “Enduring Crisis, Ensuring Survival: Artistry, Economics, and the American Symphony Orchestra.” (ProQuest: UMI Dissertations Publishing, 2012). McCarthy, Kevin F. The Performing Arts in a New Era. (Santa Monica, CA: RAND, 2001). Meyer, John W. and Brian Rowan, Institutionalized Organizations: Formal Structure as Myth and Ceremony.” American Journal of Sociology 83 (1977), 340-63. Mnookin, Robert H. Bargaining with the Devil: When to Negotiate, When to Fight. (New York: Simon & Schuster, 2010), 177-208. Morrison, Richard. Orchestra: The LSO: A Century of Triumph and Turbulence. (Faber and Faber, 2004). National Endowment for the Arts. 2008 Survey of Public Participation in the Arts: Research Report #49. 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Stryker, Mark. "DSO to Talk it Out in Sept.: Managers, Musicians Try to Negotiate Labor Dispute." McClatchy - Tribune Business News, August 22, 2007. "Symphony Orchestras: Surviving and Even Thriving." International Musician 8, no. 13 (2011). Tepavac, Lela. Fearless Journeys: Innovation in Five American Orchestras. (New York: League of American Orchestras, 2010). Throsby, C. D. Economics and Culture. (Cambridge, UK: Cambridge University Press, 2001). Copyright © 2014 Christopher Merkle 66 Throsby, C. D., and G. A. Withers. The Economics of the Performing Arts. (New York: St. Martin's Press, 1979). Throsby, David. "Economic Circumstances of the Performing Artist: Baumol and Bowen Thirty Years on." Journal of Cultural Economics 20, no. 3 (1996), 225-40. Throsby, David. "The Production and Consumption of the Arts: A View of Cultural Economics." Journal of Economic Literature 32, no. 1 (1994), 1-29. Toeplitz, Gideon. "From Challenge to Success: What Must Change?" 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Wakin, Daniel J. “Talks Break Down at Cleveland Orchestra.” New York Times, January 7, 2010. The Wallace Foundation. “Engaging Audiences: Report on The Wallace Foundation Arts Grantee Conference.” (Philadelphia, PA: April 2009). Ward, Charles. "Musicians Orchestrate Full Strike / Last Offer can't Stop Symphony Walkout." Houston Chronicle, March 9, 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. Wichterman, Catherine. “The Orchestra Forum: A Discussion of Symphony Orchestras in the US.” In Andrew Mellon Foundation annual report, 1998. Copyright © 2014 Christopher Merkle 67 Withers, Glenn A. "Unbalanced Growth and the Demand for Performing Arts: An Econometric Analysis." Southern Economic Journal 46, no. 3 (1980), 735-42. Withey, Elizabeth. "From the Concert Hall to Your Computer; Berlin Philharmonic's Webcasts Unique." 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Copyright © 2014 Christopher Merkle 68 Bibliography – sorted by Business Model segment Customer Segments & Customer Relationships 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). 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). 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). 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. Brooks, Arthur C. "Toward a Demand-Side Cure for Cost Disease in the Performing Arts." Journal of Economic Issues 31, no 1 (1997), 197-207. Caves, Richard E. Creative industries: contracts between art and commerce. Cambridge, Mass.: Harvard University Press, 2000. Courty, Pascal, and Mario Pagliero. “The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry.” CEPR Discussion Paper no. 7120. (London: Centre for Economic Policy Research, 2009). DiMaggio, Paul 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), 169-194. Flanagan, Robert J. “The Economic Environment of American Symphony Orchestras.” 2008. Available at http://www.gsb.stanford.edu/sites/default/files/research/documents/Flanagan.pdf. Flanagan, Robert J. The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges. (New Haven: Yale University Press, 2012). Flanagan, Robert J. “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), 264-94. Copyright © 2014 Christopher Merkle 69 Ivey, William J. "Bridging the For-Profit and Not-for-Profit Arts." The Journal of Arts Management, Law, and Society 29, no. 2 (1999), 97-100. Lowry, W. McNeil. The Performing Arts and American Society. (Englewood Cliffs, N.J.: Prentice-Hall, 1978). Mauskapf, Michael G. “Enduring Crisis, Ensuring Survival: Artistry, Economics, and the American Symphony Orchestra.” (ProQuest: UMI Dissertations Publishing, 2012). McCarthy, Kevin F. The Performing Arts in a New Era. (Santa Monica, CA: RAND, 2001). 