This article is a product of updating Orchestras, replacing an original table showing finances in 2003 derived from the 2005 Strong Orchestras Review with the latest calendar year available, 2013. It is based on a comparison of the two tables, both of which are reproduced below. They reveal some significant changes in the accounts of the six Australian symphony orchestras, and a general deterioration in their net profit measuring 2013 against 2003.
For more complete analysis, however, annual statistics are needed, and will be added in a version planned for June 2015. "Trends" cannot be based on two years only, especially when many special events affect the results for any given year. We know from another paper in this Knowledge Base (The Australian Live Performance Industry) that this affects even the aggregate orchestral numbers.
The six symphony orchestras are identified by their acronyms: the Sydney (SSO), Melbourne (MSO), Queensland (QSO), Adelaide (ASO), West Australian (WASO) and Tasmanian (TSO) Symphony Orchestras. The pit orchestras identified in the Strong report were the Australian Opera and Ballet Orchestra (AOBO) and Orchestra Victoria (OV). They are now subsidiaries of the main company they serve, Opera Australia and The Australian Ballet, respectively.
The Strong review of orchestras in 2005 noted that the six symphony and two pit orchestras were generally financially challenged, though not all to the same extent. This is clear from Table 1 below, setting out income and expenditure for each orchestra in 2003 as presented in the Strong report.
Table 2 shows income and expenditure in 2013, 10 years later. It provides a comparison for the six symphony orchestras. The pit orchestra accounts are no longer available. It was noted in the introduction that AOBO is now a wholly owned subsidiary of Opera Australia and OV became wholly owned by The Australian Ballet on 1 July 2014.
Government funding for all eight orchestras in 2003 provided an average of 61% of total income (59% excluding the two pit orchestras). Among the symphony orchestras, public funding varied from 81% for the TSO and 79% for the QSO, 62%, 60% and 56% for the ASO, MSO and WASO, to 46% for the SSO. It was relatively high for the pit orchestras: 75% for AOBO and 73% for OV.
By 2013, the total public funding for the six symphony orchestras had fallen to 51% of total income (by eight percentage points). TSO again topped the list (77%) followed by 63% each for QSO and ASO, 51% for WASO, 47% for MSO, and 37% for SSO which trailed as it did in 2003. Relative to total revenue, the declines were most marked for QSO (16 percentage points), MSO (13) and SSO (nine). Only one orchestra showed an increase in public funding relative to total revenue, and it was modest: ASO from 62% to 63%.
Comparing the current values in Tables 1 and 2 (without adjusting for inflation) shows a total 10-year increase of 31% in public funding for the six symphony orchestras, but it was above that average for QSO (42%), ASO and TSO (40%), and WASO (35%). The increase was way below average for SSO (22%) and MSO (20%). The changing income patterns are further explored under “Other Revenue Items” below.
The funding of the major professional orchestras has been primarily a responsibility of the Commonwealth Government, and the funds since 2001 have been delivered via the Major Performing Arts Board of the Australia Council. In all cases there is supplemental funding by the state governments for the orchestras resident in their state, and in some cases smaller contributions from the capital city government and other public-sector sources. The contribution to total funding from the Australia Council in 2013 averaged 76% for the six orchestras, with QSO receiving the lowest proportion (70%) and ASO the highest (81%). The vast bulk of the remaining funding was contributed by the state arts authorities.
In 2013, almost 95% of performance income came from ticket sales either on subscription or single sales. The only other specified item was orchestra hire.
In both 2003 and 2013, the contribution of performance income was by far the highest for the SSO, rising from 43% to 48%. MSO was second and also rose, from around the average for the six orchestras in 2003 (29%) to 36% in 2013. It was around one-quarter for ASO (24% in 2003, 25% in 2013) and WASO (26% both years). The ratio was much lower for QSO (17% in 2003, slipping back marginally to 16% in 2013) and TSO (14% both years). For the six symphony orchestras combined, performance income contributed 30% of revenue in 2003 and 32% in 2013. This increase was entirely due to the rising contributions to SSO and MSO, since these were the only orchestras showing a growing share of performance income.
