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MARCH 1962 B U S IN E S S R E V IE W S.R.O. and S O S : The Performing Arts Paradox Bank Profits in the Wake of Recession FEDERAL RESERVE BANK OF PHILADELPHIA BUSINESS REVIEW is produced in the Department of Research. Lawrence C. Murdoch, Jr. was primarily re sponsible for the article “S.R.O. and S O S : The Performing Arts Paradox” and Bernard Shull for “ Bank Profits in the Wake of Re cession.” The authors will be glad to receive comments on their articles. Requests for additional copies should be addressed to the Department of Public In formation, Federal Reserve Bank of Phila delphia, Philadelphia 1, Pennsylvania. S.R.O. AND S O S : THE PERFORMING ARTS PARADOX A bald Romeo and a fat Juliet in a neigh borhood playhouse. The latest soprano sensation at the Met. A banker who plays oboe in an amateur symphony. A Broadway star. The Secretary of Labor. This unlikely cast is playing a leading part in the present boom in the performing arts.1 It’s a broad-based thing, this boom. It includes profes sionals and amateurs, people from all walks of life, all social classes, and all income levels. And even the Government is getting in the act. The boom has considerable economic signi ficance. Spending for admissions to the perform ing arts now amounts to about $400 million a year— double the figure of a decade ago. But it’s an unusual sort of boom. The present wide popularity of the performing arts is unprecedented in America. Until recently, many forms of the arts were the property of an 1 Th e te rm " p e rfo rm in g a r t s " is a genera l one. C onc e iva b ly it could includ e a nything fro m an In d ia n rain dance to a H i l l B illy Band to a how -to-reduce TV p ro g ra m . In o rd e r to make the sub je c t m anageable, we have had to make an a rb itra ry d e fin itio n . In th is a rtic le , we lim it o u r d isc ussio n o f the p e rfo rm in g a rts to live p erform a nces, both p ro fe ssio n a l and am ateur, o f the th e a tre , opera, b a lle t, and se rio u s m usic. elite few. The average man long considered opera, ballet, and serious music to be “sissy stuff.” He was satisfied with an occasional min strel or vaudeville show. This is one boom that seems to be creating as many problems as it is solving, however. In spite of the great increases in public interest and en thusiasm, in spite of S.R.O. (Standing Room Only) crowds, the performing arts are in trouble. That’s why the S O S for Government aid has never been louder. In many ways the performing arts industry is unique. Yet, in other ways its problems are those of all industries. Perhaps the solution other in dustries have used when faced by similar prob lems may be applicable to the performing arts. THE TWO MASKS The theatre is often represented by two masks— one smiling, one sad. These masks might por tray the present situation in the entire perform ing arts industry for there is a bright side and a sad side. Statistics on the performing arts are, for the most part, fragmentary and based on estimates. 3 business review We use them here to give a rough idea of the dimensions of the boom. Spending for admissions to live performances of the arts humped after the war, then ran fairly level until 1952. After that “it got wings.” This recent growth was considerably faster than the increases in personal income, total expenditures for recreation, spend ing for admissions to sporting events, and movie receipts. In other words, the performing arts did better than their direct competition. There are now some 5,000 community theatres —more than all radio and television stations. In addition, an estimated 5,000 college groups, 15,000 club and church groups, and untold high schools put on theatrical productions. In New York, the number of off-Broadway theatres has grown to 32 from a mere handful a few years ago. The number of community symphony orches tras has doubled since 1952. At present, there are about 1,200 orchestras which collectively give an average of 20 concerts a day. Last year, about 11 million people attended symphony concerts. In 1950 there were about 200 opera-producing groups. Today the number has swelled to almost 800. In the 1960-1961 season, the Metropolitan Opera played to 96 per cent of capacity. Phila delphia’s Lyric and Grand Operas also enjoyed full houses, and the story was repeated in many other cities. Tent theatres and summer stock companies also are doing very well. There are now 26 music tents, most of which first spread their canvas during the last ten years. Today, 125 regional ballet groups are in opera tion compared with only 70 as recently as 1958. Chamber music is so popular that one agency specializing in booking just these small groups 4 grosses a reported $100,000 a year. This new interest in the arts has many causes. The great postwar increases in income and leisure are important. So is the growth in college enrollment and, lately, the trend away from spe cialization in education. Students are getting more exposure to the per forming arts in public and private schools. The number of courses and clubs has expanded. In addition, certain organizations are helping to bring culture into the schools. Young Audiences Incorporated, for example, presented chamber THE BOOM BEHIND THE FOOTLIGHTS Spending for