L.A. Philharmonic Shows the American Symphony Orchestra Isn’t Dead Yet

The Los Angeles Philharmonic Orchestra faced real challenges that most US orchestras confront: an aging subscriber base, little interest from younger audiences, and development of a pipeline of donors for the future. Rohit Deshpande discusses how CEO Deborah Borda positioned the orchestra for continued success, building on healthy financials, a celebrity music director, the beautiful Walt Disney Concert Hall, and the development of a youth orchestra.

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Brian Kenny: The requiem mass, also known as the mass for the dead, dates back to medieval times. It's a Catholic ritual set to music, and many of the greatest composers have penned dramatic compositions to capture the drama of death and dying. For those paying attention to the industry of classical music today, a requiem mass may seem in order. In 2017, just 2.1 percent of albums sold in the US were of the classical genre. Rock, by comparison, took 40 percent. R&B, 17 percent. Even children's music outperformed classical at 3 percent of albums sold. Things look equally dismal in the world of radio. There's just a handful of commercial classical stations left in the country. Of their list of hundreds of stations, Sirius XM has just two featuring classical music. As for concert attendance, data from the NEA shows that the percentage of adults who attended a classical performance declined from 13 percent in 1982 to 8.8 percent in 2012. The challenges for those in the business of classical music seem daunting, but it might be too soon to start the requiem. Today we'll hear from Rohit Deshpande about his case entitled, The Los Angeles Philharmonic Orchestra, Cultural Entrepreneurship. I'm your host, Brian Kenny, and you're listening to Cold Call.

Professor Deshpandé is an expert in global branding and international marketing. He teaches both executives and MBA students here at Harvard Business School. Rohit, thanks for joining me today.

Rohit Deshpandé: It's a pleasure to be here.

Brian Kenny: This is sort of round two for us in the musical realm, right? We did the Wynton Marsalis podcast last year, that was really well received, which was all about the challenges facing jazz music as a genre. Here we are back again with the Los Angeles Philharmonic, looking closely at ... the things they are doing to revive and refresh that brand. Can you tell us who's the protagonist in this case and what's the challenge she's facing?

Rohit Deshpandé: The protagonist is just this amazing, amazing person, Deborah Borda. She is at the time the president and CEO of the Los Angeles Philharmonic. She's been at that position for 14 years and the situation she came into was basically a turnaround situation. As you described at the outset, the Los Angeles Philharmonic, who was in the same situation as many other symphony orchestras in America, they were in bad financial straits, running deficits, and she came there and basically turned the place around.

Brian Kenny: I assume you're a fan of classical music, is that what prompted you to write the case?

Rohit Deshpandé: Yes, I am a fan of classical music, especially Bach and especially Bach performed by Yo-Yo Ma on his wonderful Bach cello solos, but the idea for this case originated someplace else. A Harvard College undergraduate student was talking to me about cases in the arts--he's a music concentrator--and he said, "You should do a case on the Los Angeles Philharmonic. They are the most successful symphony orchestra in America..." I checked and he was absolutely right. Very curiously, they were doing extremely well financially. They were filling their holes and doing really well. And I had the opportunity to talk to Deborah Borda, who was visiting Harvard at that time, she was doing some work at the Kennedy School. So, that's how the case lead originated.

Brian Kenny: You're a brand expert. I really enjoyed the emphasis that you put on brand around this and I never really thought of symphony orchestra as having a brand, but the L.A. Philharmonic does. Can you describe what their brand is, what makes them unique?

Rohit Deshpandé: They have a number of different brand identities. Of course, the L.A. Philharmonic itself, and we can talk in more detail about their venues, each of those venues is a separate brand. They have this wonderfully designed hall called the Walt Disney Concert Hall designed by Frank Gehry the famous architect. It's considered to be one of the most acoustically perfect symphony halls in the world. They also manage the programming at the Hollywood Bowl, 17,500 seats. Then they have this amazingly charismatic, young conductor, Gustavo Dudamel, who has his own brand. So they've got a lot of things pulling for them, especially in Los Angeles.

