yale case 08-040 november 17, 2008 Seven Theaters in Search of Revenue

A Study of Pricing Strategies in the Arts Sector

Rebecca M. Rindler1 Sharon Oster2 Andrea R. Nagy3

How much should tickets to Saturday night’s show cost? Theaters weigh a number of concerns when deciding how to set admission prices.

Revenue is important, of course: theaters price tickets at the highest level the market will bear. But theater is different from other goods, and finances are just one factor that influences pricing decisions. Capacity also matters a great deal: companies want full audiences as well as revenue- generating ones. They must balance the need to maximize revenue with the need to maximize audience. In addition, most arts organizations attempt to expand the breadth of their audiences by reaching out to groups that seldom attend the theater. Revenue, turnout, and audience diversity are all factors that theaters take into account when setting ticket prices.

This case study examines the ways in which seven theaters from around the United States are capitalizing on high-demand shows while keeping programs accessible to all audiences. In order to achieve this balance, theaters vary prices according to several criteria.

First, most companies offer subscriptions for several shows in a season. Subscriptions are a way to generate both revenue and audiences: they provide capacity upfront, informing the theater of audience numbers ahead of time and providing income to pay for productions before they occur. Ideally, theaters would sell every seat ahead of time through subscriptions. However, in reality, they only cover part of their needs this way. Subscriptions in the U.S. have been on the decline, decreasing seven percent from 2001 to 2006, according to statistics compiled by the Theatre Communications Group.

This means that theaters must meet an increasing amount of their revenue and audience requirements through single-ticket sales. The groups surveyed use a variety of methods to market single tickets. Some adjust prices according to seat location, anticipated popularity of show, or day and time of performance. Some offer targeted discounts in order to fill seats, maximize revenue, or attract a certain demographic. At the same time as they adjust prices, theaters must be alert to the ways in which discounted tickets affect brand perception.

In general, theater companies are becoming increasingly sophisticated in their pricing strategies. From demand-based pricing to single-priced low-cost tickets, they are trying many different approaches to meeting their financial needs while keeping their programs accessible.

Demand-Based Pricing at Atlanta’s Alliance Theatre

Atlanta’s Alliance Theatre offers a variety of programming on two stages, including musicals, new plays, classic plays, and family fare. Runs are typically four to six weeks long. In its 2006-07 season, Alliance had a $10.5 million budget and 10,200 subscribers; it served over 100,000 patrons. Pricing Strategy

Virginia Vann, Director of Development and Marketing, says that her goal is to maximize the revenue of blockbusters in order to allow the theater to produce riskier, newer plays that will not bring in as much revenue.

Alliance modifies prices to meet customer demand. This strategy requires flexibility in the pricing structure and necessitates immediate reactions by staff members to demand patterns, but it maximizes revenue by charging the highest price the market will bear for performances.

Alliance uses the budgeting process to set average prices for each production in the coming season. For Broadway-style musicals or other proven products, the starting price might be set slightly higher. “You can always come down,” notes Vann. Alliance’s ticket prices are also benchmarked against their competition, which includes both touring productions and local theaters.

For a number of years, Alliance had a complex price structure with 10 different prices for each show. This was difficult to explain and sell, so in 2004 the marketing department changed the pricing structure to set only orchestra and balcony pricing in addition to pricing by performance. Pricing Adjustments

Using single ticket averages, the staff then determines the discount for subscriptions and the discount or markup for single tickets. Single ticket prices are not announced until later in the season, closer to the performance date, allowing Alliance to change the price as the demand changes.

Alliance’s pricing tactics are responsive. The marketing staff carefully tracks sales and raises ticket prices when demand has grown to the point where audiences will pay a premium. If there is high demand for a show early on, and the marketing staff suspects it may become a big hit, they will raise all single ticket prices. If performances are selling out rapidly, Alliance will offer VIP seats at a price of $125 each during the last two weeks of performances. In addition, staff will keep discounted tickets and comps (complimentary tickets) at a minimum to maximize revenue. This scenario is most likely to occur with popular musicals.

On the other hand, if a show is not selling well, Alliance will offer specifically targeted discounts. Discounts of 20 percent might be offered to special groups or through last-minute offers to the subscribers of atlantaplanit.com. These discounts are tightly targeted rather than offered to the general public, allowing Alliance to continue selling as many tickets as possible at the original price.

Alliance’s pricing tactics encourage subscription. Single ticket buyers can save by purchasing tickets early, but many continue to purchase later on in performance runs at a higher price.

In general, Alliance’s subscription and single ticket audiences do not seem to be particularly price- sensitive. A recent survey of subscribers showed little price sensitivity. For example, for the 2005-06 production of A Christmas Carol, audiences did not react adversely to Alliance’s price increases. In fact, the production earned $94,000 over its revenue goal, $65,000 of which came directly from price increases.

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At the same time as it attempts to use ticket pricing to maximize revenues, Alliance also is committed to broadening access to the theater by offering low-priced tickets, both to the general public and to targeted groups. Seniors, students, and members of the military receive discounts. Rush pricing and $15 tickets are available for most shows. According to Vann, these access goals are seen as part of the total pricing strategy, as lower-priced tickets are offset by maximized revenue on high-demand shows. Future Plans

Alliance’s future pricing strategy would involve “more science,” says Vann. “We have not done the kind of demand analysis, price/value research, or econometric modeling I would like to do.” Further development of pricing tactics is also a goal. Vann cites Pacific Northwest Ballet as an ideal; their Tessitura ticketing software automatically increases prices for remaining tickets when the house reaches a certain capacity.

Product-Form Pricing at La Jolla Playhouse

Southern California’s La Jolla Playhouse programs a variety of work, including six to eight main-stage plays and musicals each year as well as non-subscription new work. The theater often employs well- known playwrights and directors and is respected in the theater community for sending more than 30 productions to Broadway in its 30-year history.

