Can the Commercial and Nonprofit Sectors Co-exist?

t_medallion03_NEWDiane Ragsdale didn’t necessarily write her post on the “long tug of war” between commercial and market forces in the nonprofit theatre in reaction to the Tony Awards, but that it was published the morning following is very apt.  Throughout the evening, we heard the winning directors (both female, for a change) and producers of commercial successes like Pippin, Who’s Afraid of Virginia Wolf, and Sonia and Vanya and Masha and Spike thanking nonprofit and even university partners for creating the environment in which these commercial and artistic successes were nurtured. (Pippin at ART on the Harvard campus, Virginia Wolf at Steppenwolf, and Sonia et al at the McCarter Theatre on the Princeton campus).

Diane’s post cites research that seems to indicate that market incentives – not just money, but the exchange of something for something else (usually money) – negatively affect the moral nature of decision-making. She shifts the level of analysis from the individual to organizations in discussing how market forces affect the programming and hiring policies of nonprofit theatres.

Let’s shift our thinking up one more level and look at the system as a whole. Tracy Letts, in his acceptance speech, alluded to a system-level approach to theatre production.  Can commercial and nonprofit organizations exist not only side-by-side, but symbiotically in a system of mutual beneficence? In my perhaps overly optimistic and utopian view, the answer is yes.  Rather than considering the nonprofit and commercial (theatre) sectors as in opposition to one another, consider a system of development —- real development – that supports artists at every phase. In such a system, the nonprofit sector wouldn’t just be a farm system for the big leagues but rather a laboratory for experimentation that actually supports its scientists [pardon the excessive mixing of metaphors].  Nonprofits, especially in partnership with universities that are already tooled up for knowledge creation and dissemination, would develop new work and new processes.  Some products of this experimentation are commercialized, while others exist as “basic science,” experimentation for experimentation’s sake. Those creative products that do transfer to the commercial sector generate revenue that gets re-invested into the nonprofit experimental sector to support the artists and the work they do there.   This is the part of the system that is missing.  While the individual theatres credited by the Tony winners may reap a substantial financial benefit from commercial success, the sector as a whole does not, thus concentrating the wealth of that sector in just a few institutions (a topic both Diane and I have written about before).  This leaves the non-winners with inadequate resources for experimentation and a lot of incentive to do either the tried-and-true per Diane’s Coconut Grove example, or chase the commercial juggernaut.  Could commercial productions that benefit from nonprofit development pay a certain amount of after-cost profit into a fund, perhaps administered by an organization like Creative Capital or Doris Duke or even an agency like the NEA (noted with more hesitation), that would in turn support artists creating new work at theatres across the country, theatres that in turn support local talent?

Asking a profit-making venture to give up some if its profit for the good of the system brings us back to the moral conundrum of the mouse in the experiment Diane cites.  Ultimately, the Jerry Frankels and Barry Weisslers of the world would need to forgo some miniscule percentage of the ten dollars to save the mouse, and that is an individual moral decision.White Mouse in front of a white background

About lindaessig

Linda Essig is director of Enterprise and Entrepreneurship Programs at the Herberger Institute for Design and the Arts at Arizona State University, including its award-winning arts entrepreneurship program, Pave: http://pave.asu.edu The opinions expressed on creativeinfrastructure are her own and not those of ASU. You can follow her on twitter @LindaInPhoenix and "like" the Pave Program in Arts Entrepreneurship at http://www.facebook.com/pages/pave-program-in-arts-entrepreneurship/386328970101 Find Pave's journal, Artivate, at http://artivate.org
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11 Responses to Can the Commercial and Nonprofit Sectors Co-exist?

  1. Pingback: Who Benefits? | Creative Infrastructure

  2. Pingback: Follow-up on Nonprofit/Commercial Coexistence | Creative Infrastructure

  3. There’s some thought at the intersection of economics and social science about the distribution of resources within a system that has winners and losers. One model, following Robert Merton’s Matthew Effect (“For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken even that which he hath.” Matthew 25:29, KJV) distributes resources heavily to the winners, as described in your post. This results in a wide spread between the successful and the unsuccessful, because the winners take advantage of their resource boost to stay on top.

    The theoretical virtue of such a system is that it heavily motivates participants. The winners want to stay winners, and the runners up and new entrants see a lot of potential reward to becoming winners. So everybody works hard. This dynamic is pretty congruent with American perceptions of ourselves. As John Steinbeck noted, we have no poor people, only “temporarily embarrassed millionaires.” There are also certain situations where you WANT superstars, because they bring in more resources from outside the system. Superstar athletes increase gate revenue in professional sports. Superstar performers bring tourists in on Broadway. Superstar academics bring more interest to a field.

    There is comparative research between the Matthew Effect and the Mark Effect (“But many that are first shall be last; and the last first.” Mark 10:31, KJV). The Mark Effect is to distribute more resources to those not currently successful. It has been empirically shown that this DOES tighten up the distribution of outcomes–opposite the Matthew Effect. You are also less likely to get superstars.

    When status and recognition are a major component of success, like professional sports, academia, politics, and maybe the competition to become a movie star, the Matthew Effect works pretty well by motivating participants competitively and drawing attention and resources in from outside. But if you don’t want or need superstars, the Mark Effect results in more efficient outcomes–more utility and more productivity overall.

    The question that I think we don’t do a very good job asking ourselves in the performing arts is whether we want superstars or not. If we like the superstar driven system, all roads lead to New York and Hollywood. If we don’t want superstars–if we would rather that art find a home everywhere, then we need to understand that this is not what your average high school kid is thinking about his or her performance career when s/he starts down this road. And we need to socialize these kids into preferring the integration of art into every day life over the glamour and attention and status that star performers appear to have.

