State of the Sector 2015: Arts and Culture Focus

Extensive research has demonstrated what those close to the arts, culture, and humanities sector already know: the health of the sector is intertwined with the health of our communities. In addition to cultural enrichment, arts, culture, and humanities nonprofits create jobs, support economic growth, and contribute to community revitalization.

In early 2015, with the support of the Doris Duke Charitable Foundation, Nonprofit Finance Fund (NFF) investigated the health of the nonprofit arts, culture, and humanities sector through its annual State of the Sector Survey. The survey findings provide greater insight into the ways that organizations are honing their programs and business models to creatively engage audiences, visitors, and supporters.

The national survey received 906 unique responses from arts organizations across all geographies, subsectors, and budget sizes. The results strongly reflect the experience of small and midsized organizations, with 60 percent of organizations operating with budgets under $1M.

Many organizations are struggling to build a business model that adapts to changing demands from audiences and the current nature of funding. Likewise, many are still grappling with longer-term capitalization challenges, like uneven cash flow, few or no reserves, and aging or under-resourced facilities. As audiences age and disruptive technologies continue to proliferate, arts nonprofits must experiment with new strategies to build and engage with their audiences. But experimentation is risky, and arts organizations are frequently operating with no room for error. In the face of these real challenges, annual financial results seem to be trending positively.

Continuing a trend that started in 2011, the percentage of arts, culture, and humanities organizations reporting deficits has declined to 24 percent. When asked about anticipated financial results for 2015, 75 percent of organizations expect to end the year at breakeven or better. While heartening, we recognize that the trend of stronger financial performance does not necessarily mean organizations are receiving the types and amounts of revenue that will truly cover the full cost of their operations. Surpluses were slim: 44 percent of organizations reported that their surplus was between 1 and 4 percent, and 20 percent of organizations reported a surplus of less than 1 percent.

Alongside upward-trending financial performance, organizations are taking action to invest in programmatic and financial health. Eighty-six percent of organizations reported making a meaningful investment to expand their audience/visitor base. Half of these organizations expanded programmatic reach through arts education programs or partnership with schools. While this is not unconventional in itself, qualitative responses indicated that the trend has been driven by the need for arts education in schools and the absence of arts educators employed directly by districts. We note that from an operating and strategic perspective, this trend most likely requires organizations to shift in a critical way. In addition to continuing to secure revenue from traditional funding structures — such as ticket sales, admission fees, or direct individual philanthropic outreach — expansion into schools often requires organizations to manage reimbursement service contracts or grants. Successfully securing and maintaining reimbursement contracts takes a new kind of organizational capacity and skill set.

Fifty-six percent of organizations reported that they added or expanded programs. One-third reported demand for and creation of programs for specific target audiences/visitor segments and/or increased participatory programming. Respondents’ qualitative answers captured a variety of tactics, including a distinct clustering of programs that target families, and programs where audiences engage directly with artists or engage in “maker” activities.

We are encouraged to see that these — and other — adjustments have allowed many organizations to access additional revenue sources and increase audiences and visitors. At the same time, we recognize that there are distinct administrative, programmatic, and reporting shifts required to implement such changes. Many organizations do not have the financial resources necessary to steward new revenue streams to a point of positive financial return.

In our roles as advisors, financers, and commentators we are humbled by the resiliency and adaptability of our arts, culture, and humanities organizations. That said, there many talented organizations that still face very real, desperate circumstances that threaten long-term viability. As we look to the years ahead, we are curious to see how organizations continue to adapt, collaborate, and fund programming outside of traditional venues — all while operating in an accelerated, more measured environment.

This blog is an excerpt from an article written by NFF for the GIA Reader. Read the full article here!