Presentation

Background

The Vidin State Philharmonic Orchestra is officially registered as a state organization situated in the town of Vidin, which is located in the north-west part of Bulgaria on the banks of the Danube river, at a distance of 200 km from Sofia. Vidin is an administrative, cultural and economic center in this region. There are factories of chemical industry and machine-construction as well as a branch of the Economic University of Svishtov. The whole region has faced lots of economic and social problems during the last decade - drastic decrease of the population, low purchasing power, high level of unemployment, difficult multicultural composition (besides Bulgarians Gipsies and Vlachs or Aromuns live here). Therefore the Orchestra plays a significant role as the only professional musical organization of that kind in a region of 120 000 inhabitants.

The Orchestra is one of the 4 regional orchestras in the country, officially recognized and financed by the Ministry of Culture. Its programming is a very wide one, consisting of world classical and contemporary music, as well as Bulgarian one. The orchestra has its own space for concerts and other activities - a separate nice building, located in the center of the town, which has a major hall of 315 seats and other additional places. The orchestra has a wide repertoire, high level of professionalism, diverse programming and regular audiences.

Uniqueness

• The main problem for any performing arts organization is the so called "Baumol's disease" - the expenditures are always more than the earned revenues, and this gap is increasing in time. One of the ways for overcoming this problem is to change the revenue structure. This organization is a good example for such an approach.
• The Orchestra is a state subsidized institution where the principle of the state budgeting has been fully applied for years now. Because of the declining national state budget in the country, the organization is forced to find additional sources of funding, mainly based on market principles. Therefore the Orchestra functions as an adaptive, flexible and dynamic structure.
• The Orchestra has a very effective organizational structure with minimal administrative personnel. This fact decreases the expenditures and is a good opportunity for combination of more functions among the personnel - technical, marketing, advertising, etc. The Director of the institution, Mr. Miroslav Krustev, is operating as a manager and producer, as well as a program director, which is not a common practice for the "budget organizations".
• The Orchestra links many of its events in the town and in the region with certain charities, hospitals, social organizations which creates an "additional social value" for the society. There were several charity concerts, organized in the period 1998-2000 in cooperation with several organizations - the Rotary Club, religion's NGOs, social foundations, hospitals and diplomatic circles.

History

The first steps towards the creating of the Orchestra date in the early 1910s. The amateur chamber orchestra was established in 1919. The orchestra became a state institution on April 28, 1949 and the following years were full of professional improvement and many music events. Brilliant and well-known Bulgarian musicians have been an inevitable part of the orchestra's history. (Some of them are: Konstantin Iliev, Pancho Vladigerov, Vassil Kazandjiev, Dobrin Petkov, Yordan Dafov, Georgi Robev, Stoyka Milanova.) A galaxy of foreign musicians have had the pleasure to work with the orchestra on short-term projects - Knusevitzki, Igor Oystrah, Rodendor Romero, Kyoko Tanaka, Arnoldo Estella, Michael Bussinot and many others.

Mission and aims:

After 1989, when the market principles began to invade the cultural field, the creative policy of the orchestra has been oriented towards:

1. flourishing the musical life of the town of Vidin and the north-western region of Bulgaria;
2. development of educational programs for children and young people;
3. support of young conductors and musicians;
4. access to a broader audience in the region;
5. active international contacts;
6. linking music with the everyday life of the citizens.

These aims testify that the Orchestra is not only a musical organization, but also an important social and cultural center in the North-West region of Bulgaria.

Activities:

The overall creative activity of the Orchestra during the last three years has concentrated on the following areas:

1. Various events in the town and in the region - festivals, music competitions, anniversary concerts, charity concerts. The most important are: VIth "Music and the Earth" International Competition; Konstantin Iliev music festival; concerts for the International Day of Music; anniversary concert for 120 years of liberation of Vidin from the Turkish Empire; 100 years of Gershwin's birthday.
2. Educational programs - including lectures, seminars, popular programs for teenagers, carnivals, "touching the music" programs.
3. International activities - tours abroad and guest concerts in the Netherlands, Austria, Switzerland, Yugoslavia and Spain, as well as international master classes for composers.
4. Recording activities with international partners and publishing of CDs, including a self-generated one.

The table below shows the Orchestra's major activities in figures in the period 1998-2000.

