Funding Theater
Abstract
This entry discusses the current funding strategy of two theaters in Cleveland, in the context of current funding strategies for theaters in the United States. The entry identifies the evolution of funding forms and strategies for US non-profit theaters, current trends, challenges, and examines these topics. Important financial information for the two theaters has been removed, because it’s not mine to give out, but if you contact me directly I’m sure between you, me, and the theaters something can be worked out.
Funding Cuts
Introduction
Western theater, as we think of it today: with staged performance and actors and writers, has been around for many thousands of years. While the origins of theater are unclear, speculation is that dramatic forms emerged from religious ceremonies, most likely in the form of ritual. That theater is related to religion is beyond doubt, as even the earliest forms of theater in the Greek world were identified with Dionysian festivals.
Theater has had as many funding models throughout the centuries as it has had forms. In ancient Greece, “theaters were supported by public funds, and the playwrights competed for prizes during the great festivals of Dionysus.”(Jacobus, 2005) As well, “The performances were paid for by wealthy Athenians as part of their civic duty. The great Greek plays thus were not commercial enterprises but an important part of civic and religious festivals.” This form suggests a similarity with the funding of non-profit theaters today in the United States: a mix of funding from private wealth and government sources. In Rome, drama was one of many forms of entertainment from which citizens could choose, so very like today theaters in Rome had to compete. Andreasen refers to this as behavior-level competition (Andreasen & Kotler, 2008): that many forms of entertainment are directly competitive with theater: movie theaters; sports venues; orchestras and ballets; parks and nature preserves; in short, any place or event that serves as an alternative to going to theater—even doing nothing at all. Except, in ancient Rome, the competition was sports events, gladiator battles to the death, chariot races, the slaughter of wild beasts, and sacrifices of Christians and others to animals. (Jacobus, 2005) In Rome, however, the “producer had to please the audience or lose his chance to supply more entertainment.” (Jacobus, 2005) Thus, theater was squarely a business proposition and no subsidized funding was received. Moving forward, European drama was re-born in the Roman Catholic Church as an accompaniment first to religious ceremonies, and then later moved outside of the church as the theatrical events grew. During this Medieval period, the general population was highly religious; and later, the people who produced plays were members of guilds whose personal pride was represented in their work. The religious or mystery plays gave way to cycles of plays that covered major religious events from Creation to Judgment Day. As Jacobus notes, “the demands of more sophisticated plays encouraged the development of a kind of professionalism, although it seems unlikely that players in the cycles could have supported themselves exclusively on their earnings.” (Jacobus, 2005) Theater evolved and by the “ second half of the sixteenth century, the early Renaissance, groups of wandering actors were producing highly demanding and sophisticated plays, and writers such as Shakespeare were able to join them and make a living. When these professionals secured their own theaters, they had no problems filling them with good drama, with actors, and with an audience. (Jacobus, 2005)” Theaters in this time were businesses and sank or swam based on their ability to earn money from audience attendance. In fact, “Shakespeare, who was part owner of the Globe and, later, of the second indoor Blackfriars Theatre, received money from admission fees and from his role as chief playwright. He became rich enough to retire in splendid style to Stratford, his hometown. Few other Elizabethan actors and playwrights had as much of a financial stake in their work as did Shakespeare.” (Jacobus, 2005) As Jacobus notes, “The entrance fee to the theaters was a penny, probably the equivalent of five to ten dollars in today’s money. For another penny, one could take a seat, probably on the bench, in one of the upper galleries.” In fact, this price is comparable to many small to mid-sized theaters in today’s market, including Cleveland Public Theatre and convergence-continuum: each of which charge between $10 – $20 per show, depending on the content and time of year.
Beyond the seventeenth century, probably the most notable evolution of theater occurred in the nineteenth to twentieth century when on the road of content, staged productions encountered a fork. Jacobus notes, that in England the “upwardly mobile urban middle classes and the moneyed factory and mill owners who had benefited economically from the industrial revolution demanded a drama that would entertain them.” Thus, plays became entertainment for the uneducated and their form and content was dominated by the “well-made play” and plays of such vapid and maudlin themes and plots that a rebellion began in Scandinavia with playwrights such as Ibsen and Strindberg introducing the theater of social criticism or social issue plays dealing with injustice in economic conditions and feminist themes. Jacobus writes that “as we begin the twenty-first century, the stage is vibrant. The great commercial theaters of England and the United States are sometimes hampered by high production costs, but regional theaters everywhere are producing fine drama. The National Theatre in London has made inexpensive seats available for most of its plays, and other theaters are doing the same.” (Jacobus, 2005) And on the other side there is “Poor Theater”–which is the counterpoint to Commercial Theater and seeks experimentation. Thus we have the twin tension of theater as entertainment (business) and theater as art and raising social consciousness (non-profit), which seem to be the fundamental divisions today.
History and background of funding in non-profit theaters
Nonprofit theater as we know it in the United States today was born of the “Little Theatre” movement in the early nineteen hundreds. Throughout the 1920s and 1930s a movement was born that resisted and even resented the commercialism of Broadway.
