the economics of underserved audiences (part 3): Baumol’s Curse and Liberation from Local Arts Organizations

William J. Baumol and William G. Bowen first described what is sometimes called Baumol’s cost disease in the Performing Arts in 1966.  The gist of the cost disease (which is just as applicable to sports, hospitals, and other fields where human labor cannot be replaced) is that all things considered, the labor cost in the Performance Arts will always rise at a faster rate than other industries and inflation since there are no effective means for increasing productivity since there is no way to replace human labor.  A Haydn string quartet needs four musicians today as it did in Haydn’s time.  Or as Baumol and Bowen put it

Human ingenuity has devised ways to reduce the labor necessary to produce an automobile, but no one has yet succeeded in decreasing the human effort expended at a live performance of a 45-minute Schubert quartet much below a total of three man-hours.

In the US, Orchestras are not publicly funded as they are in Europe, and rely heavily on the audience and donors (roughly a 40% and 60% amount respectively).  Ticket sales will never cut it; especially the larger the ensemble gets.  Even if an Orchestra were able to sell out each and every concert, the sales generated by the audience isn’t enough to cover the ever increasing cost of operations so a donor base is in many ways more important for these organizations.  With the current lag in both audiences and donor base, however, being able to fill the auditorium can go a long way towards showing some measure of relevancy to those with discretionary philanthropic money to give.

While mass media may be able to generate revenue some (but not enough) extra revenue (Dempster, 2000; Guerrieri, 2007) in digital media seems to be having a more pronounced effect (Sheridan, 2009; Midgette, 2011; Trescott, 2011).  With the ability to livecast being a more viable option for actually being able to increase the audience for live events there may be ways of using technology to expand the market for what was sets of individual fixed events (what the NEA surveys list as “Benchmark events”) in limited quantities (e.g. number of seats in an auditorium).

As it’s been a bit since I’ve posted in this series of the economic of underserved audiences, much of the above is an elaboration of the previous installment.  But the pattern of usage via new media technologies has been studied in a different context regarding ethnic populations.  Again, I turn to Waldfogel’s “The Tyranny of the Market: Why You Can’t Always Get What You Want” (2007).

In chapter 6, “Market Enlargement and Consumer Liberation,” the subsection titled “Television” Waldfogel says

Does the wide variety of national programming on cable and satellite liberate consumers with diverse tastes?  I get some clues on my daily commute to work, which takes me through a low-income and heavily black Philadelphia neighborhood of rowhouses called Mantua.  According to the 2000 Census, this neighborhood (Census tract 109) is over 90 percent black, and the median family income is $15, 543 per year.  Only 14 percent of the adults have more than a high-school education, and nearly half of families (44 percent) live below the poverty line (American FacFinder, 2000).  Virtually every outward sign of wealth and success is less prevalent in Mantua than in the more affluent suburb where I live.  Except one.  There is, to my eye, a surprisingly large number of satellite television dishes perched ourside the Mantua fowhouses, far more per household than I see in my high-income, predominantly white suburb.  (pg. 93)

Waldfogel isn’t alone in this observation as he continues

The Mantua neighborhood of Philadelphia is not alone in its flowering of satellite dishes.  Ian Buruma writes that neighborhoods like Overtoomse Veld in Amsterdam, “inhabited almost entirely by immigrants, mainly people of Moroccan or Turkish oriin,…are often called ‘dish cities,’ because of the many satellite dishes picking up TV stations in North Africa and the Middle East (Buruma, 2005).”  (pp. 93-94)

Waldfogel then gives some descriptions of various cable, DirectTV and satellite television stations to show how very specific their target audiences are.   We can find everything from Black Entertainment Television (geared towards, of course, blacks) and Daystar (geared towards Christians) and Galavision’s Spanish-language entertainment.  He continues with info about some of his own studies and research

More systematic evidence is available that consumers turn to national television offerings for liberation.  For example, in Chapter 3 we say that black and Hispanic consumers face less appealing local television programming as they, respectively, make up smaller shares of the local metropolitan area population.  In such circumstances, do they instead turn to national programming?  A study I conducted for the Federal Communications Commision in 2002 asked whether minorities use cable and satellite television more if they live in metropolitan areas with smaller black population shares.  I found that the lower the share of local population that is black, the more cable television channels that blacks use.  For example, in a metropolitan area that is 50 percent black, blacks regularly use foughly seven cable channels, while in an area that is only 5 percent black, blacks use more than eight, on average.  The numbers for Hispanics are similar.  Hispanics in an area that is half Hispanic use and average of about five cable channels, while Hispanics isolated in areas that are only 5 percent Hispanic regularly watch an average of seven (Waldfogel, 2002).  By contrast, in places with heavily black (or Hispanic) local populations, blacks an Hispanics spend more time watching the programming offered on local television.  We can say, based on this evidence, that as persons are surrounded by fewer persons sharing their preferences, they are more likely to find national programming a solution to their isolation.  As the satellite dishes in Mantua and Overtoomse Veld suggest, the market enlargement brought about by cable and satellite television liberates consumers from their neighbors’ tastes.

As I talked about briefly in the previous installment of this series, what we have here are preference minorities who are affected by their neighbors’ dollar voting choices.  The “Who Benefits Whom” phenomenon that Waldfogel so clearly and elegantly describes in his book.  The section following “Television” discusses the internet and digital media.  Similar trends can be found there.