In 2005, La Jolla had 9,700 subscribers, resulting in $1.3 million in subscription revenue. In the same season, it sold 50,000 in single tickets for $2.1 million in sales. The theater offers several different ticket prices to maximize both revenue and audience numbers. Pricing Strategy

La Jolla’s two pricing objectives are to maximize income from their most popular performances and to maximize audience through variable pricing for different performances, seating sections, and special opportunities.

Leandre Kearns, Director of Communications of La Jolla Playhouse, calls their income maximization strategy “highest highs and lowest lows.” This means raising prices for shows with high demand to maximize revenue and lowering prices for shows with less demand to maximize audiences. In comparison to Atlanta’s Alliance Theatre, La Jolla uses a more mathematical approach to setting prices. Whereas Alliance is willing to keep prices flexible, moving them up or down in response to changing demand, La Jolla often plans its blockbusters ahead of time.

In 2005, La Jolla moved to a “product-form” pricing model, a method commonly used by orchestras and opera companies. Using this strategy, the theater sets the price of the ticket in relation to the production’s attractiveness to the marketplace, rather than setting one price across a season. Theater management sets ticket prices based on the type of show, and the day of the week on which the show is performed. This method also allows La Jolla to lower prices in order to attract audiences to the theater’s more adventuresome works.

Kearns budgets and predicts income through an inventory occupancy analysis. This method involves looking at several shows from the past season that were mid-range performers (around 70 percent attendance). She calculates how many tickets in total were available by performance or day of the week, then separates by subscription and single ticket audiences. This allows Kearns to look at what percentage of seats were single tickets. She can then calculate the inventory “load factor”: the percentage of seats sold versus the theater’s total capacity. This calculation is useful in determining list price categories and price increases and decreases based on demand.

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Kearns differentiates between the value of the show (the ideal ticket price the theater would like to set), the list price (the price regularly quoted to customers before applying discounts), and the average price paid, which may be lower than the list price on less popular shows due to discounting. Kearns sets the list price at 80 percent of the value of a show they do not expect to sell well and 95 percent of the value of a show they expect to sell well.

Like the Alliance Theatre, La Jolla Playhouse occasionally raises prices for those performances, times, and seats that have higher demand. Kearns says they do this only when there are “a large number of patrons who will pay any price.” To manage price changes, Kearns watches inventory on a daily basis. She looks at how many people are attending and the average price they pay. Based on this information, she may raise prices higher than the typical musical prices ($40-72) or play prices ($34-60). When the marketing staff determines that there is greater than normal demand for a show, they add “gold circle pricing” – the best seat locations at a premium price of $75-100 per ticket. Higher pricing strategies might be used for La Jolla’s world premiere musicals, many of which have gone on to Broadway.

Kearns notes that premium pricing is not for every day or every show. Some low prices are necessary, in order to fulfill La Jolla’s goal of maximizing its audience numbers. In the 2007-08 season La Jolla also offered a lower priced series of new, experimental plays at a ticket price of $25. These performances were all non-subscription. When La Jolla made some aggressive price increases for many shows, the theater introduced a second tier of lower-priced tickets to fulfill capacity goals.. Pricing Adjustments

The price gap for La Jolla productions is wide: in the 2007-08 season, the most expensive tickets were $72, and the least expensive, $28. However, the company also offers discounts across the board for students, seniors, and military personnel. Discounts are also offered for shows with lower demand, mainly via email to specifically targeted groups rather than to the general public. In addition, La Jolla offers discounts to particular target groups who are not traditional theater-goers.

La Jolla also offers a rush line, with tickets available for $15 for a play and $20 for a musical 10 minutes before each performance. Rush tickets currently generate $100,000 each year, and Kearns estimates that 15 to 20 percent of rush buyers might become regular buyers. Rush buyers are frequent patrons: they attend La Jolla three to four times each year, versus regular single ticket buyers, 80 percent of whom only attend one performance each year. Kearns believes that price influences frequency, with single ticket buyers attending less often when shows are more expensive. Future Plans

Kearns would like to see La Jolla develop more price variables. The diversity of works performed and the amount of new work at La Jolla involves some risk for the audience, something Kearns would like to mitigate through price. Finally, Kearns would like to implement incentives to attract people in their 20s and 30s to the theater regularly, not just as a special event.

Three Strategies at Center Theatre Group of Los Angeles

Center Theatre Group is the largest theater company in Los Angeles. On its three stages, the Ahmanson Theatre, the Kirk Douglas Theatre, and the Mark Taper Forum, CTG offers a variety of shows, from musicals and well-known plays to new works and family-friendly programming. Though all are under the mantle of CTG, each presents different programming and has its own audiences and pricing structures.

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Pricing Strategy

Joe Carter, Ticket Sales Director at CTG, says the organization’s overarching goals are to maximize revenue while making affordable seats available so the entire market has the opportunity to attend. These two goals permeate the three separate strategies for CTG’s theaters.

The Ahmanson is CTG’s largest theater, seating 2,100. In the 2007-08 season, the Ahmanson featured all- musical programming, with both new shows (Avenue Q, The Drowsy Chaperone) and standards. The theater is a “scaled house,” with several pricing levels based on desirability of seat locations. Affluent patrons associate prestige with seat location and are willing to pay high prices for the theater’s center section and first 15 rows. Standard top prices for Saturday night are the highest, from $40 up to $100. CTG has been reluctant to price premium seats any higher for fear of audience reactions. The same seats on a weeknight cost $20 to $85. Extreme side seating is significantly less expensive than premium seating.

