Highlights from the 2007 Annual Field Report
Opera America Magazine •
OPERA America's Annual Field Report (AFR) is based on the Professional Opera Survey (POS) that member opera companies complete each year, submitting details of their annual financial, performance and attendance activity. The 2007 AFR covers the fiscal year that ended during calendar year 2007, and includes data reaching back to 2003, summarizing key facts and trends in the United States and Canada.
In most respects, 2007 was an encouraging year for the opera field. Of the companies surveyed, 68% reported balanced budgets or surpluses. Since 2003, revenue growth of the U.S. and Canadian Constant Sample Groups has outpaced that of expenses. In companies with budgets over $10 million (Level 1) and companies with budgets under $3 million dollars (Levels 3 and 4), businesses grew at roughly twice the rate of inflation. This appears to be the result of a notable increase in income generated at the box office and significant growth in individual giving, the primary source of contributed revenue for most professional companies.
It must be noted that for most companies, FY07 ended on or before August 31, 2007, essentially coinciding with the culmination of one of the greatest bull markets in recent history. After the market reached an all-time high in early October 2007, a precipitous decline returned the market to inflation-adjusted levels not seen since the late 1990s. FY08 and FY09 Professional Company Member data will likely reveal at least some of the financial and operational effects of the economic turmoil. The 2007 AFR and POS indicate companies' particular strengths and weaknesses as they entered a challenging economy.
Across the U.S., the breakdown between contributed and earned revenue remains roughly 50/50. Over the past five seasons, individual giving has remained the largest source of contributed revenue in the U. S., and in general, the smaller the company, the greater the reliance on individual gifts.
Governmental support continues to pale in comparison to Canada. Only 8% of contributed revenue to U.S. companies came from public institutions in FY07, compared to 38% in Canada.
Revenues earned at the box office rose by nearly 10% from 2003 to 2007. Over those five seasons, box office revenues accounted for 37% of all income. Investments and other sources of earned revenue accounted for 11% of income totals.
On the expense side, the only department to see significant budget cuts over the past five years was education, which, on average, saw its direct expenses decline by over 25%. Production costs saw the largest percentage increase, and on the personnel side, more and more companies allocated monies to singer training and young artist development programs.
Level 1 companies, excluding the Metropolitan Opera, have seen a 5% increase in attendance over the past five seasons while box office revenues increased by 14%, the significant disparity a result of rising ticket costs. (Given its size, the Met is not included in Level 1 analysis; its operating budget, which accounts for roughly one third of the financial totals in this entire survey, distorts averages and presents trends based largely on its own activity rather than that of the field.)
More than ever, Level 1 companies are relying on income generated from investment portfolios and endowments to support operating expenses. In 2007, 22% of Level 1 earned income came from investment gains, versus 13% in 2003.
Both development and marketing departments have increased their productivity ratios (the number of dollars generated by each dollar spent on revenue-generating activities) over the past three years, a notable achievement. However, with rising production costs, program coverage (the percentage of artistic expenses covered at the box office) has remained consistent for the past five seasons.
Since 2003, Level 2 companies, those with budgets ranging between $3 million and $10 million, have been growing at a rate that lags behind inflation, and as a group have shown, on average, net losses in each year.
Attendance has dropped 17% in five seasons' time while the average ticket price has risen 32%, contributing to a 7.5% decline in box office revenue from 2003 to 2007. Income from investments more than tripled during this time, and in FY07, the values of the Level 2 companies' investment portfolios surpassed their budgets, a healthy indicator of a greater focus on long-term giving.
On average, Level 2 companies have devoted 12% of their budgets to marketing over the past five seasons, but have seen a 13% decline in that department's productivity. Conversely, the development department has been allocated, on average, approximately 10% of total budgeted expenses, but has shown a productivity gain of almost 20%.
Level 3 companies reported strong non-box-office earned income, suggesting healthy revenue streams in other categories such as advertising, concessions, merchandise and subleases.
Development departments in Level 3 companies have grown the most over the past five seasons and may be a factor in closing accumulated deficit gaps. On average, net assets are rising for Level 3 companies, but rates of increase are still trailing annual expenses.
Negative unrestricted net assets in both FY06 and FY07 reveal that expenses are growing faster than revenues. Attendance, however, has increased by 15% since 2003, despite the largest rise in ticket prices of any level. The fact that ticket prices have not had a negative effect on attendance is promising news; however, Level 4 companies still report, on average, a nearly 75% reliance on non-box-office income, and core artistic expenses are more than twice that of annual ticket revenue.
Based on departmental expense allocations, Level 4 companies appear to be employing noticeably more marketing and development personnel in 2007 than in 2003.
On average, Canadian companies have shown net income in four of the last five seasons, as revenues grew about 1.5 times as fast as expenses. Much of that revenue is the result of significant governmental support at both the provincial and federal levels. In fact, public sector support over the past five seasons has grown at a rate almost three times that of Canadian inflation. (Unfortunately, at the end of this past summer, the Canadian government announced a series of budget cuts for arts and cultural institutions that will likely be reflected in FY09 and FY10 Canadian company data.)
Box office revenues have grown at an astounding rate — 79% over five seasons — reflecting increases in single ticket and subscription sales. Subscription renewal rates have increased as well from 2003 to 2007. Indeed, unlike U.S. companies in recent years, Canadian companies have shown greater marketing productivity trends than development productivity trends.
FY08 AND BEYOND
The opera field now finds itself in both exciting and challenging times. A volatile economy has already forced some member companies to lay off staff, cancel performances and, in one case, close down operations altogether. At the same time, The Metropolitan Opera Live in HD transmissions and similar projects from other member companies have the combined potential to spread the art form to a broader, younger and more diverse audience than ever before. Future Annual Field Reports will track the financial and operational impacts of these forces.
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