This is Part 2 of a series. Read Part 1 here.
Last month I wrote about the frustration of fighting the often-irrational desire to develop large-capacity theaters. I talked about why the potential impact of a project is often considered in terms of scale, which too often becomes about seating capacity. Now let’s take a few steps back to consider the basic challenges associated with building large-capacity halls.
The idea that bigger is better is a fundamental. And in many sectors of the economy, it’s a valid starting point: more capacity increases revenue potential, which leads to more income, which can finance incremental capacity. But in reality it does not work that way. Simply put, the revenue potential of additional seats rarely exceeds the incremental costs of adding capacity. So there’s no income to finance the larger asset. More seats make the building more expensive to build and to sustain.
The one legitimate benefit of capacity is that a promoter is more likely to attract bigger and better shows to a building with more seats to sell. A decade ago, buildings were scrambling to add seats and bigger backstage areas so that The Phantom of the Opera could visit their town. Producers and tour promoters really do look to capacity to keep ticket prices down: If the cost to bring in a certain touring artist is $100,000 for a performance (including artist fees, promotion and facility costs), you can break even in a 2,500-seat hall with an average ticket price of $40. In a 1,500-seat hall, your average ticket price must be more than $65.
For large-capacity halls that are only in the business of presenting touring commercial entertainment (including Broadway shows), the more seats the better. But in reality, many large-capacity halls were originally conceived and funded to present touring cultural programs — classical music, dance, opera — and to support local arts organizations by being available for rent. And here’s where we get into trouble. You want Alvin Ailey to come to town because it’s an amazing organization with the potential to change people’s lives. But there aren’t enough people in the community willing and able to pay the high ticket price needed to finance the performance. So you look for sponsors, which can partially offset the cost. But then there’s a gap between what you spend and what you make, a gap that tends to be larger as the operating costs of your facility increase with more capacity.
Then we have the problem of rent. I am often encouraged by my clients to calculate a daily rental rate for a new large hall by working up total operating costs and dividing that number by 365. I wish it were that easy. The truth is that cultural organizations — any symphony, ballet or opera company — cannot afford anything like the rent necessary for full cost recovery. In fact, most nonprofit rental rates cover less than half of the relevant costs. So for every dollar of rent collected, the facility must raise at least another dollar to balance the budget. Here again, that gap tends to widen as capacity increases.
The seating capacity argument often boils down to this: Should we build the church for Easter Sunday, or for the rest of the year? Do we care more about the occasional opportunity to bring a certain act or group to our community that needs more seats to sell? Or do we want a seat count and cost structure more in line with the market capacity and financial resources of our community?
It has taken me a long time, but I finally accept the position that there are times and circumstances when a community can and should take the Easter Sunday approach — that the prospect of attracting high-profile events is the thing that gets people excited, and thus generous, about building a large new hall.
But I still worry about the long-term sustainability of such structures. By construction or renovating such large venues, communities are essentially committing to allocating the bulk of their arts funding to these buildings for as long as they’re standing. This often means that the community’s cultural infrastructure, from incubators to education programs, receives less and less support over time.
Then there’s yet another problem: there is virtually nothing you can do to re-purpose a large-capacity hall for some other commercially viable use. And remember, the last thing you can do is shut down your large-capacity hall. I read a story some years ago about a failed theater that ended with the following line: “Having a dark theatre on Main Street is like having a corpse in your living room — it’s dead, and it’s there.”
Just in case there’s doubt about the risks of large-capacity halls, look at what’s happening in China. Developers and bureaucrats are building halls for Easter Sunday (if not the Second Coming), knowing they will have moved upwards and onwards before the sustainability challenge comes home to roost. Already there are dark, empty halls hidden behind the smog. And many more to come.
This is Part 2 of a series. Read Part 1 here.