Journalist Shirley Apthorp and Mark Pemberton, Director of the Association of British Orchestras, discuss the future of orchestras with Andrew McGregor. A very interesting 20 minutes from the BBC iPlayer-site you should listen to.
What about the lack of music education? What about the global orchestra markets? How will the business models look like etc.? How does the Berlin Phil. march forward? How do the British orchestras. Follow this link.
If we look around the orchestras worldwide, there is no unique trend as we enter a new year. National and local developments are very different.
North America
Many North American orchestras have difficulties to balance their budgets. For example the Minnesota Orchestra had 2.9 million USD shortfall in 2011 on a budget of 30 million USD. The Philadelphia Orchestra filed for bankruptcy in April 2011, citing a structural deficit of 14.5 million USD. The Dallas Symphony Orchestra reports the deficit of 6 million USD in 2010-11. A key factor in the deficits walls that many orchestras chose to rely less on endowment funds to close their financial gaps.
What are their strategies now? Orchestras nationwide have reduced musician numbers or cut salaries. A recent three-year deal in Pittsburgh cut wages 9.7% in the first year with a freeze in the second. In Detroit musicians ended a six-month strike in April 2011 and took a 23% cut in salary. But strict wage concessions are only one way to address costs. Total number of musicians is another issue. Other options are of course attracting new audiences, reducing the number of concerts and making major expends cuts while increasing earned and contributed income.
Minnesota Orchestra Hall - under refurbishment in 2012/13
The St. Paul Chamber Orchestra (SPCO) completed its eighth year in the black but anticipates a deficit 750.000 to 1 Mio USD in the running fiscal year which ends June 30. The gross ticket revenue declined by nearly 15% because of a strategic move to lower prices. This new SPCO pricing strategy (40-20-10 USD/ticket) was a major issue of discussion at the national conference of the League of American Orchestras early June 2011 and in the SYMPHONY magazine. On the other hand, lower prices have allowed the SPCO to cut marketing costs by 1 million USD over the past decade.
Europe
In Europe national orchestra and arts scenes are very different, too. The Scandinavian orchestras are doing very well. Helsinki and Reykjavik have got fantastic new venues. “In other parts of the world philharmonic orchestras are being closed down, but in Norway a new one has been formed. In a new concept, an entire region is joining forces to develop an unrivalled art institution”, explains the website of the Arctic Philharmonic Orchestra, founded in 2009. However in most of the other countries those orchestras who get public subsidies are struggling with problems due to the economic and financial crisis, especially in Spain, Portugal, Greece. But even in the UK and France some orchestras are facing cuts.
Gewandhaus Hall Leipzig in good shape
The German situation is a little bit different because of the widespread public funding system between the federal states and the local communities. The great orchestras (Berlin Philharmonic, Staatskapelle Dresden, Staatskapelle Berlin, Gewandhausorchester Leipzig, Munich Phiharmonic etc.) are doing very well. But some medium-size and the smaller orchestras in the cities and communities are in turmoil due to the increasing public debts and the shrinking public budgets, especially in the new federal states (the former GDR).
Asia
Those orchestras in Japan who have been struck by the earthquakes and the tsunami from March 11 directly, as the Sendai Philharmonic, look forward for normal conditions and reopening of venues. Most of the other orchestras are looking forward to cuts due to the enormous public debts which are not only caused by the tsunami and the nuclear catastrophe of Fukushima. “Chinese orchestras play catch-up”, this headline from the STRAD (October 2011 issue) shows what’s going on. “Chinese orchestras recognise that improving their standards will give them more opportunities to 2 abroad and play prestigious venues”, the STRAD reports. The tie-up between the New York Philharmonic and the Shanghai Symphony and between the Berlin Philharmonic and the Hangzhou Orchestra shows that China wants to emulate the top foreign orchestras it is welcoming in ever-increasing numbers. After 47 orchestras reported in 2009, today some 60 orchestras are in the business.
Victoria Concert Hall - Old and new home of the SSO
Another hotspot in Asia is Singapore, where the Singapore Symphony Orchestra opened its 33rd season and looks forward to reopen the old Victoria Concert Hall downtown Singapore in 2014. The orchestra recruits a new concertmaster. A main task for the board and management of the SSO will be a pay rise for the musicians in the near future, because housing costs are eating up to 60% from the musicians income. Artistically the orchestra is doing very well and waits for new international tour after the very successful European one and 2010.
To sum up:
2012 will divide the orchestras worldwide in those who’ll make a good race and those who’ll have to fight cuts, deficits and other problems. This is life.