Audience:

Even though the Orchestra does not have a serious marketing survey, the internal data shows that the audience profile for the period 1998-2000 is as follows:

1. Age - fully depending on the programming. Popular programs and alternative concerts attract young people between 15 and 25 years old. Classical concerts bring audiences between 25-55 and 55-70. (These are different groups from a marketing point of view.)
2. Professional profile - mainly lecturers, teachers, lawyers, artists, musicians.
3. Educational level - mainly people with higher education.
4. Regional profile - concerts in the town attract mainly citizens of the town (around 76%).

The average attendance of the Orchestra's events is above the average of the country - around 86%. The table below shows the figures for the last three years.

It is obvious that the audience is unstable, which is a reflection of the difficult microeconomic situation in the country. Bulgarian citizens paid a high social price for the economic and political changes in the last years - great social stratification, decrease in the demand factors, restructuring in household expenditures. These negative factors had a serious impact on those segments, which were considered as regular audiences for the performing arts events. The level of attending of these events is anyway very high at the moment due to the so called "Model of Demand", which is typical for Central and Eastern Europe, e.g. the price and the household incomes don't sufficiently reflect the customers' decision making. Education, reference groups, family traditions and other non-economic factors are still much more important.

The main aims for the development of the audience at the Orchestra are:

1. to work on the audience's preferences towards Bulgarian classical and contemporary music and to bring world classical music closer to the average audience;
2. to attract those segments who don't participate in any music events - unemployed, retirees, marginal groups;
3. to implement direct mailing and subscription scheme for the regular audience;
4. to develop sales promotion strategy, including free transport for citizens outside of Vidin.

Organizational Structure and management principles:

The full time personnel of the orchestra is 55 persons, of which 51 professional musicians and 4 administrators - Director, Chief Accountant, Financial Assistant, Artistic Secretary. This is the most effective structure among other philharmonic orchestras of that kind in Bulgaria. The creative staff consists also of optimal number of professional musicians. All of them have higher education in various fields of music. The average age is 41. The Orchestra hires outside freelance musicians for certain tasks and projects.

The main administrative and management principles of work are:

1. balance of domestic events with the international activities;
2. diverse programming in terms of musical styles;
3. constant contacts with various organizations in the town - commercial and business companies, NGOs, foundations, banks, etc.

The Orchestra has a Creative Board which is a consulting body of the orchestra, helping in the design and implementation of the financial and musical strategy of the orchestra, as well as for the decision making procedure. The Creative Board has 15 members, including the Director and the principal players. This activity is not paid and it is not for fixed period.

The Public Expert Committee, which was established this year under the Cultural Department of the Vidin Municipality, is a supplementary consulting body, consisting of various important and recognized artists and individuals in the town. The public expert committee is one of the recommendations from the "Law for development and protection of the culture". Its main functions are:

1. to research and evaluate the projects, submitted for funding by various art institutions in the town;
2. to find out additional sources of financing for artistic organizations in the town;
3. to coordinate the cultural activities in the town;
4. to stimulate arts organizations and individuals for creating and implementing joined projects and programs.

Financing

Symphonic orchestras in Bulgaria: between the government and markets:

The market of performing arts in Bulgaria is highly differentiated, in terms of contents, forms, quality, etc. The symphonic orchestras in the country are divided into two sectors, depending on the ownership, legal status, financial schemes and expenditures:

1. Market sector - it has a very symbolic size, which gives it the characteristics of an incomplete market (not all forms exist there because of the high costs of some of them). These orchestras are not permanent.
2. Non-market sector - it prevails in the country at the moment. It could be defined as a "quasi-market", as a part of the public sector. The prices don't have an economic significance, because they cannot cover the production costs. Therefore the budget state subsidy is the main source of incomes for the performing arts organizations. The allocation of resources is mainly centralized. Mixed funding is regionalized at the level of municipalities. Sponsorship is still symbolic. The whole sector suffers from many non-market defects, which decrease its effectiveness. There is a high internal competition between institutions for financial sources. The state regulation comes in various forms and methods.

The new changes:

The Orchestra is functioning in a new and quite difficult economic and social environment during the last years. To understand better its financial structure and fundraising strategy, we have to take into consideration the new stage of development for all symphonic orchestras in the country after 1989, which is characterized by:

1. mixture of funding instead of the previous centralized form of financing;
2. enrichment in the repertoire and programming;
3. various forms of state budgeting, including project subsidies based on competition with creative projects;
4. appearance of the first private non-profit organizations.

