Abu Bratsche

Of business models and the breakage thereof

Every crisis creates its own buzz phrases. Hurricane Lehmann and the resulting economic meltdown has created a suitably scary one for our industry, and I'm hearing it more and more: "the model is broken."

The latest manifestation is an article by Michael Kaiser, president of the Kennedy Center in Washington DC, on the Huffington Post website:

One of the Fellows participating in the Kennedy Center Arts Management Institute raised a serious question with me: can the traditional model of a symphony orchestra work in the United States? He observed that salaries are very high for musicians, conductors and guest artists, and ticket demand is not strong enough to cover most of these costs. High ticket prices are stifling that demand and contributions will continue to have to grow very rapidly to cover inflation.

I cannot argue with this analysis. Somehow the cost structure for American orchestras has risen to the point that every orchestra is likely to struggle to make ends meet...

Already we see a series of regional symphonies closing, shortening their seasons or radically restructuring their contracts with musicians. Unfortunately, this is an ugly process that all too often is pursued with a sledgehammer.

Frustrated board members and administrative staff often approach restructuring with a feeling of vengeance: the musicians are getting what they deserve. They are all overpaid anyway argue the leaders of the restructuring.

While supply and demand must be used to evaluate salaries, the salaries for orchestral musicians are virtually always less than the salaries of the stagehands who set up their music stands and chairs! The challenge is that there are so many of them. A major symphony has over 100 musicians; their salaries represent a large and fixed cost.

So boards and administrators who are trying to make ends meet, and do not have the wherewithal to build earned and contributed income, look to reduce this high fixed cost. Musicians, unfortunately, are easy targets, for they have far fewer employment opportunities than the administrators who employ them; when a situation gets ugly the administrator can leave for greener, or friendlier pastures, the musicians are left to deal with reduced weeks of work and lower salaries.

Actually it is possible to "argue with this analysis." First of all, not only is " every orchestra... likely to struggle to make ends meet," but this has been the case literally for decades. I think it would be more helpful to look at what costs are rising relative to what revenue sources.

Musician compensation, for example, is going up in some places and not in others. My orchestra is making the same salary as we did over ten years ago, although obviously health insurance costs have gone up. And we don't appear to be unique in trying to pay 2009 prices on mid-90s incomes.

I suspect that there are some near-universal trends in our business, though. One is that most endowments increased in value substantially over the past two decades and orchestras grew increasingly dependent on them, which is a big problem when endowments tank as badly as they have in the last year. Another is that marketing costs are increasing inexorably compared to ticket revenue. Another is that staffs are getting larger (part of the marketing costs are, of course, staff costs). And probably the most important is that audiences, while relatively stable in absolute terms, are decreasing relative to the US population, and what we know of attendance trends for live music (and not just our corner of the live music business) is not encouraging for a future in which we depend on paid attendance.

Claiming that "the model is broken" because it's hard to balance orchestral budgets in the middle of the worst economic downturn in 70 years is like claiming that a cool summer day disproves global warming. But I suspect we will look back on the past year and the coming several years and recognize that a business model for American orchestras has been breaking down for a while now; the curent storm simply stripped away the curtains.

The good news is the way we've run orchestras the past few decades is not the only way it can be done; it's not even the only way it can be done to produce orchestras of artistic excellence that pay musicians a living wage. The current model is a non-profit version of a long-running Broadway play. But why should a non-profit imitate a profit-making business?

Non-profits bear that description for a reason; they're not supposed to make money. It's supposed to produce social benefit. We don't have for-profit universities (or at least very, very few); universities receive massive government subsidies and private donations. We don't have for-profit primary education; even private schools depend on donations. We don't have for-profit libraries. We certainly don't have for-profit art museums; most museums depend on massive donated endowments which, for some strange reason, they call "collections."

And most of these non-profits have a much clearer idea of how they differ from for-profit enterprises than do orchestras. They don't expect to make lots of their budget from user fees (what we call "ticket sales.") They don't expect to spend massive amounts of money and staff time on marketing in order to capture those user fees. What do most orchestras really net on ticket sales after all the money spent marketing those tickets (which often includes guest artists, if truth be told) is subtracted from the gross? Add in the sunken cost of the very sexy new venues to encourage those people to buy tickets, and the net begins to look very small indeed.