In the years before the 2007-08 season, CTG shortened runs at the Ahmanson Theatre to better match demand. Carter explains, “if you sell [a show] right, you can sell the same number of tickets in a shorter run.” The staff also tracked buying patterns in the Ahmanson, looking to see where people preferred to sit. The result was a pricing move from a single-price orchestra section to front and back orchestra pricing to maximize revenue.

CTG’s Mark Taper Forum is a mid-sized theater with 745 seats. The Taper mixes standard, well-known plays and playwrights (such as The History Boys and John Guare) with lesser-known works and new plays. CTG’s marketing staff tries to frontload subscribers into the season, offering deep discounts for subscriptions during previews to start word of mouth sales early. As a result, the base price for tickets is $35-45, but subscribers pay as little as $12 per ticket. The house is not scaled, so single ticket prices only vary by date and time of performance (weekday versus weekend and evening versus matinee). In 2006-07, after looking at subscriber buying patterns, CTG lowered the Taper’s subscription prices out of concern that subscribers were moving to inexpensive single-ticket seats.

The Kirk Douglas Theatre is CTG’s smallest theater, with 317 seats. In the 2007-08 season, the Douglas featured many experimental and new shows as well as one-person shows. The theater has a gallery, for which seats are always $20. Main floor seats are one price, though it varies based on the production as well as performance date and time. Previews are generally priced lower, though those shows are often sold out through subscription.

CTG has not fully delved into variable ticket prices and yield management techniques. However, for Jersey Boys at the Ahmanson in the 2007-08 season, the staff increased prices in premium seating up to $250 and expanded their $100 section. This was the first time CTG experimented with a late increase in prices. Carter says that they hope to use this technique more in the future: where demand is high for much-hyped works like Jersey Boys, increasing prices as tickets sell motivates audiences to buy in advance.

CTG offers affordable ticket prices for many shows through Hot Tix, a $20 ticket program based on the concept of the National Theatre of Great Britain's Travelex program, which created a single price with multiple buying options to make it a relatively easy ticket to purchase. Though tickets for these shows are limited, Carter notes that Hot Tix is useful for filling the house for performances with low demand. Predictive Modeling

CTG uses modified predictive modeling to look at past buying patterns based on the type of production (play, musical, revival, star show), the time of year when the production is presented, and similar past productions (for example, same playwright or movement in the history of drama). Carter has not yet used predictive modeling for prices, but he sees that as a future goal. He would also like to use introduce yield

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management. He believes that in general theaters understand how to discount prices but are only now learning how to raise prices.

Meeting Consumer Behavior at Actors Theatre of Louisville

nd Actors Theatre of Louisville completed its 42 season in 2006-07. Actors has a three-theater downtown complex, plus a restaurant and a lobby with local and regional artwork displays. The theater puts on more than 20 productions each year. It has an $8 million annual operating budget and total annual attendance of 200,000, with over 10,000 subscribers.

Actors’ three theaters are the main stage Pamela Brown Auditorium, a 637-seat modified proscenium; the Bingham Theatre, a 318-seat arena; and the Victor Jory Theatre, a small studio “black box” theater with movable seating for 159. In addition to a seven-play main-stage series in the two larger theaters, Actors Theatre offers a Discover series of experimental productions, plus three holiday shows and the Humana Festival of New American Plays. Pricing Strategy

James Seacat, Communications Director at Actors, says that the overriding principle for setting prices is adjusting to consumer behavior in order to maximize revenue. The theater’s methods for achieving these goals involve setting competitive pricing, scaling the house, and offering discounts. Through many different price and accessible ticket options, Actors ensures that their programming is available to all audiences.

Seacat uses data on what night customers attend and where they sit to guide prices. He also analyses other performing arts groups in the city to find the going rate for tickets, though he recognizes that Louisville is a relatively small market and Actors Theatre is one of the larger performing arts organizations. Actors aims to keep ticket prices affordable, setting prices that are “mid- to low-end,” according to Seacat, in part to differentiate themselves from touring Broadway productions.

Actors’ main-stage Pamela Brown theater is a scaled house with three price categories: prime, mid-price, and value. The price difference between value and prime seating for any given performance is about $20. The Bingham and Victor Jory houses each have two price points (prime and value), with a $10-20 difference between the two prices. Single ticket prices are tiered based on theater, date and time of performance, and seat location. Larger theaters, weekend dates and evenings, and prime seating make for the most expensive tickets. The theater also raises prices for musicals.

Actors Theatre offers many discounts to price-sensitive consumers. Subscriptions for students, seniors, and educators are heavily discounted. There is also a system of lower prices for previews meant to attract audiences to early performances. Main-stage five-play preview subscriptions sell out early, so single tickets are limited. To boost single-ticket marketing, Actors sometimes offers other special promotions for the first three to five performances of a run to boost word-of-mouth advertising.

As the performance run continues, the theater has another system of discounts to fill seats that are not selling well. In order to attract audiences for lower-demand weekday performances, the theater offers discounts to targeted groups, such as AAA members, local corporations identified by the theater’s development department, and general group sales. Also, the theater may offer specially priced tickets through its “last-minute discount” email list. In addition, Actors has two types of rush tickets. Quick Tix, open to the general public, are $25 tickets available from 4-6pm on the day of performance, and $17 rush tickets are offered to students and seniors 30 minutes before performances. In conducting research about single ticket audiences, Seacat discovered that single-ticket patrons were not subscribing because they

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knew there was always availability at a lower price through Quick Tix. As a result, Actors increased the prices of Quick Tix from 50 percent off the single ticket price to a flat $25.

