A WEBF Article: Risk and reward in theatrical venues

Besties, when you sit during the interval with your £5 programme, £5 ice cream and £10 glass of wine, do you reflect on the challenges and risks that venue operators are managing in bringing the show to that theatre? In this article, we look at the risks that the sector will face over the next five years and why more support is needed to enable these venues to safely and comfortably open for our enjoyment.

Post Covid Reopening

Post-Covid, there have been delays in getting back to pre-Covid levels of product flow, staff recruitment (especially technical staff) and volunteer availability, which increases the venue risk in operations. Regional venues face the danger of a vicious circle of decline in flow of product and therefore lower income, which venues need to be bold to reverse. Many local authorities have cut their funding allocations over the short-term, reducing venue core income and adding to the financial risk and increasing the venue’s reliance on selling tickets and the ancillary spend per head (SPH). Regional average ticket prices (ATP) are not growing in line with inflation so cost increases are squeezing margins and eating into the surpluses on successful shows.

The Mayflower Theatre in Southampton bounced back post-Covid quickly with 80% of pre-Covid ticket buyers rolling over into post-Covid shows, helped by The Lion King at the venue but its other venue, MAST, is a different challenge, presenting mid-scale productions where there is a much slower product flow, meaning it is forced to rely more on one nighters. These different profiles are reflected in the audience mix, with 75% of the Mayflower Theatre audience being from outside of the Southampton postcode but MAST attracting 75% of its audiences from within the city postcodes.

This mixed picture is across the UK with some larger venues thriving on the success of the big West End musical tours and their ability to negotiate more favourable terms with the producers, whereas the smaller independent venues (under 600 seats) are struggling to attract or meet the guarantee terms in order to secure the product. The new permanent TTR will have helped product availability but the threat of closure of the smaller regional venues (especially those under 600 seats) remains high and will continue to rise. The Theatre Trust identified 39 venues which have strong architectural, cultural, or local community value in its At Risk Register in January 2024 but many more are likely to be added over the next five years without an industry wide effort to protect them.

Impact of programming

Many of the smaller regional venues cannot produce for themselves and therefore are reliant on touring productions and artistes to fill their programmes and attract audiences. These regional receiving venues are then dependent on their share of the Net Box Office (NBO) to cover their opening costs and need to minimise dark days in the schedule to cover overhead costs. The weaker venues often need to increase the guarantee to producers (a fixed amount to cover production weekly touring costs) or accept lower shares of the NBO to secure a production which adds to their risk exposure. Without the certainty of income, the producer will simply book the show somewhere else. In addition, there is a lack of big-name stars for touring shows which makes the promotion of shows harder and the booking for venues more risky.

One nighters of comics, music tribute acts and spoken words are more likely to schedule a visit as they need the dates to fill the tour, but these bookings create broken weeks, blocking out longer running productions and can lead to more dark nights. These smaller venues also rely on community hires to serve the local area and develop audiences but often the week-long hire charges don’t cover the venue overheads.

The annual regional pantomime of 40 plus performances over three or four weeks, which usually sell 80%-90% of capacity, can generate a third or more of the annual surpluses for the venue is a vital component of many regional venues programmes. What’s more, with tickets on sale for the next year as soon as the last pantomime closes, they assist the cash flow.

Many of these venues rely on the hospitality and ancillary income including ticketing and restoration levies (which they don’t share with visiting producers) to survive. Spend Per Head (SPH) is a critical measure of the contribution that each audience member spends on average front of house. Those elements of programme, drinks and ice creams should generate £4-£6 per head and those venues with a dining facility will see much higher SPH for dining audience members. Even here, the hospitality industry reports that up to 40% of the gross income is paid to His Majesty’s Treasury in VAT, PAYE, National Insurance, and other levies eating into the venue surpluses.

However, economic pressures on families, different demographics and those attending using discounted tickets may have less propensity to spend at the venue and so it is vital to make front of house facilities as accessible and easy to buy, in order to drive the SPH.

Scale matters!

The bigger regional venues like The Mayflower Theatre in Southampton and New Victoria Theatre in Woking are well maintained, have good technical support, with good audience databases and CRM practices and are “must visit” venues for productions so they attract the best shows, deliver high levels of occupancy, and create a virtuous circle of success. They naturally have a stronger negotiating position to secure the production to the venue.

Small venues, under 600 seats, are often unable to take or secure the biggest titles and therefore rely more on the one nighters of comedy, tribute bands and spoken word events as discussed above. This can force a cycle of reduced marketing expenditure, reduced venue investment and create a downward spiral adding to the funding pressure. They have to work harder to attract audiences as the programme on one nighters is driven by a different buying pattern than the larger musical and play bookers who are more likely to habitually book repeat visits to the venue.