admissions to the Performing Arts. M ILLIO NS OF DOLLARS PER C EN T O F CO NSUM ER SPEN DIN G music concerts for 100,000 Philadelphia area school children in 1961. Hi-fi and stereo have helped cultivate tastes for serious music and have created the desire to hear live performances. This is similar to the effect that television had on pro football. Tele vision creates many new fans who soon begin coming out to stadiums. Widespread travel abroad, starting with the GIs during World War II, and continuing to the present day, has introduced many to the per forming arts. No doubt some people attend per- business review formances as something of a status symbol. Per haps they have taken to quietly boasting “we saw ‘Swan Lake’ last night,” now that they have rid themselves of their my-car-is-bigger-thanBEATING THE COMPETITION Consumer spending for various amusements. yours psychosis. In short, the boom in the arts is woven deep into the fabric of mid-century American life. But all is not well in the performing arts in dustry. Its silver cloud seems to have a leaden lining. Performances begin with P and that rhymes with T and that stands for trouble, as the song from “The Music Man” might go. For exam ple: three-quarters of all Broadway productions were flops between 1954 and 1960. Add up all the profits and all the losses during that period and Broadway was in the hole for about $500,000. The number of Broadway productions declined from 70 in the 1949 season to 59 in 1959. And there hasn’t been a new theatre built on the Great White Way in 30 years. Road performances of Broadway shows are down about 30 per cent since 1949. The Metropolitan Opera had a deficit of $840,000 last year. Ticket sales of all symphony orchestras cover only about half of their total expenses of $30 million. The Philadelphia Orches tra had $65,000 to make up in 1961. Our domestic ballet also is chronically in the red. PROFITLESS PROSPERITY How can an industry be doing so well on the one hand and so poorly on the other? Some of the answer becomes evident when you separate the performing arts into their amateur and pro fessional segments. The part-time players, the week-end Walkiires have accounted for much of the industry’s growth— and for much of its in crease in receipts. Not that the amateur productions don’t have their financial troubles. They do. But the real problems in the industry are in the professional sector. 5 business review This has great significance, for the profes sional sector is the “creative core” of the per forming arts. Amateurs draw on the professionals for material, inspiration, and guidance. The people who pay to see amateur plays don’t want experiments, so the community theatre groups usually rely on tried-and-true Broadway scripts. Much the same could be said for the other per forming arts. Since the professional core is the creative fountainhead and since that’s where much of the financial trouble is located, we shall focus our analysis there. The costs of raising a curtain The financial problem of the professional per forming arts is not primarily lack of attendance. The real problem is costs. Production costs have skyrocketed to the point where even full houses sometimes don’t bring in enough to meet expenses. COSTS ON BROADWAY SHO W Y EA R C A P IT A L IZ A T IO N Dramas 1939 L ife 194 3 V o ic e o f th e T u r t l e W ith F a th e r 1948 M r. R o b e rts $ 2 5 ,0 0 0 2 0 ,0 0 0 1 0 0 ,0 0 0 1959 M ir a c le W o r k e r 1 2 5 ,0 0 0 I9 6 0 A d v is e 1 5 0 ,0 0 0 1949 S o u th 1950 G e n tle m e n 1956 My F a ir La d y 4 0 0 ,0 0 0 1959 Th e Sound 4 8 5 ,0 0 0 I9 6 0 C a m e lo t and C o n s e n t Musicals P a c ific P r e f e r B lo n d e s o f M u s ic 2 2 5 ,0 0 0 1 6 0 ,0 0 0 6 0 0 ,0 0 0 Most professional theatres are located in highrent areas and reflect the general increase in center-city rents. This saddles a production with considerable overhead from the start. Labor, however, is the principal cost item in the performing arts. This is true in many indus tries, but labor costs are particularly important to the arts for two reasons. 6 LEAN YEARS ON BROADWAY NUMBER OF PRODUCTIONS First, unlike many other industries, the per forming arts can’t automate to offset rising wages. You wouldn’t pay to watch a computer sing an aria or recite Shakespeare. There have been a few mechanical improvements backstage but they have had a negligible effect. Second, labor in the professional performing arts industry is highly organized. Almost every body, from actors to janitors, from musicians to curtain pullers, belongs to a union or guild. Partly because of this, wages per performance have been raised to a high level. It’s understand able that they should be, for employment is usually intermittent. Another cost inflator is the fact that per formers and stage hands must be paid for re hearsal time when they are producing no reve nue. And we have heard that the performing arts have their share of featherbedding and makework practices. How performances are financed Economists tell us that private capital is attracted to the most profitable uses. If so, how do the performing arts raise the money necessary to produce shows and concerts? No sector of these business review arts has managed to show a profit over the past decade as a whole. The answer is that