League Conference: A Conversation with Peter Pastreich

The final musician session was a conversation with Peter Pastreich, a well-respected manager in the orchestra world, having served as Executive Director of the San Francisco Symphony for 21 years. Prior to that he served as Executive Director at the Saint Louis Symphony, the Kansas City Philharmonic and the Nashville Symphony. More recently he came out of “retirement” to lead the Philharmonia Baroque in California from 2009 to 2012. He has consulted extensively across the country and in Europe. Bob Wagner (NJ Symphony) announced that this was Peter’s 50^th League Conference – there had been a celebratory gathering for him the previous evening.

The organizers of the musician constituency meetings asked Peter to present his personal views on where the industry is now, how it got to where it is, and where it’s going. While not an exact transcript, the following is quite close to Peter’s actual presentation.

Peter: The timing was lucky; from the 60s until recently we’ve had an uninterrupted expansion period – the economy was exceptional throughout the country as well. We are affected by what happens in the outer world recessions – we had one in the 70s, two in the 80s, and one in the 90s – but they didn’t affect us very much. We are aware of them – we have dips in ticket sales – but they didn’t really touch our people, the wealthy, white, upper middle-class patrons. Say what you like but without them we’re dead.

2008 was different. No orchestras are moving towards 52 weeks any more. We all wanted musicians to make a living, and most managers of my generation wanted their orchestras to be able to serve their community in a way they couldn’t when musicians were working elsewhere to make ends meet.

I went back to work full-time in 2009 and it wasn’t as much fun because it was a different atmosphere. The recession had hit hard and 1/3 of our board members lost their jobs. Not the CEOs but high level executives; they had to resign from the board. Major orchestras were also experiencing problems, with long-standing board members who now couldn’t afford to support orchestras. Corporations were deeply affected, and there was a new feeling about corporate responsibility. It was no longer possible for them to use corporate funds to do personal philanthropy – things were much more restricted. Every orchestra has lost lots of corporate support. There are still plenty of rich people but what a struggle it is for us! When I was with San Francisco and St. Louis, 1/3 of my time was devoted to fundraising. With the Philharmonic Baroque, it was 2/3 of my time.

There was a real crisis and it still exists. Many orchestras started an endowment – San Francisco had $6 million and then $160 million. Orchestras spent at least 5 ½% of the endowment each year. If you have a $20 million budget, you should have a $60 million endowment (three times the budget) so you get $3.3 million a year in income. But when the recession hits and the endowment goes down in value to $35 million, you’re in trouble. You cannot give away the principle, so now you have $1.2 million or so instead of $3.3 million. Where will you make up the difference?

There’s also a ticket problem. In St. Louis, there was inelasticity in demand of ticket pricing. We figured if we kept raising the prices, people would keep buying tickets. The recession stopped that; there was a real resistance to the new prices – those orchestras that cut prices sold lots more tickets.

The graying of audience: the whole population is getting older! If we are an art form that appeals to people over 55, that’s fantastic – we would have growing audiences. It’s not because kids don’t get music in the schools any more. Schools do a terrible job but the real reason people don’t come to our concerts is more that we’re expensive, they think they can get it on radio or TV, and they don’t see how they have time in their busy lives. You can easily spend $300 to go to a concert, with dinner, parking, and $100 orchestra tickets. In San Francisco the norm was a 24-concert subscription. Now if someone buys a 6-concert subscription, it’s call for a celebration. Lots of orchestras have tried cutting ticket prices – St. Paul Chamber Orchestra was the model. They sold enough additional tickets to make up for what they’d lost in cutting the prices. But then what do you do the next year?

I don’t regret that orchestras have a larger number of people buying lower-priced tickets. If we had twice as many concert goers, we’d have twice as many potential donors. And cutting ticket prices makes us more accessible, which is appealing to foundations. But many orchestras are in such trouble that just cutting ticket prices doesn’t cut it.

Musicians complain that there’s plenty of bad management out there, but it’s not because managers are no good. When orchestras were growing, adding weeks, and increasing salaries, I can’t remember ICSOM ever saying, “Boy, we have great managers!” Now that we’re contracting, ICSOM says, “The problem is management.” There’s a certain irresponsibility in seeing it that way, I believe.

At the Philharmonia Baroque, if we blamed bad ticket sales on the recession and not on marketing and programming, when we increased sales, would we give all the credit to the economy, or would we claim it was good marketing and programming?

Look at Minnesota – they continued as though things were normal. They kept giving increases to keep up with other orchestras – the musicians demanded parity, raise for raise. The only way they could pay their bills was to invade the endowment, and take not 5.5% but 12% or even 15%. Seattle took 17% one year. You’re reducing the endowment so you have less money the next year. With a 5.5% draw, the endowment holds its value. If you raid the principle, you’re eating the seeds, and then you can’t plant any more.