Actors’ holiday shows have their own prices, which vary depending on demand. Less popular shows like Halloween-time Dracula have one-price houses, while the house for A Christmas Carol is scaled. Holiday shows are single-ticket only, though subscribers get a 20 percent discount, and “early bird discounts” are made available for the first two weeks of a run if the staff anticipates low consumer demand. However, excluding significantly discounted subscriber tickets, the holiday performances are typically huge income earners for the theater. Humana Festival

In addition to its main season, each year Actors Theatre presents six to eight productions at the Humana Festival of New American Plays. The shows are run in repertory, with multiple shows playing at the same time. The festival attracts a large out-of-town audience and has its own pricing structure.

Some are strictly single-ticket shows; these have the same prices as the season productions in the Bingham and Victor Jory theaters. Other shows are offered by subscription through the theater’s four- play “Discover” series. Seacat says that the theater staff has been talking about making all the Humana tickets one price, instead of using their varied pricing structure, but this has yet to be enacted.

The festival offers several types of discounts. All subscribers receive a 50 percent discount on tickets, with some receiving free tickets as subscription incentives. During the festival’s first two weeks, Actors offers $10 tickets to selected performances. This discount is targeted toward certain groups, such as the hospitality industry and young professionals, and is offered primarily through e-marketing in order to build local buzz about the festival.

In order to encourage patrons to see more than one production, in 2007, Actors offered a new initiative in which patrons who bought tickets for one Humana show were offered discounts for other Humana shows.

Maximizing Attendance at Berkeley Rep

Berkeley Repertory Theatre in California is an $11 millionth regional theater that prizes risk-taking in new works, commissions, and classic plays. In 2007-08, its 40 season, Berkeley Rep took its 140,000 audience members from a single-price house to a scaled house in order to maximize attendance. Past Pricing Strategy

Berkeley Rep’s past strategy was to maintain a high but competitive pricing structure and to offer age- based discounts for audiences under 30 and over 65. Until 2007, tickets were one price per performance, though prices varied by performance day, with Saturday nights commanding the highest prices. The average ticket price was $40. Discounts were used to manage inventory, such as pre-selling a show to fill seats early or putting a show on “fire sale” if it was not selling well.

In 2005, discounting was such a routine part of Berkeley Rep’s pricing strategy that the theater suspected it was underselling the idea of a premium product. The theater conducted research into attendance and pricing and found that audiences perceived Berkeley Rep’s prices to be high while providing only an average value. The data also showed that some customers valued the product more than others, and some customers were willing to pay more than others. The marketing staff concluded that the best way to raise the theater’s perceived value and increase revenue and attendance was to move toward a multi-priced house model.

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Current Pricing Strategy

A multi-price structure both maximizes revenue where possible and offers prices that increase frequency of attendance. This structure considers what customers are willing to pay and how Berkeley Rep can get them in the theater more often. One way Berkeley Rep thinks about its patrons is by their YVOC – the yearly value of the consumer. The idea is to have audience members with the highest possible YVOC, meaning they are spending a lot of money at the theater throughout the year. This happens with repeat purchases. Berkeley Rep’s strategy is to make other shows attractive to single ticket buyers to maximize their repeat attendance.

In setting prices for a scaled house, Berkeley Rep utilized competitive pricing, dividing the competition into two categories: premium and low-cost providers. Berkeley Rep is positioned as a premium provider with premium prices, with the goal of communicating the theater’s value to customers. Still, Berkeley Rep’s location outside of San Francisco means that tickets are priced lower than at theaters in the city. As a result, tickets are less expensive than their direct competitors, but high enough to maximize revenue without having patrons compromise on the number of shows they are willing to see.

In setting up a new pricing system, the theater also used predictive modeling, forecasting consumer behavior based on past data. The theater’s modeling predicted a loss in revenue if the number of tickets sold remained static. This forecast showed Berkeley Rep that it had to compensate for lower ticket prices by increasing the number of tickets sold. Pricing Structure

In its 2007-08 season, the theater introduced a new pricing structure designed to make performances accessible through low-cost everyday tickets and to maximize revenue among customers willing to pay a premium for better seats. Robert Sweibel, Director of Marketing & Communications, says the goal of this new program was to increase attendance and thereby generate more revenue.

The new pricing structure involves three ticket prices: premium, A-section, and B-section. The theater picks a single level of pricing and then discounts some tickets and increases the price of others. The premium section consists of the best seats in the house, priced at 10-18 percent higher than standard prices. The A section comprises the bulk of the theater, with tickets priced at the standard level. The B section comprises seats in the back and sides of the theater, with tickets priced at a discount below the standard price.

Berkeley Rep’s new pricing structure fulfills a number of marketing goals. First, it makes performances accessible with B-level pricing. As long as they have empty B-level seats, Berkeley Rep’s goal is to sell those seats. At the same time, it maintains a revenue stream from patrons comfortable with current ticket prices or willing to pay more. It also reduces discounting. The theater continues to offer age-based discounts, but with accessible prices offered every day, it does not need to aggressively offer rush tickets in the same way as in the past. Subscription prices are also discounted, varying based on performance time popularity and seating section. Pricing subscriptions is tricky, because subscribers generally value the theater more than single ticket buyers – and attend more often – but expect a discount in exchange for subscribing.

Sweibel hopes that less discounting will increase the perceived value of the product, which will lead to increased revenues. Although Sweibel is interested in high attendance, he also does not want to devalue the product. He notes, “I’d rather have the seats go empty than sell the tickets for less than what they’re worth. This is not New York – we don’t want to create a culture where people won’t pay full price.” The idea is to associate premium prices with premium value.

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Future Plans

Sweibel imagines that the ideal Berkeley Rep house under the new pricing system would be all subscribers, with the premium section sold out and the occasional empty seat filled at full price with no discounts. In the meantime, the theater is considering giving discounts for advance purchases of single tickets, so as not to reward audiences for being last-minute buyers. The marketing department is reluctant to over-discount tickets, as consumers will come to expect lower prices on more shows; as Sweibel remarks, “at this point, the consumer is a tyrant.” Berkeley Rep’s staff hopes that the new pricing model will lead to growth everywhere: more first-time subscribers, more repeat visits among single ticket buyers, and more first-time attenders attracted by the B-section pricing.