productions are motivated by other things besides monetary reward. At the risk of oversimplification, one could arrange these motives on a scale: at one end would be pure profit; at the other pure public service, the desire to promulgate culture. The professional theatre would fall on the profit side of center. People invest in the theatre for the excitement and the personal associations, to be sure, but the primary reason usually is to make money. There is always the chance of finding a big hit and getting back several times one’s original investment. Theatrical productions are usually financed on a limited-partnership basis.2 The producer en deavors to induce investors to put up the sum necessary to produce the show. If and when profits start coming in, they all go to the in vestors until their original investment is paid back. Thereafter, the investors split profits 50-50 with the producer. The odds against an investor breaking even are about 4 to 1. Opera, ballet, and serious music would be nearer the public service end of the scale. They would be delighted to make a profit but in most cases they don’t really expect one. Ticket sales very rarely cover total costs. As a result, opera, ballet, and serious music must rely on donations and contributions to make ends meet. This money comes from several sources. Individuals are most important—people, rich and not-so-rich, who have a special interest in a particular art form and want to see it con tinue. This traditional source of support is dry 2 Th e re are excep tions. So m e tim e s one backer w ill finance a whole show as the C o lu m b ia Bro a d c a stin g System d id w ith " M y F a ir L a d y ." Te n t o r re p e rto ry th e a tre s make o th e r fin a n c ia l a rra n g e m ents. F o r exam ple, M u sic F a ir, the o u tfit w ith several te n ts in the P h ila d e lp h ia su b u rb s and elsew here, has ju s t sold stock to the p u b lic . ing up, some say. Certainly, it doesn’t seem sufficient to maintain the arts on a scale large enough to meet the present expanded demand. Corporations are donating increasing sums to the performing arts and so are foundations. The Ford Foundation, among others, has been par ticularly generous in this respect. Certain state and local governments also have become patrons of the performing arts. The City of Philadelphia, for example, finances in part a series of free summer concerts in Robin Hood Dell, a vast outdoor amphitheatre in Fairmount Park. WHY NOT RAISE TICKET PRICES? When the cost of producing any product rises, one common solution is to raise the price of that product. So why don’t they raise the price of admission to the performing arts— raise it enough to cover costs? The answer depends in some measure on what ticket buyers would do. In other words, it de pends on the nature of demand. Higher prices probably would discourage some potential pur chasers, but that’s not the real point. One has to look at total revenue. Suppose a theatre is selling 1,000 tickets at $5 apiece. Total revenue = $5,000. Now let’s say it raises prices to $7. If this discouraged 200 people from attending, total revenue would ac tually be higher (800 x $7 := $5,600). If 300 customers were lost, however, total revenue would be less than before (700 x $7 = $4,900). Put another way, how much prices can be raised, if at all, depends on how sensitive de mand is to price. This can be determined to some extent by market research and other means. As far as we know, the necessary surveys have not yet been made. Some speculation on the subject, however, might be illuminating. 7 business review Certain authorities say that higher ticket prices would not choke off a significant amount of de mand. They point to the great increases in in terest in the performing arts. Many productions are selling out at present prices. The practice of “scalping” tickets also seems to indicate a reser voir of demand at higher prices. For example, tickets to the hit, “How to Succeed in Business Without Really Trying,” have brought many times their box office price on the black market. Businesses buy large numbers of theatre tickets. The idea is to entertain customers and visiting firemen. Since such purchases are a tax-deductible expense, it is not likely that this demand would be seriously reduced in the face of moderately rising prices. Attending the performing arts is an occasion for most people. It is often planned well in ad vance; it’s not a “what’ll we do tonight?” kind of thing. As a result, price may not always be the dominant factor in the demand for tickets. Add the great postwar rise in discretionary in come to the above-mentioned factors and many experts are led to believe that over-all demand is strong enough so that ticket prices generally could be raised without reducing total revenue. But there are definite limits. Ticket prices are already high. Prime prices on Broadway have risen faster than the cost-of-living index in re cent years. Consider also that attending a per formance is a luxury— you don’t have to do it. One also must remember that many produc tions are motivated in part by the desire to make culture available to the largest number of people. If higher ticket prices discouraged any demand at all, it would be contrary to this important goal. At any rate, it is highly