Funding of the arts and heritage

Written evidence submitted by Mission, Models, Money (MMM) (arts 45)

1. Summary

1.1 This submission is from Mission, Models, Money (MMM), a network of thinkers and doers whose vision is to transform the way the arts use their resources to support the creation and experience of great art. All of our activities are dedicated towards building the resilience of creative practitioners and organisations in order to help strengthen their capacity to be externally aware, rigorously self critical and risk positive.

1.2 An important strand of current work includes a project called Capital Matters which is exploring how best to support arts and cultural organisations in becoming more financially resilient. Our report will include recommendations about public and private sector funding.

1.3 Work for the project has comprised a number of elements – the main ones being research amongst medium sized arts and cultural organisations perceived by funders and support organisations as being at the leading edge in changing or adapting their business models in order to become more financially resilient, conversations with funding and financing organisations and consultation meetings with arts and cultural organisations. We are currently drafting a report on this work which we aim to publish for consultation by the end of September.

1.4 Capital Matters builds on previous MMM work and tests and develops our analysis. Our hypothesis is that many medium sized arts and cultural organisations are undercapitalised and over-extended. But while they are cash poor, they are often rich in other assets (particularly intangible assets in the form of creative or other IP, a strong brand or reputation and the good will of supporters and donors). Our analysis suggests that with access to appropriate capital, in the form of development grants, loans and quasi equity (or revenue sharing arrangements) and an injection of appropriate support with business development arts and cultural organisations could achieve greater financial resilience.

1.5 The Capital Matters report will consider financial capital and support needs in the arts and cultural sector and how these could be best met in the future by both the public and private sectors.

2. Introduction

1.1 MMM’s vision is to transform the way the arts use their resources to support the creation and experience of great art. MMM’s current fourth phase of work, which has been running since 2008, comprises a number of strands. The objective of all these strands has been to research, design and prototype, where possible, new ways of thinking and new ways of doing which will help organisations evolve their mindset and working practices in response to an increasingly turbulent operating environment. You can read about the MMM work streams in more detail on our website at www.missionmodelsmoney.org.uk, including in the resources section of the website and in the provocations section of the website where you will find ‘The Art of Living’.

2.3 One of our work strands focuses on collaboration. It has included piloting new collaborative, networked approaches to back office functions and externally facing service innovation and design amongst six groups of arts and cultural organsiations in Scotland and the North East of England. Learning from the pilots will help develop a greater understanding by funders on how to approach, allocate and distribute grants and technical assistance for collaboration and a larger pool of specialist expertise which arts and cultural organisations can draw from to aid collaborative working.

2.4 MMM is also currently engaged in a project called Capital Matters which builds on our previous work and which will make recommendations about how arts and cultural organisations and public and private sector funders can build financial resilience in the sector1. We are currently writing up this work. A draft report will be published for consultation by the end of September.

3. The Capital Matters project – what is it about?

3.1 Since 2007 MMM’s research has established that thousands of arts and cultural organisations in the UK, critical to both the historical and contemporary cultural canon, are over-extended and under-capitalised. Typified by high fixed costs, inflexible business models and weak balance sheets, many are overly dependent on annual public sector grants in order to survive. However, our hypothesis is that the arts and cultural sector could become stronger and more resilient in the future if creative practitioners and organisations had access to appropriate financial capital and support in building organisational capacity2 .

3.2 Capital Matters is a project with three main elements:

- Research to examine the approaches that creative practitioners and organisations are already deploying to evolve current business models and/or develop new business models which assist them to build financial and organisational resilience.

- Consultation with frontline creative practitioners and organisations to investigate what changes to existing infrastructure support and/or what new kinds of support including changes to public and private funding policy and practice would help to build resilience.

- Discussions with public and private funding and financing organisations about how their practice supports or inhibits the building of resilience in the arts and cultural sector aimed at encouraging good practice.

3.3 Our overall goal is to encourage a funding/financing environment that invests in the sector’s long-term health and vitality. In MMM’s view this means providing access to an appropriate range of financial capital including grants, loans, quasi equity, exchange and barter arrangements and contract income3. It also includes understanding non-financial support needs better. This is necessary to enable creative practitioners and organisations to deploy their existing assets better and to develop new assets – whether tangible or intangible in order to generate more of their own income into the future4.

3.4 The project is being financed and supported by The Gulbenkian Foundation’s Innovation Fund, The Northern Rock Foundation, The Scottish Arts Council and Arts Council England.

4. Why is there a need for Capital Matters? Our analysis to date

4.1 Consultations with arts and cultural organisations carried out by MMM in 2007 strongly suggested that creative practitioners and organisations are both under-capitalised and over-extended. People working across the arts sector reported to us that:

- Public sector and foundation grants were spread ever more thinly.

- There was pressure to do more with declining revenue funding.

- Funding was tied to artistic product so organisations lack resources to invest in the development of their business model.