As a public foundation, the Berlin Philharmonic is not only financed by grants from the City of Berlin (15 Mio. Euro per year). Ticket sales, hall rentals, merchandizing, recordings and concert tours secure the prestigious orchestra also own revenue on a constant high level. The total budget is about 34 Mio Euro per year. The commitment of major sponsors such as the Deutsche Bank guarantees the continued existence of the award-winning education program Zukunft@BPhil and the DIGITAL CONCERT HALL (DCH).
Mission of the most successful orchestra
High revenues
What could medium and small orchestra learn the business model of the Berlin Philharmonic? The Berlin Philharmonic since 2002 is a public foundation, which is supported by the City of Berlin. The Foundation generates additional revenue about 67 percent of the whole budget to the city’s own contribution. This is outstanding. Within the Berlin Philharmonic Foundation, there are three main pillars of self-generated revenue: 1. proceeds from the ticket sales of a magnitude that is nearing the height of the city’s grant. 2. In addition, revenues come from the rental of rooms, the two concert halls and concert tours of the orchestra. 3. Deutsche Bank and further sponsors support the orchestra.
Sponsors and Friends
The sponsorship money is managed by the Berlin Philharmonie GmbH (Ltd.), a wholly owned subsidiary of the Foundation. The main sponsor is the Deutsche Bank, which finances the education program Zukunft@BPhil, the communication and marketing departments and the DCH with about 6 Mio. Euro per year. The second major sponsor is the Volkswagen Group, which makes the annual European Concert. The Friends of the Berlin Philharmonic support the orchestra especially in obtaining high-quality instruments. These are usually purchased by the Friends of the Foundation and forwarded to the Foundation or directly to the musicians as permanent loans.
Ticket sales
The ticket sales developed quite well during the last few years. The orchestra was able already before the creation of the foundation to set the ticket prices itself. Over the past few years the foundation had to raise ticket prices because of stagnant public funding and had to absorb all cost increases itself. Meanwhile, the organization has arrived at a magnitude of about 10 Mio. Euro from ticket sales per year. This high amount refers to the stable attendance of audiences to the two concert halls. The revenue accounted for a total capacity of around 95 percent of the paid seats. The free ticket contingent is lower by about two percent less than that of many other cultural institutions in the city.
In Berlin, the price can vary for concert tickets known to be at a lower level than in cities such as Hamburg or Munich. However, the cultural offers in Berlin are very big. The Berlin Philharmonic takes a pool position with a variety of concerts at the present market. Per season, the orchestra performs 90 – 95 symphony concerts and some 40 chamber concerts. In such a situation prices cannot be calculated as high as at a festival, where an orchestra only occurs two or three times. The ticket prices are in comparison to the ticket prices in the pop music industry very reasonable.
The chamber music hall has been opened for more experimental programs. This created a larger audience. In the great hall the orchestra can reach at symphony concerts, of course, a higher utilization. However, considering that the chamber music hall with more than 1100 seats rather large, some 70 percent of tickets sold are a thoroughly enjoyable record. Various campaigns, media partnerships and support from other institutions have helped the management to increase the capacity of this smaller hall continuously.
The large hall with 2440 seats is particularly popular as it offers the possibility to generate high revenues. Due to the large number of the own events and rehearsals of the orchestra, the large hall is not often available. On stage of the Chamber Music Hall only small concerts can take place due to space and security reasons. Otherwise, there are still areas such as the “Green Room” or the south foyer for receptions on rent. But in the overall balance these items are rather small.
Touring income
The income from concert tours is very important for the balance sheet. For the orchestra alone it is important from an artistic point of view to be present in other major music centers of the world. For the foundation as an institution, it is also crucial that touring generates stable income. One must pay close attention to financial balance. Not at any place equally high yields can be achieved. The touring business is still an important economic factor, despite the global financial crisis.
Media deals
At the time Herbert von Karajan already a compaby of musicians was formed, which perceived the media rights of the orchestra. Since 2002, a Limited of trustees, a wholly owned subsidiary of the Foundation’s manages the income from sales of recorded music and film rights. But times have changed. Unlike to other orchestras the BPhil musicians do not get a media package, but the orchestra members can decide on the exploitation of their rights themselves. Purely legal, it is income to the individual orchestra members directly and are therefore not reflected in the foundation budget. While there are agreements under which the foundation of the proceeds of certain audio and video recordings is involved in the Philharmonic budget. This however makes up only a small portion of the foundations revenue.
