In the 1960s, American theater producers and professional artists who were frustrated with the artistic limitations of Broadway’s commercial theater established not-for-profit theaters in communities across the country based on the belief that theater was more than an investment or diversion. At that time, no one could have imagined the impact not-for-profit theaters would have on the art form and our society with close to 2,000 companies nationwide — including the Tony-winning Goodman, Steppenwolf, Chicago Shakespeare, Lookingglass and Victory Gardens theaters in Chicago.
Currently, not-for-profit theaters are facing significant challenges resulting in reduced seasons, suspended operations and permanent closings. The reasons include the impact of COVID-19, reduced attendance, decrease in contributions, programming choices and others that Tribune theater critic Chris Jones cited recently. As he noted, many are saying the not-for-profit theater business model is “broken.”
In my experience, however, most practitioners and patrons alike don’t understand the economics that form the basis for the business model.
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First, there are actually two business models for live theatrical production: “commercial” (Broadway) and “not-for-profit.” While both are concerned with the art of theater, the commercial model aims to return a profit to producers and investors. It is exclusively market-driven: Identify productions that many people want to see, regardless of price. This results in Broadway seasons dominated by musicals, star-centered plays and high ticket prices. The not-for-profit model, by contrast, focuses on mission-driven companies that produce an ongoing range of productions presented at a range of prices, support artistic innovation, promote diversity and provide service to their communities. To close the income and expense gap, this model requires contributions from individual patrons foremost, followed by foundations and corporations and, lastly, government. In most of the world, governments provide the majority of subsidies required by the arts — for better and for worse.
But what are the economics that require high ticket prices in the Broadway model and contributions to close the income gap in the not-for-profit model? The answer is that productivity in the labor-intensive theater industry cannot increase at the same rate as in the overall economy. Live theater is a real-time event limited by numbers of seats and performances: Increased costs create an income gap that must be covered by ticket prices, amplified by demand-based pricing; contributions; or reductions in the size of productions.
In their book “Performing Arts: The Economic Dilemma,” William Baumol and William Bowen demonstrate that the income gap in the arts is not the result of poor management but a reflection of the core economics of a labor-intensive and productivity-challenged industry — in other words, rising costs and lagging revenues are basic facts of life in the performing arts.
By contrast, film, television and streaming platforms can reproduce and mass-distribute their product, resulting in enormous financial returns — whose allocation is the basis for the WGA and SAG/AFTRA strikes.
Early on, not-for-profit theaters covered the income gap through robust subscription campaigns and major foundation support, as well as partially through the National Endowment for the Arts. Contributions have not kept pace with growth, with major foundations and corporations now redirecting support (with the notable exception of the Shubert Foundation). The NEA budget, decimated by the 1990s culture wars, has never recovered. For example, the Goodman’s current NEA grant is three-tenths of 1% of its annual operating budget. Meanwhile, increased competition and consumer preferences reduced the amount of annual subscription revenue, creating greater reliance on single-ticket income. This led to not-for-profit theaters increasing ticket prices far beyond the cost of living, causing audiences to be less inclined to take risks on newer works.
At the Goodman, if the top ticket price of $5.90 in 1974 had increased by cost of living, the highest ticket price today would be $35 — instead of $72, the current average — with much higher prices for certain productions.
There is no greater challenge for a theater leader than deciding what to produce. In the Broadway model, in which experienced producers, artists and professionals overwhelmingly seek to address audience preferences, the financial failure rate is more than 80%. At the Goodman, audiences have demonstrated that they are willing to experience new, diverse and innovative works — even while feeling exhausted, angry, depressed and confused by the impact of COVID-19 and the divisions that exist in our society. The fact that they seek out stories that provide some measure of hope and resilience or entertainment is not a rejection of the artistic product but rather a reaction to current events. Some may say that this view is simplistic (or worse). But since the Goodman returned to the stage, audiences have attended powerful works by Christina Anderson, Jocelyn Bioh, Rebecca Gilman, José Cruz Gonzáles, Des McAnuff, Lynn Nottage, Dael Orlandersmith, Pete Townshend, Cheryl West, Doug Wright, Martin Yousif Zebari and Mary Zimmerman, at close to pre-pandemic levels.
Not-for-profit theater is a relatively new concept in the U.S. and has effectively become our national theater in only six decades, developing artists who have gone on to great success in the entertainment industry. At the same time, Broadway dominates the consciousness of the “average” theatergoer, while it frequently relies on artists and productions that emerge from not-for-profit theaters.
It is essential that not-for-profit and commercial theater producers begin to work together and collaborate with artists to advocate for the theater industry. There may be two business models, but the underlying economics are identical — and their health is intrinsically linked.
If our industry is united, we can begin to address the challenges we face and fully serve our art, audiences and communities.
Roche Edward Schulfer is executive director and CEO of the Goodman Theatre.
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