The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges

Overview

This book analyzes the economic challenges facing symphony orchestras and contrasts the experience of orchestras in the United States (where there is little direct government support) and abroad (where governments typically provide large direct subsidies). Robert J. Flanagan explains the tension between artistic excellence and financial jeopardy that confronts most symphony orchestras. He analyzes three complementary strategies for addressing orchestras’ economic challenges—raising performance revenues, slowing ...

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The Perilous Life of Symphony Orchestras

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Overview

This book analyzes the economic challenges facing symphony orchestras and contrasts the experience of orchestras in the United States (where there is little direct government support) and abroad (where governments typically provide large direct subsidies). Robert J. Flanagan explains the tension between artistic excellence and financial jeopardy that confronts most symphony orchestras. He analyzes three complementary strategies for addressing orchestras’ economic challenges—raising performance revenues, slowing the growth of performance expenses, and increasing nonperformance income—and demonstrates that none of the three strategies alone is likely to provide economic security for orchestras.

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Editorial Reviews

William Baumol
“This important and readable volume demonstrates the underlying disconnect between artistic achievement and economic reality facing the professional symphony orchestra.  Its careful analysis, based on extensive data, lays out the ground, including relentlessly rising costs and ageing audiences, for concern for the future of this vital cultural activity in the U.S. and elsewhere. It is a volume not to be missed by anyone concerned with tomorrow’s state of the arts.”—William Baumol, The Cost Disease
Symphony Magazine - Jesse Rosen
"Read the book, no matter how much you may not like what it has to say. Orchestras can’t afford to ignore the issues it raises."
—Jesse Rosen, Symphony Magazine
Classical Music - Michael Quinn
"[The Perilous Life of Symphony Orchestras] provides a crucial discussion of international models of financing and supporting orchestras, drawing vital comparisons between America's preference for private philanthropy and the state funded models elsewhere… Flanagan delivers informed commentary on the challenges facing labour-intensive, productivity-limited symphony orchestras with a straightforward 19th century institution in a 21st century economy with unflinching clarity… fascinating and insightful…"—Michael Quinn, Classical Music
Choice

“Valuable reading for those interested in the survival of symphony orchestras.”—Choice

Choice
“Valuable reading for those interested in the survival of symphony orchestras.”—Choice
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Product Details

  • ISBN-13: 9780300171938
  • Publisher: Yale University Press
  • Publication date: 1/24/2012
  • Pages: 240
  • Sales rank: 1,418,201
  • Product dimensions: 6.30 (w) x 9.30 (h) x 1.10 (d)

Meet the Author

Robert J. Flanagan is the Konosuke Matsushita Professor of International Labor Economics and Policy Analysis, Emeritus, at the Stanford Graduate School of Business. He lives in California.

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Read an Excerpt

The Perilous Life of Symphony Orchestras

Artistic Triumphs and Economic Challenges


By Robert J. Flanagan

Yale UNIVERSITY PRESS

Copyright © 2012 Robert J. Flanagan
All rights reserved.
ISBN: 978-0-300-17193-8


Excerpt

CHAPTER 1

Surpluses, Deficits, and Symphony Orchestras


On February 26, 2008, the New York Philharmonic Orchestra, the oldest symphony orchestra in the United States, played a remarkable concert in Pyongyang, the capital city of North Korea, as part of an effort to use cultural exchange to thaw diplomatic relations between the two countries. The program included the national anthems of each country, the prelude to act 3 of Richard Wagner's Lohengrin, Antonín Dvorák's "New World" Symphony, and George Gershwin's An American in Paris. The encores included compositions by Georges Bizet and Leonard Bernstein, along with a popular Korean folk song. Whatever the ultimate diplomatic effects, the concert itself was an artistic and popular triumph. The Economist (2008) reported, "The orchestra received a rapturous standing ovation. Even North Korea's most senior attendee, Vice-President Yang Hyong Sop, readily got to his feet."

About six weeks earlier, the board of directors of the Columbus, Ohio, symphony orchestra, which had presented a critically acclaimed performance in Carnegie Hall ten years earlier, announced that their orchestra was near bankruptcy. Faced with several years of deficits, the board proposed to save about $2.5 million in the following year's budget by reducing the number of full-time orchestra musicians from 53 to 31 and reducing the concert season from 46 to 34 weeks. Part-time musicians would be hired when necessary to fill the orchestra's ranks. The musicians' union subsequently rejected that proposal, citing the impact on the income of the symphony's musicians. In late September, following the cancellation of summer concerts and the 2007–8 concert season, the symphony's musicians ratified a new agreement that involved $1.3 million in reduced wages as well as forgone health and pension benefits. A later agreement negotiated in 2011 provided musicians with base pay equal to 64 percent of their pay in 2008 (Sheban 2011).

