Wednesday, March 4, 2009

Forecasting the Financial Future of Museums Pt II: What are our Options?

Last week I wrote about “The New Borgias”—the uber-wealthy who may, in the future, be the most promising source of funding for museums. This week I share some thoughts on other funding models and explore how they, in turn, might influence museums’ behavior.

The 2006 AAM Museum Financial Information survey—the most recent available, pending the publication of the 2009 edition this spring—showed the following median breakdown of funding for museums by source:
-24% Government funding, mostly local (city, county) followed by state, then federal
-35% Private community or corporate foundations, individual donations, parent and support organizations, fund raising events
-31% Earned—admissions, food service, museum stores, space rentals etc.
-10% Investment income from endowments and retained earnings

Right now there seems faint hope of growing any of these sources. As tax revenue tanks, city and state government have fewer resources. What’s more, nonprofits providing for basic needs (like food and shelter) will place first call on the resources available. We saw this dynamic at work in the debate over the Federal stimulus bill: we only narrowly won the battle to keep most museums (and not zoos or aquaria) eligible for federal stimulus funding, and “eligible” doesn’t mean “funded.”

The situation for private philanthropy looks no better. Anecdotal reports suggest individual donations may be down in amount, if not in total number, this year. Foundations will be distributing less money as their own endowments have headed south by 40% or more. And fund raising events—at least, the high-ticket receptions at which the upper crust swan about in nice clothes, sipping champagne and nibbling elegant canapés before a nice dinner—may be less successful than in the boom years. After all, even if the traditional patrons still can afford the $5,000 (or $50,000) you charge per table, taking you up on your offer may still seem insensitive and inappropriate in a time of general economic hardship.

That leaves us with earned income—but earning more money in this economy may be difficult as well. True, museum admission is good value for money compared to other forms of entertainment, and admission revenue may actually rise. But will that be counterbalanced by fewer patrons eating at the museum café, or shopping at the store? Will there be fewer space rentals, as families and companies scale back on weddings, bar mitzvahs and holiday parties?

Looked at this way, the outlook for all four traditional sources of museum income is just plain discouraging. So let’s look at some other ways to approach the question, ranging from heretical to wacky.

Same amount of money, fewer museums
My observation, after thirty years of working in the field, is that museums have an amazing ability to survive in the most adverse environments. They are the cockroaches of the nonprofit world--sometimes it really does seem like you can’t kill them with an atomic blast. Most of the time some improbable deus ex machina saves the day: for example an unexpected cash gift or a free building. Mind you, this often only saves the distressed museum from closure—it does not cure the underlying dysfunction. The museum may simply struggle along for another ten years before the next potentially fatal crisis.

What if, in the coming decades, 20% of museums were allowed—even encouraged—to fail? (This line of thought is already being explored by the historic preservation community with regard to the bloated number of historic houses in the country.)

Let’s say for the sake of argument that the money that people/government/foundations put into museums is not affected overall by which museum it goes to. We all know at some level this isn’t true—there are passionate donors who will only support their own little historical society, for example. But overall, individuals and groups inclined to support museum-y type institutions will put that support somewhere. If that support is concentrated on a smaller population of museums, each institution could remain financially healthy even if the overall income “pie” were static or shrinking.

Then the question would become, what is the best roster of museums that society can afford to support? How could society, and the museum field, help this happen in a controlled and productive way? Lots of questions come to mind, including:
• How do we ensure that valuable cultural, scientific and artistic heritage in the collections are protected and remain in the public domain?
• How do we ensure that less desirable material (a.k.a. “crap”) that shouldn’t have been in a museum collection in the first place doesn’t get transferred to another museum that then has the financial burden of maintaining or deaccessioning it?
• What or who determines which museums close? The cockroach analogy dramatizes that simple natural selection doesn’t always work. Should museum professional associations actively discourage government and private funders from supporting museums that don’t meet national or discipline specific standards? Should the local community be asked to “rate” which museums best serve their needs? (One person = one vote = one dollar?) Should the federal government assess the mission and performance of nonprofits more stringently and apply higher standards to the award and retention of nonprofit status?

Radically change what we sell, and at what price
Museums almost universally charge access fees according to the traditional structure of daily admissions tickets and yearly memberships. What about other models, such as the yield-based pricing used by airlines? See Nina Simon’s excellent column in Museum about other ways to price what we sell so as to encourage more use and generate more revenue from the same products and services. She discusses on-line discounts, packages that discount tickets the more often you visit, free introductory visits, bundled tickets with other entertainment options and referral rewards, among other things. Is anyone out there already doing any of these things? Who is willing to road test some of Nina’s ideas?

And perhaps it is time to reassess the genteel boundaries we have drawn to protect our reputation and sense of independence. Nina’s final suggestion is that museums be free. Wouldn’t we all like that! Maybe we should shift our attention from selling access to our museums’ resources (which should be free) to selling access to our museums' audiences. The economy of free internet sites and services is already built upon selling access to users. And as information capture and analysis becomes more sophisticated, this becomes less obnoxiously intrusive and more potentially useful. As technology is introduced that enables us to track where visitors spend their time—it also pinpoints their interests. Would Amazon subsidize free admission in return for the opportunity to send visitors a suggested reading list, based on how they spent their time during their museum visit? Would visitors opt in to such a system, in return for free admission? I would actually be interested in receiving such a list, if it was compiled intelligently. Conversely, as a partner, Amazon might want to include “you might want to visit the following museums” in their suggested “reading” lists, based on people’s geographic location and buying patterns.

Create new forms of capital
Can museums use their assets to create a whole new economy, and what would this economy look like? The virtual world Second Life has a fully integrated economy built on the residents' ability to buy and sell their virtual creations. Residents are reported to trade USD $35 million each month, and the Second Life economy has grown to become one of the world's largest user-generated virtual economies. This reminds me forcefully of the fictional and arbitrary nature of value. Linden Labs, the creator of Second Life, literally created something out of nothing—thousands of people willing to convert US currency to “Linden dollars” in order to purchase virtual products for use by their virtual avatars. Anyone with knowledge of how to code such products and time to do so can set themselves up in business. What resources do museums have that might create value in the virtual world where they can access new audiences willing to pay for incorporeal goods and services? Can museums sell virtual replicas of their collections to adorn the Second Life homes of people’s online avatars?

I’ve run on long enough for one post, and barely scratched the surface. What about your ideas? Where do you think museums will find the funding of the future? Please, weigh in.



2 comments:

John Buchinger said...

Museums must throw open their doors and be free whenever possible. If not to the general public, then to those most in need who may not use us on a regular basis. In this economy, the way we can be truly relevant is by providing a service that will make a difference in people's lives during a difficult time. Museums were not designed to be social service agencies but places of learning and preservation. There is joy to be found in our walls. If Donors see that we can develop programs that bring that joy to people when they most need us, that will save us.
Newspapers are examples of institutions that are dyeing because they are no longer relevant. They kept charging despite it being decades since subscriptions equaled revenue. Museums would be wise to look at this model.

Musebrarian said...

I'm curious whether this will be a case of "do as I say" and not "do as I do." Will AAM as an organization be embracing any of the emerging ideas about sharing, transparency, etc. that we are discussing here and in other places.

What would be a particularly useful experiment in open access would be for AAM to make the raw data sets from the upcoming 2009 edition of Museum Financial Information freely available to users on the web. Not only would this be an example of radically changing what you sell, but might have the additional benefit of increasing interest in the publication itself. With the scores of data visualization projects out on the web (such as Many Eyes http://manyeyes.alphaworks.ibm.com) some interesting insights might percolate out of the raw data.