Orchestras at a Crossroads

Orchestras at a Crossroads

Much can be learned from the economics of orchestras—even if you’re not interested in classical music.

Orchestras are fragile businesses that have long been in search of a sustainable economic model. Like the auto industry or the media sector, they’re facing disruptive forces that require tough decisions and fresh approaches. To help us learn from their experiences, there is ample literature, as well as early indicators of how well innovative orchestras are responding.

Creating the equivalent of new product lines, orchestras are moving beyond traditional two-hour concerts by creatively using all of their assets, including their musicians, to provide new, broader and multifaceted community services. Local examples include the Minnesota Orchestra’s Common Chords program, which takes the orchestra to Minnesota communities for weeklong residencies, and the Saint Paul Chamber Orchestra’s strategic alliance with the Greater Twin Cities Youth Symphony, sharing space, infrastructure, and ideas with a natural partner. A couple other examples:

The Baltimore Symphony Orchestra has championed a program now being replicated here and elsewhere called Rusty Musicians. “Rusties” (nonprofessional adult musicians) are invited to play side by side with the orchestra’s professionals in a sort of boot camp setting, providing a once-in-a-lifetime experience of performing with top players and leading conductors.

The Los Angeles Philharmonic has begun YOLA—Youth Orchestra Los Angeles—supporting the development of youth orchestras in schools and community centers across L.A. and bringing its musicians, administrative savvy and fund-raising capacity to the table to help reach and teach young musicians, and cultivate a new generation of orchestra enthusiasts.

Why is this necessary? An exhaustive study by Stanford economist Robert J. Flanagan published last year, The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges, helps explain orchestras’ predicament. The basis of the book is Flanagan’s analysis of financial and audience data for the 50 largest U.S. orchestras (including both the Minnesota Orchestra and Saint Paul Chamber Orchestra), starting with the 1987-88 season and ending with the 2005-06 season. His initial summary is succinct: “The long-term economic challenges facing symphony orchestras cannot be obscured, denied, or explained away by invoking the consequences of poor business conditions.”

To oversimplify, orchestras’ revenue trends were negative, while expenses grew faster than inflation across the years studied, including periods of favorable and less favorable market conditions. Musicians’ wages grew faster than comparable professionals’ in other fields. The resulting gap—the structural deficit—has grown steadily worse over time.

Flanagan’s analysis is sobering. More ticket sales to traditional concerts can’t be the sole answer to revenue gaps. Trends show that spending more money on marketing is producing diminishing returns. National research shows that attendance per concert is declining for virtually all types of concerts, despite steady increases in the proportion of the population with a college education (the demographic most likely to attend orchestra concerts). Looking over the longer term, by 1940 orchestras earned an average of 60 percent of their revenue; in 2010 the average was 35 percent.

Contributions from all sources are also under stress. The nation’s private foundations and corporate giving programs have shifted their funding priorities, increasingly focusing on human needs, education, and the environment. A 2006 article in the Grantmakers in the Arts Reader aimed to persuade foundations to give more money to orchestras. It was written for the 40th anniversary of the Ford Foundation’s huge orchestra funding program; beginning in 1965, Ford gave $85 million to 61 U.S. orchestras. That would be $630 million in today’s dollars, an almost unimaginable influx of private support in today’s environment. (By comparison, total 2010 giving by U.S. foundations to all performing arts, not just orchestras, was $755 million.) Government support of orchestras also has declined since 1989.

Orchestras encountered a perfect storm when, along with declining contributions and revenue, the recession hit in 2008. Many, including both of our local orchestras, had signed generous multiyear contracts with the musicians’ union before the downturn began. (When signed in 2007, the Minnesota Orchestra’s five-year contract had a 26.3 percent base weekly wage increase and Saint Paul Chamber Orchestra’s five-year contract increased 22.3 percent. Both organizations negotiated partial concessions during the recession.)

Endowment values shrank as the stock market plunged. Many individual donors saw their net worth plummet even as competing demands for giving to front-line human services became urgent. Fragile in their best years, orchestras nationally racked up larger deficits, and musicians increasingly faced concessions, strikes, and lockouts.

In his book, Flanagan discusses how, against such a backdrop, expense control can’t be the sole approach to fiscal stability. “Efficiency” in the traditional sense is not easily achievable because a predetermined (and large) number of musicians is required to perform a symphonic repertoire. If a score calls for 110 musicians, you can’t play it with 90.

Flanagan also looks for the way forward. He explores the potential to increase performance revenue (ticket sales, recordings, touring, and other activities); considers options for increasing nonperformance revenue (private contributions, government grants, and endowment and investment income); and discusses the ways orchestras could reduce expenses or slow their growth.

Despite their economic challenges, orchestras hold great potential as they pursue innovation and change. You can expect to see more experimentation in projects, concert formats, and community services in the years ahead, as this industry does what many others have had to do—find ways to reinvent itself so that it remains relevant to customers.

Sarah Lutman is a St. Paul–based independent consultant and writer for clients in the cultural, media, and philanthropic sectors. She was CEO of the Saint Paul Chamber Orchestra from 2008 to 2012, and has served in executive and leadership positions at Minnesota Public Radio and the Bush Foundation.