Clichés Abound in WSJ’s Analysis of the Met Opera

And I have officially had it.

Yesterday Terry Teachout published a story in the Wall Street Journal that casts a long glance at the problems the Metropolitan Opera is currently facing.  And I’m fairly confident my scream of frustration could be heard all the way in Manhattan.

I don’t want to bash Mr. Teachout, whom I’ve never met.  I don’t wish to disparage his writing, his obvious experience, or even knowledge of the arts.  I should also point out that we’re in full agreement that Mr. Gelb has run out of ideas about how to run the Met, either artistically or organizationally.

But I must take issue with this article.  Unfortunately, it tosses around every wrong-headed cliché about the arts and arts management that I’ve been trying to put to rest since my blog’s inception, including Baumol’s cost disease, an outdated report from the NEA, and the use of paid capacity to measure financial success.

How is it that demonstratably false ideas can take such a powerful hold on our collective consciousness?

While I can’t take up this larger question, I can certainly rebuff the points of this specific article.

* * *

“To keep its doors open, the Met must fill those extra seats, and it’s no longer doing so.”

Why?

Is its business plan that it must sell 100% of its seats? Is it a specific metric in the strategic financial plan that the Met must sell 50% more seats than the Vienna State Opera? Is there a contract provision that it must fill those remaining seats or the Met loses its lease?  Is the importance to simply fill a seat at whatever price point, or to bring in the necessary ticket revenue?

A better question: is it not possible to do a projection of ticket revenue, based on a projection of attendance, and base the budget on that figure?  That is a clear, specific goal with measurable metrics… unlike “fill the house!”

 

“Two decades ago, the company earned 90% of its potential box-office revenue. That figure has been declining steadily in recent years and dropped to 66% last season, an all-time low that’s been the talk of the opera world ever since it was disclosed in May.”

This hits at an issue I’ve warned against before—the danger of measuring success on the idea of paid capacity.  To explain, there are three separate criteria for measuring ticketing success. They are:

• Ticket revenue. The total amount of money that is brought in by selling tickets, over the entire year. This number is directly tied to an organization’s budget. It assumes over the course of the year some shows will do better than others, but sets a final benchmark for where the organization hopes to land at the end of the year. If the company doesn’t hit its ticket revenue goal, there are serious, direct budgetary consequences.

• Number of tickets sold. This simply reflects the number of tickets an organization sells over the course of the year. This number is usually tied to marketing goals, but it doesn’t have to tie directly to the organizational budget. In part this is because different tickets cost different amounts. And, it doesn’t necessarily indicate who actually attends the performance—there is always a number of people who buy tickets but ultimately don’t use them, as a result of inclement weather, last minute emergencies, or such. Or, a local business could buy a block of tickets to give to its employees, only to find the employees aren’t interested or available. Again, this is a useful metric, but hard to tie directly back to the budget.

• Percent capacity sold. Percent capacity refers to how many people are actually in the theater as a percentage of the total seating capacity. This is the number that really makes a difference to the performers, who love to perform to a full house. But just because the house is full, or at near-capacity, that doesn’t mean the show is doing well. If a show is struggling, administrators may choose to “paper the house” or give away tickets to improve the optics of the situation. Or, it could offer a wave of last minute discounts to lure people in for a fraction of the listed ticket price. There are other issues that can eat into inventory, such as stage extensions or closed-off sections that actually reduce the number of seats available. This can be a useful metric, but as a result of the qualifications I mentioned it is usually the least important metric, and has the least impact on a company’s budget.

The key to remember is that all of these things are different and don’t directly relate to each other… or necessarily to the overall budget. As a result, your final analysis of how successful you are will look very different based on which criteria you choose.

But Mr. Teachout’s argument seems to focus on paid capacity sold—a particularly problematic choice. Again, capacity in and of itself doesn’t tell the whole story. Were those seats occupied because the opera company papered the house? Or were the ticket prices relatively cheaper 10 or 20 years ago, leading to more tickets being sold but far less overall revenue? What were the total number of seats sold, and what was the average price per ticket? Was the price per ticket appropriate for the performance, leading to acceptable amounts of revenue? After all, it is possible, particularly when an expensive superstar performer is headlining a production, that a company could sell every ticket in the house and still lose money.

 

“As a result, Peter Gelb, the Met’s general manager, has been forced to raise ticket prices to an average of $158.50 per head. On Broadway, the average price is $103.86.”

I think this is pushing the cause-and-effect nature of what’s going on.  Mr. Gelb didn’t have to do this, he chose to do this as a specific strategy to hit financial targets—to wring more ticket revenue from fewer attendees.  It’s somewhat controversial; during the recent round of contentious labor negotiations, the Met musicians pointed out that overall ticket revenue increased as ticket prices fell.  More people were willing to buy cheaper tickets.  The struggle to find the perfect price point that can maximize both attendance and revenue simultaneously is one all performing arts groups face.

