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  • 8. Audience Building and Financial Health in the Nonprofit Performing Arts

8. Audience Building and Financial Health in the Nonprofit Performing Arts: Current Literature and Unanswered Questions (Executive Summary)1

Francie Ostrower and Thad Calabrese

© Francie Ostrower and Thad Calabrese, CC BY-NC-ND 4.0 https://doi.org/10.11647/OBP.0242.08

Even before the COVID-19 pandemic shuttered performances, many nonprofit performing arts organizations faced challenges. This chapter examines literature relevant to challenges in two areas, audience building and financial health. The chapter is based on the executive summary from a full report by the same name. The interested reader will find more extensive references and examples of our points in that report. It is based on research commissioned and funded by The Wallace Foundation (The Building Audiences for Sustainability: Research and Evaluation study, of which the lead author is principal investigator).

National statistics show stagnant or declining attendance across many art forms associated with the nonprofit performing arts. Newspaper headlines report financial crises at established arts organizations. These reflect the significant challenges nonprofit performing arts organizations face today when it comes to engaging audiences and achieving financial sustainability. Although there is a widespread acknowledgement that a problem exists, there is less consensus or confidence about how to address the problem. In this chapter, we review recent literature on audience building, financial health in the nonprofit performing arts, and the relationship between the two, to see what it tells us about the current state of attendance and finances, how organizations are responding, and which approaches have proven more or less successful.

The full report on which this summary chapter is based was the first in a series of publications being released as part of a study of the audience-building efforts of the twenty-five performing arts organizations in The Wallace Foundation’s $52 million Building Audiences for Sustainability initiative.2 The initiative awarded grants to the organizations to try to engage new audiences while retaining existing ones and to see whether these audience-building efforts contribute to organizations’ financial health. The foundation then commissioned and funded The University of Texas at Austin to conduct an independent evaluation of these audience-building efforts. The lead author of this essay is the study’s principal investigator.

This chapter summarizes our literature review and presents its major themes and arguments, identifies gaps in the literature, and suggests areas for future research to address unanswered questions. We provide references for the reader who wishes to pursue individual publications in greater depth. In the case of the audience-building literature, we found many relevant publications but not a cohesive line of inquiry whose studies reference and build upon one another. In the case of financial health, we found so little literature specifically on the performing arts that we considered other potentially relevant literature on nonprofit financial health more generally. With respect to the relationship between audience building and financial sustainability, we found virtually no literature.

Our purpose is not only to summarize the literature, but to assess what it has to say about a set of issues that we view as key to understanding audience building and financial health. We bring the following orienting questions to this review:

  • What is the definition and scope of “audience building” and “financial health” addressed in the literature?
  • What does the literature say about the current state of attendance and financial health?
  • What does the literature say about why nonprofit performing arts organizations are experiencing declines in audience? What does it say about why nonprofit performing arts organizations are experiencing financial problems?
  • What does the literature say about how organizations are responding, and which approaches are more successful or less successful?
  • What are the major gaps and unanswered questions?

These questions structure the presentation of literature in this chapter and the full report, and help us to identify not only what the literature addresses, but what is missing. Since the audience-building and financial health literatures are distinct (with virtually no exploration of the relationship between the two), we present the reviews of each separately. The small amount of literature that addresses the relationship between audience building and financial health is included under the section on financial health. The major points from our reviews are summarized below.

Summary of Findings from the Review of Literature on Audience Building

While many relevant publications exist, there is not a cohesive line of inquiry about audience-building efforts among performing arts organizations whose authors cite one another and build on each other’s work, or even necessarily address similar questions. By contrast, there is a more dedicated and distinct line of inquiry on individuals’ engagement in the arts. Taking together the wide array of literature reviewed, the following major points and themes emerge:

  • Attendance at multiple performing arts forms has declined or is stagnant. The National Endowment for the Arts’ Survey of Public Participation in the Arts (2015a) indicates that fewer people are attending, and those that do attend are attending less often. Less is known about the reasons for these declines.
  • Among the hypothesized drivers of the above declines are declines in school-based arts education (Brown & Novak-Leonard, 2011; Rabkin & Hedberg, 2011; Zakaras & Lowell, 2008), technological changes, generational shifts, an overemphasis on policies promoting supply rather than demand for the arts (Kushner & Cohen, 2016; Tepper, 2008; Zakaras & Lowell, 2008), and outmoded ways of operating on the part of arts organizations themselves (Borwick, 2012; Brown & Novak-Leonard, 2011; Conner, 2013; Nytch, 2013; Pulh, Marteaux, & Mencarelli, 2008; Reidy, 2014; Stallings & Mauldin, 2016). The literature offers suggestive links for some of these drivers, but raises doubts about others (e.g., on technological changes see National Endowment for the Arts, 2010 and Robinson, 2011 and on generational shifts see Stern, 2011).
  • The literature proposes a wide array of audience-building techniques, but is inconclusive with respect to their results. One problem is that empirical support is often slim. To expand that empirical base, we need more studies that collect outcome data, follow audience-building efforts over time, and use larger samples to determine which audience-building approaches are more or less likely to achieve intended results under different circumstances and which are sustainable over the long term. We also need studies about the costs and benefits (both financial and mission-related) of implementing and sustaining different audience-building strategies.
  • A widespread theme in the literature is that audiences do not attend solely, or even primarily, for the art presented, but for an arts experience, and that arts organizations are not currently responsive to this desire. Answers vary, however, as to what experiences audiences seek and how organizations could provide these. Strategies proposed include providing opportunities for more active audience engagement (Brown & Novak-Leonard, 2011; Conner, 2013; Glow, 2013; Pulh, Marteaux, & Mencarelli, 2008); performing in non-traditional venues (Walker & Sherwood, 2003; Reidy, 2014); creating a more welcoming, social, and/or informal environment (Brown & Ratzkin, 2013; Pulh, Marteaux, & Mencarelli, 2008; on socializing as a motivation see National Endowment for the Arts, 2015b; Ostrower, 2008); making increased use of technology and digital media (Bakhshi & Throsby, 2012; Preece, 2011; Turrini, Soscia, & Maulini, 2012; Walmsley, 2016); and better understanding audiences through market research (Grams, 2008; Harlow, 2014).
  • The literature suggests that audience building is not an isolated endeavor, but an undertaking that is related to other aspects of organizational culture and operations. Efforts at audience building may place pressures on conducting business as usual and require shifts in culture and operations. Therefore, more research on the organizational conditions for successful audience-building activities is needed. The audience-building literature would therefore benefit from forging more bridges with the general literature on organizational learning and change.
  • While some literature speaks about “audiences” in general, other literature observes that neither audiences nor the world of arts organizations are homogenous. This implies that different approaches may be better suited to engaging different audiences and serve different goals, and that organizations may need to make tradeoffs in their audience-building efforts depending on which goals they prioritize. For instance, McCarthy and Jinnett (2001) distinguish those already inclined to participate in the arts from those who are disinclined, and argue that different barriers need to be overcome to attract these two groups. One intriguing observation, made by Jennifer Wiggins (2004), is that audience-building efforts aimed at attracting one target audience may deter attendance by other audiences. This implies that organizations and research need to consider the unintended consequences of audience-building projects. Research is required in order to see whether and how this conceptual point is borne out in practice.
  • One underexplored question is the extent to which audience declines, and challenges in audience building, are a response to what arts organizations are presenting (the art forms), or to aspects of arts organizations themselves, such as how arts organizations present the art.

Summary of Findings from the Review of Literature on Financial Health

We found little literature on the financial health of the arts, and even less literature specific to the performing arts. As noted, we therefore also explored aspects of the broader nonprofit financial health literature that might prove relevant for research on performing arts, particularly with respect to definitions and metrics of financial health. Although our literature review focused on publications after 2000, we also discussed William Baumol and William Bowen’s classic works on “cost disease” (1965, 1966). While written over fifty years ago, the works continue to exert a significant influence on the more recent discussion of the economics of nonprofit performing arts. The major points to emerge from our review of the literature on financial health are the following:

Organizational financial health is a seemingly simple concept that is, in actuality, quite complicated and difficult to measure.

  • The current academic literature has no agreed-upon definitions or measures.
  • Howard Tuckman and Cyril Chang (1991) measured risk using four indicators, and the worst performing nonprofits in each measure were deemed “at risk”.
  • Practitioners have examined capitalization (Nonprofit Finance Fund, 2001), which encourages nonprofits to accumulate savings or reserves rather than spending all resources in the current year.
  • Woods Bowman (2011) conceptualized a framework that focuses on organizational capacity and sustainability as measures of fiscal health.
  • In all cases, little direct application to performing arts organizations exists. The little there is tends to be fragmented and does not cover long periods of time.
  • The 2007-2008 recession seemed to have hurt the finances of performing arts organizations more than other nonprofits (McKeever & Pettijohn, 2014).

The “cost disease” theory states that financial problems arise because the costs for performing arts organizations increase faster than ticket prices. This gap requires other revenue sources—such as philanthropic dollars, contributions, or government grants—to offset operating losses.

  • The literature focused on the cost disease finds mixed results. Some empirical analyses find evidence of the cost disease in performing arts organizations (see, for example, Brooks, 2000; McCarthy, Brooks, Lowell & Zakaras, 2001; Last & Wetzel, 2011), while others find no such evidence, question the theory’s assumptions, or find evidence of its heterogeneous effects on performing arts organizations (see, for example, Heilbrun & Gray, 2001; Rich, 2012).
  • Different-sized performing arts organizations seem affected by the cost disease differently, with small and large arts organizations essentially immunized and medium-sized ones most affected (Rich, 2012).

Audience building is little studied in terms of its relation to finances in the performing arts. Audience building may not yield financial returns, however; it may only generate social returns. If this is the case, performing arts organizations need to know the cost of audience-building activities and secure funding so that the financial health of the organization is not further compromised.

Many important gaps remain in our understanding of performing arts organizations’ financial health and the link with audience building.

  • Whether particular financial indicators better predict financial health than others in the performing arts domain is unknown.
  • The literature also does not analyze how a performing arts organization in financial trouble might turn itself around. This advice is what many performing arts managers seek, and the literature is largely silent on the topic. The cost disease remains an important theory about the economics of the performing arts industry. However, this theory does not account for overhead costs that are not directly linked to performances.


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1 This chapter is based on research commissioned and funded by The Wallace Foundation. This chapter is an adapted version of the executive summary of a full report by the same name, available at https://www.wallacefoundation.org/knowledge-center/pages/audience-building-and-financial-health-nonprofit-performing-arts.aspx. A selection of citations from the literature review are included in this chapter. For all relevant references, please see the full report (Ostrower & Calabrese, 2019).

2 The second publication in the series is Ostrower, 2020.

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