Metropolitan Museum of Art – Case Study Essay Example

nationally and better manage their inventories through a point of sale system. Furthermore, the Met will reach out to potential visitors by advertising through the two of the most widely-read publications in New York City, the New York Times and the New Yorker. Through this strategy, the Met is only taking the next logical step in its evolution, while maintaining the whole of its artistic integrity.

Current Situation Management – The Met is operating under a dual management system, with a president (William H. Leurs) responsible for business and operations, and a director (Philippe de Montebello) responsible for the curatorial and artistic duties that have been with the museum since 1978. Although duties should be distinct, there is still some overlap and conflict between the two roles, regarding spending and the acquisition of donations of art and money. Government Support – The Met receives funding from the City of New York to cover its building maintenance and utilities costs.

Funding is also provided by the State and Federal governments; however this funding fluctuates with the economy and is out of the museum’s control. It is trending at increasing at a decreasing rate. Fundraising – Although formal fundraising initiatives are new to the museum, the five-year initiative ended in 1987 was successful in generating $150 million. Current initiatives include endowed chairs, corporate sponsorship of exhibitions, gifts of art and money, and memberships. Corporations are reluctant to give to arts organizations, but studies show that 38% of corporate support goes towards education.

Gifts have been decreasing because of tax reforms. However, while total memberships decreased because of price increases, revenue from membership increased 7%. Admissions & Blockbusters – The Met

is the number one tourist attraction in New York City and there were 4,702,078 visitors to the museum in the year ended June 30, 1991. Previous experiments have shown that blockbusters (one-time special exhibitions that appeal to a more popular crowd) have been wildly successful at generating revenue.Without blockbusters in 1990, revenue decreased 27%, while reinstituting the blockbuster in 1991 led revenue to go back up by 18%.

Management has been torn on this issue, as the blockbuster may undermine the integrity of the museum’s mission. Hours of Operation – The museum’s hours are as follows: Sunday, Tuesday-Thursday: 9:30 am to 5:15 pm; Friday, Saturday: 9:30 am to 8:45 pm; Monday: Closed. Evening hours were added recently to boost attendance figures. Average weekday attendance is 2,500, while attendance on weekend evenings averages between 3,500 and 5,000.Target Demographic – Survey results have shown that 48% of visitors to the Met are New York City residents, while 52% were tourists. The typical museum visitor is also age 38, female with a baccalaureate education and a professional job.

The primary reason for visiting was special exhibition (51% visited for this reason) while the number of visits within one year averages at one to three. Also, 15. 5% of museum visitors are members. Auxiliary Operations – In the past five years, revenue from auxiliary operations has averaged over 50% of total revenues and expenses.The museum’s auxiliary operations include retail shops both on site and in the Cloisters, as well at ten remote locations across the United States. The stores are successfully bringing in revenue (although less than was forecast), selling more products than any other museum shops, both through in-store and

mail catalogue sales (which were up 4% this past year).

It also operates a restaurant, cafeteria, and bar; the museum has received approval to replace the old restaurant and cafeteria with a new restaurant and use the extra space for more galleries.The museum also operates a parking garage for use by its patrons with short-term rates of $8. 50 for the first hour and $1. 00 for each additional hour, and long-term rates of $17. 50 for 5-10 hours and $19. 50 beyond 10 hours, as well as renting out its auditorium for events.

Financial Structure – The Met faced serious budgetary deficits of $2 million and $2. 6 million for the years 1990 and 1991 respectively, with future deficits expected. This is due to a greater increase in total expenses than in revenue.Specifically, we can see (Exhibit A) that the increase in auxiliary expense is generally higher than the increase in auxiliary revenue in the past four years. Profit remains positive, but it is rapidly decreasing (Exhibit B shows a shrinking profit margin from auxiliary activities). Furthermore, auxiliary activities account for about 50% of total revenue and expenses.