As Constance D’Arcy MacKay writes:
“The very name Little Theatre is salted with significance. It at once calls to mind an intimate stage and auditorium where players and audience can be brought in close accord: a theatre where unusual non-commercial plays are given; a theatre where the repertory and subscription system prevails; where scenic experimentation is rife; where ‘How Much Can We Make?’ is not the dominating factor.”(Mackay, 1917)
According to this same book, the movement can be traced to 1887 “when the first small experimental theatre was established in Paris.”(Mackay, 1917) The little theater movement exploded throughout the early part of the twentieth-century ending with the stock market crash of 1929 and the advent of the Great Depression. But during this short period little theaters sprang up all over the world and in nearly one hundred cities in the United States, from Philadelphia, PA to Portland, OR.
Cleveland is as much a mirror to this movement and history as anywhere else. The Cleveland Play House “was founded in 1915 by a group of eight prominent Clevelanders, among them Charles and Minerva Brooks, who sought to bring plays of substance to the people of Cleveland in an era dominated by vaudeville.” (Cleveland Play House, 2010a) Although not originally founded as non-profit theater, for the designation did not explicitly exists, the altruistic aims of its founders were clear enough, with Francis Drury donating the Ammon House on which the current Play House sits. And, in 1927 with 127 members, the company scraped together enough money to make renovations. (Cleveland Play House, 2010b) Going back to MacKay, who writes of the Cleveland Play House:
“It is apparent that such a theatre will not be self-supporting. The expense will be met in part by dues to be paid by the active members. To those who are not of the active group an opportunity is given to join in this work by becoming supporting members, upon a minimum payment of $25.00 per year.” (Mackay, 1917)
Thus, from an early point in the non-commercial theater we see the notion of subscription memberships which, no doubt, quickly gave rise to the annual appeal.
Per the above, the original funding model for nonprofit or “little theaters” was by subscription members; although other models existed including government ownership. In his book The Art Theater, Sheldon Cheney writes,
“Most American little theaters lean for their chief support upon a subscription audience. Because they are not endowed, nor capitalized, as is the business theater, they find the security enjoyed under this system necessary to any sort of permanency. But the subscription system has more advantages than the securing of a certain income each season. A subscribing audience always feels a proprietary interest in the theater. It is the link between the producing group and the community. This is a matter of such importance that I think that even an endowed art theater, with its implied economic independence, would be very unwise to abandon the subscription basis. From humble beginnings to maturity it should have its “members.”(Cheney, 1969; 1925)
Another model pointed to by Cheney is the Volksbuhne theater in Berlin, which at the time the book was written (1969) had 100,000 subscribers. It is notable that the subscribers also owned the theater. In this regard it is very like the Green Bay Packers, which is a city-owned football franchise. Thus invested, regulation of the organization is by elected officers and the cost of attending performances is very low. The added benefit is that theater artists can be maintained on staff; thus actors need not fear being downsized or cut due to poor attendance or other factors that affect theater operations.
One of the biggest transformations of the funding model for theaters came about due to the Great Depression. As early as 1933 the Roosevelt administration in Washington requested a pilot project in New York City that would “create jobs for idle professional people, especially women.” (Library of Congress, 2010) This plan grew and on January 21, 1935 funds were allocated by Congress for what would become the Federal Theatre Project. (Library of Congress, 2010) Although only active through 1939, this program “was responsible for hundreds of stage productions, both of classics and new plays written for the FTP, mounted in cities across the nation. The FTP is the only instance in which the Federal government was directly responsible for the production and administration of stage work on a large scale.” (Library of Congress, 2010) But perhaps more than anything, it signaled an interest in the federal government in funding arts projects and laid the foundations for what, 25 years later, would become the National Endowment for the Arts. As theaters developed and as foundations developed alongside them, there grew a slow merger of support. For the most part theaters relied and still rely on ticket sales and subscription fees. A frustration recently articulated in a New York Times article by Peter Zeisler, one of the founders of the Tyrone Guthrie Theater in Minneapolis:
“In America, there are major symphony orchestras, dance companies and opera companies that have a density of excellence unmatched any place in the world…Look at the amount of support these institutions have had, compared with what has gone to our theater. It’s ludicrous. That’s not to say that the support shouldn’t have gone there. But it is still not accepted that theater is not a profit-making business. We haven’t found a way in this country to sustain theater artists over a long period.” (Gussow, 1987)
Throughout the 1930s the Rockefeller Foundation was contributing to theaters, but the majority of its support went to college drama programs; this, at a time when foundations were largely supporting “practical and constructive” projects, such as medical education, international relations, and other university programs in language, history, and religion. (American Academy of Arts and Sciences, 2004) While the Rockefeller Foundation signaled a change in giving that would lead to the funding of theaters, the trend still favors the practical: that is, foundations tend to fund programs in theaters (especially educational programs) that have little to do with the true support that theaters need–reflecting instead the desire that theaters (and other arts venues) create something practical, measurable, and defensible with the money they are provided. This fact, too, is bemoaned in a very harshly worded diatribe by Mike Daisey against the large regional theater system in the United States (LORT theaters–League of Resident Theatres):
Better to invest in another "educational" youth program, mashing up Shakespeare until it is a thin, lifeless paste that any reasonable person would reject as disgusting, but garners more grant money. (Mike Daisey, 2008)
A quick glace around the theaters in Cleveland will only demonstrate too well the point, as small theaters such as Dobama to mid-sized theaters such as Cleveland Public Theatre, up to the large LORT theaters such as the Cleveland Play House all have education programs aimed squarely at children and young adults. The question, cynical or not, becomes, is this a part of the mission of theater, or did the mission of theater change to accommodate a financial beneficial approach to its operations?
