by Don Thompson
Rivera adds that as Kayak.com allows travel amateurs to act like professional travel agents, so ArtRank.com allows art amateurs to act like art professionals. It is clear that the service is of greater interest to those flipping art than to those building a long-term collection. Perhaps not surprisingly, Rivera and ArtRank are consulted and respected by investors but not beloved by artists.
The second disruptive site is Monaco-based ArtViatic (www.artviatic.com). ArtViatic promotes itself as a platform for the private sale and purchase of exceptional works of art. The site accepts paintings, sculptures and works on paper listing at €150,000 ($164,000) and above. It avoids providing (or guaranteeing) authentication by requiring that a work either be included in a catalogue raisonné or have a certificate of authenticity.
ArtViatic connects sellers with buyers; the parties negotiate privately. If a sale occurs, each party pays a 3-percent commission to the company on an honour system. Sellers and buyers get a free trial period on ArtViatic, after which there is a subscription fee. The company offers confidentiality for sellers and buyers, making it less likely that artists will learn that their work has been flipped. There is still a problem if the certificate of authenticity that accompanied the original art is offered with the fake. Many buyers take the easy path of checking the certificate rather than authenticating the work. If the work is fake, ArtViatic has no responsibility.
ArtViatic would be my choice for a disrupter of the high end of the art market because it handles the problems of authenticity and confidentiality reasonably well. However, there is a limiting factor: there are many dealers, auction house specialists and art advisers who for an 8- to 10-percent commission, will negotiate private placements at $1 million or over. They provide better authenticity checks, better confidentiality and better access to potential buyers. That would seem to box ArtViatic into a narrow price range, above peer-to-peer sellers and below private placements. The middle ground narrows even more when agents doing private placements accept less valuable works as part of disposing of a whole collection.
The third disruptive site is Artsy (www.artsy.net), a technology start-up that has raised $50 million in funding from art-world backers, including dealer Larry Gagosian and Russian art patron Dasha Zhukova. (Full disclosure: I have been involved with Artsy’s online video series and online editorial series.)
Artsy launched its online platform in 2012. As of late 2016, over 4,000 galleries had displayed art for sale on the site. These were mid-level or below; no über galleries. Each pays a subscription fee ranging from $375 to $1,400 a month for software and other services. At the end of 2016, the Artsy app has been downloaded more than 650,000 times by collectors worldwide.
Over seven hundred museums and foundations and sixty art fairs, including EXPO Chicago, the Armory Show and Art Cologne, display on the site. Museums, foundations and art fairs upload for free. The art-fair postings have a huge following.
Based on a user’s browsing activity, Artsy uses an affinity test to predict what art attributes the collector might like. Recommendations come from its Art Genome Project algorithm, a version of that used by the internet music website Pandora. The algorithm includes eight hundred preference indicators from each artwork—“political,” “minimalist” and so on. If a collector likes the work of Cindy Sherman, the algorithm will produce a list of related artists—Francis Bacon and Barbara Kruger—and show works by each. The algorithm has glitches, which make it fun. The Economist magazine cited the example of Gustave Courbet’s The Origin of the World (1886), where the labels included “Breast” and “Close-up.” Admirers of Origin were shown Tom Wesselmann’s Study for Bedroom Painting with Tit & Lemon (1968), which the algorithm also related to “Breast.”
The most important online influence may be Instagram, a 320-million-member online photo-sharing and social-networking service, and probably the major social-media platform in the art world. In April 2015, Artsy published survey results that showed 51 percent of collectors on Instagram had purchased works from artists they discovered on the site, and had on average purchased five works from the site. All such self-reported purchasing behaviour is highly suspect. But even if the Artsy survey overstates reality by a factor of three, the results are impressive.
