Case study

timer Asked: Oct 21st, 2018
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Question Description

Please read article and answer the following in:

1)What should LA Phil do next?

a)What has happened to the LA Phil’s traditional user base?

b)What should the LA Phil do to manage its on-demand ticket model?

c)What is the LA Phil’s brand?

d)How can this brand be used to solve the problems currently faced by the LA Phil?

Also, I've set this to two pages not particularly for two pages, but because there's a writing and a powerpoint portion. If you can just bullet point some into a separate powerpoint I'd be grateful.

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For the exclusive use of D. Parray, 2018. 9 -5 1 7 -0 0 6 REV: JULY 10, 2017 ROHIT DESHPANDÉ ANNELENA LOBB The Los Angeles Philharmonic Orchestra: Cultural Entrepreneurship What is the place of music in a just and civil society? — Deborah Borda Music is a fundamental human right. — Gustavo Dudamel Deborah Borda, President and CEO of the Los Angeles Philharmonic Orchestra (LA Phil), reviewed music programming for the upcoming fall season on a hot August 2016 afternoon. The schedule included Gustav Mahler’s Symphony No. 9, the opera Nixon in China by the contemporary composer John Adams, and a live-with-film performance of the score to the film On the Waterfront. 1 These performances would occur at Los Angeles’ Walt Disney Concert Hall. The LA Phil also had a few performances left that summer at the Hollywood Bowl, the city’s iconic open-air arena. Borda had run the orchestra for almost 16 years. In that time, she had restored the institution’s finances after years of operating losses. The architecturally acclaimed Walt Disney Concert Hall had opened its doors. Borda had hired a new Music Director, Gustavo Dudamel, a young international classical-music star who had risen through a government-run classical-music program in Venezuela called El Sistema. Dudamel was lauded not only for his musical abilities, but as the first Latino conductor of an orchestra in a city with a majority-Latino population. Just before his arrival, Borda had launched the Youth Orchestra of Los Angeles (YOLA), a vibrant musical-education program for children from underserved communities, based on El Sistema. In the long term, Borda and her team hoped YOLA would also develop a new generation of classical-music enthusiasts. Yet U.S. orchestras in general, including the LA Phil, faced many challenges (see Appendix A for details). An aging subscriber base threatened the subscription-based model for ticket sales that orchestras had relied on for decades. Younger fans typically wanted to buy tickets on demand, which required different marketing strategies. While Borda had made strides in targeting an audience base that included Angelenos a from every demographic, she could not say that all of LA Phil’s audiences yet completely mirrored the diversity of the city. As YOLA expanded, Borda aspired to build its a The term Angelenos refers to residents of the city of Los Angeles. Professor Rohit Deshpandé and Case Researcher Annelena Lobb (Case Research & Writing Group) prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2016, 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only by Danny Parray in GBA513 F2018 taught by YUKO MINOWA, Long Island University from Aug 2018 to Feb 2019. For the exclusive use of D. Parray, 2018. 517-006 The Los Angeles Philharmonic Orchestra: Cultural Entrepreneurship headquarters in one of the neighborhoods from which the program drew participants; she also thought this building could serve as a locus for other El Sistema-based programs across the U.S. But it would require a significant capital investment. What was the best way to ensure that the orchestra built on its successes? How could Borda position the LA Phil for long-term financial stability and build a broad audience base for the future? About the Orchestra The LA Phil was founded in 1919 by William Andrews Clark, Jr. In 1969, Ernest Fleischmann took over the orchestra and ran it for 30 years, hiring Esa-Pekka Salonen, a brilliant Finnish musician, as Music Director in 1992. 2 Salonen helped foster the image of the LA Phil as a daring and inventive orchestra, and one focused on introducing new music. Under Salonen, the LA Phil became “the most venturesome major orchestra in the land . . . Salonen made this a fabulously flexible ensemble, with an unusual appetite for new music and startling new challenges,” 3 wrote one music writer. In 2000, Borda joined as President and CEO. Dudamel replaced Salonen as Music Director in 2009. By 2016, the LA Phil performed more than 230 concerts a year at its two venues—at Walt Disney Concert Hall, from October through May, and the Hollywood Bowl, from June through September. The Budget As of 2016, the LA Phil had the largest operating budget of any U.S. orchestra, about $123 million annually, and its revenues had balanced its operating budget since Walt Disney Concert Hall opened in 2003. Roughly two-thirds of the orchestra’s revenue came from ticket sales and related concert activities, while one-third came from philanthropic contributions and the LA Phil’s endowment draw on its $255 million endowment. This split in revenue sources was referred to as earned revenue vs. contributed revenue. Most other major U.S. orchestras had lower earned revenue ratios, perhaps 45%–55% of their total revenue, and relied more on contributed revenue. 