Case Study
‘Should we close the Kings Theatre?’
A tough strategic decision for Portsmouth City Council
Background
City councils are not required to make profits. They have a broader responsibility to their electorate – to provide a range of services from education and social services to the arts and sporting activities. They operate within limits defined by the national government on the services that must be provided locally – like education and social welfare – and services over which the council has some choice – like selecting the level of support for local libraries or local sport. This case explores this typical mix of strategic decisions in one particularly acute case – the possible closure of a well-loved local theatre and its sale to a national brewery chain as a public house. With over 170,000 people and an annual budget of around £200 million, it might be thought that Portsmouth was well placed to provide live theatre for its citizens. The difficulty comes in balancing the various demands on the council’s limited budget. The decisions are more difficult when activities have been under-funded in the past and when local pride and passion are involved. Local councillors are politicians and, under standably, want to be re-elected. The city is a major tourist venue as well as offering employment in a range of local companies. But Portsmouth’s theatres were a victim of its past – it had four live theatres in 1950 that were packed every week. By the late 1990s, there were only two remaining major theatres – the Kings Theatre and the New Theatre Royal – plus a small Arts Theatre for experimental plays that was to be relocated to save money in mid-2003.The reasons for this decline were not hard to find – television, mass car ownership, the demand for nightclubs and more intimate entertainment. It was against this background that the city council drafted its ‘Two Theatres in Portsmouth’ strategy in 1999 – see Exhibit 18.1 . The concept was one theatre for major popular musicals, entertainment and drama – the Kings Theatre, with around 1,500 seats – and another theatre for smaller commercial productions such as small-scale experimental drama and concerts – the New Theatre Royal, with around 500 seats. As Exhibit 18.1 also shows, the city’s strategy across its two main venues was particularly difficult because both its major theatres were old and unmodernised. Portsmouth is unique in the UK as the only city with two beautiful old theatres designed by the great theatrical architect, Frank Matcham – there were only 23 Matcham theatres left in the whole of the UK in 2003. But the two unmodernised theatres were also an immense financial burden on the city, which the central government had done nothing to alleviate.
Competition from other theatres in the region The nearby cities of Southampton and Chichester both had thriving theatres – see Exhibit 18.2 . The Mayflower Theatre in Southampton and the Festival Theatre in Chichester had the benefit of substantial monies being spent on them in the 1980s. As a result, the rival theatres were already able to operate more attractive, popular programmes. This meant that their seat prices were higher than the Kings Theatre – typically a yield of £12–14 per head compared to around £6–10 per head at the Kings. The competitors had developed loyal audiences over many years from a wide geographical area and would provide formidable competition to any refurbished Kings Theatre, Portsmouth.
Financing the Portsmouth two theatres strategy
The [Kings] theatre could be solvent and operated success fully with continued subsidy at the present level. (Sam Shrouder, theatre consultant, after studying the Kings bankruptcy in April 2003) Portsmouth city council took over the Kings Theatre in 2001. It gave an urgent capital injection of £300,000 and an annual subsidy of £135,000. It also decided to relaunch the theatre through a non-profit company and with a new director, David Rixon. He was given some freedom to test local customer demand during the period 2001–2003. The council always accepted that the first few years of the Kings Theatre would be experimental. However, no one bargained for the theatre actually going bankrupt in March 2003, with Mr Rixon resigning through ill-health.
How provincial theatres make profits To understand the bankruptcy and judge its relevance to the long-term impact on the Kings Theatre, it is necessary to understand how provincial theatres make profits in the UK. Precise figures are not available, but it is likely that the Kings had an annual turnover of around £550,000. It was not open every week – probably around 30 weeks of the year. Some weeks there would be a full week of activity, perhaps with a local amateur theatrical company or with a touring opera or drama company. Other weeks, there might be just one or two nights with a well-known comedian or singer. It was the responsibility of the theatre’s managing director – in this case, Rixon – to negotiate commercial terms with each touring company or individual artist. Typically in a modern theatre, the touring company would take 70 per cent or more of the revenue from that week – see Figure 18.4 . More than 200,000 seats were sold for 350 performances at the Kings Theatre during its 18 months of operation from late 2001 to early 2003. This was seen as satisfactory over this period. But the crucial matter to impact on the targets was the bankruptcy of the theatre in March 2003. What precisely happened during the 18 months of operation that led to this situation was unclear. It is probable that some financial guarantees were given to touring companies that were too generous. In addition, there was probably some mis-management of costs, especially during the Christmas season in 2002–2003 which normally made a profit.
Strategic options for the future
There were three major options:
1 To provide new funds and new management to keep the theatre operating.
2 To sell the theatre to a national pub chain and convert it to public house entertainment venture.
3 To simply close down the venue and sell the land.
Option 1 Preserve the theatre
Many local people wanted to preserve the theatre. Unquestionably, there would be tremendous sadness among some members of the local and national theatre community if the Kings Theatre were to close as a theatre venue. ‘Over my dead body’ was how one well-known theatre expert expressed his views on the possible closure. Funds had been raised and excitement generated about the theatre’s upcoming centenary in 2006. The city councillors were therefore under considerable voter pressure to choose this option. ‘No political party is going to want to be seen as the one that closed the Kings’ was how one observer summed up the local political pressure.
A city with cultural ambitions like ours must be seen to do something with its theatres. That is the challenge. (Former council leader, Frank Worley, April 2003) Hence, Portsmouth city councillors were faced with a strong local lobby that wanted to see the theatre preserved. This pressure was particularly acute because the local council was a hung council – each of the three main political parties had approximately equal representation – leaving decision making by one political party open to easy attack by the other two.
Option 2 Convert the theatre to a pub
Back in 1999 a UK national pub chain company – J D Wetherspoon – had expressed interest in purchasing the Kings Theatre as a public house entertainment venture. It said that it would preserve the fabric, spend funds to restore the interior and honour the grade II* listed status of the building. Importantly, the company had developed a proven tradition of preserving the fabric of historic buildings that it had acquired. But there would no longer be any live theatre for the general public. The influential local newspaper, The News , had come out in favour of such a pub sale. The Arts Council of England was also in favour of this option. This was important because its views could influence the award of substantial capital grants and it could support local arts activity.
Option 3 Close down the venue and sell the land
This was a real option because it was not clear that options 1 and 2 were commercially viable. The funds generated from the sale could be used to help the other Portsmouth theatre, the New Theatre Royal, that was also under threat.
Expert recommendation of the leading council official
After careful consideration, the city council’s leisure officer – David Knight – recommended to the council that the Kings Theatre should be closed and sold to the highest bidder. However, if possible, it should be preserved as a theatre and not just pulled down. He argued that the council’s limited funds would be better deployed in developing the New Theatre Royal and such a policy was much more likely to find favour with the Arts Council.
Strategic choice by the elected city councillors
In spite of this expert recommendation, the council was not obliged to accept it. The council needed to make its decision about the future of the Kings Theatre at a full council meeting on 22 July 2003.
Case questions
1 What are the key strategy issues here? Political pressure and local choice? Customer demand? Theatre run with innovative flair on a tight budget? You may wish to use the strategy concepts of context, content and process to structure your answer.
2 What are the sustainable competitive advantages of the Kings Theatre? Are they strong or weak? You should use well-established resource-based strategy concepts – like reputation and core competencies – to develop your answer.
3 What would you recommend to the city council? Which strategic option would you choose? Why?
4 Having chosen an option, what is the strategic process that should then be adopted to implement that option? You may wish to identify the key players with whom the city council will need to bargain and what game plan will be required.