Fiscal sour note for orchestras

SYMPHONY orchestras across the United States are struggling for survival as funds dry up.

Cleveland Orchestra

THE Cleveland Orchestra flourished in a recession worse than this one. A month after the Wall Street crash of 1929, it was given a blank cheque by a newly bereaved industrialist to build Severance Hall, one of the finest concert halls in America.

Its opulent Beaux Arts auditorium was John Severance's tribute to his late wife, Elisabeth DeWitt. It included a groundbreaking radio studio that was to build the orchestra's reputation far beyond northeast Ohio.

Today, as the industrial state suffers its biggest economic crisis since the 1930s, the orchestra is again appealing to the US spirit of benevolence. With ticket sales in long-term decline in a city that has shrunk by 17 per cent in a decade, the board is seeking benefactors with pockets deeper than Severance's to underwrite the orchestra's future.

Cleveland is a litmus test for the health of classical music in the US, where some of the world's greatest orchestras are struggling to make ends meet.

Cleveland, the 45th largest city in the US, has a smaller market than any of the top five orchestral cities, yet its citizens love their orchestra almost as much as their football team, the Browns.

In the prosperous post-war years, when Time magazine could claim that a town big enough to have a ballpark invariably had a symphony orchestra, the autocratic brilliance of conductor George Szell transformed Cleveland in his own image, "lean, precise, structurally lucid, severe and incredibly rich in detail".

In 1963 at the height of the Szell ascendancy, Time claimed Cleveland fans held airport rallies when its orchestra returned from tours, chanting "We're the best! We're the best" and carrying placards reading "Bravo!"

Since 2002 it has discovered new vigour under conductor Franz Welser-Most. Last year, on its biannual residency at Vienna's Musikverein, where audiences have little patience with mediocrity, Die Presse praised the architecture of the string section, "the finest playing . . . delicately chiselled and cozily Romantic".

Yet in mid-January Severance Hall was far from full as maestro Welser-Most conducted an astonishing performance of Brahms' Piano Concerto No 2 with soloist Yefim Bronfman. The latter, who says the Cleveland Orchestra is the most accomplished in the US, stayed to listen to the second-half performance, Shostakovich's sixth symphony.

"You won't hear it played better than that," the Soviet-born pianist said afterwards. "The Berlin Philharmonic or the Vienna Philharmonic might play it differently, but they wouldn't play it better."

Here is the good news: the classical repertoire has never been better performed on the American continent than it is by today's highly paid professionals. They are led by some of the best conductors in the world: Welser-Most in Cleveland, the Chicago Symphony's Riccardo Muti, the imaginative Alan Gilbert at the New York Philharmonic and the Philadelphia Orchestra's Charles Dutoit. America's big five is now the big seven with the rise in fortunes of the San Francisco Symphony under Michael Tilson Thomas and the Los Angeles Philharmonic led by the prodigiously talented 31-year-old Venezuelan Gustavo Dudamel.

The bad news, however, is that the US orchestral industry is on life support. Its not-for-profit, philanthropic business model has reached breaking point. Philadelphia Orchestra is in most obvious trouble. It filed for Chapter 11 bankruptcy last year to escape an unfunded pension liability of $US44.8 million, equal to its entire annual budget.

The big-budget Chicago and Boston symphonies appear relatively secure, with endowment funds of more than $US300m ($278m) each, but the value of their investment pools has declined markedly since the financial crisis hit in 2008, and fixed value pensions to former staff have eaten into financial reserves in a climate of low interest returns. Even at the New York Philharmonic, where ticket sales are relatively healthy, performance income covered only 55 per cent of the $US51.6m budget last year, and the orchestra is carrying $US25m in unfunded pension and health care liabilities.