Nonprofit theaters today are funded by a complex maze of sources and likely always have been: ticket sales and subscriptions; donations from individuals; grants from corporations, government, and foundations; concession sales and other attempts at for-profit activities.
History and background of funding for one Cleveland-area non-profit theater
In 1992, according to a report from the National Endowment for the Arts, an estimated 13.5% of the U.S. adult population attended a live dramatic theater event. This was up from 11.9% in 1982. In 1992, this estimated 13.5% represented between 24 and 26.2 million Americans. Further, the NEA reported that there was a frequency of attendance of 2.4 times per person, meaning that 60.2 million attendances of a live dramatic theater event were recorded in the United States. As this study was not repeated for 2002, it is somewhat difficult to gauge the trend, but if the trend has been sustained, 15.1% of the U.S. adult population attended a performance in 2002. With an estimated adult population of 216 million in the United States that means that nearly 33 million Americans attended a theatre event in 2002 and if the same 2.4 frequency of attendance applies, 79.4 million attendances would have been recorded. To put this in perspective, this year Major League Baseball gleefully reported 79 million people attended baseball games in the United States. The data described above indicates, at the very least, that there is great interest in theatre in the United States, and other factors point to the impact that active and successful theatres have on their communities. For instance, the June 24th Plain Dealer article "Energizing Detroit-Shoreway; Theater renovations, new building at the heart of neighborhood revitalization" presents evidence that successful theatres are a boon to revitalizing neighborhoods and increasing economic development. A fact further confirmed by the same NEA report mentioned at the outset, which concludes that "Dynamic forces shape [theater] participation patterns in each community, including characteristics of the resident and nonresident markets, the supply of producing and presenting activity, the availability of suitable performance facilities, as well as local traditions and history." And further, that vital [theater-going] communities will exist where vital theatre producing communities are active and available. The report specifically identifies highest theatre participation rates in "Seattle/King County (WA) where a thriving theatre community was observed, including playwrights, actors, and a plethora of small, experimental ensembles known collectively as ‘Seattle’s fringe theaters.’" (AMS Planning and Research Corporation, 1996)
Cleveland, Ohio, certainly has the potential of becoming one of the most successful theatre communities in the United States. It has a diverse mixture of urban education centers and populations, interested young artists, and established veteran performers, directors, designers, and technicians combined with an historic economic downturn that has left numerous, low-cost spaces accessible and available for use. This is to say that established, highly-priced, conservative theaters no longer hold the keys to gates of theater entertainment in the Northeast Ohio community.
Cleveland Public Theatre (CPT) is a nonprofit arts and culture organization that considers itself to be “Cleveland’s leading stage for experimental theater” with a goal of “producing innovative original work dealing with provocative political and social issues featuring culturally and ethnically diverse artists.” (Cleveland Public Theatre, 2009) CPT is located on the near west side of Cleveland in the Detroit-Shoreway neighborhood, an area now being referred to as the Gordon Square Arts District. Founded in 1981, CPT occupies a considerable campus along Detroit Avenue with six theater spaces, including two church spaces, the purchase of which was completed in January of this year. The mission of Cleveland Public Theatre is to raise consciousness and nurture compassion through ground breaking performances and life changing educational programs. With reference to the theater portion of its mission, CPT offers a variety of programs, including Dark Room, Little Box, Big [BOX], a full season of stage productions, and Dance Works. With reference to the educational portion of its mission CPT offers an array of educational programs, including Student Theatre Enrichment Program (STEP), Brick City Theatre, Y-Haven Theatre Project, and the Women’s Voices Project.
