Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO:

Vancouver City Council

FROM:

Director of Civic Theatres

SUBJECT:

Theatre Rental Rates for September 1, 2002 to August 31, 2003

 

RECOMMENDATION

CITY MANAGER'S COMMENTS

POLICY

Council annually approves the Schedule of Rental Rates for the three civic theatres as well as any necessary adjustment to the Theatre Rental Grants budget to accommodate the changes in rental rates.

PURPOSE

This report seeks approval of the proposed Schedule of Rental Rates contained in Appendix "A", for uses of the Orpheum, Queen Elizabeth Theatre and Vancouver Playhouse, during the period September 1, 2002 to August 31, 2003. It also requests approval in principle of a matching increase in the Theatre Rental Grants budget for the fall of 2002, should an increase be necessary.

BACKGROUND

Rental rates are reviewed every year during the preparation of the annual operating budget and any adjustments are made effective September 1st of each year in alignment with the traditional performing arts season. The rental rates are reviewed periodically in relation to those of comparable facilities to ensure that Vancouver's rates are correctly placed in relation to the local, national and continental markets.

In 2001 the increase was approximately equal to 5% for the QET and Orpheum and 4% for the Playhouse.

DISCUSSION

The Performing Arts

The most stable presenters in this volatile market remain the Prime Performers, the eight resident performing arts companies: Playhouse Theatre Company, Vancouver Opera, Vancouver Symphony, Ballet BC, Vancouver Recital Society, Friends of Chamber Music; Vancouver Bach Choir and Vancouver Chamber Choir. We cannot take their apparent stability for granted, however. Much dedicated hard work, including very sophisticated and energetic fund raising, goes into maintaining the high level of quality they deliver to their loyal Vancouver audiences.

The Commercial Live Entertainment Market

While the Performing Arts season remains relatively stable from year to year, the commercial market is where the biggest fluctuations are seen.

The level of activity at Vancouver Civic Theatres "hit bottom " in 1999. There was an 11% improvement in total shows and total audience in 2000. In 2001 the number of shows returned exactly to the 1999 low of 474 performances although attendance did not fall as far, holding at 8% above the 1999 low, at 609,215.

September 11 had a disastrous impact on live entertainment in the East and that impact rippled outwards, dimishing as it moved west. The continental West Coast suffered very little. At Civic Theatres we could not discern any impact at all. Anecdotally, we heard that some performers refused to fly for a while, but we had no cancellations and the level of activity was relatively normal. Diana Krall performed 2 concerts at the Orpheum on October 7 & 8. Although the attack on Afghanistan began on October 7, there was not an empty seat in the house on either night.

Popular music in North America continued to experience a decline in total concert tickets sold, although the gross revenues increased again to an all-time high of $1.75 billion, due to increased ticket prices. The total number of tickets sold by the top 100 tours was down 7% or over 3 million to 37.4 million. U2 had the highest gross of any touring band at $109.7 million and Madonna scored the highest average ticket price at US$123.91. The average ticket price for the Top 100 was US$43.86 (not including ticket sellers' surcharges and taxes) compared to US$25.81 in 1996.

Consolidation continued with Clear Channel Entertainment taking over SFX, the giant US entertainment conglomerate. CCE, represented in Vancouver in association with Orca Bay and GM Place, increased its market share from 5:1 over its nearest competitor, House of Blues, to 7:1 (27.4 million tickets sold compared to 3.8 million). Locally CCE has exclusive control over GM Place and has access to all rental venues, while House of Blues has exclusive control over the Commodore and equal access to all the same rental venues. Civic Theatres has in the past had more business from House of Blues than CCE although they have been booking an increasing number of concerts recently.

The CCE office in Toronto also controls the higher end Broadway touring for Canada and are presenting 2 musicals at the QET, "Cats" and "Saturday Night Live", in a subscription format this season, something they saw fit to start doing a few years ago in Edmonton, Calgary, Winnipeg and Ottawa. CCE/Broadway is highly risk-averse so we do not predict any rapid re-growth of this market although we are reasonably confident they will continue to come to the QET rather than The Centre (the former Ford), simply because the QET has 1,000 more seats to offer.

The major issue for the commercial presenters continues to be the value of the Canadian dollar against the US dollar. While that difference does much to support the film production industry in Canada, it has the opposite effect on live entertainment.

Theatre Rental Market - Comparisons

Appendix "B" shows the table of comparative rental rates for theatres up the West Coast and across Canada. Saskatoon, Regina & Winnipeg are omitted as they maintain their rental rates at abnormally low levels through provincial government subsidies. The Alberta Jubilee Auditoria in Calgary & Edmonton are also subsidized by their provincial government but while significantly less expensive than Vancover and Central Canada, they are closer to the normal rates.

For commercial rentals the vast majority of theatres in North America use a flexible rental structure, usually based on a minimum rent roughly equal to $1.00 per seat available, versus a percentage of the ticket sales (between 8% and 11% in the theatres surveyed). There is generally a maximum, though many do not publish it. These theatres usually also add labour costs for audience services and stage crew and some even charge extra for the use of theatre equipment. Civic Theatres includes those costs in the higher base rent.

For non-commercial rentals, there are a variety of formulas in use, most of which are a version of discounting from the commercial rates. Vancouver is the only jurisdiction we know of, where instead of discounting the rent, the City provides grants equal to theatre rent at the flat-rate value, to the local performing arts organizations who qualify.

