iewwp048.pdf

Institute for Empirical Research in Economics

University of Zurich

Working Paper Series

ISSN 1424-0459

Working Paper No. 48

The Rise and Fall of Festivals

Reflections on the Salzburg Festival

Bruno S. Frey

Juni 2000

27 June 2000

The Rise and Fall of Festivals

Reflections on the Salzburg Festival

Bruno S. Frey

(University of Zurich)

Abstract: The paper takes a closer look at cultural festivals such as musical or operatic festivals. From an

economic viewpoint the paper shows that such festivals offer great artistic and economic opportunities, but that

at the same time these opportunities are also easy to destroy. Empirical evidence from the Salzburg Festival

show that government support can have negative effects on the innovative and economically success of festivals

by introducing distorting incentives and imposing all sorts of restrictions. The paper draws policy suggestions on

how the state can support art festivals.

Keywords: cultural economics, festivals, opera, government support, subsidies, regulation

JEL classification: Z11

I. The Boom in Festivals

Virtually every city, or at least region, in Europe has its own musical or operatic festival.

While the festivals at Bayreuth, Salzburg, Glyndebourne, or Spoleto may be older and more

in the limelight than others, there are many thousands of festivals today

. Due to the problem

Only festivals devoted to serious music and operas are considered here. But even so, exactly what a music

festival is, is ill-defined. There are, of course, many other types of “festivals”, ranging from country music

to jazz, theatre, circus or films. A classification is e.g. provided in Getz and Frisby (1988). Economists have

tended to ignore art festivals as a general phenomenon; they have confined their attention to the local and

regional multiplier effects of festivals (see, e.g., Vaughan 1980 for the Edinburgh Festival, Mitchell and

Wall 1989 for the Stratford (Ontario) Festival, or O’Hagan 1992 for the Wexford Opera Festival), to the

welfare theoretic implications of subsidization (e.g., O’Hagan and Duffy 1987; Pommerehne 1992), or to

of how to define a music festival, no precise count exists; rough estimates range from one

thousand (Pahlen 1978, Dümling 1992) to at least two thousand (Galeotti 1992). A detailed

study by Rolfe (1992, p. 2) lists not less than 529 music festivals in Europe. Even in tiny

Denmark, roughly 45 festivals take place every year. An enumeration for France counts 864

festivals, of which 40 percent are devoted to serious music (Maillard 1994, p. 65). Another

source lists 600 festivals, of which 450 are devoted to serious art (L’Expansion 1994, p. 32).

An official publication by the French Ministère de la Culture comes up with 245 festivals of

serious music and opera for 1994.

Festivals became a significant part of the serious music and opera scene in the 1920s but the

real boom took place within the last 20 years. When the official “Association Européenne des

Festivals” was founded in 1952, there were 15 members as opposed to 58 now. Clearly, this

Association is very restrictive and limited to the most prestigious festivals. In its special issue

on musical events, L’Expansion (1994, p. 32) estimates, for example, that 6 out of 10 festivals

in France have been founded in the 80s. Festivals usually take place in summer and are often

very popular. Some festivals are permanently sold out and entrance tickets can then only be

acquired by good connections, or on the black market. The most famous example is the

Salzburg Festival, where ordinary visitors have to apply several times before they are able to

purchase (a restricted number of) tickets.

The boom in music festivals stands in glaring contrast to the financial depression in which

opera houses, orchestras and art museums find themselves. Many opera and concert houses

are under such intense financial strain that they are forced to cut down their activities, dismiss

artists, stage hands and other employees (if they are legally allowed to do so), or risk closing

down completely. Unit labor costs of production in the live performing arts (or more

generally in the service sector) steadily increase because the wage rates in this sector are

rising at a rate similar to that in the economy as a whole, while labor productivity in the arts is

more or less constant. This is the essence of the so-called Cost Disease. As a result, the live

performing arts of opera, concert and theatre are faced with a secular threat of survival

because of continually increasing cost

specific festivals (see, e.g., Frey 1986 for the Salzburg Festival; Galeotti 1992 for the Spoleto Festival).

