Half a year with covid-19 in the cultural sector - experiences and future prospects
In November, Menon Economics delivered their final report on the covid-19 crisis in the Norwegian cultural sector. Here is a summary of that report.
At the behest of Arts Council Norway, Menon Economics and BI: Centre for Creative Industries (BI:CCI) have assessed the impact of the coronavirus crisis on the Norwegian cultural sector.
In this report, we summarise the cultural sector's experience during the first six months of the coronavirus crisis. In addition, assuming that the pandemic will impose clear constraints on the sector's activities next year as well, we assess the outlook for those engaged in the cultural sector well into 2021.
Analysis of the sector's experiences so far and its future prospects is based on two major questionnaire-based surveys undertaken in May and September 2020. More than 3,000 practitioners and around 900 enterprises/organisations in the field of arts and culture responded to both surveys. This accounts for 13 per cent of all the practitioners covered by the membership organisations we have contacted. Furthermore, of all the enterprises/organisations that we have contacted through similar membership organisations, 43 per cent responded.
We have monitored the sector almost from day one of this pandemic. In a series of reports through the spring and summer, we have systematically assessed the impact of both restrictive measures and those intended to stimulate activity. This final report contains a total of five analyses detailing the impact of the crisis on the cultural sector in Norway. In addition, a similar analysis has recently been performed on the film and computer game sectors (Menon Economics, 2020). The pandemic has affected the sector's various artistic and cultural fields with varying degrees of intensity. We have examined and discussed each of the fields to highlight the nuances and ensure the relevance of our conclusions.
Characteristics of the cultural sector
The Norwegian cultural sector employed just under 40,000 people in 2019. That figure approaches 45,000 if the film industry is included. The sector generates around NOK 13 billion in annual value (total salaries and profits). This corresponds to average earnings of approx. NOK 350,000 per person employed. In addition to creating value within the sector itself, the cultural sector creates value and employment in a variety of different suppliers, which we show employ 15,000 people and generate NOK 15 billion in annual value. In other words, the cultural sector indirectly produces a considerable economic ripple effect.
A characteristic of the cultural sector is that a large proportion of those engaged in it draw their incomes from a patchwork of sources and that the amount they earn from cultural activities fluctuates sharply from one period to another.
Loss of revenue in the cultural sector
We estimate that the cultural sector has lost 32 per cent of its revenue so far in 2020. This is a slightly lower figure than we estimated in May (Grünfeld, et al., 2020). The change is due primarily to information obtained in the most recent survey. In comparison, revenues in the Norwegian economy overall are expected to decrease by 4–7 per cent, while the tourism sector has lost 30 per cent of its revenues (NHO Reiseliv, 2020). In other words, the cultural sector has taken a dramatic hit.
The survey conducted in September shows that 77 per cent of the individuals and 81 per cent of the enterprises/organisations engaged in the sector have experienced a fall in revenue since 12 March. This picture is relatively similar to that painted in the May survey. To only a small degree have new digital solutions generated alternative revenues for either individual practitioners or enterprises/organisations.
Musicians are the practitioners to have experienced the most pronounced decrease in revenues so far (around NOK 180,000 on average as at September), followed by visual artists and stage artists.
Enterprises/organisations within the cultural sector vary substantially in a number of ways. One distinction that is particularly important with regard to the coronavirus crisis is whether public grants account for more or less than 60 per cent of their revenue, because that determines what kind of support the company is entitled to. Around 35 per cent of those who took part in the September survey are enterprises/organisations that receive 60 per cent of their funding in the form of public grants. The remaining 65 per cent receive less than 60 per cent of their funding from public grants.
Those receiving less than 60 per cent of their funding from public grants report a far higher loss of revenue than those receiving more than 60 per cent (a revenue reduction of around 50 per cent, compared with scarcely 10 per cent in the September survey).
Estimated future loss of revenue
In September, individual practitioners expected a slightly lower decrease in revenues for the year as a whole than they reported in May. In September, they estimated that revenues for 2020 as a whole would be approx. 35 per cent lower than they expected at the start of the year. Should today's infection-prevention measures continue in place until the end of 2021, practitioners are more gloomy in their outlook. In that case, they expect revenues to fall by 45 per cent next year. Enterprises/organisations have much the same view about future revenue opportunities as that expressed by individual practitioners. Stage artists and musicians have the most negative view of the outlook for 2021, while enterprises/organisations in the fields of literature and museums & cultural heritage expect the lowest loss of revenue.
