ADMINISTRATIVE REPORT

Date: June 23, 1998

Author/Local: RAckerman 665-3020

CC File No. 4251

TO:	Vancouver City Council
FROM:	Director of Civic Theatres
SUBJECT:	Theatre Rental Rates: September 1, 1998 to August 31, 1999

RECOMMENDATION

A.THAT Council approve the Schedule of Rental Rates and Conditions for Civic Theatres, as detailed in Appendix "A", effective September 1, 1998.

B.THAT Council approve an increase in the funding for grants equal to theatre rent for the last four months of 1998, in the amount of approximately $26,575, to offset this rental rate increase; source of funds to be Contingency Reserve.

CITY MANAGER'S COMMENT

The City Manager RECOMMENDS approval of A and B.

COUNCIL POLICY

Council annually approves the Schedule of Rental Rates and Conditions for the three civic theatres as well as the necessary adjustment to the grants equal to rent budget to accommodate the changes in rental rates.

PURPOSE

This report seeks approval of the proposed Schedule of Rental Rates in Appendix "A", for uses of the Orpheum, Queen Elizabeth Theatre and Vancouver Playhouse, for the period September 1, 1998 to August 31, 1999.

BACKGROUND

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

In 1995, rental rates were increased by 4.6%. In 1996 the increase was 3%. In 1997, responding to low inflation rates and labour settlements, there was no increase.

DISCUSSION

The Performing Arts and Live Entertainment Environment

In 1998 we are experiencing a continuation of the changes that began in 1994. There is a redistribution of events and audiences, stimulated by the entrenchment of the new venues, the Ford Centre for the Performing Arts, G.M.Place, and the Chan Centre at U.B.C. and their efforts to find market share, audience loyalty etc.

The three civic theatres are now part of a range of choices, not the only choices. Since each of the venues now available has unique features and, most importantly, a different number of seats, attractions are able to choose a venue that is most appropriate to their individual character, appeal and box office potential.

G.M. PLACE 4,000 to 20,000 Concert Bowl to Arena

COLISEUM 3,600 to 16,000 Concert Bowl to Arena

QET 2,929 Theatre - Road House

ORPHEUM 2,788 Concert Hall

FORD CENTRE 1,840 Theatre - Road House

CHAN SHUN HALL 1,200 Concert Hall

VOGUE 1,200 Theatre

VANCOUVER PLAYHOUSE 668 Theatre

On the surface at least, no venue is directly interchangeable with any other. They all have distinctly different features and operating styles. While they all have rental rates for public uses, all but the three civic theatres have the means to participate in the profits (and losses) of their shows. Some do this by simply charging a low base rent (generally equal to about $1.00 per seat) plus a percentage of the gross ticket sales. Others are more active, entering

into partnerships with the local presenters or acting as the local presenters themselves. The most competitive in this latter respect are Orca Bay at G.M. Place and Livent Inc. at the Ford Centre.

Livent Inc. owns &/or operates two theatres in Toronto (with a third under construction), one in New York and one upcoming in Chicago, in addition to the Ford Centre in Vancouver. The original concept was to have several long-run, mega-musicals moving between these theatres at intervals of a year or more, with new musicals inserted into the circuit as older ones closed or moved out to tour other centres or other countries, with the most popular being cloned and franchised in the manner of "The Phantom of the Opera".

This programming policy does not seem to have been ultimately successful for the Ford/Vancouver; "Ragtime" is scheduled to run only 16 weeks and Livent does not seem to have another large production ready to move in after it. Consequently we expect to see them focus on short runs of bought product, such as the recent presentations of "Riverdance", "Slava's Snowshow" and the upcoming "Wizard of Oz".

This new policy of presenting short-runs of touring shows packaged by other producers, represents a significant departure from the programming expected at the Ford Centre. More importantly, it means they will now be competing directly for the smaller core audience of regular theatre-goers on the one hand, and competing for shows that would normally book into the QET on the other hand. There may be some negative impacts on the local performing arts and live entertainment community as well as Vancouver Civic Theatres.

In this changed environment, the QET and Orpheum have one major advantage - their size. With 1,000 more seats available to sell per performance than the Ford, a show which can sell those seats stands to be more profitable simply by being able to play a shorter run to the same number of people, thereby reducing their total running cost for the same gross revenue.