Previous work by the author on the economic analysis of festivals; see Frey 1994, 1996, Frey and Busenhart

1996, as well as on subsidies to the arts in general, Frey and Pommerehne 1989, Frey 1999, 2000.

relative to other consumption activities

. The relevance of the Cost Disease has been

challenged for various reasons. In particular, if demand rises more quickly than that for other

outputs (the income elasticity is larger than one), and the price elasticity of demand is larger

than minus one, prices and revenues can possibly be raised sufficiently to keep pace with

rising costs. In addition, labor productivity may to some extent be increased by switching to

different art forms, for instance the use of chamber rather than symphony orchestras (Peacock

1984; Baumol and Baumol 1984), or by reducing the travel time of itinerant performers

(Baumol 1993). The basic idea has, however, been generally accepted and provides a

convincing explanation for why live performing arts suppliers are in perennial financial

difficulties, and why many of them have not been able to survive.

But why is there such a boom in music festivals though they also produce live performing arts

and should therefore run into the same financial problems as the established venues?

There are indeed major differences between festivals and established venues which serve to

explain why the former are booming while the latter face perennial problems. Section II

discusses factors on the demand side, and section III on the supply side. While festivals have

a considerable potential to be artistically innovative and economically successful there is a

constant danger that government intervention undermines this potential by introducing

distorting incentives and imposing all sorts of restrictions. Section IV illustrates this tendency

with the example of the Salzburg Festival. Section V suggests ways of how festivals can be

kept lively and innovative.

II. Demand

The following features highlight the special conditions festivals experience with respect to the

demand for their services:

1. High income effect. Consumers tend to spend an increasing share of rising income on

visiting musical performances. Scattered empirical evidence exists, suggesting that

econometrically estimated income elasticities of demand are greater than one. Throsby and

Withers (1979, p. 113), for example, find an income elasticity for performing arts services

The analysis of the Cost Disease is due to Baumol and Bowen 1966, and is sometimes also called Baumol’s

law. Major contributions to the large subsequent literature on the topic are included in Towse (1997).

of 1.55 for the United States 1949-73, and of 1.4 for Australia 1964-74 (full income). This

means that the expenditures for the performing arts rise by 15.5 percent, and 14 percent,

respectively, when the population’s disposable income rises by 10 percent. Brosio and

Santagata (1992, p.11) find for Italy that the share of expenditures for visiting the opera,

ballet and concerts in total expenditures has risen from 1.1 percent in 1970 to 2.6 percent

in 1988. The rise in attendance for performing art events is also documented in Baumol

and Baumol (1984). Festivals thus find themselves in the comfortable position of being in

a growing market. This does not, however, explain the growth in the number of festivals,

as opposed to regular arts venues.

2. Attracting new groups of visitors. A large share of the population rarely, if ever, attends

cultural events in opera and concert houses. Many people are overawed by the “temples of

culture”, feel insecure and unwelcome, and therefore do not even consider attending an

opera performance. This applies, in particular, to population groups with little formal

education, which are also short of cultural tradition (see Blau 1989, and DiMaggio and

Useem 1989).

The situation clearly differs for special cultural events which are broadly advertised, and

which are made attractive to new groups. This holds in particular for music festivals taking

place in “public spaces”, thus being more amenable to the great mass of the population,

and less prohibitive than the established temples of culture (see e.g. Rolfe 1992, p. 82).

Indeed, many festivals make a big effort to “go to the people” by e.g. playing in sport

stadiums or popular meeting places (such as inner-city parks)

3. Focusing attention. A festival seeks to attract consumers by presenting some extraordinary

cultural experience. They specialize on some particular artist (e.g. on Mozart), some period

(e.g. Renaissance music), some topic (e.g. courtly music), some genre (e.g. mannerist

music), or some type of presentation (e.g. original musical instruments). As a result, the

visitors interested in such particular forms of art come together, often from far away

locations. This development is supported by low and secularly falling travel costs.

Further contributions can be found in the special issue of the Journal of Cultural Economics (Vol. 20, No.

3, 1996) devoted to the topic, with contributions by Baumol, Cowen, Peacock and Throsby.