The most telling line in Kaiser's article was:

...ticket demand is not strong enough to cover most of these costs. High ticket prices are stifling that demand and contributions will continue to have to grow very rapidly to cover inflation.

But that's not really the way orchestras work, even now. Money is famously fungible, but I've always thought of ticket income as going to to pay the marginal costs of giving concerts. Contributions (and past contributions in the form of endowments) are what pay the fixed cost of having a full-time orchestra. It's the difference between paying to have an orchestra and paying to use that orchestra; contributions pay for the former, ticket sales for the latter. From my observations, the current model is coming unglued in the relationship between the costs of using the orchestra that the community has paid for with donations, and the money netted from using the orchestra. To give a stark example: if the musicians in my orchestra worked for free, ticket sales still wouldn't cover the costs of giving concerts. And, as in our struggling to make 21st century ends meed on 20th century incomes, we're probably not alone in that either. That looks like a broken model to me.

I don't know what a new model of a sustainable orchestra will look like. I don't think it's going to look like a shrunken version of the current one, though.

From under a rock emerges A Strategy

The announcement on Friday of the previous weeks' vote by the Honolulu Symphony board to file for bankruptcy included this charming piece of thinking:

Given its current and projected financial status, the Society cannot continue to sustain a 64-piece orchestra, Mechling said. We cannot continue with business as usuaL... In order to do this we must be far more strategic, leaner, more efficient and willing to creatively and artistically work with a substantially smaller core group of musicians that will be the base for our sustainable future, she said.

And how do they plan on getting to that "substantially smaller core group of musicians?" They're going to start by ending health insurance coverage for half the orchestra:

Steve Dinion, chairman of the musicians orchestra committee, said the musicians were devastated by yesterday's announcement....He added that about half of the symphony's musicians were notified yesterday that their health insurance coverage would be terminated by HMSA.

That's a pretty clear hint to their thinking about the proper size for the HSO; as was, of course, the article's sub-headline:

Struggling orchestra to file for bankruptcy; may lay off 32 musicians.

But it's definitely "creative"; unilaterally ending health coverage for half of an orchestra is a stunt that's never been tried before.

They get no bonus creativity points for believing that Honolulu can support a full-time chamber orchestra, though; not only is downsizing an orchestra to a chamber group not original, but it's not going to work. Chamber orchestras are not an easier sell to funders, or audiences, than are the full-size model; just ask the musicians in St. Paul, who took a pay cut almost as as big as did the HSO musicians last winter.

It's this kind of thing that gives the doctrine of Hell emotional credibility.

Dept. of Homeland Obviousness update

If the person who wrote the headline for this article went to J-school, they should get a complete refund on their tuition:

Honolulu Symphony Bankruptcy Disturbs Musicians
Musicians Fear Uncertain Future

HONOLULU -- News of the Honolulu Symphony's bankruptcy announcement is sending shock waves through the community.

Now the city auditoriums department must scramble to find other acts to fill the Blaisdell on dozens of dates vacated by the Symphony.

Some young musicians, who just came from the Mainland to join the symphony, said they are wondering why they ever took the risk.

At the musician's union symphony musicians practice in spite of their uncertain future.

Matt Eckenhoff is one of eight musicians to just join the Honolulu Symphony that's now filing for Chapter 11 bankruptcy.

"We are disappointed, really more than anything, we just want to play. That's our livelihood. That's how we make our money and we are sad we are not able to do that," said Eckenhoff.

Eckenhoff said he still has not been reimbursed thousands of dollars he paid to move to Hawaii from Houston and said he's just signed a six-month apartment lease.

"We haven't given up all hope yet," Eckenhoff said.

Honolulu Symphony files for moral bankruptcy

The truly shocking part of this announcement is the fourth paragraph (italicized):

The Honolulu Symphony Society Board of Directors announced on Friday that it has decided to file for Chapter 11 bankruptcy.

The announcement comes after more than a week of uncertainty. The chairman of the Honolulu Symphony's board of directors told KITV, that as of last week the symphony did not have enough money to make its payroll.

