Culture as an Asset Class

The story going around, particularly in Ireland,  is that Arts and Culture are not – and can never be – a business because it can never ever turn a profit. Arts and Culture – by their very nature – are not commercial assets and are not worthy of investment. I mean look at all the struggling artists and small arts organisations fighting for a small piece of the tiny pool of state support. While it may or may not have a certain intrinsic or social value it’s just not a realistic investment risk.

Yet, according to Niamh Bushnell, Dublin’s Start-up Commissioner, 95% of all start-ups fail. 95%. That’s a hell of an attrition rate. It means that the risk of investing in a start-up is at least equal to, if not greater than, investing in arts and culture. And we need to bear in mind that no industry has a 100% hit rate. The market failure that we associate with Arts and Culture (and that is used to justify state subsidy) is at least on a par with start-ups. The big difference is that the failure is corrected in the Arts through subsidy, while in start-ups failure is accepted as an essential part of the ecosystem.  I accept that there are certain institutions and activities that should be funded, but not that the current model of funding is effective or that they should be denied access to private investment capital. But that’s a different discussion (watch this space)

I want to look at this story from the investors viewpoint for a moment. Because, to take the single example of theatre, an investor can realise a a very significant (30%+) return on an investment and turn the whole thing around in four months and I’ve never met a start-up that can offer that. Further,  if you choose to invest in a portfolio of productions over a three-year period you can also avail of a number of interesting tax opportunities depending on how you choose to promote and deliver the shows.


Theatre is what I know so I’ll talk about that. Dublin doesn’t have a West End or a Broadway (but there’s no reason why we can’t transfer or produce there). What we do have is a dominant player in the form of MCD and two venues (The Gaiety and The Olympia) with sufficient seating capacity to realise profit. Any deal you do with those theatres will see MCD taking control of the promotion: the PR, marketing and sales. Given their dominant position and their experience this makes great sense as they know how to sell tickets and if you have the right show they will deliver.

So, as an investor you have to do your due diligence on the Producer. Have they chosen the right show? Is the play known to the audience (The Field, Borstal Boy, Once, Shawshank Redemption for example). Is the author a guaranteed draw? (Martin McDonagh, JB Keane, Paul Howard for example) Are there at least two people in the cast with a national profile (Have they been on telly or in Film or “famous” in some other way). Is the director and the rest of the design team competent and experienced.

There’s a rule of thumb in commercial production: the audience must recognise at least three things about the production (the star, the writer, the play’s title for example).

A show with a four-week rehearsal period and a four and a half week run can cost between €200,000 and €500,000 depending on talent. The better known the talent, the more expensive the production but the higher the ticket price the audience are willing to pay. Let’s take a show with a budget of €350,000 and an average ticket yield of €45 with an 800 seat capacity for 31 performances (Including matinees). If the show is a hit then the box office gross is €1,116,000. The surplus is €766,000. About 50% of that will go to the theatre leaving an investor profit of €383,000. After royalties and producer share is factored in we’re looking at net profits of €229,800, or 65.6%.

100% capacity is unlikely but there’s an awful lot of wriggle room in 65.6%.

Add to this the new potential for live broadcasts into cinemas (such as the Metropolitan Opera and Royal National Theatre have embraced) and you have the potential for an international audience of 100,000 people in a single day, combined with the fact that the live performance becomes a digital asset capable of several cinema broadcasts and eventual TV and DVD sales along the model of Digital Theatre.

As soon as the investment in the live performance is tied up with broadcast then a range of tax reliefs and supports become available in the shape of EIIS and Section 481.

There are similar opportunities across the arts and culture industries.

Yes, an awful lot of what happens in Arts and Culture cannot show a profit. By the same token 95% of all start-ups fail. The principal reason that, as investors, we don’t consider arts and culture is the story we tell outselves: that culture is not a commercial asset. We need to tell ourselves a new story.






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