EY-Reina Sofía School Report: The Value of Arts
The role of Performing Arts and Classical Music on the impact economy
What is culture? There are multiple meanings to 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 strengthen social cohesion and to shape freer and more inclusive communities, which raises the curtain on new opportunities and projects in a context of humanistic capitalism.
These are some of the conclusions of The Value of Arts report. The role of Performing Arts and Classical Music on the impact economy, carried out jointly by EY and the Reina Sofía School of Music: a document that analyses how to create social value from different cultural initiatives, and how businesses and investors can participate in these projects. It also tackles how cultural institutions can adapt to the new settings.
- The report draws relevant conclusions regarding the role of performing arts and classical music on the impact economy.
- Allocating resources to generating social value through culture by means of impact sponsorship is a growing option for many businesses.
- In this new scenario, it is essential that cultural institutions transform, professionalise, and rely on the private sector.
- Fostering the three-pronged collaboration (patrons-sponsors, investors and cultural institutions), together with the transversal role of the public sector, which is key for this industry to achieve a leading role.
- Undertaking a consolidation process, investing in management education, measuring impact, and innovating in its formats, are some of the eight recommendations included in the report to further enhance the attractiveness of the sector for investors.
- The culture industry in Spain generates around 2.4% of GDP and accounts for 3.5% of employment.
The report conveys how different cultural manifestations can be part of the impact economy: one that seeks economic growth and development, but, at the same time, contributes to solving social and environmental problems. This concept is based on the unity of society, businesses, and public institutions around certain common objectives, known as ESG (Environmental, Social and Governance). The impact economy seeks the progress of society as a whole, not only through economic benefit, but also social and environmental benefits.
Another fact that the report reflects is that while until recently investment decisions were based on the traditional risk-return, this has now expanded to a three-pronged approach: risk-return-impact. This process is translated into an increase of impact assets that are being managed both globally (775 billion euros in 2019), as well as in Spain: 2,378 million euros in 2020. “The special interest that culture arises 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 encourage investments in this sector, with the role of the public sector as a transversal element”, remarked Adriana Moscoso del Prado, Executive Director of Cultural Industries, Intellectual Property and Cooperation of the Ministry of Culture and Sports, at the presentation of this report to the media.
For Paloma O’Shea, Founding President of the Reina Sofía School of Music, “The report underlines the essential nature of culture, as demonstrated during the pandemic. Furthermore, this work clarifies the role that the impact economy can play in the development of the performing arts and music”. Julia Sánchez Abeal, CEO at the Reina Sofía School of Music and promoter of this report, states: “I am confident that this report will help cultural institutions to value the importance of their contribution to society and enable them to move forward towards sustainability and growth”.
In the context of the humanistic capitalism to which we are heading, businesses, funds, banks and investors are increasingly focusing on financing projects that generate a social impact. Therefore, cultural projects and, specifically, those related to performing arts and classical music, have an opportunity to be more sustainable and to value to their contribution to society, according to the report.
In this regard, Federico Linares, President of EY Spain, stresses that: “in the new humanistic capitalism, in which committed companies opt for creating social value, culture is an exceptional leaver that connects us to excellence, talent and progress. And cultural initiatives are an excellent vehicle for social cohesion and support for vulnerable groups. In this context, businesses have a lot to offer, with great potential to make an impact where it is really needed”.
Culture, an economic and social driver
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 undoubted social impact. If we stick to what the report analyses, the performing arts and classical music, we can appreciate how they contribute transversally to the SDGs (Sustainable Development Goals). The report details that the sector makes a significant social contribution through five direct effects: improving the quality of education, improving employability, improving well-being and quality of life, promoting a more inclusive society and making people happier in their private lives, with the subsequent effect that they feel happier at work.
One fact that the report highlights is the atomisation 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 that 92% are made up of individuals, public corporations, or limited liability companies. 67.6% are businesses with employees, 26.1% small businesses, with 1 to 5 employees, 5.7% have 6 to 49 employees and 0.5% are larger businesses, with 50 employees or more. These businesses are concentrated in the regions of Andalucía, 13.4%; Cataluña, 19.9%; Valencia, 9.9%, and Madrid, 21.6%.
The contribution to GDP of this industry was around 2.4% in 2019, a percentage that has decreased after the Covid-19 crisis. According to the Directory of Cultural Statistics, in 2020 the average expenditure per household linked to culture was 556.4 euros and the average expenditure per person amounted to 223.6 euros. Among the most significant components of the cultural expenditure analysed are books (15.6%), periodicals (4.9%), image and sound equipment (9.3%), entertainment – cinema, theatres and others – (4.7%) and mobile and internet-related services (21%). The most unfavourable evolving behaviour has been recorded for entertainment, which has been reduced to one third by 2020 due to the impact of the pandemic.
According to the report, we are currently witnessing a reawakening of the performing arts and classical music sector, with growing interest from businesses. There are similarities with what happened in the healthcare and education sectors a few years ago, when they opened up to greater public-private collaboration. Thus, it is decisive to establish a three-pronged collaboration between patrons, sponsors, investors, and cultural institutions, which generates growth and impact and has the support of the public sector as a transversal element and driver of social value.
In this sense, “cultural institutions can now take advantage of the great opportunity to revitalise this industry and to reactivate new investment opportunities, through the Recovery, Transformation and Resilience Plan”, recalls Federico Linares. 350 million euros will be allocated for this plan over the next three years, which should fulfil the objective of revaluing the cultural industry.
Attracting impact investors
How can the potential of cultural institutions be activated? “The integration of this sector with education, the consolidation of small players and the creation of cultural performances of innovative formats are essential for this purpose”, Cecilia de la Hoz, Partner of Strategy and Transactions at EY, remarks. The document reflects that performing arts and classical music have a great opportunity to strengthen their strategic character, have more sustainable business models and attract more funding in the new paradigm of impact economy. “However, a strategic plan of action is needed to align all players in the sector to this end, which will certainly help to whet the investor’s appetite for new areas for impact investment” de la Hoz adds.
The EY-Reina Sofía School report sets out eight recommendations which cultural institutions can use to unlock their potential:
- Changing mindset with respect to the private sector.
- Diversifying sources of funding.
- Training professionals in management, digital skills, and fund-raising.
- Innovating product development to integrate experience.
- Innovating communication and social media profiling.
- Integrating analytical accounting into project management.
- Identifying key project metrics, including impact metrics; integrating data analytics and linking analysis to internal management systems.
- Devising a strategic plan geared towards developing creative activity and total return (financial, social, and environmental).
Furthermore, cultural institutions can attract impact investors if they manage to find sustainable business models and measure the social impact they generate. The report shows several international examples, such as Nesta’s investment in the Birmingham Royal Ballet or that of Concord’s in Techstars. There are also cases in Spain, such as Fever or the new start-up fund promoted by Fundación Carasso and Ship2B.
Whether the sector acquires a leading role, once the curtain is raised on the impact economy, depends on the ability to foster the three-pronged collaboration (patrons-sponsors, investors, and cultural institutions), as well as on the important interdisciplinary role of public bodies.