There must have been a palpable sense of relief when the first copies of Theatre Facts 2004 rolled off the presses in June. TCG’s annual report on the fiscal health and attendance statistics of the not-for-profit theatre community showed that while we may not be out of the woods yet, the belt-tightening measures taken in the past few years of national economic instability have paid off. Theatres are, in general, in a better position than they were a year earlier. In 2003, more than half of the surveyed theatres ended the year in the red, but the 2004 report turned that statistic on its head. The same proportion—54 percent—reported closing their ledgers at break-even or better.
What’s more, the huge drop-off in state funding in 2003 has been reversed. Contributed income as a whole is way up, and the value of theatres’ total assets is at a new high. The survey’s authors note that the industry has rebounded with increased productivity in many areas even as theatres continue to confront the daunting challenges of a sluggish economy and changing consumer entertainment trends.
Those achievements are tempered with several areas of concern. The number of companies reporting operating deficits is still high, and theatres are scrambling to meet cash-flow pressures. Overall attendance has declined slightly, with subscription renewals sinking to disturbingly low levels. The aggregate number of performances has dipped and ticket revenue is down. While many theatres are on stable financial footing, others continue to struggle.
Theatre Facts 2004, written by Zannie Giraud Voss and Glenn B. Voss with the assistance of Christopher Shuff and Ilana B. Rose, is a 31-page document chock-full of tables and graphs. It analyzes financial and audience data provided by theatres for fiscal years that ended anytime in the period between Sept. 1, 2003 and Aug. 31, 2004. Available on the TCG website, it’s well worth a read.
The report includes a multi-tiered perspective that offers increasing levels of detail. The first of three sections, “The Universe,” paints a big-picture view of the entire industry. The second tracks changes over a five-year period by focusing on a consistent group of 92 institutions, the “Trend Theatres.” The final section covers the “Profiled Theatres,” the 198 companies that completed the long-form survey in 2004. Here the authors relate finance and productivity data to organizations’ budget size. Theatres are divided into six categories—Group 1 institutions are the smallest, with annual expenditures of $499,999 or less. At the other end of the scale, annual budgets of Group 6 companies top $10 million. The largest number of theatres—both in the survey and the TCG membership in general—fall in Group 3, right in the middle. Budgets for those theatres range from $1 million to just under $3 million.
The broadest perspective is found in the Universe section. The authors estimate that 1,477 not-for-profit professional theatres in the U.S. offered 169,000 performances of 11,000 different productions in 2004, employing a workforce of 104,000 individuals, 64 percent of whom are artistic personnel. They raised $715 million in contributions, which constituted 45 percent of their total income. The balance, $856 million, came from ticket sales and other revenue-generating activities.
The authors go on to assess the value of theatres’ work in dollars-and-cents terms. The 1,477 theatres contributed more than $1.46 billion to the U.S. economy in 2004. That sum represents direct expenditure, so it does not take into account the considerable multiplier effect of successive rounds of spending. In other words, the total impact of those dollars is far higher once you factor in audience members’ spending on such theatre-related commodities as restaurant meals and parking, or the moneys that vendors and employees pump back into the economy through their own spending.
CUNA and the Balance Sheet
The study’s authors have identified one particular statistic as the most useful measure of a theatre’s health over a one-year period—CUNA, which stands for change in unrestricted net assets. That phrase may sound scary to the layperson, but it basically describes a theatre’s net financial position. It takes into account operating income and expenses, capital gains and losses, contributions available for general use and funds that have been released from previous restriction. It does not include restricted assets, such as capital campaign funds being held in anticipation of the completion of the campaign. Got that? Here’s a useful simplification—a positive CUNA generally indicates an operating surplus; negative CUNAs mean deficits.
The combined CUNA for all of the Trend Theatres taken as a whole recovered significantly in 2004, reaching a five-year high that reversed what had been an alarming downward trend. “It is important to note,” the authors state, “that this trend was experienced by most theatres, not just one or two large organizations.” In absolute terms, the average theatre finished 2004 with $6.1 million in unrestricted net assets, versus $3.4 million in 2000—a remarkable indication of growth in trying times.
The authors turn to a distinct but related indicator to measure the funds available to a theatre to meet its day-to-day obligations and cash needs. “Working capital” describes resources on hand, excluding such fixed assets as the value of buildings and equipment. Working capital among the Trend Theatres has rebounded significantly since 2003, showing an improvement of 33 percent. Nonetheless, among both the Trend Theatres and the larger group of Profiled Theatres, working capital remained negative in 2004. This suggests that theatres continue to borrow funds to meet daily operating needs, whether by using deferred subscription income, taking out loans or delaying bill payment.
