Average Is Over IX: Consolidation Nation
Jasper Johns, “Map” (1961). Image credit: Where the Giraffe Lives.
Previously: Parts I | II | III | IV | V | VI | VII | VIII
Having tattooed Parts VII and VIII with my argument for why blue chip galleries will ultimately bring their e-commerce totally in house, today’s installment of this series moves on to a simple question: What are the big picture implications for the industry if that actually happens?
I mentioned in the previous chapter that I expect every dimension of the market’s top tier to trend toward consolidation. From an internal operations standpoint, any gallery choosing a full stack online sales strategy fits snugly into that template. But greater vertical integration of any industry’s major players will inevitably send tremors out to the actors in the rest of the marketplace, too. And the gallery system will be no different.
The reason is simple: The more self-reliant the heavy hitters become, the fewer opportunities there are for outsiders to build sustainable businesses that can complement them. If Gagosian and Zwirner are running their own e-commerce and analytics, for example, it’s dubious for an entrepreneur to start a company premised on offering those same services to those same galleries.
To fall back on the business school cliché, said entrepreneur could only succeed by proving to blue chip gallerists that she’d built a better mousetrap. That tends to be an inherently gnarlier proposition than selling a potentially game-changing innovation.
And as I stated in the last chapter, the challenge with the e-commerce and analytics example would be even more difficult in the art market than in practically any another industry. Why? Because of the gallery world’s rabid protection of information asymmetry. Even if a hypothetical entrepreneur managed to intrigue high-end gallerists with her initial sales pitch about her services, she would still have to seduce them into loosening their lifelong death grip on their precious sales data. It may not be impossible, but historically it’s been about as difficult as running an Army Ranger obstacle course in a Hollywood fat suit.
However, there are always inefficiencies–and therefore, opportunities–in every market. The vertical integration of e-commerce within blue chip galleries would create other vacuums for complementary businesses to fill. And I expect one of those to be in the realm of exhibition space–a component that will continue to have a major impact on the industry’s macro structure.
Those of you with supernatural memories may recall that I started exploring the fate of physical gallery space all the way back in Part III. My focus at that point was the effect robust online art sales would have on major sellers’ current (perceived) need to permanently operate multiple costly exhibition spaces positioned around the world like missionary headquarters, strategically designed to coat humanity in the gospel of commerce. But as online sales become the new normal, brick and mortar showrooms–especially the sleek, cavernous art cathedrals in vogue today–would automatically become less necessary to a blue chip gallerist’s ability to maintain a healthy worldwide commercial presence.
This isn’t to say that the physical gallery will go the doomed way of the dodo, pogs, and the Stanky Leg. But it does suggest that savvy gallerists will streamline both the number of locations in their empires and the scale of most, if not all, of those individual buildings. And that move toward consolidated operations leads to an important secondary effect on art exhibitions in an age dominated by e-commerce.
One caveat is in order here. To maintain some flexibility beyond the tangible spaces they control for the long-term, I expect that we’ll see more and more incarnations of another trend that’s already in motion: the co-opting of temporary “project spaces” to house prestigious off-site exhibitions.
Kara Walker's A Subtlety: or the Marvelous Sugar Baby, conceived for and realized at Brooklyn’s disused Domino Sugar Factory this past spring and summer, serves as one example; Ai Weiwei’s upcoming @Large on Alcatraz qualifies as another; and LA-based nonprofit LAXART‘s The Occasional–a forthcoming, ongoing series of commissioned projects, including a number of installations at “experimental sites” scattered around the city–completes a trifecta.
Interestingly, all of the above projects were conceived and organized by public arts nonprofits. Apart from LAXART, Creative Time masterminded the Kara Walker show and the For-Site Foundation led the charge on Ai’s Alcatraz adventure (which sounds like a much more Fisherman’s Wharf-appropriate version of the show). But commercial galleries will have at least as much incentive, not to mention more resources, to do the same in a future where permanently maintaining a vast network of physical spaces becomes a radioactive inefficiency.