The city stopped selling tickets to the symphony's November events on Thursday because of rumors that the orchestra would cancel those concerts. The symphony said it will not be able to complete the rest of the season in 2009. It is uncertain if it will be able to complete other dates in 2010.

The board said that it voted on Oct. 30 to file for Chapter 11 bankruptcy and that it is $1 million in debt.

“Given its current and projected financial status, the society cannot continue to sustain a 64-piece orchestra,” Honolulu Symphony Society Executive Director Majken Mechling said in a written statement. “We cannot continue with business as usual.”

The musicians' union president Brien Matson had been waiting for a call back from Honolulu Symphony officials for one week to learn about the future of the 110-year-old organization.

"Even now, political leaders, citizens, corporations and foundations in this State have an opportunity to step in and become more involved with the future of their orchestra. It is a 'moment of truth' for Hawaii in terms of its actual cultural commitment," Honolulu Symphony Society Chairman Peter Shaindlin said in a written statement.

Why on earth would they vote to file for bankruptcy a week ago and not tell anyone (including the musicians) about it until today? Worse, they went around dodging phone calls from both the press and the union. Worse yet, until Thursday, they were selling tickets to events they knew wouldn't take place because the orchestra had no money and would be embroiled in bankruptcy proceedings for many, many moons.

Is there something in the pineapples out there in mid-Pacific that causes people to treat orchestras so badly?

Update: an article for the Pacific Business News had some even more interesting mendacitiies:

The Honolulu Symphony Society Board voted to file for bankruptcy at a meeting on Oct. 30 but waited a week to announce the decision, until after management met with the musicians’ union.

Which presumably is why management hasn't been returning the union's phone calls this past week.

The article also reported on management's thinking about the future. It's shockingly - strategic:

“Given its current and projected financial status, the Society cannot continue to sustain a 64-piece orchestra,” Mechling said. “We cannot continue with business as usual.”

The board, which met with the musicians’ union on Friday, has proposed reorganizing the symphony as a smaller orchestra whose costs would be more in line with revenues.

“Our suggested goal was to provide a year-round platform of music for our community that will reflect the desires of the community we serve,” Mechling said. “We want to bring to the residents of Hawaii classical, pop, local entertainment and new musical opportunities that the next generation can embrace, appreciate and sustain for the next 110 years.

“In order to do this we must be far more strategic, leaner, more efficient and willing to creatively and artistically work with a substantially smaller core group of musicians that will be the base for our sustainable future,” she said.

Whatever else the management can't do, they have certainly mastered the buzzwords of the current zeitgeist. But perhaps they think it's good that they're willing to "creatively and artistically work with" musicians, albeit "a substantially smaller core group of musicians." This will, of course, require the musicians to be far more strategic - especially in the balancing of their checkbooks.

Do they have strategic food pantries in Honolulu?

Yet more trouble for Honolulu

Things look bleak in Honolulu, even after a $1.8 million gift in September:

The chairman of the Honolulu Symphony's board of directors told KITV on Wednesday, that as of last Friday, the symphony did not have enough money to make its payroll.

Peter Shaindlin said he hopes to make an announcement about the symphony's future by the end of the day Friday. He refused to confirm whether the orchestra will file for bankruptcy or postpone part of its season.

The symphony has already put off two concerts this weekend.

Meanwhile, KITV has learned the musicians' union filed a complaint with the federal labor board, because the symphony reduced the pay of 25 part-time musicians retroactively, without negotiating with the union.

The union said that violates federal labor law.

Symphony leaders said they disagree with the union's complaint. The union filed its complaint with the National Labor Relations Board on Oct. 23, the same day part-time musicians found their paychecks were reduced by as much as 50 percent, according to Steve Dinion, a symphony percussionist and union spokesman. He said the amount of money in question is worth "several thousand dollars." He called the move "an unprecedented illegal attack on our contract."

The symphony has not made payments to the musicians' pension fund for months, Dinion also said. The symphony has already slashed $1 million from its operating budget this year, paring expenses down to $7 million, Dinion said. He said full-time musicians have taken 15 percent paycuts worth $500,000 of those savings.

