What's Good for the Met is Good for the Country?

What Peter Gelb has accomplished at the Met is nothing short of remarkable. It has been a source of encouragement for all of the classical music world. There is a terrific summary of what he has done and how he did it published by none other than Ben Rosen – a noted journalist, technology investor and a former board member of the Met. If can be read at:

http://www.huffingtonpost.com/ben-rosen/the-metropolitan-opera_b_107924.html

All is now great at the Met. The Met is a marketing powerhouse. The product has improved, ticket sales are up, subscriptions are up, full houses are up and public perception has never been stronger.

The Met pioneered the program of broadcasting live operas in High Definition to theaters around the US and Europe. These programs have been a resounding success with nearly one million tickets sold for the 2007/2008 season. Approximately as many people saw the Met in theaters as did in the opera house. Mr. Rosen claims that the Met HD broadcasts are nearly a breakeven proposition with revenues approximately covering the incremental expenses. This is an astonishing accomplishment even if it is a little misleading. This analysis compares only the “incremental” expenses of the broadcasts. The cost of putting on the opera in the first place is not included. This cost is assumed to be allocated to the live audience. Unfortunately the live audience receipts only cover about half the cost of producing the opera. If these costs were fully allocated over the theater audience the HD broadcasts would be far from breakeven.

A couple of questions come to mind when considering the Mets astonishing turnaround over the past 2 seasons. First - is this new model financially sustainable for the Met? Second – what does this mean for the rest of the classical music industry?

Is this new model financially sustainable for the Met?

Simply stated – no one knows. Every year the Met provides a publicly accessible accounting of its finances. This is the tax Form 990 for non-profit organizations. The last Form 990 on record is for the fiscal year ending July 2006, the year before Peter Gelb started. It shows the Met raising its donation income by $16M to $114M while its revenue (primarily from ticket sales) rose by only $5M to $99M. The Form 990 for the year ending in July 2007 should be public soon. The speculation is that ticket sales have increased but that expenses and donations have increased dramatically. A few well healed donors have reached deep into their pockets to finance the extraordinary marketing programs, the significant costs of the new production model and the HD broadcasts.

Historically the Met has acquired about half its income from donors and half from ticket sales. Is the extra money needed to revive the Met only a temporary need, to get the company “over the hump”, or is it a permanent need to sustain the new model? If the new Met requires a lot more money to operate, and if that money has to come from donors, will those donors be there for the long haul? Can Peter Gelb and his successors continue to finance this model? Can they get the donor/ticket sales/expenses ratios back to historical levels or continue to sustain them at the new levels? Time, and the current global financial crisis, will bring significant light to this subject.

What does this mean for the rest of the classical music community?

It is early in the game for post-game analysis but there are some interesting questions and issues that are raised by the Mets activities.

1. Marketing works!

The Met hired a marketing wizard. He had never run a performing arts organization. He replaced the ultimate insider – Joe Volpe. Under Volpe the organization ran like clockwork but the audience was in decline. Gelb may or may not be an operational manager (indications are that he is not) but he was the right man for the times. Under his leadership the Met has had a rebirth. Every important metric is up and to the right. The lesson is that every part of the classical music ecosystem has to become excellent at the art and practice of marketing. This extends from the top managers of major organizations to individual artists. Competition for audience and donor attention is growing every day. While CDs are in rapid decline the video game industry is experiencing unprecedented growth. There are more options for how people spend their time. The other options are all being very well marketed. If classical music is to accomplish a turnaround like the Met it will REQUIRE a high quality and sustained marketing effort by everyone involved in the business.

2. The Met’s HD broadcast program is not a model for most other companies

Other companies have tried to emulate the Met. San Francisco Opera and Chicago Lyric Opera, Covent Garden and La Scala created similar programs and the attendance was very disappointing! One problem was that they delayed the performances to make the hours more suitable for the audience. This seems like a good idea but in fact it was not. One of the main attractions of the Met broadcasts is that it is not a recording – it is an event!! You are seeing it in real time, just like the audience in Lincoln center. As Anthony Tommasini noted in the New York Times:

“Central to Mr. Gelb’s conception of the Met’s venture was that broadcasts would be live: audiences in movie houses would vicariously experience the performance with patrons at the Met. Take away the live element and you take away a lot.”

This has a downside in that it limits the broadcast geography. This is why the matinee performances are broadcast - the timing can be made to work for Europe and the western US. The Met has done a couple of secondary shows and they have made the HD broadcasts available over the internet on a subscription service. These are financially trivial and make sense as an adjunct to a successful simulcast program but they would never stand alone as a viable model. The key is to make the performance into an event!

Another factor is that the Met was the first mover in this market! We are seeing many markets evolve into a winner-take-all outcome. The first mover establishes the brand awareness and acquires the consumer loyalty. Later entrants are pushing uphill against a bigger, better known and more entrenched competitor. The demand is not large enough for many competitors so unless the first mover stumbles, the followers just get further and further behind.

A third factor is initial brand-identity and audience perception. I am a frequent patron of both the Met and the Chicago Lyric Opera. In my opinion Chicago produces a more consistent and higher quality product. However Chicago does not have the brand recognition of the Met which springs from the Met's location, the scale of their season and 50 years of national radio broadcasts which have turned the Met into a national company. This is a serious disadvantage.

My guess is that the Met and one or two European companies (Covent Garden, La Scala or Vienna) will be the only presenters with the scale, brand equity and financial means to create a sustainable business broadcasting HD opera.

3. The Mets broadcasts can both increase the global audience and cannibalize local markets

Every local opera company is fearful that their audience, lured by cheaper prices, star power and perhaps the crippling effect of the terrible economy, will abandon their local opera companies and attend Met broadcasts instead. Another possibility is that the Met broadcasts will stimulate the audience appetite for opera and increase attendance at local productions. My guess is that both are correct. Some people will substitute and some will be stimulated. Whether the net effect on the local company is positive or negative will depend on the actions taken. For the net effect to be positive, the local company will have to adopt an aggressive marketing campaign targeting the theater audience as well as the rest of the community. There is a danger of the “Wal-Mart Effect” where the big drives out the small. The small need to be aggressive, nimble, local and focused to carve out a niche for themselves. Without that response the effect could be very negative.

Preliminary Conclusions

The Met business case proves that there is a market for classical music and that an aggressive, well executed and professional marketing campaign can revive that market.

It does not, unfortunately, provide a business or economic model for smaller regional companies. These companies must find a different way to stimulate their local market and derive benefit from the audience stimulated by the Met’s campaign. They cannot go global and the Met’s model will breakdown without the global scale to support it. I will capture some thoughts on the regional company’s responses options in a future blog in hopes of stimulating a useful discussion.

It also does not provide any insight into the future of recorded classical music. The success of the Met’s HD program rests on the live broadcast model. It creates an event, not a recording. If a recording results it will be a peripheral economic consideration and only possible because the costs are absorbed by the event economics.

Is “What’s good for the Met also good for the country”? It could be. The jury is out. The answer will depend on the quality of the response by the rest of the classical music community. Local companies cannot copy the Met but, with the right marketing programs, they can leverage the local audience stimulated by the Met broadcasts.