The book, which explains why so many American symphonies are now on life support, is a bittersweet read. Robert Flanagan's thorough scholarship and clear writing (as one would expect from a Stanford University business professor) give his sobering conclusions great credibility. The book is impeccably organized and, at around 200 pages, surprisingly concise given how much information he packs in. But the mood is definitely more Sibelius than Bradenburg, particularly for the dwindling masses who get pleasure from live classical music. There are no magical solutions here, but at least we can now understand the exact nature of the ship's mechanical problems as we watch it sink.
An Unfinished Symphony
Stanford scholar Robert Flanagan digs into the financial troubles of American orchestras
"The Perilous Life of Symphony Orchestras," by Robert J. Flanagan, Yale University Press, 240 pp., $50
When the Philadelphia Orchestra announced in April
2011 its plan to file for Chapter 11 bankruptcy, the news thundered
through the arts community in the City of Brotherly Love like a gong in
the middle of a Chopin sonata.
Since its founding in 1900, the beloved
institution has risen to prominence as one of the nation's Big Five,
along with the New York, Boston, Chicago and Cleveland orchestras. But
with expenses hovering far above revenues and labor concessions out of
reach, the orchestra's trustees decided that bankruptcy was the only way
to close a gaping deficit. It became the largest orchestra in the
nation's history to file for Chapter 11.
To those who have been tracking trends in the
symphonic scene, the move probably didn't seem so jarring. Orchestras
have never been cash cows. Even in the best of times, ticket sales have
consistently failed to cover performance costs, forcing musicians to
rely on patrons, endowments and government grants for sustenance. These
revenue sources become particularly critical during economic downturns,
just as they become scarcer.
Still, bankruptcies have been limited largely to
smaller organizations: the Louisville Orchestra in 2011, the Honolulu
Orchestra in 2009 and the Florida Philharmonic Orchestra in 2003.
Philadelphia's was remarkable because of the prominence of the
institution.
The financial crisis for orchestras has many
sources, including unsustainable labor costs, a diminishing audience, a
sluggish economy and dwindling government support.
So what's an orchestra to do? That's the question at the heart of "The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges," a new book by Stanford professor Robert Flanagan. By collecting and analyzing data from dozens of American orchestras large and small, Flanagan offers a sober-minded and, as the title implies, sobering look at today's symphony scene.
With an accountant's precision, he tracks the
orchestras' historic trends, pores through their financial books, and
carefully tracks current and historic levels of private contributions,
endowments, musician salaries and government support. He compares the
business models of America's orchestras to their counterparts abroad,
analyzes the labor trends in the symphony scene and segregates the
short-term impacts of economic recessions from the longer-term effect of
the "cost disease" inherent in their business models. What emerges is a
portrait of an industry filled with interrelated problems and few good
solutions.
Not all of these problems are unique to
orchestras. The most basic pitfall — expenditures that rise faster than
revenues — is familiar to the auto industry, to name one of many
possible examples. But orchestras have one distinct disadvantage. A
carmaker may lay off workers or seek cheaper parts abroad; an orchestra
can't outsource its woodwind section to China during a performance of
Beethoven's "Ode to Joy." A carmaker can adopt technology to boost
efficiency and improve the company's productivity — the only sure-fire
way to keep up with rising labor costs. But a concerto will take just as
long to play during the good times and the bad.
This "cost disease" has become more irksome over time, as labor unions have begun to flex their collective-bargaining muscles, prompting labor costs to climb. Becoming a symphony musician is an arduous, highly competitive ordeal, with the supply of trained musicians far exceeding the demand. But, as Flanagan shows, those who make it tend to do well. In fact, as his analysis indicates, over the past two decades musicians' compensation has been climbing at a faster rate than that of other professions. He found that since 1987, the salary increases for orchestra musicians in his sample of American symphonies averaged 4.2 percent per year, compared to the 3.6 percent in salary increases received by other union and nonunion employees in the United States, on average.
"Pay increases for orchestra musicians also
exceeded the pay gains of university teachers and health workers, who
also work in sectors that have low productivity gains but face much
stronger demand," Flanagan writes. "In short, the pay of orchestra
musicians not only kept up with pay increases elsewhere in the economy,
as suggested by the cost disease argument; their pay also increased more
rapidly than the pay of most other groups of workers in the United
States in the late 20th and early 21st Century."
To make matters worse, Flanagan found that the
wage increases musicians receive weren't correlated with the orchestra's
financial performance. Instead, they were generally linked to how much
the orchestra has received in private donations — hardly a formula for
long-term stability.
Unsustainable labor costs aren't the only problem.
Audiences have been decreasing steadily but consistently, despite
growth in the general population. According to a National Endowment for
the Arts survey that Flanagan cites, 13 percent of polled adults
reported in 1982 that they had attended at least one classical-music
concert in the past year. By 2008, that number dropped to 9.3 percent.
Performance revenues made up 48 percent of orchestras' total revenues in
1982, then fell to 37 percent in 2005.
Communities such as Philadelphia and Detroit,
which have seen significant population declines, have been hit
particularly hard. Interestingly enough, Flanagan found that a
community's population plays a much greater role in orchestra attendance
than factors such as per capita income or unemployment. Unfortunately
for orchestras, that is one factor that they have absolutely no control
over.
Flanagan's book offers plenty of advice for easing
the financial pain through prudent financial management. A board of
directors should diversify its orchestra's investment portfolios and
institute conflict-of-interest policies to promote prudence (shockingly,
only 60 percent currently have such policies). An orchestra manager
should create more differentiation in ticket prices (that is, charge
more for the most preferred seats and less for the least preferred ones)
to get the most per ticket. Musicians should be aware of the
orchestra's financial picture when making compensation demands during
negotiations.
But he also emphasizes that there is no "silver
bullet" and cautions of "the futility of a single solution." Raising
performance revenues, for example, may narrow the gap but it would take
much more to eliminate it. "Even filling the concert hall — an ambitious
goal for an industry usually selling 70 percent of its capacity — would
not eliminate deficits at most orchestras," Flanagan writes.
The same can be said about nonperformance income
such as donations and government subsidies. Flanagan concludes that
nonperformance income growth alone is "unlikely to cover future
structural budget deficits, unless supplemented with actions to narrow
the deficit itself by both raising the growth of performance revenues
and slowing the growth of expenses."
Flanagan's book is unlikely to cheer up a fan of
classical music. It offers a rare and unsparing look inside a troubled
industry where backstage problems often get obscured by front-stage
polish. Some sections may sound a bit wonky for a general reader
unconcerned about the methodologies trustees use in investing endowment
proceeds, but anyone interested in getting the story behind the recent
rash of orchestra bankruptcies will find plenty to like here.
But as "perilous" as the lives of symphony
orchestras may be, Philadelphia's experience also offers a glimmer of
hope. On July 30, after more than 15 months of negotiations, the
orchestra officially came out of bankruptcy with a plan that includes
labor concessions; reduced rent from the Kimmel Center, the concert hall
where the orchestra performs; and greater oversight over investments by
the philanthropy group Annenberg Foundation.
Some issues remain unresolved. There are contested
claims from creditors and concerns about the departure of some
musicians unhappy about the new labor conditions. But orchestra
administrators were happy to announce that the deal "addressed more than
$100 million in claims, debts, and liabilities with a settlement of
$5.49 million" and that the music is resuming this month, when the
orchestra launches its new season.
For all the gloom and doom, a requiem for American symphony orchestras would be premature.
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