And as a result of that, we really did reach a point where we thought that we could not engage in business as usual. We had a lot of very serious conversations with our board. We had been in the middle of a long-range planning process and this sort of sent it into a tailspin. There was a moment when we realized that we had two choices: we could continue to make cuts; we could continue to reduce the size of our operation and try to achieve stability by spending much less; or we could do what, ultimately, our board led us to do, which was to make the decision to spend much more over a period of time. To invest heavily in the hope that, ultimately, we would see the kind of payback and payoff that would help us be stronger years later. There's been a lot of talk about innovation and whether money does or doesn't make a difference. Everyone likes to say, "You can innovate without money, you can do it," and I would say that's absolutely true. But what we've seen, and I'm sure what many of you have seen, is that money really does lubricate change. There are so many things that we're doing now that we simply could not have done before, only because we have people in place who can do them, because we do have that extra $5,000 in some departments, $20,000 in another department, $40,000 in another department that allows us to just test ideas. So part of this planning process was about saying that we need to be able to try out and experiment with things and we've got to have the people power and the resources to be able to do something that is not business as usual.

There were two major decisions that we made at that point. One was that we were shifting our economic model. When I came to the theatre in 1990, we were operating off of an 82-percent earned model. (Murmurs of shock from the audience.) We were terribly proud of that. We had turned what might have been considered, by some of us, as a weakness into a strength and a source of pride. But it was not necessarily the place that we wanted to end up over time. Over the course of years, we've actually shifted that down but not by saying that we want to be earning less but by saying that we want to attract more contributed income to complement what we are earning. There was a point, though, in the earlier part of this decade, that we had one of these heart-to-heart conversations. There was a moment when we, as a board, actually agreed that we wanted to see if we could achieve, over time, a 50-to-50 ratio. And I say that not because I think that is the right ratio for everybody and not because I even think that that is the right number. I'm not sure we even know what the right number is. At this moment, we believe that the right percentage for us is 50/50. But if we're successful in accomplishing some of the other challenges that we've set out for ourselves, that number may become 40 percent earned or 30 percent earned. Not only are we interested in attracting audiences, we're also interested in attracting specific kinds of audiences for specific kinds of work. And so I say the model is fluid.

One of the reasons we decided to shift our economic model and look at that 50/50 ratio was because we are a labor intensive industry. There are a number of people on our board who realized that in their own organizations it was the people who were the assets, the people who were the source of their strength. And in many organizations they say that means the two people at the top and particularly in corporate America, there's a real focus on, "You put your money on the top and everything else will take care of itself." Tony and I did a lot of work to make sure that we all understood that our assets were not just the two of us but that it was our actors, our directors, our master carpenters, our technical director, who together contributed to the definition of who we were and what we were. One of the issues that we dealt with was that the cost of labor was going up because we believed that it was important for theatre professionals to live with dignity. Even at the same time that nobody in this country expects any longer to be paying the real price for what American laborers cost. So we decided that that had to be an issue that we addressed.

The second thing that we talked about--and it was a very hard decision, and we still don't know if this was the right one--was that coming off of the dot-com bust, many people had lost their investments, many people had lost faith in the marketplace, many people had lost faith in the value of saving and many people felt that in their own businesses they would actually spend their money in a different way. That was combined with the fact that we had many people on our board who were either in real estate or were venture capitalists--people who understood that there was great value in investing in order to leverage future gain. They said to us, "We do not want to raise money for endowment. We do not think this is a good idea. We don't think this a great value. We think that we can invest our own money more aggressively and more responsibly than you can, because in order for you to invest responsibly, you must invest conservatively, and we feel that the five years that it would take us to build that endowment, is five years that would be lost for this theatre. It would be better for us to pour money into the organization now and hope by doing so, there will be greater resources at the other end." So we developed a campaign and a ten-year strategic plan that basically created an assumption that we would enhance our operating fund with about $2 million a year from funds raised by this special campaign. And so, that is partially how we got to this 50/50 ratio. There's a small amount of money being put into the endowment but most of the money is going, right now, into people, plays and infrastructure. And by people, I mean both staff and audience, as we're doing a lot of work in audience development. We looked around and saw that everyone was doing a capital campaign every ten years. Well, in ten years, we can go back and revisit endowment, but right now, let's see if we can strengthen the organization. I'd sleep better at night if we did have a large endowment but, you know--sleep, who needs it! (Laughter.) So, that's one piece of the puzzle.