4 Every year, the LA Phil withdrew 5% of a rolling 20-quarter average of the endowment’s market value for operations. “Effectively, this draw policy is intended to preserve the purchasing power of the principal balance of our endowment,” said Michael DeMartini, CFO. The LA Phil’s earned revenue streams consisted of ticket revenue of about $43 million from the Hollywood Bowl and about $25 million from Walt Disney Concert Hall. Contributed annual fund revenue was $30 million, and the endowment draw was about $10 million. The remainder came from subcontracting out the Bowl for pop and rock shows, Bowl food and beverage sales, parking, ticket service fees, merchandising, and the like. (For revenue from ticket sales over time, see Exhibit 1. For growth in the endowment and change in the endowment draw, see Exhibit 2.) Sales of ticket subscription packages had declined over time as younger patrons more often bought tickets on a one-off basis and were less likely to schedule concert attendance far in advance. Assuming this trend continued, COO Chad Smith observed, the LA Phil would have to focus increasingly on marketing individual events to younger patrons. Subscriptions had helped balance demand for concerts, and had helped generate more predictable revenues, by packaging morepopular and less-popular events together. But if subscription revenues dwindled, the most popular concerts would have to be optimized in efforts to generate as much revenue as possible from them through individual ticket purchases. “As subscriptions decline, we would have to up-price many more single events in order to subsidize the other contractual concerts we have to do,” Smith noted. 2 This document is authorized for use only by Danny Parray in GBA513 F2018 taught by YUKO MINOWA, Long Island University from Aug 2018 to Feb 2019. For the exclusive use of D. Parray, 2018. The Los Angeles Philharmonic Orchestra: Cultural Entrepreneurship 517-006 The Venues Walt Disney Concert Hall The LA Phil ran a 30-week winter subscription season at Walt Disney Concert Hall. From October through May, about 160 concerts were performed and produced, 95 of which were regularly performed by the LA Phil. The hall seated 2,265 people, and about 300,000 winter tickets were sold annually, of which approximately 185,000 tickets were sold for the 95 orchestral concerts. In 2003, the orchestra moved to the concert hall from its prior home at the Dorothy Chandler Pavilion, which had 2,900 seats. At Dorothy Chandler, the LA Phil had increasingly struggled with attendance. The new venue was known for its exceptional acoustics. Just after moving to Walt Disney Concert Hall, ticket prices doubled, the number of performances increased, and attendance almost doubled; annual ticket revenues rose from $10 million to $20 million, with some variation based on the sale of single tickets vs. subscription sales. However, subscriptions declined over the years as the novelty from the opening wore off, with significant declines as a result of the recession. When the venue opened, about 2,000 seats would reliably sell per concert; by 2016, that had dropped to 1,900 seats. As volume fell, ticket price increases made up the difference to some extent. Front-row seats could cost as much as $200, though pricing was demandbased and could move up or down on the basis of audience interest. The Hollywood Bowl During the summers, the LA Phil performed and produced about 70 concerts covering a wide range of musical genres at the Hollywood Bowl, an outdoor amphitheater in Hollywood, California. The Bowl seated 17,500 people, and about 1 million people passed through the turnstiles each year. “These concerts consist of orchestral, jazz, and popular artists for all Angelenos to enjoy at affordable prices under the stars on summer evenings,” said DeMartini. “We allow people to bring in food and beverages, including alcohol, so the majority of people picnic with their friends before the concert.” The LA Phil also sublet the Bowl to a promoter, who produced about 20 pop and rock concerts annually for headline artists, typically passing through Los Angeles on tour. Los Angeles County leased the Bowl to the LA Phil under a long-term lease; the LA Phil in exchange ran the venue and set programming. The average ticket price was $56, and ticket prices rose more slowly than at Walt Disney Concert Hall, reflecting cost-of-living adjustments. Prices had risen about 3% a year since 2010. (In general, the rate of increase in ticket prices at the Bowl had remained steady, while the rate of increase in ticket prices at Walt Disney Concert Hall had decelerated.) In 2004, Los Angeles County rebuilt the entire Hollywood Bowl shell. The LA Phil had since continued to make upgrades and renovations to the Bowl annually, for which both the county and the LA Phil raised