improbable that prices could be raised enough to cover costs completely. Higher ticket prices might ameliorate but won’t 8 INFLATION DOWN FRONT Average top ticket prices on Broadway compared to the Consumer Price Index. INDEX 1944 = 100 solve the financial problem of the professional performing arts. Is assistance from the Federal Government the only answer? Perhaps a bit of history will shed light on the question. FROM COTTON MATHER TO RUDOLPH BING The performing arts were virtually nonexistent in early Colonial America. The settlers were scat tered on small farms hewn out of the forest pri meval. Life was hard and people worked the sun around and tumbled into bed. Puritanism was strong in the Northern col onies and its leaders considered all entertainment to be sinful. “Brown bread and the gospel” was their sustenance. business review As cities began to grow and a leisure class developed, a few scattered theatrical companies were formed. One of the first was in Philadel phia in 1749. A play called “Cato” was put on and the actors were promptly arrested and ad monished to give up the undertaking. They moved to New York and found the climate more hospitable. This may have been how the tradition of trying out plays in Philadelphia prior to Broad way was first established. By the beginning of the 19th century, the American theatre was still in rudimentary form. There were, at that time, about 10 theatres and 100 professional actors in the entire country. The history of serious music in America does not even begin until the 19th century. The first grand opera was presented in 1825; the first per manent symphony orchestra was established in 1842. Only after the Civil War did the performing arts begin to flower. The country was rapidly becoming industrialized. The smoking factories and railroads spawned a new American aris tocracy— the captains of commerce, the “mo guls,” as Steward Holbrook calls them. The moguls had vast fortunes and plenty of leisure. Perhaps in an attempt to emulate the noble men of Europe, the new American aristocracy— or their wives— developed appetites for the arts. But the legitimate theatre and good music were virtually unavailable in America. When a country wants something it doesn’t produce, it generally imports and so European performers were brought over to entertain the American moneyed class. But when a country relies on imports, there is often little opportunity for domestic production to develop. As the salons of Newport and New York acquired a fetish for foreigners, native Americans found little en couragement to become serious performers. This further reduced the availability of the arts to the general public. The average American who knew nothing of good theatre and serious music now became suspicious of them. Such entertain ment was considered “longhair” stuff put on for rich women by hand-kissing foreigners. But the average American rapidly was gaining more income and more leisure. Crowded in a city, he needed something to do. He patronized minstrel shows and melodramas, for the most part. In the 1890’s, two new forms of entertainment gained wide popularity— vaudeville and bur lesque. During the next 25 years, hundreds of companies toured the country bringing enter tainment to audiences starved for the sight of “anything that didn’t moo or cluck.” Vaudeville hit its peak in the period just be fore World War I. The Palace with headliners like George M. Cohan was selling out at $2 a ticket. On Broadway, the operettas of Victor Herbert were popular. After the turn of the century some signs of a widening popular interest in serious music ap peared. The development of the Victrola was a contributing factor. The Philadelphia Orchestra was founded in 1900 and enjoyed considerable acclaim. Opera stars such as Enrico Caruso and John McCormack drew large audiences on Amer ican tours. But serious music still was pretty much the province of the upper crust. In the 1920’s, musicals such as Jerome Kern’s “Showboat” became the rage of Broadway. People began taking a real interest in the ama teur theatre for the first time. The movies hurt vaudeville and many theatres combined both live and film productions. Burlesque “invented” the strip tease in 1925 and enjoyed considerable success during the remainder of the decade. In the 1930’s, all the performing arts were 9 business review crippled by the Depression and by talking mov ies. Nevertheless, a number of important Broad way shows appeared— notably the Gershwin musicals. At the peak of its short life, the WPA Theatre Project employed 10,000 performers. It was a potent force in bringing culture to towns THE INTERNATIONAL BALANCE OF IDEAS In the 19th century and the firs t part of the 20th, America was an importer of culture. W e relied on foreigners for much of our music, drama, and art. During the same period, America was a net exporter of technology. Many of the world's great inventions originated here. According to the Encyclopedia Americana the airplane, cotton gin, gasoline engine, steamboat, reaper, harvester and thresher, sewing machine, submarine, telephone, telegraph, phonograph, electric locomotive, trac tor, typewriter, vulcanized rubber, motion pic tures, and linotype all were invented in the United States prior to 1910. Then, after W orld W a r I, the flow of