Both events were "typical" in the sense that, over longer periods, there are a significant number of U.S. orchestras that run surpluses and an even larger number that run deficits. Even the New York Philharmonic, one of the wealthiest symphony orchestras in the United States, faces significant economic challenges, with ever-growing expenses and declines in some types of performance revenue (Lubow 2004). Averaged over the 1987 through 2000 concert seasons, the financial balance for 63 large U.S. symphonies was negative (deficit), but the experience of individual orchestras was widely dispersed. Forty-six orchestras ran deficits on average, while 17 orchestras ran surpluses on average. But irrespective of their average position, all orchestras experienced considerable annual variation in their financial balance. In each year some orchestras ran significant surpluses, while others ran significant deficits, but none of the 63 orchestras had surpluses (or deficits) throughout the entire period. The next chapter sets out the foundation of the ongoing economic insecurity faced by symphony orchestras.

In year 2000 dollars, the overall financial balance for the median orchestra changed from a deficit of almost $49,000 in 1987 to approximate balance in 2000 following a strong growth of private contributions during the robust economy of the late 1990s. Most orchestras achieved their strongest financial position during 1997–99, when highly favorable general economic conditions prevailed. Finances again deteriorated during the recession that greeted the 21st century and the Great Recession that began in late 2007. This pattern signals the importance of general economic conditions on the financial health of orchestras, a phenomenon that receives more attention in chapter 3. But many other factors influence an orchestra's financial health, for whether general economic conditions are good or bad, financial outcomes vary enormously among individual orchestras.

The demise of several orchestras over the past 20 years further signals the financial pressures on the industry. Bankruptcies have included the Florida Philharmonic Orchestra (2003) and orchestras in Birmingham, Alabama (1993), Oakland (1994), Sacramento, California (1996), San Diego (1996), San Jose, California (2002), Tulsa (2002, following a reorganization in 1994), Honolulu (2009), Louisville, Kentucky (2010, following a near miss in 2003), Syracuse, New York (2011), and Albuquerque, New Mexico (2011). Some of these orchestras eventually reorganized and reopened—usually with a different name and distinctly weaker finances. Two other orchestras, Denver and New Orleans, entered bankruptcy and later reformed as labor cooperatives—the Colorado and Louisiana symphony orchestras, respectively. Nor have the difficulties been limited to regional orchestras. In October 2010 the Detroit Symphony Orchestra's musicians struck following disagreements with management about how to address a serious financial deficit. With the strike unresolved in February 2011, the management of the orchestra canceled what was left of the 2010–11 concert season. After further negotiations, the musicians and management reached an agreement that permitted an abbreviated concert season to begin in mid-April 2011. Two foundation gifts failed to alleviate serious financial pressures facing the Philadelphia Orchestra, which filed for bankruptcy in April 2011—the first such action by a major U.S. orchestra.

What explains these disparate experiences? Why are many symphony orchestras living on the edge, while others are in a comparatively secure financial position? Answering these questions requires an understanding of the economic environment in which symphony orchestras exist and of the main institutions that influence that environment. Understanding the environment is partially a matter of appreciating why the flows of revenues received and expenses incurred by symphony orchestras look so different from the revenues and expenses of a typical business organization. Chapter 4 explores these revenues and expenses. Happily, there is more than an accounting exercise involved. Understanding the underlying forces clarifies why most orchestras must be organized as not-for-profit organizations and why even the advantages of this form of organization do not guarantee financial health.

More than accounting is at stake also because the revenues and expenses of symphony orchestras reflect decisions by individuals and institutions whose motivations must be explored to fully understand the economic environment of orchestras. Performance revenues rest importantly on attendance decisions—why some people choose to attend an orchestra performance while others opt instead for competing uses of their leisure time. Chapter 5 explores the prospects for raising performance revenues. Much of the salary expense incurred by orchestras reflects the outcome of collective bargaining negotiations between symphony management and unions representing artistic and nonartistic personnel. Chapter 6 examines the growth and structure of pay within and between U.S. orchestras.