Notice also that the NEA data regarding online participation puts classical music first (at 18%) and Latin Music (one of the new categories measured by the surveys) second (at 15%) (Sheridan, 2009; Midgette, 2011; Trescott, 2011).  If future surveys include more music genres (e.g. Chinese Opera, Classical Arabic Music) I suspect we’ll start to find different patterns of Arts Participation both in attendance at “benchmark events” (which include attendance at Symphonic music concerts but not Chinese Orchestra Concerts, for example) as well as online participation which, since more recent Census surveys now include a broader range of minority populations, can be correlated with what Waldfogel calls preference minorities (e.g. minority populations).

In a sense, Classical Music fans can be considered a preference minority group and if increasing online and mass media participation and usage is any indication we might start to question why that is or start looking at what and where the NEA data says about usage patterns.  Are heavy online participants in the arts in regions that have adequate live benchmark event opportunities to be attended?  If so, and attendance is still down in these regions then we should question why audiences have changed their arts participation patterns.  One of the reasons given for declining audiences have been high costs of tickets (which has historically been one of two ways the Performing Arts have dealt with Baumol’s cost disease, the other being cutting musician salaries and pay).  Other reasons include time constraints and lack of interest in having the stuffy live concert experience found in Classical Music events.

If there aren’t adequate opportunities to attend benchmark events in regions with high online and media participation in the arts then that might be an opportunity for a live performing organization.  The high concentration of Chinese Orchestras in the Bay Area and Arabic Ensembles and Orchestras in the Detroit and/or Chicago regions were likely to be in response to the high demand of the large Chinese-American and Arab-American populations in those regions.  As Waldfogel argues, because of high fixed [start-up] costs (which large ensembles certainly have) this has been a barrier for bringing to the market the types of goods and services preference minorities want, and in this case, the market wouldn’t be efficient at bringing Performing Arts organizations to regions that actually might desire them.

Some of the arguments for subsidy of the arts has been due to the understanding of Baumol’s cost disease, and in a way the failure of markets to bring services to preference minorities in various regions when fixed costs are high reinforces this.  The question, though, is what Arts to subsidize.  While there is evidence that arts participation has positive psychological benefits for populations, there is increasing evidence that participation in Arts that have more to do with the ethnic backgrounds of ethnic minorities has an even greater positive psychological benefit (see especially Fox, 2010).  Investing in a Western orchestra or band program in a school system with a high proportion of Chinese-American just wouldn’t have the same impact for the Chinese-American kids as investing in a Chinese Orchestra program would for those kids, for example.

Until we figure out an efficient way to deal with Baumol’s cost disease and relevant Arts organizations preference minority groups will continue to use new media to participate in arts that have to do with them, and classical music audiences will probably continue to use the new media to access Classical Music in a form that’s more convenient (and cheaper) for them.  And while newer media/alternative venues (livecasting Classical Music in movie theatres) could possibly help with increasing revenue and an audience base (and then possibly a donor base) we come to the other problem that Waldfogel discusses in relation to ethnic minorities: connecting with media sources that are more national or international in lieu of local media which doesn’t provide them with their needs or, in other words, decreased local engagement.  In the case of the Performing Arts, increased alternative and increasingly more global media could mean less engagement and support for the local Orchestras.  As Anne Midgette stated

This is really great news. It proves that there is, indeed, a healthy interest in classical music. As I’ve said all along, the field itself isn’t endangered: the music will prevail, and people will continue to find new ways to discover it, hear it, make it.

But it also proves that the old institutions are being left in the dust. Classical music has the highest participation of any art, and ticket sales are still tanking (as the same data demonstrates)? This is more evidence, say I, that orchestras in particular are going to have to continue to work to expand their role if they want to stay alive in an era that loves classical music more than ever but is happy to pursue it without them.

____________

REFERENCES

American FactFinder.  (2000)  2000 U.S. Census <<http://factfinder.census.gov>>

Baumol, W. J. and Bowen, W. G. (1966)  Performing Arts–The Economic Dilemma: A Study of Problems Common to Theater, Opera, Music and Dance.  New York: Twentieth Century Fund

Buruma, I.  (2005)  “Letter from Amsterdam”  New Yorker, January 23, pg. 26

Dempster, D.  (2000)  “Whither the Audience for Classical Music?”  Harmony: Forum of the Symphony Orchestra Institute,  11:October <<retrieved 2011 March 11>>

Fox, S. H.  (2000)  “Ancient Ways in Current Days: Ethno-cultural Arts and Acculturation”  PhD Dissertation, Victoria University of Wellingham <<retrieved 2011 June 17>>

Guerrieri, M.  (2007)  “New Music Economics (Part 2): The Malady Lingers On”  NewMusicBox, March 21 <<retrieved 2011 June 17>>

Midgette, A.  (2011)  “NEA survey: good news – bad news” The Classical Beat, February 25 <<retrieved 2011 February 25>>

Sheridan, M.  (2009)  “And the Survey Says: Considering the NEA’s 2008 Survey of Public Participation in the Arts”  NewMusicBox, December 15 <<retrieved 2011 June 17>>

Trescott, J.  (2011)  “NEA reports new habits lead to broader arts participation” Washington Post, February 25 <<retrieved 2011 June 17>>

Waldfogel, J.  (2002)  “Consumer Substitution among Media”  Washington D.C.: Federal Communications Commission  <<http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-226838A8.pdf

Waldfogel, J.  (2007)  The Tyranny of the Market: Why You Can’t Always Get What You Want.  Cambridge: Harvard University Press