In September, the symphony repaid employees 15 weeks of back pay, with the help of a $1.8 million dollar advance from the symphony's foundation's endowment.

A statement in an earlier article that the orchestra has "struggled financially for the past several years" is one of the great understatements of the year, though. For reasons which are not clear to me, the Honolulu Symphony has been a poster child for institutional dysfunction since before I came into this business, as a quick review of the archives of Senza Sordino will demonstrate.

from the April 1969 Senza Sordino:

Twenty-eight members including the orchestra chairman were dismissed from their positions in the Honolulu Symphony Orchestra by the new Musical Director, Mr. Robert LaMarchina, during May, 1969, three weeks after the end of the symphony seasons. The Symphony members had just ratified a new contract on the strength of specific promises by Mr. I. B. Peterson, president of Local 677, to set up a renewal committee from members of the orchestra and to enforce any decisions made by this committee. Subsequently, seventeen musicians appealed to the Local for review by Mr. Peterson's renewal committee; ten of these appeals were upheld by the committee, but only ONE orchestra member was reinstated as a direct result of union action. Four other members were given belated union support in the form of a compromise, and the other five upheld members including Orchestra Committee Chairman Lawrence Pride were refused any support by the Local. Mr. Pride, who had been very active for two years as chairman, was forced to dissolve his business, sell his home, and move from Hawaii with his wife and three children in order to find another position.

from the October 1984 Senza Sordino:

Honolulu Symphony musicians are in the second year of a three-year contract ratified last April following 17 months of negotiation, including 8 months of playing and talking. Season length was reduced from 38 to 34 weeks in 1983-84 while weekly wage remained frozen at $370.80... Offsetting minimal financial gains are complete changes in board leadership and management, establishment of a five-year plan and joint musicians-management-board committee, and a successful endowment campaign.

from the February 1987 Senza Sordino:

After having taken cuts in two successive negotiations, the HSO musicians became aware that our orchestra was out of control. Our jobs were going nowhere, the artistic integrity of the Honolulu Symphony was in jeopardy, and despite repeated attempts to help the management, things were getting worse. A terrible helplessness and hopelessness settled over the orchestra. Our (16-week) strike took the control of our jobs and our lives out of the hand and management and put it into our own...

from the February 1994 Senza Sordino:

On December 29, a Federal District Court in Honolulu confirmed arbitration awards requiring the Honolulu Symphony Society to pay nearly $400,000 in back pay and benefits owed the musicians of the Honolulu Symphony Orchestra as a result of unilateral cuts imposed by the Society during the 1992-93 season.

from the April 1996 Senza Sordino:

Musicians of the last two professional orchestras in Hawaii have returned to work as of December 27, 1995 as the Honolulu Symphony Orchestra once again. The musicians had been laid off except for some per–service work for Nutcracker and Messiah since mid–September. A contract for the remainder of the 1995-96 season and the 1996-97 season was completed with the Hawaii Symphony Orchestra board. After those negotiations were completed the Hawaii Symphony Orchestra board stepped out of the way to let the Honolulu Symphony Society produce the remainder of the already set–up 95-96 season. The two boards will consolidate into the Honolulu Symphony Society over an as–yet undetermined period of time.

The Hawaii Symphony Orchestra, which was founded after the Honolulu Symphony Society fired all of its musicians in the spring of 1994, never really solidified itself as an institution. From the beginning, everything needed to go right for the new orchestra to survive. Things rarely went right, and the musicians have paid dearly. The State of Hawaii pulled almost $1 million in funding, and the City and County of Honolulu pulled $75,000 in funding for the 95-96 season. Some questionable management buried the orchestra even further. The board was unable to raise money, partially because of their internal problems, and partially because community leaders took a “wait and see” attitude and refused to have anything to do with the new orchestra as long as both the Honolulu Symphony Society and the Hawaii Symphony Orchestra existed.

All this brings the orchestra to where it is today, which is virtually starting over. The contract for the next two years reflects the reality of the situation:

• Year 1: 10 weeks; 4 more weeks contingent on the opening of the Hawaii Theater (a newly renovated theater in Honolulu). Three of the contingent weeks will be paid at a six–services–per–week pro- rated salary, instead of the usual eight services per week.
• Year 2: 18 weeks.