funds. They redid sound systems and bathrooms, put up LED screens so people in the back could see, and repainted and refinished the Bowl for a well-maintained, timeless look. After these and other upgrades, audience numbers grew, and revenue rose from $300,000 to $600,000 per concert. In 2000, the Bowl generated about $22 million in annual revenues; by 2016, it grew to about $43 million. (For ticket revenues by number of concerts and by venue, see Exhibit 3 and Exhibit 4.) Most other U.S. orchestras, with the exception of the Boston Symphony Orchestra, did not operate two performance venues for their winter and summer seasons. “By operating year-round, we’re able to provide a wide range of concerts to a diverse cross section of Los Angeles, and we offer something for everyone,” DeMartini explained. “If we didn’t have the Bowl, we’d be very similar to most of the other orchestras in the U.S.” 3 This document is authorized for use only by Danny Parray in GBA513 F2018 taught by YUKO MINOWA, Long Island University from Aug 2018 to Feb 2019. For the exclusive use of D. Parray, 2018. 517-006 The Los Angeles Philharmonic Orchestra: Cultural Entrepreneurship The Patrons The average age of orchestra patrons at Walt Disney Concert Hall was 60 years. Some were also significant donors to the LA Phil. They often came from affluent nearby areas—Brentwood, Beverly Hills, or Santa Monica—and most drove to concerts. Many were sophisticated classical-music listeners looking for a formal experience at the concert hall. “There’s a specific culture around the heavy user. It’s a small subset of people who are in the know, who understand the music,” acknowledged Shana Mathur, Vice President of Marketing. “It’s an aging population, who have a set way of attending concerts.” The highest subscription renewal rate, she added, was among the people who had been subscribing for more than 15 years. More recent subscribers renewed at lower rates. “We have a lot of trial happening, but these newcomers return at a much lower rate, which makes acquisition quite resource-intensive,” she noted. The audience for the Hollywood Bowl, meanwhile, came closer to the demographics of the city. “If you go to the Bowl, you see a diverse audience. It’s a large venue that can sustain a range of ticket prices, from exclusive Pool Circle seating at the foot of the stage, to $1 bench seats in the back,” said Kathleen Kane, Vice President of Philanthropy. “It’s easier to have a more diverse audience when the programming is diverse—you have a jazz night, world music, and more pop acts than Walt Disney Concert Hall.” Unlike Walt Disney Concert Hall, the Bowl lacked enough parking to accommodate every guest, so the county and the LA Phil had developed subsidized Park & Ride and shuttle bus services to enable patrons to get to and from the Bowl on concert nights. (For demographic profiles of Walt Disney Concert Hall and Hollywood Bowl audiences, see Exhibit 5 and Exhibit 6.) Experiences and ticket prices for the Hollywood Bowl were different from those for Walt Disney Concert Hall, and audiences often were attracted to one venue or the other—overlap among subscribers was less than 20%, and significantly less among other patrons. “Patrons are attracted to Walt Disney Concert Hall for the sensational acoustics and unamplified sound, while patrons enjoy the Bowl for the complete dining and outdoor concert experience,” DeMartini commented. (For crossover between venues, see Exhibit 7.) Borda’s Early Years at the LA Phil Borda, a graduate of Bennington College and a former student of the Royal College of Music in London, played the viola professionally before moving into orchestra management. She saw her musical training as a strategic asset. “I am completely fluent in the product,” Borda noted. “I can read a score, evaluate just how good a conductor is, listen to a violinist or pianist and make qualitative judgments about their abilities. There are many other skills I’ve had to learn, but I can always rely on these.” Borda had little to no formal management education before shifting into administrative roles, instead learning how to run an orchestra mostly through on-the-ground experience. 5 Her interest in the management side took off after an exploratory summer job scheduling a well-known classicalmusic festival; Borda knew she had found her calling. Eventually, she became President of the St. Paul Chamber Orchestra, and later President of the Detroit Symphony Orchestra. She was General Manager of the San Francisco Symphony, and, beginning in 1991, she was President of the New York Philharmonic Orchestra. She headed that orchestra for nearly a decade until joining the LA Phil in 2000 as its President and CEO. 6 Having been a professional musician and successfully transitioning to orchestra management gave Borda a unique perspective. “It enables her to completely understand both the artistic perspective as well as the financial and operational elements,” DeMartini said. 4 This document is authorized for use only by Danny Parray in GBA513 F2018 taught by YUKO MINOWA, Long Island University from Aug 2018 to Feb 2019. For the exclusive use of D. Parray, 