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charge prices for admission which encourage potential audiences, without those audiences losing the sense that they themselves have made a deliberate and positive spending decision in choosing to go to the theatre. This in turn means that the fixed costs of the company, whether of payroll or other costs should - once they are shown to be reasonable - not be allowed to impact too heavily on seat prices. The advice of the scrutiny team on how to tackle the question of the funding base in future is set out in Chapter 1 of the covering report. 92. The calculations in paragraph 90 have excluded rolling guarantees and the supplementary grants as they are special sums to contribute towards accumulated deficits or touring costs. In January 1983 the Royal Opera House received a supplementary grant of £450,000 to ease its financial difficulties, thus increasing that year's grant to £10,000,000. But the serious problems come in 1983/84 and 1984/85. In 1983/84 the grant is due to be increased by 6.3%, after the 196 reduction, compared to a budgeted provisional increase in wages of 5% and expenses of 6%; thus the grant increase should have been sufficient, assuming box office revenue and private funding are maintained. But it is based on the 1982/83 grant of £9,550,000 ie exclusive of the supplementary £450,000 grant. Matters deteriorate further in 1984/85 with the grant increasing by 3% but wages are provisionally budgeted to increase by a further 5% and expenses by 5%. Whereas it could be argued that in 1983/84 the grant has increased in line with inflation, albeit on a lower base figure, there is clearly a reduction in the real value of the grant in 1984/85. The 3% increase is in line with the Government's targeted pay settlements for that year - there is a clear divergence of views with the Royal Opera House budgeting an increase of 5%. If these pay awards are made the budgeted shortfall of about £1.8 million in 1984/85 between the funding requirement and the annual grant will increase in subsequent years as the basic fixed cost of operations will have increased and the annual grant will have a low base. Summary of 1982/83 results Qualifications and reservations 93. It is not a simple task to interpret the financial results of the Royal Opera House. Operations are complicated by having three performing companies absorbing common services, two of which have the same base of operations. There are a number of critical restraints, the main one being stage time and others including the availability of guest artists and the terms imposed by them. These restraints and others make it difficult to plan the repertory in such a way to minimise costs. Many decisions which could reduce costs have a knock-on effect which bring into play operating restraints. For example, the proposition that popular operas should have longer runs in order to maximise revenue and to reduce rehearsal costs is subject to the availability of guest artists and may increase the risk of a poor box office. However, these very real difficulties make it all the more important to be able to measure the total financial cost of the different performances put on by the three performing companies. 94. In examining the 1982/83 results I have not had sufficient time to investigate in depth the reasons for all increases in costs. I have been able to ascertain where the costs arise, for example an increase in the stage overtime but not always why it was necessary to incur the overtime, except in the broadest terms. The Royal Opera House does have the means to investigate increases and variances in costs but it is sometimes difficult to interpret these reasons from financial records. For example, if the accounts department wish to find out why the orchestra is incurring extra sessions they need to refer back to the Orchestra Director, Mr Bram Gay. It could be argued that this is as it should be, and in principle I agree as the operational managers should have financial responsibility, but I believe that financial information should be improved - this is covered in Section 8. 51 Printed image digitised by the University of Southampton Library Digitisation Unit Fall in box office income 95. With the above reservations some broad conclusions can be made on the 1982/83 results. The main reason for the deficit rising to £1,050,000 after the annual ACGB grant but before the supplementary grant and rolling guarantees was the fall in the Opera box office. This cannot be overstressed. If in 1982/83 the revenue for Opera averaged 90% of capacity, which has been exceeded in past years, revenue could have been increased by as much as £0A5 million. The 1982/83 results were adversely affected by poor attendances at LA CLEMENZA DI TITO (receipts 64%) PELLEAS ET MELISANDE (receipts 41%) and DER FREISCHUTZ (receipts 61%). The previous showing of these operas managed receipts of 79%, 66% and 75% of capacity respectively. 96. All of these operas with some other financially disappointing productions fell in the latter half of the 1981/82 opera season, ie March to July 1982. The start of the 1982/83 season continued to be disappointing but recovered to some extent with productions of TOSCA (receipts 96%), CARMEN (receipts 96%) and DIE ZAUBERFLOTE (receipts 92%). I believe that the 1982/83 financial year did suffer through the incidence of poorly attended operas and to some extent this financial year paints a blacker picture than is actually the case as far as concerns trends in opera attendances. This view is supported by a review of revenue by season. The average revenue per opera performance was 84% of capacity revenue in the 1981/82 season and this has increased to an average of 86% in the 1982/83 season to 6 July 1983. What appears to be happening is that the popular operas with international stars still manage to fill the House, MANON LESCAUT was sold out, but there is poor demand for lesser known works. The recent performances of TAVERNER only had a 51% average paying attendance which generated only 44% of capacity receipts. 97. The downturn in box office receipts is attributable in part to the general recession but there is clearly a strong case for careful planning of operas especially whilst there is a shortage of funds. I recognise that the House cannot keep repeating the same popular operas but on the other hand they can only occasionally afford a TAVERNER. The planning of the repertoire and the balance between opera, ballet and visiting companies determine the financial outcome to a large extent and as such financial planning and repertory planning must be complementary. Repertory planning is considered as a possible financial option in Section 7. Expenditure 98. Box office income can be volatile; it is not under the direct control of the Administration - expenditure is under their control to a greater extent, but it has constantly outstripp&l the RPI over recent years. There is much discussion about the different levels of control which can be exercised over variable and fixed costs. Of course, the Administration can veto variable expenditure more easily, cancelling new productions or reducing touring weeks, but such expenditure should not be viewed as dispensible. Both forms of expenditure are necessary to produce and maintain the art. No expenditure should be classified as being "fixed", ie outside the control of management, the payroll should not be considered sacrosanct. But it is the size of the payroll which presents the problem and which is largely responsible for increases in expenditure. There has been a 14% rise in the average number of people employed in the period 1972/73 to 1981/82. An analysis prepared by Mr Adrian Doran showed that this increase of 128 people comprised 21 in the opera company, 29 in the ballet companies, 31 in the orchestras and 47 in the supporting staff. Some increases are due to the general pattern of less basic working hours in 52 Printed image digitised by the University of Southampton Library Digitisation Unit the UK; others are due to employment legislation; and to the change in the SWRB from being an experimental company to a full company in its own right. Only the production departments have reduced in numbers over this ten year period, from 167 to 154. 99. The major increases in expenditure during 1982/83 were: (1) 13.1% increase in the cost of the ROH orchestra to £1,588,000. Due to 796 pay increase; regrading (£30,000); more overtime and extra sessions (£75,000) (paragraph 59). (2) Overtime payments to stage staff increased by 16.2% to £658,000. Due to a mixture of work imposed by the repertory and the restrictions imposed by the House Agreement with NATTKE (paragraph 65). (3) Marketing expenses increased by 29.8% to £383,000 - specific strategy in view of poor box office (paragraph 66). (4) The combination of opening the Phase 1 development at the ROH and converting the LOG to workshops has increased running costs by as much as £95,000 (paragraph 70). (5) The cost of the SWRB orchestra increased by 45% to £355,000. This was mainly due to the introduction of the guaranteed 35-week working year (paragraph 73). (6) The pay of the dancers of SWRB increased by 16.7 to £679,000. The negotiated pay increase was 7%, the balance of the increase is mainly due to a higher grade mix (paragraph 74).

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