15 December 2015

Northern Stage 2015

As one of the top producing theatre companies in the UK and the largest in North East England, Northern Stage is arguably a reasonable barometer by which to gauge the theatrical health of the region. As mentioned here, it is a stretch to claim that theatre across the UK has thrived in the face of cuts to public subsidy. Significant growth has certainly been achieved over the last few years by The National Theatre and other London theatres but this is by no means universal across Arts Council England's National portfolio. Northern Stage's 2015 accounts map the rocky theatrical landscape outside the M25.

Back in 2010, Northern Stage received £1.3m from ACE as their core funding. In 2015, their portfolio funding from ACE was £1.6m. Adjusted for inflation, Northern Stage are receiving pretty much the same amount of core funding that they were five years ago and there won't be much growth in that figure over the next few years. By the time we get to the end of this funding cycle, it seems likely that Northern Stage will actually be receiving less core funding in real cash terms (they aren't alone in this). In 2010, that core funding was 52% of Northern Stage's £2.5m incoming resources. In 2015, ACE portfolio funding constituted  56% of Northern Stages's £2.85m incoming resources (which was actually down from 61% in 2014). The chart below shows the percentage of each organisation's revenue derived from National Portfolio Organisation status in 2014 (the last year for which all organisations have data available).

The nature of ACE preserving a 'balanced' portfolio means that some organisations will be subsidised more heavily than others. Subsidy should theoretically offset some of the uncertainty resulting from producing art, hence certain types of art require larger subsidies if they are difficult to commoditise or expensive to create: theatre ticks both boxes because of the unrepeatable nature of live performance and a commitment to large spend on production elements. 'Contact' are interesting to consider in the chart above: since their core values emphasise the centrality of young people to the organisation they're operating in a much more restricted fashion than an organisation at the other end of the scale with a more open charitable aim (like BAC) so you would expect a higher level of subsidy. It's equally interesting to look at Albatross (Geese Theatre Company) and wonder whether their low ratio means that their focus on working in prisons and related agencies opens up additional revenue streams (seems unlikely) or Geese could be considered underfunded (more likely). Portfolio funding is a complex and slippery beast (as is analysing it).

Northern Stage are clearly very reliant on ACE's NPO funding, which is slightly disconcerting given that their output and audiences are not particularly niche. In 2015, Northern Stage also received an additional £66,751 from ACE for presentation of an Edinburgh programme (£45,000) and from ACE Catalyst funding (£21,751 match funding for sourcing additional income streams - full Catalyst Year 2 report here). Other major grants include £41,750 from the Newcastle City Council (down from £83,500 in 2014) and £40,000 from the University of Newcastle. Northern Stage is surrounded by the University of Newcastle campus which begs comparison to Warwick Arts Centre. The University of Warwick contributed £1.3m to Warwick Arts Centre in 2014, equating to ~23% of WAC's £5.6m revenue and this is relationship that certainly seems to be paying off. Northern Stage receive 1.4% of their revenue from their in-kind partnership (rental of the theatre from the university 'costs' £40k annually) which suggests there might be significant room for development.

Development remains a serious consideration for Northern Stage in 2015, as the utilisation of a Business Development Manager and retention of a fundraising consultant demonstrate. There has certainly been some success on this front, increasing income derived from existing assets (commercial hire, skills workshops and set building) by £48,000 (up to £116,000 from £68,000 in 2014) and forging new relationships with funding bodies. One point of interest is the café bar: rather than a parent/child gift aid relationship (as seen at BAC, Soho and many others), Northern Stage have outsourced the operation to privately owned catering firm McKenna's. This makes it difficult to gauge the effectiveness of the channel as a revenue stream for Northern Stage (being a small limited company, McKenna's can opt out of filing a full set of accounts). Given how much impact the café bar can have on a theatre's bottom line, the decision to outsource is 'interesting' but then it's much easier to advocate taking on additional cost, risk and operational complexity at a distance than up close.

It was expected that Northern Stage would post a loss in 2015 given that the last time the organisation reported a profit was back in 2007. This sounds incredibly dramatic but it's largely due to the amortisation of the £9,000,000 refurbishment of the theatre in 2006. All those restricted funds received for refurb were written on as fixed assets so there are substantial depreciation charges every year (£347,397 in 2015). In their 2015 financial review Northern Stage actually report an unrestricted surplus of £12,485 (following on from an unrestricted surplus of £52,480 in 2014), so it depends how you look at it. I prefer to look at profit after depreciation because although those costs are not actual cash expenditures, fixed assets have a limited lifetime and do require maintenance (unless of course you plan to ask for £15,000,000 in 25 years time for the next refit).

Approximately 50% of Northern Stage's expenditure is on salaries for their reported 87 members of staff. BAC spend about the same amount (~£1.5m) on their 67 members of staff but report more than twice the revenue (£5.8m Vs £2.85m). Also worth remembering that BAC's numbers include café bar employees but Northern Stage's do not. This means that Northern Stage have overhead of ~£120k a month just for salaries (the theatre is rented in kind from the university so this is likely the bulk of overheads). For 2015/2016 the board have actually adjusted the reserves policy down to 2 months operating costs. The unrestricted reserves currently stand around the £260,000 mark: not the most comfortable position to be in. Also worth noting that the creditors (amounts falling due within one year) figure on the balance sheet below is not covered by the reserves:

Please do not misunderstand this analysis: Northern Stage are by no means on the brink of impending doom. Although they are very heavily reliant on ACE, have a lot of overhead, do not have a great deal of cash on hand and are not diversifying their revenue streams at the same rate that other organisations based in London are able to do (for a variety of reasons: corporate sponsors are much less inclined to give large amounts outside London for example).

Northern Stage are surviving.

Not thriving.

And do not for one second think that they are alone amongst the 178 ACE portfolio organisations that are neither the NT or the RSC (sidenote: it would be nice to see solidarity/trickle down payments from those organisations that are thriving).

It's very difficult to talk about arts organisations if they're having a hard time. ACE won't necessarily name an organisation that receives emergency funding and with very good reason: it is incredibly difficult to attract money when it is well known that you don't have any. In addition to this, the arts are not renowned for excellent financial analysis (neither is the business world) and nor should they be (although I did see an article today that was cited by a high profile arts writer as 'excellent analysis'. The article consisted of numbers from a table written down as words.). Unfortunately, operational complexity is growing rapidly across all organisations and there is a real need to try and get a handle on such big, slippery beasts. The sooner we get comfortable talking numbers, the better we can take care of each other.

