The Innovation Imperative

TCG's fall forum zeroes in on how theatres bring new ideas to life

By Tara Bracco

Innovation is fresh thinking that happens at all levels of an organization. It’s not just the big and scary risks. It can be as simple and free as marketing on Facebook, reimagining how theatre spaces welcome the local community, or developing an entrepreneurial new business strategy. If innovation helps move a theatre and its mission forward, then it’s significant, no matter how big or small the idea.

Related Links: Fall Forum 2007 , information and resources (Events) Transcripts from Peter Gelb, Susan Booth and panels on Innovations in Financial Structures, Innovations in Space and Innovations in Philanthropy (Events) A-ha! Program: Think It. Do It., a new initiative by TCG and MetLife (Grants)

TCG’s annual Fall Forum on governance, an event that gathers theatre leaders and trustees from throughout the country in New York City, focused this past November on innovation in the theatre field. The event, titled “Cultivating Innovation: From the Board Room to the Box Office,” was a two-day exploration of innovations in technology, space, audience development, financial structures and philanthropy. The forum offered plenary sessions, breakouts and think tanks on these topics. Peter Gelb, general manager of the Metropolitan Opera, was the keynote speaker, and his recent achievements at the Met were referenced throughout the Fall Forum as a model for leadership and vision in the arts. At the convening, TCG also announced a new initiative with the Metlife Foundation aimed at helping theatres take risks and inject innovation into their practices. This re-grant program—the A-ha! Program: Think It, Do It—will give theatres the time and space to research, develop, test and implement new ideas.

While there’s some debate over whether “innovation” is a buzz word or a dead word because of its overuse, there is little debate that innovation is becoming a significant value across the globe. John Kao, in his book Innovation Nation: How America Is Losing Its Innovation Edge, Why It Matters, and What We Can Do to Get It Back, writes that even some of the world’s smallest countries are making innovation a public policy priority, while the U.S.’s innovation engine is falling into disrepair. Theatres, like other businesses, need to respond to change and not merely hide their heads in the sand hoping traditional operating procedures will carry them through. Teresa Eyring, executive director of TCG, comfortably uses “innovation” to describe the vision needed to adapt to the current cultural climate. Theatres, according to Eyring, are at “an exciting but terrifying moment in our history because the way people engage with creativity and content is changing and will continue to change.” With a shifting consumer market, some theatres have already responded with new strategies and ideas, while others are just beginning to think about innovation.

The demands of running a not-for-profit theatre have always been time-consuming. Artistic directors and staffers are inundated with the day-to-day operations, leaving little time to explore new ideas, let alone test and implement them. The TCG Fall Forum demonstrated that there are many opportunities for theatres to be proactive and innovative. Some ideas don’t cost money, while others require financial resources. With the goal that all theatres make innovation an organizational priority and develop visionary new strategies, this report compiles information from the Fall Forum to serve as a refresher for those who were present, and as an introduction for theatre leaders who were unable to attend.

From Vision to Action

Innovation is the art of bringing ideas to life. —Russell Willis Taylor, president of National Arts Strategies

One of the biggest challenges for theatres is evolving an innovative culture within their organizations. To begin, organizations should work to create an environment that fosters creativity at all levels, from top management down to the administrative assistant answering the phones. Strong leadership at both the board and management level should focus on cultivating such an environment. According to National Arts Strategies (NAS), led by president Russell Willis Taylor, a healthy work culture is one that encourages the free flow of information between the board, executives and staff. In general, if all an organization’s key ideas can be linked back to one top executive, it is often reflective of an unhealthy environment for innovation. Taylor emphasized the value of symmetrical relationships—ones in which people at all levels on the organizational chart contribute equally to the idea generation and critique process.

Taylor also provided frameworks on how theatres can approach innovation. NAS defines innovation as “goal-oriented change.” At the source, she explained, ideas can be truly novel, like the invention of the wheel, or ideas can be recombinant. The invention of the iPod, for example, is recombinant because the technology was already developed. When implementing new strategies, theatres should consider whether they are rolling out something novel, recombinant, or a mere copy of someone else’s approach. Under the leadership of Peter Gelb, the Metropolitan Opera is bringing its operas to movie theatres across the country—a move that will increase the organization’s visibility as well as bring in an additional million paying customers. But if other arts organizations simply copy this method, the market for this idea could become oversaturated. Innovation requires thinking in bigger and better new ways.