What Do the Numbers Mean?
In order to put all these figures into perspective, I telephoned theatre managers from across the country. “The results of the 2004 survey were, I thought, very, very sobering,” Tom Pechar, managing director of the Alliance Theatre in Atlanta, told me. “The number of theatres that incurred deficits or had negative positions was pretty significant.” The flip side of the news that most theatres are operating in the black is that 46 percent—a considerable proportion—reported deficits.
“The good news is that the hemorrhaging of operating losses seems to have stopped,” said Steppenwolf Theatre Company of Chicago’s executive director, David Hawkanson. The bad news: “It stopped by cutting back on production, cutting back on artistic [spending] and by less ambitious production schedules.” Depending on the theatre, that might mean fewer guest artists, less ambitious physical productions and smaller casts.
While overall spending among the Trend Theatres has risen 8.9 percent since 2000, it dropped slightly from 2003 to 2004. Artistic payroll, which is the largest single expense category for most companies, fell by 3.6 percent, with production payroll dipping 6.7 percent and non-production payroll expenses down 12.8 percent. I asked Anne Marie Cammarato, producing director of Delaware Theatre Company, to put those numbers in practical terms. She replied that her theatre has cut rehearsal weeks and even the work-weeks of its production staff. “We’re asking people to do the same job or better in less time and sometimes with fewer resources,” she said. “The biggest thing, which has happened in a lot of theatres, is that we’re shrinking our cast sizes.”
“Theatres vigorously cut expenses” in 2004, the Theatre Facts authors conclude. Executive director Tim McClimon of New York’s Second Stage Theatre told me, “Over the years we’ve trimmed everything out of our budget that isn’t crucial. We are very much operating on a budget that’s all about the fixed costs that are either occupancy-, personnel- or production-related, and we don’t have a lot of money for other things.”
Cutbacks often take place in the front office as well as on stage. “We have grown our staff responsibilities without growing our staff salaries,” said managing director Sara Jones of California’s Sierra Repertory Theatre. Kevin Maifeld of Seattle Children’s Theatre spoke of a human toll. “We have made our organizations just about as efficient as we can make them. We were forced to cut staff and overhead. Now that the economy is slowly coming back, we haven’t added those positions back. We’re getting more work from people than we were four years ago. You can sustain that for a while, but people get burned out. If, as an industry, we’re going to keep producing at the levels we’ve been producing at, we’re going to have to bring back some of the [human] infrastructure to support it.”
I asked Maifeld why, if conditions have improved, the theatre hasn’t fully re-staffed. “Fear,” he replied. “We’re still fearful that if we bring in new people, we may have to cut them a year later. It’s easier to work harder than to hire friends you’re going to have to fire.”
Still, many of the theatre leaders I spoke with expressed optimism, suggesting that the worst blows of the financial situation that followed the 2001 downturn, the 9/11 attacks and the onset of war in Iraq have passed. “We feel like we struggled through the last couple of years and right now things are okay,” is how McClimon put it.
Funding
With costs rising and fewer areas of cost left to cut, the pressure to increase revenue is greater than ever. While the Trend Theatres saw a remarkable 13.5-percent growth in contributed income in 2004, Theatre Facts notes declines in several areas.
Federal, state and local government funding continues to play a small but vital role in theatres’ fiscal ecologies, covering about 6 percent of budget expenses. State funding rebounded from the precipitous drop of 2003, though this varies widely throughout the country. In California, for example, the state arts council no longer makes grants. Jones lamented the loss of a funding source that had reached the $35,000-a-year level for Sierra Rep, a Group 3 theatre. “It was one of the few funders that gave general operating support,” she said. The 43.9-percent decline in city and local funding is especially disconcerting, especially since that category had risen in 2003 as local governments filled gaps in state funding.
An uptick of 8.5 percent in corporate support is welcome news, but foundation grants, which in 2000 covered more than a tenth of the Trend Theatres’ expenses, have declined. Foundation support shrank by 13.8 percent over the five years. This is particularly troubling for smaller companies, which tend to receive a greater percentage of their contributed income from foundations.
