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Feb 042012
 

This is a book for anyone interested not just in the economic state of the symphony orchestra but in the overall financial health of the arts in the United States.

The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges by Robert J. Flanagan. Yale University Press, 240 pages, $50.

By Jonathan Blumhofer.

The classical music world is a pretty precarious place these days. In Boston this past January 1st, the city’s adventurous Opera Boston suddenly shut down, citing massive debt. Last year in New York, the City Opera, short on funds and apparently heading into creative doldrums, embarked upon a new, homeless phase, with a drastically reduced season and shrunken core of administrators and musicians.

Opera hasn’t been the only genre to suffer: in 2010 and 2011, the venerable Philadelphia Orchestra filed for bankruptcy—a first among major ensembles in this country—and the Detroit Symphony experienced a lengthy work stoppage due to financial issues. And then there are the more vulnerable, small-market performing arts organizations like the Honolulu Symphony and the Columbus (OH) Symphony Orchestra, both of which have shut down since 2008.

So, why is the financial health of so many American classical music institutions unstable? Robert J. Flanagan, professor emeritus at the Stanford School of Business, takes on this question, particularly as it pertains to the rarified world of the symphony orchestra, in his aptly titled book, The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges. The answer, as Mr. Flanagan puts it in his closing chapter, is complex: there is no “silver bullet” to solve the problem. However, he does a fine job in this relatively short tome (186 pages, not counting appendixes and index) of explaining how the problem developed in the first place, and he sets out some good guidelines for those looking to understand and grapple with its ramifications.

If his prose is a bit dry, the urgency with which Mr. Flanagan writes is not: this is a book for anyone interested not just in the economic state of the symphony orchestra but in the overall financial health of the arts in the United States; it is particularly appropriate for those inclined to action in this field.

Early on, Mr. Flanagan describes the root of the problem as an economic ailment he diagnoses as “cost disease.” Simply put, there are two types of industries, high growth “goods producing” (such as manufacturing and mining industries) and low growth “service sector” (which includes the performing arts). As Mr. Flanagan describes it,

If both pay and output per employee in the goods-producing sector increase at 3 percent each year, labor costs per unit remain constant. Higher pay is exactly offset by the additional units produced, and there is no labor cost pressure on prices. But if pay increases at 3 percent per year in an industry with no productivity growth, labor costs per unit of output will increase at 3 percent per year, creating pressure to cover the increased costs with higher prices.

Thus, in the performing arts, where the performance (“output”) and the performer (“labor input”) are one and the same, low productivity growth is inherent to the nature of the industry. To cover annual cost increases, organizations might raise ticket prices—which could have the adverse effect of turning away potential audiences—or they may turn to other means (such as fundraising) to cover their deficits. The subsequent need for nonperformance income, though, incurs costs of its own, and this often compounds an institution’s financial problems rather than alleviates them.

Following a discussion on the difference between cost disease and business cycles (in short, the latter are temporary, while the former represents a structural issue within an organization’s budget), Mr. Flanagan turns to orchestral finances, breaking down expenses and, to provide some context, comparing the situation of the average American orchestra to that of its counterpart in Australia. As of 2005, he writes, the League of American Orchestras determined that, on average, only 37% of a given American orchestra’s income is derived from performance revenue. The other 63% comes from a combination of private support, investments, and government aid.

Author Robert J. Flanagan

Dismal as that latter figure looks, it appears positively robust when compared with the state of affairs in Australian orchestras: there only 28% of income is gained from performance revenue. Interestingly, though “artistic” costs account for nearly half of American orchestras expenses, the figure rises to nearly three-quarters of the expenses encountered by Australian ensembles. For both, the other costs are a combination of production, marketing, administrative, fundraising, and “other” activities.

It follows, then, that since audiences support orchestras, the most logical way for orchestras to grow income is to develop new audiences. The problem here, as Mr. Flanagan demonstrates, is the fact that total classical music concert attendance diminished dramatically over the closing decades of the 20th century and into the first decade of the 21st. The reasons for audience decline are several, including outside economic influences and changing musical tastes, but the immediate result has been a decline in the overall financial health of performing arts institutions nationwide.

