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State of the Arts

How the inaugural National Center for Arts Research report found its model, and used it to diagnose the health of the arts in the U.S.

Story by Jeff Bounds   Photos by Kim Leeson

"Researchers have launched a massive research initiative that seeks to help turn around the declining fortunes of America's arts and culture sector."

See the full interactive report on smu.edu/artsresearch

Despite the wide range of engaging arts events offered in large and small communities across the country, trouble is afoot in the world of arts and culture. Fewer adults attend arts activities now than they did just 10 years ago, and many arts organizations are operating in the red as donations have fallen.

A key reason for this decline is that the arts community has been slow to respond to the changing demands of its audiences, who are using new technologies to watch and experience arts differently than previous generations.

Last February, researchers at Meadows School of the Arts and Cox School of Business at SMU publicly launched a massive research initiative that seeks to help turn around the declining fortunes of America’s arts and culture sector. Working with more than a dozen partners and analyzing hundreds of thousands of bits of data at the organizational and market level, SMU’s National Center for Arts Research (NCAR) is building an analytical model that will help show how more than 50,000 arts and cultural organizations in 44,000 zip codes are performing in everything from their finances to their engagement with their communities. NCAR’s model also estimates how intangible factors, such as leadership decision-making, are influencing a given organization’s fortunes.

The goal is to help arts and cultural nonprofits learn what they’re doing well, what isn’t working, and how they can fix problem areas. In addition to providing this service for free to nonprofits, NCAR researchers will publish case studies on how top arts organizations are bucking the down- ward trends.

In the following pages, you will learn the story of the complex challenges facing the arts world, how NCAR is helping, and some of the fascinating results of what it has already gleaned after conducting research for more than a year.

How it Started

Zannie Giraud Voss, director of NCAR and chair and professor of arts management and arts entrepreneurship at Meadows and Cox,  can remember the “aha!” moment when she decided to push forward with the project that has consumed  her and her fellow NCAR researchers over the past year.

She and husband Glenn Voss, NCAR research director and the Marilyn and Leo Corrigan Endowed Professor of Marketing at Cox, were meeting with colleagues from the Cultural Data Project, a Philadelphia-based data collector that helps arts and cultural organizations generate reports on their finances, programming and operations.

There are important demographic shifts that many arts organizations have been slow to accept and understand. NCAR data can help alert arts leadership to changing trends.

Their discussion centered on the dearth of national research about the performance of arts and cultural organizations. Local and state-by-state studies had been done, but nothing on a broader scope.

After the meeting, the Vosses, who each have over 20 years of arts research experience, considered the need for a national study and decided, “Let’s do this!”

National & Local challenges

In their discussions, NCAR and Cultural Data Project officials also explored problems that have been building for decades in America’s arts community. Arts and cultural organizations lost an estimated $45 billion in personal spending over the last 10 years. Annually, roughly 40 per-cent of organizations operate in the red.

Consider the following:

  • For the past few decades, adult attendance has been declining at performing and visual arts activities in the United States. As recently as 1992, 41 percent of U.S. adults reported going to a jazz or classical music concert, opera, musical or non-musical play, ballet or art museum. By 2012, that percentage had shrunk to 33.3 percent, according to the National Endowment for the Arts.
  • Americans now spend less on the arts than they once did. On an inflation-adjusted basis, arts and cultural expenditures fell between 2000 and 2010, leveling off in 2011, according to Bureau of Economic Analysis data cited in a 2013 study by Americans for the Arts.
  • Between 2007 and 2011, the American arts and culture scene saw a shrinking in its receipt of charitable giving, according to data from the Giving USA Foundation at the Indiana University Center on Philanthropy. All told, donations have shrunk by about $3 billion over the last 20 years.

Audience Sovereignty

The reasons for this shift lie partly in the ease and speed with which consumers can view most anything online. As members of a new generation embrace technology’s ability to deliver what they want here and now, they’re less inclined to, say, be in a theater for a 7:30 p.m. curtain.

Just as important, people increasingly want to be part of the arts experience. “Some refer to it as ‘audience sovereignty,’” says Zannie Voss. The arts community, she added, is “late catching this wave. At the same time, there are important demographic shifts that many arts organizations have been slow to accept and understand. NCAR data can help alert arts leadership to changing trends.”

Measuring performance in nine key areas

The analytical model NCAR is building has delved into the performance of nearly 50,000 arts and cultural organizations nationwide. With input from about a dozen researchers in the field, NCAR experts have identified 184 performance yardsticks to measure over time on each arts and cultural organization. They have enough data to examine 128 of those yardsticks, and have determined what information they need to gather to glean the rest. NCAR is categorizing these 184 indices into nine performance areas for study: contributed revenue, earned revenue, expenses, balance sheet, bottom line, marketing impact, community engagement, program activity and staffing.

