As I noted before, the orchestra cost squeeze is truly a squeeze. Or, in other words, it’s not a flat phenomenon, a simple matter of income declining, because ticket sales and donations are falling off. No, it’s got another dimension: expenses are rising. And the falling income/rising expense squeeze gets worse over time.
Here’s the rising expenses part of the story.
And then, over time, there are particular things for which orchestras have been spending more — marketing and development (the fancy word for fundraising, though there’s more involved: for instance, urging people to leave an orchestra money in their wills).
The increase in these costs has been going on for a long time, because before the 1970s, orchestras spent hardly anything for either of these things. Ticket sales were a much larger percentage of income, and when extra money was needed, patrons were on hand to donate it, apparently without needing to be searched for, or asked. I don’t mean to say that finding money always was easy, but it was a lot easier than it is now. That’s why orchestras, back then, didn’t have much in the way of fundraising budgets.
Same for marketing. In the late ’60s and early ’70s, the biggest orchestras sold all their tickets. 100%. Or at least that’s what consultants from McKinsey noted, after studying orchestra finances.
Late in the ’60s, a financial crisis hit, because the orchestras expanded to 52-week seasons, and also paid their musicians not just for more weeks, but at a higher rate. In the wake of that came the marketing and development departments. Orchestras had more seats to sell, and more money to raise.
The cost disease
The principle — generally accepted by economists — is simple enough. Suppose you’re a company that manufactures things (or, these days, contracts to have them manufactured). As time goes on, the manufacturing process gets more efficient. Productivity rises. So you spend less money to make more widgets.
This happens more or less through the entire economy. So we all (very generally speaking) get richer. (Obviously, I’m leaving out such factors as glaring income inequality, which normally I care a lot about.) Because we’re richer, we can have things we didn’t have before. Computers. iPhones. More sophisticated cars. More varied clothes and food. We take these things for granted. They’re part of our lives. We expect to be paid enough so we can buy them. Which, if we work for a company that shows increased productivity, isn’t hard for our employers to do.
But some big players in our economy get left out of this. These are institutions (very typically nonprofits) that don’t show productivity gains. Orchestras, for instance. It takes just as many musicians to play a symphony now as it did 50 years ago. Or hospitals. Or universities.
Orchestras, in fact, are less productive than they were, because (see above) they need larger staffs, for marketing and development. And so orchestras fall behind the rest of the economy. Their costs keep rising, just everybody else’s do. Just like General Electric, or Ralph Lauren, they have to pay higher salaries than they used to, so their musicians — and the people on their staff — can buy computers, and nicely varied food.
And the orchestras themselves need computers for their offices. But there’s no way they can fund their rising expenses with greater productivity. So their costs keep rising, faster than their income. This would happen even if ticket sales and donations still were strong!
So as time goes on, even when their finances seem healthy, orchestras still are forced to scramble for money. As one sign of this, the percentage of their income that comes from ticket sales has been falling for quite a long time. Which means the percentage of their income that they have to go out and find has been rising, leading to higher development costs over time, which means they have to raise still more cash, which means…
I don’t want to get melodramatic about this, but the Cost Disease is real, and makes orchestra financing troublesome, even without the scary new squeezes we’ve been seeing in the past few years.
I’ve explained the Cost Disease before, but maybe this elucidation is clearer than the others.