But how do arts organizations go about this? People are familiar with the saying “think outside the box.” NAS offers a new approach: Think inside a bigger box. Jim Rosenberg, vice president of NAS, explained that it is necessary to expand the box by identifying and stretching constraints that often kill ideas. As staffers generate new possibilities, their suggestions are typically squashed with answers like: “We can’t do that because our donors don’t like big changes,” “Our facilities can’t support that idea,” “We don’t have the technology,” or “That’s too risky for our core audience.” Constraints like these generally fall into six categories: individual, group, organization, sector, societal and technical. For example, making assumptions or stereotypes about customers—such as, “Young people don’t have long attention spans”—is an individual constraint. Not having a partner-orientated environment, or having a work place where one person has all the decision-making power, constrains the group. Feeling limited by norms that exist in the field falls into sector-level constraints, and so on. NAS suggests reexamining and expanding these constraints to create a bigger space for ideas.

Currently, Gelb is implementing a seven-point plan at the Met that is increasing new productions, removing the perception of elitism that surrounds opera, presenting holiday entertainment for family audiences, making the opera an attractive place for singers and directors to work, and revolutionizing opera’s audience by transmitting productions into 600 movie theatres in North America (and another hundred in Europe). Gelb is popularizing opera and elevating opera singers to rock-star status by placing advertisements on New York City buses and feeding live telecasts of opening night performances on screens in Times Square and Lincoln Center. Gelb attributes his ability to implement his dramatically different vision to the fact that the Met, an organization with an approximately $260-million budget, was in “bad shape” at the time of his appointment in 2004; the Met’s core audience was aging and opera lacked mainstream appeal. “Once I identified how dire the situation was, I was given the mandate to move forward,” he said. Gelb used this approach to effectively renegotiate with the unions so that the Met could tape and disseminate live performances. (Most theatres hit a brick wall in this area because the unions typically bar people from taping performances in an effort to protect intellectual property.) “I think it’s much harder to make change when the unions feel a company, whether it’s a for-profit or a nonprofit company, is doing well,” Gelb said.

Susan Medak, managing director of California’s Berkeley Repertory Theatre, echoed the crisis motivator when she said her theatre experienced its “dark night of the soul” after 9/11 and the dot-com technology bust. When her organization experienced financial trouble, the board took the risk to invest heavily in Berkeley Rep and authorized increased spending with the intention that it would strengthen the theatre in years to come. A 10-year strategic plan was developed to significantly increase the operating fund by $2 million.

But boards do their organizations a disservice by only authorizing visionary strategies when theatres are experiencing troubled times. If theatres are going to be successful in the future, innovation needs to be something incorporated into the life of the organization so it becomes as natural as selling tickets at the box office.

Economics

The [economic] model is fluid. —Susan Medak, managing director of Berkeley Repertory Theatre

A commonly voiced concern for theatres is fiscal strength. In recent years, theatres have begun to question whether the not-for-profit business model, which has been passed down over the last 50 years, is still effective in today’s changing climate. Particularly, theatres find themselves questioning the appropriate earned-to-contributed-income ratio for their companies. Theatres are reexamining whether they need higher earned income like ticket sales, concessions and space rentals, or if they need to beef up their contributed support with annual drives and endowment campaigns.

Roche Schulfer, executive director of Chicago’s flagship Goodman Theatre, said, “The model for our industry really evolved to a large extent out of the work of William Baumol and William Bowen’s Performing Arts: The Economic Dilemma.” This seminal 1966 book articulated the main challenges facing the performing arts: The cost of producing art rises faster than the overall economy. The income derived from theatre, Baumol and Bowen predicted, will not keep pace with the escalating costs involved in putting up productions. Theatre is a labor-intensive industry where certain costs can’t be cut even with advancements in technology that allow other industries to work at a higher efficiency rate. Stage productions still require a certain number of actors, rehearsal time, designers and stagehands. In light of these economic realizations, Baumol and Bowen stressed the need for subsidies for the performing arts, resulting in today’s current business model where theatres are supported by both contributions and earned income.

There is general consensus throughout the theatre field that Baumol and Bowen’s economic forecast was accurate. What theatres are struggling with now is whether or not the perceived norm—that 50 to 70 percent of a theatre’s budget at large institutions should be derived from the box office—is still the right percentage in today’s market. Of course, there are no simple answers. While one ratio might be logical and effective for one theatre, it’s likely not to be the best fit for another one. There are a range of not-for-profit theatres in the U.S., all differing in size, mission and geographic locations. A one-size-fits-all approach is certainly not the solution.