The overall growth in contributed income is thus largely due to gifts from trustees and other individuals. The figures are stunning—over the past five years donations from board members have risen by 24.2 percent ahead of inflation, with gifts from other individuals nearly doubling. To look at this increase in another way—donations from individuals supported 13.9 percent of theatres expenses in 2000. They covered 20.2 percent of expenses in 2004. Interestingly, the authors report that the absolute number of donors grew negligibly over the five years. The same number of individuals are digging deeper into their checkbooks, but theatres still face the challenge of expanding their donor pools.
Individual Donors
“We have re-staffed our development office to have a much greater emphasis on individual fundraising experience,” McClimon told me. Theatres are becoming experts on tapping this hitherto underutilized resource. The problem is that raising money from individuals is far less efficient than writing grant proposals. It takes a lot less manpower to raise one $50,000 corporate or foundation grant than it does to generate the same revenue through 50 pledges of $1,000—or 500 gifts of $100 each. “It’s like an ongoing political campaign, having to raise little bits of money from a lot of people,” McClimon said. “It is very time-consuming, very labor-intensive.”
As with selling theatre tickets, fundraising is a competitive business. “Getting people to give you money by sticking out your hand isn’t working anymore,” said managing director Stuart Duke of Vermont’s Weston Playhouse Theatre Company Not surprisingly, theatres are honing their appeals and embracing new technologies. Delaware Theatre Company recently developed a successful campaign that speaks directly to potential donors in their own living rooms via a DVD (see sidebar, page 43). Other strategies involve providing donors with what Paula Tomei, managing director of California’s South Coast Repertory called “benefits that are around the art form,” including special events at which they can interact with artists. “It’s very simple,” she said. “A cocktail reception and conversation and a presentation around some element of the production they wouldn’t get otherwise.” Theatres are leveraging one of their most powerful assets—one that does not appear on any balance sheet—their artistic capital.
I wondered how creative personnel and visiting artists have adapted to their increasingly large roles in donor cultivation. “The artists have been great about having to do these kinds of things. They understand the value of cultivating those relationships,” Tomei assured me. On the other hand, Maifeld said, “If you talk to most of the artistic directors in this country, I think they’re feeling stretched pretty thin.” His strategy is to carefully manage demands on his artistic staff’s time, carving out certain time periods as off-limits. “We’ve made the rehearsal process sacred,” he said, with no (or almost no) cultivation events scheduled during that time. When artistic director Linda Hartzell is directing a show, “that’s where her attention should be.”
Other theatre leaders were quick to point out that meeting with donors can be a worthwhile investment of time. Alliance Theatre artistic director Susan Booth said, “I don’t see that as antithetical to my job description. Conversations with people who are going to be sitting in your audience are artistic pursuits. They allow you to create a context in which art falls.”
“I don’t think anyone would agree that the drain on anyone’s time is not well worth the return,” said Duke. “We’re building not just a broader but deeper base of support from these donors, who are not just writing bigger checks, but really feeling connected to the theatre. And that reaps rewards and dividends for a long time to come.” Dividends might include turning donors into ambassadors for the institution in the community. Duke elaborated, “You have to strive for partnership with your donors, bring them in on the ground level and make them feel they are contributing something more than money to the organization or the project.”
One way to do that is to offer donors a package of benefits surrounding a particular production. At Weston Playhouse, such donors join the “Producers’ Circle”; similar programs exist at South Coast Repertory and other theatres. “We have achieved great success both in dollars-and-cents and human-spirit support in focusing intensely on attracting production sponsors,” said Duke. “They come to the first rehearsal and they hear the read-through of the show. They get backstage tours, they get invited to company events, they come to the technical rehearsals and talk about the process. They get tickets for opening night.”
The South Coast Rep program links high-end donors with works of particular authors. It’s called the Playwrights’ Circle and most of its members also sit on the theatre’s board of trustees. Six or seven of these donors at $10,000 each are listed as “Honorary Producers” on the title page of the playbill, as well as in some ads. As with the Weston program, they get to attend rehearsals, meet the creative team and celebrate with the company on opening night.
“It’s about that inside experience,” said Tomei, “the special relationship they develop with the playwright.” In this sense it’s a model borrowed from the commercial theatre, where lower-level producers get to observe—or, at least, be close to—the creative process. From the theatre’s point of view, it’s a good way to generate unrestricted giving from its most loyal patrons. At neither South Coast nor Weston are these gifts formally restricted, something both theatres are careful to be up front about.
