Museum business models in the digital economy
Museums are at a transitional moment.
Visitor numbers have grown to record highs over the last 15 years, driven by global tourism; by their opening up to the web and digital media, and the brilliance of a legendary generation of great directors led by Neil MacGregor at the British Museum and Nicholas Serota at the Tate. Yet they live with the perception of economic uncertainty.
Subject to real-world government funding cuts of up to 30 per cent since the recession, with their philanthropic and corporate partners all living with global economic uncertainty, and with the ‘unknown unknowns’ of post-Brexit Britain to come, from the biggest to the smallest a sense of real forthcoming change pervades.
At times of threat it’s easiest to look outside for help. To justify to government again the value of what museums offer, and to re-address a philanthropic base being changed as new kinds of wealth, whether Chinese or Russian, from tech or the life sciences or renewable energy change the structure of British elites. Those things must be done.
But what if economic change was possible from within? What if there were things implicit in the business models of museums that could evolve and allow them to be re-fit for the age of the digital economy? What would that mean?
I think it’s time to ask those kinds of questions. As newly-installed Digital Director of The National Gallery part of my role is to think about how lessons from the digital economy can reshape our commercial engagement with our audience.
The most important new book I’ve read this year is Rutger Bregman’s ‘Utopia for Realists’, and the ideas below follow his brilliant ‘what if’ thinking. In his look at universal basic income and other potentially transformatory political concepts he reminds us that difficult but possible ideas are the ones that change the world. That slavery was abolished when no-one thought it could be. That universal suffrage was achieved. That we can, do and should try the seemingly impossible and make things better.
I genuinely believe we can think differently through the use of digital economics to send the dark clouds that hang over museums away.
As a signed-up ‘utopian realist’, I genuinely believe we can think differently through the use of digital economics to send the dark clouds that hang over museums away.
So in that spirit let’s ask a series of questions; let’s ask some ‘what ifs’ about what would happen if we introduced models from the digital economy into museums, and ask simply, how can we do this? What does it change?
- What if we used dynamic pricing to sell tickets for exhibitions?
- What if we used Netflix-style monthly subscriptions for memberships?
- What if we rethought the value proposition of ‘free admission’?
Beneath those questions lie three notions. One is that the path to answers lies in proxy environments – that there are lessons from elsewhere in the digital economy we can learn from. The second is that there is massive untapped potential value in data and statistical analysis to the sector – and a natural alignment between Nesta and museums as a result. Third is that in a world run from data, the more data you have, the more powerful the change you can bring. This means that our sector might learn more, faster, if we work together to bring change.
So as we ask those questions below, and sketch what might happen if we brought them into museums, we’ll put the answers in the context of how the digital economy works, and what big data is teaching the world.
But before that, a brief history of the business model of museums.
The accidental evolution of museum economics
Museums are an enlightenment dream that has prospered in the face of capitalism and globalisation, and now needs to find a new way to prosper in the age of digital economics.
Right back from their 18th century flowering, museums operated on a mixed funding model. On one side, government gave them money, and on the other, private citizens supported them through various forms of philanthropy. That mix allowed British museums to operate from a beautiful idea: that they should be free for all the ‘studious and curious persons’ who wanted to go and see them. That mixed model sat comfortably with the underlying reason why museums made societal sense at all – the value of their collections was to enrich and educate private citizens so they would go on to contribute more back both to society, to the economy and to a shared national culture. As modern capitalism replaced the historic notion of wealth based on land rights with one based on fiscal wealth, this made sense: state and society would mutually enrich one another by bringing together and nurturing the wonders of history, culture, nature, art and science in great new national institutions.
That model held for a long time – largely until the 1970s, when both capitalism as a whole, and museums economic models began to change, and a more pronounced need for consumerism came about. Over the course of that decade, the modern business model of the museum emerged. It happened because as the global economy went into what turned out to be 40 years and more of stagnation, the museum sector got its greatest ever moment: King Tut came out of Egypt, and the world turned out to watch.
The journey of the boy king
First King Tut went to the British Museum in 1972, where over 1.7 million people went to see him. Then in June 1974, with the threat of Watergate and impeachment hanging over him, Richard Nixon signed a bilateral trade agreement that Henry Kissinger had negotiated with President Sadat of Egypt. One of its terms: that King Tut would come to America. Two years later, with Nixon gone under the darkest of clouds, he did.