As theatres revisit their business plans, they are also wondering if they are charging their customers the right price for their product. Zannie Voss, chair and professor of arts administration at Southern Methodist University, pointed out that TCG’s 2006 Theatre Facts report found that theatres presented more productions overall, even as audiences declined. “Even though they are adding more product, they are not selling more product,” Voss said. “It’s a supply-and-demand issue within the context of programming decisions, artistic quality, the size of the market and the density of competition in the market in which you operate.” Voss reported a high correlation between market density, capacity utilization and average single-ticket price. In other words, in more heavily populated urban markets, where there are likely to be a greater number of theatres, there tended to be more theatregoers, less price sensitivity and higher capacity utilization.

Like Medak, Schulfer explained that it was a financial crisis at the Goodman 20 years ago that encouraged the board to take a more entrepreneurial approach. The board remained steadfast in its willingness to support and advance artistic director Robert Falls’s vision, even with no money in the bank. “It was that risk-taking that, frankly, paid off over the course of time,” Schulfer said. Operating year-to-year with limited funds to fall back on eventually led the Goodman trustees to create an endowment and think more long-term. Today the theatre company has money in the bank and its endowment generates income for the organization. Capitalization and the endowment, said Schulfer, was the only long-term way for the Goodman to achieve artistically, while maintaining financial stability.

Endowments, according to Voss, experienced a 33-percent increase in earnings in 2006. “It’s become the second-greatest source of earned income for theatres aside from ticket income.” Yet, endowments are not a prescription for everyone. Theatres have to determine their own needs and goals. In the past decade, Berkeley Rep has focused on shifting its economic model from 82 percent earned income to a 50/50 ratio. The company’s board opted not to concentrate heavily on building an endowment, and instead the theatre is focusing on raising operating dollars to support its staff, plays and infrastructure. Michael Robertson, managing director of the Lark Play Development Center in New York City, reported that his company is also holding off on the creation of an endowment. After a financial analysis by the Nonprofit Finance Fund, it was determined it was better for the Lark to create a cash reserve so it could “weather a storm.” The Lark now budgets a surplus that gets rolled into a reserve fund. Despite their different approaches, these three theatres stressed the importance of keeping financial goals and planning in line with the mission of an organization.

The thing that needs to be driving the conversation in any budget decision-making process, whether the company is in a tailspin or experiencing financial success, is the mission of the theatre. After the dance company Pilobolus’s work was featured in a television car advertisement and on the Oscars, the company received more than 8,000 inquiries within a two-month period to provide similar services for others. While the earned income derived from this activity had a dramatic positive impact on cash flow and revenue, the magnitude of the disruption to its ordinary business nearly capsized the organization, making it the proverbial victim of its own success. Even with a steady stream of work opportunities, Pilobolus’s board stayed committed to its mission. Executive director Itamar Kubovy said, “This opportunity has forced us to think about what the mission is, how we stay true to that mission and how a radically changing reality can continue to realize the dreams and goals of the organization.”

Theatres should also continually consider their mission when it comes to fundraising. Theatres want to stabilize their organizations with increased support from foundations and corporations—but what exactly are funders looking for? Diane Ragsdale, associate program officer at the Andrew W. Mellon Foundation; Marian Godfrey, managing director of culture and civic initiatives at the Pew Charitable Trusts; and Luis Castro, director of arts development at Time Warner, offered some insight when they spoke on TCG’s panel on innovation in philanthropy.

Foundations and corporations today are seeking more synergy with their grantees. Corporations, according to Castro, don’t merely want their logo prominently displayed in exchange for their support. They want to fund programs that align with their company; they want to create deeper relationships with theatres and communities; and they want to further the identity of the corporation. Time Warner, like many other corporations, has shifted away from sponsorships of events and buying tables at galas. Instead, the company is investing its money in programs that reflect its values, such as reducing barriers that keep people from attending the arts. For example, Time Warner is underwriting Signature Theatre of New York’s audience-development program that offers $20 seats to all customers. By participating in this way, Time Warner advances the theatre field and leverages its own company. This is reflective of a new trend among donors: Funders want to participate and have deeper relationships with their grantees. Funders are showing less interest in signing over a check and remaining hands-off.

