Average Is Over VI: The High Ground Remains
Without replaying every point I’ve made to get here, I left off the last installment of this series by suggesting that the growing presence of digital sales will leave artists with two main outlets to sell their work in the future. One is what I dubbed “makers’ emporiums,” or major centralized online marketplaces (such as Saatchi Art) in which artists are empowered to connect directly with collectors. The caveat in this arrangement is the breadth of the emporiums - thousands of competing artists sortable with one flick of a touchscreen - and consequentially, a competition-driven contraction of profit margins over the long term. In short, more people than ever will be able to make money selling their work this way, but the amount of money per sale will be lower on average than in the past.
If I’m right about all that, then what does the alternative choice look like? My answer would be a next generation reshaping of today’s dominant system: representation by one of the branded, Leo Castelli-type galleries that manages to survive and thrive in the new landscape. To circle back to the Matrix parallel I used last time, this option would qualify as Morpheus’s blue pill: the one that re-submerges the artist in the status quo.
That may not sound like much of a change at first blush, but it becomes a more interesting discussion when we factor in the ways in which physical galleries are likely to evolve in response to the impact of digital sales. I catalogued some of those possible adaptations in depth in Parts II and III of the series. For the sake of forward momentum, though, my major projections were that the future physical art market will consist of fewer galleries overall; that those galleries will specialize in developing and working closely with artists instead of reselling pieces acquired on the secondary market; and that they will hold dramatically less physical space than their counterparts do today.
However, there was one aspect that I left hanging a bit after a very early allusion (in fact, it was in the first paragraph of the entire series). That aspect was the likely economic standing of the physical galleries to come. I’ve already implied that in this future market, permanent physical exhibition space will be seen as a luxury, and buyers will be awash in low cost, unbranded options in the makers’ emporiums. Combined with a trend we’re already seeing in the current art market, the signals suggest the majority of the surviving physical galleries will be those at the elite, blue chip-level.
What existing trend am I referring to? The disappearance of the contemporary art market’s middle. It’s a phenomenon I first started to notice anecdotally toward the end of my run in the gallery sector. As the economic crash receded further and further into the distance, it became increasingly clear to me that the worst type of artist you could be in the aftermath was a mid-career one who had enjoyed just enough success for her prices to get frozen between about $40,000-70,000 per piece. Over time, sales began ramping up for more and less expensive works, but the middle tier seemed to be mortifying like an un-embalmed corpse.
The retreat toward the market’s poles has only become more frantic in the time since. For example, art world Renaissance man Anthony Haden-Guest penned a piece a few months ago lamenting the dwindling numbers of mid-size galleries and the market conditions that were hastening their extinction. More powerfully, the most recent TEFAF Art Market Report concluded that in 2013, global art sales as a category were essentially driven by millionaires and billionaires dropping megaton bombs of cash to airlift out works made by a tiny group of select artists. As the LA Times summarized, the report’s author, Clare McAndrew, found that 8% of the total number of lots at auction worldwide accounted for 82% of the money moved in that sector last year. Meanwhile, the “high-end dealers” surveyed agreed that “their top collectors appeared to be interested in the work of only about 50 to 100 artists.”
When I perused the report myself, I noticed that more than a third (37%) of the number of pieces sold by responsive private dealers did so at a price under 3,000 EUR, or the extreme low end of the market. At auction, the same could be said for more than half (50.4%) of the number of lots sold. Yet those auction lots accounted for only about 2% of the total sales revenue in the houses, whereas the 0.6% of lots won for 1M EUR or more accounted for 60% of the house’s sales take. (To my dismay but not my surprise, ‘sales by value’ percentages were not available from the private dealers.)
Furthermore, McAndrew noted in regard to the auction numbers that “[t]hese ratios have not changed significantly over the last 5 years, and are a persistent feature of the market, despite changes in aggregate sales.” In other words, don’t expect things to change anytime soon, no matter how much money downpours into fine art. And although she only applied that declaration to the auction sector, the evidence in the private market suggests everyone is swinging from the same pendulum.
At first glance, this would seem to suggest we’re moving toward a future gallery landscape comprised of low ground, high ground, and nothing but air between. But when we factor in the exorbitant overhead costs of a physical exhibition space, the low end of the market seems poised to migrate largely online in the future. The possibility even exists that the low end physical gallery could be entirely wiped out by the makers’ emporiums.
Why? Unless they’re also reselling owned inventory, galleries only get paid by claiming a commission on their primary artists’ sales. In the physical gallery world, that claim is traditionally a vampiric 50%. An artist’s only incentive to surrender such a severe transfusion to a gallerist is if the gallerist can dramatically increase the artist’s sales volume and/or profit margins. In a physically based market where artists had few other viable options to reach collectors, the benefits of working with a low end gallery outweighed the blood price. As Mark Cuban would say, giving up 50% of something is better than keeping 100% of nothing.
But that incentive largely disappears for artists at the lower reaches of a digitally-based market. There, the makers’ emporiums not only provide any artist the opportunity to reach potential buyers, but are also positioned to dominate as established brands. Unlike the Saatchi Arts of the sector, independent low end galleries won’t be well-known, widely publicized commercial hubs in and of themselves. That leaves them poorly equipped to find and maintain a sustainable client base in an arena of intense online competition.
In this situation then, think of the artist as the new inmate in a supermax prison: Considering the stakes, the wiser move is probably to align with one of the established gangs than the lone convict with more ideas than allies. Especially if, like Saatchi, the gang’s initiation rites will leave you 70% whole instead of 50%.
Blend together the low end artist’s incentives and the low end gallerist’s costs, and it’s not difficult to imagine a scenario in which the lower tier physical gallery becomes no more than a memory. Fold in the rapidly deteriorating middle of the art market, and the ingredients produce a possible future where only the top tier galleries may operate tangible exhibition spaces. As digital sales reshape the art world, the high ground may be the only consistently safe place for physical gallery shows as we know them.
Again, today it’s still common practice for blue chip gallerists to build a worldwide network of franchises to serve clients in a variety of global regions. But since a sustained rise in online sales will allow them to move at least as much, if not more, artwork with lower overhead costs, it only seems logical that in the future they would burn some of the forts - not to mention refurbishing the ones they keep garrisoning to fit the new world order.
Of course, this projection begs huge questions about infrastructure. What will the blue chip galleries of the future use as their platform to sell online? And what kind of effect will their chosen online sales platform have on the rest of their operations? I’ll try to cipher through the answers in the next installment.