12 December 2015

Aside: 3 paragraphs talking about identifying sectoral trends in a complex system

This week, The Stage published this article by David Brownlee. The article explores the summarised 'Annual Submission' dataset, provided annually by Arts Council England and based on survey data gleaned from their National portfolio organisations. The data consists of headline financial figures, figures relating to diversity amongst staff and boards, number of commissions etc.. You can find archived annual submissions here. ACE publish a wealth of data on all sorts of things (including successful Grants for the Arts awards) but I don't find their website particularly easy to navigate so the sitemap has proved invaluable on several occasions. I provide these links so that you can immerse yourself in the datasets to get a feeling for what might be happening in our complex system because contrary to the article's headline, I am wary of concluding that "theatre has thrived despite the cuts".

This is a dangerous assertion to make in the current climate: a Conservative government do not want (and will not ever want) to subsidise the arts because of a whole hearted belief in the power of the market. They may want to invest in the arts if they can see a return for the wider economy (hence the shifting rhetoric from many arts organisations) but a market does not allow for subsidy because it dilutes the primary function of price discovery. If theatre is thriving despite the cuts then the market has become more efficient at creating value following the removal of subsidy and the government has a solid case for removing all subsidy so that the full value of theatre can be unlocked. Creating maximum market value is a very different vision to nurturing a healthy, accessible, diverse and vibrant sector and will have very different results.

The National Theatre and The Royal Shakespeare company substantially skew any aggregated analysis of ACE portfolio data. If aiming to identify sector trends then they really have to be considered in isolation. In The Stage article, David Brownlee demonstrates a £58m increase in Earned Income across ACE portfolio organisations between 2010 and 2015. By my reckoning, The National Theatre alone has increased Earned Income by about £37m (inflation adjusted) over that period, equating to 65% of the £58m portfolio increase. The National Theatre is certainly thriving despite the cuts but I would be extremely unwilling to extrapolate any further sectoral trends from Annual Submission summaries without access to the raw data and a substantial amount of time (but you'd probably expect that from someone with a blog analysing the finances of individual arts organisations).

6 December 2015

Battersea Arts Centre 2015

2015 has not been easy for the Suffolk red-brick and Bath stone former Battersea Town Hall. Nor can it have been easy for the organisations residing within. When Bachelard wrote "It is better to live in a state of impermanence than in one of finality.", it seems unlikely he had the poetics of temporary office space in mind.

Grade II listed, 80 rooms, peppercorn rent, needs work

March's fire was the principle cause of concern when considering BAC's 2013/14 accounts: what would the true cost be and how would BAC cope with associated fundraising challenges, increasing levels of operational complexity and no doubt several project management nightmares? This was a potentially toxic mix of problems best weathered by a cash rich organisation. Ever cautious, my assumption was that we would have to wait another year to get a true feel for the impact of the fire. Whilst this remains true for the operational side of things, significant adjustments were actually made to the balance sheet in 2014/15.

Before examining the 2015 financial statement and balance sheet, it's worth noting that BAC is a group and that the following will focus on the group accounts. 'Battersea Arts Centre' is the parent organisation and operates a wholly-owned subsidiary: 'BAC Enterprises Limited'. 'Battersea Arts Centre' is a registered charity with the primary purpose of advancing education in the arts for the benefit of the public. 'BAC Enterprises Ltd.' is a limited company focused on running venue hire, the café-bar and all commercial trading operations carried out at Battersea Arts Centre. At the end of the financial year 'BAC Enterprises Ltd.' pays all profits on which tax would otherwise be due to 'Battersea Arts Centre' via Gift Aid.

The first thing to note is that BAC achieved a significant increase in income in 2015 (up 25% from 2014's figure). It's worth taking a moment to appreciate the growth that BAC have had in this area and that this period's incoming resources are around 4.5 times what they were when David Jubb became Artistic Director back in 2004. The chart below documents that progression.

Incoming resources are certainly never the whole story but it doesn't hurt to be an arts organisation enjoying long-term growth in that area. Of course, it's also worth examining BAC's success in a wider context: Hampstead Theatre and Soho Theatre are historically of similar size in terms of incoming resources to BAC and all three also operate a group structure with separated commercial operations (obviously all three are also located in London). There are differences in terms of ACE portfolio funding between the three: Hampstead receive ~£875k annually, Soho ~600k and BAC ~£700k. Unfortunately Soho Theatre's 2015 accounts are not available at the time of writing (hence no figure for them on the chart below) but I will endeavour to update once available. The takeaway from the comparison is that seems BAC's growth over the last few years has been mirrored by their immediate peers.

Less of a success story in 2015 was the income gifted to BAC by BAC Enterprises Ltd., which you can see denoted on the financial statement (under both income and expenditure) as 'Commercial trading operations'. Over the last few years, profits generated by BAC's commercial arm have averaged ~£135,000 and haven't dropped below six figures. In 2015 the surplus was only £3,312. This has been attributed to reduced turnover as a result of the temporary closure of the events side of the business and reduced footfall due to building works begun in September 2014. However (focusing on the child accounts momentarily), BAC Enterprises' cost of sales has actually increased dramatically to £354,936 (up from £296,948 in 2014), reducing gross profit. Not what you'd expect given that all of the demand constraints mentioned previously should have been identified in advance. In addition to this, the creditors figure (amounts falling due within one year) has almost doubled from £67,529 to £122,115 (although the majority of this appears to be owed to the group so will likely end up written off). For comparison: in 2014 Soho Theatre's bar turned over ~£1.5m with a gross profit of ~£1m.

Returning to BAC's group financial statement; grants and donations increased 21% in 2015 to just under £3.8 million. Trying to create a 21st Century theatre in a 19th Century building is an expensive business and around £2.1 million of BAC's grants and donations are related to building regeneration works (ACE Renew contributing £594,445, Heritage Lottery Fund £829,085 and other sources £699,560).

The remaining £1.7 million includes £150,000 received in kind from Wandsworth Borough Council since the premises will essentially be provided rent free until 2028. An equivalent charge relating to the in kind payment is included in the expenditure. Wandsworth Council also have a service agreement in place with BAC where they contribute ~£100,000 annually (included under charitable activities income).

