31 January 2016

National Theatre 2015


There is a popular misconception that the consequence of subsidy is financial irresponsibility. We are assumed to be careless of the bottom line, cocooned by our cheque from the Arts Council.

When the idea of a national theatre was first floated in 1848, the mud flats on the south bank of the Thames were probably not the location anyone had in mind (it also seems safe to say that Denys Lasdun's brutalist beauty would not have been the building they had in mind). The NT certainly cuts an imposing figure on the London skyline and casts an ever larger shadow over the country's wider theatrical landscape. With Nicholas Hytner's 12 year tenure coming to a close in March 2015, the NT's most recent set of accounts (2014/2015) draw a very timely line under 'The War Horse Years'.

At the end of my first year as Director of the National, I can testify that nothing could be further from the truth. We are viscerally affected by our box office returns, and spend nothing without a ferocious interrogation of the reasons we’re spending it. Every creative decision is made in the context of a budget which is itself the result of a creative process. Our financial objective is to break even. Financial discipline demands that we are clear with ourselves about what our artistic objectives really are.

Although we will have to wait until the end of 2016 to see the financial effect of Rufus Norris and Lisa Burger (now into her 15th year at the National having previously served as Finance Director), it's worth remembering that the new regime did get off to a shaky start with Tessa Ross resigning after only 6 months in her newly created role as chief executive citing 'management structure'. Ross' role was announced in March 2014, begun in November 2014 and her resignation announced in April 2015. As Mark Lawson points out in this article, it is curious that the NT now considers such a senior role disposable after going to great lengths to support the creation initially. If this is part of a 'fail fast' strategy then we should expect smoother sailing but if there was a real need for the chief executive role (IE a skill gap in the senior management team had to be addressed and is now being plugged by Ross' consultative role) then the NT may struggle to paper over the cracks in the longer term.

I came into my job bullish about our purpose, and convinced that our call on the public purse could be justified simply by putting on the plays. Newly out of the closet as a white, middle class, middle aged male, I laid aggressively into the fashionable insistence on judging the success of an artistic enterprise by its ability to pull in the right kind of crowd. The state should help pay for Art because a healthy society thrives on self-examination and should be constantly engaged in wondering what’s beautiful and what’s truthful. At the National, we wanted to provoke a continuing investigation of what makes us tick, as a nation and as individuals. We weren't interested in playing the target game.

The National's incoming resources in 2002/2003 (Hytner joined the NT in April 2003 so this particular set of accounts acts as a neat bookend to the 2015 accounts) were £39.5m. By 2015, those incoming resources had swelled to £138 million. 861 people were employed by the NT in 2003 but nearly 1200 people are now employed across all NT subsidiaries. ACE grants were 35% of income in 2003 (about £14m) but in 2015 they were down to around 20% (the National received a mix of core ACE grants and capital grants from ACE's lottery fund amounting to about £28m of income).

I assumed this would bring us into conflict with the bureaucrats and I rather relished the prospect of a scrap. I had mixed feelings therefore when our paymasters started to talk about spiritual sustenance and a sense of wonder. Ministers and civil servants talked to us not about policy objectives but about what was going on our stages. The Arts Council gave us a raise. It all risked going horribly wrong. Few things distress us more than the embrace of the establishment. It is our job to be relentlessly sceptical of authority: it is no coincidence that of all the great tragedies it is Antigone that is pitched to me most often by directors. Now here we were, virtually in bed with Creon.

£138 million of income gives the NT more resources than most Premier League football clubs. Consider that there are about 5.3 million businesses in the UK but only about 7000 of those actually employ more than 250 people. Over 4 million tickets were sold to NT events in the 2014-15 period; Taylor Swift's '1989' was the best selling album worldwide in 2014 and 'only' shifted 3.7 million units (although it notched up another couple of million units in 2015 as well). The point behind these frivolous comparisons being that the NT is in a different league to every other theatrical organisation in the Arts Council England portfolio and a completely different beast to when Hytner and Starr's reign began.

In truth, our oppositional imperatives can probably take care of themselves. There are major artists in all art forms whose responses to our national and international humiliations require urgent attention. I hope, though, that the integrity of David Hare’s forthcoming reaction to the ill-starred Iraq adventure will not be undermined by a recognition of the startling success of the recent increased investment in the arts. Organisations large and small have enjoyed for the first time in decades the kind of stability that has enabled them to plan confidently and adventurously. An additional £25 million has transformed regional theatre: all over the country theatres have been quickly and palpably revitalised. In cities as diverse as Birmingham, Bristol, Liverpool, Northampton and Sheffield, exciting work has pulled in excited audiences.