A good example is the “Opera Spectacular” which tours the whole world. Its production of Aida is normally

performed in sports stadiums, and has so far attracted many millions of visitors. Open air performances

have attendances of up to 45,000 people (in Montreal), which can be attributed to its concrete visual

elements (e.g. a sphinx 15 meters high, live elephants and camels), a large number of performers (roughly

600 supernumeraries) as well as the extraordinary emphasis on acoustic quality.

Festivals may even be compared to pilgrimages (Börsch-Supan 1993, p. 73) which also

have an aura of mysticism, and are surrounded by much commercial activity.

4. Newsworthiness. Festivals are news, and attract the attention of television, radio and the

print media, which is otherwise impossible to get to the same degree, and especially free of

charge. It is easy to get media people to report on the opening of a festival. This media

attention strengthens the festival director’s position vis à vis politicians, sponsors and

donors.

Operatic and musical performers get some media attention on opening nights but with few

exceptions, i.e. short of a scandal, the respective reports are digested by only a small

percentage of the population while the rest does not bother. Festivals offer much better

opportunities to get media attention because they present themselves every year as a

special occasion.

Closely connected to novelty is the limited duration of festivals. The restricted time raises

prospective visitors’ incentives to really attend, while a visit to the local opera house or

concert hall is easily put off in the expectation that nothing is lost thereby.

5. Low cost to visitors. Festivals are closely connected to tourism (see e.g. Getz 1989,

O’Hagan 1992, p. 65). The French characteristically like to name them “estivals”, in order

to indicate that they normally take place in the summer tourist season. It has been

econometrically estimated that as tourists have their income situation improve back home,

they increase their vacation expenditure and correspondingly demand more cultural

experiences during their stay abroad (Gapinski 1988). A considerable share of visitors

comes from out of town, from another region, and often from a foreign country.

The combination of a cultural event with tourism lowers the individuals’ cost of attending

in various respects. In the case of the increasingly popular package tours, the consumers

only have to take the initial decision and all the rest is taken care of by the travel agent. In

the case of operatic and other musical performances, where it is often burdensome to

acquire the tickets, this reduction in decision and transaction costs is substantial. Festivals

should thus be considered one input into a consumption production function (Becker

1976). The total cost of the output consumed is made up of the cost of the various inputs

which comprise, among other expenditures, the travel costs which have been secularly

declining (especially if one takes into account the reduced time input required). This

argument, however, also holds to some extent for a combination of tourism with regular art

venues.

6. Low price elasticity of demand. The strong attraction of festivals to tourists and people

from out of town paying day-visits also affects the price elasticity of demand. Tourists tend

to compare the ticket price to expenditures for the trip as a whole. A given price rise then

appears small only and does not have much impact on demand (Thaler 1980).

The low price elasticity of demand, compared to the permanent venues, gives the managers

of festivals more leeway to increase their revenue by increasing entrance fees. It may

indeed be commonly observed that the entrance prices for festivals are often higher than

for traditional performances. This suggests that entrance fees are more fully used as an

income source when tourist demand is higher.

7. High demand by business. Festivals offer many opportunities to make money. Indeed,

there is a large literature documenting the monetary profitability of such cultural events.

Not only do they extend to the tourist industry but also to firms catering for the production

of festivals. There is a direct benefit to the recording industry. CDs and videos of classical

music have become a huge commercial enterprise, with correspondingly high profits.

Festivals provide an excellent opportunity to hire superstars for often very large crowds of

spectators. This effect is greatly magnified if the performances are televised and

propagated by CDs and videos. The recording companies also use festivals to launch the

careers of their future stars. As festivals are less regulated than concert and opera houses,

these companies can more easily influence the program to favor the artists they have under

contract (this has been particularly noted at the Salzburg Festival, Frey 1986). The same

applies to the sponsoring activity of companies producing goods unrelated to the arts. At

festivals, they can appear more prominently and can therefore expect more publicity from

a performance for a given sum of money.

III. Supply

There are five major determinants of supply of festivals which contrast with the conditions

faced by the permanent venues and contribute to the festival boom.