There are also several serious problems facing symphonic orchestras in Bulgaria today, as follows:

• Privatization processes in the cultural field affect badly the properties of the symphonic orchestras.
• Important management positions are missing, or don't exist in the organizational structures of the orchestras - PR and marketing managers, sponsorship and fundraising managers, etc.
• A huge part of the personnel are full-time public civil employees with long-term contracts with very low salary base. It is an additional difficulty for a normal and efficient creative process.
• Economic statistical data at the national level are not reliable and up-to-date.

Competition:

The competition in the performing arts sector is a "non-pricing" one with underlining influence of the quality of the products and peripheral marketing services for the audience. This specific competition is a reflection of:

• a model of consumption where the quality of the product plays a significant role;
• prices are either economically insignificant, or the pricing competition is restricted to a limited extent.

That is why the Orchestra has a tendency of cooperation and co-projects with other organizations and individuals with the idea to lower the production costs and to decrease the ongoing deficit. The positive effects of such efforts are: increasing audiences, new financial sources; lower costs with the same or increased quality of the products, internal economy of scale by combined utilization of one management team.

The Orchestra does not have direct competitors in the region, because it is a unique organization of that kind. At the same time, there are lots of indirect competitors - all organizations which strive for the time and the money of the consumers - newly established computer clubs, restaurants, media industries, post-folk music business, gambling, etc. One of the new strategies of the orchestra is to find out possibilities for cooperation and sharing audiences with such institutions outside the pure performing arts world.

There is a serious change in the structure and utilization of the free time activities for people living in the North-Western part of the country - a huge part of it is used for working activities: people work for living in their leisure time as well. It is reflected to a great extent by the low participation in cultural events, including concerts and other life music activities.

Budgeting overview:

An important characteristic of the "budgetary organizations" in the arts is that the link between the self-earned incomes and overall expenditures is unbalanced, which is such for all "quasi-markets". The overall analysis on incomes and expenditures of the Orchestra shows that without state funding the orchestra would exist as a "post-marginal firm" (where the price is lower than the average variable costs). In such a situation the box office revenues cannot cover even the salaries of the personnel, which are in this case around 70% of the total costs including security. In the classical financial analysis such organizations are characterized by the fact that the sooner they leave the market, the less would be their losses. In the case of the Orchestra (as well as for other budgetary organizations) the sum of the various average incomes (self-earned and coming from outside) is equal to the average expenditures - it means that the organization has optimized its functions and has a maximum effect on the society and on its employees.

Sources of incomes:

The main sources of incomes for the Orchestra are:

• Internal - ticket sales, renting of places at the hall, tours abroad and in the country, specialized programs and joined projects, visiting conductors and soloists, recording activities, master classes.
• External - from the state and municipal budget, sponsors and foundations.

The Orchestra is an organization functioning in conditions of mixed funding between the state, the municipality and alternative sources. The financial and supportive role of the state is decisive. It comes in two main forms:

• Regular budget subsidy, covering mainly the costs for the personnel expenses (salaries plus social security), directly provided by the Ministry of Culture.
• Project subsidy based on submitting of creative projects and given on a competitive basis by the National Center of Music and Dance.

The table shows different types of incomes in percentages for the period 1998-2000.

*Opposite to the normal case, some of the visiting conductors bring income to the Orchestra. These persons are usually: young conductors or international visiting conductors who are interested in East-European concert activity.

The data show a very high degree of the self-earned (internal) sources of income, which has increased in the years - starting from 6% in 1998 and reaching the level of over 40% in the year 2000. It is a good sign of an efficient management style and a marketing strategy orientated towards offering the main products. It is obvious that the incomes from the ticket sales are very low because of various external and internal factors. There is also a tendency of a relative decrease of the share of budget subsidy in the total incomes. In conclusion, this organization is a very good example of surviving in the new market environment without commercialization of the products and drastic decrease in the production costs.

Pricing policy:

The prices of the orchestras are very specific - they don't cover the production costs and therefore the orchestras in general work under the production "break even point" as a rule. There is no "normal profit", the non-pricing incomes prevail. The prices don't have an economic, but a social significance in this case because of the type of the products and market specifics. This social significance is closely related to their functions and to the way of their forming (pricing strategies): these are so called "subsidized prices".

