The cultural sector of the performing arts and classical music is preparing for impact investment and to be attractive to funds, patrons and sponsors
- The report draws relevant conclusions regarding the role of the performing arts and classical music in the impact economy.
- Dedicating resources to generating social value through culture by means of impact sponsorship is a growing option for many companies.
- In this new scenario, it is crucial that cultural entities transform, professionalize and rely on the private sector.
- Promoting the collaboration triangle (patrons-sponsors, investors and cultural entities), together with the transversal role of the public sector, is key for this industry to achieve a leading role.
- Undertaking a consolidation process, investing in management training, measuring impact or innovating in its formats, are some of the eight recommendations included in the report to continue enhancing the sector’s attractiveness to investors.
- The culture industry in Spain generates around 2.4% of GDP and accounts for 3.5% of employment.
Madrid, April 28, 2022.- What is culture? Multiple meanings fit this term, but culture is, without a doubt, a first-rate lever that serves to generate long-term value in different areas of society. It also serves to reinforce social cohesion and configure freer and more inclusive communities, which opens the curtain to new opportunities and projects in a context of humanistic capitalism.
These are some of the conclusions of the report The value of culture. The role of the Performing Arts and Classical Music in the impact economy, carried out jointly by EY and the Reina Sofía School of Music: a document that analyzes how to create social value from the different cultural initiatives and how companies and investors can participate in these projects. It also addresses how cultural entities can adapt to new scenarios.
The report reflects how the different cultural manifestations can form part of the “impact economy”: that which seeks economic growth and development, but, at the same time, contributes to solving social and environmental problems. This concept is based on the union of society, companies and public institutions around common objectives, aligned with those known as ESG (Environmental, Social & Governance). The impact economy seeks the progress of society as a whole through, not only economic benefit, but also social and environmental benefit.
Another fact reflected in the report is that, although until recently investment decisions were based on the traditional profitability-risk binomial, this has now been expanded to the point where we are now faced with a trinomial: profitability-risk-impact. This process is reflected in the increase in “impact assets” that are already being managed, both globally (775,000 million euros in 2019) and in Spain: 2,378 million euros in 2020. “The special interest that culture awakens as a generator of long-term value highlights its economic potential. For this reason, we believe that it is appropriate to increase public-private collaboration and promote investments in this sector, with the role of the public sector as a transversal element”, Adriana Moscoso del Prado, general director of Cultural Industries, Intellectual Property and Cooperation of the Ministry of Culture and Sports, pointed out in the presentation to the media of this report.
For Paloma O’Shea, founding president of the Reina Sofía School of Music, “The report underlines the essential nature of culture, as was demonstrated during the pandemic. In addition, this work clarifies the role that the impact economy can play in the development of the performing arts and music”. Julia Sánchez Abeal, CEO of the Reina Sofía School of Music and promoter of this report, says for her part: “I trust that this report will help cultural entities to value the importance of their contribution to society and allow them to advance on the path of sustainability and growth.”
In the context of the humanistic capitalism towards which we are heading, companies, funds, banks or financiers are increasingly focusing on financing projects that generate a social impact. For this reason, cultural projects and, specifically, those of the performing arts and classical music, have an opportunity to be more sustainable and value their contribution to society, as reflected in the report.
Along the same lines is Federico Linares, president of EY in Spain, who emphasizes that “in the new humanistic capitalism, in which committed companies are committed to the creation of social value, culture is an exceptional lever that connects us with excellence, with talent and with progress. And cultural initiatives are an excellent vehicle for social cohesion and support for vulnerable groups. In this context, we companies have much to contribute, with great potential to impact where it is really necessary.”
Culture, economic and social engine
Culture, in addition to contributing economically to the economy (in 2019 it accounted for 2.4% of GDP and 3.5% of employment in Spain), has an undeniable social impact. If we stick to what the report analyzes, the performing arts and classical music, we can see how they contribute transversally to the Sustainable Development Goals (SDGs). The report details in depth the five impacts of the sector that contribute to the development of the individual and society: improvement of the quality of education, improvement of employability, improvement of well-being and quality of life, improvement of inclusiveness and improvement of the personal happiness of the citizen.