Estimating what can’t be measured

No matter how many factors NCAR includes, though, a key question will remain: What about the intangibles, such as the decision-making prowess of a given organization’s leadership?

NCAR has taken that into consideration by doing an estimate, dubbed the Key Intangible Performance Indicator (KIPI), of managerial and artistic expertise and solid decision-making. Voss says this is the most valuable contribution that NCAR’s research has produced.

To arrive at the point of estimating the KIPI value that sets apart high-performing organizations, NCAR begins by establishing a level playing field among all organizations. It starts with the idea that it’s not enough to examine a given arts or cultural organization’s performance in a vacuum.

Other things being equal, a hypothetical opera company in New York City, for instance, will likely perform differently than an imaginary counterpart in Lubbock, Texas.That is primarily because of four factors:

  • The social and demographic characteristics of their respective hometowns;
  • The existence (or lack) of various other organizations and businesses in their communities;
  • Different levels of local, state and federal funding available to stimulate both the supply and demand for the arts;
  • The independent artists who make their home in the same community.

Data sectors for Analysis of Averages

In each area of study, the NCAR report examines and compares averages of arts and cultural organizations overall and grouped by sector, size and geography. The graphic above illustrates which cultural and arts sectors are represented across the analyses. This representation changes remarkably little from year-to-year. NCAR also analyzes data from arts and cultural activity beyond the traditional sectors. Find out more about each sector's data at smu.edu/artsresearch.

NCAR takes those external factors into account when evaluating how a given arts and cultural organization performs.

NCAR researchers have linked every arts and cultural organization in the country to its local community’s characteristics and created a spatial model that accounts for each organization’s relevant trade area. That makes it possible  to tease out how its performance is impacted not just by its own actions but also by its community and by government funding.

As NCAR’s work progresses, the insights it provides to the arts and cultural community will only get better, Voss says. For instance, NCAR researchers will be interviewing the heads of high-performing nonprofits to help distill best practices that arts and cultural organizations can use to improve their fortunes.

In addition to the Cultural Data Project and the National Center for Charitable Statistics, other partners in NCAR’s work include the National Assembly for State Art Agencies, the National Endowment for the Arts, Theatre Communications Group, Boston Consulting Group, TRG Arts, IBM and the Nonprofit Finance Fund.

As a service to arts and culture leaders, NCAR is working with IBM to create a free, online dashboard that will allow any arts and cultural organization to access or generate its own KIPIs across the range of indices.

Here’s a look at just some of the insights that NCAR researchers have gleaned from the number and data crunching they’ve done so far. Many of their findings are surprising. More work will be under way soon to delve deeper into the reasons behind much of what has been discovered to date.

Earned Income Index Averages by Sector

For the study of earned income, researchers broke down each arts sector by asking: "What is the program revenue per attendee – how much revenue per person is the organization pulling in?" As seen here, significant differences are found among the sectors, with the most striking difference between opera and community organizations. As with all indices, this one has no prescribed ideal that all organizations should strive for. Different sectors have different operating models, a fact that these results reinforce.

Bright Lights, Big Cities

In the world of arts and cultural nonprofits, bigger isn’t necessarily better. Consider the merits of being located in a large city.  Granted, being situated in a populous area tends to go hand-in-hand with having more operating revenue, expenses and total offerings for the public, NCAR researchers have found. However, it can also mean lower attendance and total engagement, or the number of people touched by an organization. Being situated in larger communities also tends to correlate with lower current assets and higher current liabilities, which leads to less working capital.

To be sure, having a location in a community that has numerous large companies can help lead to better in-person attendance, along with higher marketing expenses, total expenses and program salaries. On the flip side, longer commute times tend to bring down performance on most every measuring stick that NCAR uses to gauge arts and cultural organizations’ performances.

Modeling the Arts & Culture Ecosystem

To answer important questions about the health of arts and cultural organizations, NCAR researchers had to think about what drives and affects an organization’s performance. They gathered and integrated data related to each of the four interdependent ecosystem elements: individual artists, within arts and cultural organizations, within a community, affected by cultural policy. As a result, NCAR has built a very large and diverse database as well as a data-driven model of the U.S. arts ecosystem. Analysis will continue to evolve.

Rivals emerge

Larger metropolitan areas tend to sprout competition for these nonprofits. It is true that cities with more parks tend to have robust arts and cultural organizations, which in turn have more program offerings and improved forms of revenue. It is also true that having more hotels leads to better performance in almost all areas for arts and cultural organizations, possibly because a strong arts scene may help draw visitors to a given city.