Brian Kenny: They're kind of cool and hip, like L.A. is cool and hip.

Rohit Deshpandé: They're very cool and very hip, and to give you kind of a fact to back that up, they commission more new work than any other major orchestra. So it's very cool. A lot of contemporary work.

Brian Kenny: Let's talk a little bit about the business side of the L.A. Philharmonic. What does their budget look like?

Rohit Deshpandé: They have the largest operating budget of any symphony orchestra in America. It was $123 million last year, larger than that of the New York Philharmonic, larger than that of the Boston Symphony.

Brian Kenny: That's remarkable. You mentioned the places where they perform, Walt Disney Hall and the Hollywood Bowl. Can you go a little bit deeper into what those two venues. What separates them in terms of their programming?

Rohit Deshpandé: A couple of things are important here. First of all, the Los Angeles Philharmonic is one of only two major orchestras that play in two venues, the other being the Boston Symphony... It's sort of a product portfolio, if you will, that most orchestras don't have access to. They can program different kinds of music, so it's traditional symphonic music, classical music in Walt Disney Concert Hall, and they can program world music and jazz and rock and pop in the Hollywood Bowl. It allows them to draw on a more diverse audience.

Brian Kenny: And that's part of the challenge that they're trying to address. What is the composition of their audience as our protagonist steps onto the scene?

Rohit Deshpandé: When our protagonist steps onto the scene, this would be in the year 2000, she notices that they are not filling their hall, they are actually in the process of moving from one hall to another hall. The Dorothy Chandler Pavilion is where they've been, approximately 2,900 seats. They're about to move into this beautiful Gehry-designed Walt Disney Concert Hall, which has fewer seats, about 2,300, and they haven't been doing well. Their ticket prices are about half that of peer symphony orchestras, so their revenues are in very bad shape. Philanthropy is not going well. So there are a lot of financial issues, problems.

Brian Kenny: What makes Deborah want to step into a situation like that? She was in New York at the time that she took the job in L.A. Why make that move?

Rohit Deshpandé: Her background is interesting. She started off playing the viola, she trained at the Royal College ofMusic, she's trained as a professional musician. There are very few people who are in arts administration who have a performance background. So she's able to judge the quality of the music, she's able to read music, as well understand people and managing people and leading an organization. So she brings kind of what my colleague Mike Tushman would call an ambidextrous sense to the job. Second, her previous position was CEO and president of the New York Philharmonic. What would lead her, a native New Yorker, to leave that position? Well, she saw a picture of what the Gehry-designed Walt Disney Concert Hall was going to look like and it was, to her, it was breathtaking.

They flew Frank Gehry out to New York along with the conductor at the time, Esa-Pekka Salonen, to woo her, and she said she would consider the job if she had some input on the hall. Now, Gehry was designing just this wonderful--we talk about the Bilbao effect. He designed the Guggenheim in Bilbao, and it's that same flowing almost ethereal external design. But she put her time into making sure the acoustics were right. So it's not only breathtakingly beautiful on the outside, but it's acoustically perfect on the inside. So that was one input. The other was that she likes challenges. This was a huge challenge.

Brian Kenny: You talk about ambidextrous, she had a great business sensibility in the way that she sort of approached the opportunities that were there with the move. That could, I would imagine, be a daunting thing for an organization to move from one concert hall to another. How did they take advantage of the opening of Walt Disney Hall?

Rohit Deshpandé: Well, one of the things she did, which was just very smart, was look at fewer seats in the new hall as an opportunity rather than a threat. She essentially advertised scarcity. She told subscribers, "We have 500 fewer seats in this hall and if you don't act quickly you're not going to be able to get the kind of seat that you had in the old hall. Oh, and by the way, the tickets are twice the price."

Brian Kenny: And people took her up on that. That actually worked.