The average ticket price of the Orchestra's concerts and events is 2 BG leva (nearly equal to 1 Euro). In comparison, this is less than half of the price for a cinema ticket in the country. The price of the ticket covers only 11.8% of the real costs for a visitor. The main factors reflecting on the pricing policy of the Orchestra are:

External:

• overall decrease in the household expenditures for the citizens of Vidin and the region;
• reduction of the population in the town and the region;
• difficult social environment in this part of Bulgaria;

• type of the music activity and its style;
• time and way of presentation;
• participation of stars in the concert;

The Orchestra's pricing policy varies on different audience segments and is highly differenciated (from 0,8 to 4 leva). Future ideas of the orchestra are orientated towards implementation of subscriptions schemes (by themes, repertoire and time), as well as better price incentives for certain priority groups.

Major expenditures:

The fixed expenditures in the Orchestra for the last three years are 79,2%. They include: salaries, social security and membership in creative funds. Variable costs are 20,8%. The average labor costs (including social security) take the highest percentage. This cost structure is very typical for the orchestras which are labor-intensive and have a low rate of substitution between labor and capital.

We have to emphasize here again that the Orchestra operates with a very limited number of personnel - there are no extra costs, as they exist in many other state organizations of that type. In such a situation we cannot expect changes in the cost structure, because it is an optimized one. Therefore, changes in the incomes become much more important, especially the self-earned one, which reflect positively on the financial balance.

The productivity costs for a single concert vary according to the programming, invited external conductors and soloists, differences in the maintenance of the building depending on the season. The average costs are 1022 BG leva (538 Euro) in 1998, 1529 BG leva (805 Euro) in 1999. The increase is due to the following:

1. A wider repertoire and special stage effects (sound, lights, costumes) were required;
2. Increased fee to visiting soloists.

The main costs are the labor costs. Productivity costs at the Orchestra are in fact relatively low in comparison with the performing arts sector in general in the country.

Future

The main directions of the future strategy of Orchestra for the period 2000-2003 are:

• "Regional musical programs and projects" - annual Konstantin Iliev music festival; joint creative projects with other music organizations, charity concerts.
• "Educational programs" - aiming to stimulate young musicians and to attract new youth audiences. Some of them are: festivals for talented children, "New talents" music festival, interactive educational programs.
• "International cooperation" - joined projects with the "Huadeamus" foundation in the Netherlands, master classes for composers and conductors, concerts in Belgrade, tours in the Netherlands, Spain, Italy.
• "Public relations" - new printed materials for the orchestra, direct mailing and new promotion techniques, establishment of a new "Society of Vidin Fhilharmonic Orchestra' s friends".

These main directions correspond to the main mission and aims of the orchestra on a long-term. Programming and creative process strategy at the Orchestra are combined in a very efficient way with the financial, organizational and marketing strategy.

The cultural reality in Bulgaria is compelling to find a balance between the state, public and market principles. The process of building up these new connections is difficult, but not impossible. The case of the Vidin State Philharmonic Orchestra is a good example for success when an artistic organization is a dynamic, flexible and adaptive one, having a sense of innovative style of management.

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Note:

The performing arts are specific market commodities. They have some deficiencies which are an important reason why they hardly survive on the free market. The Baumol's cost disease (see: Baumol and Bowen: Performing arts - the economic dilemma, 1967) is one these deficiencies. The performance process has some specific economic features, like: predominate high intensive labour, low rate of substitution between labour and capital and limited role of technology. These important characteristics lead to:

1. constant labour productivity in the time and constant low revenues

2. growing expenditures - basically for labor (because the salaries are going up without increased labour productivity).

The result is a gap between the expenditures and the earned incomes and this gap is increasing in time. The possible solutions of the problem are:

a. Change the proportions of the revenues by drawing non-earned revenues: subsidies-government and public, private donations, awards. It's the most often used solution.

b. Change of the proportions of the costs:

1. by applying technology - decrease the part of living labour and increase the capita; growing the possibility of reproduction and distribution of the performance arts; it's hard solution.

2. by cooperation - improve the efficiency of performance organizations decreasing the fixing costs and winning the economy of the scale.

c. commercialization as a way of survival: raising prices and adjusting the repertory to a popular taste; it's marginally sure "solution".

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The preparation of this case study would not be possible without the great support and contribution by the Director of the Vidin State Philharmonic Orchestra and the Director of the National Center of Music and Dance in Bulgaria.