Supply/Demand and our Friend, Rocco

Hey, why not. Everyone else is...

This entry was spurred by an excellent dissection of the matter at Devon Smith's blog 24 Usable Hours.

Here's the short version, which you all know. Rocco Landesman, NEA Chair, went on the record stating the arts are oversupplied. This is not news. The Wallace Foundation published an excellent paper describing this at the end of 2008.

Smith's entry in the battle regards theatre. There is no way to approach the discussion without gross oversimplification. Unfortunately, the reductivism necessary to create the models will not yield real-world solutions to the problems. An incomplete list of flaws in the various models:

1. As Devon mentioned, the TCG numbers are aggregate for theatres with budgets of as small as $50k and as as large as tens of millions. It's like comparing a small-motor repair shop to GM.

2. There is no way of measuring general demand for theatre-at-large. Single ticket buyers are responding to a kernel of entertainment. Subscribers have brand-loyalty - and as many as 50% of theatre-goers consider it primarily a social outing (is the demand for art, or social interaction? How is the nature of social interaction related to the venue/offering?)

3. While theatres tend to make a long-term investment in admin staff, they tend to make short-term investments in a lot of artistic staff - especially actors and directors. While this is an industry problem all of its own, the declining artistic salary (particularly at an Equity company) doesn't reflect pay cuts to individual earners (more, but lower-paid), but rather smaller-cast shows (fewer, but higher-paid employees).

4. The performance of the expense-inflation ratio is predicted by Baumol's Cost Disease (critiqued here by Scott Walters) - as Devon mentioned - like the healthcare industry. You'll find similar math holds true for educational institutions.

5. The market is inefficient. There is no magic wand to balance the supply and demand. Some theatres are doing great and holding steady. I call this the "there are too many theatres, but mine isn't one of them" problem.

6. The capital structure of most theatres is inflexible. Theatre, like airlines, will always struggle with matching perishable demand with perishable supply. Every one who has sold tickets knows this: you turn people away on Friday night, only to play to an inexplicable half-house on Saturday night. The first week of a run sells at 50% capacity, and the last week is sold out with a waiting list. How much of the supply/demand problem can be described by market inefficiency? This is also a common problem in employment figures generally.

I do appreciate Devon's approach to the discussion, as it is the only rational starting point, but I think much more detailed and specific research is needed before anyone can make any conclusions about the state of supply and demand in theatre.