At the same time, NCAR researchers found, sports teams and zoos tend to dampen arts and cultural performance, as they apparently compete for mind- and wallet-share. Movie theaters have a similar impact on arts and cultural organizations, although in this scenario the arts and cultural organizations tend to roll out more offerings, possibly to compete with the cinemas.

Another pair of troublesome industries for in-person attendance is what on the surface may seem like friends: public television and radio stations. NCAR researchers found that public broadcasters tend to drive lower attendance and lead to fewer program offerings.

A possible reason: Although those stations promote arts and culture, consumers may choose to watch or listen to the broadcasts rather than going to the events.

Is Bigger Better?

Just as there are pluses and minuses for arts and cultural organizations to being situated in big metro areas, there are also advantages and disadvantages to being big organizations. On the one hand, having an established organization in age and size goes hand-in-glove with higher performance on every measure. For instance, having larger staffs and spending more on fundraising tends to result in more revenue and offering more programs to the public. And there is a positive link between an organization’s square footage, in one corner, and higher attendance, better engagement and more program offerings in the other.

Marketing Impact Index averages by Sector

For every marketing dollar spent at an arts and cultural organization, how many people attend? This graph answers the question by breaking down how much marketing investment it takes to bring in one attendee.
As seen here, the average opera company invested nearly ten times the marketing expenses to bring in one patron as did community organizations. Dance and theater companies tend to experience similar return on marketing investments, as do performing arts centers, symphony orchestras and general performing arts organizations. This index remains remarkably consistent over time for opera, dance, art museums, performing arts centers, symphonies, theater and other museums. The most variation over time is shown by arts education, community organizations, music and performing arts organizations.

Having a big building and lots of items inside it has a flip side. Museums, for instance, have relatively high fixed assets. That is reflected in high depreciation expenses, which worsens the already-high operating deficits that they run.

In all, large arts and cultural nonprofits are much more likely to run deficits. Smaller organizations are more likely to run operating surpluses. Ironically, having more working capital tends to lead to higher program salaries and fewer program offerings.

Whose marketing dollars go furthest?

In fairness, big gaps in financial metrics separate different sectors of arts and cultural organizations. Community organizations, for example, generate $4.10 in program revenue from each attendee, while opera companies pull in an average of $53.72 from each person coming to their productions.

On the other hand, community organizations and museums bring in the most people for every marketing dollar they spend. Opera and theater companies, performing arts centers, symphony orchestras and dance companies must spend more on that front to land attendees at their productions.

Perhaps not surprisingly, symphonies and operas tend to spend the greatest portion of their operating revenue on artists’ wages and program costs.

Turning Conventional Wisdom Upside Down

In addition to differences by industry sector, arts and cultural organizations also see wide spreads in their sizes depending on which demographic groups they target.Those aiming for African Americans and Asian Americans tend to be smaller. Communities with large concentrations of Hispanics tend to see greater attendance, engagement and budget sizes in their arts and cultural organizations. And, in a twist on conventional wisdom, NCAR researchers found that communities with higher median ages tended to see worse performance on most fronts in their arts and cultural organizations. That includes lower attendance and engagement.

NEA, IMLS fund strong nonprofits

Another area where differences exist in performance among arts and cultural organizations lies in which gov-ernment agencies have provided support to them. Arts and cultural nonprofits tend to perform better on every front if they have received funding from the National Endowment for the Arts or the Institute of Museum and Library Services.

On the other hand, receiving state or local funding tends to be associated with smaller budgets. But state-funded nonprofits generally provide more program offerings, while those getting money from local governments tend to have more attendance and engagement.

As NCAR’s work progresses, the insights it provides to the arts and cultural community will only get better

Wealthy Give, Don’t Always Engage

If an arts or cultural organization operates in a market with many households whose annual incomes are north of $200,000, it will likely see more contributed revenue coming in the door. What it may not see is greater attendance by wealthy patrons who give it money. Although high net-worth households have money to contribute, they don’t necessarily have time to participate first-hand.

What’s Next

NCAR will be releasing new data each quarter and its dash-board will go live in mid-2014. Readers are invited to stay up-to-date by visiting blog.smu.edu/artsresearch and by following NCAR on Twitter at @artsresearch.

Special thanks to the visionary donors who have made NCAR possible: Communities Foundation of Texas, M. R. & Evelyn Hudson Foundation, Jennifer and Peter Altabef, Marilyn Augur, Molly Byrne, Bess and Ted Enloe, Melissa and Trevor Fetter, Carol and Don Glendenning, Jeanne R. Johnson, Nancy Nasher, Nancy Perot, Bonnie Pitman, Caren Prothro and Donna Wilhelm.

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