Friday, March 14, 2014

Should We Be Giving Our Product Away?

Image courtesy of Wired
At last fall's National Innovation Summit for Arts and Culture, organized by EmcArts, the Artistic Director of Mixed Blood Theatre in Minneapolis, Jack Reuler gave a great talk about what they have called "radical hospitality." One aspect of that philosophy has been providing free admission to all their performances, recognizing that cost was a significant barrier to building diverse audiences. Here is a link to a video of Jack's talk. And here is a new interview on HowlRound with Aditi Kapil of Mixed Blood, talking about "the business case for radical hospitality." The case for "free" was also made a few years ago by Chris Anderson in Wired Magazine: Free! Why $0.00 Is The Future of Businesslater followed by a book called Free: The Future of a Radical Price.

While for many theatres - or other art forms - such a move may be unthinkable, this strategy may not be as crazy or unfeasible as it may seem. This debate has also come up locally in Denver, raised by reporter Ray Rinaldi of the Denver Post in relation to museums. In a provocative article last year, he proposed (among other ideas) that all museums should be free.

Of course, the Metropolitan Museum of Art has for years had a "pay what you wish" policy that has periodically (and recently) come under fire for not really aggressively making the public aware they are not obligated to pay the posted admission price, which as a result many visitors do (average admission paid is $11 out of a $25 current suggested price). And all the Federal sites are free, from the Smithsonian museums to National Park Service museums and sites. A performing arts example is the long-standing Public Theatre's Shakespeare in the Park in New York City, which is made possible by major corporate sponsorship and philanthropic support; and there are many other orchestra/opera/theatre in-the-park examples. Of course, all/most these entities have compensating benefits - significant federal or city support, publicly owned and maintained facilities, etc.

I am aware of non-public museums that might actually consider free admission, but frankly feel that even a modest admission has two very important effects - 1) it causes the public to VALUE the experience in a way they may not if it is free; 2) many fear that completely free admission would attract large numbers of homeless, especially on days of inclement weather, as has been the case sometimes for libraries. And, of course, most museums truly rely on admission revenue, as performing arts group rely on ticket revenue, though not on average at the same percentage of their budget.

However, this whole debate reminds me of my economics of the arts studies in business school, where one of the issues we talked about was the price elasticity of demand. The professor hypothesized that theoretically if ONE person were willing to pay $100,000 for a ticket, if they placed that high a value on the experience, then the strategy to maximize revenue would seem to be to charge $100,00/ticket. But of course, we would never do this because: 1) theatre - and all performing arts - are communal experiences; the audience shapes the artistic product - sitting in a theatre alone would diminish the audience experience, as well as affect the performers too. 2) maximizing ticket revenue is not the sole goal of a theatre from a revenue standpoint, the objective is to maximize total revenue. Obviously nobody would fund an audience of one. This is an extreme exaggeration to make a point that pricing in the arts is more complex than in other industries. Essentially you are looking to charge the highest average price that will generate the highest total revenue PLUS comes closest to consistently filling the house. And when you do this there will be an area within the price sensitivity chart where the price you have chosen to maximize total revenue is lower than what certain - maybe many - patrons would have paid for their ticket. So it becomes the goal of fundraising to find a way to create opportunities for those patrons to contribute to the organization this gap between the value they place on the performance and the price they were charged.

This is why so-called  "dynamic pricing" has become so popular in the performing arts (and other industries, like airlines and hotels) - charge more to those who want the convenience and predictability of booking specific seats for a specific performance far in advance, but as the date of the performance approaches adjust pricing to drive ticket purchase to empty areas of the house to fill the remaining seats. But again, traditional dynamic pricing does not entirely factor in the important issue of contributed revenue in the nonprofit arts. Will patrons paying top dollar for seats resent someone sitting next to them who has paid half the price? (Of course, assuming they would somehow know this) And will this diminish their desire to provide additional support? Or will people eventually figure this out and take their chances and wait until closer to  the performance to book their tickets, taking advantage of lower prices? Many arts groups have found ways to make this strategy work for them and deal with these nuances. A Colorado-based firm, TRG, has been a leader in promoting this pricing strategy, which while successful for many groups, has not been without its detractors, as covered a couple of years ago in the Denver Post.

So, the question becomes: What if we take this to an extreme, go the Chris Anderson route, the Mixed Blood Theatre route? If you "give it away" - whether free tickets or free admission - can you effectively replace that revenue with other income? Will funders/sponsors support you at higher levels because you have larger and more diverse audiences? Will you be able to capture in voluntary donations from many patrons the equivalent of what they would have paid for tickets? How much money would you save from dropping the machinery if ticketing/admission sales? Can you develop "premium" services or ancillary paid services that generate compensating revenue? At the largest scale, look at Google, which to consumers is entirely free - the search engine is free, Chrome is free, Gmail is free, Google Docs is free, Blogger is free (which allows this blog to be created and distributed) etc. - they are, in fact "giving it away" yet in the last quarter of 2013 they brought in almost $17 billion in revenue, and they now have a market cap that exceeds $400 billion.

Can we, in effect,  develop the arts equivalent of Google?

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