ideas seemed to change. It became more of an inter change, a two-way thing. O ur scientists continued to make important discoveries but many recent inventions were made abroad and brought to America for refinement and development. Insulin came from Canada, atomic fission from Austria and Germany, jet propulsion from England and Germany. Sulfa drugs were firs t discovered in Germany; radar in England, color photography in France, sonar in England, modern plastics in England and Germany, television in England, modern rockets in Germany, earth satellites in Russia, and penicillin in England. On the other hand, we lately have been export ing culture as well as importing it. American movies are popular all over the world. American tunes lead the hit parades of Europe. Foreigners have eagerly adopted our jazz, our swing, our rock 'n roll, our dance crazes, and even our strip tease. Our own musicians and singers such as Leontyne Price, Van Cliburn, Louis Armstrong, and Leonard Bernstein are welcomed all over the world. Even Russia has accorded ovations to American performers. 10 of modest size that previously had enjoyed nothing more than vaudeville. The Project sowed some of the seeds of the present nationwide boom in the performing arts. As war clouds gathered in Europe, many talented performers migrated permanently to the United States. They helped to raise the quality of serious music and opera, and to make it avail able to wider audiences. The performing arts sagged a bit during World War II as audiences and performers alike found more important things to do. One of the most successful musicals of all time— “Okla homa!”— was staged in 1943, however. After hostilities ended, a new interest in the arts was evident. So began the broad postwar boom the contours of which we already have sketched. The principal purpose of this excursion into history is to show how the performing arts de veloped as privately sponsored institutions in America. We had no kings, no noblemen, no imperial courts, no dominant Catholic Church to patronize the arts and establish the tradition of central support. But we did have Puritan in hibitions and the rigors of frontier life. As a result, the higher forms of the performing arts were molasses-slow to develop in America. When they finally did emerge, they were supported by a relatively few rich individuals for their own personal pleasure. Such a situation denied many of the arts to the general public and, in fact, made the public a bit hostile to the arts. Since our Government is guided by the vote of the majority, this hostility helped to rule out Federal Government support for many years. But today the attitude of the public has changed. The arts belong to everyone. The political climate is now more favorable for Federal Government support on a permanent basis than ever before. business review THE “ ANGEL” IN WASHINGTON Last fall Secretary of Labor Goldberg brought to a head the question of federal aid to the arts. While publishing his findings on the Metropoli tan Opera wage dispute, he issued a general statement on the status of the performing arts. Secretary Goldberg said that the “American artistic scene today is alive and vibrant.” He con tinued, “At the same time some of the foremost institutions of American culture are in grave difficulty. . . The individual benefactors and pa trons just aren’t there as they once were.” The Secretary made a number of suggestions. Prominent among them was the recommenda tion of federal grants to the arts. He proposed appropriations to the states, which would put up similar amounts. The Secretary is not alone in recommending Federal Government assistance to the arts. About 20 bills providing aid of one sort or another have been introduced in Congress. Many promi nent private citizens also have gone on record in favor of assistance. The principal proposals now being discussed could be arranged into three general groups. 1. Tax changes. For example, the following has been recommended: Elimination of the 10 per cent tax on theatre admissions; in creased income tax deductions for private contributions to the arts; special tax ad vantages for artists themselves. 2. Advisory Council. Such a group would be created to study the problems of the arts and to advise Congress and the Adminis tration on ways to promote the arts. 3. Grants. Federal money could be given to the states which would match the amount and use the total “to encourage and stim ulate” the arts. Another suggestion is a direct federal subsidy to promote live per formances where they are not now avail able. Arguments for the affirmative Those who favor federal aid to the performing arts point to the financial need. They mention the high costs and the fact that ticket revenues often do not cover expenses. The arts cannot continue to rely on individual benefactors, the advocates of aid maintain. “As we become more and more a cultural democracy,” Secretary Goldberg says, “it becomes less and less appropriate for our major cultural institutions to depend more and more on the generosity of a very few of the very wealthy.” Once the need for aid has been established, the advocates often go on to explain the im portance of the arts themselves. The performing arts are a fundamental part of a nation and its culture. They are a gauge