BAC also received £667,186 in 2015 as designated project specific funding related to their charitable cause (£190,992 for participatory activities, £414,259 for developing and staging theatre, £30,575 for other causes and £31,360 for supporting theatre makers), approximately 11% of all incoming resources. Designated funds for the building represented 37% of all incoming resources. Annual ACE Portfolio funding represented 12% of all incoming resources.

Expenditure on charitable activities increased almost £1 million in 2015. Producing costs decreased by approximately £100,000 but there were jumps in operational spend (up ~£108,000) and marketing and press (up ~£100,000). However, the big increase is mostly due to writing off damages from the fire which is mostly accounted for as depreciation/impairments under support costs. This excludes the ~£55k restitution costs shown in the financial statement above.

In 2015, BAC paid out £147,166 to artists for their share of the box office. Admission fees and programme income was £660,227, which means ~22% goes back to artists. BAC state that they work with over 400 artists annually, so that works out to ~£368 per artist (or 1 week each at London Living Wage level). Elsewhere in the accounts BAC state that they spent £513.7k supporting theatre makers but no clear breakdown of which theatre makers received what is provided (not a reporting requirement but transparent financial flows and clearly substantiated numbers are always a win). When considering these box office numbers and the amount trickling down to artists, it's difficult to put out of your mind how much money that Grade II listed building demands, even preceding March's fire.

The impact of the fire is not immediately obvious on the balance sheet below:

A lot of the tangible assets value is however actually made up of 'Work in progress' (£1.5m) rather than being in the property itself (which was written down by ~£900k to £2.57m) . Fixtures, fittings and equipment were also written off but additions help balance this out. The building was fully insured and Aviva accepted indemnity for replacement, rebuild and costs of business interruption, hence £500k appearing in 2015 income. The majority of the insurance money remained unspent at year end and significant contributions will have come in after March 31st as well. The position that BAC are reporting certainly seems favourable although risk no doubt remains on the operations side.

The real difficulty for BAC is the building itself. I'm a big believer that architecture significantly influences the activity that unfolds within, whether it's the reinforcement of structure and hierarchy (consider the archetypal production building: factory floor downstairs, managerial suites upstairs) or aspirational schools (£80m Holland Park School with their bespoke Ercol chairs). So it makes absolute sense for an arts organisation's home to be a wonderful building of local significance with the capacity to inspire. However, part of me also wonders if Wandsworth Council are providing something of a poisoned chalice: a building that requires so much cash to run, maintain and upgrade that it hampers the development of the organisation within.

2 November 2015

New Diorama Theatre 2014

It’s difficult to feel kindly towards London’s property developers, particularly if they own assets of around £12 billion (including Surrey Quays) and built The Cheese Grater. However, since British Land also developed the Regent’s Place campus and with it the New Diorama Theatre, they perhaps warrant some grudging appreciation. Opened in 2010 following several rounds of community consultation, the 80 seat New Diorama functions as a creative hub focusing on ensemble work, creating social cohesion and providing a valuable resource for the surrounding community.

What makes the New Diorama an interesting venue to look at financially is that they receive very little support from Arts Council England. With cuts to funding lurking round every corner, perhaps there is value in considering a funding model that relies not on government subsidy or individual giving but largely on corporate sponsorship.

2014 bought a change of pace for NDT, as Theatrical Income overtook Voluntary Income as the primary revenue stream. The 21% growth is largely due to expansion of corporate/artistic space hire, up to £77,060 in 2014 from a 2013 figure of £58,553. Box office income was £21,852 in 2014, up from £4,700 in 2013 but rather than growth, this looks to be a change in accounting since incoming 'Fees' have decreased YoY (down to £2,547 in 2014 from £13,335 in 2013). Income from the cafe/bar remains the same at ~£30,000, just over £8,000 higher than box office revenue but still around 2.5 times less than space hire.

Project Specific Funding saw a major percentage increase in 2014, with £30,380 of the £31,797 total coming from ACE - Grants for the arts. This included £8,500 for captioned performances during the 2013/2014 season and £13,200 for a NDT organisational development plan. This looks to be the only contribution made to NDT by ACE in this accounting period.

Voluntary income declined 6% YoY but this is no cause for alarm since in 2013 a £10,000 ACE grant was included under Voluntary Income but in 2014 all ACE grants were accounted for as project specific funding: it's not as if a funding stream dried up, the money just shows up somewhere else. British Land's contribution to NDT's 2014 income was maintained at a level of £25,000, preserving their Principle Supporter status. Both Carat and Santander are 'season sponsors' and their contribution amounts to £20,000. Camden Council also made a substantial contribution of £16,415. Individual giving and fundraising came to £30,747 and grants from Garfield Weston Foundation (£10,000), Co-op Community Trust (£2,000) and Garrick Charitable Trust (£2,500) make up the remainder.

In case there was any doubt, British Land are key to the success of the New Diorama Theatre. Not only did they build the theatre, James Danby (head of London leasing for British Land) is a NDT board member and British Land's representative as NDT's landlord. He has also previously acted on behalf of the Esmee Fairbairn Foundation (who helped out with a £10,000 grant to NDT in 2013) and since he was no doubt heavily involved in getting Santander Asset Management safely ensconced in their 10 Brock Street offices in Regent's Place, one must assume he also played a part in bringing Santander in as season sponsor.

On a diversionary sidenote - Sofie Mason (OffWestEnd) also sits on the NDT board. The NDT website states that Sofie currently sponsors the New Diorama Theatre's Terrorism Insurance. Insurance is a negative expectation proposition at the best of times (since the house always wins) but Terrorism Insurance is the most ludicrous of all because it so clearly exploits the conjunction fallacy whilst preying on an illogical and emotive fear of disaster. Quite why this sponsorship is in bold on the website, it's hard to say: 'Terrorism' is not listed in the annual report as a major risk.

The New Diorama Theatre's Governance Costs have not changed much YoY, with the slight reduction coming from a minor change in bookkeeping spend. The change in Support Costs appears to be down to spending ~£10,000 less on equipment purchases/maintenance and the commencement of a new arrangement with British Land. In 2013 £30,000 was listed as a donation in kind expense for rent (bringing 2013's combined office/rent/rates overhead to £48,775) but in 2014 no such donation in kind was made/utilised and the rent/rates/services expense was £41,820 (which still appears to be well below market value). NDT had a 3 year agreement in place with British Land from 2010 and some aspects of that agreement look to have rolled over in the new 3 year agreement from 2013 (the £25,000 grant for example) but it appears that in kind donations relating to rent (worth £30,000 annually) have now been closed out following what looks like a 'parachute' donation of £10,000 in 2013.