Subscribers and Single-Ticket Buyers
Ticket sales are the lifeblood of any theatre, which is why the 2004 attendance figures are so unsettling. Overall attendance among the Trend Theatres was down for the second year in a row and was lower than in any of the past five years. Not surprisingly, ticket income has also declined. Average single-ticket income among the Trend Theatres dropped for the second consecutive year, reaching its lowest level since 2000. Single ticket income covered 3.3 percent less of theatres’ overall operating expenses in 2004 than in 2000.
There is one caveat. Most theatres—60 percent—actually saw an increase in single-ticket income from 2003 to 2004. However, those gains were offset by other theatres’ losses. The authors make special note of two “outliers” whose exceptional activity disproportionately affected the overall averages—one institution saw a $13-million decrease in single-ticket income and another’s dropped by $6 million.
Most—though by no means all—of the TCG member theatres count on subscribers as the core of their audience. As Steppenwolf’s Hawkanson puts it, “the continuum of relationship with the subscriber to the whole season is a vital part of the artistic culture of [an] organization”—not to mention “the cheapest, most effective revenue dollars we get.” There is a neat fiscal efficiency in selling a whole season’s worth of tickets in a single transaction; better yet, you get the money up front, well before the plays go into rehearsal. Not a bad deal from a cash-flow perspective.
But the Theatre Facts data suggest—even more emphatically than they have for the past several years—that the subscription model is on the decline. Among the Trend Theatres, the number of subscribers dropped 3 percent over the five years, with the average renewal rate sliding from 75 percent in 2000 to 65 percent in 2004. Think about it—more than a third of subscribers are now choosing not to renew at the end of the season. While theatres continue to sign on new subscribers, they are not doing so rapidly enough to replenish that core.
The long-term effects of this trend are likely to be profound. South Coast Rep’s Tomei focused on the financial impact. “The particular challenge we face now is when the subscription income is not in the bank to rely on. You’re forced to rely on single ticket projections a little more and we know what kind of a crap shoot those can be. Audiences are fickle and you don’t know who is going to buy tickets.” Some productions inevitably sell better than others, but it’s often difficult to predict which ones those will be. This is an especially tricky problem for organizations that don’t have adequate cash reserves.
Know Your Subscribers
Jeffrey Woodward, Managing Director of the McCarter Theatre Center in Princeton, N.J., told me that his company experienced a 12-percent drop in ticket revenue in 2004. I asked what steps he had taken to reverse the trend. “The main thing,” he replied, “was to commit to doing some research.” He brought in Shugoll Research, a firm that led focus groups of un-renewed subscribers. “The good news for us was that people weren’t unhappy with the theatre or the performances. We heard a lot about time constraints. Their leisure time is more fragmented than ever before. There is a desire to maintain flexibility among entertainment activities and subscribing is seen as too restrictive.
“That said, people did still indicate an interest in maintaining some form of relationship with the institution. They talked about wanting more flexibility in how they chose to attend McCarter. When we told them we have flexible passes, they hadn’t been aware of that. So we’ve done a better job of promoting them and we’ve seen an increase in our ability to sell passes.”
Was the problem, then, primarily one of communication? “We’ve always felt that if we promoted the flexible passes too early or gave them too much emphasis, it would dilute our base of traditional subscription package holders, who buy the whole season. Shugoll encouraged us to promote them as aggressively as our other package. We did that this year and we haven’t seen any loss of traditional subscribers as a result.
“The other thing we learned is that people want more information about the plays and so we’ve devoted more space in our printed materials to describing them. People are scrutinizing our material more closely than we had thought.”
Call it the “click here” mentality. Thanks to the Internet, consumers have come to expect instant access to in-depth information about a product before they purchase it, a film before they view it, an event before they experience it—and so with plays. “People want to make sure that if they are coming to see the new Chris Durang play at McCarter, it’s something that is going to be of interest to them,” Woodward said.
I asked Woodward about the value of marketing research. “We were puzzled by what was going on and it was very helpful and revealing,” he said. “You should give Mark Shugoll a call.”
Mark Shugoll is the CEO of Shugoll Research. He’s also a trustee of Arena Stage in Washington, D.C. He cited two familiar reasons subscribers don’t renew as often as theatres would like. The first echoed Woodward’s comments about busy lifestyles. “It gets harder and harder for people to commit to the theatre, in part because they’re afraid that they may buy a ticket for a performance that they can’t attend.
