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Pricing, Staffing and the Value Proposition of a Ticket

10.04.10 | 11 Comments


CATEGORIES conversation starter, funding and support, marketing, non-profit theatre

Ah, the way a conversation develops in today’s online media world. To track the current conversation happening within the theater blogosphere about the ethical ramifications of dynamic pricing on the missions and non-profit status of arts organizations, you’d have to start with a #2amt Twitter conversation from over a year ago (now largely lost to the internet thanks to Twitter’s lack of long term storage), then you might check out a series of posts I did in response to that conversation about different pricing strategies on this site.

You’d probably then want to check out a post on Parabasis calling Arena Stage to task for their use of dynamic pricing on a recent show that ended up spiking prices up above $100/ticket. That sparked a fresh #2amt Twitter conversation and this post from Gwydion Suilebahn about discussing prices in a civilized way. Which led to a lengthy (and highly readable) comment stream, which led to another post from Gwydion and then to a fresh post by Isaac Butler at Parabasis responding in kind.

For the purposes of brevity I will assume you’ve been following the conversation to date.
As one of the originators of this whole conversation who was name-checked in Isaac’s post, I started to respond with my two cents in the comments of his post… but evidently I had an unwieldy tin cup on the dresser full of change to contribute,  so here goes:

As Isaac points out, I am indeed the one that argued that an artificially set limit on all ticket prices in the theater industry would have the inevitable consequence of lowering the ability of theaters to provide artists a living wage. I should perhaps have said, all of the professionals who are employed by an arts organization.

And yes, I am a staff member at an organization (Portland Center Stage) that had to lay off its literary department (in addition to dozens of other staff positions from every department in the organization) a while back. Isaac and I both know the members of PCS’ former literary department personally and well, and I have a deep and abiding respect for their past work and endless hope for the success of their future endeavors. I bring this up because Isaac mentions in a couple of different places during his conversation about the ethics of ticket prices that certain large organizations have laid off whole literary departments. It  seems to be a bit of an elephant in the room of this conversation, I’d like to address it briefly.

Isaac, I  would suspect that we would both strongly prefer that the talented, fiercely dedicated staff members you are referring to currently had staff positions at an arts organization that would allow them to use their incredible skill sets towards the good of the larger theater world. You will get no argument from me on that. We would both agree that they should be well paid for that effort, as their skill sets merit a living wage. I can’t speak for every member of my organization, but I suspect that I wouldn’t find too many people who would disagree with that statement.

In fact, I suspect everyone reading this blog could name a dozen incredibly talented, fiercely dedicated, amazing artists and administrators whose livelihoods (and careers) have been threatened or eliminated by theater companies who found themselves having to suddenly shrink their budgets and lay off staff in the face of BOTH shrinking earned and contributed revenue in the last 3 years.

But I don’t understand how artificially limiting ticket prices at my institution (Portland Center Stage) or at any institution, would have protected those jobs, made it easier to create “mission pure” work or made it more likely that we would have received increased contributed income that would have protected those jobs or the high-risk work we would both like to see more large arts organizations undertake.

Trust me, if a magic bullet grant existed that said “keep your ticket prices below X dollar value and we’ll make up the difference in your budget, with some extra to increase the pay of your contract actors and designers,” every arts organization I know of would be doing backflips to try to secure it.

In fact, that’s part of what puzzles me about the implication that non-profit arts organizations should quit trying to increase earned revenue or else give up on claiming non-profit status entirely. You state yourself that the most obvious outcome of giving up non-profit status would be that “theater would largely disappear from many metro areas.”

Of course this is not quite accurate: most metro areas have a thriving sub-culture of fringe companies who make very minimal contributed revenue, whose actors work for free (often as both actor and administrator) and whose sole means of support is via their members’ personal income and a small amount generated through low price ticket sales. This model already exists, and for the artists who are willing to work at that (non-existent) pay scale, it seems to work well.

It would continue to work  well (or, at least as well as it does now) in a world where theater does not qualify as a non-profit… many of them are not large or organized enough to be 501(c)s as it is. These companies would continue to form, create work, grow, merge into other companies, fail and/or carry on, just because their artists would like them to.

But none of these companies are in a position to support people like our mutual friend or to pay actors and designers a wage worthy of the name.