2018. The Los Angeles Philharmonic Orchestra: Cultural Entrepreneurship 517-006 Borda came to Los Angeles in 2000 with a mandate to turn around an ailing LA Phil. The institution was running structural deficits (i.e., operating losses) of $6–$8 million a year. Revenues (made up of earnings from tickets and income from philanthropic contributions) were not covering fixed costs, most of which consisted of orchestra salaries and benefits, followed by marketing costs and other salary costs. The organization had other problems, too—with its music programming, ticket-pricing strategy, uncontrolled spending, and an underperforming annual fund. The imminent opening of Walt Disney Concert Hall played a role in Borda’s move to LA and in her turnaround strategy. Before being recruited, Borda recalled seeing architect Frank Gehry’s prototypes for Walt Disney Concert Hall in the New York Times. “It simply spoke to me,” she recalled. Months later, both Salonen and Gehry took part in recruiting her to come to Los Angeles. Borda decided to take the job, provided she could be deeply involved with the final plans for the hall, which opened in 2003. Borda, together with Salonen, revamped the orchestra’s programming. “It was frankly too unpreparedly esoteric, and people had stopped going,” she admitted. Because of poor attendance, ticket prices had not been raised for years. Tickets were “wildly underpriced” in the early 2000s, relative to tickets for peer orchestras, she said. Borda formed a critical partnership with Salonen, and then together they guided a more inclusive, yet still challenging, repertoire. At the Hollywood Bowl, a much more unabashed expansion of music to include more popular artists, world music, and jazz had a positive effect on the Bowl’s revenue base. Opening Walt Disney Concert Hall In 2003, Walt Disney Concert Hall opened its doors. With the support and direct assistance of the LA Phil’s board, a lease with full exclusivity was negotiated with the Music Center of Los Angeles and Los Angeles County. It was critical that the hall be considered a “living room for music,” Borda said, and that it be filled almost every night. For the LA Phil to make the financial and programmatic investments needed to carry that off, it was critical that the LA Phil retain exclusive rights in the hall during the winter season; in essence, it became a grand musical umbrella. Salonen and Borda brought in world-class soloists, and programming shifted away from a strict post-modernist European orientation to more contemporary American and younger European composers. “The programming was meaty and interesting and set in a larger cultural context to attract more patrons,” Borda remarked. Borda marketed ticket subscriptions well before the new hall opened. “We told people, ‘If you don’t subscribe now, you’re not going to be able to get into Walt Disney Concert Hall, because it’s smaller than the Dorothy Chandler Pavilion, and it will be hot!’” she recounted. By the time the hall opened, Borda had the LA Phil’s tickets priced in line with those of peer orchestras. The changes to programming and pricing helped the orchestra balance its budget after the hall’s opening. During her early years, she also recruited stronger musicians. Board member David Bohnett recalled, “At the time she came, many people said the LA Phil was a good regional orchestra, but wasn’t of the quality of the other major orchestras. So Deborah was on a mission to recruit higherquality players from other orchestras.” The prospect of the new hall’s perfect acoustics and the opportunity to work with Salonen drew in many new musicians. As part of Walt Disney Concert Hall’s grand opening, Borda ran a week-long festival called “Phil the House,” inviting in different groups from the community. The orchestra did a series of free concerts for schoolchildren, for Los Angeles teachers, for the hall’s construction workers, and for senior citizens. By the end of the week, perhaps 18,000 new people had been there. “It opened up the 5 This document is authorized for use only by Danny Parray in GBA513 F2018 taught by YUKO MINOWA, Long Island University from Aug 2018 to Feb 2019. For the exclusive use of D. Parra ...
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School: Carnegie Mellon University

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Response to Questions from a Case Study
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Response to Questions from a Case Study
What should LA Phil do next?
The LA Phil should take stock of its new situation and adjust accordingly. From the
information provided, the orchestra’s traditional customer base is dwindling due to advanced
age (Deshpande & Lobb, 2017). The newer generation of patrons prefers to do things entirely
differently. To harness these revenues, it is necessary that the LA Phil adapts to the newer
methods. For example, as the on-demand ticket purchasing model grows in popularity, it is
important for the LA Phil to streamline it (Deshpande & Lobb, 2017). Making the necessary
adjustments to suit the preferences of the younger...

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