Predictive Modeling and Yield Management at the Stratford Festival

As the largest classical repertory theater in North America, the Stratford Festival of Canada produces multiple shows within the same week and focuses on established masterpieces rather than new works. A destination theater, it draws 550,000 audience members each year to its four stages. In 2005-06, the festival sold 528,373 tickets, generating $31.4 million in revenue and filling 70 percent of its capacity. Pricing Strategy

Stratford has three pricing objectives: • Optimize revenue. • Maximize capacity utilization within the theater (fill the theater to capacity at each price point). • Maintain accessibility for youth, seniors, families, and local audiences.

The Festival’s strategy involves highly specific discounting, scaled houses, and sophisticated yield management and predictive modeling techniques. Pricing Structure

Lisa Middleton, Director of Audience Development & Analytics, says that the Festival introduced many changes in pricing during 2004-06.

All of the Festival’s four theaters have scaled houses, ranging from A+ (highest premium) through C (value) seating. The Avon Theatre also has a D section. A and A+ seating always sell out first, followed by the C seats. In 2005-06, Stratford reduced its B-category pricing in an attempt to increase attendance.

Stratford’s pricing structure uses a number of standard discounts. The first is a series of age-specific discounts, focusing on young people and seniors, which are available only for specifically scheduled performances. Stratford also offers discounts for previews in the spring and fall to fill seats, meeting the goal of capacity utilization. It also offers rush tickets and tailored discounts promoted through direct marketing.

The festival also offers a number of online discounts, including “Play On,” an online discount for young patrons; “Play Encore,” which offers 50 percent off selected dates and seats purchased online; reduced preview tickets; and many online-only discounts. Stratford’s highly specific discounting encourages attendance for certain groups without lowering the ticket cost for the general public.

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Yield Management

Beginning in 2002, Stratford implemented a new type of yield management, setting many different ticket prices based on seat location, type of show, and how long before the performance the ticket was purchased. It began by applying yield management only to musicals in the summer. The theater focused on encouraging early purchases and maximizing revenue on later ones. Then in 2003 and 2004, price levels increased by 10 percent 60 days before the show, and up to 15 percent 30 days before the show, depending on demand. In 2005 and 2006, the theater applied a single 15-percent premium at 60 days before the show.

Then in 2007, yield management was applied to all shows based on demand. The festival increased prices by 15 percent 60 days before the show, encouraging customers to book early. As sales proceeded, the model compared current sales to past sales, allowing staff to predict demand and change prices based on trends.

In 2005 the festival changed its rush policy. Previously it had held seats in the back rows of two of the larger theaters and offered a discount rush price. In 2005, it moved toward a system in which the best available seats go on sale two hours before the show at a 50 percent discount.

Stratford uses sophisticated predictive modeling in order to maximize revenues. At the beginning of the season, the theater looks at individual patrons, predicting how many tickets the customer will buy for the upcoming season based on their buying history. Then after tickets for the season are on sale, the model is run again, taking recent purchases into account in its predictions. Using this data, the Festival can build customer profiles, improve customer segmentation, and make more accurate predictions. As a result, yield management can be precisely tailored to consumer behavior and predicted demand.

The Festival also uses predictive modeling for donations. The model predicts a dollar amount for new donors and shows current donors’ likelihood to increase, maintain, or decrease their giving. The staff can identify donors who have a greater potential to give and donors who are at risk of decreasing or not renewing their gift. Future Plans

In the future Middleton would like to see more automatic yield management modeling. She would like to better use historical data to forecast actual revenue from shows, and use that data to help season planning. With data on ticket revenue for certain production dates, the production team will have more tools to schedule productions for times when audiences will attend. Middleton also hopes that more information about Stratford’s customers will lead to more sophisticated predictive modeling, and in turn, generate more income.

Pricing for Access at New York’s Signature Theatre

Signature Theatre Company is a $3 million off-Broadway house specializing in American plays and playwrights. The theater focuses on one living playwright each year, performing three or more of the writer’s works, both past writings and new plays. Signature prides itself on high-quality work and the direct involvement of the playwright in the productions. The theater has a 160-seat house that can expand to 174 for a sold-out show.

In November 2005, the theater announced the Signature Ticket Initiative,th a program that made tickets available for $15 to every performance in honor of the theater’s 15 anniversary. The initiative was immensely popular, and in 2007 Signature announced that it would continue for the next four years with $20 tickets for every performance.

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Before the Initiative

Before 2005, Signature set prices based on the behavior of its competitors. Jennie Greer, Director of Theatre Advancement, says that Signature’s pricing was influenced by the pricing of other theaters, especially those in the Association of Non-Profit Theatre Companies (ANTC), a group composed4 of several off-off-Broadway companies of similar budget sizes, audiences, and programming.

Signature’s pricing structure before the initiative was a one-price house, with all single tickets set at $55. Prices had been at this level for five years. Subscribers received a discount down to $40 per ticket, and single tickets were discounted based on sales and predicted sales, sometimes up to 30 percent. The theater also raised single ticket prices when shows featured star actors, from $5 to $10 above standard ticket prices. The Signature Ticket Initiative

The goal of the Signature Ticket Initiative was access. Signature hoped that low-priced tickets would remove economic barriers and increase the theater’s appeal to diverse, nontraditional audiences.