Salaries/Fees are a significant expense for NDT, with £66,581 being spent on Administration salaries/fees and £73,859 on Production salaries. The resulting £140,440 is approximately 52% of 2014's £270,381 expenditure. This seems a high percentage, particularly as NDT state that only 1 staff member was employed in production and 2 in administration. On paper, this make them one of the best paying arts organisations. However, no employee was paid over £60,000 and one must assume that fees, rather than salaries, account for a chunk of the spend and that the staff number is perhaps understated and won't include contractors (from their website, the staff number looks to be a little dated but the accounts are obviously from an older time period). Personally, I would like to see fees separated out from salaries and encourage organisations to always provide a breakdown of expenses in the same way they generally do for incoming grants. There is no regulatory requirement for an organisation to do so but (as ACE have shown by publishing so much data on their grants) transparency is always an excellent way to do business.

Taking a look at the balance sheet, there is an increase in trade debtors (money owed to NDT) and prepayments/accrued income. On the flipside, there's also an increase in accruals (up to £13,302 from £3,372 and deferred income (which refers to performance fees received in advance and stands at £63,400 at the end of the 2014 accounting period Vs £36,044 at the end of 2013). The £44,554 figure under Designated Funds represents the charity's reserves (3 months operating expenses).

Noted under 'Major Risks' in the New Diorama Theatre's annual report is that New Diorama does not receive regular core funding from Arts Council England. Reading between the lines, we must assume that the priority for NDT will be to secure ACE portfolio funding at the earliest opportunity since trustees must act to preserve the organisations that they care for. The shift in the agreement with British Land would appear to confirm this since they are scaling back support rather then building on it.

At a time when many are debating the economic value of culture, it's interesting to see that British Land were very much aware of this when developing Regent's Place over 5 years ago (it's hardly a new idea - see Jane Jacobs). Assuming that NDT will address their only listed Major Risk and actually achieve ACE portfolio status within 10 years of opening, what British Land have done is incredibly smart and long sighted: build a community asset, pour in financial and network support for it until ACE takes over as subsidy provider on their behalf. The initial building and support costs are amortised by reaping the benefits of a sustainable mixed-use destination neighbourhood and consequently being able to charge much higher long term rents across the entire development. Well played British Land, well played.

22 October 2015

Aside: More measuring...

In Wednesday's post, I outlined one possible method by which arts organisations could measure their cultural footprint. Whilst there are obvious flaws to be pointed out (for example, does the shape really matter more than the number?), the more time I've spent thinking about this method of measurement, the more I warm to it.

Reach will generally be the major unit of measurement (or the start of the funnel if you want to think about it that way) and represents how many people have witnessed an organisations work. It doesn't matter if that work is monetised or not, all that matters is that people were witnesses to the work. For a producing theatre company, this is probably the priority: get the work out to a wide audience.

Engagement is normally a function of reach (IE not everyone you reach will be engaged. However, on rare occasions work may create more engagement than reach) and I suspect (although lack the data to back up this hypothesis) that there is generally positive correlation between the two. The conversion ratio of 'reach:engagement' could drive organisational activity: increase your reach and you likely increase your engagement (although the same is not necessarily true - you could have a very engaged but small audience)? Engagement would perhaps be key for community organisations.

However, engagement could also be a function of participation (which could be a function of engagement - depends on the organisation!). Fun Palaces is an interesting organisation to consider because arguably everyone they reach is also an engaged participant but engagement also extends beyond the participants.

So the character of different organisations would be shown in their shapes but (here's where things go up a notch) if we're really trying to measure cultural footprint then we need to account for time in a better way (particularly if we're trying to create a useful model for organisations). Since the resonance of an organisation's work is affected by time, one would assume the same should be true for the cultural footprint. So, creating one piece of work every 5 years would show as a zero footprint on 4 out of 5 years for all the above 3 measurements and that's incorrect.

If you were comfortable using one of the above 3 measurements as a proxy for cultural footprint, you could create a model that factors in decay:

The blue line in the chart above represents the cultural footprint. The yellow dots are events where reach occurred (so, performances if you prefer) and time is shown on the horizontal axis. What you're looking at is the cultural footprint of a hypothetical show that did a couple of previews before Edinburgh followed by a full run at the festival (with one day off) and have nothing planned for the rest of the year. If they continue to do nothing then in 6 months their cultural footprint will have halved. In another six months it will have halved again and so on (never reaching zero because 'art never dies' obviously).

What's useful about this model is that it can be used for planning activity to maintain or expand their footprint. For example, the below chart shows that week long run at a certain attendance level would substantially increase footprint and ensure it was preserved going into 2016.

It would take a lot more research to establish the theoretically correct half-life of cultural footprint (the 6 months in this model is an absolute guess and undoubtedly the major flaw). This modelling could be done with engagement or participation numbers if that was the preferred focus. Couple a model like this with a robust forecasting model and maybe a MILP model for capacity planning and you have some incredibly powerful and potentially very useful tools and insights.

21 October 2015

Aside: Measuring cultural footprint

In an earlier post, you may have noticed me throwing out 'growth facilitated' as a key metric for the organisation being discussed. Whilst it's very easy to throw around a conceptual metric within the context of a post exploring the hypothetical structure of a theoretical organisation, things start to get a bit thornier when you actually begin to consider how that measurement would work in practice.

Key metrics are important for organisations. At their best, they ensure everyone is on the same page, foster understanding of how individual contribution affects the whole (see open-book management) and drive the organisation forward. At their worst, they can be distracting, de-humanising and detrimental.

Looking through the accounts of ACE Portfolio organisations (and at examples like this from the Royal Exchange), it's interesting to see what measures are picked out as headline figures. Metrics such as performance attendance (largely relevant) and capacity percentages (sometimes relevant) are commonplace amongst strategic reports, but increasingly numbers such as 'YoY Facebook Likes' and 'YoY Twitter Followers' (largely meaningless) are creeping in as well. No doubt this is fuelled by talk concerning how we measure the impact of the arts, what the 'value' of culture is and how arts organisations need to embrace the world of big data. Unfortunately, these metrics feel indicative of a siege mentality or that economic impact analysis has been forced on the organisation.

