Why do “ladies” always get in free? Because dance clubs serve a two-sided market. On one side of the market, men, on the other, women. The more women in the club, the more a visit is worth to the guys. The reverse is also true, although to a lesser extent, the more men in the club, the more the experience is worth to the women. The market is lopsided: the guys value the presence of women a whole lot more than the women value the presence of the guys. Therein lies the key to “ladies get in free.” Clubs charge women nothing to entice them through the door because the more women are there, the more men will pay at the door and the longer they’ll stay.
Numerous studies have suggested this is the most profitable way to handle a two-sided market: ask one side of the market to bear most of the cost while giving away the service or product to the other side. In effect, one group subsidizes the other. Traditional journalism provides another example. Because a critical mass of readers is paramount to advertisers, firms traditionally pay hefty advertising fees and readers are charged almost nothing. Because readers are charged almost nothing, more readers purchase the paper. Because more readers purchase the paper, advertisers will pay more for ad space in the paper.
Like the club and the newspaper, nonprofit contemporary art spaces are platforms that allow two groups to form a network. In this case, we can call the two sides of the market “artists” and “audience,” for shorthand. The former group obviously also includes curators and other cultural producers, and the latter spans everyone from other artists to individual philanthropists. The better the artists the space attracts, the bigger and better the audience the space attracts. At the same time, the bigger & better the audience the space attracts, the better the artists the space attracts. (I’m speaking in very general terms here, putting aside questions about what makes an artist/audience “better.”) To both groups, a significant portion of the value of an art space rests on the quality and size of the other group connected to it.
Perhaps it seems obvious which side of the market bears the bulk of the burden in the case of the nonprofit art space. At mature contemporary art spaces, the audience subsidizes the artists. There is a small subset of audience members (HNWIs) who can afford far higher “prices” (in the form of charitable gifts) than any other part of the market. They bear the costs of operating the space.
However, at many smaller, younger, more experimental spaces, the artists bear a far greater proportion of the costs through free labor, donations of materials, and so on. They are, in effect, subsidizing the audience’s experience. I can think of three reasons for this. First, it has to do with who has a higher willingness-to-pay: at this stage, the artists value the incremental improvement in audience more than the audience values the incremental improvement in artists. Second, it probably has to do with risk: audiences are more risk averse than artists. Artists are willing to expend a lot of resources for an uncertain outcome, whereas audiences prefer to invest in artists of a proven level of quality. Third and relatedly, artists see a bigger upside from the risk—it’s their career on the line.
Over the lifetime of a many contemporary art spaces, the bulk of the cost burden must shift from the artists to the audience. This is a major cultural shift for an organization. Theoretically, a gradual shift should be successful because of the feedback effects within a two-sided market. The artists improve, so the audience improves, so the artists improve, and so on.
This theoretical ideal doesn’t always occur. Many small spaces get stuck at a certain size and quality, unable to shift the burden from the artists to the audience. Either the artist quality hasn’t sufficiently improved, or gradual improvement was not accompanied by a gradual shift in the cost burden and the audience has become accustomed to paying little or nothing for a certain level of quality. In this latter case, it’s extremely difficult to jumpstart the cycle again. A dramatic increase in artist quality is required to increase audience willingness-to-pay, but audience willingness-to-pay must increase before an increase in artist quality can be achieved. The space gets stuck, the artists resources run dry, and the space closes or shrinks and reinvents itself to begin the lifecycle again.