Where Have All the Flowers Gone?

Coase Theorem Failures in English Summer Cultural Events:

The Case of Sidmouth International Festival

Julia Hiscock and David E. Hojman

No. 2004/06 Research Paper Series, Management School, University of Liverpool, Liverpool, L69 7ZH

This html copy of the main text is provided on the SeeRed website for ease of extracting and/or printing of selected paragraphs (see how). There are slight formatting changes, a few spelling corrections and the Tables have been omitted. The full original pdf version was available elsewhere on the Internet but now seems to have disappeared. It was 30 pages long and was originally published in late 2004. This webpage was first loaded onto SeeRed on 1 Feb 2006.

An updated version of the paper was published in 2010 in the journal Tourism Management - the abstract is here and the full paper was made available as a pdf in September 2010 here.


Summary by SeeRed author: The central message of the paper is that the Festival failed because too many structural and financial problems had effectively been ignored by several key players and for too long. This was despite the fact that the problems had been well reported. One pivotal issue is identified - the absurd claim for how much economic benefit the Festival brought to the local economy - yet both the Festival Director (Steve Heap) and the local council (EDDC) had been enthusiastic in endorsing the same fantasy. It is noted that few other people in the local community believed either of them. The Festival Director is singled out for having failed in aspects of management, yet is commended both for his 'lifetime achievement' within the Folk Arts movement and for his central role in nurturing and protecting the artistic integrity of the Sidmouth Festival.

One interesting question for the future is whether the full-scale International Festival could somehow be revived. For this to happen, far more would need to be recreated than just the key players being brought back together. Many factors, not least the goodwill of the hundreds of volunteers who did so much to make the International Festival viable, would all need somehow to fall again into a coherent whole. Also, some key players would have to 'forgive and forget'. As the paper rightly asserts: "At some point the key players became prisoners of everything that had been happening, or had been said, in the past."

The paper ends on a positive note by presenting the core of a new proposed structure for running the Festival in a more 'sustainable' manner. In this, a 'Society of Shareholders' would both fund and control the festival, and take any profits from it. Given that many folk festivals rely perhaps too much on the enthusiasm and efforts of a few individuals it would be interesting to see the model developed and tested.


Abstract

After 50 years of artistic and popular acclaim, the world- famous Sidmouth Festival collapsed in 2004. Its management was unable to secure bad-weather underwriting worth 200,000, despite an alleged 5 million Festival contribution to the local economy. In examining the reasons for this failure, we look at questions such as positive and negative externalities, ideological differences between Festival visitors and local residents, heterogeneous character of the local businesses, rural-or-urban and one-company versus multi-firm nature of festivals, incredible claims, emotions in economics, moral hazard, path dependence, and management mistakes. We argue that the only realistic way forward includes Festival supporters making financial contributions commensurate with their respective financial interests or artistic commitment, and their contributions giving these supporters full ownership rights.

1. Introduction

This paper examines the reasons why the diverse stakeholders of Sidmouth International Folk Festival in Devon, England (management, artists, ticket-buying public, local authorities, local population, potential sponsors) had failed by mid 2004 to reach an agreement allowing the Festival to continue operating under terms satisfactory to everybody. Fifty years old in 2004, the Festival was the most venerable, and, according to many indicators, arguably the most vibrant and successful folk festival in the UK. The Festival also offered incredibly good value for money to its ticket- buying public. A full week season ticket in 2004, for a maximum price of 179 pounds sterling (179), was ridiculously good value. The ticket buyer would get 14 big-name concerts (mostly English ‘folk-and-roots’ and international folk music and dance), plus many other ‘workshops’, ‘chances to meet the artists’, ‘late night extras’, etc, for the same price as a good seat for one performance at another summer music festival in the south of England, Glyndebourne Opera.

In 2004, the Sidmouth Festival management announced that a Festival in 2005 could not be guaranteed. By then, stakeholders had been failing for several years to agree as to how to provide the conditions generating the ‘best’ Festival, in terms of optimal dimensions, structure and contents. Despite growing at fast rates year after year and decade after decade, the Festival had been plagued by problems long before 2004. According to some of its critics, it was too commercialised and it was failing to capitalise on the spirit of friendship, understanding and service of its first decades (Hunt, 2004Peters, 2004; folk18). According to other critics (or the same ones), the Festival was failing to encourage further participation by and links with the local population, failing to generate enough support from the local business community, and failing to generate sufficient reserves to provide a fund against bad years, or adequate insurance.

We will argue that conceptually, this is an illuminating example of a Coase Theorem failure (to be defined in the next section). In explaining the reasons for this failure, we will look at questions of management, cultural entrepreneurship, corporate sponsorship of the arts, relationships between the Festival and the local community, and cultural economics, including the contribution of cultural festivals to generating negative and positive externalities, and to the local economy and tourism in particular. We will also offer some advice as to what to do and what not to do in the future.

There is no generally agreed view as to what, and how much exactly, cultural festivals contribute to the respective local economy (Mitchell and Wall, 1989; Gazel and Schwer, 1997; Senior and Danson, 1998; Brown, Var and Lee, 2002; Nurse, 2002; Auld and McArthur, 2003). The results of a recent study on the impact of British folk festivals (Association of Festival Organisers, AFO, 2004) have been comprehensively challenged by a Sidmouth-based scholar (Wozniak, 2004a2004b; see also Long and Perdue, 1990, and Wozniak, 2004c). Note 1 However, there is no doubt that, even if the impact of Sidmouth Festival on the local economy may have been modest, still there were many other, non-economic contributions of the Festival to both Sidmouth and more widely, which are worth considering.

The next section defines the Coase Theorem and the concept of Coase Theorem failure. Section 3 reflects the first impressions of a visitor to Sidmouth Festival in 2004. The Festival ownership and management arrangements at that time are described in Section 4. Then, Section 5 introduces the distinction between ‘coalitions’ and ‘key players’. There were (or are) a pro- and an anti- Festival coalitions in Sidmouth. The key players are the 2004 Festival management and the (or any) potential source of the required financial backing. The Coase Theorem failure we are interested in is precisely the inability of these key players to reach agreement. Section 6 isolates those local businesses which used to benefit from the Festival, from those which did not. Positive externalities play an important role in the story. This role is examined in Section 7. Section 8 argues that Sidmouth Festival was possibly falling between two stools, unable to become either an urban, multi-firm festival, or a rural, one-company one. Those management mistakes that contributed to increase transaction costs, and therefore made a successful Coase bargain more difficult, are explored in Section 9. A possible solution is recommended in Section 10. Section 11 concludes.