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Ravanas, Philippe. “Hitting a High Note: The Chicago Symphony Orchestra Reverses a Decade of Decline.” International Journal of Arts Management 10, no. 2 (2008), 68-87. Rosen, Sherwin, and Andrew M. Rosenfield. “Ticket Pricing.” Journal of Law and Economics 40, no. 2 (1997), 351-76. Seaman, Bruce A. “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). Tepavac, Lela. Fearless Journeys: Innovation in Five American Orchestras. (New York: League of American Orchestras, 2010). Toma, Michael 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). Copyright © 2014 Christopher Merkle 70 The Wallace Foundation. “Engaging Audiences: Report on The Wallace Foundation Arts Grantee Conference.” (Philadelphia, PA: April 2009). Wichterman, Catherine. “The Orchestra Forum: A Discussion of Symphony Orchestras in the US.” In Andrew Mellon Foundation annual report, 1998. Withers, Glenn A. "Unbalanced Growth and the Demand for Performing Arts: An Econometric Analysis." Southern Economic Journal 46, no. 3 (1980), 735-42. Woodcock, Tony. 2011. “American Orchestras: Yes, It's A Crisis”. Blog post, Polyphonic.org. http://www.polyphonic.org/2011/05/04/american-orchestras-yes-its-a-crisis/. Woronkowicz, Joanna, 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). Value Propositions 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). 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). 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). Brown, Alan and Rebeca Ratzkin. “New World Symphony – Summary Report: 2010-2013 Concert Format Assessment.” (San Francisco, CA: WolfBrown, June 2013). Caves, Richard E. Creative industries: contracts between art and commerce. Cambridge, Mass.: Harvard University Press, 2000. Dempster, Douglas J. “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. DiMaggio, Paul 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), 169-194. Copyright © 2014 Christopher Merkle 71 Kennicott, Phillip. "America's Orchestras Are in Crisis: How an Effort to Popularize Classical Music Undermines What Makes Orchestras Great." The New Republic, August 25, 2013. http://www.newrepublic.com/article/114221/orchestras-crisis-outreach-ruining-them. Lange, Mark, William Luksetich, and Philip Jacobs. "Managerial Objectives Of Symphony Orchestras." Managerial and Decision Economics 7, no. 4 (1986): 273-78. Martorella, Rosanne. “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. Mauskapf, Michael G. “Enduring Crisis, Ensuring Survival: Artistry, Economics, and the American Symphony Orchestra.” (ProQuest: UMI Dissertations Publishing, 2012). Osterwalder, Alexander, and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. (Hoboken, NJ: Wiley & Sons, 2010). Pompe, Jeffrey, Lawrence Tamburri, and Johnathan Munn. “Factors that influence programming decisions of US symphony orchestras.” (Springer Science+Business Media, LLC., 2011). Ross, Alex. “Hold Your Applause: Inventing and Reinventing the Classical Concert.” Lecture given at the Royal Philharmonic Society, March 8, 2010. Tepavac, Lela. Fearless Journeys: Innovation in Five American Orchestras. (New York: League of American Orchestras, 2010). Toma, Michael 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). Turrini, Alex, Michael O'Hare, and Francesca Borgonovi. 2008. "The Border Conflict between the Present and the Past: Programming Classical Music and Opera." Journal of Arts Management, Law, and Society 38 (1): 71-88. U.S. Department of Treasury (US). Form 990 [Internet]. Internal Revenue Service (US); 2013 June. Available from: http://www.guidestar.org/FinDocuments/2013/362/167/2013-3621678230a505e28-9.pdf. Wichterman, Catherine. “The Orchestra Forum: A Discussion of Symphony Orchestras in the US.” In Andrew Mellon Foundation annual report, 1998. Copyright © 2014 Christopher Merkle 72 Channels 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). Brown, Alan and Rebeca Ratzkin. “New World Symphony – Summary Report: 2010-2013 Concert Format Assessment.” (San Francisco, CA: WolfBrown, June 2013). Carsman, Sarah. “The YouTube Symphony: Orchestrating An Image of Inclusion On and 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. Dempster, Douglas J. “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. 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. Kennicott, Phillip. "America's Orchestras Are in Crisis: How an Effort to Popularize Classical Music Undermines What Makes Orchestras Great." The New Republic, August 25, 2013. http://www.newrepublic.com/article/114221/orchestras-crisis-outreach-ruining-them. National Endowment for the Arts. Audience 2.0: How Technology Influences Arts Participation. (Washington, D.C.: National Endowment for the Arts, 2010). 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). 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). Osterwalder, Alexander, and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. (Hoboken, NJ: Wiley & Sons, 2010). Revenue Streams "The Annual Report on Philanthropy for the Year 2013." Giving USA, (Indiana University: Lilly Family School of Philanthropy, 2014). Copyright © 2014 Christopher Merkle 73 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. 