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Orchestras need to program a new business model

With endowments shrinking, there's really only one place left to tap: The expense side. Salaries.

Is this the end for American orchestras? Hardly.

But is it the beginning of the end for the American orchestra in the form we've come to accept? It's starting to look likely.

American orchestras, like other types of arts groups, have had an enormous rug pulled out from under them. Some endowments are worth half what they were a year or two ago, but the operations they underwrite have not shrunk in proportion. The response so far - 10 percent pay cuts, small concessions from musicians on work rules - is a relative nip and tuck. Unless the economy soars in the next few years, and no one is predicting that, American orchestras are going to have to invent a new business plan.

And maybe that's a good thing.

The global economic contraction has shaken a guiding principle of orchestras. Ticket sales and annual giving may ebb and flow, the argument went, so great endowments should be raised to provide stability in lean years. Most major orchestras have spent the last decade or two doing just that.

The math was convincing. For every $10 million in nest-egg funds, $500,000 could be drawn off each year for operating support. Market growth and interest would be substantial enough that the $10 million principal would never be touched.

Business and artistic plans were predicated on that conviction. Fattened endowments took pressure off ticket sales and reduced worries about waning government support. And for several decades it worked. The pie might be sliced in different proportions, but every major U.S. orchestra crafted its balance sheet from a certain percentage of earned income, annual gifts, and endowment draw.

As recently as a couple of years ago, the Philadelphia Orchestra thought a $250 million endowment was in sight, a sum that would have spun off about $13 million a year, covering a third of the operating budget. But after a recent campaign that brought in $130 million in new money, the endowment today hovers just over $100 million - and the operating budget is still well north of $40 million.

In the past, bigger endowments allowed bigger overhead. Many orchestras went to 52-week seasons. Guest artists could earn up to $70,000 per appearance. Orchestra halls, some extremely expensive to operate, were erected. Large and well-paid staffs were assembled to raise money, help the organization hew to complex labor contracts with musicians, develop marketing that would lure an elusive listenership, and handle boards often made up of business types with little passion for or knowledge of orchestras.

Orchestras will make up the difference from other categories, you say? Well, let's go down the list of traditional prospects. Government and corporations are in the poorhouse, so count them out. Endowments at foundations are down, making a rescue from that sector unlikely. Ticket buyers? Sales are soft as it is, arguing that a price hike would be counterproductive.

What about wealthy board members? Far be it from me to let boards off the hook, but in many cities the same civic leaders tend to occupy seats in several boardrooms, which means they're all being hit up by equally desperate groups. And let's not forget that each one of those board members is weighing increased need against his or her own depressed portfolio.

It's pretty clear that the equalization between expenses and income is going to come from the expense side of operations, and, in small to moderate measure, that's what's happened so far.

And why shouldn't it?

Is it really a good thing that Deborah Borda, president of the Los Angeles Philharmonic Association, made well over $1 million for the year that ended in September 2007? Or that a hornist in the New York Philharmonic made $300,000, an oboe player in the Philadelphia Orchestra $249,000?

How about a stagehand at Carnegie Hall who makes $425,911 - plus $107,041 in contributions to benefits plans and deferred compensation?

These are the kind of salaries you'd expect in a sector with more money than it knows what to do with, not one fretting about the future.

One of the most startling costs of running an orchestra is the guest roster, with pianists, violinists, cellists, and others making $30,000 to $70,000 for a single performance. Are they worth it?

Some artists are quietly lowering fees. But I had to laugh when bloggers recently lauded as "generous" Emanuel Ax's waiving of his fee for performances with the financially troubled Columbus Symphony. What he did was smart; if it was generous as well, it was doing double duty in drawing attention to the fact that if orchestras go down, Ax and his colleagues do, too.

Then there's the regular payroll. When a hundred or more applicants audition for a section violin spot, is it necessary to offer a starting salary of $130,000 for a player just out of school? Would the same audition draw less stellar talent if the job were offering, say, $80,000 the first year on a multiyear schedule to reach $130,000 in some year thereafter?

And here's the question no one really wants to face. Is there enough work to keep musicians busy now that attendance points to supply's exceeding demand?

Only a classical-music heretic would have asked these questions a year ago. Now the viability of an entire art form seems dependent on figuring out how to answer them smartly and soon.

Ticket buyers with populist taste in repertoire who now sense they'll be getting more of the music they like should derive no schadenfreude from all this. Classical top-40 has its place in a season, but by itself it's hardly a way to grow audiences. Orchestras have different constituencies that want different things. Curtailing any category - contemporary works, for instance - simply gives another group another reason not to go to the orchestra. I shudder to think of the lost generation of works not being created in this economic crisis, but that's a subject for another day.

In the meantime, if you're not yet fully with me on feeling great concern, here's another thought. Endowment draws are determined on a 13-quarter rolling average, and so even if market values begin to recover immediately, we have not yet seen the low point in endowment payouts.

That means harder times next season. It would not be surprising to see the horrible spectacle of a venerable orchestra going of business. Will the "industry" (how I hate that word) then fashion a new "business plan" (to use another unfortunate borrowing from corporate jargon)?

Real change happens only in times of crisis. I'd say that time is here - and, if it causes some players and administrators to choose institutional reinvention over personal enrichment, not a moment too soon.

Bad News From Everywhere ...

U.S. orchestras of all sizes have been cutting their budgets in recent months.

At the Cleveland Orchestra, music director Franz Welser-Möst took a 20 percent pay cut, and administrative staff took cuts of various sizes. The number of subscription concerts will be reduced, according to the Cleveland Plain Dealer.

Minnesota Orchestra music director Osmo Vänskä will make 10 percent less, and other salaries are being frozen or cut.

The orchestras of Pittsburgh and Philadelphia have laid off staff.

The Atlanta Symphony Orchestra's chief executive officer, Allison Vulgamore, and other staff will take pay cuts now, unpaid furloughs later.

Even the mighty Met has been hit. The endowment of the Metropolitan Opera is down a third from a high of about $300 million, and unless it can extract cuts and concessions from its unions, general manager Peter Gelb told the New York Times, the company faces a "disaster scenario."

- Peter DobrinEndText