Interestingly, over these same years orchestras have generally increased both the number of concerts they performed per season as well as the types of concerts they presented (pops concerts, family concerts, etc.). Not surprisingly, the cost of mounting additional concerts is, as Mr. Flanagan writes, “far from zero,” which, when combined with smaller audiences, often translates into increased performance deficits.

Additionally, in some cities the competition between different performing arts groups for the attention (and financial support) of a limited audience can further effect the ability of an ensemble to thrive; one gets the feeling that such conditions might have in some way played into the recent demise of Opera Boston. Perhaps the most sobering statement, though, is the one with which Mr. Flanagan closes this chapter: even if orchestras can fill every seat in the hall, he writes, most still won’t be able to cover their performance deficits. Thus, while building audiences is an integral part to solving the financial crisis, it is not the only one; other solutions must be considered in combination with it.

In the next four chapters, Mr. Flanagan breaks down orchestra budgets, turning in an in-depth study of, respectively, artistic and non-artistic costs, government support of orchestras, private support of orchestras, and, finally, orchestra endowments and their governance. In his discussion of the first subject, Mr. Flanagan includes a thorough discussion of musicians unions and the collective bargaining process with orchestra management that determines the pay and working environment of orchestra musicians.

On the surface, orchestral musicians are very highly paid for a workweek that, on average, requires relatively little from them (about 20 hours of “services”—rehearsals and performances): in 2003 the average weekly earnings of orchestral musicians were nearly $1,600. However, as Mr. Flanagan rightly points out, this calculation does not take into account the fact that these musicians are, by and large, the best in the world at what they do, and that their non-service time is largely occupied with practicing their instrument to maintain the high level of their abilities (which, itself, might require well over 40 hours a week).

Still, the fact remains that, since the 1980s, the wages of orchestral musicians has increased at a faster pace than workers in other industries. When, in times of economic distress such as we have seen in the last decade, other industries might cut expenses by furloughing employees or curtailing their hours, orchestras don’t have that luxury: their collective bargaining agreements preclude such steps. Indeed, Mr. Flanagan argues that many of the orchestral bankruptcies of the last 20 years demonstrate the folly of “a wage policy that ignores measures of an organization’s economic strength,” instead relying on private donations to cover musicians’ compensation. While not begrudging orchestral musicians their salaries, he points out that “without some moderation in the growth of artistic and other expenses, these consequences can only be avoided by attracting ever-increasing flows of non-performance income.”

The Boston Symphony Orchestra

The following chapters then explore avenues of non-performance income, starting with government support for the arts. While the lack of federal support for the arts by the United States government has nearly always been appalling, Mr. Flanagan concedes that there are clear political reasons for this sorry state of affairs and suggests that Federal tax expenditures offer a strong incentive to donate, particularly for those in higher tax brackets.

As for private philanthropy, Mr. Flanagan proposes that, in principle, it offers perhaps the most promising way for orchestras to cope with growing budget imbalances, if only because such giving has increased significantly over the past several decades. However, there’s no guarantee that this trend will continue, and Mr. Flanagan, in his concluding statements, admits that many of the factors that influence private philanthropy are beyond the control of an orchestra: the changing real incomes of a given community, competition between competing nonprofit organizations, as well as doubts about the viability of orchestras themselves.

Orchestral endowments, the final area of finance covered in the book, can also prove a mixed bag: endowment growth “reflects the interplay of three factors: contributions of new endowment funds, the rate of return on endowment investments, and the rate of payout from endowment funds.” However, the availability of endowment funds varies widely, orchestra to orchestra, for a number of reasons, which may go back decades into an orchestra’s financial history. Even for the best-managed endowments, Mr. Flanagan writes, there will still be financial challenges: in order to close performance deficits, the annual return on an endowment must grow commensurately with that orchestra’s deficit, which typically requires perpetually larger endowments.

So how does Mr. Flanagan suggest orchestras cope with these financial difficulties? First, he writes, they need to honestly diagnose the problem. This requires reviewing concert attendance, the number of concerts offered, musicians’ salaries, and, finally, considering whether or not the orchestra’s sources of nonperformance income will, in fact, cover its structural deficits. Once these issues have been addressed, the next step is for the organization to recognize that none of the three “broad strategies” for resolving deficits—performance revenues, slowing the growth of expenses, and increasing nonperformance income—will likely, by themselves, erase them. For an orchestra to nurse itself back to financial health and to remain in that state, Mr. Flanagan writes, a combination of creativity, wisdom, and good judgment is required in each of these three areas by both musicians and management.

