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

Tue 2nd November 2010 22:30

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Business models, Consultancy projects

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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What do resilient business models for arts and cultural organisations look like?

Fri 23rd April 2010 12:19

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Consultancy projects, Funding

Empty storefront of Borders bookstore Leeds - if old business models are failing in the arts, what do resilient ones look like?

Over the next couple of months, I working on an exciting new project led by MMM called Capital Matters. Working alongside fellow independent consultant Holly Tebbutt, I’m researching how business models are developing in the arts and cultural sector and the capital needs related to this. We’re looking for non-profit arts ands cultural organisation organisations (visual arts, Performing arts, literature or museums) from the UK which are developing innovative business models.

Please get in touch with me if you have any suggestions about individual organisations worth considering or research on this subject.

The outline below is take from the MMM website -

MMM is working on a major new national research project aimed at designing a new policy framework for building financial resilience in the UK arts & cultural sector. Entitled ‘Capital Matters the research will take an asset based development approach and will focus on two areas:

  • Expanding understanding and recognition of the diversity of business models supporting creative practice across the arts and cultural sector, how they are evolving and the factors that will enable that diversity to flourish further.
  • Identifying the potential for developing a new generation of specialist financial providers funding and investing in creative practice.

Together with a broad range of industry leaders and a programme of consultations with front line creative practitioners and organisations across England and in Scotland, three interdependent issues will be examined

  • The potential for expanding the range of different kinds of financial capital available;
  • The development of the skills and knowledge needed to use them and
  • The revision of policy and infrastructure frameworks to enable the speedy evolution of both the above.

Why is a new policy framework needed?

MMM’s work to date shows that thousands of arts and cultural organisations in the UK, critical to both the historical and contemporary cultural canon, are over-extended and under-capitalised. In particular, weak balance sheets are endemic in the sector. Often with high fixed costs and inflexible business models, many are overly dependent on annual public sector grants to survive. The fallout of the global financial collapse, which is reducing, contributed income from the private sector is exacerbating this scenario and expected reductions in the availability of public sector grant income will increase stress further.

Nevertheless within this turbulence is an unprecedented opportunity to create a forward looking, national long-term policy framework designed to accelerate evolution of working practices and behaviours by arts and cultural organisations and public and private funders and investors. One which

  • helps arts organisations shift away from a subsidy mindset to an investment mindset. From “how can we possibly close the gap between income and cost?” to “what are the core assets of our organisation, intangible as well as tangible, and how can they best be nurtured?” and
  • helps catalyse an innovative and fundamental transformation in the sources of financial capital available to arts and cultural organisations. Capital which will enable them to evolve into more resilient, adaptive, organisations delivering cultural excellence to an even wider general public.

The research draws on learning from MMM’s previous work on Expanding the Financial Toolbox and is supported by The Calouste Gulbenkian Foundation’s Innovation Fund, The Northern Rock Foundation, The Scottish Arts Council and Arts Council England.The report recommendations will be published in the autumn.

UPDATE – the consultation briefing paper is now available online. I’ve largely finished my involvement in the primary research stage now – over the Summer a final report is being written – look out for this towards end September. It’s going to be great – can’t wait!

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Funding for the Future

Tue 8th December 2009 23:49

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Funding

Everybody in the arts is talking about an impending financial crisis, but what can we do about it? In what ways do we need to change to make better use of the funding opportunities available to us, and how could funders better support the arts? I joined an audiences of Newcastle arts organisations for the second in an excellent series of four peer-peer debates organised by ERA 21 and MMM – featuring funders from the UK and USA and chaired by David Carrington.

The speakers were Clara Miller (US Non-Profit Fund), Ben Cameron (Doris Duke Foundation), Penny Fowles (Northern Rock Foundation) and Mark Robinson (soon to be departing ACE North East). A full podcast version will be posted on the MMM site in due course – but here’s my take on the highlights:

Crisis – what crisis?

When compared with the arts sector in the USA, where very few arts organisations receive public subsidy and a very minimal levels, the UK seems in a privileged position. But we are desperately under-capitalised with few organisations having any significant reserves or assets to provide working capital to test out new ideas. As things get tighter – as they are doing – then how well will we fare?

The most interesting view from the other side of the Atlantic was that there isn’t a financial crisis in the arts – so much as a crisis of relevance of the arts to audiences. Ben Cameron spoke of the major challenges facing the performing arts sector in the US in terms of:

  • Shifting audience expectations (largely through the internet leading to expectations of greater personalisation and largely free or low cost services).
  • The impact of technology – including as competition for leisure time (with sales of video games now out-stripping sales of recorded music and DVDs combined).
  • Technology changing the traditional model of authoritative cultural providers and passive consumers.
  • The business models in the knowledge economy failing under pressure from online competition – whether that’s bookshops, pop music or newspapers

Clara Miller added that the arts sector in the US was over-built but under-capitalised: which would be said to be equally true of the UK.

Don’t look back

Mark Robinson urged us to prepare for the future, not look to the past or allow the present to preoccupy us. Ben Cameron acknowledged the difficulty of doing this – in his words ‘surviving in the short-term while moving towards transforming the organisation for tomorrow’.

Capital: it’s about building, not buildings

The key – according to Cara Miller – is to see capital and revenue as separate and with very different functions. Capital is for change, revenue for regular activity. Capital is also what you use to develop revenue in the future.