of civilization, a vital means of self-expression. They promote better understanding of life, past and present. The necessity to make performances pay and to woo private patrons reduces creativity and innovation, it is maintained. When a producer has to appeal to the widest possible audience, he often must sacrifice quality for quantity. The arts are an important natural resource, people say. It is just as important for the Gov ernment to take steps to conserve the arts as it is to conserve any other natural resource. Along the same lines, it is often pointed out that the principle of federal subsidy is well es tablished. Many other industries get special treat ment of one sort or another. Oil, airlines, shipping, electric power, and farming are but a few examples. In almost all other highly developed countries the State contributes to the support of the arts. It happens in England, Germany, France, Italy, 11 business review Austria, Russia and many more. Why can’t it happen here? A country is judged abroad by the quality of its arts. Thus, the maintenance of high quality performing arts could be an asset in the cold war. Do we want the uncommitted nations to judge us entirely by our crooners and the Twist? Another argument that is often advanced in favor of support is the fact that our Government is already subsidizing performing arts in other countries. The State Department frequently spon sors tours of foreign countries by American artists ranging from a “Porgy and Bess” com pany to Dizzy Gillespie and his BeBop Band. In addition, foreign aid funds have been used to help build and support theatres and opera houses abroad. Finally, it is pointed out that federal assistance of the arts would not be costly. Elimination of the theatre tax, for example, would reduce total federal revenue by only .0007 per cent. Grants to individual states would be measured in thou sands of dollars. The program to bring the arts to outlying sections of the country is estimated to cost about $10 million a year— half the cost of a jet bomber. In fact, the grants need not cost the Govern ment a penny. It has been suggested that they be financed by a new tax, say on television. The justification is that TV relies on performers that have been developed on the live stage. For the negative Opponents of federal aid to the arts also can marshal important arguments. Perhaps the most mentioned point is that Government dollars often have strings attached. When the Government doles out money, it naturally wants some in fluence over how that money is spent. Such in fluence could range anywhere from mere 12 “Philistine kibitzing” to outright control. In any case, it could well impinge on creative freedom. It is argued that Government aid would not go to those with the greatest need but to those with the most political power. For instance, the major symphony orchestras might get a lion’s share of aid although their need is not so great as that of the minor symphony orchestras. The aver age salary of a musician in the Philadelphia Or chestra is about $8,000 a year; in the New Orleans Symphony it is about $2,000. Musicians’ incomes, of course, are often supplemented by teaching and other means. Another fear is that Government aid would support a great number of marginal talents— people who, without federal largesse, would be butchers, bakers, and candlestick makers. These marginal “hangers on” would reduce the quality of the American arts. An increasing number of people oppose the extension of Federal Government activities on general principles. The arts are a local matter, they say, and if Government support is necessary it should come from the states and munici palities. “Let the free enterprise system rule the arts,” others say. In a democracy, the people themselves should decide the type of performance they will get. Those enterprises that can cover their costs— by ticket sales and private gifts— will survive and those that can’t will disappear. It isn’t fair to take money from all the people and use it to support an art form that only a relatively few are interested in. This argument goes on to question the right of any individual or group to determine what American culture will be. Certainly, no Govern ment official should say that we should have operas, ballets, and symphonies when the people business review aren’t willing to pay enough to cover the costs of production. Besides, it is argued, operas, ballets, and symphonies are essentially oldfashioned, European art forms. We in America have developed our own orig inal art forms which are more suited to Amer ican tastes and which are self-supporting. In the musical play (comedy is no longer the ap plicable word), we have taken opera, ballet, and drama and modernized them into a unique and popular form of entertainment. Dixieland jazz is another native American art form, which has survived the test of the market place. The same could be said for our folk songs, modern jazz, and many forms of the drama. If enough people want grand opera and are willing to pay for it, we’ll have grand opera, anti-aid groups point out. Otherwise we won’t. If people would rather have Benny Goodman or “West Side Story,” that’s what they will get. Who but the people who buy tickets should say one art form is more cultural or better for the