(Netflix + YouTube) / (time = money)

As I mentioned yesterday, Chris Ashworth has been “obsessed with finding a solution to the problem of funding theater.” He’s done an excellent job trying to break this down into little steps, so that his readers can follow. I’d like to piggy-back on his analysis, and add my own piece.

As Baumol and Bowen noted over forty years ago, the cost of creating performing arts is greater than the amount of income that can be generated by the box office. The unfortunate thing is that, when Baumol and Bowen first published their study in 1966, both their and the artistic community’s response was not to search for a workable business model, but instead to propose that the “gap” be filled with government funding and foundation grants, an orientation that continues to plague us today. As Chris notes, “My informal inquiries suggest that theaters both large and small in the Baltimore/DC area see only about 25-40% of their income in the form of ticket sales. Anything in this range is considered pretty healthy.” Ahem. By analogy, think of this in terms of breathing: if you get only 25% – 40% of your oxygen through your lungs, and the rest is provided by an oxygen tank, you’re pretty damn sick. I think the performing arts as a whole are starting to emerge from denial and acknowledge that maybe we’re not as healthy as we’d like to be. Chris’ analysis is further evidence of this.

Traditionally, the way the theatre has bridged the “breathing gap” is through a combination of exploitation of the workers (unpaid internships, unpaid or low-paid artistic work) and begging (“please, Ms. Doris Duke, could I have some more?”). This is a toxic combination — sort of the artistic version of Goldman-Sachs, complete with outrageous salaries for leaders like, say, Robert Falls at the Goodman. Except unlike Goldman-Sachs, we keep asking for a bailout year after year. As Chris laconically notes, “the numbers stink.”

Chris wants to abandon this model, and to this end proposes as a starting point a for-profit rather than non-profit structure based on a justifable assumption that a for-profit model requires accountability. I agree. He then provides a scenario with which we can work:

Let’s say I’ve got a 100 seat theater. Let’s say I’ve got 10 people in my company. Let’s say I want to pay them each 50K a year. Let’s say I run shows Thursday, Friday, Saturday, and Sunday, that each show I produce runs a month, and that I do six shows a year. A solid schedule. That makes 96 days a year I’m opening my door, or 9600 seats I can possibly sell. If I sell every single one of those seats, I’d have to sell them at over fifty bucks a ticket to pay my company members, and I’d have nothing left for rent, production costs, or anything else.

So that doesn’t work. Options are limited: “I can add more seats, I can add more shows, I can cut my (generous?) paychecks, but try to wiggle any of these numbers and I hit the limits real fast.” But Chris doesn’t want to get rid of selling tickets, just change it. “Exchanging money for art is a way to complete my artistic life, not damage it. That’s what money is for: translating what I can make into what you can make, and vice versa.” Chris seems to have come to the conclusion that I am against the exchange of money. For the record, I am not. As G. B. Shaw once said, I have nothing against money — I think everybody should have some. In the phrase “selling tickets,” it is not the first word I am against, but the second. The idea that people buy tickets to specific events seems to me problematic. Chris thinks so too.

So we look for a different model.  Chris looks to memberships rather than tickets, so that (like Netflix) members of your theatre pay a monthly fee. Seattle’s ACT made a foray into this business model. According to an article on SeattlePi.com, ACT is offering “to patrons who prefer the flat monthly rate of a ‘basic membership’” an opportunity to “see just about anything playing in ACT’s various performance spaces for one low price.For example, during September a basic membership participant can get a ticket to any or all of the following for his one monthly fee of $25 (or $20 if he’s under 30): “Das Barbecü,” “Until the Last Dog Dies” and “Runt of the Litter.” And, as long as tickets are available, there is no limit to the number of times a member can attend a performance in a given month — at no extra charge.” Here’s the problem with that model: Netflix offers over 100,000 titles, ACT offers 3. And let’s get serious: how many plays do you want to see more than once, much less the average playgoer? When you rent a DVD at Netflix, do you watch it over and over, or do you send it back for something new as soon as you’ve watched it?