Rohit Deshpandé: People took her up on that. Then they had free concerts for the community. They had a free opening concert for the construction workers that worked on building the hall. Salonen, the conductor, came out wearing a construction hat. So they did a whole bunch of things that made it an event, and it worked really well. A very splashy opening to Walt Disney Concert Hall.

Brian Kenny: Again, sort of consistent with the brand that we talked about earlier, of them being an innovative player in this space.

Rohit Deshpandé: There was an article fairly recently that said the Los Angeles Philharmonic is the best symphony orchestra in America period. What's interesting about that, it was written by the music critic of the New York Times.

Brian Kenny: This is all before they brought in Gustavo. Can you talk about when she discovered him and the process of wooing him to come from Venezuela to Las Angeles?

Rohit Deshpandé: Very interesting backstory there. Salonen announced that he wanted to retire from the position, he wanted to go back to composing music, but said that he would help find his successor. Deborah Borda gets a call at four o'clock in the morning from Europe, from Salonen, saying, "I've just seen this kid and he is a conducting animal. Problem is he doesn't speak German and he doesn't speak English," so Deborah Borda said, "Well, we should bring him out." This was Gustavo Dudamel.

Brian Kenny: And he was a kid. He was 28 at the time?

Rohit Deshpandé: That's right. He comes out and they put him in the Hollywood Bowl because they didn't have a spot at that time at the Disney Concert Hall. He fills the place. The community comes out and it's, "Bienvenido, Gustavo!" It's just a marvelous event. He speaks half in Spanish, half in English, so you're talking about the first Latino conductor of a significant orchestra in a city that is majority Latino.

Brian Kenny: Yes.

Rohit Deshpandé: Now, just because he was invited there didn't mean he was interested in the job. He had a whole bunch of other things going on at the time and so he declined. So Deborah Borda decided to go to Venezuela and find out a little bit more about where he was from. She discovered there was this wonderful program called El Sistema, which provided classical music education to kids from backgrounds where they couldn’t afford musical instruments. It gave them musical instruments, taught them how to play, put them into bands, into little orchestras, and they learned to play music. This has been an incredible program, thousands of kids have been through this in Venezuela, and Gustavo was a product. In fact, he was so good that he ended up being conductor of the Simon Bolivar Youth Orchestra of Venezuela. Very prestigious position, obviously a very talented kid.

Well, Deborah Borda was so struck by what they'd done with this wonderful program, El Sistema in Venezuela ... she came back, talked to the board, and said, "We've got to start this here." They started a similar program, YOLA, Youth Orchestra of L.A., based on the same concept as El Sistema. And a few years later, Gustavo says he's ready to come to L.A.

Brian Kenny: Maybe the cynics out there might say that they started YOLA as a way to attract Dudamel, but it comes across in the case that she did this because she felt it was the right thing to do, whether he came or not. It was a really interesting back story.

Rohit Deshpandé: She is very socially committed... They were committed to the program and they've been committed to it ever since.

Brian Kenny: So now we start to see the brand evolve in sort of a different direction, sort of a social enterprise direction. What was the board thinking throughout this whole process? Was there tension?

Rohit Deshpandé: My understanding is that it was not an easy sell. It took a while for the board to come around to this prospect because they said, "Look, financially, it's not as if we're doing really well, and then to make an additional commitment for this educational program, it's not part of what we're doing here." Now they're convinced that this is wonderful. In fact, it's very much a part of the brand. The YOLO program and what they're doing for the kids and their families is very much part of the Los Angeles Philharmonic brand.

Brian Kenny: At this point in the case, they sort of have their pieces in place, they've got their great young conductor, they've got the energy that the YOLA program is providing. Now the challenge of refreshing the brand and moving forward on that momentum starts. How do they think about some of those challenges of taking what's essentially perceived to be a stodgy old music art form and bring it into a millennial type of appeal?