For reasons that will become apparent, symphony orchestras, most other performing arts groups, colleges and universities, and many other nonprofit organizations must rely upon income that does not flow from their normal operations. The flow of such nonperformance income to orchestras depends upon a variety of complex decisions. Government support reflects how and why governments decide to support the arts, for example. The nature of public support of U.S. orchestras discussed in chapter 7 contrasts sharply with the approach to government support taken elsewhere in the world (chapter 10). Private nonperformance income depends on the capacity and motivation for philanthropy by individuals, businesses, and foundations (chapter 8). A board of trustees is responsible for the general governance of a symphony orchestra, including its financial performance. The board's investment and management of an orchestra's endowment determine both the annual flow of investment income and the availability of endowment resources to support future activities (chapter 9). This book tries to integrate the economic facts with the motivations and behaviors underlying the revenues and expenses of symphony orchestras.

Viewed superficially, foreign orchestras may seem to escape the financial challenges faced by their U.S. counterparts. Elsewhere in the world, symphony orchestra bankruptcies are unheard of, for example. Yet no orchestra in the world earns enough to cover its operating expenses; no orchestra is self-supporting. Instead, orchestras around the world face common economic challenges with different sources of nonperformance income. The absence of bankruptcies abroad reflects the prominent role of governments in providing subsidies to orchestras and other performing arts. Chapter 10 assesses the scope of government support abroad and discusses how a system of government subsidies influences an orchestra's performance revenues and expenses.

Care must be taken in selecting organizations for a representative industry study. A study of symphony orchestras should include organizations that represent the diversity of organizational experience and account for most of the sector's activity. If one were to choose the largest symphony orchestras at the beginning of the study period (1987 in this case), the study would lose information on emerging orchestras that later grew into musical and economic significance. If one were to choose the largest orchestras at the end of the period (2005 in this case), the study would lose information on musical organizations that have declined or even disappeared during the study period. Such biases from the selection of a sample are potentially serious, since both growing and declining orchestras can yield important information on the sector's economic challenges.

To preserve such information, the sample analyzed in this book includes every symphony orchestra that was one of the largest 50 symphonies in the United States (based on budget size) for at least two years during the 1987–88 through the 2005–6 concert seasons. Each symphony that met this requirement remains in the sample throughout the 19-year period, irrespective of its rank in other years. Stable, ongoing organizations dominate the sample; the majority of the orchestras reported data for 18 or 19 years during the period. But the selection procedure retains some orchestras whose economic health declined during the period (and hence would not be in the largest 50 symphonies late in the period), along with growing orchestras that moved into the "top 50" category late in the period. This approach produced a sample of 63 symphony orchestras (listed in the appendix to this chapter), representing over 70 percent of orchestra revenues and expenditures in the United States. If there is a group that is slighted by this procedure, it is the smallest symphony orchestras. As it happens, these orchestras are likely to submit incomplete data at irregular intervals—factors that would have limited their weight in the analyses anyway. The analysis also relies on U.S. government data on local market characteristics, such as population and per capita income, and data on the operations and finances of competing performing arts organizations.

CHAPTER 2

Why Are Surpluses So Difficult to Maintain?


The permanent orchestra season has, as usual, been financially a bad one all over the country. With the end of April ... come the bills for those who pay the piper.... There is always a deficit, which public-spirited guarantors are called upon to pay year after year. A permanent orchestra, it seems pretty well established by American experience, is not at present a paying institution, and is not likely immediately to become so.... [Nevertheless,] the prevailing note of the guarantors of the America Orchestras is one of hopefulness. Things are coming on; the public is being educated; it will support the orchestras in larger and larger numbers till they are finally ... self-supporting.


This quote from a New York Times article could have been written in the early years of the 21st century. As it happens, it appeared a century earlier in a review of the financial results of the 1902–3 concert season (Aldrich 1903). In it we can see a number of themes that remain salient today. First, no symphony orchestra earns enough from performances to cover its performance expenses. Second, that fact is not likely to change in the foreseeable future. Third, the survival of orchestras depends on the resources provided by "guarantors." And, finally, the hope persists that building audiences will make orchestras self-supporting.

A century later, the durability of the economic challenges facing symphony orchestras worries pessimists, while the continued survival of most major symphonies may encourage complacency among optimists, who conclude that solutions to chronic operating deficits will always emerge. In fact, the optimistic prognosis that concludes the 1903 New York Times article proved wrong. The growth of orchestra's revenues from concert performances, recordings, and broadcasting continues to lag behind the growth of performance expenses. And orchestras have had variable success in offsetting their operating deficits with the resources of guarantors.