Recognizing this problem, Chris offers something else to supplement this: access. “I can visit every rehearsal. I get a guaranteed ticket to every show you do. I get unlimited empty seat passes after I use my guaranteed ticket. When a guest artists comes to do a Suzuki workshop with your acting company? I get a chance to sign up too. For free. When you have some down time, your company members teach a class, and I get to come. For free. It means that instead of throwing your unused costumes and props in the dump, you throw a souvenir party. I get to come take home a souvenir. For free. Because I am a supporter, and that special-purpose prop is just more sawdust to you.”

I like this. What Chris is proposing is creating a relationship with the audience members, rather than a transaction. This is a step forward in the artist-audience relationship. Instead of seeing them as “consumers” who will buy a ticket to your “product(ion),” you are looking at them as ongoing members of your organization. In this model, “tickets are a byproduct,” what you are selling is a “process.”

Don’t encourage your customers to track dollar-for-dollar what they get out of every transaction. Encourage them to understand that theater is a process. A process that costs money, but produces hundreds of wonderful results. Let them invest in the process, and then let them reap the results. Use technology to increase your surface area. Live stream your shows. Post daily rehearsal photos on Twitter. Invest in a qualified videographer, and use the hell out of them. Build a living production document of every show online. Let your audience see how a scene is evolving from rehearsal to rehearsal with a quality video record of the evolution. Annotate each clip with a description of the director’s instructions, of the actor’s new choices, of the salient theatrical choices that made this version of the scene different from the last version. Put them up in a timeline. Let us see the process unfold, even when we can’t be in the room. Let me see how a scene is taken from a written blueprint to a live performance. Edit out the boring stuff.

Again, all good stuff. We do enjoy watching the outtakes and the behind-the-scenes-making-off segments on the DVDs we watch — it gives us a chance to peer into a secret world that isn’t open to the public. Except in Chris’ model, it is open, but whatever. I would add, by the way, that this would be a good enticement for a theatre to maintain a permanent company, since the artist-audience relationship is only ongoing if the faces don’t change every month. Think of this as Facebook for theatres…

I think if more theatres adopted Chris’ ideas, the theatre scene would become healthier. But there is a point where Chris and I part company, and that’s what this post is about (you thought I’d never get there, right?). The place in the woods where two roads diverge is found in the paragraphs that serve as the starting point for Chris’ brainstorming: “Let’s say I’ve got 10 people in my company….We have our product: theater. We have our customers: the audience.” Chris is still operating with the We-They model: “We” are the artists who make the art, “They” are the audience who passively (or even somewhat actively) consume it. And despite all the involvement that Chris proposes, this relationship remains intact: there’s a company of ten who create shows for an audience.

For all Chris’ regard for the Web 2.0 scene, the thing about YouTube, Twitter, Wikipedia, Linux, and Facebook is that people are creators and participants, not just observers. There isn’t a special class of people who are allowed to contribute, anyone who wants to can do so. This is the takeaway from Here Comes Everybody and Wikinomics and Crowdsourcing: EVERYBODY PLAYS.

So here is my model, which is a derivitaive of Chris’. It is expressed in the equation in the subject line: (Netflix + YouTube) / (time = money). Breathe, mathphobics — it will be OK.

1. Netflix: I agree with Chris: Netflix is a great model. Pay a monthly fee rather than buying tickets. Make this fee reasonable, and provide a family package that can be used by anyone in the family. But the important part of the Netflix model is variety: there needs to be a lot of different options.

The problem is that even a company of ten artists can’t create enough content to provide enough variety, especially in our current 4 – 6 week rehearsal traditions. One need only look at ACT, which is a big theatre, vbut it can only provide three options in a month. This is where YouTube comes in.