In the hypothetical “stop calling yourself a nonprofit” scenario, the organizations that actually have a high likelihood of failing are the mid-size and larger non-profit organizations who have the means to have on staff literary departments (or staff at all). And yes, if run as a for-profit entity those organizations would either go under or become highly rarified boutique offerings available only to the few who are able and willing to pay the real cost per audience member of a theatrical performance.

Its important to point out here that opposite example is also true: drastically limit the earned revenue potential of arts organizations and force heavier reliance on contributed revenue sources and you would see a similarly dramatic elimination of arts organizations across the country, for the simple reason that the pool of contributed revenue available is finite and currently shrinking.

Neither scenario would restore the positions that we all lament have been lost by the dramatic economic downshifts of the last couple years, and neither scenario would increase artist opportunity or compensation.

So don’t think Isaac is actually arguing for a world in which all arts organizations subsist entirely on contributed income or live or die entirely by the whim of the market.

His point, if I am understanding him correctly, is that increasing reliance on (or employing strategies that allow for a greater possibility of) earned revenue carries the substantial risk that arts organizations will move towards the money and away from their missions.

Honestly this is a concern that every arts organization I know is fighting to address, day by day. How do we stay alive (even if bruised and smaller) so that we can continue to create social good for our communities (and, within that, create opportunities for the artists and staff members we value to make a living where they can do the most social good?) How do we avoid losing sight of our mission in the difficult drive to make ends meet?

And all of us are scared that increased reliance on earned revenue could ultimately hamper our ability to to take the big creative risks that move the art form forward (although most of us hope (and work) towards an increase in total revenue that allows us more cushion to do BOTH- increase artistic risk and minimize financial risk).

Yes, this situation would ABSOLUTELY be eliminated by a sudden increase in foundation, corporate and individual giving to the arts. And I don’t know an arts organization, large or small, who wouldn’t leap at the chance to secure the future of their organizations (and increase the accessibility of their performances) through a dramatic increase in contributed revenue.

That’s not the environment we’re currently in, however. Even internationally, government support for the arts is rapidly going out of favor (even in countries like England and Vietnam with long traditions of nearly full government subsidy of the arts). We must make hay, as someone pointed out in an earlier post “when [and where] the sun is shining.” And this problem is not confined to arts non-profits either. The entire non-profit community is looking for ways to balance the shrinking pool of contributed revenue available to them by finding new and increased earned revenue options that are consistent with their mission. Here’s one example.

So as much as I can agree that it may be an exaggeration to say it’s impossible to pay artists well without healthy earned revenue (because in a hypothetical perfect world contributed income and/or “the right priorities for who to pay” could balance out that shortfall),  I need to point out that even social service non-profits are seeking to balance their contributed revenue with increased earned revenue right now, because they realize that earned revenue allows them greater flexibility and long term stability with which to fulfill their mission. In fact, as the Freedom Trail Executive director points out in the above article, it is entirely possible, and indeed preferable to:

” earn revenue not only to support our educational mission but to fulfill it as well.”

One last point:

It is also a false dichotomy, unsupported by the actual research, that a dynamic pricing (or “right price for the right person at the right time” philosophy) automatically excludes “younger, hipper” audience members or requires an organization to only produce shows that are engineered to maximize that high end price point by targeting older, whiter, more affluent patrons to the exclusion of diverse audiences.

In fact, my own organization’s use of dynamic pricing has coincided with a dramatic increase in the number of under-40 patrons who have become regular attendees and donors. I don’t think the pricing caused that- I think other strategic efforts to communicate with, and be accessible to, a different generation are largely responsible. So I wouldn’t claim a corellation. Dynamic pricing did not equal younger audience.

But dynamic pricing has in no way suppressed the attendance of this new demographic either. The two (high prices and depressed Generation X/Y attendance) are only arguably correlated in situations where, as you point out, people “haven’t even heard of the show until the ticket prices are sky high.”

I can absolutely agree with Isaac that a communication strategy that allows new audiences to only discover the show when “ticket prices are sky high,” is a poor one indeed.

But I completely disagree that younger audiences stay away solely because of high ticket prices. I know too much about what friends and neighbors of my generation spend on nights seeing local music or tickets to Lady Gaga to think that price is the only (or even primary) barrier to younger arts attendance. I would instead say that younger audiences stay away because of poor perceived value- ie, will this performance be worth the money they are asking me to spend on it?