Neither year includes opera, which is negotiated directly with the Hawaii Opera Theater (they have sub-contracted the orchestra from the Symphony Society in the past)....

Still to be dealt with is the issue of the back pay owed the musicians by the Hawaii Symphony Orchestra (this amounts to a minimum of $16,000 per full–time musician), over $100,000 in pension payments owed to the AFM-EP, and approximately $250,000 owed to various governmental agencies for payroll taxes withheld but never forwarded to the appropriate agencies by management. The Honolulu Symphony Society has said they will assume no debts of the Hawaii Symphony Orchestra.

The Hawaii Symphony board is in a very poor position to raise any money to cover any of these obligations, and unfortunately the IRS has first say on any assets available to make these payments. The pension payment falls under federal pension law, but it is unclear what kind of enforcement of those laws would occur if the organization dissolved or filed for bankruptcy. The musicians have little hope that all of our back pay will be forthcoming, but we are still working on getting some of it.

Needless to say this is not a good contract for the musicians, but it is the best possible agreement available. We are essentially starting over with the institutional memory in many areas of the management virtually gone. It was clear that if the orchestra did not start with the services on December 27, 1995 that the orchestra would not start up again for a long time.

What's clear from this litany of disaster upon disaster is that the Honolulu Symphony has never had a functioning board of directors, or at least not for long enough to make a difference. A lack of support from local and state government hasn't helped; both have pulled the plug on funding and venues on multiple occasions in ways that have made it very hard for even a competent management (on those infrequent occasions when the HSO has had one) to run an orchestra responsibly.

But the key deficit is one of governance. Some poor choices of music directors (although the current MD was, to my mind, a very good choice) and some clearly disastrous choices for staff leadership all point to that. But the continued turmoil in labor relations and the string of broken promises to the musicians are not only heartbreaking, but are the invariably accurate "tells" about the quality of the board.

If I was king for a day, I would bar any orchestra from hiring musicians which could not demonstrate adequate and sustained strength in board leadership, recruitment, and self-evaluation to allow the board to keep its promises and fulfill its fiduciary responsibilities to the community as stewards of the institution. Too many musicians' lives have been ruined in too many places by the actions of "boards" such as those inflicted upon the musicians of the Honolulu Symphony.

Boards, staffs, and musicians are all regarded by those who create the jargon for our field as "stakeholders." But the stakes they hold are profoundly different. When board members fail, they walk away, a little embarrassed perhaps, but at least without the burdensome chore of having to raise, or donate, money for the institution they've failed. When staff members fail, or when their boards fail, they are unemployed, but generally have skills that are marketable in other non-profit industries.

But, when board members or staffs fail, musicians' careers, and livelihoods, die.

I've moved

I've been blogging on the new Polyphonic.org blog. I'm still trying to figure out whether I should continue this one, or simply mirror the Polyphonic blog.

How not to say goodbye

Interesting doings in Indianapolis:

The Indianapolis Symphony Orchestra ousted its music director, Mario Venzago, on Thursday amid concerns that he didn't spend enough time in Indianapolis and artistic differences between Venzago and Simon Crookall, the orchestra's president and CEO.

The change comes about a month before the orchestra's season starts, and materials have been printed.

Difficulties between Venzago, who came to the orchestra in 2002, and Crookall, hired in 2005, date back beyond the turn of the year, said Cassie Goldstein, Venzago's personal assistant, who was on the ISO staff until she and seven other employees were dismissed in February as a cost-cutting measure.

She said artistic decisions became less and less under Venzago's control, adding that "Simon was calling the shots."...

Crookall told The Indianapolis Star that Venzago's "contract is decided on an annual basis, and we were unable to come to a new agreement. We've been discussing this for some time."

Venzago was informed of his dismissal in an e-mail dated 2 p.m. Thursday, according to Goldstein.

Crookall would not say whether the failure to come to an agreement involved financial or artistic matters and that talks on a contract continued until a couple of days ago.

Goldstein said there were no ongoing negotiations but that Crookall made a single "totally unacceptable" offer and then refused to negotiate further.