Private sector income ("friends" and other private donors, in-kind and cash corporate sponsorships) averaged 9% in 2003, rising to 13% in 2013. Table 1 shows that the ratio in 2003 was also 9% for SSO and MSO, compared with 16% for WASO and 11% for ASO. This contrasted starkly with QSO and TSO with private sector income only 3% of revenue for each.
In 2013, sponsorships and donations again contributed relatively most to WASO’s revenue, rising further to 21%. QSO by 2013 reached second position with a big increase from 3% in 2003 to 16%. MSO followed with a 15% ratio, significantly above the 9% in 2003. SSO moved up slightly from 9% to 10%, and ASO down from 11% to 9%. The TSO ratio remained lowest at 5%, though higher than the 3% in 2003.
Further detail in the annual reports for 2013 reveals that sponsorships accounted for 78% of WASO’s total revenue from private sector income, compared with 62% for QSO, 61% for TSO and 58% for SSO — but only 15% for MSO. The MSO result appears to be consistent with the terminology used in the other orchestra accounts. MSO’s annual report for 2013 notes (p 28) that individual giving totalled $3.47m from 3,800 donors, including two bequests, 10 philanthropic trusts and foundations and other prominent benefactors and patrons listed on p 31, all individuals or couples. Fourteen corporate sponsors including Principal Partner Emirates and “Maestro” Partner Lend Lease contributed a total of $636,000. The totals for individual donors and corporate sponsorships add to the $4.1m shown in Table 2.
Given that these accounts are consistent across the six symphony orchestras and over time, the gain from 9% total private sector support relative to total revenue in 2003 to 13% in 2013 was primarily due to QSO, WASO and MSO. The changes are quite dramatic; further investigation including annual trends might prove enlightening.
The expenditure side of symphony and pit orchestras is dominated by the fact that it is particularly difficult if not impossible to increase productivity through technological change as in most other activities. The most that can be done is reduce player numbers, as recommended in the 2005 Strong review (Chapter 6) for QSO (from a quadruple to triple wind orchestra), ASO (from triple to double wind), WASO and TSO (to a smaller double wind structure). The Australian Government's response, however, was to allocate additional funding to ensure that the current size of these orchestras was maintained.
60% of total expenditure was employee expenses, dominated by wages and salaries (followed by superannuation, workers’ compensation and other expenses). Artist fees accounted for another 10%. Employee expenses in 2013 were relatively high for ASO (66% of total expenditure) followed by QSO (64%), WASO (63%), and TSO (60%). It was lower than average in SSO (57%) and MSO (56%).
Artist fees and expenses, however, were relatively highest in SSO in both years (14%) followed by MSO (11%) and WASO (10%). These ratios were lower than average for ASO (8%) and TSO (8%), and lowest for QSO (6%).
Average salary levels derived from stated player numbers appear to differ significantly among orchestras (highest in SSO followed by MSO. TSO, WASO, QSO and ASO in that order). Again this may be difficult to change — and for supporters of the orchestras the preference would be to raise the lower salaries rather than reduce the higher salaries.
The bottom line or net result is of course important, especially when it indicates consistently unfavourable finances. In 2013, the MSO had the greatest surplus followed by SSO and WASO (the latter benefiting from a relatively strong corporate sector buoyed by strong mineral exports). Among the other symphony orchestras, TSO almost balanced its books while ASO suffered the worst result followed by QSO (Table 2).
In 2013, SSO was the only symphony orchestra showing a surplus apart from a tiny net result around $1,000 for TSO. MSO had by far the largest deficit followed by ASO and with smaller deficits for QSO and WASO (the latter despite its advantageous position in the state leading the mineral boom. In general, the net income situation was worse in 2013 than 10 years previously. In 2013, SSO was the only symphony orchestra showing a surplus apart from a tiny net result around $1,000 for TSO. MSO had by far the largest deficit, though this was probably a temporary consequence of not having access to the major Hamer Hall venue while it was being renovated. ASO had the second-largest deficit, with smaller deficits for QSO and WASO. In general, the net income situation was worse in 2013 than 10 years previously.
However, there are significant fluctuations in the net result from year to year. Comparison of successive years adds to the general impression that the symphony orchestras are vulnerable in the absence of adequate public funding, and to the available private income sources which are bound to vary with international and domestic business conditions.
