The Funding Conundrum: A Marketer's Response

Nothing can take the wind out of your sails and make one reassess current strategies quite like an unexpected and critical loss of funding, which is what happened to 24 major arts organizations in our nation's capital two weeks ago. Shortly after the federal government averted a shut down, it was revealed that a part of the budget compromise was 74% reduction in the allocation to the National Capital Arts and Cultural Affairs Program.

Many do not realize that the District of Columbia is a federal territory under the complete authority of Congress, and as it is not a state, it does not receive voting representation in either the House of Representatives or the Senate. However, DC residents pay some of the highest federal taxes in the nation and their city's budget is established by Congress, leading to a cry of "taxation without representation." At a moment when Congressional representatives were trying to make substantial cuts to the nation's budget without affecting their districts, the District of Columbia became an easy target, the results of which saw a relatively reasonable and proportionate cut of 7.5% to the National Endowment for the Arts and a crippling, disproportionate cut to the National Capital Arts and Cultural Affairs Program.

As a marketing professional working for one of the affected institutions in the District of Columbia, it caused me to think about how marketers view their role, and how a marketer could respond, keeping in mind that John Kennedy reminded us all that there are always moments of opportunity in crisis. I came to the conclusion that marketing professionals are going to need to reexamine traditional beliefs about our job responsibilities.

Arts marketers are very good at audience development, selling tickets and promoting their products, however maybe we should be thinking about the following as well:

Marketers as Advocates
Last weekend, I was listening to Ric Edelman's radio show on WMAL as I was driving. Ric is a very well known local financial advisor, and he sits on the board of Wolf Trap National Park for the Performing Arts. He took about ten minutes to discuss an upcoming proposed Congressional funding cut to Wolf Trap's STEM program, where he described an e-mail he received as a board member asking him to contact Congress to voice his objection to the cut. He shared with his listening audience that he decided not to contact his congressional representative, because he thought given the economic crisis Congress was facing, that he couldn't in good conscious ask them to protect the arts. In defense of Mr. Edelman, he did go on to say that he would increase his personal contribution to Wolf Trap, and then asked his audience to give as well. However, it made me think that here is a very intelligent man who is prone to supporting the arts and who makes his living off of maximizing return on investment for his clients, but he doesn't understand that arts funding fuels the economy and provides one of the best returns on investment of any public funding avenue. In 2007, Americans for the Arts released Arts and Economic Prosperity III, the most comprehensive study of the economic impact of the arts and culture sector. It revealed that the arts industry is responsible for $166 billion in economic activity, almost $30 billion in tax revenue and 5.7 million full time jobs. So why is a financial advisor advocating cutting an investment that has such high returns on investment? My answer -- arts marketing professionals aren't doing enough to educate their boards and audiences. If Mr. Edelman had all the facts, I am sure he would view the arts as a solution to the problem, not a burden on the system.

Marketers as Community Builders
Among arts professionals, there is a very familiar story often told about Sir Winston Churchill's time as Prime Minister of Great Britain. As the story goes, during the height of the second world war, Churchill's finance minister recommended cutting the arts to help support the war effort. Churchill responded with "then what are we fighting for?" Obviously, Mr. Churchill viewed the arts as vital to the daily lives of his constituents. Can the same be said for us? I would argue not. In the past, the arts organized communities. Today, in many of our nation's preeminent arts organizations, they only organize the wealthy and the elderly. As such, it is easy to see why some view the arts as frivolous. Arts organizations should be community centers, and marketers should work to constantly lay out the welcome mat to every member of their community, rich or poor, young or old. As government funding revenues dry up, we have before us even a greater challenge, as many arts organizations look to earned revenue sources (i.e. ticket sales) to make up for lost ground, but in doing so, could be sacrificing accessibility, ensuring that only a slight portion of their community is able to be served. I must commend organizations like Signature Theatre Company in New York, which leveraged a major philanthropic gift to provide $20 tickets to all seats for all performances. They boast sold out houses for every performance, and serve a maximum number of people in their community as ticket price is no longer a barrier. As marketing professionals, in a time where there is more and more pressure on earned revenue, we must work to make sure our organizations are community centers and accessible to all.