Interest in Art on Instagram was boosted by a 2015 story concerning Hollywood star and avid art collector Leonardo DiCaprio. In March of that year, DiCaprio saw an Instagram image posted by Copenhagen’s Gallery Poulsen, of artist Jean-Pierre Roy’s work Nachlass (2015) in a shot of the gallery’s PULSE Art Fair booth in New York (see Entopticon 1, from same Roy series, in photo insert shown here). The actor purchased the work on the phone before the fair opened. The asking price was reported as $30,000.
Instagram’s success comes in part from triggering a sequence of emotional points in viewers. Collectors see an artwork, click on other works by the artist, then see a personal profile, then a website address. They can view an artwork in different stages of completion and create their own backstories to art they buy. Pricing and purchase information have to be searched, but that is not difficult once you have a website. Art on Instagram produces instant feedback in the form of “likes” and comments. If there are a lot of likes, an artist can attract hundreds of new followers every day.
The little-known aspect to Instagram is that many sites involve product placement; site owners are compensated by the brands shown. They feature professional photography, sometimes professional models, and clothing brand identification tags. For a fee of $200 and up (and a requested $50,000 for a celebrity endorser with over a million followers), such sites include artwork as background, with artist credits listed. The art can be digitally inserted; no shipping is required. Some artists claim this is a profitable form of promotion. That may change once more Instagram followers understand that what they are viewing is a paid placement.
Art speculator Stefan Simchowitz has found another way to profit as an intermediary in the art market. He identifies young artists such as Parker Ito and Petra Cortright before they are taken on by galleries, and buys all their work he is able to get—much as Charles Saatchi used to do. Simchowitz publicizes the artists and their work on Instagram, or by sending JPEG images to his collector base, most of whom he has never met. He moves hundreds of artworks each year and popularizes artists, almost all accomplished online.
What is common to the examples above is that initial competition to the dealer and auction house system came from disruptive innovation from outside the art market, not within. That is true in other industries: the speed of innovation in terms of development and diffusion is accelerating, but existing organizations in those industries do not notice, or find it hard to restructure. Uber came from outside the taxi industry, Tesla from outside the auto industry, and Apple health care and finance from outside those industries. Disruption can happen whenever technology can be applied.
It is also not surprising that innovation comes from outside. Every MBA student learns that the vulnerability of a market to outside market innovators is greatest if that market has high information asymmetries between suppliers and customers, high search costs or substantial fees charged by intermediaries. The art market rates high on all three.
New York dealer Edward Winkleman thinks online art selling may have what economists call network effects, that online art sales may be a “winner take almost all” game. I agree. In the digital world it is common for one company to evolve to dominate completion, to become quasi-monopolies. Think of Google in online search, Facebook in social networking, Airbnb in apartment rentals, Spotify in music streaming and of course Amazon in online retail. Competitors come and go. Some continue to exist, but struggle.
Once network effects take hold, there is a huge barrier to entry to potential rivals. The more familiar and comfortable you are with one firm, the harder it is for a competitor to offer you enough to induce you to switch—again, think of Google or eBay. The more customers are on one internet art site, the more likely you are to of
fer your art there. The more art on a site, the more collectors will search only there.
However much internet sales expand, and however few online competitors survive, there will still be one gap in Stefan Simchowitz’s analogy to Lutheranism at the beginning of this chapter. Collectors will still need to have a long relationship with a dealer to get access to work of the most sought-after artists. First option will always go to institutions, second to branded collectors with public collections, third to long-term customers of the gallery. To make it to the third rung of the ladder, a collector may still have to tithe by purchasing lesser works from the dealer.
THE NEW WORLD OF MUSEUMS
CHAPTER EIGHTEEN
NOT YOUR FATHER’S MUSEUM
“I can never pass by the Metropolitan Museum in New York without thinking of it not as a gallery of living portraits but as a cemetery of tax-deductible wealth.”
—Lewis H. Lapham, American writer and editor
“[What we do is] the conscientious, continuous, resolute distinction of quality from mediocrity.”
