Building our Business - December 2012
Context
As the second oldest orchestra in the United States, the St. Louis Symphony holds an important place in the music world today and is a flagship institution for St. Louis nationally and internationally. David Robertson, in his seventh season, continues in a long line of distinguished music directors of the STL Symphony.
The esteem in which the orchestra is held was most recently affirmed by the St. Louis Symphony’s March 5, 2011 Carnegie Hall concert and subsequent review in which the New York Times noted the orchestra “…played with polished grace, shining brasses and exciting control…characteristic combination of power and class.” A CD on Nonesuch released in 2009, and the orchestra’s first major label recording in ten years, reached #2 on Billboard’s Classical charts, was selected as “Classical Album of the Decade” by The Times of London, and was named by iTunes as the “Best Contemporary Classical Album”. In April 2010, the orchestra’s profile beyond St. Louis was further enhanced by a major California tour, the first for the orchestra since 1999. In its review, the Los Angeles Times noted, “Now when people speak about the handful of exciting American orchestras, St. Louis is one of them.”
Analysis
In the early part of this decade serious financial challenges threatened the orchestra. To save the STL Symphony, a restructure led to a reduction in season weeks and pay, and streamlined infrastructure. At $26.6m, the FY11 budget was 18% less than ten years ago when adjusted for inflation. Simultaneously, the successful endowment surge resulting from the Taylor Family’s transformational gift, and the community’s matching of that gift, created a platform on which to build and meet significant challenges. However, additional challenges ensued including a damaging work stoppage in 2005 and substantial declines in audience and annual donations over a protracted period of time. Specifically, total ticket revenues declined 23% from 2002 to 2007; attendance for the classical series dropped 19% from 2004 to 2007; and repeatable annual gifts fell 25% from 2002 to 2007. Because of operating revenue declines and despite dramatic endowment growth, annual structural deficits well exceeding $3m persisted, with gaps funded by special donations raised for this purpose. Revenue declines were related to several factors: programming; lack of audience-building and revenue-driving initiatives; limited special events; and the impact of special funding appeals on annual giving.
The Plan
To address these issues, an aggressive plan to grow operating revenues was developed in the summer of 2008. Building Our Business takes a proactive, two-pronged approach: build audiences and reinvigorate the STL Symphony brand emphasizing the STL Symphony's “Live at Powell Hall” experience; and build the base for enhanced institutional commitments and donations. Following a year-long strategic planning process begun in May 2008, the STL Symphony honed a new mission, to enrich people’s lives through the power of music, and adopted a 10-year strategic vision that says:
The STL Symphony will be the leading cultural destination and musical epicenter of the region as demonstrated by
- Concert audiences doubling in number
- Reaching a majority of area households, making the STL Symphony top of mind
- Excellence that ensures the STL Symphony is a beacon for talent, and landmark for St. Louis nationally and internationally
- Revenue growth leading to sustainable balanced budgets
To achieve these goals, twenty-six initiatives with individual “mini-plans” are focused on programming; marketing and institutional branding; strategic utilization of reputation enhancements that include electronic media; strategic partnerships; talent development; and a relentless focus on the fundamentals of building operating revenues. Programming, central to the ultimate success of this plan, is broadened and diversified through relatively new product lines such as Live at Powell Hall - a series of popularly oriented concerts and by creation of an ongoing series of events reinforcing Powell Hall as a destination location. In order to further the broader community goals, the areas of Community Partnerships, Education, and Public Relations have all been synthesized into a new area – External Affairs.
Results to Date
For the recently completed FY11 season, ticket revenues for all concerts totaled $6.56m, modestly surpassing FY10 with seats sold totaling 194,700. Since the launch of Building Our Business in 2008 and its major audience development initiatives, and despite an unfavorable economic environment, total ticket revenues have increased over a three-year period 36% or $1.72m from $4.84m to $6.56m – the highest ticket revenue for all concerts since 2001; with a 17% growth in seats sold from 165,865 to 194,700; and a 12% increase in per-concert average attendance, from 1,522 to 1,708. In addition, more than 22,000 new buyers have been added to the Symphony’s audience base over a similar time period. Contributed operating revenues in FY11 totaled $9.16m, up 7.5% from FY10 and a 10-year high for annual contributed operating revenues. Since the launch of Building Our Business three years ago, annual contributed operating revenues are up 18% from $7.76m in FY08.
Because of successful audience development initiatives at the core of the plan as well as other revenue progress and strong management of expenses, the structural deficit* has declined 18% from $3.4m in 2007 to $2.8m in 2011, dipping as low as $2.62m in 2010. (*STL Symphony reports these gaps as deficits however gaps are fully funded by additional contributions secured for the purpose of operations. The STL Symphony has no accumulated operational debt.)
Next Steps
With a “turnaround” well underway, the challenge turns to building on these results and continuing to identify and execute strategies to further develop key revenue streams ultimately leading to eliminating operating deficits.