Generally, the financial situation of the SSO and the MSO benefits from their location in cities of well over four million inhabitants. ASO, QSO and WASO depend on metropolitan populations in the one to two million range and their financial situation has been more precarious, with recurring concern that they cannot meet their costs. TSO serves a State population of only about a half million and although it is a smaller orchestra and manages to balance its books, the subsidy per seat is very high and its termination is discussed periodically although resisted mightily by the Tasmanians.
Unlike many music and arts entities, the orchestras have the good fortune to be large, high profile organisations that can enhance the marketing efforts of large, high profile corporations. During the many years when they were clearly a part of the ABC, they probably were seen as a part of the public service (which, alas, in spirit they tended to be) and so not an appropriate recipient of private donations. In any case, private arts funding in those days was very modest. Now as the orchestras are perceived as more independent and as the custom of corporate sponsorship has developed, the orchestras have been able to build an income from these sources (8% of total revenue in 2003 for the symphony and pit orchestras, and probably more for the ACO). It is easier to do this in cities or States that host the head offices of large corporations – in particular, Sydney, Melbourne, and more recently with the resources boom, Perth.
The above comparison between 2003 and 2013 has been in total current prices, unadjusted for price and population changes. This is strictly speaking misleading but can be rectified using appropriate inflation and population data. In addition, it is possible to extend the statistical analysis to each of the state symphony orchestras, using the data in Table 3.
One of the two aggregate measures for a state economy is the Gross State Product (GSP). It is available at current prices and adjusted for price changes by what is known as chain volume measures. The chain volume index is statistically superior to the previously used constant price estimates because the base year is always the immediate past financial year rather than several years ago, ignoring any structural distortions between the base and current years.
Between 2002-03 and 2012-13, the total GSP at constant (chain volume) values increased by about 35% over the 10 years for the six states, varying from 62% in Western Australia and 47.5% in Queensland down to 19.5% in Tasmania (second panel of Table 3).
These figures ignore an important factor: purchasing power increases if the terms of trade (relative export and import price indices adjusted for international price changes) improve, and vice versa. For this reason, the ABs adjusts the chain volume measure of the GSP (and the national GDP) to account for changes in the terms of trade. At state level, the resulting measure is called the Real Gross State Income (RGSI). The RGSI increased for the total of the six states by 48%, rather than 35%, over the 10 years, with all states benefiting from the positive terms of trade over the period — WA by an whopping 123% but even Tasmania managed to show a 25% improvement.
Comparing 2003 and 2013, the terms of trade increased by 10% for the six states as a whole, led by a 38% increase in WA resulting from the prolonged mineral boom. As a result, the RGSI per head of population showed an average increase of 26%, with WA leading the way with 75% (bottom panel of Table 3).
Table 4 shows the estimated revenue growth, adjusted as shown in Table 3, for each state symphony orchestra. The important line is at the bottom showing that there was a modest 1% increase in real terms in orchestra revenue per head of population, from $5.27 to $5.33. The gain per head was almost 5% for SSO, MSO and QSO, and 3.7% for TSO. For WASO, however, the real revenue per head of population went backwards by almost 10% — its revenue did not keep pace with the state's increase in prosperity measured by the RGSI. There was a small decline for ASO as well.
Table 4 also demonstrates that the level of orchestra revenue per head of population was about $5.30 for the six orchestras but $20+ for TSO. The lowest real income per head was for QSO.
This article compares two years, 2003 and 2013, without looking at the path from year to year. Given that the rise in the terms of trade has been important for boosting purchasing power during the mineral boom, it is significant that this measure peaked in September Quarter 2011 and has shown a consistent downward trend up to the time this chart was updated. The index by December Quarter 2014 had declined by 25% from the peak. The prospects have worsened for the Australian economy and its chances to benefit from increasing export prices — as yet no significant silver lining on the horizon. The current budget policy of the Australian government, coupled with a mining industry that will be at least temporarily more subdued, does not augur well for the finances of our symphony orchestras.
The expenditure side of symphony and pit orchestras is dominated by the fact that it is particularly difficult if not impossible to increase productivity through technological change as in most other activities. The most that can be done is reduce player numbers, as recommended in the Strong review (Chapter 6) for QSO (from a quadruple to triple wind orchestra), ASO (from triple to double wind), WASO and TSO (to a smaller double wind structure). The Australian Government's response to the Strong report, however, was to allocate additional funding to ensure that the current size of these orchestras was maintained.