Marketers as Educators
I started out my career as a public school teacher. I went to college and received a Bachelor of Science in speech and theater education from Missouri State University. Soon after graduating, I decided to go to graduate school for producing, partially because I saw my peers struggling to find teaching jobs as arts education positions were being eliminated statewide. Today, many states have eliminated the arts in their curriculum entirely, as funding has become closely linked to performance on student achievement exams set forth by No Child Left Behind. As a nation, we are in our second decade in which a majority of public school students will have received no formal arts education. Soon, arts marketing professionals will face situations in which we will become responsible for educating prospective patrons on artistic offerings as even the most famous of artists will be unknown to a large portion of young adults. The time in which a marketer could reasonably expect the general population to know who major artists is coming to an end. We will become the front line educators.

Marketers as Fundraisers
I am continually amazed at the number of large arts organizations that function with marketing and development departments operating as silos. In some instances, the two departments have their own graphic designers, printers, mail houses, event planners and the like. When budgets are tightened, arts administrators must do everything in their power to get the best possible return on each dollar spent. All to often, the artistic product suffers because of the inefficiency of management. Combine resources and as a team, look for ways to reduce expenditures and maximize return. Make judgments together on where resources should be allocated, and eliminate redundancy. Marketers have to reassess their metrics of success. No longer is it good enough to make a sale. We must strive with each and every transaction to secure a sale and a donation. I challenge marketers to view themselves as having as much responsibility for hitting contributed revenue targets as they have with earned revenue targets. Only then will we be looking for the highest return on each dollar spent and on each transaction achieved.

I would like to conclude this post by alerting readers to an excellent blog post entitled "The Top 10 Reasons to Support the Arts" written by Randy Cohen, Vice President of Research and Policy at Americans for the Arts. For those interested in up to the date information on all issues facing the arts, the Americans for the Arts website is an excellent resource.

The Devil (and the Details) are in the Budget

All major decisions that an organization makes are made during the budgeting process. In many cases, the budgeting process is informed by a strategic plan or multi-year proformas. However, the practical and strategic decisions that are necessary to put a strategic plan into play are primarily discussed and decided upon during the budgeting process.

Ideally, an operating budget is created and adopted by an organization’s senior staff, thereby ensuring that each department is represented. For senior managers that represent marketing and are responsible for earned revenue streams, the following are some important questions to ask during the budgeting process:

1) How accessible does your organization desire to be?
• Average Ticket Price and Percent Paid Capacity. In major organizations, earned revenue can come from a myriad of different sources including ticket sales, fees, parking, restaurants, concessions, event rentals, merchandise, advertising, classes and summer camps. However, for most performing arts organizations, the majority of earned revenue comes from ticket sales. When adopting sales figures for tickets, a manager must consider two variables: average ticket price and percent paid capacity. When a budget is being developed, the higher these two variables climb, the less accessible an organization becomes. For example, if an organization adopts a budget with an overall average ticket price of $60 and an average percent paid capacity of 80%, it will be forced to enact pricing and marketing strategies to fulfill its budgetary requirements, meaning that only 20% of its inventory can be sold at less than $60 (and this includes all complimentary tickets).
• Complimentary Tickets. All earned revenue budgets should include a well thought out complimentary ticket budget. In many cases, organizations will find themselves with competing interests. Economic pressures can force an organization to increase its percent paid capacity and average ticket price, but doing so will also force a change to how an organization uses complimentary tickets. Many organizations use complimentary tickets for charitable donations, community outreach, publicity, donor cultivation, staff benefits and artist relations. However, only the budget will determine the amount of tickets available to use in any given year for these purposes. It is the responsibility of marketing representative to remind the budgeting team that no matter what current standard operating procedures are or what the desires are of staff members, the higher the average ticket prices and percent paid capacities go, the fewer tickets, especially for prime seat locations, will be available for complimentary tickets.