Talking of building – capacity building is essential. Clara Miller spoke of how so many organisations developing facilities in the US under-estimated the need to invest in staff capacity (does that ring any bells for Lottery funded projects in UK?). Ben Cameron explained how the Doris Duke Foundation runs its support programme – and recognises that organisational change takes time and takes a lot of resources (they provide five-year funding in the region of $1 million per organisation). The Non Profit Fund is both a finance provider/funder and capacity builder – offering consultancy, advice and support to develop non-profits. Sadly ACE’s ability to provide capacity building to the arts sector continues to decrease in the UK – and aside from the wonderful MMM – there are few other organisations in this space.

It’s all about mission, mission, mission

Time and again, we came back to mission. Arts organisations are too concerned with what we do and how we do it (our activities) rather than our purpose (or mission). Perhaps there are other ways to achieve our mission than the activities we’ve done in the past and thinking solely in terms of what we do – rather than focussing on why we do it – can be a barrier to finding new solutions.

Risk and innovation

Preserving the ability to take artistic risks was seen as essential. Adrian Ellis’s definition of sustainability was cited in terms of ‘protecting the ongoing organisational ability to take artistic risks’. In a period when organisations are facing all kinds of uncertainty, the key risk we were advised to manage was the risk of not delivering our mission for our public.

The arts and the non-profit sector

Penny Fowles spoke of opportunities for the arts sector to benefit from a closer alliance with the non-profit sector – a view that I strongly endorse and wrote about recently in response to John Tusa’s Hinton Lecture in November. Given the importance of capacity building, and the lack of opportunities in the arts sector, making use of the far greater resources available to the wider non-profit sector (through organisations such as NCVO) seems a no-brainer.

The US picture seemed very different – Clara Miller estimated that 25-30% of the $1 billion her fund had invested in US non-profits had been for arts and cultural institutions – and this is principally in the form of loans. Use of loan finance is far more widespread among US non-profits than in the UK.

So where does this leave us? I’m struck by comments about this not being a financial crisis – it’s about ensuring what we do is still relevant in a rapidly changing world. Sure that involves some difficult financial questions, but they are not the only – or key – challenges facing us. Rather we need to return to focus again on the purpose of our organisations in this changing age, and think about whether – when we will surely have less resources in future than we have in the recent past – there are other ways to do things, and do things better.

I’ll leave you with Ben Cameron’s definition of what innovation entails: ‘new pathways to mission fulfilment, discontinuous from previous practice and resulting I shifts in organisational assumptions. It might not sound like poetry, and I accept we need to find more compelling ways to describe the task ahead – but I think the diagnosis is spot on!

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The arts and voluntary sector - friends or distant cousins?

Sun 29th November 2009 18:04



Funding, Governance

Are the subsidised arts part of the voluntary sector? Why is there so little interaction between the two worlds? What could we gain through working together more closely? Last week I attended the annual Hinton Lecture given by Sir John Tusa on this topic. I’ve spent most of my professional life in the arts sector, but with a brief detour into the voluntary sector working for NCVO (National Council of Voluntary Organisations) so it’s a question that fascinates me. And there are very few of us around who move from one world to the other – or consider themselves to be part of both.

Before working with NCVO I hadn’t considered I worked in the ‘voluntary sector’ although I had always worked for arts charities. And I suspect most people working in the arts have a similar view. Terminology doesn’t help – ‘voluntary’ sector sounds like you don’t get paid which is misleading. I find ‘not-for-profit’ a more helpful term. I was attracted to work in the voluntary sector was because there was a very interesting project about sustainable funding I wanted to work with. I didn’t see this kind of initiative happening in the arts sector at the time (although MMM now occupy a similar space). And once on the ‘inside’ I discovered a wealth of inspirational work happening on advocacy and policy, alternative financial instruments, research, governance development, performance improvement – all of which applied to the arts, but of which so many in the arts sector were unaware. John Tusa’s address was to a voluntary sector audience and reminded us that there are misconceptions on each side, and also some key differences (mainly around the difference between audiences and beneficiaries – and where each sector sits on the hierarchy of need). But he argued strongly that the arts are a key component of any civil society. Both sit between the market and the state. Both sector are facing similar challenges at the moment (Third Sector Foresight is a fantastic resource on this subject. There are some differences – not least that the arts still receive core central government funding whereas more than half of all general charities receive no public funding (see NCVO’s fantastic Almanac for further profile information). But over the past ten years the not-for-profit sector has developed a wealth of business development tools and resources which are very useful to the arts sector – and often available at little or no cost. The Governance Code of Conduct is one such example.

One final observation – at the heart of any difference between the voluntary sector and the arts sector is the role played by infrastructure and funders and its legitimacy. NCVO is the main support body in the voluntary sector – providing advice and training as well as acting as advocate to government and other stakeholders. It does not fund the voluntary sector and is entirely (and fiercely at times) independent from government. Its legitimacy (and to an extent its income) is based on its membership – with over 7,000 member organisations. In contrast the Arts Council sees itself as a development body and advocate for the arts – although most of us think its core business is to be the main funder. I support ACE’s ambition to be able development agency but question whether it has the resources to undertake this role effectively – I know I struggled with that side of the role when working in the arts funding system some years ago. In effect, ACE could make use of much of what NCVO does (and other not-for-profit bodies) – as advocate and development agency. There is enormous potential to use or tailor not-for-profit support for the arts. Also, in the arts, we might look at NCVO’s research programme and what it achieves through its policy and campaigns work with envy. In the arts, we have lots to gain from working with the voluntary sector – it’s a shame Sir John Tusa was asked to talk to the voluntary sector about this issue, rather than the arts sector – we are the ones who need to hear the message most!

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