The Theatre Rental Market - Comparisons

Exactly equivalent comparisons are difficult to make since the majority of theatres have different rental rate structures than Civic Theatres. For this year's analysis we used the published rates for 16 theatres from Oregon, Washington, B.C., Calgary, Thunder Bay, Toronto and Ottawa. Including the QET and Orpheum, only 5 of these theatres post "flat rate" rentals. All others use a formula involving a base rent, roughly equal to $1.00 per seat, plus a percentage of the ticket sales. For a simple comparison, we have ignored the manner in which different theatres deal with labour and equipment-use charges, merchandise commissions, box office charges and seat surcharges. The attached table, Appendix "B", shows the results of this survey, reduced for clarity to a rental rate on a per seat basis. For

the theatres which charge a percentage of sales, we used a consistent average ticket price of $40 and an average gross equal to 80% of capacity. The prices and rents are not adjusted for US/Canadian dollars, since present practise is for an American show coming into Canada to generally sell their tickets at the same face value here as in the U.S.

The result of the survey in Appendix "B" shows remarkable consistency across these 16 theatres. The QET at $2.49 per seat and the Orpheum at $2.62, after the proposed increase described in Appendix "A", are still quite low compared to the average of $3.29 per seat. The market should have no trouble absorbing an increase in the QET/Orpheum evening rent to $7,300.

As detailed in Appendix "A", the proposed increase for the Orpheum and QET is $300 per evening to $7,300, or 4.28%. The proposed increase for the Vancouver Playhouse is $75 per evening to $1,975, or 3.95%.

Grants Equal to Rent

Local non-profit performing arts presenters may receive support from the City in the form of Grants Equal to Theatre Rent or Baxter Fund Grants. Grants equal to rent are awarded top established non-profit presenters, including: Vancouver Symphony Society, Vancouver Opera Association, Vancouver Playhouse Theatre Company, Ballet B.C., Vancouver Chamber Choir, Vancouver Bach Choir, Friends of Chamber Music, Vancouver Recital Society and others. Baxter Fund grants are awarded to smaller, developing, performing arts groups or to special programmes. Licensees who have benefited include: Early Music Vancouver, Vancouver Youth Symphony Orchestra, Music in the Morning and others.

Provided Council approves the customary equivalent increase in the grants budget, the local City-supported non-profit presenters participating in the grants programmes are insulated from financial impacts for those uses of the theatres covered by the grants. This increase will be the subject of an upcoming Council Report. However, not all of the resident companies uses are covered by grants.

Graduations

High School Graduations were provided with a special rate to encourage their use of the theatres at a time when bookings are traditionally low. The reduced rental rate also facilitated the schools access tot he theatres at a time when their own facilities were often inadequate for one reason or another. Upwards of 35,000 people attend these graduation ceremonies in the QET or Orpheum.

This spring, the number of graduations is down from 25 to 22 and we are advised that some more schools will be finding other venues next year. In some cases, they have found a smaller venue, e.g. the Chan Centre, to be more suitable. In another case, one whole school district is planning to compress all of their graduation ceremonies into a short time span in a single local arena to save money.

FINANCIAL IMPLICATIONS

The rental increases described here are the minimum necessary increases in the cost of service to meet the objectives of the 1998 operating budget.

Provided Council approves an increase of approximately $26,575 in the 1998 grants equal to theatre rent budget to accommodate these increases, the local City-supported non-profit performing arts presenters will be insulated from impacts of this increase for uses of the theatres which are covered by the grants programmes. As noted earlier, not all theatre uses are covered.

The reduced rate for high school graduations still generates a small income above the incremental costs of operation and contributes to the operating overhead.

As this rental rate increase only applies to the last four moths of 1998, they actually establish the revenue potential for the first eight months of 1999. Civic Theatres this year developed budget estimates through to the year 2001, including rental rate increases and booking estimates that forecast a period of no growth. These budget models foresee several years during which the rental rate increases may accelerate more rapidly than in the past to more closely resemble the actual rental costs in the broader market.

COMMUNICATIONS PLAN

The proposed rental rate increase was communicated to Licensees of the theatres in a recent Newsletter. No reactions were received. Copies of this report are being sent to a selected list of major users.

NOTE:ATTACHMENTS TO THIS REPORT THAT DO NOT HAVE ELECTRONIC COPY ARE AVAILABLE ON FILE IN THE CITY CLERK'S OFFICE.

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(c) 1998 City of Vancouver