The House Theatre Network and touring initiative supported by ACE aims to improve the range, quality, and scale of theatre across the Southeast England region and exists to develop audiences. It plans touring shows, supports audience development and organises training and development for venue staff as well as advocating and coordinating actions on access and sustainability. It has worked with 176 venues across the region and toured over 100 shows.

Venue operations costs

The well reported rise in costs is the critical issue in this scenario squeezing the contribution from each show and making any guarantees more risky for the venue to commit to. Venue operation costs are rising due to general inflation, but specifically due to utilities costs and upgraded minimum national wages. Venues report 100% increase in utilities costs in the last 3 years, adding £100,000 of costs to even the smallest venues and nearly a 30% rise in national minimum wage since pre-Covid. The new minimum wage not only drives up the lowest paid salaries but inflates the whole payroll as the differentials have to be maintained for the higher paid staff. Overall, salary costs have risen by 10% in the last year on many venues and this is their main cost of operations.

Despite the rises for the venue, recruitment is a major challenge, and venues find themselves even competing with local supermarkets who pay more and therefore experience shortages in hospitality & FOH staff. Those venues that rely more on volunteers to reduce front of house costs report finding it more difficult to recruit and retain volunteers post-Covid. Technical roles in the venues have also been materially affected by the loss of workforce to TV and film drama in the UK so important Head of Department roles remain vacant and need to be covered by inexperienced staff or freelance contractors.

Material costs for sets and costumes have risen by 30 to 50%, which impacts not just the touring productions but also some of the important outreach, community, and youth projects that these venues deliver to their local community.

The ageing buildings contribute to the rising costs of utilities and the lack of investment (see below) has meant that the venues were not prepared or able to manage these costs as effectively as those who had invested.

Martyn’s Law

Another recent additional cost is full time security staff to manage audience behaviour, especially from excessive drinking in order to support younger front of house staff and the overall visit experience. The message is “come and see the show, don’t be the show”. However, the introduction of Martyn’s Law, new legislation proposed by the King’s Speech in November 2023 in response to terrorist threats, such as the devastating attack on Manchester Arena in 2017, threatens to add additional responsibilities on public venues to protect their visitors .

Locations with a maximum capacity of over 100 will be required to undertake low-cost, simple additional activity including training, information sharing and completion of a preparedness plan to embed practices, such as locking doors to delay attackers progress or knowledge on lifesaving treatments that can be administered by staff whilst awaiting emergency services.

Locations with a capacity of over 800 people at any time will be required to undertake a risk assessment to inform the development and implementation of a thorough security plan. Subsequent measures could include developing a vigilance and security culture, implementation of physical measures like CCTV or new systems and processes to enable better consideration of security.

These are sensible steps that venues should take within their own controlled buildings but it’s more challenging to consider the risk and security in the areas around the venue through which visitors must travel . There are inevitably going to be extra costs in managing this and some audiences will be reassured by the measures while others may be put off. The public spaces around venues should be the responsibility of the local police and tackling terrorist organisations must be an intelligence led process with use of all the public CCTV assets. Venues must clearly liaise with police over large events and take sensible precautions around their entrances but the pavements from car parks, Stations and bus stops can’t be secured by the venue.

Local Authority support

Many of the smaller venues are owned by the local authority and although they have no statutory responsibility to fund these activities, they recognise the added value and social cohesion benefits that these venues can bring to their community. Sometimes there are local political tensions between wards in boroughs which can also threaten support.

Many local authorities are under intense financial pressure and politically need to redirect their resources to roads, social care, and core services. Those that declare technical bankruptcy have no choice but to cut these non-statutory services such as theatres. So, the subsidy by local authorities of regional venues to support overhead cost and outreach programmes is under threat . Many local authorities are responding by trying to move away from subsidy of the arts to alternative funding models including guaranteed rental income from an operator.

Venues need to make the case for the social impact they make to the communities and demonstrate how the activities address the borough’s strategic needs. The SOLT/UK Theatre report that argues the gross value added to a community is 2.4 times the value of tickets sold is a compelling story. This value added needs to be localised to the catchment that the venue serves and connecting with the local authorities’ strategic needs is vital for these Venues.

Local authorities have responded over the last 10 years to these pressures with a variety of different operating models, from self-management to the creation of local trusts to short term outsourced management contracts to long leases to commercial operators. Venues benefit from independence from their local authority in their operations while needing to serve the local authority population but remain dependent on some financial support from those freehold owners.

