Balancing the Pricing Equation

My last 2AMT post – on civil discourse around the subject of pricing – generated a great deal of lively commentary.  While some of what was said flirted with the gray area between “passionate” and “heated” – the former I consider intense and devoted, the latter inflammatory and aggressive – there were a great many compelling questions asked.  Late in the discussion, Mike Daisey asked me to share my thoughts about one matter in particular, and initially I demurred.  After some consideration and consultation, I’ve decided to share my thoughts.

The issue he asked me to respond to was whether it’s a false dichotomy to say that theaters have to choose between keeping ticket prices low and paying artists well.  Isn’t it possible, it was argued — not by Mike, but by another commenter — to raise funds from other sources instead?

The short answer is that yes, it is a false dichotomy, and yes, it is possible raise funds from other sources in order to keep ticket prices low and still pay artists well. It’s been done: that’s how we know it can be. But I’m not sure it’s the best possible route for theaters to take.

To explain the reasoning behind this speculation, I want to introduce a hopefully simple formula. (I know – you didn’t expect to have to do math.) The variables in the formula include all the possible sources of funding for non-profit theaters:

A — Corporate
B — Government
C — Individual donors
D — Ticket sales
E — Other non-profits
F — Revenue from other activities (concessions, souvenir sales, etc.)

Those six sources need to provide the resources necessary to make theater, which brings us to the formula:

A + B + C + D + E + F = X, where X stands for a non-profit theater’s budget.

For the sake of this discussion, we can immediately simplify this formula further in two ways.  First, we can eliminate F – revenue from other theater activities – from our consideration, since the number is typically so small as to amount to a rounding error in a theater’s budget.  (Surely there are ways to increase F, but we can discuss those – and perhaps should – in another 2AMT post.)

Next, we can turn our attention to E – other non-profits, a category that includes everything from foundations to advocacy organizations.  The money that comes to theaters from E was itself originally raised from other sources – typically, corporations, government entities, and individual donors.  In other words, E = A + B + C, just one step removed.  So we can also eliminate E from our equation as well, at least mathematically.  There may be room to quibble here, but again, let’s save the quibbling for another discussion.

The resulting equation is the one I’m going to consider:

A + B + C + D = X, where X stands for a non-profit theater’s budget

Naturally, for any given theater, A, B, C, and D aren’t equivalent in how much they contribute to X. For the theater I sit on the board of, for example, the mix looks something like this: A = 0%, B = 0%, C = 35%, and D = 20%; the other 45% comes from E, which (for our purposes here) is composed of some measure of A, B, and C.  I expect the mix is quite different for, say, Arena Stage.  I’ve seen data that suggest the percentage for category D (ticket sales) is often as high as 40%.

There are also variations, I understand, from country to country.  In Europe, for example, X contains a far higher percentage of B (government funding) than it does in America.  Many of us – and by us, I mean my fellow big-time lefty liberals (I might as well admit my biases) – wish we had what they have.  I’ve come to think it’s not so simple.

The criticism of too much government funding of theater, for example, is that we’d end up having, well, government-approved theater: nothing that threatens the state, nothing very adventurous, etc. After all, they’d have some sense of ownership, wouldn’t they? The same might be said of corporate donations. Personally, the thought of big businesses “owning” theater frightens me even worse.  I have a similar concern about individual donations; I don’t want America’s owning class “owning” the stories we tell, either.  (If donations were always – or even very often – small and from large numbers of diverse donors, I’d have less concern).

On the other hand, I don’t want to do without A, B, and C either.  I want X to be bigger, after all, not smaller. I also think there are positive reasons to want support from all three of those sources.  I want my tax dollars to support the arts; I want corporate profit to be funneled toward social good; I want America’s well-to-do to put their resources toward theater. The best way, then, to make sure that no one of those sources has too great a stake in any one theater’s budget? Let them all contribute as equally as possible.

So that leaves D – ticket sales.  And at this point, I’m going to turn the conversation back to values, because that was the premise of my previous post: that the most civil and rational way to discuss pricing models is to begin with an ethical discussion.

One of the values I hold – that I think many of us hold – is that no one should be turned out of a theater for lack of enough money.  Another value I believe most of us share is fair compensation for artists. Finally, a third value: I believe we all agree that audiences should be engaged by and with the theaters they visit.  (Again, I’m willing to debate and discuss those values… in another 2AMT post.)

The first of these values explains why some of us advocate so strongly for low ticket prices. If ticket prices are low, however, that comes with quite a cost.  To return to the equation above, if D is lower, then X has to be lower as well. If X is lower, however, then we run counter to the second value: fair compensation.  Thus we arrive at the seeming false dichotomy with which I began this post: that lowering ticket prices means lowering artist salaries.

The solution seems clear, then, given my equation: to keep X the same while lowering D, you simply have to raise A, B, and C, as some have suggested. But I believe that comes with a significant cost.

Assume for the moment that we could lower D to $0 – that we could make all tickets free. If we did, wouldn’t theater become inherently one-way? Wouldn’t any given show become, in essence, a gift given by A, B, and C – corporations, the government, and individual donors – to audiences?  How much would audiences value theater if it was just given to them? I don’t think that’s a recipe for long-term engagement, and I believe there are significant volumes of economics research to substantiate that claim.

