“The business model is broken.”
“We need a new business model.”
“We must totally rethink our business model.”
Those words should strike terror in the hearts of symphony orchestra musicians. When managers or board members start using that terminology on a regular basis, musicians should know their next CBA negotiation will be difficult. Cuts will almost certainly be on the table.
But what do these buzzwords actually mean? After all, as ICSOM delegate Greg Mulligan (Baltimore Symphony) put it succinctly in an Orchestra-L post years ago, paying musicians less and cutting their benefits is not a “new” model—it’s actually a very old model. So is there something more to it? Something we’re missing?
Not really. The “business model” of a symphony orchestra, like any non-profit, relies on three revenue sources: earned income (mostly from ticket sales, but sometimes with additional income like hall rental revenue if the organization owns its hall and has figured out how to monetize it); contributed income (i.e., fundraising); and endowment income (the “draw”). Some orchestras are still fortunate enough to receive some government funding, but that is increasingly rare.
On the expense side of the ledger, the biggest category usually is orchestra salaries and benefits. (Which is as it should be, given that the purpose of the organization is to present . . . an orchestra. Yet in some organizations this expense is a surprisingly lower percentage than one would think.) At the end of the year, expenses must match revenues; if there is a deficit, it must be made up.
It is how that deficit is made up that informs the “business model” discussion, and it is all about the second category of revenue: contributed income. In a typical orchestra, the bulk of contributed income is labeled the “annual fund”, which consists of what management deems to be repeatable gifts that the orchestra can expect to receive with reasonable certainty (if it has a healthy-functioning development department, which isn’t always the case).
But just about every orchestra engages in additional fundraising beyond the annual fund. This is usually labelled something like “special funding”, “extraordinary gifts”, “gap funding”, or “bridge funding”. It represents gifts or pledges that are often large, sometimes one-time-only (but not always), and are separated out from the annual fund on the financial statements. Essentially, “special funding” can encompass any kind of fundraising activity that isn’t part of the annual fund.
In many orchestras’ budget plans, special funding is baked in. That is particularly the case where an orchestra has adopted a long-term plan to eliminate persistent operating deficits. (I will not use the term “structural deficit”, because there is, in fact, no such thing in a non-profit; but that is the term managers like to use.) A typical plan in this vein has three main components: (1) long-term, healthy annual growth in earned income and the annual fund; (2) expenses that grow at a rate less than the growth rate of revenue; and (3) increases to the endowment draw by increasing endowment assets (often through a capital campaign). Over a long-enough time frame, deficits gradually shrink and are then eliminated.
But the key to the plan is what happens in the meantime: special funding must be secured. This is where special funding is usually labeled “gap funding” or “bridge funding”, because the idea is that these gifts “bridge” the “gap” to the promised land of a deficit-free future. That future is the selling point to donors when management seeks the gap funding: “Here is our plan. It eliminates deficits five years from now, and puts us on a sound financial footing—all without having to take cuts that diminish the excellence of our product. Can you help us get there?” It’s a good pitch. It usually works much better than complaining that “the musicians’ pension is driving us into bankruptcy and we have a mountain of debt and we are facing total calamity . . . but please give us money.”
Orchestras have had success with the long-term growth plan. It works. Donors buy in. Musicians don’t get big raises, but they aren’t forced to take big cuts and salaries generally keep up with the cost of living. Quality is preserved.
That is not the “new business model”.
The “new business model” takes a different approach to eliminating persistent deficits: slash expenses, period. It rejects the concept of special funding altogether. It assumes that the only fundraising that can be assumed in the operating budget is the annual fund. Extraordinary gifts? Those don’t count anymore. Large gifts that may or may not be repeatable? Those don’t count either. Items like those are excluded from anticipated revenue altogether.
The result? Anticipated revenues are suddenly significantly lower than anticipated expenses. So expenses must be cut. And the biggest category of expenses, ripe and juicy and ready for the ax, is musician salaries and benefits. Sure, often administrative salaries are proposed to be cut as well; but those cuts are far smaller.
The “new business model” is not a plan for growth. It is a rip-off-the-Band-Aid approach that essentially seeks to radically restructure the expenses of the organization in one fell swoop. It is an admission of failure. It says to the community, “you know that orchestra you’ve come to love? We can’t have it here anymore.”
But despite all that, does it work? On paper, yes. Deficits are reduced substantially, at least in the short term. But there are two main problems with the model: first, it virtually guarantees a work stoppage. It is no coincidence that the two orchestras currently on strike, the Fort Worth Symphony and the Pittsburgh Symphony (whose musicians I represent), face concessionary demands from managements seeking to implement some form of the “new business model”. (The fact that both organizations operate in thriving cities and have demonstrated recent successes in ticket sales and fundraising only serves to underscore the ideological nature of those efforts.) The Minnesota Orchestra’s attempt to impose the model led to a 16-month lockout, and we’ve seen it cause work stoppages in Atlanta, Detroit, Indianapolis, and Louisville (among others).
Also, there is a great risk that the “new business model” is the proverbial successful operation that kills the patient. Consider that the mission of a symphony orchestra is not to balance its budget, or to achieve “financial sustainability”; it does not exist to earn profits or create value for shareholders. Its purpose is wholly non-financial: to provide a particular service to the community, one that its founders believed in and that the community has deemed valuable. Its mission is to perpetuate that service. If that service consists of providing performances of the greatest possible quality—which is what most orchestras were formed to do—then its success is measured by how well it does that.
So, slashing musician salaries and other expenses that are vital to the artistic product will put that mission in jeopardy. Sacrificing quality for the sake of making it easier to balance the budget by requiring less fundraising is not reflective of success, but rather demonstrates an utter failure to fulfill the orchestra’s mission. And it doesn’t matter if, as we sometimes hear, “hardly anyone can hear the difference.” Personally, I can’t tell the difference between a Van Gogh and a very good copy; but if I were sitting on the board of directors of a museum I wouldn’t use that as a reason to advocate hanging forgeries on the walls.
But the “new business model” persists. One would think that a debacle like the Minnesota Orchestra lockout would have educated our boards and managements of the dangers of that approach; but now we have Pittsburgh and Fort Worth.
The pattern is familiar: some manager new to the field, or some board member looking for efficiencies, decides that they have found “the solution” that, somehow, everyone else missed. They declare that their “new business model” will serve as a shining beacon of hope to all other orchestras. It will show them all how things should be done. Then they are shocked—shocked!—when the musicians won’t meekly go along with it.
For musicians and their advocates, it feels like a game of whack-a-mole. We beat back one, often having to endure a destructive work stoppage in the process; but then another pops up. And it isn’t going away. A recent article in the New York Times, “It’s Official: Many Orchestras Are Now Charities,” has already been seized on by some managers as evidence of a “sea change” in orchestra funding that necessitates a radical restructuring of the expense structure.
It falls to us to educate our managers and boards, and to ensure that they act as responsible stewards of their orchestras’ true mission. And, as we’re seeing in Pittsburgh and Fort Worth and across the ICSOM family, we will stand together when there is no other option but to fight for what we believe in.