The Lighthouse Poole told us: “The value of regional theatres to the local communities as a meeting place, Entertainment venue and tourism driver is critical to local economies and needs to be supported by local authorities, trusts and foundations and the general public if they are to survive let alone flourish. Permanent higher TTR is a first step to improving product flow.”

The need for Investment

The West End has seen higher ATP with some eye-watering high charges for premium seats, but this has not been repeated in the regional venues. In any case, higher prices raise expectations on the quality of the visit experience with seat comfort, temperature comfort, adequate toilet capacity, and attractive foyers adding hugely to the enjoyment of a theatre trip. Yet many of these regional buildings are ageing, under invested over the last 10 years and are now in need of significant investment. Covid put a stop to some plans as available resources and reserves were directed to survival rather than improvements.

Many local authority venues have been underinvested in the last 10 years and the civic venues built in the 1960s and 70s are nearing the end of their lives. They are relatively inefficient and don’t meet expectations of the audience. The required resources are not available to some local authority run venues or those run by smaller independent trusts.

Operators are generally unable to invest in the infrastructure if on short leases or management contracts, and the commercial managements need the security of a long lease to justify investing in the venue. As a result, over the next few years there will be a lot of competition for funding provided by ACE or the multitude of smaller trusts and foundations that support the Arts to fund improvements at venues.

Theatre building funds are available from the Cultural Development funds under the auspices of local authority and ACE, with the latest round offering £15.2m with grants up to £5m and application submissions by 17 May 2024. But this is only scratching the surface of the scale of the need for investment .

The Theatre Trust’s Resilient Theatres: Resilient Communities programme is a well targeted grants programme and recently announced seven theatres on the Theatres at Risk Register 2024 to receive a share of the £58,000 fund. The grant programme aims to help the restoration, reopening or revitalising process for Theatres at Risk through funding expert support with focuses on increasing organisational resilience, improving skills, and engaging more people with heritage projects. Work funded in this round includes fundraising and business planning strategies, community engagement and outreach, condition surveys and an oral history project. It is a scheme that needs expanding to assist smaller venues in danger of slipping onto the At Risk Register in the next five years.

There is an opportunity to develop new cultural centres in town centres in mixed developments of old retail sites where the local authority is the landowner to develop modern functioning venues. But this would need substantial funding and the right business model to succeed.

Models of operation

These challenges lead to questioning what the best model for operating regional venues is, so they have a financially sustainable future, especially if local authorities (LAs) are forced by their own financial pressure to reduce or eliminate their liability to fund them?

If LAs seek to outsource the arts provision to smaller creative trusts, there might be the chance to create opportunities to access new funding sources, but the process creates more vulnerable small entities with duplicated back-office support functions. Is there a case for regional hub trusts to support venues? Can venues share back-office services such as HR, Finance, Maintenance, Marketing and PR and even programming/booking to reduce costs and create more efficiency and quality? The model might mean a trust is organised to support a number of venues in an enlarged catchment area and programme them in a complementary way.

The model of regional hubs, including trusts and commercial operation, is being explored to drive programming efficiencies, provide economies of scale from shared back-office functions, but success will depend on the mix, condition and scale of the venues included in the cluster. A recent example of this approach is Portsmouth Guildhall Trust which won a competitive tender to run the White Rock Theatre in Hastings from February 2024.

The model in Southampton of the link between the Mayflower Theatre and MAST, two complementary venues, with independent boards but sharing resources is one model that seems to have got off to a good start.

The HQ model of a network of regional venues, which is now part of TEG, is another model. These medium sized regional venues are centrally managed with the backing of a wider group to support every aspect of the operations while local theatre directors run the venue for the local audiences.

However, if LAs do outsource the management of the venues to commercial operators, they will need to relinquish control by awarding longer term contracts or leases so there is an incentive to invest in the venues and improve the visitor experience.

Arts Council England (ACE)

What role should ACE play in creating financially sustainable theatre? Should ACE prioritise sustainability over creativity and new work? The recently announced review of ACE under Dame Mary Archer really needs to consider whether the £445m p.a. of government funding and £130m of National Lottery spend is being effectively used to create financially sustainable theatre that serves its local community and drives accessibility and inclusion in audiences. These venues are going to need guidance and financial support to navigate the challenges ahead but is ACE equipped to support them?

Nick Wayne

Nick has been involved in Producer and Venue Organisations for twenty-five years, seen over 1200 productions, visited over 160 of the UK Venues and directly invested in over 30 West End Productions