2. The Coase Theorem

The Coase Theorem (Coase, 1988) argues that negative side effects (or negative ‘externalities’) can be corrected by the market. Provided that property rights are well-defined and legally enforceable, and there are no transaction costs, economic efficiency will be achieved. This will be reached by means of a private contract between the perpetrator and the victim of the negative side effect.

Sidmouth Festival provides a good example. Assume that the Festival ‘beneficiaries’ (all those who stand to benefit, in economic or non-economic ways) are different from the ‘victims’ of the Festival’s negative side effects, or externalities (traffic congestion, dirt, noise, etc). Note 2 There will be four possible outcomes, according to whether the property rights, broadly defined, (or institutional set-up) favour the beneficiary or the victim, and according to whether the benefit going to the beneficiary is greater or smaller than the damage inflicted upon the victim (see Table 1). If the benefit is smaller than the damage, there will be no Festival and therefore no negative externalities (see the last row of Table 1). Since the benefit is smaller than the damage, either the potential beneficiary cannot afford to compensate the potential victim, or the potential victim can ‘bribe’ the potential beneficiary, so that the latter is better off without the Festival than with it.

But if the benefit is greater than the damage (that is, the Festival is welfare-enhancing), the Festival will go ahead and some negative externalities will be inflicted. This is the situation the Coase Theorem deals with. One of the two players will have to pay the other. Who pays who depends on the institutional set-up. Whoever pays, the amount that is paid depends on how badly the beneficiary wants the Festival to go ahead (and how ‘much’ of it he or she wants), and how badly the victim wants to stop the damage (or how much damage he or she is prepared to take). Equilibrium, or the social optimum, will be reached at that point at which the marginal benefit of ‘more’ Festival and the marginal damage from more negative externalities are equal (at this point none of the players will wish to pay any more to the other).

It must be emphasised that the ‘victim’ is not a victim of the Festival, but of Festival-provoked negative externalities. Even if an individual is hit by a negative externality, and the institutional set-up is such that he or she has to pay to have less of it inflicted upon him or her, still on balance he or she may be better off as a result of the Festival. For example, during Festival week a local resident who wants to drive into town may have to pay more for parking, and to walk more between the car park and town, but he or she also gets to go to some concerts and other Festival activities. On balance, he or she may or may not be better off, and accordingly he or she may be in favour of the Festival or against it. A similar reasoning applies to the economic impact of these parking difficulties on local shops. The fact that a Festival-goer takes the last parking space left in town is not automatically bad for the local shops. It all depends on whether this Festival-goer will spend more or less locally, than whoever would have taken that parking space if there was no Festival (a local resident).

Sidmouth Festival in 2004 is a particularly interesting application of the Coase Theorem, because the Festival not only generates negative externalities (which by definition are always present in all applications of the Coase Theorem). The Festival is also a source of massive positive externalities. Many of the Festival’s problems, in the build up towards the 2004 crisis, are related to the fact that some of the key players or stakeholders did not know what to do about, or how to deal with, these positive externalities.

The Coase Theorem failure we are interested in occurs when a (or some, in plural) key private contract(s) between the perpetrator(s) and the victim(s) of a(some) particular Festival-provoked negative externality(ies) does(do) not take place. Therefore, the welfare-enhancing Festival itself does not take place, despite the fact that the Festival’s benefit is greater than the damage. Note 3 This Coase failure may happen for a number of reasons. Among them: 1) transaction costs may be too large; 2) the property rights may be ill defined or difficult to enforce; 3) information may be insufficient; 4) some players may be engaged in trying to have the property rights changed; 5) supporters or opponents of the Festival may be too many or too heterogeneous to organise; or 6) there may be a gap between the not-income-constrained seller’s price, and the income-constrained buyer’s price of the externality (Farrell, 1987; Shogren and Kask, 1992; Jung et al, 1995; Richards and Singh, 2000; Robson and Skaperdas, 2002; see also Cooter, 1989; Samuelson, 1995; and Usher, 1998). All of these difficulties or obstacles may be worsened by management problems. Note 4

The key private contract which failed to be signed, or agreed, in Sidmouth in 2004 was not, as one intuitively may think, between a pro-Festival coalition and an anti-Festival coalition, but between the Festival management, and whoever might have supplied additional financial resources, which were at the time badly needed. For the time being, we may call this potential supplier of financial backing, ‘the other player’.

3. First Impressions

Sidmouth International Festival celebrated its 50th anniversary in 2004. The Festival had been taking place during the first week in August, every year since 1955. Note 5 Sidmouth is a beautiful Regency town on the coast of East Devon. Sunday August 1st, 2004, the second day of that year’s Festival, was a fine day, sunny and warm. The town was crowded. There was not a single parking space left in any of the town car parks. Even the double yellow lined ‘no parking’ street spaces had been taken, all of them in every street. Observers (and not only the proverbial newly arrived visitor from Mars) would have been entitled to conclude that the Festival was doing very well. Note 6 Right? Wrong. The local weekly newspaper, the Sidmouth Herald, published the previous Friday, had carried a front-page story headlined ‘ “Festival will change beyond recognition”, director warns’. The Festival Director explained that ‘spiralling insurance costs’ meant that ‘the financial risk of running the event has become untenable’ (Sidmouth Herald, 2004b). In a related article (Harry, 2004a), readers were told that ‘the cost to insure and underwrite the popular week has risen dramatically’, and about a ‘massive rise in litigation and insurance costs’. And again, in the Festival’s Programme, the Festival Director mentioned the ‘need for serious wet-weather underwriting’, and he added that, ‘At the time of going to press, I am still not certain how Sidmouth Festival 2005 will be created’ (Sidmouth International Festival, 2004). A template for letters to the Secretary of State for Culture was available in Festival locations, telling her about this ‘commercial threat’ and asking her to provide ‘promissory underwriting against bad weather’ out of central government funds (Anon., 2004). Note 7

Several questions immediately arise. Why in 2004 and not the year before, or any year since 1955? Does not the fact that crowds come to Sidmouth in such numbers (estimates of over 65,000 visitors in a good year have been put forward), and that they buy all the season tickets in advance, suggest that the Festival must be successful? Why cannot some of this money be used to buy wet-weather insurance? If the money is not sufficient, why not put ticket prices up? Or increase the number of season tickets on offer? Was there wet-weather insurance in the past? If yes, who provided it, and why then but not now? Does this problem affect every open-air, summer festival in the UK (or is there something special about Sidmouth)?