Building Audiences & Programming: Building audiences will continue to be a driving force. The key focus for the Wells Fargo Advisors Classical Series is on programming balance, accessibility, creativity and artistic growth. The 2011-12 season includes a focus on dance-inspired music; a Rachmaninoff piano concerto mini-festival; audience favorites like Vivaldi’s The Four Seasons, and premieres and new works by leading composers. Expansion of Live at Powell Hall which shows a completely different side of the St. Louis Symphony and Powell Hall builds on the success of recent seasons with unique shows such as Bugs Bunny at the Symphony, a brand new animated show for orchestra; Distant Worlds: Final Fantasy, an orchestra show with spectacular visual effects based on the famous series of video games; along with movie presentations that combine film with live music including the silent classic, Phantom of the Opera. Special guest performers include Michael W. Smith, Michael Feinstein, Ben Folds and others. Special “rock” themed shows include The Music of Led Zeppelin and Classical Mystery Tour (tribute to The Beatles).
Marketing & Media: Successfully growing the audience begins with what we put on the stage and continues with the ability to market and promote the STL Symphony. A rebranding process was undertaken in 2010 with new brand messaging and a new “look” now in place, which includes elevating Powell Hall as a true destination location. During that process, substantive research was undertaken to assist in shaping future program initiatives, format changes, and to better assess customer needs and buying motivations with a commitment to ongoing patron research to continue that assessment. Strategies have been enhanced with an emphasis on subscription building and retention, as well as single ticket sales, including attention to pricing and increasing the value proposition of the repeat buyer, as well as acquisition of new customers. Because of these and other efforts, FY12 subscriber renewal rates reached an unprecedented 93%. In addition, investments are being made in measurable revenue-generating initiatives, in particular, increasing the effectiveness of online sales with a new content management system, and increased refinement in on-line segmentation of patrons. To further support these efforts and reinforce the brand more broadly, the STL Symphony now broadcasts live Saturday night subscription concerts on St. Louis Public Radio, heard locally and online nationally and internationally. Since the launch of these radio broadcasts in September 2010, Arbitron ratings for the timeslot now filled by the STL Symphony have nearly doubled.
Annual Contributed Revenues: The Annual Campaign is the second largest operating revenue stream identified for growth after ticket revenues and a vital part of reducing operating gaps over time. The Campaign is essential for three reasons: 1) maintaining artistic excellence; 2) keeping concerts affordable and accessible; and 3) ensuring a deep community connection by supporting the Community Partnership program and its 250 free events each year. Growth in this area is a major area of focus going forward with strategies built around enhanced messaging; advancing the giving cycle; building donor affinity; donor acquisition that leverages the expanding audience base; and deeper board engagement in fundraising. In addition to the Annual Campaign and other special underwriting strategies, leveraging corporate relationships through sponsorship opportunities is an important aspect of increasing corporate support that is mutually beneficial to companies and the STL Symphony. The reinstitution of an annual gala in 2009 featuring stars such as Yo-Yo Ma, Renée Fleming and Itzhak Perlman is also an important part of corporate support strategies, while creating an annual signature event for the Symphony in St. Louis.
Endowment: The economic crisis and resulting market declines impacted the STL Symphony endowment which fluctuated from a high of $142 million in 2007, down to $93 million in early 2009. Since then it has rebounded to more than $120 million, however due to three-year averaging for draw purposes, nearly $500k less was taken into operations in FY11 than just two years prior. The STL Symphony is more exposed by market conditions due to its budget being more leveraged to endowment, funding more than 25% of budget (with a 5% draw policy) as compared with peer orchestras, making the work of building operating revenues even more essential, even as we continue to grow and maintain an endowment advantage.
Powell Hall: Recent branding work reinforced the idea that Powell Hall is a unique and vital asset to the region, as well as the home of the STL Symphony. It is both a renowned place to hear live music, and an unforgettable place to experience. But there are challenges. Built as the St. Louis Theatre in 1925, then converted and reopened as Powell Hall in 1968, it has been more than 40 years since any major capital undertaking in the facility. Recent improvements have included refurbishing and expansion of restrooms, cosmetic improvements of the lobby, roof repair, and amplified sound improvements. However, given the age and footprint of the building, amenities and functional spaces are very limited. With the plan’s focus on doubling audiences, ensuring a great patron experience inevitably becomes more of a challenge in the years ahead. Deliberation regarding significant capital improvements is ongoing as we think about how to ensure Powell Hall can best serve audiences in the 21st century.
Building Our Business and Labor Stability
Building our business also requires labor stability. In June 2009, the STL Symphony announced a new collective bargaining agreement with its musicians through 2013. The agreement moves the orchestra forward in a fiscally responsible manner; adds a 43rd week to the season providing new performance opportunities thus enhancing audience development efforts; and adds flexibility in media projects that help build the STL Symphony brand. Focusing on the labor-management relationship is an important element in the organization’s ability to continue to grow, reinvigorate itself, and respond to an ever-changing environment.
Looking Out: 10-Year Financial Model
The success of the STL Symphony’s strategic initiatives depends upon meeting short-term, intermediate, and long-term benchmarks and objectives. The STL Symphony has developed a 10-year financial model that matches revenue objectives to goals established in Building Our Business and the strategic plan. That model calls for revenues to grow nearly 4% and expenses 2-3% annually on average (will vary by year), leading to diminishing and eventually eliminating structural operating gaps by the end of the decade. This revenue growth, although successful to date, takes time. As part of this plan, the STL Symphony has raised additional operating funds in the last few years to ensure investments can be made in audience development initiatives, capacity-building, and R&D; and to ensure deficits do not accumulate over time as our revenue growth plan advances. Fourteen million dollars has been raised for this purpose, funding these investments and projected operating deficits into 2014. An additional estimated $10 million of special funding will be required to ensure the organization remains debt-free through to break-even in FY20.