So, how do you quantify the impact of an arts organisation? How do you measure their cultural footprint in a way that would actually benefit the organisation? Well, you shouldn't do it fiscally because the value that these organisations primarily create is not monetary. Maybe something like this:

Reach is the number of people engaged. Maybe it's ticket sales. Maybe it's people who walk through the door. Use the same measurement, show YoY changes and discuss what the shape should look like.

Impact is the traceable web of social interactions resulting from engagement. You could get this from Twitter. You could send out email surveys. Use the same measurements, show YoY changes and discuss what the shape should look like.

Participation is the number of people actively involved as a result of the organisations activities. You could use workshop attendances. You could get this from post-show talk attendances. Use the same measurements, show YoY changes and discuss what the shape should look like.

You'll notice it has no numbers on it. This is because the shape is what matters, although size relative to other organisations would also be of interest. This approach is so simple it has probably already been done somewhere and I've missed it. I do have some other (more complicated) ideas about how you could robustly measure cultural footprint across all arts organisations but sadly lack the raw data to play with (WLTM: NPO w/large dataset).

12 October 2015

Forced Entertainment 2014 (Act II: expenditure and assets)

Tomorrow's Parties - 2011

As shown in Act I, Forced Entertainment operate a very simple revenue model where approximately 39% of their 2014 income (£655,922) arrived via ACE's portfolio fund and the majority of the remainder via production income. Their expenditure is similarly binary in nature, cleanly split between charitable activities and support costs:

Forced Entertainment's 2013/2014 expenditure
The substantial jump in Production Cost spend is likely due to the fact that the company celebrated their 30th birthday in 2014 and dug through the back catalogue to present 12 different shows from their repertoire over the course of the year. In contrast, in 2013 the principle artistic focus was The Coming Storm which attracted £85,000 of external co-production funding. Adding that amount of funding back in makes it much less of a jump in production expenditure, particularly given the variety of pieces performed. One would assume that 'Touring' costs include things like transportation and accommodation but it would be nice to see a clear breakdown.

Forced Entertainment's largest expense is clearly 'Fees, wages and expenses' (down to a total of £315,434 in 2014 from £375,953 in 2013). The reduction in 2014's figure likely comes from the loss of one member of the creative team in 2013 which incurred exceptional redundancy costs of £10,353 and of course saved one salary in 2014. Forced Entertainment employ 10 people, 6 in the creative team and 4 on the management team. The average wage looks to be around  £36,000 on the creative team and around £25,000 on the management team (taken with the usual caveat that staff numbers include any part-time staff).

All of which means that for 2014 Forced Entertainment were left with a surplus of £14,839; nearly double the previous year's surplus of £7,665.

For the last couple of years, Forced Entertainment's revenues have come through the ACE Portfolio and from production income. The immediate benefit of this is that both of their income streams are unrestricted (barring those funds set aside by the trustees as reserves). Consequently, there seems little need to break down the various funds (hence looking at expenditure and assets here in one post).

The most interesting change on the balance sheet is the reduction in the 'other creditors' number (IE money owed which is due within one year), which was at £70,520 in 2013 but is down to £33,469 in 2014. These numbers are always slightly troublesome because the balance sheet represents a snapshot of a particular day, but hopefully it's an indication that Forced Entertainment were in a more stable position at the end of the 2014 accounting period.

Any organisation that creates performance (or indeed physical goods) must deal with 3 principle areas: Source, Make and Deliver. The panoply of business models seen across the arts sector is testament to the innovation that can occur within each of these silos. For example, a new writing company could set itself apart specifically via methods of sourcing (there is often talk of developing content platforms as part of the 'Deliver' silo but sourcing platforms could prove equally effective). Alternatively, a new writing company could focus on making/developing the work, ensuring that output met specific criteria (speed of development, quality, production values etc.). The delivery platform could perhaps also be the primary focus and maybe emphasise specific spatial/temporal or concerns. If feeling particularly rowdy, organisations may even look to innovate across all 3 silos.

Forced Entertainment's focus is clearly on the 'Make' function described above: sourcing is taken care of by retaining a core creative team and delivery is provided by the management team and various co-production relationships. This makes for a relatively simple business model on paper but it's a level of simplicity that's been painstakingly etched out over 30 years. One important note: Forced Entertainment have previously grown by exporting their brand overseas but they have similar levels of attendance in both new and developed markets (around the 75% mark in 200-250 seat venues). This means that substantial growth of audience/engagement really relies on taking the repertoire to new markets (a 'more of the same' approach) and the major flaw of this business model is exposed: future growth is effectively capped.

However, this probably isn't an issue for a company that's been doing whatever the hell it wants since 1984.

7 October 2015

Aside: fostering a messy vibrancy (a response to John Knell's provocation at No Boundaries 2015)

If you missed No Boundaries 2015, you can watch John Knell in action on their website. Worth doing if you're going to spend any time reading what follows. Also worth visiting his website to see that he has seemingly been screaming at a wall for the last decade or so.

As someone who occasionally appreciates hard-headed economics, Knell's argument that 'some of our larger national arts organisations are not too big to fail but too small to succeed' initially seemed appealing. This proposition was based on the winner take all nature of content markets in the digital era: since content markets are now so efficient, consumers seek out only the most sought after content. Few, if any, subsidised national arts organisations have the resources to compete effectively in that marketplace as things stand. Given the cultural footprint of those that succeed, surely it makes sense to get national organisations involved? Problem is that this focuses on whether organisations could compete, whereas more time needs to be spent researching whether organisations should compete.

Let's be very clear that market participation in this way (IE competing toe-to-toe) is absolutely a war of attrition (or a dollar auction if you prefer) because time is infinite but the resources required to compete are finite. The optimal way to play the game is simply not to become involved in the first place because the only true winner is whoever sits in the middle and facilitates the contest. Those participating in the arms race will eventually draw ever further away from those not participating and it will be increasingly impossible to make the jump. Rather than creating the more collaborative sector Knell also spoke about, attempting to expand cultural footprint by creating competitive giants would likely strengthen the 'us and them' mentality: the pyramid gets higher and steeper rather than lower and flatter.

