The LA Times show business blog summarizes a new report for the film industry that suggests the best way to return to profit in bad times is not through cutting production. It might seem counter intuitive to make more movies when budget constraints are so severe. But the analysis showed that a bigger slate of films had a greater probability of turning an overall profit…a version of diversified investment perhaps.
Arts organizations are faced with a similar conundrum as their earned and contributed revenues hit the skids. The impulse of board and leadership is to trim production quantity and even quality in response to declining contributions and sales. But that impulse is problematic for several reasons:
- Many arts organizations are subject to high levels of fixed costs — especially those with a venue. By definition, fixed costs (heat, light, security, maintenance, etc.) accrue whether or not the space is used. In these cases, eliminating activities that contribute even a small amount to fixed costs doesn’t save money.
- Arts organization revenue — both earned and contributed — is driven by the enthusiasm, passion, and trust of its patrons and donors. As the fire and forward thinking dissolves in cutback after cutback, arts leaders can create a vicious and downward cycle.
Michael Kaiser suggests as much, frequently, in his book The Art of the Turnaround. He believes that even those in the thick of a cash flow crunch can envision bold projects three to five years out that will excite donors, buyers, and staff. Without that forward momentum, it can be difficult retain and increase contributed income.
The key is to remember, as you and your board are adjusting the current and coming fiscal year, that revenue is a dynamic number, driven in large part by the excitement and energy you create among your prime supporters. Although deep and painful cuts may be unavoidable, it will be essential to find ways of maintaining the energy and essence of your organization beyond the current budget cycle.
This is good general business advice for almost any industry. There are always two sides to the ledger, so in the face of a shortfall you can focus on one side or the other. In my experience there are certain personality types that gravitate towards cutting expenses and others who instinctively look for ways to increase revenue. I would almost always rather hire someone from the second group. Once you’ve achieved a reasonable level of organizational efficiency, cost cutting is a loser’s game, since it inevitably results in reduced quality or quantity of whatever it is you’re delivering to your customers.
Shouldn’t the same be said about cuts to arts programs, special ed, libraries etc in public education? But like everywhere else, for the past thirty years, school budgets seem to have been shaped by the obligation to cut costs and cut programs for financial reasons, to the detriment of a couple of generation of students who now compose the bulk of our population, our public audiences for the arts.