1. Low production cost. The absolute cost of many festivals is certainly high. But it is low

compared to the sum of money they would require if all the resource inputs used were

attributed to them. Important resources are taken from the permanent venues and only

marginal (additional) costs are covered by the festival itself.

As most festivals are organized during the summer holidays, they can hire much of the

artistic and technical staff at marginal cost, as these persons are otherwise not employed.

They can also to a considerable extent draw on volunteers. In the United Kingdom, for

instance, almost 40 percent of the over 500 arts festivals are run by unpaid staff (Rolfe

1992, p. 1), but that source of labor is also important in virtually all festivals (see e.g.

Curtis 1990, p. 4; O’Hagan and Purdy 1993, p. 161). The locations at which the festivals

play are often “public” (they belong to the state or the church) and can be rented at a

nominal charge, and are frequently free (Rolfe 1992, p. 62; Galeotti 1992, p. 133). This

makes sense, as many of these venues are otherwise unused, as for example the Roman

theatres in which some festivals (Verona and Orange are well-known cases in point) take

place.

2. More scope for artistic creativity. Permanent opera houses and orchestras are strongly

bound by the clientele they have to cater for. They often find it impossible to interpret

classical plays in a new form, and even more to perform modern and/or unknown plays,

because they risk losing their regular customers. The holders of season tickets with mostly

conservative taste are, moreover, strongly interested in what is presented and form a

powerful lobby, which can exert considerable pressure on the managers and the subsidy-

giving politicians if they are dissatisfied with “their” opera house or orchestras. As a

consequence, the directors have little possibility of fulfilling their artistic conceptions of

originality.

In contrast, independently organized festivals provide a possibility of exhibiting artistic

creativity. Festivals may well specialize in an audience honoring unorthodoxy, excellence

and special tastes. While a permanent opera house or orchestra only performing

contemporary plays and music comes under heavy pressure from their established

clientele, and is quickly forced by the subsidizing politicians to conform to broader tastes,

a festival exclusively devoted to such contemporary art may well prosper.

3. Evading government and trade union regulations. Cultural institutions’ freedom to act is

restricted by two major institutions, the government and the trade unions

(a) Administrative restrictions. In continental Europe, establishments of classical music

and operas, as well as of art museums, are to a large extent either directly part of the

public administration, or at least have to follow the administrative rules of the public

sector as they are heavily subsidized by it. In particular, they are subject to the “non-

affectation principle”, according to which all expenditures are covered by the public

budget, and in return all the revenue goes to the public treasury. All revenue thereby

gained is “taxed” by the public treasury at one hundred percent as the subsidy is

correspondingly reduced. Indeed, the effort to gain own revenues is taxed at more than

one hundred percent in the long run, because the budgetary authorities become aware

of the money-earning potential and correspondingly tend to reduce future subsidies.

As a result, arts institutions (as well as all other governmental units) have no incentive

to gain revenue by their own efforts, e.g. by ticket sales or income from auxiliary

activities, such as recordings of operatic and musical performances.

Many festivals are organized as private enterprises, in which public bodies are at best

one of several members. As a consequence, the directors of music festivals do not

have to conform to administrative regulations, and in particular do not have to transfer

surpluses to the public treasury, but can use them in a way they find sensible, above all

to invest them in innovative features of their festival. The directors risk losing their

degree of freedom to the extent they accept, and become dependent on, public

subsidies, in which case the festival’s possibility of engaging in artistic originality is

reduced to the low level corresponding to established opera houses and orchestras.

(b) Employment restrictions. One of the most stringent public regulations imposed on art

institutions pertains to government sector employment. The virtual impossibility of

dismissing inefficient or downright destructive employees, promoting and paying

employees according to performance, and adjusting working hours to needs, are major

factors reducing creative endeavors, and turning art institutions into mere

bureaucracies. Additional regulations have been pushed through by the trade unions,

and are often fully supported by the government. Festivals make it possible to evade at

This argument especially applies to Europe. In the United States, where generally less regulations are

imposed on cultural institutions (at least compared to other institutions), the incentive to evade regulations

least some employment restrictions, especially as most of the respective employees are

only part-time and temporary, not union members, and therefore not legally bound by

trade union regulations.