In 1981 James Levin founded Cleveland Public Theatre to be for Cleveland what LaMaMa theater company had been for him in New York City. LaMaMa’s mission is to “develop, nurture, support, produce and present new and original performance work by artists of all nations and cultures (LaMaMa ETC, 2009),” a mission that CPT also embraces. Early CPT programs reflect this focus and, more interestingly, an almost exclusive focus on theater. For instance, from 1983-1987 CPT provided “Free Shakespeare at the Zoo” at the Cleveland Metroparks Zoo and, according to its website, “CPT has supported innumerable emerging artists, arts organizations, and itinerant theatres” including “original work by innovative contemporary artists, including emerging playwrights and performing artists from the San Francisco Mime Company, Annie Sprinkle, and the Imani African American Dance Company” and originating the Cleveland International Performance Art Festival in 1988. Levin was the Founder/Artistic Director at Cleveland Public Theatre through 1998 when he turned the reigns over to Randy Rollison, who had been the artistic director of HOME for Contemporary Theater and Art and director of HERE, both off- off-Broadway theaters in New York. (Staff Writer, 1998) In April 2006, Raymond Bobgan took over as Executive Artistic Director a position that he continues to hold. Bobgan appears to have been a natural choice for several reasons: first, was familiar with CPT having been with the theater in one capacity or another since 1991; second, Bobgan briefly held the position of Artistic Director in the mid-‘90s when Levin left for a period of time. (Brown & Critic, 2005) Cleveland Public Theatre continues to advance the goals for which it was originally founded, producing thirty-eight different productions in 2009 including three productions by its educational programs.
History and background of funding at convergence-continuum
In 2000, convergence-continuum was co-founded by Clyde Simon and Brian Breth and incorporated as a non-profit with the State of Ohio; and in June 2004, convergence-continuum obtained 501(c)(3) tax-exempt status. In 2002 Breth and Simon undertook extensive renovations to convert the commercial portion of a landmark building in the Tremont neighborhood of Cleveland into a 40-50 seat performance space. The result was the Liminis an 1100 square-foot black -box theatre that is home to convergence-continuum. Certificate of Occupancy was granted to convergence-continuum from city of Cleveland in August 2002. In this same month convergence had its 1st production, QUILLS by Doug Wright, presented in a 4-week run. In 2003 runs were expanded to 5 wks. The 35th production will open the 2010 season in April. Since the 1st production, critical and audience response has been very positive and attendance mailing list and box office receipts and patron donations have increased annually. In 2004 and 2005 convergence-continuum received awards from Cleveland’s professional theatre organization Cleveland Theatre Collective: for Risk-taking choices and overall excellence in directing acting and design and the Cleveland Critics’ Award for Best Production (non-musical) of 2004/05 for its production of Paula Vogel’s play HOT ‘N’ THROBBING. In 2006 Cleveland Magazine named convergence "Cleveland’s Best Small Theater," and in Rave and Pan’s 2008 “Best of Cleveland Theater” Awards, convergence was represented in three categories: Actress of the Year, Best Original Script by a Local Playwright, and Best Actress in a Small Role. Additionally, convergence-continuum has been awarded three Gund Foundation grants for 2005, 2006 and 2007 seasons, three Ohio Arts Council Arts Access grants, and three Cleveland Foundation grants for 2007, 2008, and 2009.
Since its inception in 2000, convergence-continuum has had the core artistic mission to produce "theatre that expands the imagination and extends the conventional boundaries of language, structure, space and performance that challenges the conventional notion of what theatre is." The programs offered to the community are consistent with this core mission. Convergence has an artistic vision that is unique to the Cleveland area and thus is offering the community an opportunity to experience a totally different style of theatre than what is currently being presented locally. Convergence has had considerable feedback from the community regarding the quality of its work and the artistic identity that has been forged in the Northeast Ohio theatre scene. In post-show conversations and survey responses, audience members have commented that the type of theatre experience that convergence provides was completely new and exciting for them. Others compared it to experiences they’ve had in New York or European cities. In this regard, convergence-continuum is committed artistically (as a theatre and down to each individual artist) to creating a unique, powerful theatre experience that expands the audience’s perception of what is possible in the theatre.
Like many non-profit organizations for a substantial period of time convergence viewed grants as the key to their strategy–this beyond the obvious revenue stream generated by ticket sales which is the life blood of most performing arts organizations regardless of its inability to fully cover all costs associated with productions. Other forms of fundraising include approaches to local businesses and merchants for either small cash or in-kind donations: which often as not didn’t work out. Convergence has been sending out an annual appeal, Simon learned this approach by working in other theaters, most notably the Flea Theater in New York. But it was likely viewed as 1) a way to keep in touch with people who signed the mailing list, and 2) a method of picking up some extra money by asking for donations. The annual appeal is the foundation of a strongly supported organization (one that has the “ability to expand the donor base” (Seltzer, 2001), as well the annual appeal is key to identifying future “prospects for larger and planned gifts” (Seltzer, 2001). Based on the clear evidence supplied by multiple sources, including the text already cited, the annual appeal will become “the essential element” (Seltzer, 2001) in convergence-continuum’s funding strategy.