And in fact, some galleries are already exploring this route for various reasons. Pace’s spring 2014 establishment of a pop-up outpost in Menlo Park comes to mind as an example, as does Gagosian’s April 2014 Kim Gordon / Design Office exhibition, Coming Soon, held at the MAK Center’s Fitzpatrick-Leland House. And in conjunction with the nonprofit Art in General, the combination artist collective and gallery The Still House Group curated an eight-month rotation of their roster’s projects at +1, a 10 by 10 foot storefront space under the Manhattan Bridge in NYC’s Chinatown.
Why does the off-site exhibition option matter so much? As I’ve written before, every seller who operates a worldwide network of galleries is eternally haunted by the need to keep them all filled with work year round. More galleries means more exhibitions need to be programmed. More exhibitions mean more artists need to be represented. More artists mean more incentive for the gallerist to masquerade mediocre talent as blue chip grade.
This unfortunate chain of space-induced pressure is what I call the menace of the 'More’ Machine. And since the start of the most recent art market boom, if not even earlier, it’s been responsible for winching freight container after freight container full of forgettable work up from the depths into influential galleries.
But if strong e-commerce unshackles elite gallerists from the gargantuan sunk cost of maintaining multiple locations, they will no longer have the need to mount tangible shows of alleged rising stars strictly to fill space. A growing scarcity of brick and mortar galleries leads to a decreasing supply of gallery shows. The 'More’ Machine breaks down.
With a much leaner slate of exhibitions to produce, gallerists will regain license to be truly discerning about which artists receive the few precious open slots on their exhibition calendars. And in that case, the most obvious move would be for them to shift their programming entirely to the established titans–artists whose work all but sells itself based on their track record in the market, their narrative, and their place in the art historical canon. It’s a future in which every opening is a Jeff Koons opening, a Richard Prince opening, a James Turrell opening.
This aggressive distilling of “gallery worthy” artists in turn amps the prestige and event quality of showing at a blue chip space–and it does so beyond even the euphoria-inducing ABV of the same opportunity today. What’s currently a serious intoxicant for an artist’s career becomes a near mind-eraser in the future.
Ironically, all of this happens precisely because of the tangible show’s excessiveness in an online-centric marketplace. Whether off-site or in one of the few remaining elite flagship spaces, gallery exhibitions would become inherently exhibitionist: conspicuous supply for conspicuous consumption.
And while the optics matter on their own, in this scenario they also influence the economics–and vise versa.
Streamlining her overall programming slate will give a blue chip gallerist the opportunity to redistribute her total programming budget over a much smaller number of shows each year. True, she could choose to keep her per-exhibition expenses similar to today’s standards. But with the new scarcity of IRL exhibitions creating greater exposure, greater prestige, and thus the opportunity for greater price juicing in those that remain, the circumstances should compel top tier gallerists to spend on an even bigger scale.
To understand why, we have to recognize the scenario I’m describing for what it is: the blockbuster model. The blue chip art sector is streaking toward it at warp speed, just as the studio movie industry, the music industry, and the book publishing industry before it.
All three of these other for-profit culture businesses demonstrate the same dual consolidation: toward a small amount of obscenely well-funded blockbuster content to generate the bulk of sales revenue, and toward a small number of mega-entities to dominate that content’s distribution.
I believe that the gallery system is poised to mirror their mutations at both levels. To explain why and what it all means, we have to sink into the numbers like an econ nerd’s hot springs.
Jasper Johns, “White Flag” (1955). Image credit: Fun Mozar.
Let’s start with the movie industry. I expect no one will be blindsided when I say that Hollywood now sustains itself on the extremes. Self-proclaimed film buffs tend to rage at the deluge of lumbering, FX-engorged adaptations of pre-existing properties (Young Adult novels, comic books, videogames, etc.) flooding the world’s multiplexes. But the major studios continue pouring them on for one simple reason–the flood keeps growing money trees.
According to Box Office Mojo, eight of the top 10, 12 of the top 15, and 17 of the top 25 worldwide-grossing movies of 2013 were all either sequels, reboots, or adaptations of known source material, from Iron Man 3 to The Hunger Games: Catching Fire to Monsters University. Together those 17 features alone accounted for about $10.5B of the approximately $35.9B in worldwide ticket sales for the calendar year, as reported by NATO and the MPAA.
