The Business of Arts: Sir Peter Bazalgette

Creative Industries Federation11 November 2016

INTRODUCTION

Thank you for inviting me to speak here. I’m especially pleased to be hosted by the Creative Industries Federation, which is doing so much to speak up for the creative sector, particularly to Government, now that industrial strategies are in fashion again.

When I became Chair of Arts Council England at the beginning of 2013, things seemed pretty gloomy.

We faced a serious financial situation. The national economy had been in shock, there were large reductions in funding across the public sector, while falls in personal and business income threatened both revenue and donations. The Arts Council had seen its Grant in Aid cut by more than 30% .

But we knew that we had great talent in our sector. Right from the start, in my travels across the country, I was meeting imaginative, purposeful leaders of arts and cultural

organisations. These were people who combined a commitment to great work with entrepreneurial flair.

It was crystal clear to all of us we needed to diversify the income streams of the arts as rapidly as possible.

Back then, we described our mixed funding model - public investment, earned income and charitable donations using the analogy of a three-legged stool. You need all three legs, or you fall over.

First, we needed to stabilise the all-important cornerstone of public investment by better articulating and demonstrating its value and impact.

I believe unequivocally in public investment in art and culture.

It secures the public’s interest in a national resource that shapes all our lives, powers our creative economy, informs our education, enhances our health and wellbeing, and enriches our communities and thus our national life.

And with government as a lead investor, arts organisations can lever in more, adding value to public money.

Second, could we increase giving by raising the charitable profile of arts organisations?

And third, we had to champion new ways for arts and culture organisations to broaden and boost their earned income, beyond ticket sales.

So at every available opportunity, rather like the ancient mariner stopping one in three, I stressed how critical it was to diversify revenues.

An important but unremarkable view, you might think.

It wasn’t always understood. At least, not at first.

Some suggested that I was giving up on public investment – though nothing could have been further from the truth.

One artist obligingly painted my P45, which the Royal Academy generously displayed at the Summer Exhibition.

Well, that artist’s wish has come true, because I’m about to leave the Arts Council.

But it’s fair to say that my wish has come true.

Because the arts and cultural sector, even with all its manifest challenges, is increasingly on a surer and broader financial footing.

We’re reaching out to more people; the vital role that art and culture play in our society is better understood by government;

and the creative industries are leading the country in terms of economic growth.

That’s no joke. That’s a huge achievement by the arts and cultural sector. By all of you.

For that, I can take some mockery.

EARNED INCOME – THE STORY TO DATE

Today, I want to look a bit more closely at the business of the arts, especially around earned income. That’s the likes of ticket sales, hospitality, merchandising and other commercial revenues.

I’ll also talk about public investment and giving – there are good stories there as well as big challenges. But earned income merits special attention. It’s the unsung hero of this story, best exemplified by looking at what’s been happening with around 600 of our larger, publically-funded arts organisations, members of our National Portfolio.

And now that baking has taken over from football as our top national sport, I’ll ask you to think of the overall income of these arts organisations in terms of a cake.

In cash terms, between 2012/13 and 2015/16, the overall income of those 600 organisations rose to one and three quarter billion pounds. That’s an increase of more than 20%.

And a hell of a lot more cake.

What’s the magic ingredient?

While the cake has grown, the proportion of it the Arts Council contributes through Grant in Aid and Lottery funds remained largely the same, at 22%.

And the proportion that comes from Local Authority funding has declined to just over 6% - we know why that is.

So while the public purse remained an incredibly important part of the mix, it wasn’t contributing to the growth.

What about donations, so-called ‘contributed’ income? They’ve seen steady progress, with personal giving along with gifts from trusts and foundations, pushing their share of overall income up by 1.5%.

But the magic ingredient, that’s helped the cake rise so satisfyingly, is earned income - what organisations earn through their tickets sales, their educational activity - and their ‘supplementary’ income from commercial activities and other revenue streams – cafes, restaurants, car parks, merchandise, services and skills.

For that sample of 600 organisations, since 2012/13 earned income has grown from just over three quarters of a billon to more than £1 billion - up by more than 25%. And these

commercial revenues now contribute comfortably more than half of the entire cake (I’m calling time now, I promise, on the home economics metaphor).

SUPPLEMENTARY INCOME

While income from ticket sales and educational activity has actually declined slightly – which reflects the tough times we’ve been through – income from supplementary activity has grown by – wait for it – a staggering 75%.

This is what’s helped make a significant change in the fortunes of the arts and culture sector. Entrepreneurial flair.

EXAMPLES

Let me tell you about some of the ideas that organisations right across the sector are employing – many of them backed by public investment.

Hospitality, whether a café, bar or restaurant.

Take the Theatre Royal Plymouth, which refurbished its catering facilities as part of a capital grant from the Arts Council - and between 2012/13 and 2014/15 increased its income from catering and retail by 24%.

Or the Chichester Festival Theatre. After a major makeover funded by public and private money, it made £1.4 million from catering operations in 2014/15 – up 9% on pre-refurbishment figures.