The most important source of the deficit problem, however, is operations. We can see a trend of persistent deficits in revenue from operations, in the past four years (Exhibit C), and significantly larger deficits of the two most recent years.This greatly contributed to the losses in 1990 and 1991. The operational revenue on average accounts for 17% of total revenue, whereas the operating expenses constitute roughly 50% of total expenses.

The remaining 33% of revenue comes from external funding from government and corporations. Problem Statement and Approach It is evident

that the Met needs to turn around its trend of growing deficits and breakeven financially.

Our approach to this task consists of a series of improvements across the whole of the organization during a three-year period, from the management structure to internal operations, with the goal of at least breaking even within one year, and the possibility of growing the endowment in future years, without undermining the artistic vision of the museum. Analysis and RecommendationsManagement Structure – Data from other successful museums around the world indicates that a museum is best run under a single director or head. The current management system at the Met is inefficient, and the responsibilities of the president and director overlap and occasionally conflict. Additionally, since the director is responsible for maintaining and growing the collections as well as fundraising, he deals with large amount of money, which conflicts with the president’s responsibilities for fiscal management and the business side of the museum.There also appears to be some miscommunication between the two. The Met should consolidate its management structure, while still keeping the dual management framework, and assign all the financial responsibility to the president, including the allocation of the amount of budget to the director for acquisition and fundraising activities.

The director would still have the same responsibilities except that he would consult with the president about fundraising issues.This will eliminate conflicts caused by role-overlap in fundraising and spending issues between management, and allow for more efficient running of the institution, with the eventual goal of eliminating the deficit before auxiliary activities. It is also apparent that the museum needs an accounting specialist in its upper management. The president performs the

internal audit himself but has no professional accounting background.

This is evidenced by the lack of professional or detailed sets of financial statements.Although there is a chief financial officer, it may be overwhelming for him to assume so many responsibilities, which is shown by inconsistent budgeting of the past. We recommend hiring an internal auditor to report to the CFO who will aid in budgeting, and will be in charge of internal auditing and producing financial statements. This will free up the time of the president and CFO to monitor the financial health of the organization, grow the endowment and improve the efficiency of the museum.

General Admissions – Admissions were originally suggested donations, which caused unstable cash inflows over the four-year period (refer to Exhibit D for growth rates over the five-year timeline). By replacing the recommended donation with the institution of mandatory admission fees, the public will be able to continue to enjoy all of the benefits of the Metropolitan Museum, while ensuring a steady income for the institution. Over the next three years, the Met should gradually increase the admission fees.

By 1992, the resulting increase in revenue would be approximately 1%. See Exhibit E for suggested rates over the three-year timeline. ) To further increase the number of admissions, the Met should carry out an advertising campaign each year. With an affordable investment in advertising to expand the target market to a broader demographic, the Met could potentially boost its admission revenue by 7. 5% (illustrated later in the paper).

By the year 1992, the total revenue from admissions would increase by 8. 5%.

Toddlers (5 and under) FreeFreeFree In Year 2, the Met should consider

a partnership for admissions with the Empire State Building Observatory and the Statue of Liberty at the following prices: Adults: $25. 00; Youth: $15. 00. This package could be called a City Pass deal.

This will further encourage tourists (52% of the Met’s visitors) to visit the museum and increase revenues. Membership – Membership fees increased by 21% from the year 1990 to 1991. The number of members, however, was only reduced by 5. 7%.

This gives a price elasticity of 0. 714, which indicates the market for members is quite inelastic. Therefore, the Met should further increase the membership rates gradually by 21% over the three-year timeline, with an average increase of 7% in each year. With the prediction of 2% decrease in memberships in 1992 as a result of price increases, we could project a 2% increase in revenue to $12,015,741. 55 by the year 1992, with further increase in the future.