Outside the top five, the outlook for America's proud civic tradition of full-time orchestras is bleak. In Detroit the perilous condition of the symphony orchestra mirrors its car industry. Both have been brought to their knees by the legacy of pay deals, pension agreements and restrictive practices. In 2010, with just $US7.2m in ticket sales and fixed wage costs of $US20m, the orchestra announced it was cutting staff and salaries, sending the musicians out on strike. They returned to work after 27 weeks ready to pay the price of survival: a 20 per cent pay cut and a reduction in annual leave from nine weeks to four.

US orchestras appear irrevocably cursed by "cost disease", the phenomenon identified by economist William Baumol in the 60s in institutions where productivity improvements are difficult or impossible to achieve.

"It still takes 110 people to play (Richard Strauss's opera) Salome," Cleveland executive director Gary Hanson says. "And you can't play it faster."

Orchestras are a classic example of a stagnant service industry in which costs rise faster than revenue. In non-profit organisations, non-professional boards are less equipped to drive a hard bargain with a unionised workforce, so the blowout tends to be worse, according to a study published by Robert J. Flanagan, The Perilous Life of Symphony Orchestras.

"Non-profit organisations do not have owners or shareholders whose interests the board is required to represent and to whom the board is accountable," Flanagan says. "Except at times of dire financial emergencies, these features of symphony orchestra governance are unlikely to provoke the strength of resistance to union demands normally found in the private sector."

A large injection of philanthropic funds by the Ford Foundation in the late 60s, intended to raise the artistic quality of US orchestras, had the side effect of reducing bargaining resistance still further, Flanagan says.

Audiences are down 12 per cent since 1987, but musicians' pay has risen by an average of 4.5 per cent a year, more than university teachers, health workers and most other groups in the US in the late 20th and early 21st centuries.

Orchestras cushioned by endowment funds have been most profligate. Last year, Boston Symphony musicians negotiated overtime rates of up to $150 an hour if a concert overruns, which followed an agreement in 2006 that concerts should last no longer than 2 1/4 hours.

The latest agreement, struck in August, obliges management to provide wi-fi internet on bus trips of longer than 30km and to make a clock visible on stage during all rehearsals. A previous agreement grants a penalty payment to musicians if their hotel room is not ready for occupancy within an hour of arrival.

Expectations the digital revolution might bring in new paying customers have been premature. While iTunes has revolutionised the distribution of music, revenue has been harder to come by.

"Increasingly, the distribution of music via the electronic media is not a business, even for rock 'n' roll bands," Hanson says.

Caught between high fixed costs and declining revenue at home, Cleveland Symphony is looking beyond its city limits for salvation and reinforcing its international brand. Nine years ago the board ordered a strategic review, noting in its 2004 annual report that without changes the accumulated deficit and unfunded pension liability "would soon make our institution unsustainable in Cleveland".

Cleveland set out to "leverage excellence" and in 2007 began a three-week annual residency in Miami's newly opened Arts Centre, where the Florida Philharmonic had folded four years earlier.

Cleveland Symphony also makes an annual pilgrimage to Europe, performing in Vienna or Lucerne, and has an annual engagement in Carnegie Hall, New York. At home, the orchestra's outdoor festival season at the Blossom Music Centre 40km south of Cleveland forms part of a summer-long program that includes rock, jazz and country.

As with other industries in the US, hard times increase the emphasis on customer service. Orchestras such as Detroit are adapting to changing circumstances by encouraging musicians to teach, and organising recitals and small ensembles. A pro-am model, in which amateur musicians can play and learn from professionals, has been tried in Baltimore.

"We see a lot of exciting experimentation and innovation going on and this has not always been the case," League of American Orchestras president and chief executive Jesse Rosen says.

"There is an emphasis on providing service to communities, as opposed to producing concerts" for those who want to buy tickets.

The philanthropy on which American orchestras were built is often envied on this side of the Pacific, but in the long term it can create a culture of dependency and an excuse to avoid the hard decisions, Flanagan notes.

The Perilous Life of Symphony Orchestras: Artistic Triumphs and Economic Challenges, by Robert J. Flanagan, was published in January by Yale University Press.