Rohit Deshpandé: There's an important statistic here, something that when I was researching this case took a little while to figure out how it worked. It's the ratio of earned income to contributed income. For nonprofit organizations, especially arts and cultural organizations, it's not only ticket revenue, which is earned income, it's also philanthropy, which is contributed income. For most arts organizations, they get far more from philanthropy than they get from ticket revenue. In fact, ticket revenue doesn't pay the cost of the house, it doesn't pay for the cost of the musicians. And so it's typically around 45 to 55 percent is contributed philanthropy and the smaller part is earned.

"My belief is that the subscription model is dead across arts organizations in America"

The L.A. Phil, it's the other way around. It's two-thirds earned and one-third contributed. That's great because they have a lot of control over programming and [able to do] all of this innovative stuff and these two venues. But something is happening with the audience, and this is all across America. Younger people are not going to classical venues. You mentioned this in the beginning about the decline in the sales of classical music, the decline in the attendance at live events, it's especially true for younger people. And so, with the decline of their traditional audience, we've got a cash flow problem. The issue is that the old business model was subscriptions and so you got your cash upfront at the beginning of the season and so you could do all your programming because you had people that had paid upfront. As that model disappears, in fact, my belief is that the subscription model is dead across arts organizations in America.

Brian Kenny: By subscription, that means you're basically paying a fee at the beginning of the year and you have access to all of the performances?

Rohit Deshpandé: That's correct. You have a certain number of performances, you pay for those in advance. Well, what's happening now is the people, especially younger people, want to pick and choose when they go. So it's what we call on-demand rather than subscription. Managing an on-demand market is very complex. They are more dependent on that on-demand [revenue] because two thirds of their income stream is coming from tickets.

Brian Kenny: And they continue to face fundraising challenges. Certainly, as we look at the new tax program that's been put in place, all nonprofits are wondering what the future of fundraising is going to be. That's a much more difficult challenge even than it has been.

Rohit Deshpandé: That's correct, and when you contrast America with let's say Europe, where government, the state, funds arts and cultural organizations, here they're dependent on either earned income, ticket sales, or more likely on philanthropy.

And those have been a challenge and will continue to be a challenge. And also, they are going into their centennial, 2019. So they're trying to get all of this stuff together. That's what they have in their future.

Brian Kenny: One question I have that's not covered in the case at all. When we did the jazz case, there was a sense that jazz as an art form, that the people who were aficionados and patrons of it, needed to come together and help elevate that art form. Is the same thing true in the classical space? Do the symphony orchestras work together to elevate the art form as a whole?

Rohit Deshpandé: I'm not sure it's the same. I think there tend to be regional differences. There are a few symphony orchestras that are sort of tier one that command the highest salaries for the musicians.

Brian Kenny: These would be like in New York, Boston, and places like that?

Rohit Deshpandé: That's right, and Los Angeles, Chicago, Philadelphia, San Francisco, and Dallas. Those tend to be different from the others. So it's not as if they're all working together. As the L.A. Philharmonic did when they poached Deborah Borda from New York.

Brian Kenny: You've discussed the case in class?

Rohit Deshpandé: The first time the case was taught was actually to a group of arts leaders. We had this wonderful program for 50 leaders, CEOs of arts and cultural organizations, small- to medium -scale arts and cultural organizations. This was the last case in the week-long program, and it was a case that I think nicely brought together a lot of the concepts and frameworks that we've talked about during the week. And if you'll pardon the pun, it played rather well.

Brian Kenny: I'm sure they were looking with interest at what Deborah had done because by and large, this was a success story.

Rohit Deshpandé: This is an incredible success story and I think that's really the part of it that's so exciting and inspirational, that there is a model here that can be understood and generalized, where other arts and cultural organizations can learn what they can do from what Deborah Borda did at the Los Angeles Philharmonic.

Brian Kenny: Rohit, thank you so much for joining us today.

Rohit Deshpandé: It's been a pleasure. Thank you.

