Chicken Little, PhD

Every so often some economist discovers that orchestras can’t exist. The latest is Robert J. Flanagan of the Stanford Graduate School of Business:

Most
major symphony orchestras in the United States regularly spend more
money than they take in, and some dip so far into endowments that they
risk their long-term survival, according to a new report commissioned
by the Andrew W. Mellon Foundation.

“The industry should realize that there is an inherent long-term
economic challenge,” said Robert J. Flanagan, the Konosuke Matsushita
Professor of International Labor Economics and Policy Analysis at the
Stanford Graduate School of Business and the study’s author. “Nowadays,
even if symphonies filled their halls for every concert, the vast
majority would still not be able to cover their performance expenses.”

Although recessions exacerbate their woes, Flanagan said many
symphonies have financial troubles even in good times. Attendance has
been declining for most types of concerts, and orchestras may not be
adequately scrutinizing the returns to their expenditures on marketing
and fundraising, said Flanagan, an amateur musician since childhood who
plays clarinet and saxophone. He said larger symphonies, for example,
appear to spend nearly twice as much on fundraising as they realize
through donations.

Some orchestra managers told Flanagan they disagreed with that
conclusion, but other symphony officials he interviewed were hardly
shocked.

“Some of them say it doesn’t surprise them because many symphonies
have a bias towards revenue growth strategies and a bias against
cost-cutting strategies,” Flanagan said, adding that nonprofit board
members often shy away from conflict. “It’s not clear that they’re
willing to be as tough minded about costs as directors in the private
sector.”

That, by the way, is code for “boards give away the store at negotiations with musicians.” He expands on the subject:

In
many U.S. industries, companies have been able to increase salaries
gradually because technology has made workers more productive. Flanagan
said symphonies have much slower productivity gains—technology isn’t
about to turn a string quartet into a string duo—but musicians still
expect bigger paychecks. The salaries of symphony musicians increased
more rapidly than the pay of most other groups of workers in the late
20th century. Higher ticket prices did not fully compensate for cost
increases, but those higher ticket prices reduced attendance at a
typical performance.

Any stumbles in the economy only exacerbate the problem. A slumping
economy reduces attendance as well as philanthropic support, but has
little moderating effect on performance expenses.

Flanagan said the study’s scope did not try to identify similarities among the 17 symphonies that usually did have surpluses.

Which actually might have taught us something.

What’s interesting about this report (and why I’ve categorized it
under “clusterfucks”) is why it exists at all. To make a long story
short, it exists because, in 2005, the Andrew W. Mellon Foundation
commissioned it. This commission stemmed from the work of the so-called
“Elephant Task Force” within Mellons’s Orchestra Forum. The elephants
asked Flanagan to do a report on orchestra finances, with a specific
emphasis on the extent to which orchestra finances were influenced by
cyclical factors within the economy.

Flanagan was given data by the League of American Orchestras, as
well as by Dance/USA and Opera American, on institutional finances over
time and went off to crunch numbers. He came back with a draft that was
first unveiled in a semi-public setting at a meeting in July 2007, to
which the AFM and the player conferences were invited. They were not
happy. Nor were some others at the meeting. So Flanagan was asked to revise
his report.

He did. More meetings, more unhappiness. Even more revisions ensued,
which were to be reviewed at a meeting this month. There was apparently
an understanding amongst those close to the process that the report
would not be released for a while, and would be accompanied by a
“framing document” which would attempt to put the report in context
(and, frankly, to make the changes that Flanagan was unwilling to make).

Unfortunately, Flanagan had other ideas. He had already presented an overview of his report in October 2007 at a conference
at UC Berkeley (an overview with a stark anti-musician bias). Perhaps
he got impatient with all the revisions, but, for whatever reason, the
report in its entirety (minus any “framing document,” of course) was
placed on the Stanford website yesterday and a press release sent around the world on Business Wire.

There has already been some press about the report. Susan Elliot of Musical America summarized it as follows:

A
Stanford University study has found that most U.S. orchestras spend
more money than they take in and that those who dig into their
endowments are risking their future viability.

The author canvassed 63 orchestras, including the 50 majors.
Findings: although concert attendance is in decline, orchestras have
changed neither their marketing nor their fund-raising techniques. For
every $1 spent on the latter, the return is 51 cents.

Most board members “shy away from conflict” and so are not as tough
on the bottom line as they would be in their day jobs. Also, while
technology has enabled smaller employment rolls in the rest of the
world, “The salaries of symphony musicians increased more rapidly than
the pay of most other groups of workers in the late 20th century.”