Knell also advocated the establishment of scalable dynamic platform organisations that could amplify artistic and audience footprint (which I will now lazily term 'growth') and create a glorious messy vibrancy. On this point, I agree with him wholeheartedly and began to actively consider what one such platform organisation could look like.

The starting point was the skills chasm that Knell identified in the public arts sector (also present in all industries across the private sector but a more efficient employment market helps paper over the cracks there). Knell provided a list of requirements (incomplete) for an arts organisation operating in today's complex mixed-economy:
  • Outstanding creative leadership
  • Investment expertise
  • Funding expertise
  • Entrepreneurial expertise
  • Great management skills
  • Excellence in data driven decision making
  • Strong governance
  • Capacity to engage with a variety of stakeholders
  • Up to date on relevant issues: legal, funding, compliance etc.

If present within an organisation, those qualities also have to be in balance and correctly aligned to the overall vision/strategy since organisations themselves are ecologies. If balanced, they then need to be utilised properly and developed. Even if the skills are present, balanced, utilised and developed correctly, the sad truth is that a small organisation simply does not have the capacity to maintain the relationship network required to generate substantial growth for themselves.

So a good starting point for a platform organisation would be to address this skill gap and provide the required resource for network construction and maintenance. The platform organisation would be an amplifier with the arts organisations as the input. Simple, quality components (people with the necessary skills to foster organisational development) could be used to create configurable feedback loops of resource for organisations. The resulting amplified output could then be tweaked depending on the context.

To illustrate how the platform organisation would be effective, I took the 168 organisations in the ACE Portfolio that list 'Theatre' as their primary discipline and conducted a quick ABC analysis to get them quickly into tiers. The chart below shows how many of each type there are:

A - The National and The RSC
B - Organisations who (in addition to the above) cumulatively a receive 80% of allocated funding
C - Everybody else

I was expecting a power curve relationship where 20% of organisations received 80% of available funding (or 80% of orgs only receive 20% of available funding) but actually 30% of organisations receive 80% of the funding (or 70% of orgs receive 20% of funds). The below shows how that breaks down:

I believe that the most efficient way to rapidly improve is to identify the lowest level at which something occurs and then look to reduce the amount of time spent at that minimum level (rather than focusing on the highest level you can possibly achieve which invariably leads to diminishing returns as it takes more and more effort to improve marginally). So, if we are looking for growth in cultural footprint and we accept that generally organisations in category 'C' have lower cultural footprints, that lower tier of organisations should be the focus. Remember that this is just an example of a small sub-category of organisations: the platform should be a vertical organisation that facilitates movement up any pyramid, perhaps turning it into a diamond or inverting it completely.

So, our theoretical platform organisation could collaborate with the large number of organisations with smaller cultural footprints to help them grow by providing resource in the form of skills and distributing opportunity by establishing and maintaining a collaborative network. To ensure that it can work with a large number of organisations, the platform organisation itself would need to be scalable, operationally efficient and extremely agile. It should not be distributing funds, only resource (which it will likely need to initially acquire from the private sector).

Ideally it would only have one source of annual funding (ensuring operational focus on output rather than inputs) which could be linked to target metrics defined by the ecology approach mentioned earlier. The important measure would be 'growth facilitated': how did the platform amplify the input of an arts organisation beyond the initial signal by providing resource? The most efficient form would likely be a NPO funded by ACE - any other form would just mean that ACE funds will have to pass through other organisations anyway to reach the platform.

It should be a "Yes and..." platform and never say "Yes but...". As an amplifier, it would be in place to expand on possibilities rather than to limit them.

Practically speaking, this hypothetical platform organisation would offer support to organisations with the desire and potential to improve and grow their cultural footprint. It would work alongside those organisations to identify steps required for rapid and sustainable growth, for example:
  • outlining, implementing and refining a successful long-term growth strategy
  • identifying routes to funding
  • encouraging operational and artistic innovation
  • identifying and addressing skills gaps
  • championing the use of data driven decision making
  • identifying opportunities
  • bespoke business development
  • establishing a growth oriented community

I strongly suspect that raising the bar for the many in this way would have a much wider impact on artistic and audience footprint than by partaking in a war of attrition in the content markets at the other end of the pyramid.

Guess now I can look back in 10 years and see how I got on screaming at that wall.

4 October 2015

Forced Entertainment 2014 (Act I: revenue)

Speak Bitterness (2004)

Forced Entertainment have been doing whatever the hell they want since 1984, which is an impressive durational piece in itself. Taking into account the work that they've produced over that time, you'd be hard pressed to find a company that has succeeded in confounding audience members worldwide so consistently. Luckily, their accounts are devoid of the signature confusion/laughter dynamic and provide some valuable insight into how Forced Entertainment work when they aren't at play.

The revenue streams are certainly nice and simple:

In 2014, the only grant received was the ACE Portfolio grant and this level of funding has been confirmed out to 2018. For an organisation with 'Theatre' listed as their discipline within the portfolio, Forced Entertainment's grant is below the mean, which was £579,056 for 2013/2014. That number is slightly skewed by the enormity of the grants provided for The RSC and The National but even without the two behemoths included, it's still well below the adjusted figure of £386,059. The ACE Portfolio grant was also the bulk of grant revenue in 2013, although they did receive £103 from The British Council that year. What's good about this is that Forced Entertainment don't have to manage a web of funding relationships: operationally they can be much more efficient.

The Investment Income isn't something highlighted in previous posts, normally lumping it in with 'Other Income' is sufficient since it's such a small percentage of revenue for arts organisations. Since most organisations keep reserve funds and money sitting around doing nothing is of little use artistically or financially, it makes sense to try and make it work a little harder. However, the income number will always be low across non-profit arts organisations since the primary activities of the organisation are artistic and not financial hence investment activities are limited according to policy set by Trustees/Directors.

If you sum the cash reserves held by the ~165 ACE portfolio organisations with 'Theatre' listed as their primary discipline, the result is a lot of money (conservative guess of £200k average reserve x 165 orgs = £33mil) currently invested in the arts that is not seeing a cultural return but serves as passive 'protection'. You could argue that such thinking discourages the risks that should be taken to fuel the growth of the sector and that in reality, 3 month's running costs is not going to save any organisation if the ship starts sinking because all organisations are linked into the same economy: if one organisation is struggling then it's likely others are. It follows that if everyone is battening down the hatches then 3 months is simply not enough time to secure new emergency funding streams because those roads will be cut off from all parties. The illusion of safety given by inadequate reserves is potentially more dangerous than not having them at all. You'd have to be a real doom-monger to argue that though...