We will come back to these questions in following sections. Note 8 For the time being, let us just register that another strong first impression was that of a sharp division among Sidmouth people, between a pro-Festival coalition and an anti-Festival one. It is apparent that local residents and local businesses disagree as to whether the Festival was (is) good or bad for the town.

4. Enter Mrs. Casey

On Tuesday 3rd August 2004, the Festival issued a press release explaining that:

‘Mrs. Casey Music is employed by Sidmouth International Festival Limited to organise and run the Festival. The cost of organising … and potential losses in years of bad weather have risen to such an extent that the Shareholders of this “not for profit” company have advised Mrs. Casey … that … they are unable to continue to underwrite the event … Mrs. Casey is not in a position to undertake this risk and therefore the 50th Festival will be the last they will be organising.’ (Sidmouth Festival, 2004).

Similar, but more complete information on the role played by Mrs. Casey is provided by Dowell et al (2004) and Schofield (2004b). Readers are told by these two sources that the Festival Director is one of two shareholders in Sidmouth International Festival Limited (the non-profit distributing company), and that in previous years Mrs. Casey had subsidised the Festival.

This seems to help to answer some of the questions, although it also raises some new ones. Why would a talented cultural entrepreneur such as the Festival Director wish to be a shareholder in a non-profit company? Note 9 Why would Mrs. Casey wish to subsidise the Festival? Mrs. Casey Music’s main line of business is ‘festival organisers and event management consultants’. They are also involved in mail order CD sales (‘Rocking Chair CD Sales’) and music recording under their own label, Mrs. Casey Records ( www.mrscasey.co.uk ). So, in partial answer to the latter question, Mrs. Casey and the Festival had a relationship which was slightly more complex than that between a Festival owner and whoever organises and runs it, or between a wet-weather insurer and its client. Mrs. Casey could potentially benefit from the Festival in a number of other ways, apart from the fees for organising and running it. For example, Mrs. Casey run the only two CD-selling shops on Festival grounds during the Festival week, they had access to the new list of season ticket buyers every year, and they had privileged access to promising new artists performing at the Festival. The Festival experience may also have taught valuable lessons to Mrs. Casey, which could then be applied to the rest of their business activities. The Festival may also have allowed Mrs. Casey to identify good middle managers and administrators, who might eventually be hired as full-time professionals in other subsidiaries of the parent company. Note 10 All of these are important ingredients of success in these particular areas of the music business (Kretschmer et al, 1999; Banks et al, 2000; O’Hagan and Harvey, 2000; LeClair and Gordon, 2000; Gander and Rieple, 2004; Wilson and Stokes, 2004).

So, maybe something different happened leading up to 2004 to this mutually convenient arrangement, and what we have here is a typical case of Coase Theorem failure between two companies, the Festival and Mrs. Casey. Right? Wrong (again). The Festival and Mrs. Casey are on the same side. In fact, they are largely the same thing, or the same person. The Festival Director is also the Director of Mrs. Casey (Schofield, 2004a). Note 11

Presumably Mrs. Casey’s fees for organising and running the Festival were agreed in advance, year after year, and they were independent (or largely independent) from the Festival’s financial results. These fees were possibly adequate and compatible with market rates. Unfortunately, they were not always paid. In good years they were paid in full. But in bad years, this was not possible, and therefore Mrs. Casey ‘subsidised’ the Festival. Apparently this arrangement worked reasonably well (Sidmouth Festival had never been a gold mine for its owner) for 17 years. Mrs. Casey had started organising and running the Festival in 1987. But eventually this arrangement may not have been enough. As the Festival grew, so did financial risks. As costs increased, insurance costs grew more than proportionally. Either a real subsidy from local or central government, or sponsorship from business, or an explicit decision to make the Festival more ‘popular’ or ‘populist’ (i.e. commercially successful), or something else, or a combination of all of them, were also required. In terms of the Festival’s need for a large subsidy or another form of financial injection, by 2004 things seemed to be no better than they had been in the previous five decades (Schofield, 2004a). However, in the intervening years the Festival had experienced huge growth in size, financial commitment, and national and international prestige. Note 12

For almost two decades (1987 to 2004), the Director wore three hats: until and including 2004 he was manager (as Festival Director), entrepreneur (as Director of Mrs Casey, implicitly the underwriting company) and fixed-fee contractor (again, as Director of Mrs Casey). He performed all three roles successfully, not only by presiding over the Festival’s spectacular expansion and rising prestige, but also by keeping high standards of artistic integrity and, according to most observers, not pandering to populism. During these years, Sidmouth Festival showed an almost perfect balance between audience growth and widened access, on the one hand, and artistic excellence, on the other. This balance is not easy to achieve (Lawrence and Phillips, 2002; Oakes, 2003). Admittedly, these positive developments were aided by a number of macro and microeconomic factors which favoured cultural activities and music festivals in general (Frey, 1994; Beyers, 2002). Still, for many years Mrs Casey’s organising and running of Sidmouth Festival was almost a textbook case of ‘how to do it’. There are many examples of Mrs. Casey’s amazingly large capacity to manage change, such as its flexibility to the evolution of demand, including the introduction and development of activities addressed to children. Some of these children’s parents had been Festival-goers years before, and in some cases they had even met each other during Festival week. Note 13

As the Festival grew, new financial flows would become critical. It was only a matter of time, of when rather than if. In that sense, the Festival would eventually become a victim of its own success. The management team may have expected that the extra money would come from retained surpluses. Maybe they were encouraged to believe this by their experience of Towersey Festival, which in many ways was (and is) very different from Sidmouth. Towersey does not seem to have any of Sidmouth’s financial problems (see Table 2).