4. More sponsoring. Politicians and public officials have a pronounced interest in festivals.

They not only respond to the respective demands of the arts world and the local business

community, but it gives them an excellent opportunity of appearing in the media as

“patrons of the arts” (with tax payers’ money).

Business is also more prepared to sponsor festivals than regular activities where legal

provisions often hinder sponsoring. The most important reason is certainly not only the

higher media attention of these events and their particular contribution, but also that an

individual firm has more control over the funds contributed, and sees less of it wasted by

an inefficient bureaucracy than in opera houses. Sponsors “want a well-defined, high-

quality event aimed at specific audience” (The Economist, 5 Aug. 1989). For the reasons

given above, the corporate sponsors also feel that their contributions add to cultural output,

and do not simply induce the government to provide less subsidies.

5. Career enhancement. As a result of increased internationalization, particularly with

European unification, many of the top positions in opera houses and orchestras are open to

foreign competition. The normal career pattern has thus changed from staying all one’s

life in one house, and reaching a senior position by internal promotion. In order to

successfully compete in this changed setting, the directors have to make themselves

internationally known. An excellent means is to actively participate in festival.

The discussion has shown that festivals have substantial possibilities to be artistically

innovative and at the same time economically successful. A major reason is that festivals are

less bound by restrictions than are the traditional venues. However, government interventions

have a perennial tendency to undermine these advantages. In particular, the way of

subsidizing festivals may easily distort the incentives to be artistically innovative. This

tendency is strengthened by the fact that accepting government subsidies in general means

that the recipient festivals have to conform to the many restrictions going with public

activities. The next section demonstrates for the case of the Salzburg Festival that this danger

is lower. The empirical picture is consistent with that observation: fewer festivals take place in the U.S. than

is indeed real, and that the outcome may well be that festivals become as inflexible as the

traditional venues.

IV. Problems of Government Intervention

As the general discussion of festivals has indicated, the government support of art and culture

is not without problems. The Salzburg Festival (an extensive discussion from the economic

point of view is given in Frey 1986) is taken as a prominent example. A law has been

promulgated forcing the state to carry whatever deficit arises. The total deficit is covered

jointly by the Austrian government, the Salzburg province and the city of Salzburg. The

budget restrictions on the Salzburg Festival fund (with four directors and a president) are

therefore extremely weak. Effective restrictions on deficit coverage can only arise if the

financing possibilities of all the bodies subsidizing the festival were no longer adequate, and

the law was correspondingly amended. Of course, not even in that case is the money just

handed out to the Festival. Formally, it is decided by the four bodies mentioned above. Yet

these bodies are constrained by the law requiring them to cover the deficit. Also, as the deficit

concerns all four of them, it has the nature of a “public good”: a particular body has only

muted incentives to try to reduce the deficit. The benefits of such activity accrue to all while

the considerable costs in terms of conflicts engendered fall on the body trying to reduce the

deficit. Finally, the individual members of these bodies, mainly politicians and bureaucrats,

have no incentive to fight for a reduction in the subsidy. They personally benefit from good

relationships with the Festival organizers as they receive free entrance tickets and are invited

to the trendy social occasions.

As a consequence of these extremely favorable conditions for the festival fund, its directorate

pursues a remarkable redistributive policy. The Austrian taxpayer is burdened with financing

the subsidies, while the benefits are divided among the directorate, the employees, the artists

and a selected group of visitors. The wide discretionary room of the directors is reflected in

the typical rent-seeking activities of the festival:

1. Entrance tickets are sold at prices lying substantially below the equilibrium price, with the

consequence that demand constantly exceeds supply. For example, in 1981/2, when the

number of persons attending amounted to 175,000, a total of 35,000 requests for tickets

in Europe (see Frey 1994).

were rejected. In this way, the directorate can claim to be charging “socially appropriate”

prices, which in turn is good for their prestige. But the resulting costs have to be borne by

the anonymous taxpayer. The directorate is, moreover, able to hand out tickets, which are

otherwise hard, or impossible, to obtain for interested demanders, in a discriminatory

fashion. The main recipients of these tickets are festival administration workers, press-

persons and individuals from whom political support to the festival may be expected. The

emergence of a black market in tickets, moreover, provides a fair-sized group (including

hotel employees) with an opportunity to make money by selling the tickets at a higher

price than the official price.