Returning to the revenue streams, the good news for Forced Entertainment is that although their revenue streams are simple, their reliance on ACE is relatively low and their portfolio grant represents only 39% of their revenue. Compare this to The Gate's 2014 ratio where the portfolio cash was 43% of revenue and Paines Plough's 46% of revenue. The other good news is that Touring and Production income has seen a substantial rise year on year, allowing for modest growth despite the reduction in Sundry and Agency Income.

Growth can be a thorny issue for an organisation as established as Forced Entertainment and although the reliance on ACE is low, the amount of funding received will not drive future growth in itself (unlike in an organisation like Paines Plough who at the time of writing have just been awarded £750k over 3 years to tour new writing with The Roundabout, no doubt ensuring future additional funding as their footprint continues to expand). Although Forced Entertainment's revenues have grown year on year (up from £586,000 in 2011 to £655,922 in 2014), future revenues will likely follow the same organic growth pattern (seemingly due to audience growth overseas) unless a major strategic step-change is made.

26 September 2015

Aside: The odds of all-male creative teams

Mentioned in The Gate's 2015 accounts is the fact that in 2014 The Gate took part in Tonic Theatre's Advance programme. The programme brought together senior staff from 11 theatres who recognised that something was stopping talented women from rising to the top and wanted to address gender inequality. Despite the fact that The Gate ended up being one of the more gender balanced theatres, they have pledged that they will "never again employ an all male creative team on a Gate production." This prompted the question: probabilistically speaking, how often should all male creative teams occur?

We know that more women study performing arts than men (something Frantic Assembly want to address). We can likely assume an 75:25 split in favour of female students, although claims of 80:20 abound. Reliable numbers are problematic because 'performing arts' is a vague definition and research tends to focus on specific age ranges.

A slightly more reliable assumption is that there is a 2:1 ratio of men:women employed in creative roles within theatre. This shift in ratios from education to employment is likely impacted by an industry wide bias towards employing men rather than women.

To flesh those ratios out a bit: 50 hypothetical students (12 male and 38 female) study theatre on a hypothetical course. Assuming all 12 men find employment in theatre, expect only 6 women to (16% of women who studied vs 100% of men who studied). In reality, employment within theatre is not actually guaranteed for those 12 men, so let's say 50% do something else and 6 end up working in theatre. That's, on average, only 3 women with [under]paid work in a related field to their area of education (or 8% of female course participants).

Clearly there's something very serious in play here and it doesn't strike me that priority #1 should be urgently supporting more young men to study performing arts.

If the 2:1 ratio holds (which it looks like it does at least at The Gate according to this data), a creative team of 10 should naturally be all male 1% of the time. This is simplified a bit because some creative roles have more skew to their ratios but roughly equates to about 1 in every 100 productions. An unusual natural event (in the same league as tossing a coin and it being heads 6 times in a row) but likely to occur roughly once every 10 years (assuming 10 productions a year). The larger the creative team, the more unlikely it is to be all male without inherent bias.

If the ratio of men:women employed were to improve to 1:1 then an all male creative team of 10 should only naturally occur once in every 1024 productions, or once every 100 years.

The data that Tonic provides on the website covers only 5 creative positions: writers, directors, designers, lighting designers and sound designers. The data spans approximately a 10 year period for each theatre. The below numbers show how probable it is (for those theatres that disclosed the data) that those 5 creative positions would be all male (assuming you would have one of each position involved with a production). Keep in mind that accepting the 2:1 ratio, there's  naturally a 12% chance that those 5 positions would be all male (a 1:1 ratio would mean only a 3% chance of natural occurrence).

Gate Theatre 8%
Almeida Theatre 50%
Chichester Festival Theatre 67%
English Touring Theatre 34%
Headlong 18%
Pentabus 1%
RSC 27%
Tricycle Theatre 11%

The Gate are clearly at the better end of the scale here, with only 3 theatres coming in under the 12% line implied by the 2:1 ratio. Let us be clear: all male creative teams are not the result of a meritocratic industry ("we hired the best people for the job" is, quite frankly, a ludicrous assertion - for a start, there is a mountain of research showing how flawed and biased people's judgement is when it comes to assessing others professional capability), they are the result of (one would hope 'lazy' rather than 'malicious') gender bias and the resulting population skew.

For good measure, this is how probable it is that a production at those theatres over the last 10 years had those 5 roles filled by an all female creative team:

Gate Theatre 0.4582%
Almeida Theatre 0.0002%
Chichester Festival Theatre 0.0002%
English Touring Theatre 0.0075%
Headlong 0.0309%
Pentabus 1.0526%
RSC 0.0195%
Tricycle Theatre 0.1833%

That's right, four decimal places.

Pledging to never again employ an all male creative team is an interesting thing to do in the face of this bias and certainly raises some questions about how creative teams will be put together (optimally, you should recruit a female member first to give you complete freedom on the final four rather than risk limited choice later). Whilst it will have a very obvious effect at one end of the probability spectrum (reducing the probability of all male teams to zero and bumping the probability that a team contains at least one female member to 100%), it is unlikely to dramatically increase the probability of an all female creative team. To do that you would need to directly address the 2:1 employment ratio and pledge to create work with balanced female:male creative teams as a minimum.

Theatres are unlikely to do this because it will be viewed as a 'limitation' or a 'constraint' on their creative activities and heaven forbid that gender equality stands in the way of artistic vision. The irony of course is that 'constraints' give birth to innovation and creativity: precisely the qualities that artistic vision requires.

13 September 2015

The Gate 2015 (Act III: assets)

The Gate's balance sheet and breakdown of funds provides the focus for this final part. Since the balance sheet represents only a snapshot of a single day at the end of the accounting period, it isn't a robust thermometer in itself (much like every element of annual accounts) but it should be taken as a positive sign when it reinforces what ‘should’ be happening elsewhere in the organisation given the story the accounts are telling.

For example:

Act I: The Gate show substantial growth in revenues achieved through production model diversification and fundraising in their 35th anniversary year. We see touring income grow and fundraising income grow accordingly.