First he went to Washington, to the National Gallery of Art, where tickets were given out first come first served. They queued – all 850,000 of them – for up to four hours to get in. Then it went to the Field Museum in Chicago. The queues got worse – if you started queuing at midday, you wouldn’t get in until 7pm. As it went to New Orleans, LA, Seattle the problem kept repeating: demand outstripped supply day after day.
When he got, finally, to New York, Thomas Hoving the Met’s then Director could see they needed to do something different. Whilst entry to the museum was free, he decided you would need a ticket to get in, bought for a small service fee in advance from Ticketron. Crucially, they weren’t general admission – they tied you to a time slot when you could come in. That helped manage the extraordinary demand of this unrepeatable peaking of public interest. Visitors left happy. They spent extraordinary amounts in the growing retail spaces around the museum. Many became members. Memories were made.
Yet inadvertently, that decision Hoving made to cut the day up into pieces to manage demand has shaped the economic present of museums in the UK through to today. It’s the heart of the challenge we face now.
And a problem we can solve.
The museum business model now
Sometime in the period after the boy king’s coming to America, the notion of slot-based ticket sales took root in UK museum exhibitions, and grew into something quite different as it became the de facto way of managing paid, ticketed shows.
Those slots make brilliant sense when the price of entry is free, or when demand radically outstrips supply. When that happens you get a sales pattern like below:
In this case, ticket sales build up very quickly in the two to three weeks before launch then inventory gets sold out in the first few weeks of the exhibition being live. We’re seeing that right now with the V&A’s Pink Floyd exhibition and Hokusai at The British Museum. That means the only way to get in is to join the museum’s membership scheme. People buy the catalogue just to say they were there. It’s a great situation. A “blockbuster”. Finance directors sleep well at night; marketing directors get to go home and see their kids; heads of exhibitions get bought champagne. Everybody’s happy. The museum feels good.
The trouble is that it just doesn’t happen very often.
Most exhibitions aren’t blockbusters. They don’t sell out. Often, they tell marginal, difficult or minor stories on subjects at the edges of public knowledge. They perform a public good rather than meet the needs of a P&L. That is as it should be, feeding the broader knowledge economy.
When that happens, you get a sales graph that looks like this:
This is what the sales graph for nine out of ten exhibitions looks like. Demand peaks low then modulates across the exhibition’s life. In this model, few new members are made, because tickets are always available. It creates uncertainty – have we printed too many catalogues, should we run the second phase of the marketing campaign?
When museum budgets are not under pressure this model holds together – it has held for most of the last five decades. But as costs go up with a weak pound and inflation starts to rise; as funding goes down in real-terms, and overall museum visitorship levels off, the dependency on exhibitions to perform increases dramatically.
Something has to change, but what?
This is where we can ask our first ‘what if’ question.
What if pricing was dynamic?
The static, slot-based pricing model of museum ticketing leaves them with no real options when the ‘double humped camel’ of conventional demand plays out.
But what if price became variable? What could you do?
The rise of dynamic pricing through ecommerce, through budget airlines looking to fill seats, and lately through the remorseless inflation of prices to see ‘Hamilton’ on Broadway, has brought a revolution in the management of supply and demand that museums have yet to take advantage of. There is an opportunity here to create better value for audiences, and better financial control for the institutions that will be a win-win for both.
If we thought about how that might play out, take the illustration below of what a typical day’s visitor pattern looks like in an exhibition following the 90 per cent model above.
Opening at 10am, an exhibition will likely get its heaviest number of visitors around 11am. Even at this peak moment, demand may not surpass 65 per cent. After that the number tails down across the day, dropping off altogether in the moments leading up to closing.
What dynamic pricing can do is to give museums the chance to change this pattern, which can too easily seem like a natural, unalterable process, and to think about how to manage value generation across the day.
Look again at that graph above. All of that space where demand tails off is unrealised value – money left on the table. Even on a good day, 30 to 40 per cent of realisable value is just left untouched.
Dynamic pricing offers a way to change that – to break the exhibitions up not into equal chunks but into a fluctuating pattern that first reflects and then stimulates demand. That would make prices cheaper when demand is low to try and entice more people to come, and raise prices to extract value from strong demand when it’s at its highest. This changes the way audiences behave – those who are sensitive to price start searching harder for cheaper tickets, distributing the audience more evenly across the week. This creates better value for museums and their audiences. For museums they can distribute their audience better through the show, managing their finances better. They get a chance to react to the in-market performance of the show in a flexible, supple way.
