ADMINISTRATIVE REPORT

TO:

Vancouver City Council

FROM:

Director of Civic Theatres

SUBJECT:

Theatre Rental Rates for September 1, 2004 to August 31, 2005.

 

RECOMMENDATION

COUNCIL POLICY

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, 2004 to August 31, 2005, along with approval in principle of an increase in the Theatre Rental Grants budget for the fall of 2004, should an increase benecessary. This report also seeks approval to make the experimental flexible rental rate for commercial concerts the standard for all future such concerts.

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 2002-2003 the increase was equal to 4.8% for the QET and Orpheum and 3.6% for the Playhouse. There was no increase in 2003-2004.

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 sector fluctuates unpredictably.

Pop/rock & Standup comedy

2001

2002

2003

Events

35

54

31

Gross Box Office

$3,465,086

$6,313,638

$2,993,666

In each of those years there had been 3-4 such events by the end of February. In 2004, by the end of February we had 12 events, Gross Box Office $1,407,345.

We were fortunate to get "Mamma Mia!" here from Toronto in summer 2003. But there was no indication it was even a possibility before a chance phone conversation on June 5. By June 13 a 4-way deal had been confirmed. The show went on sale a mere month before opening on July 22. The first day's ticket sales astonished everyone: $1.8 million. The final gross after 6 weeks/48 performances, was $9,004,131. At this time there is no indication of a comparable show being available for the coming summer.

Popular music in North America again experienced an increase in gross ticket sales for an all-time high of $2.5 billion, up from $1.5 billion in 1999. This is due to increased ticket prices, as the total number of tickets sold continued to decline or remain flat. The average ticket price has increased from U$36.84 in 1999 to U$50.35 in 2003. Other indicators in 2003 showed movie attendance decline by 4% and record sales decline by 5%.

The re-opening of The Centre in Vancouver for the Performing Arts has several possible impacts.

1. As long as the quality of events is high, the audience will not be alienated. Although we understand that ticket sales have been disappointing, the production quality has been good.

2. Successes at The Centre would encourage other presenters to come into our market. This does not seem to have happened yet.

3. Shows might be diverted from Civic Theatres to The Centre. The only presentation of The Centre to date that was considered for the QET was "42nd" Street" and the presenter we work with did not have enough confidence to go after it. We understand it played to about 60% capacity at the Centre, which would equate to 37% at the QET.

To date we do not see any negative impacts from the re-opening of The Centre, only some small positives.

In past years a major issue for the commercial presenters was the comparatively low value of the Canadian dollar against the US dollar. While that difference did much to support the film production industry in Canada, it has the opposite effect on live entertainment. Since our dollar strengthened, the risk to local presenters has reduced and I believe we are seeing an increase in the number of imports.

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 Vancouver 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 $1.50 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. Our higher minimum rent includes most of the costs other theatres add on top.
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. This rate has been tweaked twice to improve the margin and for the past 2 years has been at a minimum $5750 vs. 10% to a maximum of $11,000.

The minimum rent is set above the incremental operating cost of a performance so there is still a contribution to operating overhead. In spite of the number of concerts that paid less than the flat rent, overall in 2002 we grossed $8,000 more than we would have and in 2003 we grossed $15,400 more in spite of having 23 fewer concerts. By the end of February, 2004, we were about $11,000 ahead.

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 sales.

We are proposing that Council now approve the experimental period to be successfully concluded and that the flexible rental rate for commercial concerts be approved to continue as standard policy

Proposed increases.

The current rental rates have remained unchanged since a 4.8 % increase effective September 1, 2002. With low inflation Civic Theatres was able to meet budget objectives for 2003 without an increase.

Increases are motivated by such things as negotiated labour settlements, inflationary cost increases, the need to maintain a position in the larger market 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 $350 per evening to $9,050 from $8,700, equal to an increase of 4.0%. The proposed increase for the Playhouse is $90 per evening to $2,390 from $2,300, equal to an increase of 4.0%.

The proposed increase in the commercial concert rate is from $5,750 minimum and $11,000 maximum, to $6,000 minimum and $11,500 maximum, equal to approx. 4.0% and the proposed increase in the percentage rate is from 10% to 10.5% of ticket sales.

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, Coastal Jazz and Blues Society, Vancouver New Music and Vancouver Summer Festival.

In the past, the Vancouver Foundation's Baxter Fund Grants, administered by the Office of Cultural Affairs, were awarded to smaller, developing performing arts organizations or to special programmes. Licensees who have benefited in the recent past include the Vancouver Chinese Choir, Mandla Arts and Cultural Society and the Children's Arts Umbrella Society. This year the Baxter Fund's capital will finally be exhausted.

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 access when school 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 22 graduations.

FINANCIAL IMPLICATIONS

This rental rate increase impacts on the last four months of the 2004 operating year and the first 8 months of 2005. For 2004 there is no change to the operating budget, as the proposed rental rate increase was incorporated into the budget target.

The proposed increase in the flat rate for the QET and Orpheum is $350 per evening to $9,050 from $8,700, equal to an increase of 4.0%. The proposed increase for the Playhouse is $90 per evening to $2,390 from $2,300, equal to an increase of 4.0%.

The proposed increase in the commercial concert rate is to $6,000 minimum and $11,500 maximum, and the proposed increase in the percentage rate is from 10% to 10.5% of ticket sales. This is equal to approx. 4%.

Increases reflect the costs of negotiated labour settlements, inflationary cost increases, changes in the larger marketplace 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.

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, 2004. A letter was also sent to them in mid-March advising them of the proposed increase and advising them to address any concerns to the Director of Civic Theatres or the City Clerk.

CONCLUSION

The recommended adjustment of Theatre Rental Rates proposes an increase of 4% across the board, effective September 1, 2004.

LINK TO APPENDICES A AND B

ag20040622.htm

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© 2002 City of Vancouver