5. ‘Coalitions’ and ‘Key Players’

The ‘two coalitions’ are not the same as the ‘two key players’.

As mentioned before, Sidmouth was divided between a pro-Festival coalition and an anti-Festival one. The pro-Festival coalition was reasonably compact and coherent. It was formed by the Festival Director Note 14 , the rest of the Festival management team, Mrs. Casey Music, employees of both the Festival and Mrs. Casey, the volunteer stewards, the Festival artists, the ticket-buying public, and those local residents, businesses and politicians who thought (and think) that on balance the impact of the Festival on Sidmouth, or upon themselves, was positive. Note 15

The anti-Festival coalition was more diffuse. It was formed by some local residents, businesses and politicians. The anti-Festival coalition was not strong enough to prevent the Festival from happening. However, it could contribute to make things more difficult for the Festival, and more expensive in money and management time. For example, by highlighting the damage caused by negative externalities, the anti-Festival coalition increased the transaction costs in any key bargain between the Festival and potential financial backers. Many local residents are acutely aware of Festival-provoked negative externalities. Reference is often made to them in articles and letters in the local paper and the internet. Examples of negative externalities include reports of the impossibility of finding parking space in town, very loud music in the early hours, private gardens being used as toilets, ‘broken glass and vomit’ in the beach, and having to pay to enter the main Festival ground (the ‘Arena’) during Festival week (Luxton, 2003Harry, 2004bWozniak, 2004dfolk11 ). Note 16 These are mostly negative externalities inflicted upon local residents. We will concentrate on negative externalities inflicted upon some local businesses, in following sections. Some local residents resent the local authority grants and subsidies to the Festival (Freeman, 2001Vance, 2004). Others may not like some aspects of the Festival, but they reluctantly accept it as a necessary evil. Some are in two minds. They fondly remember the old Festival, and they complain that more recent ones had fewer free-of-charge events taking place in the seafront, market square and other public spaces.

The two ‘key players’ were very different from these two coalitions. The two ‘key players’ in 2004 were the two sides which needed to achieve a successful Coase bargain, that is, a private contract by which the relevant negative externalities would have been priced, and sold and bought. As a result of this successful Coase bargain, a welfare-enhancing, full-scale Festival would have taken place in 2005. The first key player was the Festival management. The other key player, or ‘the other player’, was a person, or company, or group, which was or were able and willing to provide the underwriting required, amounting to 200,000 in 2004. ‘The other player’ may potentially have included members (individuals or firms) who or which came from both the pro-Festival and the anti-Festival coalitions. For example, among ‘the other player’, defined as the potential source of the 200,000 in 2004, we may find:

From the ‘pro-Festival’ coalition:

Intramarginal consumers (for whom the Festival was worth more than the price of their tickets); a successful Coase bargain would have made it possible to share at least some of this consumer surplus with the Festival organisers. Local businesses which would benefit from the Festival, but for which there was not an appropriate channel to make a ‘contribution’ to (or an ‘investment’ in) it; a successful Coase bargain would have introduced or generated such a channel.

And, from the ‘anti-Festival’ coalition:

Local businesses and local residents who would benefit from the Festival, but who would also experience substantial negative externalities; a successful Coase bargain would tip the balance in favour of the benefits or positive aspects of the Festival.

6. Only Some Local Businesses Benefit

There has been some confusion surrounding Sidmouth Festival, with regard to both the number of ticket-buying visitors, and the Festival contribution to the local economy. A figure of 65,000 Festival-goers is frequently mentioned (Wozniak, 2004c; folk6). However, this is likely to be only the upper limit of a range of possibilities. The total number of tickets sold (a hard figure in the possession of the Festival management) is not the same as the total number of visitors. Some visitors bought only one ticket. This was the case of any person who bought a full week season ticket, or any day visitor who went to one event only. The most popular events were the Saturday evening concert at the beginning of Festival week, and the Friday ‘Grand Finale’ evening concert at the end of it. But there were also other visitors who attended several Festival events, and bought a separate ticket for each one. The number of full week season tickets sold in 2004 was about 2,400 (folk21a). However, no one knows how many single event tickets were bought, on average, by visitors who did not buy a full week season ticket. All we know is that it is likely to have been more than one.

It has been claimed that the Festival contribution to the local economy is in the order of 5 million per year (Freeman, 2001;   Sidmouth Herald, 2001cVance, 2004folk8). This is possibly a wild exaggeration (Wozniak, 2004a2004b2004c). The true figure is likely to be much smaller than that. There are several arguments supporting this statement. Take, for example, the case of Sidmouth Cricket Club, which provides car parking space. The Club is often mentioned by Festival supporters as an example of a local business which benefits from the Festival. It is claimed that the amount involved is 4,000 per year (see Note 4). So, if the total Festival contribution to the local economy had been 5 million, then there would have to be 1,250 local businesses which did benefit on average as much as the Cricket Club did (5 million divided by 4,000). This is of course ridiculous, given that Sidmouth is a small town, with a total population of about 13,000 people.

Another way of looking at it is by dividing the alleged 5 million, by what we may assume is the maximum possible number of Festival visitors, 65,000. This gives a minimum of 77 per visitor. Again, this seems wildly exaggerated. A day visitor is likely to spend practically nothing in the local shops, apart from maybe a drink. The same is true for a visitor who comes to several events (the 77 claim would apply to each event). But even those very modest amounts which are truly spent by Festival visitors are unlikely to stay ultimately in the local economy. A full week season ticket buyer may stay in the Festival camping site and take all his or her meals in the Festival grounds. Again, the contribution to the local economy would be almost nothing. Neither whatever he or she spends on his or her train ticket to Sidmouth (or on petrol), nor the cost of the Festival full week season ticket itself, can be claimed to represent in full a contribution to the local economy. Even if the visitor stays in a hotel, his or her hotel bill would not be a net contribution to the local economy, since the first week in August is the middle of the summer holiday season. The hotel would be likely to be full anyway, even if the Festival did not exist.