Compensation for loss of revenue
During the first few months of the pandemic, the measures aimed at the cultural sector were largely focused on compensating for cancelled events. Through the summer and early autumn of 2020, the measures have gradually veered towards compensating for losses incurred when events have actually been staged.
Mitigating measures are particularly important for the cultural sector because all live events with audiences over a certain number have been banned or severely restricted. Overall, the Ministry of Culture has now allocated approx. NOK 2.4 billion towards mitigating measures in the cultural sector in its budget for 2020. In addition, those engaged in the cultural sector are eligible for funds through schemes administered by the Norwegian Labour and Welfare Administration (NAV), the Norwegian Tax Administration, Innovation Norway, the Norwegian Export Credit Guarantee Agency (GIEK) and high street banks. We estimate that this amounts to approx. NOK 500 million so far. We therefore estimate that somewhere between 40 and 50 per cent of the revenue lost due to the pandemic (NOK 6 billion) will be offset by compensatory measures this year.
Ways of compensating for the loss of revenue
The Norwegian government has implemented a number of compensatory measures, some of which have specifically targeted the cultural sector. However, the majority are generic and apply to all, irrespective of business sector. The Compensation for loss of personal income to self-employed persons is the scheme most frequently used by individual practitioners. The proportion of people reporting that they have made use of this arrangement has risen sharply, from 13 per cent in May to 23 per cent in September. Furthermore, 25 per cent of individual practitioners have been furloughed since 12 March. Use of government-funded compensation schemes has accelerated since May. Just under a third of enterprises/organisations that received public grants covering less than 60 per cent of their funding requirement in 2019 have retained their grant from Arts Council Norway. Around a fifth have (also) availed themselves of one or more other financial support schemes, including receipt of compensation through schemes operated by the Norwegian Tax Administration and the Ministry of Culture. This indicates that the enterprises/organisations which receive less than 60 per cent of their funding from public grants have been the hardest hit by the pandemic. Of the entities which have been obliged to furlough staff, the bulk belong to this group (56 per cent).
Change of employment status
Around 18 per cent of individual practitioners who were working full-time in the arts and culture before the coronavirus crisis have now changed their employment status to part-time worker, unemployed or other. An equally large proportion of those who were engaged part-time in the sector now report that they are no longer working in the field of arts and culture. In addition, 17 per cent of individual practitioners were considering a change of sector in September. Stage artists, in particular, are considering a change of profession in light of the situation (23 per cent).
The pandemic's potential long-term effects on the sector
Individual practitioners draw their incomes from a patchwork of sources which, in principle, makes them resilient to short-term fluctuations. However, this depends on them finding alternative sources of income outside the cultural sector. Few people made use of the compensation scheme available to the self-employed and freelance workers prior to the summer. In September, far more people were using the scheme, which may be attributable to it becoming more widely known.
The results of our surveys show that a large proportion (10–20 per cent) of individual practitioners have left the arts and culture field, though it is difficult to determine whether they have done so permanently or just temporarily. Of the 2,677 who worked in whole or in part in the arts and culture, 20 per cent report that they no longer have that employment status. In addition, 12 per cent of them no longer work in the arts at all. The longer the crisis lasts, the larger the permanent exodus will be. We believe that if the crisis lasts until the close of 2021 a great many practitioners will leave the sector permanently, though it is difficult to estimate the precise number.
For the moment, the number of companies going into liquidation remains small. Very few companies in the cultural sector are registered as having been wound up. Experience from other crises shows that the insolvency rate holds steady in the initial phases; it takes time for the numbers to build. When sectors experience a crisis, it is common for their corporate structures to undergo a radical shake-up. Many small and weak companies fall by the wayside without necessarily going into liquidation. The larger and more financially robust companies will find it easier to survive. It would therefore be natural to expect the cultural sector to consolidate in the wake of a crisis like this. Companies will generally become larger and fewer in number. When the situation improves, small, innovative companies and projects will re-emerge to challenge existing players in the cultural sector. This applies to event organisers, suppliers and creative enterprises. In the long term, the sector's ability to deliver quality and growth will depend on the people involved, not necessarily the companies that exist today. That is why we must be particularly concerned about the number of people/employees who might leave the sector permanently as a result of this crisis. Although this is primarily a function of how long the crisis lasts, the quality and precision of the mitigating measures offered to those engaged in the sector will also play a part.