Exhibit F: Competitor Museum Hours American Museum of Natural History Daily: 10:00 am – 5:45 pm Museum of Modern Art Tuesday: ClosedSaturday-Monday, Wednesday-Thursday: 10:30 am – 5:30 pm Friday: 10:30 am – 8:00 pm Whitney Museum Monday-Tuesday: Closed Wednesday-Thursday, Saturday-Sunday: 11:00 am – 6:00 pm Friday: 1:00 pm – 9:00 pm Museum of the City of New York Monday: Closed Tuesday-Sunday: 10:00 am – 5:00 pm Hours of Operation – Looking at the visitor data (averages of 2,500 on weeknights, 3500-5000 on weekend evenings) while factoring in the growing trend of women going to work and data from competing museums (Exhibit F), we have formulated a more logical approach to setting operating hours.Local museums in the metro New York area are open an average

of six days a week, with the most common day of closure on Monday. People are less likely to visit on Mondays, and this allows the museum time to perform routine clean-up, maintenance, and host special functions which will bring in additional revenue. The average time for opening in the morning is 10:00-10:30 am. Exhibit G: Suggested Hours of Operation MondayClosed Tuesday-Thursday10:00 am – 5:30 pm Friday-Saturday10:30 am – 9:30 pm Sunday & Holiday Mondays10:30 am – 5:30 pmTherefore, we suggest opening at 10:00 am on weekdays and 10:30 on weekends, and pushing closing times back (see Exhibit G).

Opening later on weekdays will allow working women (recall this is the largest demographic group which visits the museum) to visit after their days of work, while being open later on weekends will allow for more traffic to the restaurants and the bar, which will bring in additional revenue. Total hours open before the suggested change is 53. 5 hours, while it would be 51. 5 hours with our suggestions.

Therefore, not only is the approach to opening hours resulting in additional revenue, but it will actually be lowering expenses, as we would be saving dollars on utilities and payroll for those two hours. This should result in a savings of (53. 5-51. 5)/51. 5 = 3.9%. Blockbusters – Blockbusters are a sound move financially for the museum. Financial analysis shows that without blockbusters, revenue from admissions decreased significantly by 27%. The number of visitors increased by 3.15% when blockbusters where added again in 1991, which led to an overall rise in admission revenue by 18. 03%.Although one could argue that blockbusters detract from the sophisticated culture of

the museum, the counterpoint is that they can be themed so as to appeal to both the art connoisseur and the average person, while staying true to the mission of the Met of fostering the growth and appreciation of the fine arts. Furthermore, 52% of the visitors were tourists from outside of the city of New York, and 51. 1% of visitors’ primary reason for visiting the Met was for the special exhibitions or blockbusters.

With roughly 27 million tourists to the city of New York every year, and just under 5 million visitors to the Met this past ear, the tourist market represents significant avenue of growth in admissions for the Met. These blockbuster exhibitions can also have a price tag as large as $125,000, so there is a limit to how many can be hosted each year. Therefore, we recommend coinciding the timing of the blockbusters with peak tourist times: May to early-June and mid-September to mid-November. Having two blockbusters per year, lasting two months in time, beginning on May 1 and September 15 of each year would both increase the traffic to the museum, encourage memberships, as well as increase revenue from regular admissions and blockbuster tickets.

Separate tickets at an additional price of $2 should be sold for these exhibitions. Because customers will have to buy a separate ticket to the exhibition, the perceived limited supply of these unique tickets will help fuel the demand. This will increase revenue by an average of 18-27%. Library – Because of the costs of maintenance of the library, a minimal fee of $0. 75 (increasing to $2. 75 in year 2, and $4.75 in year 3)

should be applied to the mandatory student fees charged at NYU.The library can also open its doors to Colombia University and apply the same mandatory student activity fee. As an Ivy League school, the brand image of Columbia will reflect positively on to the Met. Considering that 50,917 students attend NYU and 24,923 students attend Columbia , this minimal fee will raise $360,240 per year by the end of Year 3 towards the procurement and maintenance of the library. Through committing to this fee, students will feel more obliged to spend time at the library, which will expose them to and encourage them to visit the other facilities at the museum.Volunteers – In addition to the university affiliations through the library facility, the Met should also recruit volunteers from Columbia and NYU to lead its educational and community programs.