 

“Mr. Gelb argued in 2014 that ‘the question is not whether I think I’m doing a good job or not in trying to keep the [Metropolitan Opera] alive. It’s whether I’m doing a good job or not in the face of a cultural and social rejection of opera as an art form.’ He has a point: The National Endowment for the Arts reports that the percentage of U.S. adults who attend at least one operatic performance each year declined to 2.1% in 2012 from 3.2% in 2002.”

I propose that that NEA study be put to rest permanently.

First of all, I point out that the study in question ended in 2012… four years ago.  Is there any other sector of the economy that would base its current outlook or future projections on four-year-old data? Or on market trends from four years ago?

But more to the point. As I’ve mentioned earlier, I can agree that the NEA report does indeed show a decline in attendance between 2002 and 2012 (here’s the key section of the report: NEA Report Chapter 1 – Visual and Performing Arts Attendance). But a deeper dive into the data suggests that the story is more complicated.

For one, this chosen time period ends up distorting the data—the decade between 2002 and 2012 is tailor-made to show a devastating decline in arts attendance.  In 2003, the country entered into a huge economic decline brought on by the dot-com bust.  I was working in the Development department of the Minnesota Orchestra at that time, and remember it vividly.  What followed was several years of reduced individual contributions, a sharp decline in corporate partnerships… and a big dip in ticket sales.  The Minnesota Orchestra was fortunate that Osmo Vänskä took over as Music Director in 2003, and curious ticket buyers helped boost sales, but the overall industry trend was fairly weak. There was a gradual recovery thereafter, but things came crashing down with the Great Recession in 2008.  The economic recovery was underway by 2012, which in fact helped President Obama win reelection, but it only really took hold after that, and many people are still feeling shell-shocked even today.

Between these two economic shocks, it’s absolutely no surprise that ticket sales are lower between 2002 and 2012. I made essentially the same point responding to an article by Greg Sandow, who based his analysis on numbers from this same time period.

But I also think there are some caveats in the NEA report that further muddle the idea of a general decline.

Right on page 2, as part of the key findings, the report states: “Older adults are the only demographic subgroup to show an increase in performing arts attendance over a decade ago. Their rates of attendance at classical music, opera, musicals, and non-musicals were significantly higher in 2012 than in 2002.”

So clearly, although the report notes an overall decline in participation, a key demographic group—essentially the Baby Boomers—are turning in greater numbers.  This is huge.  Boomers, after all, are the natural audience for the Met, with levels of disposable income that Millennials and Gen Xers do not yet match.  Yes of course arts organizations need to attract younger people to expand the pipeline of donors and ticket buyers; and indeed, many opera companies are working hard to bring them on board (this story from Opera Philadelphia is particularly interesting in this regard). But in the meantime, the Boomers are at the peak of their economic capacity, and their high rate of attendance is welcome, stabilizing news.

There is also the important point of clarification about participation rates that go beyond just the raw number of audience members attending classical music performances.  Andrew Doe made a powerful point on the blog “Proper Discord” about this:

In the UK, the percentage of adults attending concerts has increased over the last decade. In the US, the percentage has dropped because of population growth, but the actual audience size has held steady for at least 30 years.

Exactly.  This is reinforced by the NEA report, particularly in Figure 1-8: in 2002, 11.6% of U.S. adults attended classical music, versus 8.8% in 2012. Opera has seen more of a decline, from 3.2% down to 2.1%. This looks alarming at first glance, but population matters. In 2002, the United States’ population was approximately 282 million, and in 2012 it was 315 million.   This means in real terms, the “decline” in audience members attending an opera production is from 6,880,000 to 6,615,000 … which isn’t too bad, considering the two major recessions the country went through.

But there are even more interesting nuggets to uncover.  As Figure 1-9 points out, total attendance figures declined from 13.3 million to 10.0 million between 2002 and 2012 (most opera goers attend more than one production per year).  Yes, that’s a drop-off, but it’s hardly catastrophic.  Moreover, it doesn’t account for the Met’s much sharper decline over the same time period.

This would suggest that there’s something deeper going on at the Met than a general, nation-wide decline in ticket sales.

 

“He made no serious attempt to cut the company’s labor costs until the 10-alarm budget crisis of 2014 forced him to face the fiscal music and confront the unions, which he did with only limited success.”

This is problematic, as labor costs weren’t the root of of the Met’s fiscal problems.  As I covered extensively over the course of the recent contract negotiations, the labor costs were so high because of Mr. Gelb’s managerial decisions, which among other things racked up large overtime costs by scheduling long, chorus-heavy productions back-to-back and requiring labor-intensive sets/costumes for the HD broadcasts.

