When Yang Shaolin became head of the Shanghai People’s Art Theater in 1995, he knew that the organization had a serious problem.

The 50-year-old institution had just RMB 100,000 (USD 13,510) in the bank and more than 200 pensioners and 100 staff members on its payroll. With shrinking revenues and limited government subsidies, Yang was staring at a budget nightmare. He had to come up with a solution quickly.

Yang’s way out of the financial squeeze was to mine the one tangible asset that the theater, since renamed the Shanghai Dramatic Arts Center (SDAC), had in hand: real estate. Yang focused on the valuable downtown land the SDAC occupied, and using a special temporary exemption dispensed by the city government, teamed up with a developer to build three buildings on the site, one of which became what is now the 17-story SDAC, with three separate stages.

Ten years later, a report valued SDAC’s assets at RMB 126 million (USD 17 million) — a 20-fold increase from the RMB 5 million (USD 675,000) reported in 1995 — while ticket revenues grew from RMB 963,000 (USD 130,000) in 1995 to RMB 7.9 million (USD 1.1 million) in 2004. In 2006, the SDAC mounted a total of 28 stage performances on an operating budget of RMB 25 million (USD 3.4 million). Its annual repertory has been studded with high-prestige foreign troupes and experimental theater groups from France, Canada, and the US. Last year alone, the center staged no fewer than seven world premieres, including the stage production of Yu Hua’s blockbuster novel, Xiongdi (Brothers). Xiongdi sold out instantly, and like many other SDAC shows, proved to be a financial success as well.

SDAC has become a successful example for cultural organizations across the nation faced with the problem of how to implement market-based formulas and deliver a sound balance sheet while coping with dwindling state subsidies in what used to be a completely subsidized field.

STATE-SPONSORED MAKEOVER

Shanghai in particular has had a high-profile, state-funded makeover of many of its top cultural institutions over the past decade.

Among the more notable examples are the Shanghai Concert Hall, which was renovated and moved from its original location in 2002 at a purported cost of RMB 159 million (USD 21 million); the high-profile Shanghai Oriental Arts Center (SHOAC) in Pudong, designed by French architect Paul Andreu and funded jointly by the Shanghai Municipal Government and Pudong New Area Administration to the tune of RMB 1 billion (USD 135 million) in 2005; and the Shanghai Grand Theater, one of the first prestigious cultural venues in the city, completed in August of 1998 with a price tag then of RMB 1.25 billion (USD 170 million).

While these grand arts centers have opened to great public acclaim, a quiet transformation of these state-owned cultural institutions has also been taking place behind the scenes.

The Shanghai Administration of Culture, Radio, Film and Television has handed over the management of all city-owned cultural and art troupes to state-owned companies. The SDAC is now managed by Shanghai Media Group, which has between six and eight other cultural groups and institutions under its management. The management of SHOAC was put up for an open bid in 2003, with Beijing’s Poly Culture and Arts Company and Shanghai’s Wenhui-Xinmin United Press Group winning the bid jointly.

PROFIT PRESSURE

This management reshuffle has increased the pressure on cultural institutions to deliver economic returns, with revenue-sharing deals often written into their agreements. Lin Hongmin, the president of the SHOAC, says the center’s management contract with the government currently states that once it starts generating profit, the management must return a portion of the profits to the government. This arrangement places huge pressure on him and on the institution, Lin says.

To cope with this new market-oriented posture, SHOAC has been hosting performances by a slew of world-class artists and musicians. The Berlin Philharmonic, Yo-Yo Ma and Seiji Ozawa are some of the big-name performers who have appeared at the SHOAC over the past few years. However, ticket prices reflect the cost of bringing these international artists to Shanghai. The most expensive seats for Yo-Yo Ma’s performance sold for around RMB 2,300 (USD 310), almost twice the average monthly salary in Shanghai.

For Lin at SHOAC and Yang at SDAC, the directive to “enhance economic returns” has meant that both organizations have had to implement strategies to “grow” the audience, with membership incentives and free educational programs to increase audience appreciation. SHOAC has actively sought corporate sponsors to finance performances and reduce ticket prices. BMW, Coca-Cola, Nokia, and UBS are some of the sponsors listed in their 2007-2008 season catalog.

Yet the market-based financial directive has had a different impact on the two institutions: a ticket at SHOAC can range from RMB 50 to 3,000 (USD 6.75 to 405), depending on the prestige of the performer, while tickets at SDAC are generally priced at just RMB 50 to 300 (USD 6.75 to 40). Director of programming and marketing for SDAC, Nick Rongjun Yu, admits that SDAC has a huge amount of artistic and creative freedom because of the additional income from its fixed assets — the rent from the 17-story office building — as well as having its own performance stages.

Other cultural and performance organizations have not fared so well. The Shanghai Hu Opera Troupe and the Shanghai Yue Opera have declined to the point of near-extinction, as subsidies dried up and they had to relocate their campuses to remote suburbs. Other institutions like the Shanghai Kun Opera, after having struggled for years, have been placed under direct government administration. The Shanghai Peking Opera Troupe is also operating under complete government subsidy and administration.

The government’s intervention in these ailing institutions is a reminder that though government subsidies are no longer the sole support for the nation’s cultural organizations, they remain a major factor in their success. In fact, whether government support of the arts is dwindling or is actually stronger than ever depends on how you look at the numbers. The SDAC report stated that its government subsidies had actually increased, from RMB 1.07 million in 1995 to RMB 13 million in 2004.

This is in line with a general rise in government funding of cultural events, despite upped investment in other sectors. “The overall proportion of government subsidy has decreased and will continue to decrease every year,” said a source at the publicity department at the Shanghai Concert Hall, who spoke on the condition of anonymity. “But the overall sum of the subsidy will increase as the budgets of the cultural institutions and the market for cultural activities grows.”

LET THEM EAT CULTURE

So despite the challenges of grappling with new market strategies, China’s major cities are seeing more and more venues opening to entertain the moneyed urban dweller. William Sun, vice president of the Shanghai Theater Academy, confirms the growth of the cultural market. “Ten years ago, there wasn’t much to see. There may have been only one performance every three, four days in all of Shanghai,” he says. “Now you can find at least several different performances happening on any given night.”

Meanwhile, high-profile international shows are increasingly including Shanghai and Beijing on their tour itineraries. The Broadway hit “Mamma Mia!” played at the Shanghai Grand Theater for a month in July 2007 before moving on to Beijing to play at the Poly Theatre for another two weeks.

Not to be outdone, Beijing has announced the completion of its new National Grand Theater next to Tiananmen Square at a reported cost of RMB 2.68 billion (USD 328 million), also designed by Paul Andreu, the architect of SHOAC. The National Grand Theater will play host to the first Chinese-language performance of “Les Misérables,” a product of a new joint venture between Cameron Mackintosh, the British producer of hit Broadway and West End shows, and China Arts and Entertainment Group. With rumors circulating about a proposed new Broadway-style theater district in either Beijing or Shanghai, the premium on culture, as it is indexed to market success, is growing stronger in China.

But how many of the nation’s cultural organizations will succeed in the new market-dictated environment? For now, the demand for such venues is there, if not, perhaps, at the highest income levels – the RMB 200 (USD 27) tickets for “Mamma Mia!” in Shanghai sold out before the show opened, but the pricier tickets, costing up to RMB 2,000 (USD 270), were still available on the day of the show. What’s certain is that we will see many more creative solutions to generating a profit in a sector that has traditionally been viewed as a money-loser, even in the West.