The ingredients of successful business models: part 3 - income generation

printing money: a creative solution?

printing money: a creative solution?

Where’s the (new) money coming from?

Given the immediate and pressing need for arts and cultural organisations to look beyond the public purse more than ever before, it’s no surprise that for many the key question around business models is where to develop alternative sources of income. That said, important to reiterate that for many organisations in our study developing new income streams was only was aspect of how they were developing more successful business models – and part 2 in my series of posts on the Capital Matters project explores this in more detail.

Another striking feature of the organisations we talked to was their emphatic focus on mission-related trading – to the degree that some considered themselves to be social enterprises, blending mission and trading completely – such as Museum of East Anglian Life (MEAL). Others, such as Whitechapel Gallery, used a strong sense of brand (more on this in a later post) to ensure trading activity (e.g. café, shop) related to mission.

There were a vast array of approaches to how organisations are generating income: the most common being through exploiting their intellectual property (IP) and consultancy fees; property-based developments; increasing spend per head for visitors and contracting with the public sector to deliver services.  Below I’ve outlined a handful examples of each of these approaches:

Consultancy fees and Intellectual Property

Rather than pursue a corporate entertaining style approach, National Theatre of Wales (NTW) are working with the Admiral and Confused.com group on continuous professional development for staff in a way that uses their assets, and fits their group mission. Admiral are known for having a staff choir, so NTW have supported development of a staff drama group to devise a short play that will be performed one lunchtime then filmed and shown on the staff intranet.

Streetwise Opera has reinvented its previous biennial major opera production, which was a three-night live event only, in terms of audio, film and installation components.  This results in secondary digital works which can be distributed on a cross platform basis and marketed via the internet e.g. using viral shorts as well as physical components for installation on the festival circuit internationally. By this means Streetwise Opera has been able to both extend awareness of the issues facing people who are homeless and generate income both from PRS fees for composition and tour/screening fees.

For Ished the key question going forward is how much of the value chain should they try to cover and how can they also demonstrate the social value of what they create.  Ished has been exploring how to license and deliver products like Media Sandbox (a research and development scheme designed to promote innovation) and latterly Theatre Sandbox by taking an Executive Producer role.  To trial this Media Sandbox will roll out with the Manchester Digital Media Agency and Cornerhouse will be the delivery agent on the ground rather than iShed.

Live Theatre is looking to capitalise on their reputation for excellence in new writing through an online version of their existing new writing course. Currently at the stage of detailed testing, it will be launched in Summer 2010 to coincide with the Broadway opening of The Pitmen Painters (which was co-produce by Live with National Theatre).

Shetlands Arts is currently working with production and distribution specialists to identify the most effective models of exploitation of IP that results from performances and events in the Mareel venue that opens next year.

Several other organisations were seeking to monetise their IP as part of their models (e.g. B3 Media, Sound and Music and Arcola Theatre) however income streams from IP were not yet a significant aspect of the financial model of any organisation:

‘We’re thinking about how we can capitalise on what people value about us: that might be about how we are working with communities and technology. These are areas we’ve developed that people what to know more about how we do it – but we’ve not yet worked out a model of how to derive income from this.’ (interviewee)

Increased profitability per visitor

Increasing spend per head, rather than (or in addition to) increasing audience volume is an approach that several organisations are pursuing including Whitechapel Gallery, Leach Pottery and Quad. For example, Quad receive 20,000-25,000 visitors monthly; if each person spent an average of £2 more per head this would make a big difference to their business model.

Property acquisition and development

Acquiring and developing buildings were a prominent feature of many developments with Shetland Arts, Whitechapel Gallery, Battersea Arts Centre (BAC), Ryedale Folk Museum and MEAL all engaged in major building projects. However these projects were being approached cautiously – through phasing (BAC) and efficiency (Whitechapel), for example.

However many organisations were using their buildings, and the skills they’d developed relating to property development and management, to generate income – whether that’s through trading in the building or consultancy. For example, Arcola Theatre is using the expertise it has in building development plus management and development of sustainable technologies, which sit at the heart of its vision to build a carbon neutral theatre, through taking on estate management contracts for third parties and selling sustainable technology solutions. Live Theatre are using skills they’ve developed through a building project to explore a new joint venture with a restaurant group on their estate. Lightbox have utilised their building management expertise by taking on responsibility for a local authority owned warehouse and introducing micro enterprise tenants.

Delivering public services under contract

A number of organisations were receiving significant income from delivering services through contracts with public bodies. Streetwise Opera is contracted by eleven homelessness shelters to deliver activity and Dance United is contracted by youth offending services for its excellent and inspiring Academy project. Organisations in the museums sector (Ryedale, MEAL and Lightbox) were also actively involved in contracting.

What proportion of earned income is mission-related?

A very high proportion of income was mission-related. In several cases this takes the form of contracting with the public sector (for example Dance United and Streetwise Opera). Seven Stories is also contracting with the public sector, for example through its Hooks for Books packages for schools that combine professional development for education practitioners with bespoke projects.

Trading on the ‘open market’ is also important, for example Weald and Downland Museum has created additional income through developing an extensive fee-paying adult education and training programme based around the building collections. Day and short courses are offered on building technologies, building conservation and building history. They offer 3500 teaching days per annum and run two MAs accredited by Bournemouth University.

However – a note of caution; the study shows that there are variations in how organisations define or understand  what constitutes ‘mission-related’ activity leaving the term open to interpretation.  There was clearly a desire to see earned income as mission-related and some referred to it as ‘social enterprise’. As one contributor noted in an interview:

‘it’s a grey area – we find it difficult to decide whether trading is mission or non-mission, in fact we’re moving from having a separate trading arm to bring all activity into the core as a form of social enterprise.’ (interviewee)

Another contributor provided an example of the blending of mission and income generation:

CD releases are part of our income generation strategy – but I wouldn’t say it’s a huge part of our income – it’s great for profile and prestige though.’ (interviewee)

BAC calibrate every activity against a spectrum from pure commercial to pure social value; the aim is to hybridise social, cultural and commercial value.  An example is the way BAC uses the building to generate income; weddings take place in the Grand Hall – the space is provided in exchange for a fee. However the building is full of artists who can add cultural value to this transaction through set dressing, a live entertainment offer etc. This conceptual approach to space and assets was initially fostered by the experience of giving over the whole building to Punchdrunk for its production Mask of the Red Death.

The Arches, in Glasgow, contrasted sharply with this picture. The Arches is equally known for its clubbing as for its progressive and experimental theatre programme but it is the commercial success of the former that enables the latter and the organisation directly earns 80-85% of its income.

In my next post on this subject I’ll turn to look at how technology is facilitating changes in business models.

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