It is not clear where the 5 million claim comes from. But, should it come from an application of the New Economics Foundation methodology behind the AFO study mentioned in Note 1, this claim would be a very poor advertisement for that methodology. On the other hand, there can be little doubt that the Festival was welfare-enhancing, and while the Festival contribution to the local economy may have not been 5 million, it is bound to be larger than the 200,000 underwriting required in 2004. There is also the non-economic aspects, including cultural ones, such as the Festival’s contribution to the British public getting to know folk music and, linked to that, to understand their own cultural roots, and those of many other nations; and the Festival’s sheer entertainment value. Another non- economic contribution was those Festival activities which were either free or not profitable, and therefore had to be ‘subsidised’ by other, more popular Festival events.

There is no doubt that some, or even many, local businesses benefit from the Festival, in addition to the Cricket Club. But others do not. Some shopkeepers even claim that, not only do they fail to sell more during Festival week, but they have to hire more staff to deal with increased shoplifting (Wozniak, 2004c). A very useful source of information about who benefits, or expects to benefit, and who does not, is the advertisers in the Festival supplement produced by the local newspaper. Table 3 compares advertisers in the Sidmouth Festival supplement of the Sidmouth Herald, with the respective supplement for the Honiton Agricultural Show in the respective local newspaper. Honiton is only ten miles away from Sidmouth, and the Festival and the Show take place during the same week. Table 3 is illuminating in that advertisers in both supplements are addressing potential customers in the same geographical area at the same time, but these potential customers seem to be very different.

Local businesses which advertise to Sidmouth Festival visitors, but not to Honiton Show ones, include antiques, camping supplies, other festivals and similar holiday activities, laundry and dry cleaning, musical instruments, photography and video, T-shirt and mug printing, a supermarket and taxis. Those businesses which advertise to Honiton but not to Sidmouth include building materials and timber supplies, car dealerships, chartered surveyors and estate agents, cooking classes, a country park, curtains, household electronics, fuels, hampers, flying lessons, a golf club, a motel, a housing association, an independent school, a pet refuge, a saddlery and a veterinary practice. Many more pubs and restaurants advertise to Sidmouth Festival visitors than to Honiton Show ones. Advertisers in the Sidmouth supplement seem to be addressing a rather narrow range of visitors and holidaymakers, whereas advertisers in the Honiton supplement address local residents who may be considering engaging in major purchases. Also, the adverts suggest that potential customers in Honiton typically seem to be in a higher income bracket than visitors to Sidmouth.

Another helpful source of information about those local businesses which benefit, or expect to benefit, from the Festival is the list of Festival sponsors. In 2004, the Festival Guide listed 15 sponsors, 7 fireworks sponsors, 4 grant donors, and 19 patrons (a total of 45). It is not clear how each of these categories is defined, but several of the local businesses in these lists are also among the advertisers in the Sidmouth Herald Festival supplement. The lists suggest that many of these local businesses tend to support the Festival, because they benefit from the Festival themselves. They are interested in the Festival survival. But as a publicity exercise it may not be a great investment. They do not seem to be getting much extra visibility. Their contributions’ role seems to be quite different from that of a national company such as Typhoo Tea, which sponsored a ‘Typhoo Tea Dance’ in one of the Festival venues back in 1987 (Schofield, 2004a, p. 147). After reading Oakes (2003) on sponsor recall tests, the authors of this paper performed their own self-administered test. Between the two of them, they could recall only a very small number of Festival sponsors / donors / patrons: the laundry and dry cleaners, a video company, a ‘folk-and-roots’ magazine, a brewery, a supermarket, a pub, the Festival’s Stage Electrics suppliers, the BBC, and East Devon District Council. Note 17

7. Sidmouth Festival And Positive Externalities

Negative externalities are an essential part of the Coase Theorem. But the Theorem has nothing to say, at least explicitly, about positive externalities. However, almost inevitably successful economic or cultural activities tend to generate positive externalities (Scott, 1999a, b; Snowball and Antrobus, 2001). Sidmouth Festival is no exception. Casual observation suggests that the list of local businesses, of every possible description and size, taking advantage of Festival-generated positive externalities is very long. It includes, among many others, buskers performing by the seafront, bird whistle sellers, girls braiding hair, ice cream stalls, newsagents, bookshops, restaurants and pubs, a seafront hotel which used to hire its own folk musicians and organise a pig roast, the already mentioned Cricket Club, the Rugby Club and the Sailing Club (Sidmouth Herald, 2001b2001cDowell et al, 2004).

Consider the following argument:

‘The factory up river is polluting the water and poisoning the air (a negative externality). I am being damaged by it, and I want to be compensated’.

This argument is very familiar in applied economics and in the practice of law.

As opposed to the following:

‘The flowers in my front garden are beautiful (a positive externality), so I want passers-by to pay me if they look at them, and I want my neighbours to share with me any resulting increase in the value of their own properties’.

This latter argument is unheard of.

Positive externalities (in every direction) are unavoidable. They are an essential aspect of everyday economic life. Possibly they are present in most successful Coase bargains. This is especially so in cultural activities. Everything that is usually described as a cultural benefit (as opposed to an economic benefit) is unambiguously a positive externality. Cultural benefits from Sidmouth Festival are often mentioned by members of the ‘pro-Festival’ coalition (Anon., 2004; Dowell et al, 2004; Schofield, 2004a, p. 130). The Festival Director was quoted by the Sidmouth Herald in 2001 as saying: ‘It has nothing to do with profits, shareholders or commercialism. It is about cultural heritage, sharing, understanding mutual benefits, education and a belief that the arts are a major contributor to quality of life’ (Sidmouth Herald, 2001b).