    Here’s the paper I’m ripping off, for those so inclined. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1646447

    • lindaessig says:

      Thanks, Aaron. Before there were Matthew and Mark, there was Leviticus 19:9: “When you [plural] reap the harvest of your land, you [singular] shall not reap all the way to the corner of your field, or gather the gleanings of your harvest. You shall not pick your vineyard bare, or gather the fallen fruit of your vineyard; you shall leave them for the poor and the stranger [and the nonprofit organizations helping the poor and the strangers]” Obviously, that last bit is mine, but the distinction between the plural and singular pronouns echos my contention that while organizations might reap profit, it’s ulitmately up to individuals making moral choices to share. One of the greatest challenges to our economy is the concentration of wealth at the very top. I’m referring here not to the arts and culture sector, but to the economy as a whole (see http://www.businessinsider.com/wealth-and-income-inequality-in-america-2013-4 for lots of cool inforgraphics on the topic). There is research that indicates such concentration of wealth at the top is economically unsustainable. In the arts sector, such concentration is already eroding the more egalitarian (or at least geogrpahically dispersed) system of twenty years ago.

      • Yeah, my goal definitely wasn’t to “Christianize” the debate. 🙂

        Income inequality of the level we’re lately experiencing is unsustainable for an economy as a whole; I agree. But it doesn’t necessarily follow that it’s unsustainable for a sector within the economy.

  4. Linda, great post! I have never believed that there should be no partnerships or alliances between the nonprofit and commercial worlds; though, there are some that do take this stance. I agree that one could idealize, in a way, the nonprofit sector as the “R&D” arm for the American Theater. And, in many ways, this was what existed in the 60s and 70s. The first, often-cited, example of a nonprofit transferring a show to Broadway was Great White Hope, originally produced by Arena Stage. As is well known, Arena Stage received no credit for that production in the Broadway playbill and also no compensation. As commercial producers woke up to the fact that nonprofits were a great source for new “serious” dramas, nonprofits woke up to the fact that they were producing shows that had the potential to transfer and got savvier about being compensated for their R&D role. And these “pure” deals began to occur with greater regularity. However, since the mid 80s, with the introduction of enhancement funds, what you see alongside nonprofits taking great risks that sometimes succeed in transferring with the help of a commercial producer (think: August Osage County) is also a model in which nonprofits are utilized, basically, as a less expensive out-of-town-tryout for a commercial producer that is exercising almost total control over a production from start to finish. This is quite different from investing in “pure science” to use your analogy, and more akin to the now industry-oriented and -funded research centers one now sees at universities. These are two very different phenomena; and, to be clear, there are many variations on these and an enhancement deal by no means always signals a “commercial tryout”. My point is that any systemic approach would need to deal with the sometimes quite different motivations and goals of these different types of deals.

    I like very much your suggestion about how to make sure profits get funneled back into risk taking for the system as a whole. I sense that people on both sides (commercial producers and nonprofits) have tried to grapple with the question of where do the profits flow and how do you keep money flowing back into the nonprofit realm … It seems to have been one of those intractable problems; but perhaps we are moving closer to conceiving a way forward.

  5. People who provide risk capital should surely be allowed to keep the profit (after all, if they were to make a loss you don’t seem to be proposing that someone else help cover it). If that have to give it (or a part of it a way), then they will be less likely to provide it in the first place. In which case there won’t be a commercial sector.

    • lindaessig says:

      Anthony:
      That would be the traditional way of thinking about capital risk and ROI except that in this case, the commerical sector is dependent on the nonprofit sector for its R&D. Should the former not then bear some burden for funding the latter?

      • So my question is:is it your view that reducing the rate of return on investment won’t tend to reduce the supply of capital?

        • lindaessig says:

          Anthony: Economic theory, of course, would say that reduced potential ROI would decrease the supply of capital but the arts economy has several unique features that often don’t obey the laws of more generalized economic theory. Research and development of theatrical “products” is financed indirectly and usually not by commercial investors. Because commercial theatre investors have a stake in R&D across the sector as a whole, what I’m suggesting is that financing by those investors in R&D should be facilitated, if not required, for those whose productions originate in the nonprofit sector.

  6. This is such a fruitful conversation to pursue. And the connection to science and scientists is right on the money, literally.

    I responded to Diane’s piece in the same vein. This is a issue of R & D not having an agreed upon value and structure in the arts. it’s not just about theatre–it pertains to choreographers, composers, visual artists as well as the organizations, including literary presses, symphonies, theaters and dance companies, that curate the work of individual artists by organizing, presenting and producing them individually and collectively.
    There are such pathways in sport and science. There are such pathways in the for-profit world of highly experimental hi-tech start-ups. As I commented on Diane’s blog, in my own work it is the rare donor and foundation who understands the value of investing money (it costs us $10,000 per artist per month) to give artists the gift of time, alone on a mountain with no work or community engagement requirements. I believe this work is critical to the health of the creative life of institutions and, ultimately, the audiences they serve. Though perhaps not immediately, time in “arts labs,” across the country contribute to the sheer vibrancy of the cultural landscape. That’s the challenge of an increasingly outcome-based industry..
    I agree that the for-profit and non-profit sectors can work together to make the kinds of investments necessary to allow for peaceful co-existence. If the headwaters isn’t healthy, the ocean can never be.

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