Wages, salaries and related expenses in 2003 averaged 61% of total expenditure of the eight orchestras (57% excluding the pit orchestras), and guest artist fees another 11% (12% for the six symphony orchestras).
In 2013, 60% of the symphony orchestras' total expenditure was employee expenses, dominated by wages and salaries (followed by superannuation and workers’ compensation). Guest artist fees and expenses accounted for another 10%. The average ratio for employee expenses was three percentage points higher than in 2003, but there were variations across the six orchestras, four up and two down and the level varying from 66% to 56%. The ratio was highest in 2013 for ASO (66% of total expenditure, up from 61% in 2003) followed by QSO (64%, down from 70% in 2003), WASO (63%, much higher than 2003’s 53%), and TSO (60%, up from 57%). It was lower than average in SSO (57% despite an upward hike from 52% in 2003) and MSO (56%, down from 59%).
Artist fees and expenses, however, were relatively highest in SSO in both years (14% in 2013, 16% in 2003) followed by MSO (11% in both years) and WASO (down from 12% in 2003, to 10%). These ratios were lower than average for ASO (7% increasing to 8%) and TSO (10% reducing to 8%), and lowest for QSO (6% both years).
Average salary levels derived from stated player numbers appear to differ significantly among orchestras (highest in SSO followed by MSO, TSO, WASO, QSO and ASO in that order). Again this may be difficult to change — and for supporters of the orchestras the preference would be to raise the lower salaries rather than reduce the higher salaries.
The bottom line or net result is of course important, especially when it indicates consistently unfavourable finances. In 2003, the MSO had the greatest surplus followed by SSO and WASO (the latter benefiting from a relatively strong corporate sector buoyed by strong mineral exports). Among the other symphony orchestras, TSO almost balanced its books while ASO suffered the worst result followed by QSO (Table 1).
In 2013, SSO was the only symphony orchestra showing a surplus apart from a tiny net result around $1,000 for TSO. MSO had by far the largest deficit, but probably as a result of not having access to the major Hamer Hall venue in Melbourne while it was being renovated. ASO had the second-highest deficit, followed by smaller deficits for QSO and WASO (the latter despite its advantageous position in the state leading the mineral boom). In general, the net income situation was worse in 2013 than 10 years previously.
However, there are significant fluctuations in the net result from year to year. In 2012, QSO showed a large net profit of $2.26 million, in 2013 a loss of $273,000. This seems to be entirely due to a more than $3m decline in funding revenue, from $13.8m to $10.4m. The QSO Annual Report states (p 2): ”2013 ended with $16,338,095 gross revenue reflecting an 8% increase on 2012 of $15,016,771 (after excluding Commonwealth and State Funding Southbank Co-location Project of $3,000,000).”
The TSO, on the other hand, lost $40,000 in 2012 but showed a marginal gain in 2013 ($1,000). WASO suffered a marginal loss ($4,000) in 2012 but a bigger loss of $142,000 in 2013; MSO and ASO suffered successive losses in 2012 and 2013, MSO from $799,000 to $838,000 and ASO going steeply downhill from $192,000 to $616,000. The SSO saw a fall in net profit from $426,000 to $97,000.
The total net profit for the six orchestras in 2012 was $1.65 million but only because of QSO. The total net loss for the five other orchestras in 2012 exceeded $600,000 (worsening to over $2m in 2013 according to Table 2). This comparison of successive years adds to the general impression that the symphony orchestras are vulnerable in the absence of adequate public funding, and to the available private income sources which are bound to vary with international and domestic business conditions.
The Strong report provided an important basis for the statistical inquiry in this article. It pointed out that quite apart from the innate lack of ability for traditional orchestras to improve their labour productivity, the Australian population is aging and resists radical change, whereas the musicians need new experimental programs to develop artistically. The orchestras therefore face a difficult balancing act mixing the familiar repertoire with new challenges in carefully chosen proportions, while at the same time trying to manage their financial situations which this article shows is getting under further threat.