If you’ve got the right location, you might look at rental income.

Like Lighthouse Brighton, a cultural agency that pioneers developments in art and technology, and uses its city centre premises to provide a reliable source of income from commercial hire and office tenancy. Lighthouse has 100% occupancy of its creative office suites.

If you’re in a town that’s a destination for bargain hunters, you might run a charity shop on the high street, like The Roses Theatre in Tewkesbury. Staffed by a team of volunteers, alongside a full-time manager, this currently contributes £20,000 per annum to the theatre’s finances as well as engaging the local community and advertising the theatre’s charitable status.

And if you’ve got a strong visual arts brand, you might develop a shop and online retail business like Baltic in Gateshead, selling special editions of art works, and adding art to the things we use every day – cups, coffee pots, shopping bags, toys or bookends.

If you’ve got the space, you might offer bed and breakfast, alongside artists and musicians, like the urban oasis of Islington Mill arts hub in Salford.

Or like, New Brewery Arts in Cirencester, you could run a stylish and popular hostel alongside your core business. These social enterprises represent a whole new sector of the British economy and the arts are ideally suited to lead it.

If you have a car park it might make sense to put it to work with a pay facility, supporting your great creative output. This is what the Yorkshire Sculpture Park have done.

Or if you’ve got a photogenic setting, you might promote yourself as a film location, like the Black Country Living Museum, which has been used for the three series of Peaky Blinders.

If you’re a publically-supported orchestra, you may make money by recording film scores and video-game soundtracks. In recent years, the Philharmonia has been on the soundtrack of Iron Man 3, Elysium, Thor: The Dark World, Fury and Avengers: Age of Ultron, while video games credits include the Harry Potter series, Lord of the Rings: War in the North, and Medal of Honour.

It shows that arts organisations are increasingly run by business-minded leaders who understand that when you run a great business, it’s a lot easier to make great art.

MORE TO DO

Some of you may say that my overall statistics are skewed by rich, London organisations.

Quite true – it’s undoubtable tougher elsewhere. If you look at theatres in the rural South West for example, you’ll see that their turnover has only grown by 10% - less than half the national average.

Supplementary income there has actually declined by 60% over 4 years. But laudably, this was offset by ticket sales and other core activities increasing by just over 50%. So they’re working hard to reach more people - and they are doing well at that.

Generally speaking, rural areas pose challenges for businesses of all sorts.

So we must continue to provide additional investment and support where it is most needed.

We’re doing this.

We’ll be investing up to £2 million through our Building Resilience programme, helping up to 100 organisations develop their entrepreneurship and philanthropy and make the most of intellectual property.

We’re investing £1.5 million in our programme for Developing Sector Leaders, and we’re also supporting the development of leadership across museums.

And through Strategic funds we’ve invested £400,000 in the Business Support programme, so that organisations can become better businesses.

When arts organisations have skills, networks, and good leadership they have shown they can thrive.

Helping them acquire these is one of the important functions of public investment, working alongside all the earned and contributed income.

PUBLIC INVESTMENT

I as I said earlier, public investment is the people’s skin in the game. It allows us to have a say in how art and culture is run, and who it is run for.

It ensures, for example, that diversity is prioritised, and that the best of art and culture can be enjoyed by everyone,

everywhere, at affordable prices or for nothing at all, and increasingly by digital means.

It does all this for a small amount of public money.

Less investment would mean less influence, and that would be a loss to the public as a whole.

In recent years, I’ve been pleased at how much better we have all become at talking about these benefits – presenting what we call the “the holistic case for public investment in art and culture”.

The value of art and culture was recognised by the last chancellor, and we believe this is understood by the new government as well.

Stable public funding, agreed for the four years of the current spending settlement, will enable us to continue growing the arts sector in all these ways, whatever the weather.

Here, I’d like briefly to mention the referendum result.

Whichever way you voted, Remain or Leave - and all of us know people from both camps – the United Kingdom now needs to be more open to the world and more open to the world’s cultures than ever before in our history. I believe this is a special duty of publically supported arts and culture.

PHILANTHROPY AND GIVING

So that’s earned income and public funding. Now I’d like to talk briefly about the third element of the sector’s income – contributed income. Gifts, donations – or philanthropy, as we sometimes call it.

That 1.5% increase it made to the NPOs overall income sounds small, but in cash terms it amounted to a big increase on 2012/13.

In fact, last year contributed income was worth more than £200 million - a real advance.

We’ve recently commissioned research looking at the state of giving in the arts and culture sector as a whole over the last three years.

We’ll be publishing the report shortly, but early findings support the headline figures from the narrower sample of our National Portfolio. It will show that contributed income in art and culture generally is growing.

In 2014-15, it was worth was £480 million. Just under a fifth came from business, a bit less than a third came from trusts and foundations…which meant that, magnificently, more than half came from generous individuals.

A relatively small number of large private donations – around 50 – went to a relatively small number of arts organisations, many of them in London.

So before we rush to expect too much, too quickly, from publicly funded arts and culture organisations, remember that many of them are neither very big, nor are they based in London.