2. The quasi-automatic coverage of deficits allows artists and administration workers to

receive considerably higher wages than elsewhere, i.e. pure rents are paid. This is evident

from Table 1, which gives a comparison of wages for administrative staff of the Salzburg

Festival and the Bundestheater in Vienna. It should be noted that the wages have been

made comparable by the Austrian Court of Accounts (Oesterreichischer Rechnungshof

1984, 1988) – except that the Salzburg Festival plays only for a fraction of the time the

Bundestheater does. The rents are not only paid in the form of excessively high current

monetary incomes, but also in the form of additional retirement pension entitlements and a

number of fringe benefits (gifts, subsidized travel, etc.).

Table 1: Wages of Administrative Staff of the Salzburg Festival and the Vienna Bundestheater (with

functionally equivalent duties); 1981-82, in Austrian Schillings.

Administrative area Salzburg Bundestheater

Ticket sales 814,000 314,000

Buildings 821,000 467,000

Press Office 775,000 434,000

Technical section 797,000 679,000

Note: The Salzburg Festival lasts five weeks, while the Bundestheater plays for ten months. The wages indicated have not

been adjusted accordingly.

Source: Oesterreichischer Rechnungshof 1984, section 1.31.1.

3. The organizers of the Festival have little incentive to keep down costs and to aim at an

efficient management. As a result there is widespread and considerable inefficiency and

waste. A drive for efficiency would create serious conflicts with the artists and other

employees while the cost savings only result in a reduction of the size of the subsidy

received. Such a reduction is of little or no benefit to the Festival directors. Rather, with

respect to their prestige and careers they greatly benefit from hiring the best possible artists

and mounting highly acclaimed performances irrespective of costs. As the Rechnungshof

stated in its report (RH 1984, 1.15.3), the organizers choose the plays to be performed

independent of the expected monetary net return, and sometimes even violating obvious

cost considerations.

V. Conclusions

The purpose of the discussion was to show that festivals offer great artistic and economic

opportunities, but that at the same time these opportunities are also easy to destroy. There are

two policy conclusions to be drawn:

1. The government subsidies must be given with great care. From the very beginning it has to

be carefully checked whether a planned festival needs any monetary subsidies at all.

Alternative ways of support may be not only economically more efficient but also be

preferable from the artistic point of view. In particular, the government can support a

festival by allowing performances in public spaces and public venues. As most of them are

little or not used alternatively, they should be given at a nominal or zero charge.

In case a monetary subsidy is in order, the incentive of the organizers should not be

destroyed. They must be motivated to produce as large total social benefits as possible

while keeping total social costs as low as possible. Total social benefits of course do not

solely consist in monetary revenues but in the aggregate willingness to pay for the festival.

Also, the purpose cannot be to minimize monetary cost but negative external effects (e.g.

in terms of noise and additional traffic induced) have also to be considered.

Under no circumstance should the public subsidies work against an effort by the festival

organizers to produce as much commercial revenue as possible without reducing artistic

quality. In particular, they should not be punished by a reduction in the subsidy when they

are able to raise revenue. Rather, such a laudable effort should be rewarded by increasing

the subsidy. Clearly, such a policy rule stands against the teachings of traditional public

finance as well as against practice. Nevertheless, it is compatible with an approach which

takes the organizers’ incentives into account.

2. The government should interfere as little as possible in the organization of festivals. An

effort should be made to prevent the many restrictions hampering traditional venues from

applying to festivals. Thus the rules governing the working hours of the artistic,

administrative and, above all, technical staff should be adjusted to the special occasion,

and the same should apply to pay scales.

Provided these two policy conclusions are observed, festivals have a chance to stay

innovative and to keep adding to the cultural life of a large, and often disregarded, part of the

population.

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