According to its website, the theater hopes to become “a home for audiences of all ages, backgrounds,5 and incomes, creating a truly diverse and vital community for theater-goers and artists alike.” ₤ The initial idea for $15 tickets came from the National Theatre in London, which has a subsidized 10 ticket program. James Houghton, Signature’s Artistic Director, talked to 2006-07 season playwright August Wilson about starting a similar program, and Wilson was receptive. Although Wilson’s plays portrayed the lives of African-Americans in Pittsburgh, they had never been seen in New York at anything but Broadway prices, and both he and the Signature staff wanted to make them accessible to diverse constituencies, particularly African-American audiences.

Lowering ticket prices to $15 left a huge hole in the budget, which had to be filled by income from another source. Signature used a recalibrated financial model to calculate how much of a subsidy the theater would need to make its budget, allowing for a significantly higher average capacity than usual (90 percent versus their standard 79 percent).

Signature was able to obtain funding from Time Warner, Inc., which subsidized 70 percent of the cost of full-price tickets, allowing Signature to make 50,000 tickets available for $15 each. These highly discounted tickets were offered only for the initial eight-week run of each show; tickets for extension

weeks sold at regular prices. August Wilson passed away before the initiative began, but Signature produced the season as a tribute to the playwright, and the publicity surrounding Wilson’s life

contributed to interest in the productions. Impact of the Initiative

According to Greer, lowering ticket prices did not devalue Signature’s product; ratherth it widened the market for theater-goers and generated excitement about the theater. During the 15 -anniversary season, all productions sold out. The second show of the season, Two Trains Running, sold out faster than any show in Signature history – until it was succeeded by King Hedley II, the third show of the season.

Productions in the 2006-07 season played to an average of 105 percentth capacity. In addition, Signature saw new and increased donations in the two years surrounding the 15 anniversary.

Greer says that Signature reached the audiences it was seeking: 20 percent were under age 35, and 50 percent were new to Signature. Audience members earning less than $50,000 a year rose 25 percent, Signature made a targeted effort to reach African-American audiences, and it did see a significant increase in this demographic. The season also saw an increase in group sales, including groups from African- American communities.

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Continuing the Initiative

In 2007, Greer expected that as the initiative continued, the marketing question would no longer be “how do we get people to come?” but rather “who gets to come?” She anticipated that a significant effort would be required to target specific populations and make sure they could get tickets while minimizing the number of low-priced tickets sold to audiences who were willing to pay higher prices.

th In addition, the theater was wondering whether low prices would be enough to sustain demand. The 15 - anniversary season involved “a very popular playwright at a popular price,” said Greer, but Signature’s audience makeup was primarily determined by programming, not price. Audiences who were interested in August Wilson might be less interested in Charles Mee. Demand might change with a lesser-known playwright or unfavorable reviews.

Additionally, Greer believed that low price would not be enough to distinguish the Signature, because “hundreds of theaters in New York sell $15 [tickets] every day.” Signature’s challenge with the ticket

initiative would be6 to maintain its reputation as a high-quality off-Broadway house while offering accessible prices.

This case has been developed for pedagogical purposes. The case is not intended to furnish primary data, serve as an endorsement of the organization in question, or illustrate either effective or ineffective management techniques or strategies. Copyright © 2008 Yale University. All rights reserved. Reprinted with permission of Yale University School of Management. To order copies of this material or to receive permission to reprint any or all of this document, please contact the Yale SOM Case Study Research Team, 135 Prospect Street, PO Box 208200, New Haven, CT 06520.

Endnotes

1 Yale School of Management class of 2009. 2 Dean and Frederic D. Wolfe Professor of Management and Entrepreneurship, Yale School of Management 3 Case Writer, Yale School of Management. 4 The ANTC’s members are Primary Stages, the Drama Dept., MCC Theater, the New Group, Company, Women’s Project and Productions, the Atlantic Theatre Company, , and Signature Theatre Company. 5 Signature Theatre Company, June 25, 2007 < http://www.signaturetheatre.org/> 6 Since the theatre was interviewed for this case in 2007, the ticket initiative has surpassed expectations. Although Greer anticipated that the Charles Mee season could see decreased demand for a lesser-known playwright, the opposite happened: the 2007-08 season saw a higher number of subscriptions than ever before. In addition, unfavorable reviews did not have the same negative impact as in full-priced past seasons. While productions throughout the season received mixed reviews, the shows played to an average 90-percent capacity. Signature’s $15 tickets shielded the theatre from variations in demand that it might have otherwise seen with a lesser-known playwright or mixed reviews. Signature also saw an increase in donations, which it believes is due to the Signature Ticket Initiative. Audience members who can afford to donate do so, Signature believes, because of the program.

12 seven theaters

Exhibit 1: Ticket Pricing Categories

Options in each column can determine ticket price. Different theaters may offer more than three options under a category, but this chart shows a general scheme that theaters use in order to arrive at a final ticket price.

Popularity/Type of Seat Location Show Time Show High Price Blockbuster Premium Weekend Evening Medium Price Classic Good Weekend Matinee Low Price Experimental Budget Weekday Evening

Exhibit 2: Interview Questions

• What are your pricing objectives?

• What is your pricing structure?

• How does your structure relate to your objectives and the rest of your marketing mix?

• Have you changed your pricing structure over the past few years? Why or why not?

• In the context of my research, I’m defining yield management as a way of maximizing revenue based on consumer behavior – for example, charging different prices for different seating areas. What is your yield management goal? What does it entail? How do you calculate it?

• What kind of predictive modeling do you use?

• Why do you use predictive modeling? What’s the history of predictive modeling at your organization?

• How does predictive modeling work at your theater?

• What changes to pricing or predictive modeling would you like to see at your theater in the future?