The benefit will be mutual: students will gain the experience they need to enter the workforce, while the Met saves costs in hiring staff to run these programs. Furthermore, students have time between classes during the day to volunteer at the museum, which would help compensate for the growing number of women who are leaving volunteer positions to enter the workforce.Through leveraging its university affiliations with minimal student fees and student volunteer recruitment, the Met will be able to save costs of approximately $5 million in its education, community programs, and libraries expenses. Sponsorships – The college affiliations will also increase sponsorship revenue in two ways. First, by providing more educational programs, corporations are more likely to sponsor the Met.

Considering that 38% of corporate sponsorships go to education, sponsorships can significantly increase if educational programs conducted by

college students increase in participation and depth.Second, the student volunteer program will encourage high-potential students to visit the museum more often, whether to use the library resources located on the second floor, or to volunteer with educational programs. Therefore, there is a benefit to corporate sponsors who are looking to recruit students of a high calibre. In order to further increasing corporate sponsorship, as well as fostering a culture of giving-back and the enjoyment of the arts from a young age, which will hopefully carry through to creating life-long members of the museum, we recommend modifications to the educational programs.The Met should introduce a new children’s arts program that will be completely free of charge, as it will be run by the volunteer students.

The program will run on Saturday and Sundays, and be run as an instructional drop-in program, where parents can drop off their children while they explore the museum. The costs of this program will be covered by corporate sponsorships (recall that 38% of corporate sponsorship goes towards education). The Met can encourage companies to sponsor the program to cover the costs of supplies.Any surplus can go towards growing the endowment or covering other expenses. Parking Garage Fees – The Met’s market research showed that 36. 0% of visitors to the museum stay for two hours.

Therefore, if the Met were to charge a greater premium for the two hours, while changing the way rates are posted, it would increase revenue without shocking customers. Currently, rates are posted at $8. 50 for the first hour and $1. 00 for each subsequent hour for short-term parking. This gives $9.

50 in revenue for the average visitor.

However, if rates were set at $5. 0 per hour for the first two hours, $10. 00 in revenue would be generated for the average visitor, while the posted amount on signage would appear to be lower ($5.00 vs. $8. 50 for the first hour). This would represent an increase in parking revenue of ($10-9.5)/9. 5 = 5. 26%. Floor Plan – The current floor plan of the Met lacks logic and coherence in its exhibit layouts. We recommend laying out the exhibits in a flowing manner, where exhibits would move chronologically through time, giving the visitor the experience of journeying through the different ages and styles of art.Second, the bar should be incorporated into the new restaurant to conserve space for galleries, instead of closing the cafeteria.

The cafeteria should be kept open during the day to target children who are on school or day trips, and be closed at nights. The restaurant should be rebranded as an upscale and fine dining place to appeal to families and couples on weekends and nights of the weekdays. By doing so, it will reduce the expenses for operating the cafeteria through closing at nights and generate more revenue per square foot from the restaurant and bar.Retail Stores – After analysis of the Met’s five-year summary financials, the museum should also work to increase profit from auxiliary activities to drive up the bottom line, as they have proven to be more profitable than other internal sources of revenue.

The museum must develop a plan to cut some of its unnecessary costs, as well as boost up its revenues in its retail shops. The museum should reduce costs by discontinuing

irrelevant product lines from its museum shops, such as jewellery and greeting cards, which are not directly related to its mandate.In addition, the museum should expand its retail stores in the United States with the potential to go international if sales continue to be positive (it is currently one of the most successful museum retail stores). Inventory storage issues could be remedied by introducing technology, such as the point of sale (POS) computerized inventory system. This technology, combined with the presence of more outlets in which to sell inventory, will be an efficient and cost-effective way to decrease stored inventory and properly monitor future inventory levels.

Advertising – Since the Met “almost never advertises except to invite people to join its catalogue mailing list”, and admissions suffer from wild swings from year-to-year, the Met should begin an advertising campaign to help grow and sustain membership and admissions. The Met already benefits from word-of-mouth marketing, an established history and an excellent reputation. Further, it is also a major tourist attraction in New York City, and thus is promoted at no cost in many travel books (e. g.