Brian Kenny: Find Cold Call wherever you listen and subscribe to podcasts. Every episode features a business case taught to MBA students right here at Harvard Business School. We'd love to hear your thoughts, so take a few moments and write a review. I'm Brian Kenny, and thank you for listening to Cold Call, an official podcast of Harvard Business School.

Recorded January 24, 2018. Transcript edited for clarity and length.

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Brian Kenny: The requiem mass, also known as the mass for the dead, dates back to medieval times. It's a Catholic ritual set to music, and many of the greatest composers have penned dramatic compositions to capture the drama of death and dying. For those paying attention to the industry of classical music today, a requiem mass may seem in order. In 2017, just 2.1 percent of albums sold in the US were of the classical genre. Rock, by comparison, took 40 percent. R&B, 17 percent. Even children's music outperformed classical at 3 percent of albums sold. Things look equally dismal in the world of radio. There's just a handful of commercial classical stations left in the country. Of their list of hundreds of stations, Sirius XM has just two featuring classical music. As for concert attendance, data from the NEA shows that the percentage of adults who attended a classical performance declined from 13 percent in 1982 to 8.8 percent in 2012. The challenges for those in the business of classical music seem daunting, but it might be too soon to start the requiem. Today we'll hear from Rohit Deshpande about his case entitled, The Los Angeles Philharmonic Orchestra, Cultural Entrepreneurship. I'm your host, Brian Kenny, and you're listening to Cold Call.

Professor Deshpandé is an expert in global branding and international marketing. He teaches both executives and MBA students here at Harvard Business School. Rohit, thanks for joining me today.

Rohit Deshpandé: It's a pleasure to be here.

Brian Kenny: This is sort of round two for us in the musical realm, right? We did the Wynton Marsalis podcast last year, that was really well received, which was all about the challenges facing jazz music as a genre. Here we are back again with the Los Angeles Philharmonic, looking closely at ... the things they are doing to revive and refresh that brand. Can you tell us who's the protagonist in this case and what's the challenge she's facing?

Rohit Deshpandé: The protagonist is just this amazing, amazing person, Deborah Borda. She is at the time the president and CEO of the Los Angeles Philharmonic. She's been at that position for 14 years and the situation she came into was basically a turnaround situation. As you described at the outset, the Los Angeles Philharmonic, who was in the same situation as many other symphony orchestras in America, they were in bad financial straits, running deficits, and she came there and basically turned the place around.

Brian Kenny: I assume you're a fan of classical music, is that what prompted you to write the case?

Rohit Deshpandé: Yes, I am a fan of classical music, especially Bach and especially Bach performed by Yo-Yo Ma on his wonderful Bach cello solos, but the idea for this case originated someplace else. A Harvard College undergraduate student was talking to me about cases in the arts--he's a music concentrator--and he said, "You should do a case on the Los Angeles Philharmonic. They are the most successful symphony orchestra in America..." I checked and he was absolutely right. Very curiously, they were doing extremely well financially. They were filling their holes and doing really well. And I had the opportunity to talk to Deborah Borda, who was visiting Harvard at that time, she was doing some work at the Kennedy School. So, that's how the case lead originated.

Brian Kenny: You're a brand expert. I really enjoyed the emphasis that you put on brand around this and I never really thought of symphony orchestra as having a brand, but the L.A. Philharmonic does. Can you describe what their brand is, what makes them unique?

Rohit Deshpandé: They have a number of different brand identities. Of course, the L.A. Philharmonic itself, and we can talk in more detail about their venues, each of those venues is a separate brand. They have this wonderfully designed hall called the Walt Disney Concert Hall designed by Frank Gehry the famous architect. It's considered to be one of the most acoustically perfect symphony halls in the world. They also manage the programming at the Hollywood Bowl, 17,500 seats. Then they have this amazingly charismatic, young conductor, Gustavo Dudamel, who has his own brand. So they've got a lot of things pulling for them, especially in Los Angeles.

Brian Kenny: They're kind of cool and hip, like L.A. is cool and hip.

