Save Money by Shutting Down?

There’s a small but well-known theatre company in Los Angeles called the Actors Gang, which is led by well-known movie actor Tim Robbins.  They occupy one of the many, many 99 seat spaces in LA and are known for doing avant-garde work, which sometimes finds a following and sometimes is more successful at, well, pointing the way to the future.

I read a short article in the LA Times blog Culture Monster that said the following:

“Last June [the Actors' Gang]…received some paradoxical advice. The world economy was still shaky. Donations to the theater were down. The best short-term strategy for the theater troupe, the Gang was told, would be to save money by not putting on plays.”

Say wa?

Who gave them that advice?

Fortunately, the organization didn’t listen, and went the other direction instead, creating the WTF?! Festival, apparently so named because of Robbins’ reaction to being told the key to success was to stop putting on plays.

But to take this issue from a broader perspective, I’ve heard this a lot, believe it or not.  Organizations all over the country are “saving money” by doing fewer shows.

The logic is that if some nights are less popular, you just take those off the schedule and save a few bucks on staff and utilities.

But here’s the problem.  Live entertainment is a business with high fixed costs and relatively small variable costs.  Most of the cost of doing a show is in all that it takes to mount and market it, not the costs of each individual performance.

That means it is imperative that once you’ve mounted and marketed a given show, you should sell it as many times as you possibly can.  Why do you think people work so hard to get their play on Broadway?  It’s not just because Broadway itself can be lucrative (although it can); it’s more because they want the show to tour and be performed elsewhere for years and years.

So even on a small scale, it’s the same phenomenon.

If you do an economics course, you learn how to evaluate when to “shut down” a widget factory.  Basically, it’s when the profit you make from making that one extra widget is drops below the cost of producing that one extra widget.

Here’s the key.  It’s the cost of that ONE EXTRA WIDGET that has to be taken into account.  In other words, all the costs that have gone before don’t count anymore except that they’re providing you with benefits like the fact that you don’t have to pay more rent to do another show, you don’t have to pay more for the costumes you developed, and you don’t have to pay more for the rights to the script.  All those things are already baked into your fixed costs.

The point is that your incentive is to sell that show as much as you possibly can.  You can’t possibly “save” your way to success on a show.  What you can end up doing is permanently shrinking your ability to be productive.  Companies do it all the time, as they try to “shrink to greatness.”  It almost never works.

What you should be doing instead is this: create a formula that works.  Make your shows more desirable and focus them on your audience.  Cut out activities that don’t add value to the audience and focus your resources on getting people interested in what you’re doing.

And of course, make sure you’re doing something interesting.  If you’re not, change it.  If you have a problem night, do something special on that night or drop the price or perhaps change the time of the show to attract a different audience.

The point is that “shutting down the factory” is only a rational step when you’re trying to go out of business as gracefully as possible.

Otherwise, you are not excused from the hard work of finding a formula for pleasing an audience and delivering a great experience.  Shutting down is a cop out, as Tim Robbins, to his credit, realized.

Good on you, Tim.  Loved ya’ in Bull Durham and Bob Roberts.