2. YouTube: the artistic staff has two functions: 1) create their own work, and 2) facilitate the work of others. The first function is necessary, otherwise why would any trained artists want to devote their time? The second function, however, is what provides the variety necessary. So in addition to the performances by the artists, there are performances by people in the community. Maybe there is a dance troupe that needs a place to perform: they’re in; maybe there are some storytellers or comedians who need a venue: they’re in; maybe there is a community choir who wants to sing: they’re in. The possibilities are endless: lectures, classes, meetings, displays of art, quilting or knitting groups, political meetings, improv or No Shame theatre events, dance classes, music lessons. Have a coffee house or bar where people can hang out.  The goal is to keep the space humming with activity, beacuse ultimately the priority is the creation of community, or what Robert Putnam calls social capital. And your monthly membership fee gets you into everything. And yes, this means that everything needs to be created lightly: no monster sets for the productions — they need to come down, possibly after each performance (see my description of Sir Peter Hall’s Young Vic company, as well as Virginia Tech’s experiments with a system they called RALPH).

And like YouTube, the “quality” of these events will vary, and that’s OK. The artistic staff’s job is not to serve as gatekeepers, but rather to encourage community creativity and to provide as much variety as possible. The artists can lead through their own work,of course, providing things to aspire to. And they can (and should) help improve skills through teaching as well as facilitation. But if you buy a monthly membership, you are buying a chance to be a creator.

3. (Time = Money): But will there be an audience for all these events? After all, the long tail Chris Anderson described in a book by the same name means that there are some things that are only of interest to a few people. There are a lot of unwatched YouTube videos. Again, attendance is irrelevant, because what is being purchased are the options.

However, if your goal is to get as many people spending face-to-face time together as possible, if you want people to try out a variety of arts events, then there needs to be a little extra motivation. After all, we are all pretty content at home, and have lots of entertainment options there. Getting in the car and driving someplace requires a little push. That’s where (time = money) comes in.

Let’s say you buy a monthly subscription for $25, and you get a membership card that resembles a credit card with a swipe area. When you attend an event, your card gets swiped, and it is recorded in a database.Here’s the kicker: each time you attend an event or hang out in the coffee shop for an hour or more, a certain amount is subtracted from your next month’s fee. So if I come home from work and that night there is a choir concert, and I’m not totally certain that it really is something I want to do, but I’m sort of interested — the fact that it will subtract money from next month’s bill just might provide the little boost I need to get away from Kate and John and head over to the theatre. I might be willing to take risks I wouldn’t normally take if my time will not be wasted, but will be credited toward the future. So the result might be to create an atmosphere where risk is encouraged — or at least not discouraged. (P.S. I stole this idea from Chris Anderson’s Free: the Future of a Radical Price. He described a  Danish health club (I believe) that charged members only when they didn’t work out once a week. The motivation of members was completely changed.)

Oh, and if you provide an event, it is an automatic full reduction for the next month for everybody involved.

But what if everybody kept coming to see things? How would you pay for the next month’s rent and salaries? Good question. First, members will always have to pay a small monthly fee no matter how much they attend — membership should never be completely free. The gap between what they pay and full price, which is necessary to keep the operation going, is paid by sponsors. A sponsor might subsidize 25 members each month, and in exchange they get some sort of advertising option (and I don’t mean an ad in the program — how many of those ads do you actually look at?). A local government might sponsor some memberships in the interest of promoting community building. A foundation might do so out of an interest in the arts, or an individual might sponor one or two a month just out of the goodness of their heart. The difference is that they pay more the more people attend, so you are selling access to guaranteed eyes. In the traditional model, an advertiser buys space in the program for the same price no matter how many people actually attend; in this model, it is a sliding scale according to attendance.

I know this is a different way of thinking about the arts, and I’m certain that the model can be improved with the suggestions of others. But as a starting point, it accomplishes several things: 1) it gives full-time work to a core number of artists (the size would vary according to the number of memberships); 2) it encourages arts attendance by providing an extrinsic motivation in addition to the intrinsic motivation of a specific arts event; 3) it builds community by promoting face-to-face interaction; 4) it encourages local arts — arts by, for, and with the community; 5) it is sustainable.