Rohit Deshpandé: They're very cool and very hip, and to give you kind of a fact to back that up, they commission more new work than any other major orchestra. So it's very cool. A lot of contemporary work.

Brian Kenny: Let's talk a little bit about the business side of the L.A. Philharmonic. What does their budget look like?

Rohit Deshpandé: They have the largest operating budget of any symphony orchestra in America. It was $123 million last year, larger than that of the New York Philharmonic, larger than that of the Boston Symphony.

Brian Kenny: That's remarkable. You mentioned the places where they perform, Walt Disney Hall and the Hollywood Bowl. Can you go a little bit deeper into what those two venues. What separates them in terms of their programming?

Rohit Deshpandé: A couple of things are important here. First of all, the Los Angeles Philharmonic is one of only two major orchestras that play in two venues, the other being the Boston Symphony... It's sort of a product portfolio, if you will, that most orchestras don't have access to. They can program different kinds of music, so it's traditional symphonic music, classical music in Walt Disney Concert Hall, and they can program world music and jazz and rock and pop in the Hollywood Bowl. It allows them to draw on a more diverse audience.

Brian Kenny: And that's part of the challenge that they're trying to address. What is the composition of their audience as our protagonist steps onto the scene?

Rohit Deshpandé: When our protagonist steps onto the scene, this would be in the year 2000, she notices that they are not filling their hall, they are actually in the process of moving from one hall to another hall. The Dorothy Chandler Pavilion is where they've been, approximately 2,900 seats. They're about to move into this beautiful Gehry-designed Walt Disney Concert Hall, which has fewer seats, about 2,300, and they haven't been doing well. Their ticket prices are about half that of peer symphony orchestras, so their revenues are in very bad shape. Philanthropy is not going well. So there are a lot of financial issues, problems.

Brian Kenny: What makes Deborah want to step into a situation like that? She was in New York at the time that she took the job in L.A. Why make that move?

Rohit Deshpandé: Her background is interesting. She started off playing the viola, she trained at the Royal College ofMusic, she's trained as a professional musician. There are very few people who are in arts administration who have a performance background. So she's able to judge the quality of the music, she's able to read music, as well understand people and managing people and leading an organization. So she brings kind of what my colleague Mike Tushman would call an ambidextrous sense to the job. Second, her previous position was CEO and president of the New York Philharmonic. What would lead her, a native New Yorker, to leave that position? Well, she saw a picture of what the Gehry-designed Walt Disney Concert Hall was going to look like and it was, to her, it was breathtaking.

They flew Frank Gehry out to New York along with the conductor at the time, Esa-Pekka Salonen, to woo her, and she said she would consider the job if she had some input on the hall. Now, Gehry was designing just this wonderful--we talk about the Bilbao effect. He designed the Guggenheim in Bilbao, and it's that same flowing almost ethereal external design. But she put her time into making sure the acoustics were right. So it's not only breathtakingly beautiful on the outside, but it's acoustically perfect on the inside. So that was one input. The other was that she likes challenges. This was a huge challenge.

Brian Kenny: You talk about ambidextrous, she had a great business sensibility in the way that she sort of approached the opportunities that were there with the move. That could, I would imagine, be a daunting thing for an organization to move from one concert hall to another. How did they take advantage of the opening of Walt Disney Hall?

Rohit Deshpandé: Well, one of the things she did, which was just very smart, was look at fewer seats in the new hall as an opportunity rather than a threat. She essentially advertised scarcity. She told subscribers, "We have 500 fewer seats in this hall and if you don't act quickly you're not going to be able to get the kind of seat that you had in the old hall. Oh, and by the way, the tickets are twice the price."

Brian Kenny: And people took her up on that. That actually worked.

Rohit Deshpandé: People took her up on that. Then they had free concerts for the community. They had a free opening concert for the construction workers that worked on building the hall. Salonen, the conductor, came out wearing a construction hat. So they did a whole bunch of things that made it an event, and it worked really well. A very splashy opening to Walt Disney Concert Hall.

