The 2/26/2013 edition of the New York Times published an article by Daniel J. Wakin that reports the Metropolitan Opera is lowering ticket prices by 10 percent but the really interesting part here is the reason behind the decision.
According to the article, The Met “decided they made going to the opera too expensive.”
So in a rarity in the rarefied world of the performing arts, the Met said it would reduce ticket prices next season. The average cost of admission will drop by 10 percent, or to $156 from $174, Peter Gelb, the general manager, said in a recent interview.
The article continues with additional insight from Gelb but in a nutshell, it appears that The Met determined recent increases were responsible for the lion’s share of audience decrease and the expected bump in income was offset by the overall drop.
We’ve examined this issue before when via the ticket price topic where organizations attempt to fill drops in revenue by artificially increasing average prices. Most groups expect average attendance numbers to drop but the increase in earned income is usually enough to justify the decision.
The problem here is that this approach is only productive via short term implementation and should only be used as a tactic of last resort during periods of crisis management. Instead, some performing arts orgs have been internalizing this as a long term policy and if left unchecked, many groups will cross a tipping point where the attendance falloff accelerates faster than any reasonable price hikes can keep up.
Painting Your Way Out Of The Corner
Perhaps unsurprisingly, the trend of average audience decline was exacerbated by the economic downturn. As a result, groups adopted price increases as a short term strategy to help manage cash flow but this isn’t something most groups can sustain for more than five years. And the longer groups continue with artificially inflated average ticket price strategies, the harder it is to back away from them without causing just as much damage.
In short, it is like painting yourself into a corner with a prolonged lie.
On one hand, an organization has to justify price increases and the longer those increases remain, the firmer the reasons become. But once the group crosses the threshold of diminishing returns, how do they back away without contradicting everything that came before to justify the previous increases?
Simple, they can’t; and more to the point, they shouldn’t. For now, the Met is taking the right approach by chalking it up as an error.
Mind The Bear Traps
During the transition, The Met will need to be mindful of maintaining overall revenue goals. Granted, that’s a profoundly obvious point but it is good to see The Met referencing it in Wakin’s article. According to the report, The Met is apparently relying on added sales to help fill any revenues holes related to the price correction and since that group isn’t too far along in the artificial increase game, they stand a good chance at reaching those goals.
At the same time, and in an ideal strategy, they have a backup plan to help subsidize slower than predicted gains with temporary bumps in contributed revenue.
Case in point for how a group shouldn’t implement a price correction strategy, when the St. Paul Chamber Orchestra (SPCO) instituted big cuts across the board for ticket prices, they did so without any firm plan in place to offset a known drop in revenue. There were assumptions that unearned income would increase but it never materialized to necessary levels.
As a result, the group hobbled along via a series of budget cuts until they arrived at where they are now: a bitter work stoppage and the strong likelihood of losing all but a shred of the 2012-13 season.
It will be fascinating to see how things unfold for The Met’s new strategy; likewise, reaction across the field will be equally fascinating. After all, if The Met successfully demonstrates that the strategy works and prices were increasing too fast, how will that make peers with similar price increases and audience decreases look?
Then there’s potential concern that The Met may be attempting to use the ticket correction announcement as a way of deflecting attention from other strategic decisions that may have more to do with recent revenue shortfalls. Reader May Catherine expressed those very concerns in a pair of comments to yesterday’s post on this topic.
Simply put, those sorts of concerns could be accurate and if so, the real loss will be the missed opportunity to examine the artificial ticket price syndrome outside the confines of closed doors and hushed tones.