Marketing
Even marketing and communications have changed since the founding of the Foundation. As the organization completed the sponsorship deal with Deutsche Bank, it was settled that the presence should be expanded in the medial department. Since then the orchestra had the opportunity to make its publications more expensive. Even in marketing, one can operate differently than before. It depends not so much on the new legal form than with the higher financial resources given by the sponsor. The internet is for marketing of great importance, because potential customers can be addressed directly in this way.
The management is working on electronic tickets, which you can print out on your computer yourself as such as airline or train tickets. There must be, however, a maximum protection against forgery, to prevent in most popular concerts some hundreds of illegal e-tickets in circulation. The advantages of electronic tickets are obvious: The customer would save much time, and the orchestra could reduce administrative costs. At pre-booking-weekends already 60 to 65 percent of the tickets are purchased through the internet. Other distribution channels such as the cash register, the telephone and the written order, however are continued to be kept open to all interested parties to offer a real chance at a concert visit.
The future of the Berlin Philharmonic looks bright: The management has safety in planning for the next time, both in terms of state funds as well as the sponsors. If nothing unexpected happens, the economic situation over the next four to five years will remain stable. Also the fact that the contract has been extended with chief conductor Sir Simon Rattle in 2018, has a positive impact on the overall situation.
Conclusion
The design of the BPhil foundation model is of course specifically connected with the Berlin Philharmonic. The five-year grant contract with the City of Berlin allows the management to plan to work with guest conductors and soloists and concert tours with the necessary time heats. The model of a public foundation that provides both legal and economic independence is more generally also suitable for other orchestras.
Second half of ABO annual conference in Derby from 16 – 18 February 2011, mainly delt with fundraising (encouraging corporate and private giving) and ticket pricing issues. The most thrilling contributions and presentations were made by Jon E. Limbacher from Saint Paul Chamber Orchestra (SPCO). He seems to be something like a guru for rethinking development strategies for orchestras as non profit organisations (NPO).
Find some core issues from the discussion: First step: check your mission (Why we exsist?), second step: check your vision (What we want to be? What we want to do?), third step: check your business model (How do we exsist?). The new SPCO business model tries to focus on every single costumer, to catch him at least for a lifelong relationship, leaving artistic and relevant „footprints“ in his life. The formula is: CIO – consume – invest – own (feel and live the responsibility for „your“ orchestra). This philosophy is related to fundraising, marketing as well as to development. And it’s a huge change in comparison to most of the other business models of US orchestras: The SPCO does itself not (longer) see as a commercial enterprise, the orchestra or the concert is not a product in terms of commercial or industrial marketing. Even the most successfull classical orchestras will never earn their total expenses. Commercial business behaviour of the orchestra is contradictory to philantrophy, if you are talking to potential donors and sponsors.
This brings us to ticket pricing. The SPCO has been very successfull in its – on the first view – rather risky pricing policy. One questions was: What is more dangerous for the orchestra? An empty hall or reasonable ticket prices? The SPCO has been lowering ticket prices from between $ 11 to 75 to now $ 10 to 40. And – believe it or not – for the SPCO this works very well. The new meassage is: Simplify your offers!
Today there are only three price points: $ 10, 25 or 40 tickets for all concerts ($ 5 for children), no discounts on single tickets, no dicounts for subscribers, no discounts for early birds – no discounts at all. Very simple, very clear. Suscribers get additional incentives (two or four free tickets: „invite your friends“ – which means: fill the hall with them and have a good time), but –remember – no discounts. The lowest $ 10 SPCO ticket is as cheap as a ticket for a local movie theatre. Directly linked to this pricing strategies is grassrouts marketing in means of direct marketing. No adverts, no commercials but direct marketing from peer to peer. Another special SPCO issue has been to expand venues (almost churches) in non-traditional neighbourhoods in the last few years. Some people don’t want to get downtown for a concert. They want to hear good music in their neighbourhood wearing casual clothes.
Some thoughts on modern fundraising: 40 percent come from corporate giving, 60 percent from private giving. Fundraising is a longterm business and based on personal relationship which needs stability within the staff. The traditional telefunding market is shrinking in the US. The emotional experience after a good concert is the most convincing promotion for fundraising.
A good fundraiser gives one percent of his annual income to the NPO he is working for. However, fundraising does not only mean „money“. It may be time, contacts, entry to networks, workforce, good will. „Peer pressure“ and emotional involvement of potential donors is much more important than possible tax deductions. Even board members have to be instructed on their regular fundraising and giving goals by checklist. Musicians of the orchestras should be involved in fundraising activities, too. And don’t hang down heads: 80 percent of first time ticket buyers will possibly not stay longer than one year, but those who stays for three years may become a lifelong supporter.