The perceived value of a $100 concert ticket is obvious to a rabid Lady Gaga fan. The perceived value of an unfamiliar theatrical performance, with performers I’ve never heard and a story line that doesn’t sound familiar is much harder for the uninitiated and unconverted potential young arts patron to feel confident in.

And yes, organizations that would like to try dynamic pricing need to work very hard to make sure the value proposition holds as the price increases on a popular show- is this going to be “worth it?”

But then, the point of the dynamic pricing system is that a theater wouldn’t raise the price until demand (created by other communications about the relevance, quality and “worthiness” of the production) had shown that people (of all ages) did find it “worth” what you were charging.

So unless we are trying to say that younger, hipper audiences are by definition financially incapable of paying for an evening’s entertainment (which is statistically untrue- being young does not equal being broke, nor does it equal only being willing to pay $10 for night out), then what we are actually saying is that younger audiences start out less sold on the “value proposition” that theater offers vs. other ways to spend the same amount of money.

And yes, if we want to grow a younger audience, we have a huge responsibility to prove that what we offer is as valuable as the latest rom-com on Netflix or a favorite band (and the accompanying beer tab). And it’s very easy to increase the “perceived value” of our work by lowering the price across the board, essentially lessening how “amazing” our experience has to be in order to be “worth it.”

To me, this tactic feels like side-stepping the question of what the performances we create are “worth” to a given audience member by refusing to even ask the question.

Having said that, there are companies whose work I respect who choose to keep their ticket prices set as low as they possibly think they can afford as part of their organizational philosophy, and that’s certainly a choice they can make. It’s not a choice that has lead, as far as I know, to a dramatic counterbalancing influx of contributed revenue for them. Nor has it lead to better pay for the artists and staff that they employ, as far as I’m aware.

So although I am completely supportive of organizations like this as one part of the overall theatrical ecosystem, I can see no way to be supportive of this as a blanket model constraining all people wishing to produce theater. My colleagues deserve to be paid better than this. And they deserve to be seen by audiences who feel their work was worth more than $10 a ticket (even if $10 is the price point that particular audience member paid that day).

And finally, I have seen no evidence that dynamic pricing has led funders to question the “value proposition” of funding theater… or that an increase in earned revenue streams has caused a decrease in funding for non-profits in general. The decrease in non-profit funding has been caused by the shrinking earned revenue of the funders themselves, due to the economy, and every funder I’ve spoken to understands that.

In fact, granting organizations seem to be more comfortable funding organizations who have proven they have a healthy (and growing) earned revenue balance sheet.

Why? Because granting organizations do not want to be in the position of covering your artists’ paychecks year in and year out. They want to help you get to the starting gate (or in some cases the finish line) on a certain goal or project, and along the way they want assurances that your organization has the resources and wherewithal to continue the good work they helped to start.

And nothing says that an organization is valued by a community like a large and healthy pool of patrons willing to pay (and donate) top dollar to participate in the work that you are creating. What constitutes “top dollar” might be different for each participant, based on their means and preferences. But it’s still a vote of confidence and a key measure that contributors (be they government, foundation, or individual donors) have learned to respect as a measure of the overall health of an organization.

Dynamic pricing is one way to help an organization reach a balanced budget. Cutting administrative and artistic staff is another. Pushing a shrinking donor pool to contribute more is another. Cutting the art you see on stage is another.

I know which choice I feel the most ethically comfortable with. What about you?

  • Keith Beck

    ” To me, this tactic feels like side-stepping the question of what the performances we create are “worth” to a given audience member by refusing to even ask the question.”

    I think this says it all – How much is the live experience we create worth? The economy sucks and our competition has never been greater, and for those who continue to think its going to get better its not.

    Understand were theater is today compared to where it was as it relates to our economy Theater road a wave of support from those individuals and companies who prospered during the 70’s 80’s or 90’s and now anything before 2008! That is 34 years of economic growth that just evaporated over the last 24 months. It took the money that I am pretty sure many theaters took for granted.

    To keep thinking we can compete for the same dollar that goes to the 3D, IMAX, IPAD and netflix experience is insane. Theater fills an artistic niche and instead of trying to figure out ticket strategies, or define the ethics of the community or artistic infrastructure. IMO find the most powerful part of what your theater company can do / create, charge a fair price – ask a couple of people what they would pay!! For for your product, with no mess or fuss and just roll the dice!