Commercial rental rate

In September 2000, Council approved a 3-year trial of a flexible rental structure, agreed to by a group of commercial presenters. In place of the flat rate that had been in place since the beginning, we charged commercial concerts a minimum rent of $5,000, including labour costs, versus 8% of the box office receipts to a maximum of $10,000. Last year this was increased to a minimum of $5,500 versus 9% to a maximum of $10,500.

NB - The minimum rent is set above the incremental operating cost of a performance so there is still a contribution to operating overhead.

The most interesting and beneficial result of this new rental formula has been that since September 2000 we have seen an increased number of riskier events that, because they did not sell out, paid a lower rent . However commercial concerts are also the best concessions revenue generators and so the lost rent has been more than made up by concessions profits.

Very few of these concerts paid the minimum rent and relatively few paid the maximum. On average over a year, the total rent paid was less than would have been paid at the flat rate. The rental rate increase proposed in this report will seek to adjust the rate up so the total for the year is equal to or greater than the revenue would be at the flat rate.

Proposed increases

Increases are necessitated by negotiated labour settlements, inflationary cost increases and the requirement for Civic Theatres to be treated equally with other City departments in meeting the global budget objectives established by Council.

The proposed increase in the flat rate for the QET and Orpheum is $400 per evening to $8,700 from $8,300, equal to an increase of 4.8%. The proposed increase for the Playhouse is $80 per evening to $2,300 from $2,220, equal to an increase of 3.6%.

The proposed increase in the commercial concert rate is to $5,750 minimum and $11,000 maximum, equal to approx. 5% and the proposed increase in the percentage rate is from 9% to 10% of ticket sales. This rate is calculated by applying the proposed rate to all qualifying concerts over the past year and adjusting it to match to total rental revenue that would have been earned by those concerts at the flat rate.

Theatre rental grants

Local non-profit performing arts organizations may receive support from the City in the form of Theatre Rental Grants or Baxter Fund Grants. Theatre Rental Grants are awarded to the established non-profit presenters: Vancouver Symphony Orchestra, Vancouver Opera Association, Playhouse Theatre Company, Ballet BC, Vancouver Bach Choir, Vancouver Chamber Choir, Vancouver Recital Society, Friends of Chamber Music, Vancouver Youth Symphony, Vancouver Academy of Music and Coastal Jazz and Blues Society. The Vancouver Foundation's Baxter Fund Grants, administered by the Office of Cultural Affairs, are awarded to smaller, developing performing arts organizations or to special programmes. Licensees who have benefited in the recent past include the International Children's Festival, Lorita Leung Dance and the World of Children's Choirs.

The Director of Cultural Affairs advises that the Baxter Fund has a declining balance, in accordance with the terms of the benefactor's will, and at the present rate will run out of funds in 2004. The Director of Cultural Affairs also advises that rental rate increases accelerate the depletion of the fund.

Grant recipients are insulated from the effects of increases in rental rates for those uses covered by grants, however it must be noted that not all of these licensee's uses are covered by grants, so there are some financial impacts. Ballet BC for example, receives grants for their own uses of the QET but does not receive support for the visiting companies presented in the Dance Alive! series; e.g. Royal Winnipeg Ballet, Alberta Ballet. In these instances, rental rate increases directly affect the visiting companies and can be seen to create a hardship. There are also other regular, non-profit users, such as Coastal Jazz and Blues Society and the Friends of Chamber Music, who do not receive grants for some of their uses.

Graduations

High school graduations have been provided with a special rental rate for many years. The rate encourages uses of the theatres at a time when other bookings are usually low, and it facilitates schools' access when their own venues are often inadequate for one reason or another. This special rate pays for the incremental costs of operation and makes a contribution to overhead.

This year there are 23 graduations, up from 17 last year.

FINANCIAL IMPLICATIONS

This rental rate increase impacts on the last four months of the 2002 operating year and the first 8 months of 2003.

The proposed increase in the flat rate for the QET and Orpheum is $400 per evening to $8,700 from $8,300, equal to an increase of 4.8%. The proposed increase for the Playhouse is $80 per evening to $2,300 from $2,220, equal to an increase of 3.6%.

The proposed increase in the commercial concert rate is to $5,750 minimum and $11,000 maximum, equal to approx. 5%; the proposed increase in the percentage rate is from 9% to 10% of ticket sales.

Increases reflect the costs of negotiated labour settlements, inflationary cost increases and the requirement for Civic Theatres to be treated equally with other City departments in meeting the global budget objectives established by Council. The commercial concert rate adjustment reflects the change needed to ensure the total rental revenue earned will equal that which would have been earned by those same concerts if charged at the flat rate.

The rental rate increase will add approximately $23,700 to the budget required for the Theatre Rental Grants budget for the last 4 months of 2002.

COMMUNICATIONS PLAN

The proposed rental rates have been communicated to Licensees for several months in the course of their bookings for dates after September 1, 2002. A copy of Appendix "A" is also being distributed to them at this time along with an advisory of the date of the Council meeting and an invitation to address any concerns to the Director of Civic Theatres, the Civic Theatres Board and/or City Clerk.

CONCLUSION

The annual report on Theatre Rental Rates proposes an increase of 4.8% in the flat rate for the Queen Elizabeth Theatre and Orpheum, 5% for the commercial concert rate and an increase of 3.6% for the Vancouver Playhouse, effective September 1, 2002.

Link to Appendices A and B

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