(Note: I’m using worldwide gross instead of domestic gross because international markets now comprise the glutton’s share of the box office cake. Domestic ticket sales totaled only $11.1B in 2013 per Box Office Mojo, making the international take more than twice as lucrative as the stateside one.)
How many other movies did it take to bring in the other $24.5B or so of the year’s global gross? 316. And even that’s a fraught measure since plenty more franchise adaptations, sequels, and reboots built on audience pre-awareness are mixed into the batter. (Sorry, I’m not going to break down just how many. Even I have my limits when it comes to crunching numbers.)
Furthermore, just as in the future art market I’m predicting, Hollywood’s content producers and distributors are spending big money to make big money. Based on my calculations using Box Office Mojo’s numbers (plus a few others to fill in the gaps for The Hobbit sequel and
Monsters U), the average price tag to the studios for one top 25 hit last year was about $140M.
That’s not all. The number rises to $145M if we remove The Conjuring, which was an outlier in terms of production costs at only $20M. And crucially, the average budget goes still higher –to $153M–if we concentrate only on the 17 sequels, reboots, and adaptations. In other words, Hollywood is spending even more to produce the flicks it already expects to succeed.
Nor is the distribution side of the industry more diverse than the content it’s motivated to produce. Two notes here: I’m opting to analogize to the art world based on distribution rather than production because a gallerist’s primary role is to put what the artist generates in front of buyers, not strictly to guide and finance it. And I’m forced against my will into reverting to domestic market share because I can’t find any reliable worldwide results.
According to The Numbers, six major distributors–Universal, Paramount, 20th Century Fox, Disney, Warner Brothers, and Sony–controlled roughly 65 percent of the domestic market share from 1995-2014. If we focus strictly on Box Office Mojo’s most recent numbers, i.e. the 2013 results, Lionsgate barges its way into contention as a seventh major distributor, beating out Paramount. But in that case, those seven entities claim an even meatier mouthful of the US feature film market–a borderline-pornographic 87 percent.
The same trends hold true in music sales. After EMI was split like a wishbone and acquired piecemeal by Universal Music Group and a coalition of investors led by Sony in 2011, the record industry effectively consolidated to only three major players: Universal, Sony, and Warner Brothers. In fact, defining the sector as a triumvirate may even be liberal. Some analysts, like Jeffrey Rabhan, have argued that Warner’s market share is so minimal in comparison to the other two giants that the industry is really more like “two and a half” major players.
And the actual market share numbers are eerily similar to film’s. If we look at Billboard's 2013 results for that metric in sales of albums and 'Track Equivalent Albums’–a figure invented to adjust for the market’s move toward single song purchases from full album sales, by which every 10 downloads of one track is counted as the sale of one album–then for both 2012 and 2013, the three majors distributors’ market share held steady at… 87 percent, the same figure as the seven major movie distributors in 2013.
(Note: Since it took a year for EMI’s split and sale to become official, I’m retroactively counting them as a a part of the Big Three record labels.)
Regarding the artists, only two of the top 10 selling albums of 2013 per Nielsen Soundscan barged their way in with their first LP: Luke Bryan and Imagine Dragons. The other eight were known quantities, if not outright patron saints of modern pop music like Justin Timberlake (#1), Eminem (#2), Drake (#7), Beyoncé (#8), and Jay Z (#10).
It’s no coincidence that these are the same megawatt stars promoters and labels are slavering to sign to the huge 360 / multi-rights deal we covered in Part VIII. Jay Z's Live Nation contract, for example, is reportedly worth a staggering $150M.
The U.S. book publishing industry, meanwhile, has consolidated into only five major houses: Hachette, MacMillan, Penguin Random House, HarperCollins, and Simon and Schuster. And as for the content, George Packer summarized the situation as follows in his epic New Yorker story about Amazon and the publishing industry earlier this year (and see if any of this sounds familiar to the earlier posts in this series):
Seven-figure bidding wars still break out over potential blockbusters, even though these battles often turn out to be follies. The quest for publishing profits in an economy of scarcity drives the money toward a few big books. So does the gradual disappearance of book reviewers and knowledgeable booksellers, whose enthusiasm might have rescued a book from drowning in obscurity. When consumers are overwhelmed with choices, some experts argue, they all tend to buy the same well-known thing.