Taking this ‘what if’ jump seems to me the first major step in a realignment of museum economics.
Critically, it is only a few short steps away. It starts with some analysis of historical data and building an understanding of the pattern of demand, which will have some distinctions between each institution. Then it means thinking about what price might look like moment by moment.
Then it means taking a risk and starting to do it, and going through the real work – constant review and data analysis to understand in as close to real-time how this new dynamic market is behaving. Is the floor price too low? Is the highest price too high? What happens if we move it up by £1? What happens if we halve the price? What happens if we double it? The new world of unknown questions this opens up is an exciting one – questions that businesses across the digital economy are used to asking as they optimise their income streams.
I believe there is new value for our arts and culture audiences from doing this, and better sustainability and resilience for us. I believe it’s a ‘what if’ question everyone should be asking.
But not the only one.
Unlocking new audiences – membership pricing
Subscriptions are a radical, disruptive payment model, whether in the arts or in the digital economy. So what if we re-radicalised the model for arts subscriptions? What could it change about our audiences and what would it change about the way we present our programming and content?
In Linda Colley’s remarkable history of the idea of being British, ‘Britons’, she talks about the early days of arts subscriptions, where newly socially enfranchised middle class housewives in regional towns and cities would club together to pay annual subscriptions towards the production of art, both to fund painting, and to funding institutions.
That’s a powerful source of inspiration for how we need to rethink the subscription model today.
Arts subscriptions, broadly in the form of ‘membership’ schemes to galleries, museums and heritage bodies, long ago lost that notion of representing the social enfranchisement of new audiences. Rather, they often end up being taken up by an audience that is older, wealthier and lives within an hour of the door of the institution. Inadvertently premium access to culture gets stuck in a loop of serving social elites.
I don’t think this marks institutional intent, but a failure of economic imagination, and an act of forgetting that how you pay is in many ways a more important barrier to entry than what you pay.
Annual memberships to arts institutions cost somewhere between £50 and £150. Typically that’s asked for as a recurring annual fee.
Whilst it doesn’t seem like much in the abstract, that price is a powerful barrier. £100 might represent great value when stacked against the activities it opens up for you, but it’s also a chunk of rent money, a weekly food shop; two trips to the pub or two weeks travel to work. For audiences without the luxuries of property equity, savings or pension plans, deciding to participate in the arts is a real decision.
So what if we changed the ask?
In the digital economy, subscriptions are the killer model, the base of the greatest brand commitment, but they’re done differently. For Netflix, Spotify, Amazon Prime or the ever diversifying range of new lifestyle services in the market, they’re a small monthly payment rather than a large lump sum.
If museums went over to this monthly model, what would happen?
I think three things would come about:
Firstly the audience will diversify. Suddenly that ask to audiences is a much smaller commitment, a quick kiss rather than a long-term relationship, and that will open cultural institutions up again to renewed diversity.
By diversifying the audience, secondly, they may reach a different kind of scale. Between a ticket whose pricing fluctuates and a monthly subscription solidly and dependably priced somewhere between a pint of beer and a large glass of wine, the membership will look the better option to a lot more people. This may radically increase the size of the membership base, meaning museums have to really look hard at the fiscal dynamics of their services. Those magazines and members rooms, premium event seats and exclusive previews will strain around the edges. The real affordability of the membership proposition will have to be questioned as the volume suddenly scales.
Critically and finally, the dynamics of the museum’s public programming offer will have to change. Churn rates for memberships hover around 70 per cent, and we should recognise that they may get a lot higher if there isn’t a shift in programming to match the shift in payments model.
When you pay monthly, the content provider has to prove to you every 30 days that you’re worth their money. With the current programming at museums and galleries that wouldn’t work. Programming for exhibitions and events leave ‘dark’ periods today – months on end with no exhibitions open. Inevitably churn on annual payment subscriptions spikes at these moments, and new sales die right down.
That may not be able to continue. The configuration of the public engagement offer would have to shift, with exhibitions running end on end, with no dark periods. Events and other programming would have to hold a constant rhythm to meet the demands of an audience that needs something new every month to keep on paying.
This new model of monthly membership payments offers up the chance for a subtle but radical realignment of what it means to be a museum. It would help redefine the 21st century institution for an always on, always renewing world. It would force them to be alive, every day, and open them to an audience for whom they can seem remote.