Another interesting example of positive externalities of Sidmouth Festival (one among many) is its impact on the local newspaper, the Sidmouth Herald. In relation to the typical weekly newspaper of a typical English seaside resort, the Herald is much better. Possibly the Festival’s international character has made news and editorial staff more aware of the rest of the world, and the Festival’s successes and difficulties have sharpened the Herald journalists’ investigative skills. And, incidentally, the same may apply to readers. Often the letters page of the Herald is a joy to read. Note 18 On the other hand, and paradoxically, the mass media, including the Herald, may have contributed towards making Coase bargaining in Sidmouth more difficult to succeed, by presenting some views of and statements by the key players as controversial, confrontational or inflammatory.

The problem with positive externalities in the present context is that something that is a positive externality favouring company B may also be seen as a ‘leakage’ by company A. Company A may be so successful that it attracts a very large number of customers to its showroom. Company B’s showroom is just next door to A’s. Some of A’s customers may look at B and decide to buy something from B, as well as, or instead of, A. This (a positive externality favouring B) is no good for A, which may take a very negative view of it, decide to call it a ‘leakage’, and do as much as possible to stop it.

Again, Sidmouth is full of examples of this. In 2001, the Sidmouth Herald quoted the Festival Director saying that: ‘The only people making a profit are the businesses in the town … they take a lot of money and we get nothing. It is one way traffic’. The journalist then goes on to report that: ‘What disturbs [the Festival Director] is that while he is paying for acts to perform, hiring of marquees, equipment and the like, others are cashing in on the event …’ (Sidmouth Herald, 2001c). This theme was taken up again by the Herald later that year. This time readers were told that ‘… [the Festival Director’s] patience has run out on profiteers in the town who milk the event and do not plough anything back’. And: ‘[the Director] said visitors could believe that they had seen the Festival by driving in, paying the council or sports clubs to park, visiting shops, pubs, cafes and restaurants where prices are inflated and then soaking up the free entertainment on the Esplanade, the Market Square and in the pubs … They can’t “do” the Festival without actually buying a ticket.’ (Sidmouth Herald, 2001b). In 2004, the Festival Director was being quoted again, on the same subject: ‘… we are being ripped off by local business, which are making a packet.’ (Vance, 2004). The language may not be very diplomatic, but there seem to be some substantive issues here. According to Schofield (2004a, p. 216), ‘Other businesses have prospered from the Festival without offering any support. The owners of many businesses admit, in private if not in public, that if it were not for the Festival, they would not be able to survive.’ Note 19

8. Was Sidmouth Falling Between Two Stools?

Successful summer festivals in the UK come in two different forms. Some of them are associated with a particular city, either the whole city, or an important aspect of it. They are urban. Edinburgh Festival and Matthew Street Festival in Liverpool are good examples. They are ‘owned’, or ‘run’, by the respective local authority (sometimes through a dedicated agency), but only in the sense that this authority pays for services such as publicity, cleaning and police, and maybe it takes care of licence provision and some basic upkeeping of standards. Possibly there is also some extra financial support from central government and private sponsors. The local authority is interested in using the Festival in order to present the city in a good light, ‘sell’ the city. But itself making a profit is not one of its roles. In contrast, generating massive positive externalities for the local private sector is definitely one of its roles. The supply of accommodation, food and most of the cultural events is left to many private firms and cultural entrepreneurs. Some of these firms and entrepreneurs make a profit, and others do not. The ultimate objective of the local authority in this urban, multi-firm festival is to present the city as a ‘festival city’, with eventually many festivals taking place all round the year. Arguably this has been successfully achieved by Edinburgh, or, in different national contexts, cities such as New Orleans or Oslo. ‘Edinburgh Festival’ itself is not a single festival, but about four festivals taking place at approximately the same time (Chacko and Schaffer, 1993; Anon., 1994; Prentice and Andersen, 2003).

An alternative model of successful summer Festival is that which is organised in an isolated area, such as rural fields, or an old, disused airport (‘in the middle of nowhere’). Typical examples are Creamfields in Liverpool, or, elsewhere in England, Bromyard, Glastonbury and Towersey. This type of Festival is run by a single private company. Visitors may have to pay an entrance fee to access the Festival grounds. Because of geographical isolation, there is no alternative entertainment to that provided by the Festival organisers, or alternative sources of food and drink (nor, in some cases, accommodation). Isolation also means that some negative externalities potentially affecting local residents, such as noise and traffic congestion, may be minimised. Note 20

Sidmouth Festival did not belong to either of these categories. In this sense, Sidmouth towards the end of the 1990s and more recently was possibly falling between two stools. As a Festival it was ‘urban’, generating plenty of negative externalities for local residents, and having to compete with alternative suppliers of food, accommodation and entertainment. However, the urban environment provided by Sidmouth was not sufficiently large. The advantages enjoyed by cities such as Edinburgh, Liverpool, New Orleans or Oslo (the possibility of spreading negative externalities thin, the attraction to potential visitors of many alternative cultural activities), were not present in Sidmouth. Also, Sidmouth Festival was owned by a single private company (albeit a not-for-profit one) but, differently from the situation in Bromyard, Creamfields, Glastonbury or Towersey, this company had to fight other local firms for customers, and at the same time it had to request financial support from these same firms. Moreover, Sidmouth Festival was generating massive positive externalities, but it was unable to claim, or unsuccessful at claiming, commensurate subsidies from local or national government, or sufficient financial support from local businesses being favoured by those positive externalities. Some crucial differences between the Sidmouth and Towersey festivals are presented in Table 2.

9. Management Mistakes and the Coase Theorem

During the late 1990s and beyond, until and including 2004, it appears that the Festival management made some serious mistakes. Not many, but each of these mistakes, in its own way, generated a chain of mostly negative consequences. In at least some cases, the prospects of a successful Coase bargain may have been damaged. In no particular order, the Festival management refused to accept that the total amount of benefit was only a fraction of the alleged 5 million. Secondly, the Festival management seemed to have failed to understand that only some Sidmouth businesses benefit from the Festival, as many others are unaffected by it, or even suffer as a result of it. Thirdly, the Festival management seem to have failed to understand that the only possible future for Sidmouth Festival was to become an urban, multi-firm festival, rather than a rural, one-company one. And lastly, to the external observer in 2004 it appears that the Festival management failed to anticipate that fast growth of Sidmouth Festival would soon place heavy pressure on its financial resources, and force it to look for alternative financial sources and arrangements.