4.2 The research confirmed that the nub of the problem was as follows:

"Insufficient investment in the core of A&COs (arts and cultural organisations) – the leadership, management and systems that help to ensure organisations run efficiently and effectively. This lack of investment creates a vicious circle. Organisations lack resources – skills, expertise and money – to invest in creative ways of generating resources (for example for investment in research and development and to exploit the intellectual capital generated)."5

Amongst our recommendations, designed to address the problem, was the setting up of a new underwriting fund (where a sum of money is reserved and called down only if needed) to provide creative practitioners and organisations with the confidence to take artistic risks, develop new initiatives or simply to enable them to weather cash flow difficulties

4.4 The 2007 MMM research also confirmed two other important issues:

· The need to provide advice and expertise to help creative practitioners and organisations better understand their finances,

· The need to clarify and match the correct funding/financing options with the right sorts of projects or activities in order to enable organisations to flourish.

Without such matching, investment may at best be unproductive and at worst counterproductive. To quote Clara Miller, head of the Non Profit Finance Fund in the US:

"It’s no good accessing investment to enable you to make more widgets if you’re making a loss on each one; it simply makes your situation worse"

4.5 Clara Miller argues that there is a fixed relationship between mission (programmes), model (organisational capacity) and money (capital structure) with any change in one inevitably having an impact - planned or unplanned - on the others. Action is therefore needed on all three fronts at the same time to enable non profit organisations, including those who work in the arts and cultural sector, to flourish.

4.6 During 2008 and 2009 we have developed our analysis further concerning the difficulties reported to us in 2007. Through a consultancy project in the North East of England we have been able to work closely with a group of building based arts and cultural organisations and funders to develop a strategy aimed at achieving greater financial resilience.

4.7 The organisations we were working with found it difficult to raise funding for core operating costs. As a result they did not have adequate reserves and they lacked resources to invest in their organisation and their future artistic development. Typically this meant they could not do one or more of the following:

· make provision for future spending needs in relation to building and plant;

· finance adequate rehearsal time;

· commission new work and support emerging talent;

· invest in improving existing methods of income generation - for example, employing an additional fundraiser or events person;

· develop new income generating ideas;

· purchase an appropriate share in the IP produced by the artists they worked with;

· invest in their organisational capacity to support their work.

4.8 Interviews with the organisations suggested frustration and thwarted ambition:

"We do what we do but we aren’t able to grow content and content is all."

And a drift towards a position where it was becoming more difficult to take artistic risks because the imperative to cover significant fixed costs demanded conservatism in programming.

4.9 Although these organisations were cash poor, they held significant assets in the form of buildings or intellectual property they had helped develop and they also had access to significant social capital through their pool of supporters and donors. MMM concluded that they could become more financially resilient by better exploiting their existing assets and developing new ones. We proposed a number of measures aimed at assisting them to do so, including:

· Grants to support research and development work on collaborative income generating ventures and

· The establishment of a revenue and risk sharing fund providing support for new income generating projects and providing access to appropriate business support.

You can read more about this project in the Resources section called Money on the MMM website.

4.10 During 2009/10 we reviewed a small action research project also in the North East of England aimed at testing whether an injection of capital (in the form of a grant) coupled with appropriate business support could help four different arts and cultural organisations develop new projects which would enable them to generate more of their own income over the medium to longer term.

4.11 All four of these projects are about digitisation. The approach taken is one of ‘asset based development.’ Put simply this means building on existing skills and expertise and better exploiting products and services that have already been developed. For example, bringing popular off-line products and services online to reach a wider audience and using techniques such as up selling and cross selling.

4.12 Although it is very early days and some of the projects are still in development, this initiative suggests that relatively small capital investments may generate lasting value in a range of ways including financially.

Benefits to this cohort have been:

· Access to effective and appropriate business diagnostic skills to identify and refine market opportunities and a critical pathway;

· Development of new on-line products and services;

· Development of audiences through social marketing.

4.13 This piece of work suggests the potential of digitisation for some arts and cultural organisations; it demonstrates that digital tools can be the corner stone or catalyst for some strategies designed to support greater resilience.

4.15 The results of this review have helped us to understand better the key role that appropriate business support plays in helping arts and cultural organisations develop successful new income generating ventures and the challenge that organisations face in funding the transition to more financially sustainable ways of working.

4.15 Key findings were:

· For the organisations involved the capital provided was contributing towards greater public engagement; art form and content development; progress in the articulation of value and development in management and governance.

· All the business ventures pursued were core to achieving organisational mission.

· All the ventures were helping the organisations involved to build new communities of interest, extend reach into new markets, build their reputations and articulate their value.

4.16 In summary the new research commissioned through Capital Matters reflects further on these findings. In Capital Matters we are looking more deeply at how arts and cultural organisations are adapting and changing in order to become more financially resilient and what organisations identify as

- funding and financing options;

- attitudinal barriers they encounter and how they are being overcome;

- support needs and how these are currently met.

4.17 The findings from this new research will be summarised in our consultation report which will be published for public consultation by the end of September

September 2010