As with dynamic pricing, this is a move which is only a small technical leap, and a large leap of spirit away.
Rethinking the Holy Grail – a new meaning of free
The most fundamental connecting line back from British museums today to the enlightenment is their principle of free admission. Derived from a stipulation in Hans Sloane’s extraordinary gift to the nation of the founding collection of the British Museum, the idea of free access has taken root and stands as a great continual investment of public money back into the public cultural life. The tax that pays for culture keeps free access to one bit of that culture.
But what happens when the level of that public investment versus the number of people accessing that culture for free becomes fundamentally unbalanced? How do we sustain free then?
That moment felt like it was near at hand in the public sector spending review of 2015, when cuts of grant in aid of anywhere up to 50 per cent were heavily rumoured. P&Ls just break when you remove that level of money from them, and the public value proposition of museums would have had to be rebuilt over a generation or more. Thanks to George Osborne’s recognition of the soft power value of the cultural sector, that catastrophic moment was diverted as the cash value of grant in aid was held for another five years. But what if a messy Brexit necessitates more radical austerity? What if unrest in the Gulf unsettles global markets massively? What if another Black Swan financial event comes in a broadly unstable world economy? Rather than wait to see if one or more of these happens in the next few years why don’t we do something about this now?
At the point of another fiscal crisis, to hold that notion of free access, the value proposition of what ‘free’ means may have to change. To what though?
If you look at the public accounts of museums, free does not really mean free - it means receiving an average donation per visitor to the institution of somewhere between 10p and £1. Largely messaged around a suggested donation of £5, the gap between aspiration and reality is by rational counting a highly challenged model.
So how do we change this? Can we?
Of all three ‘what if’ new value propositions, this is the area without direct proxy models from the digital economy to learn from. Dynamic pricing and monthly subscriptions are there as adjacencies in the digital space. For donations though there isn't quite the model - so we have to build one.
We can point at some things as elements from which to build:
- Communities of shared values: We can see in the rise of Emmanuel Macron in France, or of Jeremy Corbyn in the UK, a way of appealing to an audience that connects low-value donations with a principle of shared values. Can we transfer that political, social and economic message to the domain of culture? What does it mean to our sense of society to value what arts and culture means?
- Urgency over passivity: Today’s donation ask is a passive one, a continuous message that never changes. Rather than sit, waiting to be ignored, let’s think about this differently and create a message that refreshes and renews in real-time. Let’s ask who different audiences are and ask them a fundraising question that reflects who they are and the value we add to their lives.
Ultimately a change in the donations value proposition is going to be about replacing a donation box with a person asking for a donation, and then supporting that person with data analysis. What is the average donation on a Tuesday as opposed to a Saturday? What does a local resident give versus an East Asian tourist? What happens if you suggest a donation of £10 as opposed to £5?
There is massive untapped value in this area. Crucial, self-sustaining revenue is out there. What if we rethink that, and pursue the generation of donations income as much as we can? It would create a new, more balanced dialogue with government out of a new fairer process of exchange in the funding of museums by the public both through taxation and voluntary donation. In a post-enlightenment world, this refreshes the role of museums as a public space made viable from a million little pieces of private wealth.
Conclusion – thinking differently about digital
The digital economy has urgent lessons to teach the arts and culture sector – lessons that we are a decade or more late in learning.
At heart, this is about thinking differently about what ‘digital’ means. For the last two decades it’s broadly meant making websites, digitising collections and building audiences on social media. Those things still have value. But the real value digital can bring to the cultural sector is fiscal and strategic – in providing alternatives to business models that are stagnant and unsustainable.
I believe we have to learn these lessons fast. There is not time to wait out another parliament without change.
If to succeed we have to think differently about digital, then possibly we also have to think differently about ourselves and about the interrelationships between institutions. There is a simple rule of a data-driven world, that the more data you have, the better the insight you can generate. That would mean that the cultural sector would be stronger, quicker and more accurate if we made these changes together rather than apart.
Take the piece about dynamic ticket pricing. To build a model of real hard value may take learnings from 20 exhibitions or more. We could each do that individually over five years, or do it together in one. The same with understanding the impact of programming decisions on membership churn, or in cracking the value proposition for donations.
If the museums of the UK decided to take on these problems together we could understand them, learn from them and create value from them faster. It would make a case to government, to the public and to ourselves that we are capable of real change in a new world.
Finally, the hope for that may be the biggest ‘what if’ opportunity of all.