All of this is good advice, especially for individuals working to stabilize the orchestral economic environment. To this effect, one of the principle themes Mr. Flanagan returns to in this book is that of developing audiences.

At a couple of points, he seems to suggests that, perhaps, the audience for classical music in American is tapped out: while the art form probably won’t disappear entirely, he claims, it will likely remain a very small slice of the cultural pie. Maybe he’s right, but I tend to be a bit more optimistic about this subject, especially in light of the vibrancy of orchestral life as witnessed in several major cities, including Boston, Los Angeles, San Francisco, Chicago, and, more recently, New York. What the major orchestras in all these cities have in common is that they have tapped into their respective communities and engaged with them in meaningful ways, from offering free neighborhood concerts to spearheading innovative educational initiatives. This is a subject that could be expanded upon in Mr. Flanagan’s text, though perhaps it falls somewhat outside his purview, being more anthropological in nature than economical.

While it’s true that bigger orchestras with large, well-managed endowments and steady streams of nonperformance income have advantages over small-market ensembles struggling to stay afloat, the principle of making an orchestra relevant to its community applies across financial lines, and therein, I would suggest, lies the future of orchestras in this country.

Boston is a unique city with an abundance of excellent musical organizations, running the gamut from period ensembles (Boston Baroque, Handel and Haydn Society) to symphony orchestras (Boston Symphony, Boston Philharmonic) to contemporary groups (Boston Modern Orchestra Project) and many more in between. That the region can support so many classical music organizations is a testimony to the skill of its performing arts administrators, the generosity of their patrons, and the excellence of the many musicians who comprise these groups. Still, none are immune to financial peril (as we saw earlier this year with Opera Boston), and this reality requires continued creativity in managing finances and expenditures.

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  8 Responses to “Fuse Book Review: The Precarious Existence of Symphony Orchestras”

Comments (8)
  1. Despite my being a writer, I have to confess that there is nothing, nothing, more intense than live classical music played by a full symphony.

    This must not die.

  2. This book sounds fascinating and I’m happy to have read Jonathan Blumhofer’s thorough review. One caveat is that while orchestras and all arts organizations must have “business models,” the valorization of financial health is only one part of the equation. It goes without saying you can have a healthy bottom line paired with lackluster artistic quality.

    Artistic production that cannot easily be monetized has never been self-sustaining. That’s why Bach had a church day job. Our question now is how to proceed without church, court and high society subsidy. Can the “long tail” of internet distribution, reaching and aggregating scattered classical music fans, muster support for organizations that have historically been rooted in geographic communities? And if we want it to, at what cost?

  3. A thorough review of an intriguing book. I have serious doubts, however, that very many orchestral musicians practice anywhere even remotely close to 40 hours a week outside of orchestra rehearsal. Many do teach of course, but then they get paid separately for that. Many also do play gigs outside the orchestral arena, chamber music for example, and practice/rehearsal does come into play there. And principals (especially winds & brass) are a bit more on the spot, and most orchestral musicians DO practice their parts SOME. But the idea (sometimes promulgated by the musicians’ unions to try to make the pay-per-hour figures seem more palatable to outside observers) that some fifth-stand fiddle player takes their part home and practices 5 hours a day on it is frankly laughable, and any orchestral musician who is honest with you will tell you the same thing.

    • Yes, the 40 hours of outside practice a week is probably an inflated figure most of the time as that would mean a musician is playing their instrument 60 hours week (when including hours at the job). Pretty much any musician would tell you that kind of playing on a sustained basis would lead to injury fairly quickly.

      But whatever the true number of hours outside the job practicing are, it’s just an average. Each individual will have to practice a different amount depending on the difficulty of their part and according to their own strengths as a player. Just because there are some players who may not need to practice as much is no reason to lay siege to the general point that a significant amount of time outside the workplace that IS required to play to a high level.

      Furthermore, managements will often make the equally spurious claim that musicians are being paid full-time wages for part-time work in order to turn public sentiment against the musicians and portray them as over-paid, greedy primadonnas. The fact is that musicians salaries are meant to reflect not just hours spent on the job, but also the many thousands of hours of experience and training that they bring to the job.