Funding Approaches of Non-Profit Theaters
As was mentioned at the outset, there are several funding streams that non-profit theaters use: of them all, the most notable is ticket sales. This method shares the most in common with for-profit business models of funding. Like any other business, the key elements to a funding strategy that relies on ticket sales is the cost of tickets (seats), quality of the product, and the characteristics of the local market (Marburger, 1997). Cost of tickets is a factor, as any form of entertainment will be immediately compared with any other form by a consumer at what Andreasen and Kotler refer to as Behavior-level Competition: for instance, do I pay $15 to see a play or $12 to see a movie. Or, at what Andreasen and Kotler refer to as Enterprise-level Competition: do I pay $15 for a play at theater X or $45 for a play at theater Y. (Andreasen & Kotler, 2008) Next within this framework is the notion of quality: does a play at theater X have the same production values, quality of content, etc., as a production at theater Y? And finally, what are the characteristics of the local market: are there a lot of theaters from which one may choose? Is theater a valued choice amongst all the possible entertainment choices in the market? What additional features are available at the given theater venue?–concessions, facilities, parking, and so on. An additional feature of ticket pricing is pointed out by Oster, Gray, and Weinberg:
Pricing can also help to change the timing of demand. By offering a lower fee for off-peak use of a service, an organization may be able to stretch its capacity to offer service to more people. Recreation centers, for example, may charge a lower fee during the day to encourage people to use the facilities at times other than morning or evening peaks when demand stretches capacity limits. (Young, National Center on Nonprofit Enterprise, & Foundation Center, 2004)
At most nonprofit theaters ticket sales represent 40%-50% of the operating budget. The practice of selling tickets is both a revenue stream and a tradition. In most cases, performance art venues have tickets whose whole cost is subsidized in part by a foundation or government unit. That is, the attendee to a performance pays a fraction of the whole cost associated with an event. Thus, Young and Steinberg quote Henry Hansmann, noting that “donations to arts organizations” are a “form of voluntary price-discrimination” where “organizations can charge a lower than break-even ticket price with the expectation that donors will step in and allow the organization to survive.”(Young & Steinberg, 1995)
Another revenue stream available to theaters is that of memberships, annual appeals, and subscriptions. Beginning with the latter, as it is most related to the previous section on ticketing, subscriptions are a highly valuable and desirable revenue stream for theaters. Called “product bundling” by Oster, Gray, and Weinberg, theaters can sell season subscriptions that bundle their seasonal performances with a selection of other offerings, such as more experimental pieces (based on patron selection), to encourage attendance at these events. Beyond that, selling in volume has distinct advantages in that the money for a full season of offerings is gained up front, and attendance at events is encouraged, as purchasing the tickets in advance is a sunk cost for the patron–having spent the money the patron either sees the performance or they do not, the theater already has the income.
Again, per Oster, Gray, and Weinberg:
Theaters sell subscriptions to most or all of the plays produced in a season. In these subscriptions, theaters offer a series of plays for a price that is slightly lower than the price of the separate tickets, pushing patrons to attend a play they might otherwise eschew.(Young & Steinberg, 1995)
Season subscriptions are often an outcome of, or directly related to Memberships. This depends largely on how the theater in question handles the two. Often, a membership includes subscriptions at a discounted price. Usually memberships include other features, including access to preview versions of performance events, access to exclusive events–such as mingling with directors and actors at Stages at the Cleveland Play House, and mention in theater programs. As discussed by Michael Seltzer in Securing your Organization’s Future, the annual appeal is an extension of membership:
The base of most organizations’ support is their membership–the large number of donors who make relatively modest contributions each year, usually to an annual fund appeal. Almost every individual whose first gift to an organization is less than $250 becomes a prospect for the annual fund campaign. The annual fund campaign is an essential element, perhaps THE essential element in an organization’s development plan because of its ability to expand the donor base and identify prospects for larger and planned gifts–this in addition to generating contributions… Fundraisers would do well to concentrate on building this base of support instead of hoping for an immense gift from one individual… (Seltzer, 2001)
Because theaters engage in offering performance goods to the general community, theaters are in the unique position of capturing detailed information on those who regularly attend performances. With the advent of online ticket sales and easily implemented credit card point-of-sales systems in the box office, theaters have at the tips of their fingers not only detailed information on attendees to performances, but a host of pre-formatted computer coded information that can be broken out, sorted, and sifted by a number of pre-existing fields. For instance, the address and zip code provide easy access to geographic data that can infer demographic data as well. But perhaps more importantly, by having detailed personal information on who had purchased tickets, contact can be instigated almost immediately and if the product is good and patron enthusiasm is there this ticket sales information can be quickly converted to membership commitments or subscription sales. Other than ticket sales, individual giving–be it memberships, subscriptions, or annual donations–represents the largest, consistent source of external funding for theaters.