Brian Kenny: Again, sort of consistent with the brand that we talked about earlier, of them being an innovative player in this space.

Rohit Deshpandé: There was an article fairly recently that said the Los Angeles Philharmonic is the best symphony orchestra in America period. What's interesting about that, it was written by the music critic of the New York Times.

Brian Kenny: This is all before they brought in Gustavo. Can you talk about when she discovered him and the process of wooing him to come from Venezuela to Las Angeles?

Rohit Deshpandé: Very interesting backstory there. Salonen announced that he wanted to retire from the position, he wanted to go back to composing music, but said that he would help find his successor. Deborah Borda gets a call at four o'clock in the morning from Europe, from Salonen, saying, "I've just seen this kid and he is a conducting animal. Problem is he doesn't speak German and he doesn't speak English," so Deborah Borda said, "Well, we should bring him out." This was Gustavo Dudamel.

Brian Kenny: And he was a kid. He was 28 at the time?

Rohit Deshpandé: That's right. He comes out and they put him in the Hollywood Bowl because they didn't have a spot at that time at the Disney Concert Hall. He fills the place. The community comes out and it's, "Bienvenido, Gustavo!" It's just a marvelous event. He speaks half in Spanish, half in English, so you're talking about the first Latino conductor of a significant orchestra in a city that is majority Latino.

Brian Kenny: Yes.

Rohit Deshpandé: Now, just because he was invited there didn't mean he was interested in the job. He had a whole bunch of other things going on at the time and so he declined. So Deborah Borda decided to go to Venezuela and find out a little bit more about where he was from. She discovered there was this wonderful program called El Sistema, which provided classical music education to kids from backgrounds where they couldn’t afford musical instruments. It gave them musical instruments, taught them how to play, put them into bands, into little orchestras, and they learned to play music. This has been an incredible program, thousands of kids have been through this in Venezuela, and Gustavo was a product. In fact, he was so good that he ended up being conductor of the Simon Bolivar Youth Orchestra of Venezuela. Very prestigious position, obviously a very talented kid.

Well, Deborah Borda was so struck by what they'd done with this wonderful program, El Sistema in Venezuela ... she came back, talked to the board, and said, "We've got to start this here." They started a similar program, YOLA, Youth Orchestra of L.A., based on the same concept as El Sistema. And a few years later, Gustavo says he's ready to come to L.A.

Brian Kenny: Maybe the cynics out there might say that they started YOLA as a way to attract Dudamel, but it comes across in the case that she did this because she felt it was the right thing to do, whether he came or not. It was a really interesting back story.

Rohit Deshpandé: She is very socially committed... They were committed to the program and they've been committed to it ever since.

Brian Kenny: So now we start to see the brand evolve in sort of a different direction, sort of a social enterprise direction. What was the board thinking throughout this whole process? Was there tension?

Rohit Deshpandé: My understanding is that it was not an easy sell. It took a while for the board to come around to this prospect because they said, "Look, financially, it's not as if we're doing really well, and then to make an additional commitment for this educational program, it's not part of what we're doing here." Now they're convinced that this is wonderful. In fact, it's very much a part of the brand. The YOLO program and what they're doing for the kids and their families is very much part of the Los Angeles Philharmonic brand.

Brian Kenny: At this point in the case, they sort of have their pieces in place, they've got their great young conductor, they've got the energy that the YOLA program is providing. Now the challenge of refreshing the brand and moving forward on that momentum starts. How do they think about some of those challenges of taking what's essentially perceived to be a stodgy old music art form and bring it into a millennial type of appeal?

Rohit Deshpandé: There's an important statistic here, something that when I was researching this case took a little while to figure out how it worked. It's the ratio of earned income to contributed income. For nonprofit organizations, especially arts and cultural organizations, it's not only ticket revenue, which is earned income, it's also philanthropy, which is contributed income. For most arts organizations, they get far more from philanthropy than they get from ticket revenue. In fact, ticket revenue doesn't pay the cost of the house, it doesn't pay for the cost of the musicians. And so it's typically around 45 to 55 percent is contributed philanthropy and the smaller part is earned.