  4. I’ve come to believe that American orchestras have indeed increased productivity. The artistic and technical skills of the musicians making up orchestras HAS risen steadily in a straight line after many became full-time in the 1960s. You can also hear it in the rising level of audition candidates for these orchestras which have become the envy of the world. Better teachers, orchestras and recordings have feed the great boom.

    The problem is that it is very difficult to monetize this increased productivity unless perhaps we compare each orchestra side-by-side, such as a competition, as I have been proposing for several years.
    Otherwise, I believe we have “world-classed” ourselves out of the larger market of music lovers and need to restore BALANCE to classical music by seeking curious music fans where they enjoy other music… in clubs, bars, coffeehouses… yes, in noise. Classical Revolution (.org) is one of many loose organizations doing this in 30 cities around the world. The response is mixed. My CutTime Productions is another.
    By warming up the presentation and demystifying what we musicians assume everyone knows, we can turn on small but increasing numbers of new audiences.

  5. This is not a new concept: see Bowen and Baumol from 1966; also things change – we no longer have Burlesque as an art form in the country and it seems that network television and maybe even print media will be gone soon.

    Perhaps the professor may consider this in a much broader context: the US symphony period began in the 1850s and it really wasn’t until the industrialists transformed cities (the 20s and 30s) and then the NEA and others encouraged the next tier cities to have their own orchestra. And so it goes, Oakland is long gone, Detroit dodged a bullet, Loisville seems self-destructive, Philadelphia was issued a warning, and even the NY Philharmonic is running deficits – “the cost disease.” So, we have business cycles (would anyone have ever thought that Kodak would be gone) and we have the cost disease pincing in on the symphony orchestra business model. And let’s not forget other ways to experience the symphony experience (HD broadcasts in your local theater) that satisfy the need to hear great music in a group setting.

    I may seem pessimistic. Rather, I am looking at it in as dispassionate and scientific way as possible.

  6. GREAT REVIEW thanks. All art forms have their lifespans and I’m afraid we’re nearing the end of live symphonic music tradition, at least in the U.S. Theater music has been greatly affected in Boston too — notice the radical reduction of orchestra size for musicals and canned music for the Rockettes when they stopped by. Sometimes the best local productions nowadays are in high schools and colleges with good music programs that either have their own excellent student musicians or supplement them with professional freelancers.

  7. This informative review is most welcome and helpful for deciding whether to spend $50 buying Dr Flanagan’s book on Amazon.

    Some observations and comments:
    A steadily growing number of students graduate from music conservatories each year. How many and what jobs are there for them, and what percentage of them settle for becoming amateur musicians and highly informed audience members?

    Since it was not mentioned, I guess it goes without saying that the decline in school-age music education has a depressing effect on potential audience size.

    As pointed out, in Boston and many other major cities, there are a surprising number of music organizations, all supported in some measure by attendance and donations. Wouldn’t it make better business sense to reduce the number of organizations in order to focus funding and attendance on the ones that remain? This is supply and demand economics. Perhaps fewer, region-serving orchestras that employ enough top caliber musicians to perform the primary season, run-outs, family and pops concerts, chamber music, recitals, studio work, etc. would be a model worth considering.

    Anyone who thinks orchestral musicians earn too much should consider how much the average physician or surgeon earns, and compare the amount and length of time and the level of diligence involved in each. True, musicians doesn’t hold physical life and death in their hands, but neither do a lot of other highly paid jobs.

    Performing arts organizations must figure out how to disseminate their performances on a pay-on-demand or subscription basis to generate income from people who cannot afford a ticket or cannot physically attend a performance but will settle for enjoying a it via download or live webcast with high quality visuals and sound.

    Government and school districts need to re-assume responsibility for total education of our children, not just the three Rs. Isn’t it obvious by now that children learn by total sensory immersion, including art, music, sports, math, science, practical economics, reading, writing, and so forth. By pretending that a single exposure to a museum or a classical music concert is a sufficient substitute for ongoing band or orchestra or choir, we are doing our children and ourselves a huge disservice. Not only are we diminishing our culture, which already seems to be in the spin cycle, we are decreasing our nation’s human learning potential by eliminating important hands-on arts experiences.

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