We have already explained that the alleged 5 million Festival contribution to the local economy is a myth. We have also examined at some length the question of which local businesses benefit from the Festival, and which ones do not. But the fact is that the Festival management continued saying that the Festival contribution was indeed 5 million until the very end (August 2004). By doing what in fact amounts to believing their own propaganda, the Festival management also came to see themselves as the victims of gross unfairness. In their own eyes, the Festival management were offering local businesses an incredibly convenient and generous Coase bargain. The Festival management’s proposal went, ‘give us the 200,000 underwriting fund, and we will keep bringing to Sidmouth a Festival which generates 5 million a year for you’. Rejecting such a Coase bargain was inconceivable, something that could only be provoked by the most negative, and unlikely, combination of myopia, stupidity and meanness. Still, the offer was rejected, thus generating in the Festival management an emotional response which is familiar to social scientists who have studied ultimatum games (Elster, 1998). This is something along the lines of: ‘you deserve to be very severely (financially) punished, and I will do it, even if this means doing it at my own cost’. This is the reason why, as mentioned before, language gradually became less diplomatic.

But, if rejection of this Coase bargain was inconceivable to the Festival management, the 5 million claim was unbelievable to local businesses. Each side was saying something that was not credible, or doing something that was not understandable, to the other side. So, what was the effect of this 5 million claim on the Sidmouth business community? What to make of the fact that the Festival Director keeps making such absurd claim? Does he really believe it? If he does, how can we trust his judgement as a businessman? Or, if he does not really believe it, why is he saying it? Is he deliberately trying to deceive us? If yes, how can we trust him as a business partner? Or is he just trying to insult us, or insult our intelligence? Testing us? Maybe he is not addressing us, but a particular section of the public, or of officialdom, who are likely to believe the 5 million claim? Whatever the answers local businessmen gave to these questions, or to similar ones, and regardless of whether they were benefiting from the Festival or not, the prospects for new or further co-operation between themselves and the Festival must have been damaged. As time passed, the decline in, or damage to, each player’s reputation in the eyes of the other player, got worse. The transaction costs associated to a successful Coase bargain increased accordingly.

Even if a local business was benefiting from the Festival in 2004 as much as the Cricket Club was said to benefit (that is, by 4,000), or more, it could, or would, have been foolish for this local business to contribute to the 200,000 underwriting request. If the Festival management really believed that local businesses in Sidmouth were making a total of 5 million from the Festival, there is no reason why that management would not come back to the town the following year, or a few years later, with a further, larger request of financial support (0.5 million? 1 million?). On the other hand, if, hypothetically, the Festival management were deliberately lying, then the fate of any local business contribution to the Festival would have been even more worrying. The most ‘reassuring’ (but still far from fully reassuring) possibility for this local business, would have been that the Festival management were deliberately lying, but they were not trying to deceive us, but someone else. Note 21

There is also the question of moral hazard. If any hypothetical Festival management know that they can repeatedly turn to a financial backer and make claims against a standing underwriting promise, this will automatically encourage this management to engage in highly risky activities that they would never have considered, if they had to underwrite them themselves.

Another serious mistake by the Festival management was to refuse to accept that, gradually but inevitably, Sidmouth Festival was becoming an urban, multi-firm Festival. It may have always been impossible, but if not, eventually it would become impossible to stop other firms from taking advantage of the Festival’s commercial benefits. It would be impossible to prevent the Festival from generating immense positive externalities, or to stop anyone from being favoured by them, or to force them to make a contribution to the Festival by way of ‘compensation’. Fighting this reality just led the Festival management to antagonise many local businesses, consumers and local authorities, and to be unfairly portrayed as mean, petty, vindictive or bloody-minded (see Note 19, and the SeeRed website for examples).

Several negative results of these mistakes are likely to have ensued. Some businesses may have been alienated from considering a partnership with the Festival, and some local residents may have been pushed towards the ‘anti-Festival’ coalition. As mentioned before, the transaction costs associated with a successful Coase bargain must have increased. Note 22

The final possibly serious mistake by the Festival management was their failure to anticipate the future, or, if the future was indeed accurately anticipated, their failure to do something about it. Fast growth meant that at some point, sooner rather than later, new sources of finance would have to be found. It does not seem that the Festival management ever considered seriously the possibility of giving away a large stake of Festival ownership, in exchange for a massive financial injection, or a continuing financial commitment. Maybe the Festival management were misled by their success in the Towersey Festival to expect that the new financial needs could be met from operational surpluses. Maybe they were unhappy at having to share their precious ‘baby’, whom they had lovingly nurtured for so many years, with ‘strangers’. Maybe they wanted to preserve the less profitable parts of the Festival from destruction by ‘cherry-picking’ or ‘cream-skimming’ newcomers.

In any case, given the nature of the difficulties described in previous sections, it is possible that at least some of those problems would have arisen anyway, even if the Festival management had made no mistakes at all. Note 23

10. A Possible Solution

Who, or what, could successfully play the role of ‘the other player’? Note 24 What we have in mind is a group of persons, or companies, or a combination of private individuals and businesses, which would be able and willing to make a total contribution of at least 200,000, in 2004 terms, towards Festival costs (it could have been less than that before 2004, but it will be more, after). These people would be keenly interested in the Festival’s survival and progress. But a number of conditions would have to be met, before they commit themselves. They would have to be sure that, whatever they contributed towards the Festival, it would not be wasted. It would have to be credibly told to them that every effort would be made, so that no free rider would be allowed to take advantage (although they would have to accept that positive externalities are inevitable). They would not be asked to explain their motives. ‘Immunity’ would need to be guaranteed to them, against any pressure to declare publicly by how much exactly the Festival benefits each one of them. Each of them would be free to decide the size of his, her or its own commitment to the Festival under this arrangement. In exchange, these people would be entitled to receive detailed information about the Festival management practices and performance. Their views would be taken into account before certain important decisions. They would have a right to a share of any profits. In other words, an optimal structure of incentives would have to be designed, along the usual lines to approach investment under possible principal/agent problems and asymmetric information (Cornes and Sandler, 1996; Hillier, 1997; Molho, 1997; Laffont and Martimort, 2002). Implicit or explicit contracts would have to be offered to each of these people, designed in such a way that the contracts would encourage them to act on, if not ‘disclose’ or ‘reveal’, private information, in this particular case, how much the survival of the Festival is worth to each of them.