—Alfred Barr, former director of the Museum of Modern Art
FOR NON-COLLECTORS, THE MAIN INTERACTION WITH MODERN ART IS through museums rather than dealers or salesrooms. Museums are about much more than displaying art; they are linked to the economics of the art market in ways that are important but not always obvious. In particular they are about fundraising. They compete with other museums, cultural activities and charities for publicity, prestige, donations and wealthy trustees.
For museums, the most important customers are not potential museum-goers. Rather they are donors, in the same way that the important customers for newspapers are not readers but advertisers. As every MBA student learns, to find out what business an organization is in, you ask, “What is the revenue model? Where does the money come from?” The revenue provider is the customer. That is one reason why so many museum directors come from non-curatorial backgrounds, and sometimes from earlier careers as dealers. They are appointed in large part for their negotiating and diplomatic skills. It is also why, in many cases, the public image of a museum is so closely tied to that of its leader.
If North American art museums had to rely on admission fees they would be in trouble. The Association of Art Museum Directors confirmed this in the report Art Museums by the Numbers 2014, which summarized responses from 204 museums in the United States and sixteen in Canada and Mexico. Only 27 percent of museum revenue came from admissions, parking, refreshments, gift-shop merchandise and space rentals. The remaining 73 percent came from private donations, government funding and interest on endowments. The average visitor to a North American art museum paid $3.70 at the admission desk and an additional $4.23 in the café and gift shop, a total of $7.93 per visit. The average is skewed by the fact that admission is free in a growing number of museums.
Dividing the total cost of running museums in the sample by the number of visitors gives an average per-visitor cost of $53.17. That figure is also misleading. Many of the costs are fixed—administration, storage of the collection, conservation and research—rather than variable costs related to the number of visitors. The averages are higher for the few large institutions with budgets in the tens or hundreds of millions of dollars. It’s comparable to what 1-percenters do to statistics on average earnings and household wealth.
Donors provide operating funds and, more significantly, gifts of art. The bequests often come with conditions. In 2014 the Art Institute of Chicago outbid the Museum of Modern Art, among others, for the collection of retired plastics manufacturer Stefan Edlis and his wife, Gael Neeson. The bequest involved forty-two artworks, including Warhol and Koons, and was valued at $500 million. The institute agreed to keep all the works on continuous display for fifty years in a new museum wing designed by Renzo Piano. With the gift to the Art Institute, Edlis became both donor and partial curator of what would be shown. MOMA says it lost out because the museum never agrees to an “always on display” condition.
Even the best-known museums do sometimes agree. In 1969 the Metropolitan Museum of Art accepted a bequest of 2,600 works of Western European art from Robert Lehman. The gift came with the condition that the works always be shown together. Today they occupy a dedicated wing of the museum.
The question of what motivates donors is both simple and complex. The simple part is that what motivates the wealthy to donate to a museum is very much what motivates anyone to take a charitable action—some combination of personal satisfaction, public recognition and social duty. The more complex part of the charitable motivation of the wealthy can be the desire to structure their gifts to shape rather than just support an artistic activity.
We know that many wealthy donors prefer to associate with high-prestige institutions, museums high on the public recognition list. Where ten museums in a region compete for donations, it is thought that number one in public perception will get 25 percent of gifts, number two 15 percent, number three 10 percent, and the other seven will share 50 percent. The same percentages are thought to hold true with universities and professional schools in medicine, business and law. Those percentage donation differences are huge when translated to dollars. In December 2015 there were fifteen arts institutions in Manhattan running fundraising campaigns totalling $3.4 billion, most for earmarked capital projects. Of this, $400 million was for MOMA and $600 million was for the Met’s proposed new modern and contemporary arts wing designed by David Chipperfield.
Some museum expansion is not to accommodate increased attendance, but rather to provide room for new collections. When Univision CEO Jerry Perenchio proposed donating art with a valuation of $500 million to the Los Angeles County Museum of Art (LACMA), the offer was conditioned on the museum financing and completing an expansion to provide room to show the works.