A fact that the report reveals is the atomization of the Spanish cultural sector, which makes it vulnerable in times of crisis. In 2019, Spain had 127,581 entities dedicated to the cultural sector, 4% more than in 2018: more than 92% made up of individuals, public limited companies or limited liability companies. 67.6% are companies without employees, 26.1% are small, with 1 to 5 workers, 5.7% have 6 to 49 employees and the remaining 0.5% are larger companies, with 50 employees or more. In addition, these companies are concentrated in the autonomous communities of Andalusia, 13.4%, Catalonia, 19.9%, Comunitat Valenciana, 9.9% and in the Community of Madrid, 21.6%.
The contribution to the GDP of this industry was around 2.4% in 2019, a percentage that has been reduced after the Covid-19 crisis. According to the yearbook of cultural statistics, in 2020 the average expenditure per household linked to culture was 556.4 euros and the average expenditure per person was 223.6. Among the most significant components of the cultural expenditure analyzed are: books (15.7%), periodicals (4.9%), image and sound equipment (9.3%), shows -cinemas, theaters and others- (4.7%) and mobile services and those related to the internet (21%). The most unfavorable evolutionary behavior has been recorded in shows, whose relative weight has been reduced to a third in 2020 due to the impact of the pandemic.
As stated in the report, we are currently witnessing an awakening of the performing arts and classical music sector, given the growing interest on the part of businessmen. There are similarities with what was experienced in the health and education sectors a few years ago, when they opened up to greater public-private collaboration. And it is that it is crucial to establish a triangular collaboration scheme between patrons, sponsors, investors and cultural entities, which generates a dynamic of growth and impact and which has the support of the public sector as a transversal element and promoter of social value.
In this sense, “cultural entities can take advantage of this moment of great opportunity to boost this industry and to reactivate new investment opportunities, through the Recovery, Transformation and Resilience Plan”, recalls Federico Linares. 350 million euros will be allocated to this plan in the next three years, which must meet the objective of revaluing the cultural industry.
Attract impact investors
How to activate the potential of cultural entities? “The integration of the sector with education, the consolidation of small players and the creation of cultural shows with innovative formats is essential in this purpose”, highlights Cecilia de la Hoz, partner of Strategy and Transactions at EY. The document reflects that the performing arts and classical music have a great opportunity to reinforce their strategic nature, have more sustainable business models and attract more financing in the new paradigm of impact economy. “Although a strategic action plan is required that aligns all the agents in the sector with this purpose, which will certainly contribute to opening the investment appetite to new fields for impact investment”, points out de la Hoz.
The EY-Reina Sofía School of Music report also lists eight recommendations so that cultural entities can continue to activate their potential:
- Change of mentality towards the business private sector.
- Diversification of funding sources.
- Training of professionals in areas of management, digital skills and fundraising.
- Innovation in product development to incorporate the experience.
- Innovation in communication and leveraging on social networks.
- Incorporation of analytical accounting in project management.
- Identification of impact metrics: incorporate ‘data analytics’ and unite the analysis with internal management systems.
- Implementation of a strategic plan that focuses them on a growth of creative activity and total profitability (financial, social and environmental).
In addition, cultural entities can attract impact investors if they manage to find sustainable business models, as well as measure and explain the social impact they generate. The report shows several international examples, such as Nesta’s investment in the Birmingham Royal Ballet or Concord’s in Techstars. There are also some in Spain, such as Fever or the new start-up fund promoted by Fundacion Carasso and Ship2B.
The sector acquiring a leading role depends on the capacity to promote the collaboration triangle (patrons-sponsors, investors-cultural entities), as well as on the important transversal role of public bodies, once the curtain of the impact economy is completely raised.