Mr. Gelb’s bloated managerial budget was a far greater problem. This became evident last fall when the Met released its numbers for FY2015.  As a bit of context, a story in the New York Times, the terms of the final settlement are listed as follows:

“…the Met’s management agreed not only to match the value of the [7%] labor cuts on the administrative side, but also to cut $11.25 million worth of other expenses – which may include cutting costs, scheduling more carefully, or reducing rehearsals – in each of the four years of the contract.”

So this is the equation for FY15: $11.25M (management expenses) + ?(admin. staff cuts) + ?(7% labor cuts) = $18M in savings.

Yes, the workers played a part, but the labor cuts are less than $6.75M… meaning that the majority of cost savings (62.5%) came from the management’s side.  This is not surprising, in that many of us pointed out that most of the Met’s financial problems were caused by wasteful spending on the part of the management rather than the union workers.

 

“For if you know anything at all about economics, you’ve probably already got a pretty good idea of what’s happening there. It sounds like a raging case of cost disease—one that could be fatal.”

Oh my God… I have no patience for this.  Mr. Teachout is referring the famous economic principle referred to as “Baumol’s curse” or “Baumol’s cost disease.” The name comes from economist William Baumol who first postulated it several decades ago… and it been used as a cudgel against performing arts groups ever since to show how they are fundamentally “unsustainable.”

I don’t buy it—and lots and lots of people have pointed out the myriad problems with this argument.

For one, the whole notion is that since it’s impossible to introduce efficiencies (such as reducing the size of the workforce or otherwise streamlining production), operas and classical music ensembles become pricier and pricier over time, to the point that they are no longer economically sustainable.  But there is a well-established counter-example:  the New York Yankees. The number of baseball players has also remained fixed for more than a century, and the players’ pay has likewise steadily increased over time… does that mean that baseball teams are inherently unprofitable? Of course not.  Costs and revenues are far more complex than that—rising personnel costs have been balanced out by a number of additional revenue streams.

It’s not just me saying this; William Baumol himself points out that while there haven’t been productivity gains in the size of an orchestra’s personnel, there have been gains elsewhere… in all the various activities that surround the performance. In his 2012 book, The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t, he writes:

The rise in productivity that makes it possible to create commodities with less and less labor, thereby lowering what consumers pay, has occurred in almost every industry. Even services that seem most impervious to productivity growth have participated indirectly in this process. I frequent use the example of a Mozart string quartet written for a half-hour performance as an example of a service that resists reduction of its labor content. But even an activity like live musical performance has benefited from considerable savings in time expended. In 1790, when Mozart traveled from Vienna to give a performance in Frankfort am Main, the trip required six days of extreme discomfort. (At the time, however, that was considered swift – Mozart wrote that he was surprised at the speed of the journey.) Today, the same trip takes only six hours: 1.5 hours for the airplane flight and 4.5 hours for transit to and from the airport and other preliminaries. Surely this is a marked reduction in the time required for such a musical performance…..

I could add to that the notion that there have been efficiencies gained in the number of rehearsal hours required for pieces, the marketing needed to attract audiences, and a host of other areas.  And let us not forget that many operas are technically revivals, so that the initial investments into the creation of sets, lighting designs, costumes and such have already been made.

But more important, this model ignores the fact that opera companies are nearly always 501 (c) (3) not-for-profits, as categorized by the IRS. This means that they are allowed to fundraise to support operations… and performances. This means they follow a completely different economic model than the one used to manufacture iPhones or flat screen TVs.

Can we please stop unthinkingly toss out Baumol’s cost disease as “proof” that classical music is financially unsustainable?

 

“Moreover—and this is the heart of the matter—the Metropolitan Opera House is so gargantuan that the company has no choice but to “build” the biggest possible “model” of opera. For in addition to having 3,800 seats, the Met also has an 80-foot-deep stage with a proscenium opening that measures 54 feet on each side. This makes it all but impossible to successfully mount smaller-scale low-to-medium-budget shows there: It’s elephants or nothing.”

I guess I have a higher regard for human ingenuity.  There are ways to be creative, and to creatively problem-solve that keep the artistry intact.  They are an extreme example, but the minimalist “New Bayreuth” productions of the 1950s were critical and commercial successes… and they didn’t require the construction of overpriced moving monoliths to make their musical points.

* * *

Well, this has already droned on far too long.  But let me recap: the arts world has to let go of these popular, though incorrect clichés.  First, paid capacity is a terrible way to gauge success—it does not provide real numbers that are actually tied to the budget.  That four-year old study from the NEA needs to be put to rest, and we need a more updated, nuanced study of arts attendance in this country.  And “Baumol’s cost disease” is an idea that has been vastly overplayed when talking about the arts… to the degree that Baumol himself is pushing back on how it’s being used.

Yes, the arts face many challenges.  Yes, the Met faces many challenges.  But to find real and lasting solutions, we need to have a deeper dive into what these issues.

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