13 seven theaters

Exhibit 3: Financial Data for the Seven Theaters

Robert W. Woodruff Arts Center, Inc. and Subsidiaries (including Alliance Theatre) Consolidated Statements of Financial Position for the Years Ended July 31, 2007 and 2006

ASSETS 2007 2006 Cash and cash equivalents 15,104,721 7,186,812 Government receivables 582,715 341,462 Pledges and other receivables, net 41,709,981 50,386,960 Accrued interest receivable 103,629 60,565 Inventories 962,267 798,130 Prepaid expenses 5,582,552 6,827,218 Pension asset 1,119,074 Investments 400,795,605 364,149,892 Investment in joint venture 923,653 1,013,308 Beneficial interest in perpetual trusts 20,884,691 18,968,398 Contributions receivable trusts remainder trusts 2,608,117 2,637,078 Construction in progress 24,610,771 20,484,435 Land, buildings and equipment, net 221,947,153 220,470,552 Goodwill 1,497,722 1,497,722 Works of art 73,147,679 69,653,078 Total assets 811,580,330 764,475,610

LIABILITIES Accounts payable and accrued expenses 16,293,051 16,773,051 Deferred revenue 9,482,876 2,503,472 Advance ticket sales 3,331,124 3,519,771 Notes payable and line of credit 2,785,714 5,646,000 Bonds payable 173,020,000 173,020,000 Pension liability 1,241,261 1,568,766 Total liabilities 206,154,026 203,031,060

Commitments and contingencies Net assets: Unrestricted 262,223,414 213,000,019 Temporarily restricted 66,322,714 80,552,041 Permanently restricted 276,880,176 267,892,490 Total net assets 605,426,304 561,444,550

TOTAL LIABILITIES AND NET ASSETS 811,580,330 764,475,610

14 seven theaters

EXHIBIT 2 (CONTINUED)

Theatre and Arts foundation of San Diego dba La Jolla Playhouse Statement of Financial Position December 31, 2006

ASSETS 2006 Current Assets Cash and cash equivalents (Unrestricted) 587,747 Receivables Pledges (Unrestricted) 522,264 Pledges (Temporarily Restricted) 2,042,639 Accounts (Unrestricted) 303,076 Intra-Fund (Unrestricted) (939,405) Intra-Fund (Temporarily Restricted) 934,664 Intra-Fund (Permanently Restricted) 4,741 Prepaid expenses and other assets (Unrestricted) 259,074 Total current assets 3,714,800

Long-term Receivables (Unrestricted) 326,836 Long-term Receivables (Temporarily Restricted) 2,478,499

Fixed Assets, net (Unrestricted) 519,214 Fixed Assets, net (Temporarily Restricted) 15,868,969

Endowment Assets Long-term receivables (Permanently Restricted) 3,689,449 Assets held by others (Permanently Restricted) 2,679,379 Investments (Permanently Restricted) 1,459,945

TOTAL ASSETS 30,737,091

LIABILITIES AND NET ASSETS Current Liabilities Accounts payable and accrued expenses 688,363 Capital leases payable, current position 74,780 Line of credit Note payable. current position Deferred revenue 1,522,334 Total current liabilities 2,285,477

Capital Leases Payable, net of current portion (Unrestricted) 143,455 Note Payable, net of current portion (Temporarily Restricted) 3,993,000 Total Liabilities 6,421,932

Contingencies and Commitments Net Assets (Deficit) (Unrestricted) (850,126) Net Assets (Deficit) (Temporarily Restricted) 17,331,771 Net Assets (Deficit) (Permanently Restricted) 7,833,514

TOTAL LIABILITIES & NET ASSETS 30,737,091

15 seven theaters

EXHIBIT 2 (CONTINUED)

Center Theatre Group of Los Angeles, Inc. Statement of Financial Position June 30, 2007 (with Comparative Totals at June 30, 2006) (in Thousands)

ASSETS 2007 2006 Current assets Cash and cash equivalents 1,402 894 Restricted cash 700 700 Investments - current 12,747 4,839 Accounts, grants, and contributions receivable, net 4,305 4,241 Production costs, deposits, and prepaid expenses 836 1,682 Total current assets 19,990 12,356

Investments - non-current 32,381 28,992 Accounts, grants, and contributions receivable, net of current portion and present value discount 1,444 2,086 Property and equipment, net of accumulated depreciation of S2.023 11,847 12,273 Beneficial interests 14,878 13,085 Deferred compensation plan 284

TOTAL ASSETS 80,824 68,792

LIABILITIES AND NET ASSETS Current liabilities Accounts payable and accrued expenses 4,481 2,746 Advance ticket sales for performances 19,381 15,430 Loan payable (Note 9) 100 Total current liabilities 23,862 18,276

Long-term liabilities Loan payable, net of current portion 700 700 Deferred compensation plan 284 Total Liabilities 24,846 18,976

Commitments and contingencies Net assets Unrestricted 38,670 33,521 Temporarily restricted 4,631 5,377 Permanently restricted 12,677 10,918 Total Net Assets 55,978 49,816

TOTAL LIABILITIES & NET ASSETS 80,824 68,792

16 seven theaters

EXHIBIT 2 (CONTINUED)

Actors Theatre of Louisville, Inc. Statement of Financial Position May 31, 2007 and 2006

ASSETS 2007 2006

Current Assets Cash and cash equivalents 1,010,144 505,799 Deferred subscription campaign expenses 103,660 76,640 Pledges receivable (less allowance for uncollectible pledges of $12,000 in 2007 and $19.000 in 2005) 3,253,888 2,104,660 Other current assets 285,896 353,279 Total current assets 4,653,588 3,040,378

Property and Equipment Land 1,456,705 1,456,705 Buildings 20,475,797 20,241,096 Equipment 1,891,529 1,825,988 Construction in progress 77,146 - 23,901,177 23,523,789 Less accumulated depreciation (10,876,152) (10,313,364) Investments 13,141,320 10,388,429 Pledges Receivable (less allowance for uncollectible pledges of $95,000 in 2007 and $70,000 in 2006) 3,225,812 2,902,549 Other Assets 6,500 6,500