Programs offer the potential for expanding revenue streams to theaters, but must be created carefully and must fully meet the intentional mission of the organization–as there is a real danger of mission drift associated with chasing money, and often there are substantial hidden costs associated with programs and engaging in them has unintended consequences. Cost benefit analyses should be undertaken to assure that any program will be fully covered by the revenues that the program will create, and that, ideally, the program will generate surplus revenues for other purposes. For example, Cleveland Public Theater offers several community programs that address the needs of many segments of the at-risk community in Northeast Ohio, from children through adulthood. Brick City Theatre is a partnership with Cuyahoga Metropolitan Housing Authority and “offers safe, after-school arts programming on site for children ages 5-14 who live in public housing.”(Seibert, 2009a) STEP is an “arts education and job training [program] for low income urban teens. Youth develop performance, academic and interpersonal skills as they create and perform an original play that is toured to public parks in Cleveland.”(Seibert, 2009b) The Y-Haven Theatre Project is a program for “residents of Y-Haven, a transitional facility for homeless men in recovery. The men learn performing arts and technical aspects of theatre to create, and perform for the community, an original play based on their personal experiences.”(Seibert, 2009d) The Women’s Voices Project is similar to Y-Haven, except it is a program for “women in residence at the Elyria YWCA Campus Project who are recovering from domestic abuse or addictions and transitioning to independent living.”(Seibert, 2009c) Each of these programs, excepting Brick City Theatre, produces a theater performance which is staged at Cleveland Public Theatre as a part of their annual season offering. Additionally, these activities are meant to demonstrate CPT’s commitment to the Northeast Ohio community and belief that theater is transformational and can have a positive, definitive, and lasting impact on people’s lives. Many of these programs, on the surface, blur the line between theater and social services.
Advertising and sponsorship is becoming a more common way for nonprofit organizations to generate revenue streams. Broadly, this method of funding suggests that a corporate sponsor gives money to the nonprofit and in return that company has its brand or profile elevated to the patrons of the theater or art events. The most common form of advertising in theaters comes through the program or playbill that is distributed, in many theaters, prior to each show. Advertising is a sticky form of revenue as the IRS has exotic rules with regard to unrelated business income tax, and advertising is one of those areas to which these rules apply. IRS rules also are very clear with regard to sponsorship, in particular with reference to what is allowed and what is not. This can be demonstrated very clearly with regard to WCPN radio broadcasts. Organizations can pay WCPN to deliver on air messages regarding their activities and programs, but these messages must be crafted in such a way that they are purely informational in character and do not urge listeners to take any particular action with regard to the message just received. This is because encouraging an activity one way or another constitutes a form of advertising which places any revenue in an unfortunate IRS category. More often today, sponsorships take the form of for-profit and non-profit partnerships. One of the more interesting relationships was discussed in a Masters Thesis by Michael L. Musick in 1999. The relationship was between Stages Theater Company in Orleans, Massachusetts and American Communications Network (ACN). ACN is a “customer acquisition company that markets leading telecommunications products and services to the United States and Canada.” (Musick, 1999) To make a long story short, ACN works very like Amway, where a representative can both sell products and services as well as recruit new representatives. In this model the original representative makes money from both the sales of products and services as well as a percentage of income from the activities of the new representatives he or she recruits. In the case of ACN the product or service is telephone services and Stages Theater Company successfully encouraged 93% of its patron base to sign up. Earning between 2%-8% of each dollar from the services, Stages brings in around $1,000 per month from this arrangement. ACN benefits by gaining access to the customer base of Stages Theater Company.
External support is probably the single most common form of nonprofit revenue other than ticket sales and the support of individuals. I chose the heading “External support” which includes support from Foundations, Government, and Corporate sources. As discussed above, this form of support is usually attached to some activity that is views as practical or that shows a demonstrable benefit to the community: like an educational program for children or teens, though obviously there are exceptions. According to Seltzer, “foundations represent the philanthropic interests of their founders and the interests of their founders’ appointees, who serve as stewards of the foundation’s assets.” (Seltzer, 2001) The best current example of government support is the Cuyahoga Arts and Culture funding that was created by voters in November of 2006. This ballot initiative placed a ten-year tax on cigarettes to fund arts and culture activities in Cuyahoga County. Most notable about the CAC funds it that the program gives out General Operating Support funding that covers two years of operations. CAC also provides Project Support Grants. Project Support Grants are matching grants in that the CAC will fund only 50% of a project requiring the other 50% to be funded by other sources of funds or funds of the receiving organization. It is rare to find a foundation that will provide on-going support to an organization. For this reason, and others, nonprofit theaters should recognize clearly the danger of relying on foundation support for revenue and the need for a broad base of organizational funding.
Fundraising events are a popular form of raising dollars that can be used for operating purposes. Convergence-continuum has an annual fundraiser which varies in its theme. Cleveland Public Theatre also has an annual fund raiser called Pandemonium. Fundraising events have the potential to merge many of the previous forms of support, including individual contributions, memberships, annual appeals, and has the added bonus of being a form of “face-to-face solicitation.” (Seltzer, 2001) For convergence, fundraising events capitalize on the theater’s ability to get free in-kind donations of virtually anything, it seems; and the downtime in its performance calendar (convergence closes during the winter due to the high cost of heating the space). The fundraiser for convergence consists then largely of overhead costs associated with the physical space, as all items are donated and all event management activities are voluntary. The biggest threat to an organization running a fundraising event is that the cost of the event will exceed the revenues brought in.