This funding shift poses a challenge for theatres whose work may not match up with the newly defined interests of a foundation or corporation. With turnover, it’s not uncommon for funders to alter their giving priorities, especially corporate funders. According to Godfrey, it’s a theatre’s responsibility to seek out funders who are interested in their mission and programs. At Pew, Godfrey and her colleagues aim to provide funding that strengthens organizations, not pulls them away from their mission. Ragsdale cautioned theatres not to create new programs or alter their missions just to fit into a funder’s guidelines. “If you feel encouraged to do that, stop and walk away from the money,” she said.

In the future, it’s likely that there will be a greater need for funders and theatres to have more dynamic conversations—ones that center on partnership and building ideas that work for both parties. Younger philanthropists in particular are looking for more direct involvement in projects they fund. Ragsdale, Godfrey and Castro all recognized that it can be hard to get a funder’s attention and secure support. “I think that we forget sometimes on our side of the fence how difficult we make it for you to even come and have a conversation with us about what you’re up to,” Godfrey said.

Access and Audiences

The audience and community are changing, and what’s important is that what’s on the stage reflects and speaks to those different communities. —Luis Castro, director of arts development at Time Warner

When theatre leaders were asked to think-tank about the biggest areas in need of innovative approaches, the topic of audience development generated the most response. Theatres are concerned about reaching new audiences, setting appropriate ticket prices, adapting to changing demographics and engaging their communities. Theatres continue to find themselves competing with entertainment options—such as high-definition television, Netflix and computer technology—that render potential audiences less likely to venture out of their homes.

To counter that trend, theatres have experimented with different ticket pricing to pull in audiences. From student rush tickets to subscription rates, theatres offer a range of discounted ticket options to get folks in the door. But if ticket buyers grow accustomed to getting seats at discounts, are theatres underselling their product? Medak said, “I hate the fact that we’ve created an environment where people think they shouldn’t be paying full value for theatre tickets.” Additionally, theatres worry about losing their core audience—their subscribers—if they give discounts to other groups to fill their houses.

To increase audiences, theatres are testing and implementing a range of offers. Connecticut’s Hartford Stage has been successful with its $10 tickets for young people. Hartford is selling more seats with no push-back from its subscriber base. At Berkeley Rep, the company gave up its single-tiered pricing structure and got rid of many discounts. Berkeley is focusing more on “multi-play purchases” instead of pushing five- or seven-play subscriptions. And the Goodman now offers $20 tickets for all seats for Sunday evening performances. Performances on this evening, a night previously not filled to capacity, are now selling out.

The Met is addressing accessibility by offering 200 $20 rush tickets for weekday performances on a first-come-first-served basis. Gelb secured a donor who was willing to buy $2 million worth of orchestra seats to begin this new rush-ticket program. The offer is not restricted to age so it provides opportunities for baby boomers, young professionals and students.

As today’s core theatregoers age, artistic directors are wondering how to reach young people. To get a better sense of what interests teenagers, TCG gathered six high school students from the New York City area. Overall, these students preferred socially relevant plays like Rent, Regrets Only, Spring Awakening and Platanos & Collard Greens. They stated that they are attracted to shows with young, relatable characters. Spring Awakening is a particular theatre favorite among young audiences because it deals with issues of abortion and premarital sex.

The six teens didn’t necessarily perceive price as a barrier to theatre, and said their peers are generally willing to pay $20 to $50 for a ticket if it’s something they want to see. Content and how they hear about a production is a much bigger factor regarding their attendance. Voss summed this up when she said, “What drives consumption of the arts as an adult is predominately four factors from youth: What are the values transmitted from the family? What are the values transmitted from the school? What was the arts exposure as a child? And what was the arts involvement as an amateur?”

While the students admitted to having limited free time to attend plays, they rejected the notion that high school students have limited attention spans and aren’t willing to sit in a theatre for two hours. They recognized the value of the art form and expressed an appreciation for the live experience. “When you’re in a theatre, the audience influences people on stage and the people on stage influence the audience. It’s this energy that you can’t get from a movie,” a female teen panelist said.

The teens confirmed that people their age are using online social sites such as MySpace, but social networking, of course, is not only used by young people. The average consumer today wants to actively participate in the content he or she experiences online. This includes writing on blogs, acting as citizen journalists, being amateur filmmakers on the online video sharing site YouTube and posting pictures on photo-sharing sites such as Flickr. Voss accurately described today’s market when she said, “It’s the involvement that’s most important. People don’t want to just passively consume.”

