Progress and profit

A benefit of the current economic climate is that it shows the need for arts organisations to diversify their income structures beyond public grant funding and private foundations. The challenge for non-building-based organisations has been the lack of a strategic framework within which to explore income generating options. We have seen substantial support of and growth in self-generated incomes amongst organisations with a substantial capital infrastructure as they develop income from shops, cafes and space hire. This exploitation of tangible assets is great if you have a public-facing building, but it is not an area open to development by the many arts organisations (who run operations from offices and studios and whose public-facing activities use spaces with which their brand is only temporarily associated).
 

Instead the leaders in such organisations are looking to exploit their core intellectual assets (i.e. their intangible asset base). This is a harder road to travel for a number of reasons – funders struggle to support the commercialisation of intangible assets in the same way they’ve supported commercial leveraging of tangible assets; the arts funding system is geared toward support for new projects rather than extending the potential of existing projects; there are fewer best practice models to point to either in the arts or in the creative industries (which is often the closest fit in terms of markets and business models); and the senior management teams are less familiar with processes of commercialisation and related funding sources such as the Technology Strategy Board (TSB).
Through my work over the past five years with arts organisations who have a strong intangible asset portfolio, I have devised the model described below to explain how first order creative activities can be developed into earned income streams from second order activities. Five income stream types are defined as follows:

Products and Services
This could be as simple a model as spin-off books and DVDs or consultancy based on the core strengths of the organisation. Or it could involve a research and development (R&D) process similar to that seen in the spin-out activities of universities or the product development activities of commercial firms. LUX is an example of an organisation that has grown product sales and consultancy; Proboscis, SCAN and iShed are all examples of organisations investing in R&D with artists to deliver commercial products.
Research
By this I mean the framing of the organisation’s work in a research context and partnering with other research entities (often universities, though it could be commercial research too) to deliver research outputs. The combined annual budget of the UK Research Councils was some £3.5bn in 2008. The 2008–11 budget for the TSB is around £711m. To date, there are only two contemporary visual arts organisations (Tate and Proboscis) which hold Independent Research Organisation status which enables them to bid directly to the research councils. Approximately 12 arts organisations across the UK have successfully applied to the TSB. There is significant potential for arts organisations to access income from these sources simply by reframing existing activity.

Partnership and Sponsorship
This is less about traditional sponsorship and more about brand partnerships so that we can move away from reliance on access to corporate social responsibility budgets and instead can connect to core product R&D, development and marketing budgets. It is this shift that has helped a number of arts-driven and technology-capable organisations to make radical changes to the ratio of arts funding to commercial income, the latter being achieved by becoming subcontractors to advertising agencies, TV production firms and digital media agencies.

Contracts
There has been a significant push to encourage third sector organisations of all types to win public services delivery contracts. Dance United is an artist-led Regularly Funded Organisation, which has a number of contracts with Youth Offending Trusts (part of the Ministry of Justice) to deliver dance academies. Its work has been demonstrated to reduce reoffending rates.

Donors and Patrons
In addition to rounding up a small number of the great and the good and persuading them to write cheques, this is also about leveraging the buy-in from a broad grassroots audience. Might there be a version of www.pledgemusic.com that could work across other arts forms to enable the commissioning of new writing, dance or art? Birmingham Contemporary Music Group already runs ‘Sound Investors’ which offers audiences the chance to invest in the pieces it is commissioning.
The use of tangible assets simply isn’t relevant to organisations that do not maintain public-facing buildings so the focus on development of returns from intangible assets is crucial. There is a small but growing community of arts organisations who are successfully developing revenue streams from one or more of these areas. Sharing knowledge and good practice from these pioneers will help to extend this approach across the arts sector – important given the ideological shifts with regard to public expenditure which we can expect for the next five years at least. The next stage in my work will be the publication of a pilot study which is based on a financial analysis of 10–20 organisations with intangible asset based income streams. If you would like to benefit from the insight that participants in the pilot will gain, then please get in touch.