Going back to the Masters Thesis by Michael L. Musick in 1999, there is another example that is worth mentioning that represent “other categories” of revenue. This example is that of Westbeth Theatre Center in New York, which partnered with an area restaurant to generate concessions revenue:
Westbeth wanted to provide their audiences with a cabaret that served food and alcohol. The restaurant wanted to provide their customers a cabaret environment that offered entertainment. Westbeth had the cabaret space and a ready pool of entertainment talent and the restaurant had the food service expertise, equipment, and a liquor license. This symbiotic relationship is of a conjugate nature and is a classic example of what Kotler and Scheff call a strategic collaboration. A non-profit organization joins forces with a business to both expand their customer base and develop new funding sources for both parties.(Musick, 1999)
Interestingly, in his article, Marburger cautioned that ticket prices had a direct impact on concessions income and that if theaters (or other venues) wished to maximize income from concessions that ticket prices should be low–as the money not spent on tickets usually went to concessions. Thus, any increase in ticket prices adversely impacts concessions sales. Interestingly, Marburger pointed out that this relationship is not of as much concern if the organization outsources its concessions, since it is seeing little (if any) of this revenue. This observation by Marburger may point to a reason why the relationship between Westbeth and the restaurant eventually did not work out. (Marburger, 1997)
Some organizations, including Cleveland Public Theatre, have space rental as one stream of earned revenue, and sometimes rent equipment as well.
Trends in non-profit theater funding
As mentioned above, theaters have always relied on subscriptions and ticket sales; however, for a significant period of time reliance on external support had been taking up more and more of theater budgets to the point that theaters, like the Raven Theatre in Chicago, relied on unearned income to make up 70% of its annual budget. (Fields-White, 2010) Theaters like convergence and Cleveland Public Theatre have always relied on a patchwork of funding sources: for instance, CPT’s budget ending 2009 had grant funds and ticket sales. Total earned income at CPT for 2009 consisted of ticket sales, fees, rentals, concessions, and advertising income. But this represents only 18% of their total income. With grants and benefit events making up the rest. Sources of unearned income for CPT include grants from Cuyahoga Arts and Culture (CAC), Gordon Square Arts District (GSAD), Detroit Shoreway Community Development Organization (DSCDO), Ohio Cultural Facilities Commission, Ohio Arts Council, and a number of foundations, including the Gund Foundation, the Cleveland Foundation, the Shubert Foundation.
However, as a recent discussion in Crain’s Chicago Business has made clear, and to quote a Bob Dylan song, “The times they are a changin’.” According to Jackie Keenan on the Crain’s Chicago Business multimedia newscast, seats in Chicago theaters are filling up–so ticket sales are increasing as the recession seems to lighten; however, funding from foundations, state government, and corporations have dropped significantly. Thus, any gains that theaters have made from individuals have been undermined by losses on the unearned side of the ledger. (Fields-White, 2010)
“Giving to arts and humanities groups likely dropped 5% last year from $12.2 billion nationwide the year before, says Edith Falk, CEO of Chicago-based non-profit consultancy Campbell & Co. That’s following a 6.4% plunge in 2008 and a 7.8% rise in 2007 — just before the start of the recession. And that’s on top of a 63% reduction in the state’s Illinois Arts Council budget.”(Fields-White, 2010)
For instance, the Raven Theatre Company with a $300K+ budget recently experienced a 30% cut in state funding and had to switch from a model in which 70% of their income was unearned toward a model where earned income assumed a greater role (they now have 50% of their budget in unearned income). Accordingly, the Raven has seen an increase in subscriptions, moving from 40 in 2008 to 400 in 2009. It is likely that Ohio will face a similar circumstance with a $640 million shortfall in 2009 and a likely similar shortfall in 2010. Inevitably, these deficits will adversely impact arts funding in Ohio. (State of Ohio, 2010)
The consequence for large financial losses in theater budgets include “slashes” in production budgets (less flashy sets, costumes, etc), “slashes” in advertising budgets, “slashes” in staffing, and theaters are now producing plays with greater commercial appeal (Fields-White, 2010)–a move which is a death knell for new works and new playwrights. Thus, per Musick’s masters thesis discussed above, theaters are increasingly having to explore more entrepreneurial options and arrangements with corporate partners in order to make the bottom line balance. Nonprofit theaters may be experiencing a startling return to their roots in terms of cultivating individual subscribers, theater memberships, and a self-reliance that, while it might be frightening, may be refreshing as well.
In-depth discussion of convergence-continuum’s approach to funding its theater.
The primary source of revenue for convergence-continuum is ticket sales. Convergence is unique in that its operations rely almost exclusively on voluntary labor. Those who work with convergence are extraordinarily committed to theater and especially the sort of theater that is produced by convergence: edgy, experimental, contemporary and challenging to the audience. This is to say that the variable costs associated with a production are low, with the main cost for each production being the cost of the performance rights owed to the playwright or publisher of the play being produced. All other costs which would confront a “normal” theater are absorbed by the efforts of the company: costumes are pulled, usually, from the massive stock of clothing and costumes already owned–else new items are brought in by volunteers; sets are created by two day blitzes in which ten to twenty volunteers descend on The Liminis and turn the black box into an imaginary world; actors are given a small honorarium at the close of the performance; the box office is staffed by volunteers as is the house staff, and the operator of the light and sound board. Depending on turn out or interest in a particular play, the revenues for a production can vary.