Thanks to Chris Ashworth for the prompt.

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Knowing the Numbers

I’ve been reading John Wood’s fascinating book Leaving Microsoft to Change the World: An Entrepreneur’s Odyssey to Educate the World’s Children. It is a book about how Wood, an important member of the Microsoft management team, resigned to start Room to Read, a non-profit that builds schools and libraries for poor areas in Nepal, Vietnam, Cambodia, India, and other countries. I’d like to quote from the chapter “Building the ‘Microsoft of Nonprofits’,” in which Wood discusses the things he learned from Microsoft leader Steve Ballmer. He writes:

“A third aspect of Microsoft that I wanted to emulate was…being data-driven. The belief that everything should be measured, and that every business manager should study every bit of data available about his or her business, permeated Microsoft. It was not enough to know how your Windows NT sales were tracking against budget. You also had to know how they compared to last year, and the year before that, and be able to recite your YOY (year-on-year) growth rate off the top of your head. You had to know how your revenue compared to every one of your competitors’, and you were also expected to be able to benchmark yourself against other Microsoft subsidiaries. My team could have had a barn burner of a year, but when we then compared ourselves to Microsoft  Switzerland’s growth rate, we realized that we could do better still.

Many late nights were therefore spent studying the numbers.”

He then goes on to illustrate the point by describing a meeting between Ballmer, himself, and Paul the country manager for Thailand. Paul had mentioned that they had arranged to have all Windows NT certification exams translated into the Thai Language, which he said had dramatically improved the pass rate. The conversation went like this:

Steve: “So, what are the numbers? What percent of people passed the new Thai version of the test?”

Paul: Silence.

John: “It actually improved the pass rate to eighty percent.”

Steve: “So what? Is that good or bad? I don’t know, because I don’t know the worldwide pass rate, so I have no basis of comparison.”

John: “The worldwide pass rate is fifty-two percent. So in six months we’ve gone from one of the worst pass rates in the world to having one of the highest and being twenty-eight points above the worldwide average. The result is that we’ve gone from less than a hundred people in all of Thailand being certified on Windows NT to over a thousand.”

Steve smiled at me. He nodded to Paul. That was his signal to go on.”

Wood summarizes:

“Although Steve’s quizzes on the numbers could be tough, I knew that he did it for a reason. He wanted to test how much the managers cared about their business. If they were not passionate enough to have studied every facet of their operations, to such a degree that the numbers were seared into their brains, then these managers were not going to make it in Steve’s data- and performance-driven world. [italics mine]

Most arts people don’t know their numbers. They haven’t studied the research that has been prepared by agencies like the Wallace Foundation or the NEA, much less the reports prepared about the community in which they make a living. They don’t know the basics of population, demographics, geography, business climate, local governmental offices, statewide agencies, service organizations, religious organizations (see the book Engaging Art: The Next Great Transformation of America’s Cultural Life to find out why this is relevant), school arts instruction, and any number of other data that would help them make decisions. They operate mostly from intuition, faith in the value of what they are doing, and a vague sense of their own organization’s budget. As a result, when they stand in front of civic leaders, or local businessmen, or funders, or legislators, or congress and they make an argument about the social value of their work, it is mostly testaments of fervent belief peppered with a few vague anecdotes and a few “facts” from a couple poorly-designed studies of the arts. And the Steve Ballmer’s of the world listen to them as if they were listening to their own adorable children: aren’t they cute? and they want it so bad! Sure, we’ll raise your allowance a little.

It is time to get serious. We need to know the numbers backwards and forwards. We need to master the data. We need to be bilingual, speaking not only arts-speak, but also data-speak. If you “don’t do math,” as all-too-many arts majors whine as they face even the most basic math class, then get out of the way and let somebody else lead — you’re a drag on the field. If you find research reports “boring and tedious,” then step aside and let somebody lead who takes their field seriously. Until artists begin behaving like adults who run a business, they will be treated like children who have a hobby.