The other piece of this economic puzzle was this 50/50 ratio. And in order to maintain this 50/50 ratio, we did have to grow our audience. This did not assume that we were selling fewer tickets, but more tickets. So we've actually set out some significant goals for ourselves. Once again, the nature of what is distinctive about our organization, as opposed to your organization, is that we decided that regardless of whether subscriptions may be "trending down," the nature of our work was sophisticated enough that we felt we needed to, as much as possible, have an ongoing relationship with our audience. And that having someone come once a year was not going to create that relationship with audience members that we felt was going to sustain the work that we do. So we don't talk about subscription as much as we used to but we do talk about multi-play purchases. While we greatly and most highly value our people who are subscribing to five or seven of our plays, we don't devalue any longer the people who are subscribing to three or four plays. We continue to build programs that are intended to increase the number of people who would be considered subscribers. And I will say that over the last two years, the first year we were stabilizing, and the second year we had slight growth in subscriptions. In this third year, we're up by 500 subscriptions and by the end of this campaign, we'll be up by more than that. So we're feeling that we're seeing a shift that is impacted by a number of things, not the least of which is pricing.

The last piece of this is that we looked at ticket pricing. I realized that I've been having conversations with boards of directors about ticket pricing for over 30 years. There's always been this fantastic dance ritual that I've done with the finance committee where the marketing department and I come in with a set of ticket prices for the next year. And we all discuss the context for them and there's a point at which the finance committee says, "Don't you think you can move those up just a little bit more?" And we say, "Oh no, no, we can't do that." And we do this little dance back and forth, and in the end, they go up a little bit. But, of course, we left a little room for them to go up a bit and the finance committee feels very, very good that they've pushed us beyond our comfort zone.

Schulfer:
You're giving away our trade secrets now! (Laughter.)

Medak:
But we realized that for years and years and years, we've been pushing the ticket prices to what we thought was the highest level of elasticity--as we used to call it. How high could we make them, where people would still purchase them. Now, what we never talked about was how high can we make them so people will purchase them many times during the year. And so there was a point years ago when the marketing director said that the ticket prices had reached a point where he couldn't afford to go. We looked at that and said that this was really a problem, and so we started creating more discount programs to compensate. We ended up with our face-value tickets and all of these discounts. And I have to tell you, I'm one of these people who hates the Hot Tix booths. I hate them. I hate the fact that we've created an environment where people think they shouldn't be paying full value for theatre tickets. It makes me crazy. And I think it's not surprising that people say, "Why would I subscribe when I can get cheaper tickets in so many other ways?"

One of the things that we decided to do was to hire a pricing consultant. The president of Peet's Coffee is on our board, and that companie lives and breathe pricing because part of the definition of its brand is that it's very expensive but very good, artisanal and globally concerned. Some of you heard him a few years ago when he spoke at the LORT meeting. Well, he brought in a guy who we could use and he was fantastic. He asked what our goals were and we told him that our goal was to get more people to attend more often. And our goal was to have greater age diversity, ethnic diversity, etc. in our audience; but our main intention is for people to come more than once. So he put together a really interesting economic model for us. We looked at what people were attending in other venues. How often they were attending. We looked at their pricing. He did focus groups. And we ended up with what he referred to as a sweet spot, which was a point below which it made no difference whether we discounted or not and a price above which he felt it would be discouraging people to come again. And it was a very different way for us to analyze the information.

Now, we are so retro &ndash it's Berkeley &ndash we're egalitarian, every seat is a good seat, every ticket should be the same price because we don't want to show favorites. (Laughter.) But on the basis of this information, we decided after all of these years that we were going to give up our single-tiered pricing. What we did was raise our top-tier price, we created a section where there was no change, and we significantly reduced our ticket pricing in other areas. We also eliminated many of our discounts.

The thing that was interesting for us--and all of you have tiered ticket pricing are saying, "So what's the big deal?"--but the thing that was a big deal for us was that we realized not so much that the ticket prices were lower but the interesting thing was that three shows into the season the average ticket price being sold was actually higher. What was really interesting was that the perception changed. All of our surveys are telling us that people are saying that it is so fantastic that Berkeley Rep is economically accessible right now. People can afford to come now. The cheapest ticket for somebody under 30 is $4 less than it was--$16.50 instead of $20 on certain nights and for certain sections. It's not a significant difference, but the perceptual difference is really profound. And it's too early to know if we're trending up. But at the moment, I will say that we are seeing this year, based on these new ticket prices, a different kind of diversity in the house. What we are seeing are significantly more people in the house. I will say that it's been an exercise that is really been interesting to us.

Finally, the last thing that I want to say is, we did all of things because we want to be viable. We want to be viable as long as we have a reason to be viable. We didn't do these things because we thought this was going to buy us perpetuity. We know in five years that we're going to have to look at this again and see if this economic model is still viable. Frankly, we look all of the time whether we are artistically viable. There's been a lot of talk about stability, there's been a lot of talk about how do we make ourselves more stable in this field. And I just want to ask the question: is there ever been a time in the history of theatre that it has been economically stable? And do we have any right to it, or should we even want that?