There are so many other things competing for their attention, whether it’s other theatres, other art forms, going to the movies, renting a DVD, surfing the Net. They sometimes miss performances. If they do, they question the value of buying a subscription and are less likely to renew.” Some companies, he pointed out, have begun to address this by offering dead-ticket exchanges. Others are offering subscribers at least partial credit for missed performances in their renewals.
The second factor he mentioned is that consumers are becoming more and more selective about what they want to see. “Some of this is price-related,” he said. “People say, ‘Should I spend $50 or $60 to see a play that I’m not sure I’m going to like?'”
Many theatres, like McCarter, have adapted to these trends by selling flexible, partial subscription packages, often at an attractive discount. I asked Shugoll why he believes marketing those smaller packages won’t cannibalize efforts to sell full subscriptions. “There are two broad types of people out there,” he replied. “There are people who are prone to subscribe and there are people who are not prone to subscribe. The people who subscribe and people who purchase partial subscriptions”—or single tickets—”are very different in their reasons for buying. A full subscriber might say, ‘I subscribe because I want to see the broad array of work. I want to be exposed to work that I might not see on my own.’ Or, more important, ‘I want to schedule six nights out with friends, a spouse, a partner. I’m willing to invest so I know I have those six evenings out together.'”
On the other hand, “The partial subscriber acts a lot more like an individual-ticket buyer. They are picking what they want to see. They’re a lot harder to renew. When they look at the schedule for the following season, they’re going to make sure there are three plays they want to see.”
He strongly advocates adopting a more flexible overall marketing strategy. “We shouldn’t be selling everybody subscriptions,” he said. “That product is unappealing to a large segment of the theatregoing community and it is a waste of time to try to market to those people. We need to market to those people a product that is smaller in scope and also gives them choice.” Don’t try to sell them the package that makes most sense for the theatre, he advised. “Let them chose the plays they want to see.”
Steppenwolf is putting certain aspects of this philosophy into practice. “We made the decision a year ago to look at the single-ticket buyer with the same amount of care and concern as we look at the subscriber,” Hawkanson said. “A lot of those people are still loyal to Steppenwolf. They may come to us with some frequency. It’s not the same relationship as the subscriber, but they’re equally important to us. We’re communicating with them in a strategic way, getting as much information to those single-ticket buyers as we are to our subscribers.”
So, for example, Steppenwolf transformed its subscriber-only magazine into the house program, with a production-specific insert for each show. “It’s a very good publication with information about the theatre, its programs, its financial needs, its plays—and we were not giving it to single-ticket buyers. Why? If those single-ticket buyers are important to us and to our future, we should be giving them that same information in the hope that it will enhance our relationship with them.”
It seems that theatres are faced with a daunting paradox: marketing to customers who want both more and less at the same time. They must cater to patrons (and potential donors) who crave more information about productions and artists and a deeper relationship with the theatre. So they must build detailed lobby displays about the productions and put study guides on their websites. At the same time they must learn to accommodate those who want less structure than the traditional subscriber—audience members who choose a flexible mini-package or who prefer to purchase single tickets only for the productions they especially want to see. Those patrons may buy their tickets only 10 minutes before curtain. It’s not that these patrons expect less out of the theatregoing experience; but they are less willing to make a commitment to the institution. Theatres are learning to accommodate both kinds of buyers.
What Audiences Want
This July, the Fort Worth Star-Telegram published a piece entitled, “Changing Seasons.” Its subhead read, “Arts groups are coming up with creative ways to deal with slumping subscription sales.” In separate articles this summer, the New York Times reported how symphony orchestras and independent movie theatres are grappling with decreasing admissions and changing audience demographics. Glance at these articles and certain familiar phrases pop out—sampler subscriptions, singles nights, gay singles nights, pre-show receptions, backstage tours, lobby entertainment, beefed-up concessions offerings and so on.
Symphonies, cinemas and theatres face the same dilemma. As Jason Neulander, artistic director of Salvage Vanguard Theater in Austin, described it, “We’re getting into an era where, more than ever, people can personalize their own entertainment experience, with Netflix and pay-per-view and TiVo and a gazillion-and-one things to do on a given night.” He’s alluding to the proliferation of on-demand entertainment. You can now go online and watch a movie, download a song, join a chat at any hour of day or night. The “click here” mentality strikes again.