Those greedy musicians. David Stabler of the Oregonian, on the other hand, didn’t get the memo:

His
biz background shows. For example, he suggests that orchestra managers
are not as "willing to be as tough minded about costs as directors in
the private sector."

You don’t say.

Yes, orchestras need to be business minded, but no, they do not
operate like private companies. For one, they have high, fixed costs
like hall rent and salaries. You can’t just cut jobs.

"All those violas doing the same job. Too much duplication!" I can
just see it. In lean times, only Vivaldi and string music. In fat
times, Strauss and Mahler.

I predict an article in the Columbus Dispatch
tomorrow on how Flanagan vindicates the Columbus Symphony’s downsizing
plan. There’s a reason that the musicians’ definition of “nanosecond”
is “the length of time between when any bad news about any orchestra is
printed and when it’s brought to the negotiating table by management.”

Update: Drew McManus didn’t get the memo either:

The only positive aspect I’ve noticed in what I’ve read is the report’s
commanding grasp of the obvious. In fact, if I didn’t know better I’d
swear it was produced by the U.S. government (empty seats are bad,
m’kay?)

Further update: Henry Fogel, president of the League of American Orchestras, also didn’t get the memo:

In
the 45 years that I have been professionally associated with symphony
orchestras in America, I have lost count of the number of times an
alarm has been sounded about the state of crisis in which they exist,
sometimes with warnings of the imminent demise of the industry. So far,
at least, those alarms have proven to be false ones – and for the most
part, symphony orchestras are more vibrant, healthy, and vital now than
they have ever been. That does not mean that they don’t have
challenges, much like the entire non-profit field, but it does mean
that they have learned how to address them.

The latest alarm bell is a study produced by Prof. Robert J.
Flanagan of the Stanford Graduate School of Business. The report was
commissioned by The Andrew W. Mellon Foundation, and it studied
statistics from the largest American orchestras between 1987 and 2003.
Data was provided to Prof. Flanagan by the League of American
Orchestras. There is no question that there is much very valuable
information in the report. It adds considerably to the body of
knowledge about the field of orchestras, and it can and will be an
extremely useful tool for advancing our understanding of our business
model, stimulating debate, and ultimately helping the field to develop
and implement adaptive strategies for the future. Most importantly, it
provides a platform for serious future research.

Prof. Flanagan’s study provides an opportunity for orchestras to
continue to discuss, as they have been doing, the value of
understanding the dynamic environment in which they exist, and adapting
to it. It confirms what we already know: that orchestras do not operate
in a vacuum but are intimately tied to the health of our communities.
We at the League of American Orchestras are continuing to intensify our
efforts to gather best practices and disseminate them throughout the
orchestra field. The League is, in fact, already in the process of
significantly increasing its efforts to carry out some of the research
that the report recommends.

The final two-to-three years of Prof. Flanagan’s study (2001-2003)
coincided with a severe economic downturn, and the psychological damage
done to our country by the events of September 11, 2001. No one will
dispute that a majority of our non-profit organizations in America
suffered economic troubles in that time. It is unfortunate that the
post 2004-05 period did not comprise the final period of the study,
because the trends were far better in those years. Over the past few
years not only have fundraising and overall fiscal performance
improved, but ticket sales have as well. After a few years of flat or
declining ticket sales during the early 2000s, there was an 18%
increase in ticket sale income to orchestra concerts between the
2004-05 season and 2005-06. And, equally encouraging, paid attendance
at classical concerts for American orchestras in 2005-06 was 11% up
from the previous year, again after a few years of flat or declining
attendance. Attendance for all concerts given by orchestras – including
family, education, pops, chamber, summer, and youth concerts – was also
up 11%.

Prof. Flanagan points to the fact that musicians’ wage increases
outpaced inflation during the period of his study. I think it is
important to note that the 3.8% average annual increase in the salary
of the orchestras he studied is 0.1% over the rate of increase for
liberal arts college faculty during that same period, 0.2% under the
rate of increase for employees of hospitals, and precisely the same
rate as other health-service industry employees (these figures are from
the U. S. Bureau of Labor Statistics). Thus, musicians’ salaries track
extremely well with those of other employees in the non-profit sector.
It is also very important to note that Prof. Flanagan excluded
musicians in hundreds of orchestras with budgets smaller than his
sample (which consisted of the 50 largest orchestras).

He da man.