As a starting point, we need to pull this data together in one place. As part of the <100K Project, I intend to create a website with links to available information on the web. But I can’t do this on my own. I need volunteers — people willing to search for reports and provide basic summaries, people who will scour bibliographies to identify studies, people who will seek out books and magazine articles that pertain to rural arts. Once we have gathered this material, the next step is to create a curriculum that will utilize that material, and that must be learned backwards and forwards by those who wish to lead an arts organization for the <100K Project. Furthermore, a research report must be prepared before a single dollar is spent on a new project that will evaluate a community and gather the necessary data to assure the need and map out a path. In the business world, this is called “due diligence.”

Time to get serious about what we do.

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Business Model: Entrepreneurial

Actually, social entrepreneurship. According to John Elkington and Pamela Hartigan in The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World, “social entrepreneurs develop and operate new ventures that prioritize social returns on investment. For example, they aim to improve the quality of life for marginalized populations in terms of poverty, health, or education and attempt to achieve greater leverage than conventional philanthropy and nongovernmental organizations.” Thus, such an organization would have at least two bottom lines: financial, and social (and possibly environmental).

Since the 1960s, the arts have come to depend upon grants and fundraising to survive. I’d like to minimize that as much as possible.  I don’t think it will be eliminated entirely, but the goal is to do so as much as possible. When the business model is fully developed, I want it to be largely self-sustainable (financial bottom line). AND I want access to the arts to be as open and available as possible to the entire community (social bottom line). AND I want the professional staff to be paid a livable wage with health insurance and retirement benefits (ethical bottom line). Let’s just start with those goals on the table. Rather than create organizations that can’t sustain themselves and can’t take care of their employees, let’s make this a bedrock commitment: the business model needs to accomplish these goals.

This will be a hybrid organization, meaning it will mix grants and fundraising with funds raised through entrepreneurial activity. Some characteristics of hybrids (again, from The Power of Unreasonable People):

• “Services are delivered to populations that have been excluded or underserved by mainstream markets, but the notion of making (and reinvesting) a profit is not totally out of the questions.” Small and rural communities have been virtually ignored by the arts establishment out of a wrong-headed belief that such communities are unable to support arts organizations.
• “The enterprise is able to recover a portion of its costs through the sale of goods and services, in the process often identifying new markets.” Traditionally, this is true of mainstream nonprofit theatres as well: the sale of tickets raises revenue. I have a different model in mind that changes the relationship from product to experience.
• “To sustain and address the unmet needs of poor or otherwise marginalized clients, the entrepreneur mobilizes funds from public, private, and/or philanthropic organizations in the form of grants, loans, or, in rare cases, quasi-equity investments.” Again, this is what nonprofit theatres do now — the question is the percentage of the budget this represents. And the quasi-equity investment route is worth investigating.

There will be a central organization that will handle as many of the details of operation as possible for all the local orgainzations (e.g., national grantwriting, marketing, bookkeeping, training, insurance and benefits, etc.).

The individual arts organizations themselves will be wholly-owned subsidiaries. This is necessary because otherwise the central organization would be be seen as a regranting organization by foundations, and thus be seriously limited in its ability to raise money through granstmanship. In other words, it would appear that the central organization existed only to pass along money to the individual arts organizations — i.e., regranting. Also, by doing this the artistic staff can be employees and partake of group insurance policies that encompass all the staff of all of the arts organizations operated by the parent company.

Obviously, this requires that we get to scale. While we will start out small with a few trial organizations, the goal is to expand the numbers as quickly as possible — I’m 51, I don’t have time to waste!

Ambitious? Absolutely. But I don’t think there is much value to thinking little if we want to change the current artistic paradigm. And ultimately, that is what we are trying to do — provide an alternative career path to the current NYC-centric model that is not serving our artists nor our communities.

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