  • Tony Adams

    If the additional revenue is necessary to pay artists, have those budget lines grown? Is there a budget that shows that’s where the extra money goes? From any organization with a new building in the last 10 years? Anyone. I would love to see any budget that says the additional expenses showed up directly onstage.

    If not it’s a pretty disingenuous argument. Outrageous Fortune talked a lot about “inauthentic conversations.” Playwrighting isn’t the only thing that happens around.

  • Trisha Mead

    Tony,

    I can absolutely show you budgets where the only thing that didn’t get cut was the work on stage and the pay of the artists employed there. That has been true of both of the last two institutions I have worked for when they have faced financial challenges, and I suspect that if you polled nationally you would find many organizations that chose to dramatically downsize their staffs, take furloughs, cut pay, and eliminate every program they could think of (except the work they put on the stage).And they’ve done this just to get a bit less red ink on the books- most have not even been able to get all the way back in the black.

    So yes, I think it is fair to say that for organizations in this position (which are numerous at all organizational scales right now), adding additional artist compensation would have to come from a new funding source, since there is nothing left to cut on the infrastructure side of things.

    There may well still be organizations that have insulated their administrative staff and cut other areas, but I don’t know of any examples personally.

    Stepping back a bit, I recognize that there can be a larger philosophical issue with large arts organizations in general- what makes them large, how they stay large, and whether something about their size makes them less pure or relevant artistically than smaller organizations. This particular debate (the value of large regional institutions vs. independent theater networks) is as old as the theater itself, and as a professional who spends much of my personal time advocating for and consulting with strong and healthy small theaters (who also obviously works for a large arts organization and feels comfortable doing so) it’s a debate I don’t personally feel I can contribute to meaningfully. I see both sides, and I personally think both models are essential to the ongoing development of the American theater.

  • Tony Adams

    “This particular debate (the value of large regional institutions vs. independent theater networks) is as old as the theater itself”,

    That’s not actually accurate. Regional theaters have only been around a fraction of the time that theatre has been. We tend to wear blinders and thing the way it is not is the only possibility.

    It’s not about large or small. The pricing debate, for me at least, isn’t as much about how as it is why. Why?

    Anyone who thinks there is nothing on the infrastructure side that could be cut is wearing blinders. What would happen if you hit reset, ignored sunken costs and did zero-based budgeting for every aspect of the organization, every cent?

  • Tony Adams

    er should have been “We tend to wear blinders and think the way it is, is the only possibility.”

  • Trisha Mead

    Tony,

    I think that zero based budgeting can be an excellent (and often overlooked) tool for an organization of any scale to use to gut check whether their spending and revenue-generating mechanisms are aligned, especially if an organization is going through a major period of transition.

    I wouldn’t necessarily agree that zero based budgeting would inevitably result in large organizations dramatically cutting their administrative support (since I am not at all convinced they could still create work at their scale effectively without that support).

    But I keenly remember, when I worked with very small organizations, being shocked at the number of paid staff large organizations seemed to require in order to do what I saw as the same job I did on the weekends in my spare time. So I very much understand your sentiment that all those people couldn’t possibly be necessary.

    Now that I work on the other side and have a better understanding of what those people do each day I don’t still share that feeling.

    But it would be hard for me to work for a large organization and not be at least somewhat biased in favor of all of my talented and hardworking colleagues being very much necessary to the work we do, so I’m willing to cop to some bias on that account.

  • Pete Miller

    I’m late to the party here, but Gwydion asked me to add my thoughts. I’m one of those dreaded board members, in fact the board president at Woolly Mammoth. My remarks are on my own behalf, not the company’s; but I know Woolly best, so here’s a capsule case study.

    Woolly’s mission includes producing great, new plays and presenting them to a highly engaged audience. So a full house is a mission goal for us, not a financial goal.

    We need some degree of earned revenue as proof of community members voting with their dollars to secure some of our sources of contributed income, so an earned dollar is often multiplied substantially as compared to a contributed dollar. Also, we get earned revenue just for doing and promoting the work, so an earned dollar has less overhead than a contributed dollar. Each contributed dollar must fund some level of stewardship of the donor to thank the donor and increase the likelihood of a future gift.