Theatres are at varying levels of competency in the area of technology. Some, including San Francisco’s Magic Theatre, are using YouTube to advertise their productions and send thank-you videos to their donors via e-mail. Other theatres feel overwhelmed by the newness of free technology sites like Facebook and Second Life.

Certainly, there are benefits from using web technology to disseminate information and connect to donors. American Theatre Wing has made more than 500 hours of programming available online with MP3s that can be downloaded. And Anne Bogart’s New York–based SITI Company is using CollectiveX to customize an online community similar to MySpace to keep in contact with donors and audiences between productions. When working with new technology, Erika Block, director of Blockwork, suggested theatres start small, strategize and consider their target audience. It’s important to think specifically about how the technology will advance programs and the mission, and further connection with the intended community.

Innovative spaces also offer additional opportunities to deepen relationships with audiences and create new avenues of connections. From Portland Center Stage of Oregon’s new Gerding Theater at the Armory to CENTERSTAGE of Baltimore’s social events, theatres are reinventing their identities and their ties to their communities. PSC’s new space is widely recognized as the country’s most remarkable green theatre. Rainwater is collected on the roof and the lights work on motion detectors to conserve energy. The greenness of the building reflects the values of the community. Charles Frasier, PCS’s director of development, said a donor recently remarked, “This building is just so Portland.” The theatre company is using its new space to draw in the community with places for yoga classes, cafés and free Wi-Fi Internet access in the lobby. It also functions as an event space, which brings in the donors of other organizations. At CENTERSTAGE, the theatre is attracting new people with Friday evening social events that feature DJs spinning records and an environment more commonly found at a dance club.

Along with expanded ways in which theatres use their space often comes additional questions of branding and identity. One Fall Forum participant asked, “Where does the theatrical stop and the party begin?”

Conclusion

The need for innovation exists everywhere. —Douglas Brown, board chair of Steppenwolf Theatre Company

In summary, here are some learnings from TCG’s Fall Forum that emerged several times over the two-day event:

· A work environment that fosters symmetrical relationships will generate innovation.

· To innovate, expand possibilities by pushing out constraints and create a bigger box for ideas.

· A time of crisis can offer opportunities for risk-taking and new vision.

· There is no one best business model. The previous assumption that 50 to 70 percent of a budget must be earned from ticket sales is changing. Organizations need to reexamine their budgets and determine what works best for their companies.

· Theatre Facts found theatres are adding productions even as audiences are declining.

· The mission of an organization should drive the decision-making in all areas, from budgets, to technology, to funding, to spaces.

· Funders are seeking deeper relationships with not-for-profits and forgoing the hands-off approach to fundraising. Funders want partnerships that align with their interests and values.

· Young people are drawn to socially conscious work. Their interests in productions largely stems from what they hear from teachers, parents, mentors and friends.

· Technology offers a range of opportunities from free online networking sites to custom-made programs. New technology is a way to stay connected to audiences.

· Imaginative uses of spaces are allowing theatres to reach their communities in new ways. Theatres are exploring how their spaces are relevant to their communities.

· People today expect more from the experiences they are having. They seek higher levels of engagement. They want to be active participants in leisure activities.

At the closing of the Fall Forum, Susan Booth, board chair of TCG and artistic director of Atlanta’s Alliance Theatre, proposed, “What if we spent more time asking questions than giving answers?” Change doesn’t just take money, Booth reminded. “It takes a sincere full-tilt willingness to throw all the rules on the table for question, including the one that says we are the makers of the art and the community is receiver.”

Booth encouraged theatres to think of themselves in partnership with their communities and audiences. “What if we didn’t immediately follow up community engagement events with the tracking of attendance at our shows, but instead spent some head space on how we might redefine our programming to reflect the way our community wants to engage?” she wondered. “Maybe we need to consider that the audience is not merely a commodity to be obtained in greater quantity, but a full collaborator with a right to our ear as well as our seats.”

Theatres must face up to tough questions before they can evolve into their next reality. Boards need to support risk-taking and experimentation. If theatres stretch themselves to rethink, relearn and reinvent, then in years to come the national theatre field will meld the best creative ideas of today with new visions the field has yet to dream up.

Tara Bracco is a development associate at TCG and a freelance writer. Transcripts from the Fall Forum are available online at www.tcg.org/events.