As was mentioned in the initial consideration of ticket sales above, most nonprofit theaters rely on a portion of their ticket prices to be subsidized in whole or in part by a donor; this is true for convergence as well. The total income (ticket sales + concessions + donations) for one of convergence’s more popular 2008 shows: Freakshow represented 63% of the total necessary to simply break even. Ticket prices at convergence are $15 for general admission and $12 for students and seniors. Given the above example, these ticket prices represent 63% of the actual cost that should be charged per ticket. At the very least, ticket prices at convergence should be between $20 -$25 in order to ensure costs of operating the theater (at a minimum level) are covered.
The problem with raising ticket prices to fully cover expenses is that ticket pricing falls into the economic category of price-elastic demand. As noted by Young and Steinberg, “in general, an increase in price will decrease the volume of sales.” (Young & Steinberg, 1995) This is not rocket science, as it is well documented that price increases tend to decrease demand, but for performance goods this seems to be especially the case, and, oddly, lower prices tend to increase revenues. There is even a principle associated with this effect: “When demand is price-elastic, an increase in price will decrease total revenue and a decrease in price will increase total revenue.” (Young & Steinberg, 1995) This is so because the increase in volume caused by lower prices will be enough to offset the loss per ticket. However, we’re not finished with the conundrums yet, as this rule is thrown off again because usually there is fixity of seats within a theater which substantially limits the volume that can be obtained–a doubly potent problem for a theater like convergence, which can muster between 40-50 seats per show. This limitation has the effect of placing ticket prices in the inelastic portion of demand, because convergence is very likely to sell all of its seats and as the principle states: “When demand is inelastic, an increase in price will increase total revenue and a decrease in price will reduce total revenue.” (Young & Steinberg, 1995) However, this is only so as long at the prices being offered are comparable to the prices being offered at comparable organizations in the same market: as any notable increase may cause patrons to replace one theater’s product with another that is priced less: referred to as “availability of substitutes.”(Young & Steinberg, 1995) This forces theaters to rely as much on loyalty as anything else. The matter for theaters becomes even more complicated as many offer concessions. Referred to as complements in the economic literature, concession sales can be adversely impacted by an increase in pricing on tickets, as the two are “consumed together… Thus, the cross-price elasticity is negative for complements.” (Young & Steinberg, 1995)
Advertising as a revenue stream is complicated, as mentioned above, with regard to unrelated business income tax, but convergence has used advertising in the past as a way of paying for its program production. This was done in 2008 as a combination of pro-bono printing by a local printing company and a concerted effort to attract local businesses for advertising space. Unfortunately, it was not repeated in 2009, as the pro-bono printing offer was not extended for a second time and businesses were not approached quickly. This highlights one of the real problems of operating a theater with a primarily volunteer staff: it is difficult to get people to take ownership of a process. Very like fundraising in general, approaching businesses about advertising is “an ask” or “a sit” and the person doing the ask must be confident and assured in what he or she is asking for and clear in explaining the options available. It is also generally best if that person has a prior relationship with the business or individual being approached. In lieu of this, many volunteers do not feel comfortable in a process like this and will avoid participating or fail. Advertising also includes sponsorship dollars. Convergence has used sponsorship in its annual benefits, getting various companies to donate materials and then post a banner, for instance, to take credit for their contribution. This process again must be carefully considered as there are IRS regulations regarding how sponsorship occurs and what the context, timeframe, etc., is.
As mentioned previously, the number one source of earned income for convergence-continuum is ticket sales. Until recently, the number one source of unearned income was grants. Convergence-continuum, very like Cleveland Public Theatre mentioned above, has created a patchwork of external funding sources to subsidize the price of tickets to make the break-even point on productions. Between 2005 and 2007, convergence-continuum was awarded three Gund Foundation grants, and between 2007-2009 convergence was awarded three Cleveland Foundation grants. From 2005-2007, convergence received three Ohio Arts Council Arts Access grants and from 2008-2009 convergence received two Cuyahoga Arts and Culture Project Support Grants. As mentioned above, with regard to the current climate for theaters in Chicago, convergence discovered early that relying on foundation support for operations was a tenuous proposition and discovered the need to look for a plan of funding that uses a variety of sources.
Summary and Recommendations
Western theaters have moved from extensions of religious institutions and civic festivals subsidized wholly by wealthy patrons or religious institutions to for-profit ventures whose product had to meet the tastes, desires, and expectations of the popular audiences who paid the ticket price. Theaters have undergone this movement back and forth time and again very much like Newton’s cradle. In modern times the two divergent approaches to theater are firmly in place, with for-profit theaters taking on investors for each production and banking on high attendance rates in places like New York City and London. Nonprofit theaters very much rely on the older approach of having their operations supported wholly or in-part by wealthy patrons–now foundations or government sources–or subscriptions and memberships. While ticket sales still account for a significant portion of nonprofit theater funding, a significant portion of the operational expenses for nonprofit theaters are funded through unearned sources.
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