Lonely Planet guides) and magazines.Exhibit H: Demographics of Selected Publications PublicationNew York Times New Yorker Number of readers222,0001,000,000 Percentage female52%49% Median age3345 College educated53%80% However, the Met should begin an advertising campaign around the city to raise awareness and increase traffic to the museum, especially surrounding its blockbuster exhibits. Since the blockbusters are the biggest attraction for the museum, the Met should advertise these events in local publications, specifically the New Yorker magazine and the New York Times.These publications were chosen because of their reputation, large reach (1,222,000), and demographics (median

age close to 38, and the majority of their readers are college educated) which appeal to the target customer of the museum (Exhibit H).

Advertisements should be placed weekly in the New Yorker and the Sunday New York Times for the month before and months of the blockbusters (12 weeks over May to June; 12 weeks over mid-September to mid-November). The ads should be in full colour and fairly large spreads, highlighting the exhibits in a visually appealing and enticing manner. Costs for ? page spread in the New Yorker for 24 weeks and ? -page in the Sunday Times for 24 weeks are $47,803. 76 and $12,277.70 respectively, for a total advertising expense of $60,081. 46. For the museum to break-even on its advertising expenses within one year, it needs to simply entice 12,000 more visitors to the museum to break even on its advertising expenses. Revenue from increased admissions due to advertising is estimated at 150,000 visitors x $5. 00 = $650,000. Exhibit I: 1991-1992 Proforma Income Statement Revenue: Revenue from admissions and memberships $21,369,527.64

Revenue from external funding$57,907,884. 2 Revenue from auxiliary activities$108,185,972. 40 Total revenue$187,463,384. 26 Expenses:? Expenses before auxiliary activities$84,647,651 Advertising expense$60,081. 46 Cost of sales and expenses of$ 101,086,324 auxiliary activities Total expenses$185,794,056.50

Total revenue over total expenses$1,669,327. 76 Conclusion Keeping in touch with the Met’s reputation for innovation and dynamism, our plan will improve the Met’s operations and eliminate the trend of deficits (Exhibit I) by putting in place a series of concrete and simple solutions to its current issues spread over a 3-year span.This would represent a 185% increase in profits in the first year, resulting in a net profit

of $1,699,327. 76.

A final word: The New York Metropolitan Museum of the Art is not only a landmark in its city and country, but a museum that rivals the best in the world, and we intend to keep it that way. 1 Figures were averaged from the 2008 admission rates of the American Museum of Natural History, the Museum of Modern Art, the Whitney Museum of American Art, and the Museum of the city of New York adjusted back using CPI to 1991 price levels.The American Museum of Natural History (www. amnh. org) The Museum of Modern Art (www. moma.org)

Whitney Museum of American Art (www. whitney. org) Museum of the City of New York (www. mcny. org) Data from NYC Statistics (nycvisit. com/content/index.cfm? pagePkey=57), extrapolated back to 1991. Lonely Planet New York City Travel Guide (www. lonelyplanet. com/worldguide/usa/new-york-city/when-to-go) New York University – University Facts (http://www. nyu. edu/about/facts.html) Columbia University – 2008 Facts (http://www. olumbia. edu/cu/opir/abstract/Facts%202008. pdf)

New York Times – Demographics (nytimes.whsites.net/mediakit/pdfs/newspaper/MRI_NYTreaderprofile. pdf) New Yorker – Circulation (www. condenastmediakit.com/nyr/circulation. cfm) New Yorker – Ad Rates (www. condenastmediakit. com/nyr/genrates.cfm), New York Times – Ad Rates Arts & Entertainment (www. nytimes. whsites. net/mediakit/pdfs/newspaper/rates/2008/RateCard_Arts_Ent08_EW4.pdf); Rates adjusted back using CPI to 1991 price levels.