These trends point toward what the literary agent called “the rich getting richer, the poor getting poorer.” A few brand names at the top, a mass of unwashed titles down below, the middle hollowed out: the book business in the age of Amazon mirrors the widening inequality of the broader economy.
All these roads lead to the same conclusion: Blockbusters are the fuel of these consolidated industries. What sustains distributors’ businesses are the latest Avengers sequel, the next Kanye record, the new JK Rowling book (pseudonymous or otherwise). As economist and Harvard Business School professor Anita Elberse argues in her book Blockbusters, counterintuitively, "making fewer huge investments [instead of many more smaller investments]…turns out to be safer" for distributors profiting off culture.
In fact, Elberse goes a step further. Her studies show that the superstar cycle becomes self-perpetuating–provided the distributors don’t get stingy. She states in the same interview linked above that “you can price yourself out of the market…by not spending big on high production values,” and that “if you haven’t had a hit in a while, it becomes harder to build the next one.” Essentially, getting conservative means potentially losing market share to one’s main competitors. And once that market share is lost, it’s increasingly hard to reclaim.
Why? Nothing clings like the stench of failure. It’s palpable to both clients and, just as importantly, artists. The smart talent tends to recognize the blockbuster economics of the business, and they want to be associated with the winners. So one fiscal year or one quarter of small-minded, short-term thinking can thrust a distributor into an ongoing cycle of misery as the true money-making artists magnetize to their rivals. And with only a finite number of such known stars to go around, the rewards are poised to keep flowing to the tiny cabal of powerful distributors who continually goes big.
This high stakes calculus jeopardizes entire businesses. What were once only marginal differences in resources and market share within a diverse network of distributors mutate into predator-prey vulnerabilities in a consolidated market–and not just in the for-profit culture sectors. Once these factors take hold in any industry, the feeding frenzy begins.
Next thing you know, Penguin is merging with Random House, Comcast is attempting to absorb Time-Warner, and Cingular is devouring AT&T (then subsequently donning its skin like Buffalo Bill in The Silence of the Lambs).
To anyone who thinks I’m being overzealous about this phenomenon’s possible spread to the gallery system, consider that arguably the best financial data we have for the industry proclaims that the transition is already well underway.
The TEFAF Art Market Report 2014 (available in full here)–finds that a mere eight percent of the works auctioned last year accounted for 82 percent of the sector’s sales revenue. And as lead author Clare McAndrew writes, “a small number of [artists] accounting for an increasingly large share of total sales….is also true of the dealer market, with high-end dealers commenting that their top collectors appeared to be interested in the work of only about 50 to 100 artists.”
Bloomberg’s James Tarmy found similar results in an impressively nuanced analysis of the top 10-selling post-war artists at auction over 10- and 20-year periods. I’d encourage you to read the full post if you’re at all inclined, but if, unlike me, you have what’s commonly called "a life,” his title tells the story in nine words: “In Art the Safest Bet is the Biggest Bet”–a perfect Drake harmony to Elberse’s Rihanna lead.
All of the above points toward a future in which the world’s commercial galleries slide their skis firmly into the same tracks as movie, music, and book distributors. And as the field of competitors shrinks among all tiers, the largest and most powerful galleries–those with the elite branding might–will only gather more strength by controlling the blockbuster talent.
So why shouldn’t we expect, say, Pace to one day acquire Barbara Gladstone, or Zwirner to merge with Regen Projects? Why won’t the overwhelming majority of the blue chip art market share be seized by a tighter-than-ever faction of players who have managed to conquer and eat the hearts of most of their rivals? The same battle lines are already being drawn. It seems like a foregone conclusion that similar consolidated empires will emerge when the fog of war clears.
But the rise of the blockbuster model will have its own consequences for the career path of emerging artists. Yes, the market’s pantheon of deified artists will dominate the top tier gallery scene like never before. Yet a narrow trail up Mount Olympus will still exist for those few mortals lucky, talented, and ambitious enough to scale it. I’ll explain my thoughts on what that climb looks like in the next chapter.