As an art form, theatre is in many ways the opposite of on-demand. Performances are generally fixed in time and place. Resident companies reside in theatres, not in your laptop. At eight performances a week, there isn’t much potential for flexibility in scheduling, beyond the occasional early curtain or holiday matinee.
What’s more, theatre is essentially a communal experience, while on-demand entertainment is usually a solitary pursuit. “What is the iPod if not an opportunity to become one and only one with the musical experience, as opposed to sitting in concert halls?” Booth asked.
I brought up what Duke calls the “cultural challenges” of competing with on-demand entertainment in every interview I did for this piece. Few gave as eloquent a response as Booth. “First and foremost, we need to get with the program and stop moaning about the fact that the old systems don’t work,” she admonished. “All around us, technologies and industries are responding to a new American population. Why should we be held outside of that exercise? The way in which we participate in civic discourse in our day-to-day lives is different than it was 30 years ago. Point taken. Now let’s figure out how to move forward,” she said.
“People still want to go to sporting events. People still want to go to church. People still want to go to the restaurant where everyone else is going,” she continued. “The fact that self-help and spirituality books continue to be hot sellers tells us people are looking for opportunities for introspection. [We know] they also still want communal activity. Well, we’re the one place you can get both.”
That theatre lies at the intersection of communal activity and introspection is not a new idea, of course. Isn’t now the time to identify innovative ways to market from that unique position?
Fortunately, that’s exactly what theatres are doing. For Salvage Vanguard’s Neulander, the impetus for innovation came from a trip to Disney World with his five-year-old daughter. “We had a totally personalized experience. They never allow you to be bored. There’s always something to do. There’s music playing everywhere you go, there’s entertainment for people waiting in line.” Best of all, says Neulander, his daughter got to meet Ariel the Mermaid. “It would be the equivalent of Meryl Streep coming up to you out of the blue and starting a conversation.”
Back in Austin, he applied what he had learned. “We’re trying to replicate that experience for people who come to see our shows. We have created a front-of-house environment that’s really festive. The moment you walk through the gates of the venue, there’s music playing. At least once a week and [whenever] we can, there are performances going on outside. We have lots of stuff you can take home with you—T-shirts and CDs and published scripts [for sale] and that sort of thing. We also do talkbacks after every performance so that the audience has the opportunity to interact directly with the people who put the work together.”
This sounded like a lot of fun, but as I heard from theatre leaders about wine-tastings and post-performance discussions and singles nights, I kept thinking: What about the plays? Where do they fit in? The answer, as always, is they are at the center of theatres’ activities. I realized that so many extra-performance activities don’t subtract from the core theatrical experience. Rather, they enhance it, in a way that might not be immediately apparent to the ticket buyer who receives a brochure in the mail for a groundbreaking production of an Ibsen drama. “What those events do,” Booth reminded me, “is reinforce and celebrate the fact that we’re going to go spend a couple of hours together remembering what it is to be commonly human.”
Growth
How will theatres manage growth in light of competition from on-demand entertainment? “If you can position the experience you’re offering the buyer as unique, they will deal with our limitations of being a 7:00-curtain organization,” Steppenwolf’s Hawkanson said. But, he continued, “if we are not aggressive about being out there, about defining our work, about branding our work and making sure that what we’re offering our audience is distinctive, we won’t be competitive.”
That goes for small theatres, too. Artistic director Jason Loewith of Next Theatre in the Chicago suburb of Evanston told me, “We’ve done a really good job not only about programming to our niche and our mission, but also speaking about that every time we talk to the public, whether it’s in a letter to subscribers or in a program or a brochure. It’s almost a joke here in Chicago. I do my curtain speech and say, ‘Welcome to Next Theatre, Chicagoland’s home for socially provocative, artistically adventurous work,’ and the audience finishes the sentence. It’s great—they know our mission so well they can actually parrot it back to me.”
Next Theatre has bucked the trend and grown its audience considerably over the past three years. The theatre will produce four plays in 2005–06, up from three in past seasons. Loewith said, “We wanted to make a statement that the company was stable again and growing, so it made good sense to take the risk. We had put enough capacity-building measures into place so that we could handle the additional programming and budget size.” He advocated responsible growth above all, with a close eye on the mission statement, warning that theatres that aren’t in “real dialogue with their audience” are likely to stumble and drift.
One way to grow artistically without blowing out the budget is by collaborating with other theatres. “We’re all doing co-productions,” Alliance’s Pechar said. “That’s a fact of life in all the LORT theatres.” There might be some savings, but, as Pechar explained, the real value of co-productions is that they allow theatres to do more ambitious projects than they could do on their own. “We get more bang for the buck.”