Each expansion involves a risk. Each produces an increase in operating costs, and requires an increase in attendance or in endowment for the museum to break even, given the new costs. The New York Times estimated the Whitney’s 2015 move to its new larger location in Chelsea would see its operating budget go from $33 million to $49 million. In 2016 the Met, MOMA and the Brooklyn Museum each within a four-month period announced deficits and staff reductions, with the Met and Brooklyn attributing part of their losses to too-rapid expansion and the resulting need for additional staff and security.
Consider the competition in New York among four institutions: the Met, the Whitney, MOMA and the Guggenheim. There are many more museums in the New York area; these four compete at the high end. All have undertaken massive expansion and renovation. There is a battle for public recognition, and to find and attract high-profile board members whose personal contributions are an important source of funds. Board-member fundraising obligations are privately described as “give, get or get off.” New board members are routinely asked for large annual contributions to operating funds, plus long-term contributions of art or capital.
Until the end of the 1990s the four high-end institutions each had distinct collections and missions. The Met spanned several thousand years of art history. MOMA was modernism. The Whitney was American art. The Guggenheim was about showing off its architecturally superb building and about attaining the economics of scale by franchising more Guggenheims around the world.
The Met gained the “number one in perception” position in 2014 after receiving the fabulous Leonard Lauder collection of Cubist art. This included eighty-one paintings, drawings and sculptures by such artists as Pablo Picasso, Georges Braque and Juan Gris. In quality these rivalled comparable works in MOMA, the Centre Pompidou in Paris or the Hermitage in St. Petersburg. The Met valued the bequest conservatively at $1 billion. Were the collection to have gone to auction, some estimates went as high as $3 billion.
The Met had finalized its expansion into the Met Breuer, the former Whitney Museum space that now shows twentieth-century art. Met director Thomas Campbell described the Met’s expansion in alpha-dog terms, his comments directed to dono
rs as much as the art community. “It’s … the most high-profile cultural building project in New York in the next 10 years.”84 Campbell talked about the show that opened the Met Breuer, Unfinished: Thoughts Left Visible, which posed the question “When is a work of art finished?” Campbell said: “What the Met can do is show contemporary art through the lens of history.”85 We have “five thousand years of aesthetic traditions, which modernism is either engaging with or rejecting.”86 Unstated was “and others can’t.” However, when Unfinished opened in March 2016, it turned out that only a third of the works displayed came from the Met’s collection; two-thirds came on loan.
In losing its “modern art” exclusivity, MOMA lost some media coverage and dropped in public perception. MOMA did its best to ignore the Met’s Lauder windfall, which many observers thought should logically have gone to MOMA. In May 2016, MOMA got its own windfall: music and film producer David Geffen donated $100 million to the MOMA expansion. Three floors of new galleries in MOMA’s new building plus the fourth-floor galleries in the existing building were to be named the David Geffen Galleries.
The Whitney Museum is probably third in public perception in New York, behind the Met and MOMA. The Whitney was founded in 1930 to compete with the Met. In that year the Met rejected Gertrude Vanderbilt Whitney’s offer of five hundred works from her collection, which was to be accompanied by an endowment. Instead the funds went to the expansion of the Whitney Studio Club in Greenwich Village, a museum to show what the Met rejected. The end result was the 30,000-square-foot Whitney building on Madison Avenue, completed in 1966. There were several attempts in the 1980s to expand the museum with Renzo Piano and Rem Koolhaas designs; all efforts were beaten down by the museum’s well-connected neighbours.
The Whitney ended 2014 with its most attended exhibition ever—the Jeff Koons retrospective discussed earlier (see Chapter 5). The Whitney then closed to prepare for the move to Chelsea. During the closing it still needed to attract attention and remain in the top three in public perception during transition to the new site.