nation than any other? CONCLUSION The performing arts differ in many ways from other industries-—the strength of the profit mo tive is just one example. Nevertheless, all private enterprises, the arts included, must face up to the same hard facts of financial life. They must cover their costs in one way or another if they are to survive. It is possible that some of the things other industries have done about high and rising costs might be applicable to the perform ing arts. Capital Spending. Many firms today are modernizing their plant and equipment. It is often expensive but it can pay off in increased efficiency which in turn may lead to lower unit costs. Many theatres and concert halls are old and antiquated. Broadway is still using theatres built over 50 years ago. In addition, many theatres are small which severely limits potential income. Perhaps new and larger theatres would lessen the problem of rising costs. There are many new and revolutionary designs which might be successful. A number of cities are planning and building new stadiums for sports and it now is feasible to cover them with a dome. Why not consider designing new stadia to accommodate concerts and other performances as well as football and baseball? The dome would permit year-round use and electronics might solve many acoustical problems. Research and Development. American indus try is spending huge sums on research to develop new products and processes. Perhaps the per forming arts could promote innovation in some organized way. Maybe creative people could be encouraged and subsidized by the industry itself— through special schools, grants or other means. Maybe the performing arts product could be changed to appeal to more people— operas in English, more concerts of semi-popular music, more action on the stage. Walter Kerr, the dra matic critic, says we have “consciously and de liberately created for ourselves an unpopular theatre.” The theatre has recently been em phasizing characterization and social protest at the expense of plot, movement, and excitement. Perhaps a change in the Broadway bill of fare would attract more customers. Market Surveys. New products often are tested on a panel of “typical consumers” before being sold. It helps manufacturers screen out the “flops” before large marketing expenditures have been made. Is it possible to test new scripts and ideas on a selected panel of theatre-goers? It certainly would not be an infallible guide but 13 business review it might provide a hint of real audience reaction without the expenses of actual production. Perhaps the performing arts could learn more about the general demand for their products in a scientific manner. Maybe the sensitivity of demand to price increases could be probed. Trade associations are suitable agencies to spon sor such work. Following Customers. Several mainstream population movements have taken place in the past several decades. One is the “explosion” from city to suburb, another is the movement from the Northeast section of the country to the South west and West. Both are away from the profes sional cores of the performing arts. Retailers and other businesses have profitably followed these movements. Perhaps the perform ing arts could, too. Possibly year-round theatres would be successful in the suburbs. The “tents” have already proved the idea works for summer musicals. More road companies could tap the now nationwide demand for professional per formances if expenses were controlled. Perhaps additional permanent companies could be suc cessful in regional centers now that such areas are accounting for an increasing share of the nation’s business and commerce. One of the most immediate needs in the per forming arts is for better statistics— particularly financial statistics. At present, there is little in formation available to support thorough analy sis. We are happy to report, however, that two important studies now are under way of the theatre, and for the theatre. They may yield information that will help add profit to the pros perity in the performing arts. Curtain. BANK PROFITS IN THE WAKE OF RECESSION The year 1961 was one of economic recovery in the Third Federal Reserve District as well as in the nation. Profits at district banks— up over 1960 levels— appeared to share in the general economic advance. Appearances, however, were somewhat mis leading. Closer inspection reveals the increase in profits was directly traceable to the large reserve city banks; and these banks registered increases only because they took capital gains on securi ties. Both reserve city and country banks ex perienced declines in net current earnings as rising expenses wiped out increased returns on both loans and securities. 