Act II: The Gate kept costs under control, with 2015 costs being kept below 2011 levels despite expanded output through touring and expanded fundraising activities. We see expected changes in things like production costs and The Gate reports a healthy surplus.

Now consider two hypothetical Act III scenarios:

1) The Gate shows minimal change on the balance sheet apart from increases in cash and consequently net assets.

2) As above but with Creditors jumping to -£275,000.

Scenario 1 would be line with the story begun in Act I and Act II and makes sense as a result of expanding activities but keeping costs under control. Scenario 2 would be a contradictory story since activities were expanded but with substantial (currently unpaid) costs incurred. The Gate's actual balance sheet is shown below.

The Gate's balance sheet nicely reinforces the earlier action with a clear through line. The standout number is cash at bank and in hand (as it should be). This has increased by 79%, from £216,271 in 2014 up to £512,038. The amount owed to The Gate is down about £10,000 from 2014 and with not much change in Tangible Fixed Assets (which have been accounted for as part of the unrestricted funds), 2015’s Net Assets stand at £540,136 (up 59% from £339,145 in 2014). There is a slight increase in the creditors number but some increase would be expected given expanded output. Trade Creditors is actually only up £11,800.

There is a note in the accounts that £200,000 has been set aside as a support reserve representing 3.5 months running costs. This currently appears to be reflected in the General Unrestricted Funds, of which about half of the remaining surplus has been earmarked to support a new Marketing and Audience Development Officer role. The Designated Unrestricted Funds have been set aside to support Gate Educate (£2,318), theatre and office improvements including sound-proofing (£49,452) and £78,363 to support organisational development out to 2018 (including salary increases across the organisation as approved by the Board's Remuneration sub-committee).

Leaving output aside, there are obvious and substantial differences between Paines Plough and The Gate. Despite their proximity in terms of ACE Portfolio funding, Paines Plough's income is much more dependent on grants than on the personal philanthropy that The Gate relies upon. The overheads involved in running a venue mean that The Gate require much larger reserves and are consequently a little less agile in their producing model than Paines Plough. The strong similarity between the two is that both organisations are clearly willing to take risks to expand their output and that both have been moving from strength to strength in recent years. The main danger for The Gate is that 2015's revenues can't be replicated in 2016 and that the costs of expanding output creep up on the hope that revenues will be replicated. Paines Plough's 2015 accounts are not available at time of writing but once they are it will be interesting to put this year's numbers side by side.

9 September 2015

The Gate 2015 (Act II: expenditure)

Get in the van: Grounded on tour. Image taken from The Gate's website.
With The Gate's 2015 revenues enjoying the success of Grounded's UK tour (a first for The Gate), it would be reasonable to make the assumption that costs did not stand still. Indeed, The Gate did spend more money in 2015 than in 2014, as the below summarised expenditure breakdown demonstrates.

The £108,402 change in Charitable Activities largely results from increased spending on Production Costs (up £39,967 but offset by ~£40,000 savings in Theatre Running Costs and IT Costs), Production Wages/Salaries (up £83,795) and Travel/Transport (up £18,277). Precisely the areas you would expect spending to show up when producing a tour. It is noteworthy that there was little change in the ~£22,000 spend on marketing/advertising (actually a slight decrease) despite this additional activity. Unfortunately there's no specific breakdown of Production Wages/Salaries which would help understand how production and administration staff were deployed. Not an accounting imperative but is mentioned in The Charity Commission Statement of Recommended Practice (Section 9.29 of FRS102 in case you're wondering) and does significantly aid understanding of how an organisation is producing work. Maybe next year?

It's difficult to categorise The Gate's 2015 expenditure into Support Costs and Production Costs because of the aforementioned lack of insight into how The Gate's 21 staff (up from 17 in 2014) were deployed. Always worth mentioning the average salary (flawed though it may be as a measure since it includes part-time staff and, in The Gate's case, actors as well) and for The Gate it stands at £13,329 (for reference, the inner London median annual gross wage is reported by the ONS as £34,473). Also worth a mention that no employee earned more than £60,000 and no remuneration or expenses were paid to trustees in this period.

The other expenditure standout is the £50,559 cost of Generating Fundraising Income. This can be attributed solely to fundraising event costs celebrating The Gate's 35th anniversary year. Given that the amount of revenue generated by fundraising events in 2015 was £166,585 this looks like money well spent.

Spending money well is something The Gate seem to have been excelling at over the last few years. In 2011, expenditure was significantly higher than the generated revenues, resulting in a deficit of £105,047. In every single following consecutive period The Gate have improved the relationship between revenue and expenditure. In the 2015 accounts, expenditure is actually below 2011 levels but revenue is up ~41%. The chart below shows the closing of the gap in 2012, the crossing over into surplus of 2013 and the continued expansion since.

The big difference between an organisation like touring powerhouse Paines Plough and a producing house like The Gate is the monthly overhead. Estimating that The Gate have running costs of approximately £57,000 per month (based on designated funds of £200,000 stated as covering 3.5 months running costs), they have more than double the overhead of Paines Plough (estimated at £25,000 a month and based on annual support costs from previous analysis). Perhaps an obvious point but it's that overhead that can cause major headaches if revenues drop sharply and unexpectedly.

A potential problem for The Gate could be that with 34% of their income coming from philanthropy, they are more exposed to sharp drops in revenue than Paines Plough. Personal giving is linked to the wider economy in volatile ways: consumer pessimism and economic instability will reduce giving but low interest rates encourage it (theoretically: the feelgood factor of giving to a cause outweighs low returns on savings). The trusts and grants that form the majority of Paines Plough's income tend to be formed of funds that are locked away for a longer period of time and are not subject to the whims of the consumer: they're a little more insulated from economic volatility. Coping with this additional risk definitely requires a 'make hay while the sun shines' approach and with a healthy surplus of £200,991 in 2015, it looks like The Gate are doing precisely that.

Looking forward, 2016 could also return a surplus but expect it to be diminished since the substantial gains from specific fundraising events are unlikely to be repeatable. The success of Grounded will also need to be replicated in some form but The Gate are in excellent early shape with Fringe First winner The Christians. In the years following a substantial surplus, organisations understandably tend to push those funds into production costs so do expect to see costs rise. However, with a rolling three year business plan in place, it would be surprising to see an excessive increase in expenditure over the next period and The Gate look very well placed to deliver on planned strategic growth out to 2018.