Economies of Scale and Orchestras

As quantity of production increases from Q to Q2, the average cost of each unit decreases from C to C1

A recent post by Drew McManus at Adaptistration reminded me of a brief argument I had with Greg Sandow at his blog.  In my previous post I talked about one way to increase performance or earned revenue through Price Discrimination for Orchestra Tickets.  Another way to increase performance revenue as well as lower costs is by changing the scale of the operations.

This is commonly referred to as Economies of Scale, and no, this has nothing to do with reducing pay or cutting back a season to lower costs.  The reduced costs comes about as the result of increased production, thus lowering cost per unit.  As the Investopedia defines it:

The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods.

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Price Discrimination for Orchestra Tickets

One of the benefits from being the composer for a production is the comp tickets! These were from Chicago’s Commedia Beauregard’s production of “A Klingon Christmas Carol” winter 2011

Drew McManus (of Adaptistration.com)had a fascinating post about Placebo Pricing (also see his follow-up post) that was the subject of a blogpost by Joe Patti (of Butts in The Seats) which might be a technique that could be used by Orchestras to generate more ticket sales.  Lisa Hirsh has been blogging up a storm about some of the issues of ticket pricing from the audience standpoint.

Back in 2004, McManus reported on a new pricing strategy being used by the Toronto Symphony Orchestra and the Nashville Symphony in their tsoundcheck and Sound Check programs.  Simply put, the programs offerred a lower ticket price for folks under 30.  While I’ve not heard much about how the Nashville program has worked (or even if it is still in place), there has been much news and blogging about the young age of the TSO’s audience.  There has even been some wonderful audience testimonies–see this one at McManus’ follow up (again, in 2004) to the above post, and this recent comment at Greg Sandow’s blog.

The lingering question to all this reduced pricing for tickets issue is, as McManus states in his Placebo Pricing post: “In the end, the devil is certainly in the details; not the least of which being what to do about reduced earned income from lower ticket revenue” and as Sandow states in his recent post about the TSO: “Some classical music institutions attract a young audience by lowering ticket prices, but then they need funding to offset the loss from selling tickets at a cheaper price” and even I’ve said as much over at Eric Edberg’s blog: “And in the end, since these tickets are actually cheaper, that means pound for pound it will take more of these tickets to make the difference from a normal subscriber or ticket buyer at standard prices.

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The so-called sustainability of popular entertainment

Greg Sandow opened up his recent post, “A challenge for orchestras,” with this    pithy paragraph:

Not so long ago, I happened to have dinner with a businessman — CEO of his not so small company — who’d been asked to join the board of his local orchestra. His take on the orchestra business, speaking as a businessman: All American orchestras seem to do more or less the same thing, and all of them are in trouble. Therefore the business model doesn’t work.

The last couple of statements “All American orchestras seem to do more or less the same thing, and all of them are in trouble. Therefore the business model doesn’t work” got a response from me since my previous post was speaking specifically about those orchestras and large scale arts organizations that are currently in the black.

Rather than rehash in my post (and my comment at Greg’s blog) let’s take a brief look at the popular entertainment industry since it is often the field held up to contrast against the unsustainable arts organizations.

I know I’ve mentioned in several places the NEA data that shows a decline in all ‘benchmark events’ which include the typical arts fare such as Orchestra/Opera/Ballet Concerts and Museum exhibits, but also includes Stadium rock and Sports. Continue reading

Arts Funding Is Supporting A Wealthy, White Audience: Report

This is the title of a recent Huffington Post piece that discusses a study by the Washington-based National Committee for Responsive Philanthropy.  Given the demographic trends I’ve been blogging about, this is, as Drew McManus says, obvious.  What is also obvious is that the ‘Chicken Little Think-Tank’ (as Drew often refers to classical music reformists) will probably see this as another reason the institution of classical music is failing and must be invigorated with methods of relevance found in the popular cultural world.  The thing is, I suspect if a study were done on the economics of the pop culture world in the US, we’d have a piece titled something to the effect of “Pop Music Industry Is Supporting A Not-So-Wealthy, White Audience: Report.”

Some of the select quotes could just as easily be said about popular culture:

“We’ve got the vast majority of resources going to a very small number of institutions,”

“That’s not healthy for the arts in America.”

“pronounced imbalance restricts the expressive life of millions of people,”

Drew counterpoints the piece with a discussion about the Grant Park Music Festival, which is an outstanding–and more importantly, FREE–summer series of concerts that is incredibly well attended.  Since some of the barriers to classical music is as much the high ticket prices as well as some of the stuffy formality many associate with it, it is encouraging to find something like this working and drawing in large audiences.

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Whither the Louisville Orchestra?

Image/still from "Music Makes a City" documentary about the Louisville Orchestra

Drew McManus has a good roundup of the current LO situation in his most recent post.  I really don’t have much to add except that given how closely I’d been following the situation I kinda saw this coming while I remained hopeful.  Drew also saw this coming: as an industry expert and consultant he’s seen this happen and saw all the checkpoints that lead to this destination.  His advice to the parties involved is in the post but I’ll post here for my reader’s convenience:

  • Managers & Staffers: get out of Dodge as fast as you can. There have been a number of very nice job openings posted at Adaptistration Jobs this past week; stop by and see if there’s one you’re qualified for.
  • Musicians: get out of Dodge as fast as you can. I know a number have already left for other work; some of which is orchestral playing but others have found academic positions.
  • CEO: save every penny, start planning for an employment transition, and take the first reasonable offer that comes along.
  • Board: unless staying in the fight offers some sort of side political benefit (in which case, I’m sorry), resign now and move on to a new philanthropic endeavor.
  • Patrons: buy a bottle (or twelve) of your favorite spirit, put on an old LO recording, and gently sob while lamenting the fact that you no longer have a professional symphonic orchestra.
I might disagree a little with Drew’s comment that “Neither side has displayed any real vision or leadership, which only reinforces the notion that having either side cave only prolongs the dysfunction” to an extent.  I thought the Keep Louisville Symphonic was a grand idea that, if it were allowed to, might have been a way actively involve the musicians in the LO organization in ways to help generate and maintain buzz about live Symphonic music.

 

In some ways I feel as if the musicians caved in too early with that organization (though technically it isn’t defunct organization by any means).  It could possible be part of the foundations of a new orchestra (or at be a part of the infrastructure that helps to create a new orchestra from these ashes).  What was difficult is that the organization was so clearly a plea to the LO as well as to patrons and that implicitly made it a threat to the LO organization itself (as one of the rejected contracts the LO gave to musicians in the past can attest).

 

Regardless, I think it might be best to cut the losses and move on with rebuilding an orchestra.  I think the musician owned Louisiana Phil might be an agreeable model for our musicians here!  Maybe what would have been the 75th anniversary (this past September) can now be the year of the new orchestra!