    We’re engaged in work with an outside ticket pricing consultant right now with the goal of both increasing attendance and increasing earned income. Those two goals conflict less than is immediately evident.

    For example, by raising prices for performance dates that are filling up quickly, we create a price differential that encourages some people who would either have attended on the hot night or not come at all to instead attend on a less rapidly selling night. Seeing a $5-10 price differential between Saturday night and Thursday night often causes prospective audience members to decide they can make some time on Thursday night after all to attend the performance. This is the kind of decision making studied by the field of behavioral economics. So we’re using variable pricing to edge people toward making the decision to attend our shows. We could try to guess which nights will be hot and build the price differential in ourselves, but letting the audience tell us through their behavior means that decision will be more likely to be correct.

    Our expectation is that the pricing exercise will result in some tickets in the house going for quite high premium prices – seats in the most popular section on the most popular nights – while other seats are held at lower levels. We also operate a handful of programs to make tickets available at very low price to people in a variety of demographics, although those programs are not always made as salient to prospective audience members as I would like.

    In the end, ticket pricing, like every other issue, needs to be examined by every organization in the light of that organization’s mission. If accessibility to a particular less wealthy demographic is a key part of your mission, that will drive you to different choices than if audience composition is not a part of your mission.

    By the way, we are planning to use gains in earned income to increase artist compensation. We feel we have the support structure scaled about right to sustain some growth on the production side over the next few years without requiring commensurate growth in support. “Increase artist compensation” both means pay a little better per artist and hire more artists by producing larger cast, more technically demanding plays.

    A little financial context about Woolly:

    Cost side:

    Woolly needs about $4 million a year to run at our current scale.

    About 40% of that is spent directly on making plays – Artistic director, literary team, production team, contract artists, the direct costs of finding, choosing, and producing plays.

    The other 60% is support functions – Facilities, general managing staff, marketing staff and activities, fund raising staff and activities, activities conducted to draw audience members into a closer relationship to Woolly. I could argue that all of those activities except fund raising are directly mission related for Woolly, but let’s be strict here. Some of this 60% is also really depreciation on the building, so that cash already changed hands years ago but is only being spent from an accounting perspective as the building looses value to wear and tear.

    Income side:

    Woolly has run a manifestly balanced budget over the last few years.

    Earned income, including ticket sales and other earned income, accounts for about 44% of income. 9 points of that are earned income other than ticket sales and ticket handling fee, so not quite a rounding error. [Quick tactical note - letting the audience carry drinks into the house can materially increase concession sales, way beyond the costs of occasional spot cleaning.]

    Contributed income accounts for the other 56%. The majority of that comes from individuals then a material level of foundation support mostly aimed at specific projects then a frosting of government support and a bare but appreciated dusting of corporate support. Nearly all of our corporate support comes in related to our annual gala, which is safer for corporations to associate themselves with than our often objectionable work on stage. As with the cost side, some of those contributions were really made 5-10 years ago to support the building; those long ago given gifts are released from restriction each year to balance the depreciation expense.

    • http://www.suilebhan.com Gwydion Suilebhan

      Well, Pete — you have really done a number here: exactly the sort of level-headed insight I expected when I asked you to weigh in. Thank you for contributing both data and a strong, clear perspective to the discussion. I applaud both your candor and your intelligence.

  • http://phrasemongers.wordpress.com/ Aaron Andersen

    Well done, Trisha. I can think of nothing to add, other than a biased “in defense of administrators” sort of diatribe, which probably wouldn’t be helpful. :)

    And Mr. Miller, thank you very much for chipping in such detailed info on your organization. These discussions make more sense with concrete examples.

  • Trisha Mead

    I want to add my Kudos to Mr. Miller for his transparency and for explaining, line item by line item the numbers that we who work on the admin side of a non-profit work deal with every day.

    I think your point about contributed revenue costing more to generate in part because of the donor management costs and staff time is an excellent one, and one that has not been made in quite that way to me before. Definitely a balancing act.

    As a side note, I’d also like to congratulate Woolly Mammoth on their recent successful foray into social media fundraising- a fascinating experiment and a real gauntlet thrown to the larger theater community about how to get creative about using these new communication mediums to create real bottom line impact.

    Thanks for sharing your thoughts with such candor. very appreciated!

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