Question: Do orchestras budget for cash reserves or is the endowment the cash reserve?

Peter: A consultant recently said that orchestras were undercapitalized; this was a new concept for orchestras. Every orchestra could run out of money in a matter of months if there’s a downturn because they have no cash reserves. They can’t weather the storm. Why don’t we have them? We have to end the year with a surplus to generate a cash reserve, and managers have worried that if they submitted surplus budgets they would get into trouble at the next union negotiation. The San Francisco Symphony had a cash reserve for most of the time I was there – but we couldn’t maintain it for long.

I think we should start talking to orchestra members about the need for cash reserves: “You get a raise and we also need some a reserve. We need the money for R&D; if an opportunity comes along now and it takes some capital, we can’t do it.” An orchestra with a $20 million budget should have $2 million in reserve.

Question: Given the economic cycle, is there any reason why we couldn’t have a portion of contributions temporarily restricted?

Peter: Foundations set up such restrictions all the time. Recently during negotiations in Seattle, the musicians were mad because they claimed that management had restricted funds that could only be used for the endowment. They saw that as a dirty trick. But it’s really responsible management. If you start maneuvering the money so you’ll look like you’re in worse shape than you are, that’s bad management. You should be honest.

The future of orchestras: I am not worried that there won’t be orchestras in the future; there will be plenty of orchestras to manage 50 to 100 years from now. Look at all these kids in conservatories – if there were no future, why would they be there?

Back in the old days, we played and managed for half of what we are paid now. I did some consulting in Honolulu – they’re a basket case financially but the musicians are all still there. We all know that orchestras are not going away. If things turn bad and the board goes away, the musicians stay. Some orchestras are going down, but it’s not the end of our field. The gloom and doom in the press is a misunderstanding – the auto industry made some major adjustments and survived most successfully.

I’d like to offer three questions.

1) During the San Francisco strike, the musicians said the refusal to increase their salaries meant that the board had lost sight of putting artistic quality first. Do higher artistic standards equal better music? Can higher musician salaries ever damage artistic quality?

If we were a scientific business and we put all our income into salaries and none into R&D, we’d go no place. The orchestra field doesn’t do much R&D, meaning experimenting with new things, new types of marketing, trying to understand what we’re doing.

Artistic standards are not only in musician salaries. Yes, without music we’re nothing but we also need to use money for education, for new initiatives. We need to find a balance.

2) If maintaining parity is a sufficient reason to increase wages in an orchestra, even when we’re in financial difficulty (e.g., we can’t go below Minnesota because then artistic standards will drop and we’ll lose people), would the same thing not apply in reverse? If other orchestras are going down in salaries, why wouldn’t we look at parity to justify cuts? Why is parity only mentioned for increases?

In an honest negotiation, management needs to say, “Here are our real needs.” Orchestra salary and benefits are the biggest piece of the budget but they’re not the only thing.

3) Is an orchestra’s financial success, or a growing endowment or cash reserve, a reason to increase wages above inflation or parity?

I realize that all three questions are uncomfortable.

Question: On the 2^nd question on parity, yes, your quality should stay the same. In the real world, there can be huge problems.

Peter: If in the top five orchestras, three take freezes, and the management of the fourth says, “We want a freeze,” no one will leave for the other three orchestras, because there’s no financial advantage if they all took a freeze. These are old arguments about artistic standards.

Question: About the cash reserve and parity questions – it’s long term vs. short term thinking. Go back 50 years. We had to create the Congress of Strings to fill out orchestral string sections. Now that orchestras pay a living wage, we’ve raised the standards.

Peter: The way forward, based on ambition and drive, is that we want things to get better. No manager should want to just maintain the status quo or make it worse. Lots of orchestras are playing in halls that aren’t working for them – there’s a national crisis in concert halls. A central issue in the United States is that orchestras don’t have access to their own halls; they were built for them and now, when things are tough, presenting 3 weeks of The Lion King is more important than the orchestra. The hall can be taken for months at a time by visiting shows for short-term money, and orchestras are not playing during that time or they’re playing in inferior acoustics.

We need facilities that make us sound good – people turn away if it doesn’t sound that good and isn’t so exciting.

Question: How does the current focus on social needs impact giving to the arts?

Peter: If all we do is just play concerts, we’re in trouble. The next generation of musicians has to know how to talk to kids, play chamber music, do demonstrations, and teach. But there’s an over-emphasis on public service, as though playing concerts isn’t public service. At the opening session, Jesse asked “Are newspapers to journalism, as orchestras are to music?” We’re not a means to delivering something. The live concert IS the thing. The way you deliver is radio, CDs, etc. but we cannot do without the live concert and still get our music to people.

Basically, I am not at all negative about the future of orchestras.