Understanding the economic choices facing symphony orchestras requires an understanding of why they cannot evolve as self-supporting organizations. This chapter first reviews the history of how U.S. symphony orchestras rapidly moved from self-supporting status to permanent operating deficits. Then follows a discussion of why self-supporting status is an elusive goal.


The Evolution of Symphony Organizations

Many of the earliest symphony orchestras in the United States were organized as musicians' cooperatives. After acceptance into an orchestra, players paid an initiation fee and an annual charge, chose their conductor, hired rehearsal and performance venues, and accepted a share of the net proceeds as their compensation. As residual claimants, however, they bore most of the economic risk of early musical ventures and had to divide their time between artistic and management activities. Some musicians mitigated the risk by giving preference to outside paid performances over symphony rehearsals. The cooperative structure of some early symphonies also gave musicians a property right in their positions, which proved a barrier to changing personnel to upgrade orchestra quality (Caves 2000). Orchestras clearly required a different organizational form if they were to improve performance quality. By the late 19th century, most symphony orchestras no longer earned a surplus that could be divided among the musician- owners. As the New York Times quote reminds us, operating deficits became a way of life.

Several major orchestras eventually acquired individual "angels" or small groups of committed donors who pledged funds to cover the ubiquitous operating deficits. The New York Philharmonic, founded in 1842, initially lacked such support and was unable to operate as a full-time resident orchestra. The Boston Symphony Orchestra, founded in 1881, enjoyed the support of a single wealthy individual. The Chicago Symphony Orchestra, founded 10 years later, relied on the members of an orchestral association who pledged funds for the orchestra's operation. With this support, major symphonies were able to expand in size, to lengthen seasons, and to guarantee musicians a weekly salary for the duration of the season. Those who pledged the funds also took over or arranged for the management of symphony activities, and musicians were able to focus on their art. While donors expected no monetary return on their contributions, many were surprised by the persistent growth of operating deficits (Hart 1973).

Shifting from labor cooperatives to professional management no doubt improved artistic quality, but contrary to the hope expressed at the end of the New York Times excerpt, revenues earned from performances continued to fall short of performance expenses, eventually exceeding the resources of even wealthy individuals. Individual angels gave way to small groups of committed wealthy guarantors who covered performance deficits. As deficits continued to grow, however, the function of symphony boards expanded from giving money to also raising money so that orchestras could survive. Yet by 1940, a wide-ranging study of the industry could state that "in spite of their vitality, growth in numbers, and the volume of their attendance, all symphony orchestras are facing serious financial problems and their future rests on an unstable basis. Receipts from tickets have never been enough to balance the costs.... All, therefore, have had to resort to various kinds of deficit financing.... Endowments are becoming more diffi cult to build up and the income therefrom has been found uncertain when most needed in depressions. Annual maintenance fund drives are finding fewer large donors and are reaching out for more contributors of small sums. Subsidies have been little tried in this country and involve many problems" (Grant and Hettinger 1940). This same study reports that by the late 1930s, the three most successful major symphony orchestras earned "only an average of 85 percent of their total budgets, while ... the whole group averages abut 60 per cent" (Grant and Hettinger 1940, p. 21). By the early 21st century, these operating results would be viewed with great envy by most orchestras.

Twenty-six years later, a landmark study of the performing arts opened with these words, which parallel the opening paragraphs of this book: "In the performing arts, crisis is apparently a way of life. One reads constantly of disappointing seasons, of disastrous rises in cost, of emergency fund drives and desperate pleas to foundations for assistance. While some performing organizations have improved their financial position, there always seem to be others in difficulties" (Baumol and Bowen 1966).
(Continues...)


Excerpted from The Perilous Life of Symphony Orchestras by Robert J. Flanagan. Copyright © 2012 by Robert J. Flanagan. Excerpted by permission of Yale UNIVERSITY PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Acknowledgments vii

1 Surpluses, Deficits, and Symphony Orchestras 1

2 Why Are Surpluses So Difficult to Maintain? 6

3 Cost Disease or Business Cycles? 19

4 Snapshots of Symphony Orchestra Finances 31

5 The Search for Symphony Audiences 40

6 Artistic and Nonartistic Costs 63

7 Government Support of Orchestras 91

8 Private Support of Orchestras 112

9 Symphony Orchestra Endowments and Governance 124

10 How Do Other Countries Support Their Orchestras? 144

11 The Economic Future of Symphony Orchestras 171

Appendixes 187

Notes 209

213

Index 219

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