Historically, we have witnessed a transition in the symphony orchestras from central artistic and financial management by the ABC to corporate responsibility for their own performance. The SSO was the first orchestra to become a corporation in 1996. In 1997, funding was moved from the ABC and channelled into an ABC subsidiary established to take over ABC's services to orchestras. From 2001, the Australia Council's Major Performing Arts Board took over the administration of Australian Government funding to orchestras and other major performing arts organisations (including Opera Australia and The Australian Ballet which subsequently took over the two pit orchestras).
The Strong review was established to make recommendations on the future of the six symphony orchestras and the pit orchestras. Almost a decade later it remains the most recent major review of Australian orchestras. While its guiding principle was "artistic vibrancy, cost effectiveness, financial viability and transparency of funding", the review took a predominantly business perspective with a focus on medium-term viability.
The review submitted twenty recommendations to the Australian Government, which can be read on page 5 to 8 of the Strong report. A brief summary of the report may be found here. A 2008 follow-up review recommended:
The additional funding announced by the Minister in May 2005 (totalling $25.4 million over four years) was conditional on appropriate additional contributions from each state government and would be linked to the orchestras' acceptance of the key workplace changes recommended by the Strong review. It was anticipated that consultations with the State governments would continue over coming months to finalise the arrangements.
Of the two pit orchestras, the AOBO in Sydney remained deep in debt. Since 1997, it had deficits every year except 2001 and at the end of 2004 had accumulated deficits equivalent to 45% of annual revenue. It has no way of trading out of debt because it was too fully occupied in the pit to become entrepreneurial in its own right, and it could not charge its highly subsidised users more than they were able to pay.
The Strong review found that the problem needed to be solved in conjunction with the general situation of Opera Australia, based on the argument that the orchestra is integral to the success of both ballet and opera and therefore costs are an integral part of the user company's accounts. As previously noted, AOBO is now a subsidiary of OA.
The Australian Government response to the Strong review's recommendations was that funding of almost $1.3 million be allocated to AOBO to assist with the orchestra's running costs while a further examination of opera and ballet in Sydney and Melbourne took place. The review noted that the situation is different from AOBO's in Melbourne, where a merger of MSO and OV had been mooted. However, while OV cannot be kept fully occupied in the pit, the combination of concert and pit work proved too much for one orchestra to handle.
Anyhow, the review noted that OV has used its spare capacity creatively and effectively, and did achieve surpluses (albeit based on the lowest salaries and wages per musician of all eight orchestras). In 1996, it began using one-third of the year for discretionary activities such as stage concerts, provincial tours and educational activities. Formerly known as the State Orchestra of Victoria, it renamed itself in 2001 and then spent 50% of its time in the pit and 50% on its community program. Although the strategy appeared to have been successful, its days as an independent entity were nevertheless numbered.
The review was finally asked to consider the role of the territorial Symphony Orchestras (CSO and DSO) in the context of the broader Australian orchestral sector. Neither received ongoing support in the past from the Australian Government. The review recommended that the two orchestras would benefit from a closer relationship with the state symphony orchestras and recommended government funding of $100,000 for each to achieve this and access the support services available to the state orchestras. The Government accepted this.
The last of the full-time professional orchestras, the Australian Chamber Orchestra (ACO), has had periods of indebtedness but has struggled out of them. It receives funding from the Australia Council's Major Performing Arts Board and lists a significant number of leading companies and organisations as partners and supporters, as well as major donors to its "capital challenge" and individual donations program.
The other orchestras have little choice but to manage their situation to remain in the black, since official rescue from imminent bankruptcy became unlikely following the implementation of the main recommendations of the Strong review. However, the acceptance of the key recommendations put them on a better footing to face new challenges — challenges that are currently intensifying according to the findings reported in this article.
As the Australian population has grown in recent decades, some non-metropolitan cities have reached a size that could support a small, well subsidised orchestra. However, governments do not seem to be seeking opportunities to create new orchestras. If anything, they would seem to be held to funding the existing main orchestras only by the prospective uproar and shame if they allow them to fail. The initiatives come from the music community and to succeed over time, they need extraordinary persistence and resilience in the financial danger zone.
Hans Hoegh-Guldberg. Entered on Knowledge Base 7 November 2014. Some revisions and Chart 1 updated 3 April 2015.