Delaware Theatre Company’s Cammarato concurred. “You’re lucky if you save a third of the cost.” But the other benefits are substantial, especially from the point of view of a mid-sized (Group 3) institution. She offered a concrete example: “We get actors we wouldn’t normally have access to, because when they do a co-production, they’ll be working for 12 weeks instead of 6. That’s appealing to them. These are people we would have never been able to hire [otherwise].”
Managing growth during hard times means pulling off the delicate balancing act Pechar described as “taking a chance on an idea and not feeling like you’re going so far out on a limb that you could have the whole thing come crashing down on top of you.” Alliance achieved this with its Graduate Playwriting Competition. It’s an initiative to fund new-play development. It also brought in new support from the Kendeda Fund. “We said, let’s jump off the cliff and do this. [It may] cost more money than anticipated, but if it attracts attention and funding, that’s how you balance it,” he said.
Sometimes growth is not really a matter of choice. When I got McClimon of Second Stage talking about managing expenses, he said, “If anything, we’ve chosen to increase our costs for artistic reasons in the next five years.” He was referring to a major new initiative to commission plays and establish artist residencies, in line with the theatre’s evolving mission. “If we’re going to be doing primarily new work, we’ve got to put resources into having plays in the pipeline. Yes, it’s gutsy, and yes, we don’t have the money to do it. But we really felt that’s the only way we’re going to survive.”
Duke pointed out that some managers face “the misconception that nonprofits should shoot for a balanced budget every year.” In fact, he said, “it is in the nature of providing a service to the community that nonprofits would go through periods in their growth where they would take a hit to their operating budget in an effort to make the organization better and therefore to provide better service.”
At some theatres, board members may be loath to tolerate the kind of risk this entails. What seems like manageable risk to an executive director might look like irresponsibility to a trustee, especially one who is more familiar with the business assumptions of the for-profit world. In her seminal article “The Looking-Glass World of Nonprofit Money: Managing in For-Profit’s Shadow Universe,” Clara Miller, president of the Nonprofit Finance Fund, writes, “Not only are nonprofit rules that govern money—and therefore business dynamics—different from those in the for-profit sector, they are largely unknown, even among nonprofits…. Even when revealed to for-profit cognoscenti, they are so different from the listeners’ familiar world as to prompt confusion, disbelief and related feelings of cognitive dissonance.” (The article is available at www.nonprofitfinancefund.org.)
As McClimon pointed out, most for-profit businesses run deficits of one kind or another in order to do research and development, to expand or to manage cash flow. “The difference,” he said, “is that their deficits are capitalized. They have enough cash flow and potential income to raise money in the form of loans or selling stock.”
At Second Stage, he continued, “We’ve had to learn how to be like a for-profit and find the financial resources in order to manage our cash flow and our deficit. Because we don’t have that kind of capital available to us from banks, we’ve had to do that through getting loans from board members, which are essentially lines of credit that we repay, in order to manage our cash flow.”
In the end, theatres may have no choice but to take on more risk if they don’t want to lose their place in the hearts and minds of audiences. I’ll let Hawkanson have the last word: “In the face of the competition theatres are dealing with, the technological demands that are being put upon us and the changing revenue situation that’s affecting the kinds of productions we’re putting on our stages—theatres are going to have to get their boards to say, ‘If we’re going to hold our position, if we’re going to remain a vital institution in the community, if we’re going to be competitive with all the different choices, we’ve got to be out there in a bigger and more aggressive way than our fiscal gut tells us we can afford to be.’ You’ve got to be more aggressive and more ambitious and more risk-prone or you’re going to lose your position in the marketplace.”
Ben Pesner has been writing about theatre and editing theatrical publications since 1987.
How Big a Board?
Theatres’ most generous donors are frequently members of their boards of trustees. No wonder, then, that many companies put much effort into board expansion. Second Stage’s Tim McClimon told me, “Financially, one of the best things you can do is get people so committed to your institution that they’re willing to serve as a trustee, and the more the merrier.”