TOTAL ASSETS 34,052,245 29,548,281

LIABILITIES & NET ASSETS

Current Liabilities Accounts payable and accrued expenses 453,365 626,388 Deferred subscription revenue 1,137,176 1,136,464 Total current liabilities 1,590,541 1,762,852

Other Liabilities 242,560 298,979

Total Liabilities 1,833,101 2,061,831

Net Assets Unrestricted 20,102,459 18,587,164 Temporarily restricted 6,458,238 3,503,972 Permanently restricted 5,658,447 5,395,314 Total Net Assets 32,219,144 27,486,450

TOTAL LIABILITIES & NET ASSETS 34,052,245 29,548,281

17 seven theaters

EXHIBIT 2 (CONTINUED)

Berkeley Repertory Theatre Statement of Financial Position August 31, 2007 (With Comparative Totals for 2006)

ASSETS 2007 2006 Current assets Cash and cash equivalents 361,337 572,859 Investments in securities 270,747 68,476 Accounts receivable, net of allowance for doubtful accounts of $40,000 57,966 300,703 Contributions receivable, current portion, net of allowance for doubtful accounts of $50,000 2,135,160 1,569,715 Prepaid expenses 606,220 480,628 Total current assets 3,431,430 2,992,381

Cash, restricted 8,171 86,899 Investments, restricted 2,204,546 2,021,869 Contributions receivable, non-current, net of discount 2,058,069 2,396,219 Property and equipment, net 19,068,714 18,337,364 Construction in progress 867,471 Deposits 95,047 109,804

TOTAL ASSETS 26,865,977 26,812,007

LIABILITIES & NET ASSETS Current liabilities Accounts payable and accrued expenses 444,687 937,843 Line of credit 500,000 600,000 Current portion of long-term debt 214,634 200,034 Current portion of financing obligation 81,876 77,119 Deferred performance revenue 2,965,879 2,732,368 Total current liabilities 4,207,076 4,547,364

Long-term debt, net of current portion 3,346,138 3,560,304 Executive retirement plan 347,306 223,552 Financing obligation, net of current portion 101,925 183,800 Total Liabilities 8,002,445 8,515,020

Net assets Unrestricted 12,284,548 11,955,388 Temporarily restricted 4,414,337 4,224,727 Permanently restricted 2,164,647 2,116,872 Total Net Assets 18,863,532 18,296,987

TOTAL LIABILITIES & NET ASSETS 26,865,977 26,812,007

18 seven theaters

EXHIBIT 2 (CONTINUED)

The Stratford Shakespearean Festival of Canada Consolidated Statement of Financial Position, as at October 31, 2007 and 2006

ASSETS 2007 2006 Current Cash 603,843 587,203 Accounts and Pledges Receivable 924,408 727,166 Government Grants Receivable 216,000 308,991 Accrued Interest 84,996 76,955 Inventory 214,662 230,667 Prepaid Expenses 819,496 809,150 Marketable Securities 15,148,491 8,626,950

Receivable from Stratford Shakespearean Festival Endowment Foundation 955,265 1,441,569 Property, Plant, and Equipment 38,758,729 39,297,392

TOTAL ASSETS 57,725,890 52,106,043

LIABILITIES & NET ASSETS Current Current Position of Capital Loan 916,660 Accounts Payable and Accrued Liabilities 3,442,626 4,159,313 Unearned Revenue 7,659,683 Deferred Revenue 2,445,652 Payable to Stratford Shakespearean Festival Endowment Foundation 1,221,215 1,221,215

Deferred Capital Contributions 26,322,284 27,070,663 Accrued Pension Cost 25,073 25,073 Unearned Revenue 931,500 Accrued Liabilities 1,634,559 Total Liabilities 41,236,940 35,838,576

NET ASSETS Unrestricted (1,519,993) (615,100) Investment in Property, Plant and Equipment 12,436,445 11,310,069 Stability fund 5,597,571 5,597,571 Restricted Pension Deficit (25,073) (25,073) Total Net Assets 16,488,950 16,267,467

TOTAL LIABILITIES & NET ASSETS 57,725,890 52,106,043

19 seven theaters

EXHIBIT 2 (CONTINUED)

Signature Theatre Company, Inc. Statement of Financial Position June 30, 2007 with Comparative Totals for 2006

ASSETS 2007 2006 Current Assets Cash and cash equivalents Unrestricted 318,704 155,379 Working capital reserve 133,249 193,182 Restricted for future periods and programs 572,826 336,244 Unconditional promises to give Unrestricted 553,250 412,768 Restricted for future periods and programs 130,000 751,707 Accounts receivable 13,880 16,248 Prepaid expenses 176.88 128,203 Total current assets 1,898,789 1,993,731

Property and equipment, at cost, net of accumulated depreciation 534,487 670,900 Bonds and deposits 42,906 40,336

TOTAL ASSETS 2,476,182 2,704,967

LIABILITIES & NET ASSETS Liabilities Current Liabilities Notes payable 9,084 16,187 Accounts payable and accrued expenses 270,401 213,243 Deferred ticket subscription revenue 227,700 180,095 Other deferred revenue 0 9,316 Total current liabilities 507,185 418,841

Long Term Liabilities Notes payable 132,119 142,589 Total Liabilities 639,304 561,430

Commitments and Contingencies Net Assets Unrestricted Operating 596,840 518,374 Board designated working capital reserve 537,212 537,212

Temporarily restricted 702,826 1,087,951 Total Net Assets 1,836,878 2,143,537

TOTAL LIABILITIES & NET ASSETS 2,476,182 2,704,967

20 seven theaters