"My belief is that the subscription model is dead across arts organizations in America"

The L.A. Phil, it's the other way around. It's two-thirds earned and one-third contributed. That's great because they have a lot of control over programming and [able to do] all of this innovative stuff and these two venues. But something is happening with the audience, and this is all across America. Younger people are not going to classical venues. You mentioned this in the beginning about the decline in the sales of classical music, the decline in the attendance at live events, it's especially true for younger people. And so, with the decline of their traditional audience, we've got a cash flow problem. The issue is that the old business model was subscriptions and so you got your cash upfront at the beginning of the season and so you could do all your programming because you had people that had paid upfront. As that model disappears, in fact, my belief is that the subscription model is dead across arts organizations in America.

Brian Kenny: By subscription, that means you're basically paying a fee at the beginning of the year and you have access to all of the performances?

Rohit Deshpandé: That's correct. You have a certain number of performances, you pay for those in advance. Well, what's happening now is the people, especially younger people, want to pick and choose when they go. So it's what we call on-demand rather than subscription. Managing an on-demand market is very complex. They are more dependent on that on-demand [revenue] because two thirds of their income stream is coming from tickets.

Brian Kenny: And they continue to face fundraising challenges. Certainly, as we look at the new tax program that's been put in place, all nonprofits are wondering what the future of fundraising is going to be. That's a much more difficult challenge even than it has been.

Rohit Deshpandé: That's correct, and when you contrast America with let's say Europe, where government, the state, funds arts and cultural organizations, here they're dependent on either earned income, ticket sales, or more likely on philanthropy.

And those have been a challenge and will continue to be a challenge. And also, they are going into their centennial, 2019. So they're trying to get all of this stuff together. That's what they have in their future.

Brian Kenny: One question I have that's not covered in the case at all. When we did the jazz case, there was a sense that jazz as an art form, that the people who were aficionados and patrons of it, needed to come together and help elevate that art form. Is the same thing true in the classical space? Do the symphony orchestras work together to elevate the art form as a whole?

Rohit Deshpandé: I'm not sure it's the same. I think there tend to be regional differences. There are a few symphony orchestras that are sort of tier one that command the highest salaries for the musicians.

Brian Kenny: These would be like in New York, Boston, and places like that?

Rohit Deshpandé: That's right, and Los Angeles, Chicago, Philadelphia, San Francisco, and Dallas. Those tend to be different from the others. So it's not as if they're all working together. As the L.A. Philharmonic did when they poached Deborah Borda from New York.

Brian Kenny: You've discussed the case in class?

Rohit Deshpandé: The first time the case was taught was actually to a group of arts leaders. We had this wonderful program for 50 leaders, CEOs of arts and cultural organizations, small- to medium -scale arts and cultural organizations. This was the last case in the week-long program, and it was a case that I think nicely brought together a lot of the concepts and frameworks that we've talked about during the week. And if you'll pardon the pun, it played rather well.

Brian Kenny: I'm sure they were looking with interest at what Deborah had done because by and large, this was a success story.

Rohit Deshpandé: This is an incredible success story and I think that's really the part of it that's so exciting and inspirational, that there is a model here that can be understood and generalized, where other arts and cultural organizations can learn what they can do from what Deborah Borda did at the Los Angeles Philharmonic.

Brian Kenny: Rohit, thank you so much for joining us today.

Rohit Deshpandé: It's been a pleasure. Thank you.

Brian Kenny: Find Cold Call wherever you listen and subscribe to podcasts. Every episode features a business case taught to MBA students right here at Harvard Business School. We'd love to hear your thoughts, so take a few moments and write a review. I'm Brian Kenny, and thank you for listening to Cold Call, an official podcast of Harvard Business School.

Recorded January 24, 2018. Transcript edited for clarity and length.

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