When audiences pay for their tickets, they invest in the theater.  Language fails me here – it’s inevitably capitalistic; perhaps it would be better to say they’re active participants in the creation of theater, given that their resources are directly supporting it. They have a share. And the more that their share is balanced in comparison to the shares contributed by corporations, the government, and individuals, the more empowered those audiences will be. And that speaks to the third value: audience engagement.

So there’s an argument to be made for keeping D (revenue from ticket sales) low in order to live up to the first value, accessibility.   There’s also an argument to be made to keep D high in order to live up to our second and third values, fair compensation and audience engagement. So, how do we reconcile the two positions?

The only way I believe we can reconcile them is to increase the money that theaters make from ticket sales, in total, while still keeping most ticket prices low enough to allow people without resources to come through the door.  Practically speaking, however: how do we do that?

First, we could tie ticket prices magically to each audience member’s wherewithal: if you can pay more, you pay more, and if you can’t, you don’t.  Since we don’t have real-time access to balance sheets and bank accounts at every ticket point-of-purchase, it just isn’t practical.

Second, we could allow audience members to choose their own ticket prices, either before or after the show. I love that idea, in theory. It would make us, as theater practitioners, even more responsible than we already are to tell stories that people value.  If I ran a theater, I would love to hitch my wagon to this star.  It does, however, subvert capitalism – and while I honestly believe that if anyone can do that, it’s creative people like us, I also think it’s a long, hard mountain to climb. (There’s also probably very complex psychology involved in the resulting payment behaviors – psychology I’m not prepared, at this moment, to parse.)

Third, there’s that often-vilified two-word phrase: dynamic pricing. While dynamic pricing can be implemented in many different ways – and is often implemented in what amount to very greedy ways by corporations – I don’t believe it’s inherently evil… at least, not any more than a shovel is evil. Like any tool, it can be used poorly or constructively; to ignore that fact is to view it in a rather shallow way. I’d like to focus on the more positive possibilities.

The way dynamic pricing gets used by non-profit theaters, as I understand it, is to offer lower ticket prices to those who buy their tickets early, penalizing those who buy later in a run.  Given that procrastination knows (I believe) no class preference, and given that dynamic pricing doesn’t preclude discounts for other reasons (student tickets, rush tickets, and so on), that seems rather fair to me.  (Heck, those who don’t procrastinate and get their tickets at the early prices can put the savings toward babysitters or dinner before the show.)

One complaint about dynamic pricing seems to be that it means people sitting side-by-side in a theater will have paid different prices for their tickets… but given the different price points for single tickets, group tickets, subscription packages, student rates, senior discounts, and more – not to mention the varying costs of seats in different sections of the house – isn’t that the case already?

A second concern about dynamic pricing is that it seems to be motivated by greed: that it’s really a profit-driven exercise in disguise. I don’t even think this is true for corporations, frankly. I think the last available seat for the last performance of the play you want to see (or the flight you want to be on) is a lot more valuable to you – and thus worth paying a higher price for – than the many seats that were open during the first week of the run (or the plane tickets you could have purchased months in advance). Scarcity always increases desirability.

Aha, you say! Only the well-off can afford those last few seats, so we’ve run counter to our first value of accessibility. Not true, however – not if other discounts remain available even for those last few seats, just as airlines will offer bereavement fares even on last-minute airline tickets.

A third concern seems to be that dynamic pricing is somehow sneaky… but must it be? Couldn’t a theater be entirely up front in telling audiences what it’s doing? Transparency would give patrons control over their ticket-buying fates – and, in fact, might help remove some of the obfuscation surrounding subscription rates, package deals, and group plans. After all, the goal in selling tickets for a non-profit theater isn’t, obviously, profit, which is the only reason that businesses confuse consumers about prices.

Finally, one last comment about D – the revenue from ticket sales. In the end, isn’t it true that we’d all really like theater to be so essential to people’s lives that they’d be willing to spend more and more money for it? For a subscription to a theater to mean as much as, say, a cable subscription? For my money – pun intended – I don’t consider it a useful goal to keep ticket prices low, in and of themselves. My goal is to make theater so essential that everyone “has” to have it the way they have to have, say, HBO, then make sure they can afford it. That might, in the end, make ticket prices even higher than they are now, if you think about it.

Before I consider the equation balanced, however, I have to look not only at the left side, but the right side: that great big X that stands for a theater’s budget. One objection raised in the conversation about my other post was that theaters should be reducing non-artist expenditures to help keep ticket prices low. To this exception I can only say: perhaps. I’ve written before about my belief that theaters may be devoting too much attention to putting polish on their work – that a few rough edges and a bit more simplicity would make theater more accessible for audiences. Would a change like that reduce budgets? Perhaps a bit. Am I prepared to go further than that? In an age in which people are losing jobs all over the country and work in the country’s creative economy is hard to come by, no, I’m not.

So, I believe that addresses the question Mike wanted me to answer, but let me make my response crystal clear: yes, it’s a false dichotomy to suggest that we either raise ticket prices or fail to pay artists properly; we can, in fact, raise other funds to offset the costs.  Ultimately, however, I just don’t think it’s the right idea. We can, and should, do better.