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. January 1, 2012. Brooks, A. C. “Public Subsidies and Charitable Giving: Crowding Out, Crowding In, or Both?” Journal of Policy Analysis and Management 19 (2000), 451-64. Brooks, Arthur C. "Toward a Demand-Side Cure for Cost Disease in the Performing Arts." Journal of Economic Issues 31, no 1 (1997), 197-207. Caves, Richard E. Creative industries: contracts between art and commerce. Cambridge, Mass.: Harvard University Press, 2000. Courty, Pascal, and Mario Pagliero. “The Impact of Price Discrimination on Revenue: Evidence from the Concert Industry.” CEPR Discussion Paper no. 7120. (London: Centre for Economic Policy Research, 2009). Dempster, Douglas J. “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. DiMaggio, Paul 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), 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. Flanagan, Robert J. “The Economic Environment of American Symphony Orchestras.” 2008. Available at http://www.gsb.stanford.edu/sites/default/files/research/documents/Flanagan.pdf. Copyright © 2014 Christopher Merkle 74 Flanagan, Robert J. The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges. (New Haven: Yale University Press, 2012). Flanagan, Robert J. “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), 264-94. Frey, Bruno S. Arts & Economics: Analysis & Cultural Policy. (Berlin: Springer, 2000). Glenn, J. D. "The Relationship between Endowment Funds and the Support of Selected NonEconomic Goals in the Arts." Order No. 9238182, (Ohio State University, 1992). Grant, Margaret, and Herman S. Hettinger. America's Symphony Orchestras, and How They Are Supported. (New York: W.W. Norton & Company, 1940). Hansmann, Henry. “Nonprofit Enterprise in the Performing Arts.” In Nonprofit Enterprise and the Arts, edited by Paul DiMaggio. (New York: Oxford University Press, 1986). Heilbrun, James, and Charles M. Gray. The Economics of Arts and Culture. 2nd ed. (Cambridge: Cambridge University Press, 2001). Ivey, William J. "Bridging the For-Profit and Not-for-Profit Arts." The Journal of Arts Management, Law, and Society 29, no. 2 (1999), 97-100. Kaiser, Michael M. Leading Roles: 50 Questions Every Arts Boards Should Ask. (Brandeis University, 2010). Lawrence, Steven and Reina Mukai. "Foundation Grants to Arts and Culture, 2012: A One-year Snapshot." Grantmakers in the Arts - GIAreader 25, no. 3 (Fall 2014). Lowry, W. McNeil. The Performing Arts and American Society. (Englewood Cliffs, N.J.: Prentice-Hall, 1978). Luksetich, William A., and Mark D. Lange. "A Simultaneous Model of Nonprofit Symphony Orchestra Behavior." Journal of Cultural Economics 19 (1995), 49-68. Lange, Mark, William Luksetich, and Philip Jacobs. "Managerial Objectives Of Symphony Orchestras." Managerial and Decision Economics 7, no. 4 (1986), 273-78. Martorella, Rosanne. “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. Copyright © 2014 Christopher Merkle 75 Mauskapf, Michael G. “Enduring Crisis, Ensuring Survival: Artistry, Economics, and the American Symphony Orchestra.” (ProQuest: UMI Dissertations Publishing, 2012). McCarthy, Kevin F. The Performing Arts in a New Era. (Santa Monica, CA: RAND, 2001). National Endowment for the Arts. How the United States Funds the Arts. 2nd ed. (Washington, D.C.: National Endowment for the Arts, 2007). Osterwalder, Alexander, and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. (Hoboken, NJ: Wiley & Sons, 2010). Ravanas, Philippe. “Hitting a High Note: The Chicago Symphony Orchestra Reverses a Decade of Decline.” International Journal of Arts Management 10, no. 2 (2008), 68-87. Rosen, Sherwin, and Andrew M. Rosenfield. “Ticket Pricing.” Journal of Law and Economics 40, no. 2 (1997), 351-76. Seaman, Bruce A. “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). 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. Throsby, C. D. Economics and Culture. (Cambridge, UK: Cambridge University Press, 2001). Throsby, C. D., and G. A. Withers. The Economics of the Performing Arts. (New York: St. Martin's Press, 1979). Throsby, David. "Economic Circumstances of the Performing Artist: Baumol and Bowen Thirty Years on." Journal of Cultural Economics 20, no. 3 (1996), 225-40. Throsby, David. "The Production and Consumption of the Arts: A View of Cultural Economics." Journal of Economic Literature 32, no. 1 (1994), 1-29. Withers, Glenn A. "Unbalanced Growth and the Demand for Performing Arts: An Econometric Analysis." Southern Economic Journal 46, no. 3 (1980), 735-42. Wolf Organization and American Symphony Orchestra League. The Financial Condition of Symphony Orchestras. (Cambridge, MA: Wolf Organization, 1992). Woodcock, Tony. 2011. “American Orchestras: Yes, It's A Crisis”. Blog post, Polyphonic.org. http://www.polyphonic.org/2011/05/04/american-orchestras-yes-its-a-crisis/. Copyright © 2014 Christopher Merkle 76 Key Resources 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). Conte, David M., and Stephen Langley. Theatre Management: Producing and Managing the Performing Arts. (Hollywood, Calif.: EntertainmentPro, 2007). 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