2) How much risk are you willing to take? The budgeting process can be pressure filled. After several rounds of budgeting, the pressure mounts on the marketing representative to increase his earned revenue forecasts. In doing so, there is only one question the budgeting team needs to ask—how much risk are we willing to take? A couple of bits of advice:
• Let the Data Do the Talking. A marketing representative should have years of data at his disposable, and he should use that data to produce the most accurate earned revenue projections he can. In projecting ticket sales for individual projections, one needs to do two things: 1) study the micro sales patterns of similar productions in recent history (3-5 years), and 2) study the macro sales patterns of all productions in recent history (5-7 years). The sales patterns of similar productions should give you a good indication of what is both possible and probable. I try to select at least three similar productions: one that under-performed, one that performed as expected and one that over-performed. Using the data from all three gives you a statistically probable figure, with room to do better than your projections. The macro sales patterns gives you an overall sense of standard operating revenues as well as outliers. If you notice during your budgeting process that you are forecasting that each of your productions will perform in the top 10% of all productions in your recent history, you might want to leave a little more room for failure. If the organization you are working for is taking the appropriate amount of artistic risk, you will need it. Final word of advice—no matter how much you are encouraged to do so, never go with your gut or “a feeling.” Decisions like these are should be left to the data.
• If You Are Uncomfortable, Say So. Marketing representatives have one primary responsibility in the budgeting process—they must be honest and transparent. If a budget makes you uncomfortable, voice your opinion. Ultimately, the budgeting team and the executive staff have final authority over the budget, but as part of the budgeting team, you must tell people when you are uncomfortable. That doesn’t mean you shouldn’t pass a budget that makes you a little nervous. All of us have passed budgets in the past that have kept us up at night, particularly in the past few years during the global economic crisis. However, you should never support, present and defend a budget that is irresponsible and dishonest. I am fortunate that I have never been placed in the position where I have been told I must present a budget that is irresponsible or face the consequences. However, if am ever faced with that position in the future, I would immediately start my search for new employment.
• Tell the Truth No Matter How Uncomfortable. I am fortunate to have a close working relationship with the senior staff at my current position, which allows for open and honest discussion. However, even in the best of environments, it can be uncomfortable to tell the truth. As the marketing representative on the budgeting team, you are in your position because the organization requires your truthful analysis and opinion. To not provide it for any reason is tantamount to dodging your responsibility. That being said, you also must be open to hearing sometimes painful and uncomfortable analysis as well.

3) Do you have the capacity to fulfill the budgeted expectations? My boss at Arena Stage has a great way of phrasing this question during the budgeting process. He diligently asks throughout the process if we have the capacity and resources to match our ambitions. It is a succinct and direct question that focuses the entire budgeting process. I am afraid that too many times arts organizations extend themselves by having unrealistic budgets because this question wasn’t asked. In terms of marketing, even if demand warrants a high budgeted goal, one needs to ask if you have the infrastructure to execute, which can include a multitude of actors such as staffing, technology, and operating procedures.

The final question I like to ask myself in terms of revenue projections is the ultimate litmus test—do we have an equal or better chance of over performing on budgeted revenue goals as we do under performing? If there is evidence that a greater likelihood exists that an organization will under perform rather than over perform, then I encourage you to adjust expectations to mitigate your risk.

Is It Time to Re-Think the Way We Discount?

It seems to me that there are two reasons to provide discounts:

1. To encourage and reward particular behaviors


2. To provide access to targeted demographics

Too many times arts organizations provide discounts that don’t encourage desired behavior, or that benefit patrons outside of targeted demographics. While exercised with good intentions, a quick examination of some common practices reveals that there can be some detrimental unintended consequences:

Rush Tickets. Many organizations have policies that place tickets on sale, sometimes to certain demographics like students, at the last minute at a steep discount. Unless your organization is selling at a high percent capacity, or has thousands of seats, by practice, you are guaranteeing a steep discount to relatively good seats in exchange for people exercising an unwanted behavior (late ticket buying). Many organizations bemoan the deterioration of their subscriber base, but continue to promote their rush ticket policies. Why would patrons buy several shows at once months in advance when they know they can get a better deal on decent seats at the last minute? Instead, I would encourage organizations to develop policies to reward desired behaviors. In order to convert a single ticket buyer to a subscriber, an organization usually must do two things: 1) convert them into multi-buyers so that they are purchasing multiple productions in the same season, 2) incentivize them to purchase their tickets earlier and earlier. By doing both, you establish behaviors that closely mimic a subscription, and therefore your conversion from single ticket buyer to subscriber should be much easier. Recommendation: If you would like to provide discount tickets to targeted populations such as students, then do so in a manner that instills early buying habits. Instead of incentivizing a last minute purchase, incentivize purchases that are done weeks, if not months, ahead of time.