There have of course been some wonderful large gifts outside London, but in general arts organisations across the country need more support to develop fund-raising skills, so that we can make people aware of their charitable status, and so we can make better use of shared data and integrate sales, marketing and fund-raising.

We’re delivering that support through the Arts Fundraising and Philanthropy programme of skills development and training.

We will continue to invest in our Catalyst: Evolve and Catalyst Small Grants programmes.

Catalyst Evolve will target organisations that are new to private giving.

And between 70-80% of this investment has been and will continue to be awarded outside London.

We’ve also been training the next generation of fundraisers though the Arts Fundraising Fellowship; 80% of participants have been from outside London.

BOARDS

So arts and cultural organisations need to be effective businesses which are also well-run, fundraising charities. Strong, supportive boards are crucial in this.

We need board members conspicuous for their actions as much as for their opinions. That includes fundraising.

It’s my personal view that every board member should give something, even if it is just a pound, so that they are not asking others to do what they themselves are not.

We talk about the need to have a skilled workforce and leadership, but having an appropriately skilled board is every bit as important.

There should be a strategic plan for appointments to the board; yes, boards must reflect the culture of their communities, but also the strategic ambition of their organisations.

Each board member should bring a relevant competency and, these days, after several high profile car crashes in the charity

world, there’s no excuse for boards and trustees to be ignorant of their responsibilities.

Boards need to have foresight, and to be able, for example to develop a clear and consistent policy around ethical sponsorship, deciding what is or is not appropriate for their particular organisation.

The Arts Council does not dictate policy in sponsorship. We accept that different organisations will have different approaches, and boards should be free to accept donations they consider suitable. What matters is clarity, consistency and transparency.

NEW FUNDING STREAMS

Now, a word about novel funding streams.

Some of these have come from government in the form of tax credits for the theatre, for dance and opera orchestras and museums and galleries. In its first full year, the theatre tax relief was worth £25m to the sector.

Along with the parallel credits for film, television and video games, I see this beneficial programme of tax credits as the beginning of an industrial strategy for the creative industries.

These are the businesses which not only drive the economy but define our culture, power our empathy and fire our imaginations. Why wouldn’t you have such a strategy?

Then there are mixed models, such as social investment. We’ve helped start a fund which makes loans rather than grants to organisations. The Arts Impact Fund brings together public, private and philanthropic funds from the Bank of America Merrill Lynch, the Esmee Fairbairn Foundation, Nesta, the Arts Council and the Calouste Gulbenkian Foundation.

The loans it offers to arts and culture organisations across England are for projects that show a social, artistic and financial return.

Among the first investees are Brighton-based South East Dance, who have a loan of £350,000 towards a new Dance Hub that will provide rental income and support work with local artists and the community.

There’s also £150,000 for the Titchfield Festival Theatre, so it can increase its rental income and install solar panels.

I predict that such publically beneficial financial instruments will grow strongly in the years ahead. We must make sure that they do.

CONCLUSION

So, as I look forward to my P45 from the Arts Council, I’m pleased with the progress that’s been made with income across the National Portfolio.

A stable settlement from the Government covering funding for the next four years, delivering amazing public benefit.

Increasing gifts and donations.

And boosting earned income, thanks to a new generation of talented cultural entrepreneurs.

There remain many challenges - as we always say, because it’s always true. But we have come a long way in a short time and that should give all of us who work in art and culture confidence.

The picture varies greatly across the country. We’re addressing that imbalance, investing more where it is most needed – that will be a part of our new investment process which has just been launched.

We do know we have to continue to make the case for public investment to local authorities, which are under such pressure and facing difficult choices. I have talked about this a lot, and there isn’t time today. But it’s a critical issue.

We’re keeping a careful eye on fluctuating Lottery revenues – increasingly important as our Grant in Aid has declined.

But new partnerships with the likes of higher education, health authorities and with LEPs are going to be fuelling more arts and more culture in more places.

With more we could always do more.

More for those organisations on the periphery of the National Portfolio.

More for communities outside the better resourced cities.

Now, with that iconic P45 of mine in mind, I’d like to finish by emphasising once more how much of a bedrock public funding is, however strongly other revenues grow.

A few weeks into the job of Arts Council Chair, I got a panic call, late at night, from a certain Government minister.

The Minister: “Is it true that the Arts Council has spent thousands on a ‘sculpture’ made out of plumes of smoke?”

Me: “Yes, Minister.”

The Minister: “Is it true it doesn't work?”

Me: “Yes Minister. Not on this occasion.”

He said that a certain tabloid was preparing the headline: “Arts Council money goes up in smoke!” At the very least I should announce an inquiry (don’t we love inquiries).

I calmed him down and human civilisation did not come to an end the following day.

But here’s the point: surely the role of public money is to take risks that wouldn’t be taken otherwise.

Today’s outrage is tomorrow’s mainstream.

You don't always back a winner; but you never get a successful business without taking risks.

Thank you.

3,167 spoken words