Starr has previously identified the turning point for the NT as 'The History Boys' in 2005. For this production, the NT decided to stop outsourcing commercial transfers, developed an appetite for risk and worked hard to ensure that generated rewards flowed to the people that created the show (rather than accepting the 3% royalty and 10% of profits model offered by a commercial producer). The NT learned very quickly that their big West End transfers (Curious Incident, War Horse, One Man, Two Guvnors) needed to be set up to run for the long term rather than a predetermined fixed period (thus lifting the ceiling on possible returns and shaping the risk profile in the NT's favour). It also seems clear that Starr and Hytner were actually unable to transfer as many shows as they would have liked because there are simply not enough West End theatres available. Coupled with the fact that the pair see the market as remarkably underdeveloped, the formation of London Theatre Company makes perfect sense.

Subsidy works. It works to engage huge sections of the community in creative and cultural experiences that are good in themselves. It works also as an agent of community regeneration and it works to earn back far more than it puts in. It works to create the stability and continuity that all cultural organisations need if they hope to produce world-class work. Subsidy ensures that they are capable of surviving the odd failure to fight another day. Institutions can outlive the vanities and inadequacies of individual artists. If in some future year I produce a string of disasters at the National, my Board won’t have to ditch the entire enterprise. They will politely show me the door and invite someone better to take my place.

Whilst much has been written about the NT's success, none of it focuses on the fact that it is built on the back of an evolution in the organisation's approach to risk. By taking on the risk of producing transfers in-house (whether they are West End, international or even NT Live events (which cost between £200k and £300k to broadcast)), the potential rewards for a 'hit' show expand at a much faster rate than the costs (which are easily projected, largely capped and amply covered by reserves). There is a very significant lesson here for all theatrical organisations: keep your multiple losses as small as possible but make sure that your few wins are truly gargantuan (the latter part of that statement is where smaller theatrical organisations tend to struggle, why heavy reliance on programming NT Live events is bad for everybody and why assuming "Without subsidy nobody could take risks" is madness... but that's an entirely different post).

Subsidy works maybe above all to recognise that there is a universal entitlement to the spiritual, intellectual and emotional nourishment that our artists offer when they are at their best. At the National, we have ploughed much of our subsidy into keeping down ticket prices; our partnership with Travelex has brought tens of thousands through our doors for the first time – tens of thousands who were already helping to pay for us through their taxes. There are 1,200 regularly funded arts organisations in the country, and all of us are enthusiastically committed to seeking private funding that will make our public funding go further. We are possessed too by the need to introduce new generations and new communities to the richness and diversity of our cultural life.

Whilst the National continued to grow in 2015, it generated a smaller (but still significant) surplus, and there are a few points of note year-over-year:

On the income side, the most substantial increases were from international box office (increased from £3.8m to £14m) and touring/West End box office (increased from £35.9m to £40.8m). Interestingly, box office income for NT Live dropped from £6.7m to £6.1m which makes it responsible for ~5% of the NT's unrestricted income. On the expenditure side, production costs for those same activities are largely responsible for the increase (as you might expect). Touring and West End costs increased from £32.6m to £39.3m whilst international production costs moved from £4.1m to £11m.

Our results this year demonstrate that subsidy works in one other important respect. We have been allowed to take the high road and our audiences have responded with an enthusiasm that has bowled us over. We have played to 91% capacity, up by 11% on last year. We budgeted for a deficit of £500,000 on the understanding that it would be covered by planned increases to our Arts Council grant in 2004/05 and 2005/06. In the event, we are reporting a small surplus. So we've done OK.

Arts Council England are the freeholder and lease the building to the NT at a peppercorn rent (the lease expires in 2138). The National are consequently responsible for maintaining the building and the equipment therein and transfer £2.5m annually into a ring-fenced fund for capital expenditure. In addition, the £80m NT Future project remains ongoing and is worth keeping in mind when examining the change in fixed assets on the balance sheet:

These 2015 accounts are really a line in the sand and it's difficult to get excited about them in isolation. Norris has an exceptionally difficult task ahead: organisations that have enjoyed long term success very rarely follow the same trajectory immediately after a change in leadership, tending towards a J-curve. However, the NT that he inherits is in exceptional shape and international transfers seem to hold the key to future growth should the organisation choose to pursue it.

I am haunted now by the knowledge that in the theatre there is no formula for success, and the surest way to creative atrophy is to try to repeat what worked yesterday. The determination of all my colleagues always to push forward is only one of the reasons why I have such pleasure in sharing with them so many of my waking hours in planning the National’s future.

Nicholas Hytner - 2004 National Theatre Annual Report