Pay-What-You Can (PWYC) Performances. The intent of a Pay-What-You-Can performance is honorable. Most organizations desire the ability to make their products available to populations that simply cannot afford standard ticket prices. However, in practice, another reality presents itself. I am always amazed by organizations that continue this practice citing accessibility concerns, when all one has to do is stand outside and count the number of patrons who arrive for PWYC performances in expensive luxury sedans and fur coats. If you can afford a Mercedes, I am pretty sure you can cover the price of a regular ticket. What those patrons are doing is taking away inventory from the people you want to serve. They are taking advantage, but only because you are allowing it. Recommendation: Several organizations are now requiring proof of limited income in order to access PWYC performances or substantially reduced price tickets. Much like how students must show IDs, proof such as an EBT card or a tax return can ensure that you are serving the exact populations you have created these programs for.

Complimentary Tickets. A complimentary ticket represents the ultimate discount, yet too many times they are used for the wrong reasons. Consider the following circumstances:

• Potential Donors. Many development officers use complimentary tickets to get donor prospects in the door and into a performance. We all know that first impressions are critically important, so I would ask what message are we sending to someone with obvious means when we have to give them a free ticket to get them in the door? If they are seriously interested in your work, or in becoming a major donor, shouldn’t they want to pay the same ticket price that standard patrons pay in the first place?


• Board Members and Current Major Donors. Giving at certain levels should come with exclusive benefits, such as access to purchase house seats or the ability to purchase tickets before they go on sale to the general public. However, many organizations simply give away tickets to Board Members and Major Donors. In the case of Board Members, they should always be looking for ways to help an organization increase revenue, and by taking complimentary tickets, in many cases they are using inventory that can be sold. Major Donors on the other hand are often gifted tickets at certain levels of giving, however the ideal situation would have them purchasing tickets and giving philanthropically. By providing large amounts of complimentary tickets to Major Donors, all an organization is doing is moving revenue from the earned line to the contributed line. When trying to build revenue, both earned and contributed, an organization cannot rob Peter to pay Paul.


• Media. Many organizations don’t take the time to properly credential media, and by not doing so, they are tempted to provide complimentary tickets to every request that comes into their press department. Professional journalists deserve a complimentary ticket if they can commit to coverage via a properly credentialed media outlet. If journalists request a complimentary ticket, but cannot commit to coverage or they represent an outlet that is less than professional, it is the responsibility of your publicist to decline the request. In many cases as a courtesy, organizations will also provide a second complimentary ticket so a journalist can bring a guest, however this isn’t obligatory. Many Broadway producers and major organizations will only provide a single complimentary ticket for a journalist in circumstances where there is incredibly high demand on inventory.


• Complimentary Standing Room (CSR) or Standby Tickets (CST). Many organizations have very liberal policies for CSRs and CSTs. However, similar to rush tickets, unless you are selling out regularly, you are training those that use CSRs that they are available for virtually any performance, thereby guaranteeing that those who use CSRs will never purchase a ticket in the future. In many cases, CSRs are a self-fulfilling prophesy. The argument being that if an organization has unused inventory immediately before a performance, why not use unfilled seats for CSRs or Rush tickets? Well in many cases, CSRs and Rush Tickets are the reason why organizations have unsold inventory at the last minute. In my opinion, CSRs should only be used for customer service issues for longtime subscribers/donors or for internal artistic staff that need to maintain a production in a long run. Other than that, CSRs should be subject to your standard complimentary ticket policies and tracked as a complimentary tickets.

A final thought on complimentary tickets:
It isn’t uncommon for an arts organization to use 5-10% of its entire inventory for complimentary tickets. Usually these tickets are provided to people that could easily afford the cost of a ticket. At the same time, many organizations are desperately looking for ways to make their work more accessible to populations of people who simply do not have the means to purchase a ticket, even at a discount in some cases. I wonder what would happen if an organization adopted a policy that complimentary tickets would be reserved exclusively for patrons who had no other means to access their work? Hundreds, if not thousands, of complimentary tickets would become available to the people who needed them the most.