14 The year in review Gross national product increased over 7 per cent from the first to the fourth quarter of 1961. But many district bankers— particularly at the large city banks— experienced a disappointing demand for loans. These bankers anticipated a substan tial increase in demand for loans with economic recovery; it simply never materialized. During the year, however, inflationary pres sures were for the most part dormant. Federal Reserve policy could therefore focus on stim ulating economic expansion. In line with a rela tively easy money policy, interest rates did not advance rapidly through most of the year and business review bank deposits and earning assets increased sub stantially. For the district as a whole, earnings on both loans and securities increased; increased earn ings on securities were more important at reserve city banks and increased earnings on loans were more important at country banks. But expenses increased rapidly at both classes of banks. Wages and salaries advanced considerably and so did interest payments on time deposits. The entire increase in bank deposits in 1961 over 1960 levels— approximately $424 million— took the form of time and savings deposits. In terest paid by district banks increased almost $13 million. Relatively stable interest rates during the year limited increased earnings for the most part to the additional assets banks acquired. But with rates remaining at levels considerably below those prevailing during the expansion in 1959 and early 1960, security prices were still very strong. Reserve city banks took the opportunity to realize capital gains on securities; at the same time, they reduced the level of capital losses from that incurred the year before. As a result, they were able to increase their net profits despite a small drop in net operating earnings. Profits after taxes showed an increase of well over $7 million. Country banks, on the other hand, experienced a decline in net profits as well as net earnings. While they also took substantial gains on securi ties, these gains were lower than the amount taken last year. Profits after taxes declined about $1 million. So while the district’s economy recovered con siderably during the year, bank profits and earn ings continued to reflect conditions characteris tic of recession: relatively weak loan demand, relatively stable interest rates at levels below those prevailing in the previous expansion, and a large increase in the volume of time and savings de posits. EARNINGS AND PROFITS THIRD FEDERAL RESERVE DISTRICT MEMBER BANKS (Dollar amounts in millions)* C H A N G E IN 1961 AM OUNT FROM 1960 PER C EN T FROM 1960 A ll D is tric t Banks N e t c u rre n t ea rn in g s T o ta l recoveries and tra n s fe rs fro m reserves T o ta l losses and tra n s fe rs to reserves P ro fits be fo re taxes Taxes on income N e t p ro fits Cash d iv id e n d s 153.9 - 3.3 - 2.1 20.8 + 5.6 + 36.8 — 8.1 + 10.5 + 3.9 + 6.6 + 3.0 + + + + 20.2 7.9 7.5 8.2 6.7 0.5 32.0 142.8 56.0 86.8 47.7 Reserve C ity Banks N e t c u rre n t e a rn in g s To ta l recoveries and tra n s fe rs fro m reserves T o ta l losses and tra n sfe rs to reserves P ro fits b e fo re taxes Taxes on income N e t p ro fits Cash d iv id e n d s 76.6 - 0.4 - 11.2 + 7.1 + 173.2 14.9 73.0 31.8 41.2 24.0 - 6.7 + 13.5 + 5.9 + 7.6 + 1-9 + + + + - 2.9 31.0 22.7 22.8 22.6 8.6 C o u n try Banks N e t c u rre n t ea rn in g s T o ta l recoveries and tra n s fe rs fro m reserves T o ta l losses and tra n s fe rs to reserves P ro fits b e fo re taxes Taxes on income N e t p ro fits Cash d iv id e n d s * 77.3 9.6 17.1 69.8 24.2 45.6 23.7 — 3.6 — 1.5 - 13.5 — — - — — + 7.6 4.1 7.6 2.1 4.9 + 1.4 3.0 2.0 1.0 l.l D e ta il may n o t add to to ta ls due to ro u n d in g . 15 FO R TH E R E C O R D . . . IK1HFY Third Federal Reserve District United States Per cent change Per cent change Jan. 1962 from J a n .1962 from Factory* Department S to re f Employ ment Payrolls Sales Per cent change Jan. 1962 from Per cent change Jan. 1962 from Per cent change Jan. 1962 from Check Payments Stocks Per cent change Jan. 1962 from SU M M A RY mo. ago year ago mo. ago LO C A L CH AN G ES year ago mo. ago M A N UFA C TURIN G 0 Electric power consumed. . . . Man-hours, to ta l*...................... Employment, to ta l........................ Wage income*............................. + - 3 2 1 2 + 18 + 4 0 + 8 - i + 3 - - 4 +29 - 2 + + 3 + 8 - 1 + 11 Lancaster............. TRA D E*** Department store sales.............. Department store stocks............ - 2 0 + 10 + 7 - 4 + Philadelphia. . . . 5 Reading............... BA N KIN G (All member banks) U.S. Govt, securities................. O the r............................................ Check payments........................... + 7 + 5 + 9 + 11 + 4 +25t ,++ ,o ‘ Production workers only. “ Value o f contracts. •••Adjusted fo r seasonal variation. year ago — i + 16 mo. ago — 3 - 2 + 1 + 8 + 7 + 11 + 9 + 16 + 14 6 ot + + year ago mo. ago year ago mo. ago year ago + 10 + i 3 0 + 2 + +23 + 10 8 + Scranton............. 2 - 6 0 — 1 + 6 - 1 + 3 0 +14 - 0 + - 1 - — 1 + 15 + 12 +11 +19 + +25 2 + 1 +10 6 - 3 1 + 11 + 1 +10 4 + 12 +13 + 5 +15 +21 0 - 4 + ^ + + 8 - 3 +10 0 1 0 3 0 0 0 + 1 t2 0 Cities ^Philadelphia Tre n to n ............... - 3 - 1 - 4 + 12 W ilkes-Barre. . . + 1 - 1 - 2 + W ilm ington. . . . PRICES Consumer....................................... mo. ago 7 0 + COAL PRO DUC TIO N — 3 - 3 0 0 - 1 + 4t year ago + 12 C O N S TR U C TIO N ** Loans............................................... Per cent change Jan. 1962 from - - 7 - 4 - 9 0 - York..................... - 1 - 1 0 + 5 -1 1 + + 10 + 3 3 4 6 + 4 +14 6 — 3 + 6 - 1 +15 + 5 +12 + 3 +51 - 8 +16 + 7 + + 7 2 + 1 + 11 + 16 *N o t restricted to corporate limits o f cities but covers areas o f one or more counties. fAdjusted fo r seasonal variation. 7
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