Since TCG measures boards and governance issues through a comprehensive governing boards survey, Theatre Facts does not include statistics on board size. Nonetheless, I asked co-author Zannie Voss to dig through the raw data she’d collected. Sure enough, after dipping slightly in 2001, we found that average board sizes have increased each year among Trend Theatres (with the exception of Group 4 companies, in which it has remained constant). Average board sizes among the Profiled Theatres ranges from 11 for Group 1, the organizations with the smallest budgets, to a hefty 46 for Group 6. (For more detailed information on boards and governance issues, please see TCG’s triennial survey, In Whom We Trust III: Theatre Governing Boards in 2004).
It was Steppenwolf’s David Hawkanson who got me thinking about this topic. “I think it’s great as other sources of support are eroding that we have been effective in getting individual givers and trustees to make up the difference,” he said. “[Boards] get larger partly to get more representation from the community, partly because we aren’t being as hard as we should be about letting trustees go, and partly because of the demands of the money.” But, he continued, “many of us have boards of trustees that are almost an unmanageable size.” The larger the board, the more work tends to be done in committee. Individual relationships can suffer and meetings of the full board may become unwieldy.
Alliance Theatre recently made a strategic decision to downsize the board. “We went from a larger board, but less invested and involved, to a smaller board,” Tom Pechar explained. “We’re asking for more commitment, more investment, financial and otherwise. I’d rather have fewer who have been taught to give their utmost.”
Hawkanson expressed a second concern, besides governance. If theatres’ boards continue to grow, he asked, “What kinds of organizations will these institutions become? Are we private theatre clubs or public institutions?” He went on, “In some respects we’re falling into the same traps of the symphony orchestras. Orchestras usually have extremely large boards and a high personal levy for [trustees].” If theatres go that route, he said, “We’re taking organizations that were conceived of as being publicly held institutions and making them private clubs. I think it’s a dangerous trend.” I observed that with a symphony-style board, a theatre might have a hard time behaving as a grassroots organization. “Exactly,” was his response, “or to represent the community.”
If Hawkanson is right, theatres would do well to ask some basic questions as they continue to grow. At the most fundamental level, what kind of organizations do they want to be? —Pesner
Ticket Pricing
It might be an oversimplification, but here goes: For-profit companies push prices as high as they can to maximize profit. A not-for-profit theatre, on the other hand, tries to keep prices as low as possible, to maximize accessibility.
And yet, Theatre Facts reports that the average single ticket price at the Profiled Theatres notched an 8-percent increase from 2003 and rose 14 percent above the rate of inflation between 2000 and 2004. In balancing the pressure to maximize ticket revenue while guaranteeing accessibility and pre-empting consumers’ price resistance, many theatres have widened the spectrum of price points. “We have become more aggressive on stratifying our pricing,” said Stuart Duke of Weston Playhouse Theatre Company. The highest-priced tickets have become more costly at his theatre, but the low-end seats remain cheap, with various levels in between.
“We were advised that we could take three rows in the middle of the orchestra and bump them up significantly in price and they would always be the first to go,” said Duke. Certain patrons, he pointed out, always want the best possible seats and are willing to pay for them. “We’re unashamedly leveraging that by getting a premium for the most popular locations in our theatre.” South Coast Repertory is doing the same thing. “That straight-on view is more salable,” Paula Tomei said. “Call it the premium section and people will pay the top-end price.”
Theatres have identified other ways to create premium tickets. Patrons may be willing to pay more to enjoy the glamour of an opening night, for example. Charging what the market will bear at the top end helps underwrite tickets for those who may not be able to afford higher prices and supports many other activities.
At least one theatre has completely re-thought its pricing model by adopting a voluntary sliding scale system. Jason Neulander, artistic director of Salvage Vanguard Theater, told me how it works. “When people ask how much tickets [cost], we say, ‘Whatever you want to pay between $12 and $35. You get to choose the amount.’ The range goes from what our student price used to be, to way, way more than we used to charge for our highest ticket.”
Occasional pay-what-you-can nights are not uncommon as theatres devise strategies to make tickets accessible to low-income patrons. But that was not the motivation for Salvage Vanguard’s switch. “The goal was to increase box-office revenue,” Neulander stated. “We were trying to figure out a strategic way to do that that would not alienate the portion of our audience that cannot afford a $35 ticket.” He estimated that his box office jumped by 68 percent (with an average patron paying around $20) after switching to pay-as-you-wish.
This experiment may not be practical for all companies—Salvage Vanguard is a Group 1 theatre with a 93-seat house. Still, it puts an interesting twist on the relationship between audience and institution. “The audience member feels generous by paying $35, instead of feeling gouged,” Neulander put it. —Pesner