Crookall, however, denied that and said several offers were made, the most recent one on Wednesday....

The orchestra learned of Venzago's departure at a Thursday afternoon rehearsal at Hilbert Circle Theatre.

"For a number of reasons, I have decided not to renew Mario Venzago's contract," Crookall said in an e-mail to the orchestra. "Mario will not be appearing during the 2009-10 season, and his concerts will be conducted by other conductors."

No doubt there's a long and deep back story here. But publicly firing a music director a few weeks before he was to conduct the season opener might be a first for our business. And I have to wonder about the "I have decided not to renew Mario Vengago's contract" line. Shouldn't that be a board responsibility?

This is reminiscent of the mess when ensued Philly didn't renew Eschenbach (and didn't have a successor in place). But it's eerily like what's been happening in Milwaukee with the Skylight Opera Theater, where the Executive Director, Eric Dillner, fired the Artistic Director, Bill Thiessen, and created a firestorm of protests (and resignations by artists and board members alike) that appears to be threatening the continued existence of the institution.

It's no secret in our business that some music directors are dragged kicking and scremaing off the podium. But it's really good for everyone if it looks like it's voluntary and that everyone is sorry to see him/her move onward and/or upward. Few decisions, and announcements thereof, are more important in our business then the coming of a new music director and the departure of the current one. Something that important really should be handled better than this.

Sad news about a friend of musicians

This is not the kind of thing one wants to read about someone whose service to orchestra musicians spans four decades:

A longtime union lawyer was arrested and charged on Tuesday with embezzling approximately $150,000 from a union representing dancers and stage managers at American Ballet Theater, federal prosecutors said.

The lawyer, Leonard Leibowitz, 70, is accused of writing checks to himself from the checkbook of the Independent Artists of America.
…

Mr. Leibowitz was known beyond ballet circles. “Lenny was a very important player in the music industry, especially for the orchestras, who trusted him completely,” said Mark J. Weinstein, executive director of the Washington National Opera. “The players always wanted him. He’s a fun person to be around, he was experienced.”

Mr. Weinstein added that during his stint at New York City Opera from 1983 to 1996 he went through “four or five negotiations with, or rather against him.”
…

Mr. Leibowitz did not speak during his appearance in court on Tuesday. Prosecutors said he was charged with one count of embezzlement of union funds.

Afterward, Mr. Leibowitz’s lawyer, Stephen Flamhaft, said, “I think we will be able, after dialogue with the government, to resolve this.”

According to Alan Gordon, the executive director of the American Guild, his union had been seeking a rapprochement with the Ballet Theater dancers and stage managers who had broken away.

“After it became clear that Leibowitz had taken from their treasury, they asked us to represent them,” he said, adding that the guild and the Ballet Theater dancers “would like to see the Department of Justice aggressively prosecute this case.”

I’ve known Len for 20 years; ever since I started going to ICSOM conferences in the late 80s. I worked with him during my tenure as editor of Senza Sordino and ICSOM chair, and always found him full of wise counsel, as well as possessing an unparalled ability to cut to the heart of any issue. And, of course, he negotiated countless orchestra contracts over four decades, as well as serving as ICSOM counsel and counsel to SSD. This is very, very sad news.

An AFM insider to head FMCS

This seems both good news and well-deserved:

WASHINGTON, DC – Today, President Barack Obama announced his intent to nominate the following individuals for key administration posts: Peggy E. Gustafson, Inspector General, Small Business Administration and George H. Cohen, Federal Mediation and Conciliation Service, Director.

Absolutely nothing to do with orchestras

Every so often the diligent websurfer will come across a site with which he feels an immediate affinity; it's like walking into a small bookstore run by someone who shares your taste in books. I had that experience today, and here's the site.

Here's a link on the site that will make you grateful you live in an era that has satellite technology. And here's one that may put you off Burger King permanently.

Now, back to our regularly scheduled programming. And which Reger work for solo viola were we in the middle of?

(late addition from another website). An amazing re-creation (with actual audio and some video at the end) of unionized workers at work. The overlaying text is from the cockpit voice recorder; the rest is from ATC tapes.