All, or practically all of these aims could be achieved through a society of shareholders (let us call it, for example, Sidmouth Festival Shareholders Society, SFSS). SFSS would become the Festival’s owner, or main co-owner, and ‘the other player’. SFSS would become the entrepreneur. SFSS would be independent from the Festival management, but possibly it would have some minority participation from management. Note 25 Some obvious members of SFSS would be, for example, intramarginal consumers (either visitors to Sidmouth or local residents), and local businesses which benefit from the Festival (and which may or may not be affected by negative externalities). SFSS would choose who organises and runs the Festival (given their experience, Mrs. Casey Music would make a strong candidate), and negotiate the terms of the respective rewards. SFSS would make sure that the Festival management is efficient and that the Festival is run along sustainable commercial lines. Eventually SFSS would address investment issues such as rain water draining and a full-size marquee in the Festival’s main ground, the ‘Arena’.

SFSS would be different from a group of ‘friends’ of the Festival, or ‘patrons’. A key difference is that shareholders, or SFSS members, would ‘invest’ rather than ‘contribute’, and they would have rights, including the rights to access information, to be consulted on certain key decisions, and to share profits. SFSS would also be different from a conventional society of shareholders, in that, for many SFSS members, pecuniary returns would not be the only or the most important motivation. Many SFSS members would wish to help Sidmouth Festival, and they would be prepared to invest in it, even if this was not the most profitable option in the financial markets. Note 26

The only possible disadvantage, in relation to the structure prevailing until 2004, would be that the tax treatment could be less favourable (since the 1987-2004 legal arrangement was that of a non-profit- distributing company). But this would be only a very minor difficulty, as compared with SFSS’ advantages. Note 27

The Festival’s finances could also be helped by corporate sponsorship. However, differently from the arrangements prevailing until 2004, corporate sponsors would be clearly different from SFSS members. The new sponsors would be very carefully chosen in order to guarantee stable partnerships that would be mutually convenient over the long term (LeClair and Gordon, 2000; O’Hagan and Harvey, 2000; Oakes, 2003). Many of the old (2004) ‘sponsors’ or ‘patrons’ would choose to become SFSS shareholders. The new corporate sponsors would typically be large companies which would be after, and receive, substantial explicit acknowledgements and the highest visibility (and possibly also some market access and other practical facilities).

Finally, private donations, different from both SFSS membership and corporate sponsorship, could be encouraged by, for example, East Devon District Council, Sidmouth Town Council, or the Arts Council. A good way of doing this would be by having any private donations matched, or partially matched, by public subsidies (Hansmann, 1981).

11. Conclusions

It would be tempting to describe the Sidmouth Festival crisis in 2004 as a case of too many contradictions. We would expect to find contradictions, dichotomies, polarities, or at least some important differences between the Festival and sectors of the town (otherwise no Coase bargain would be applicable or relevant). But perhaps there were too many contradictions. In the mid 1950s, Sidmouth was the perfect place to start a folk festival. But many of those crucial advantages of Sidmouth in the 1950s became serious disadvantages in the 21st century. Paradoxically, Festival-generated positive externalities seem to have been more of a problem than negative externalities. The last Festival Director (from 1987 to 2004) was to a large extent as artistic, creative and idiosyncratic as any typical 18th century impresario (King and Willaert, 1993; Rodriguez Suso, 1998; King, 1999; Aspden, 2003). But that cannot have been easy in the 21st century. He was possibly unable or unwilling to become a bureaucratic arts administrator, although that was what many people expected him to be (Marcus and Zonia, 1981; Peterson, 1986). He was also a businessman and a capitalist entrepreneur, which was likely to be a source of tension between him and some of his typically left-wing, anti-capitalist ticket-buying public. This is a public who otherwise would have been the Director’s most loyal and determined ally against ‘enemies’ of the Festival. The Festival supporters’ repeated emphasising of the cultural, as opposed to the economic benefits of the Festival, was in sharp contradiction with its need to balance the books.

Sidmouth Festival in 2004 experienced two different types of Coase Theorem failure. The first way in which failure appears is in that the Festival, as organised and run between 1987 and 2004, was welfare-enhancing. The fact that no private contract could be reached between the two key players, the Festival management and ‘the other player’, and therefore the Festival in its ‘old’, 2004 form could not continue in 2005, is a textbook example of Coase Theorem failure. The reasons for this failure are multiple. They include uncertainty and instability regarding both the amounts of money involved or required, and who ‘the other player’ was (or were); possibly a moral hazard problem; a large number of agents (the free rider problem); a wide variance in terms of agent-specific benefits and costs; private information about these benefits and costs; plus some mistakes by the Festival management. Possibly there was also a problem of hysteresis, or path dependence. At some point the key players became prisoners of everything that had been happening, or had been said, in the past.

Moreover, there was also Coase Theorem failure in another way. In order to work properly, our proposed solution (which we see as the only realistic way forward) needs the property rights (Coase-style, broadly defined) to be re-allocated. The Festival ownership needs to be taken away from the non-profit-distributing company which held it until 2004, or from the local authority, or from any similar agency, and given to a Society of Shareholders, SFSS. But such a move would deny the Coase Theorem, according to which, given certain conditions, optimality would be reached regardless of the prevailing institutional set-up (or property rights). In sharp contrast with the Coase Theorem, our proposed solution would only work with, or within, a specific property rights structure.

But at least there is a possible solution. Our proposed solution:

a) would fully exploit the considerable amount of goodwill that Sidmouth Festival still inspires, in Sidmouth and elsewhere;

b) it would preserve the Festival’s artistic integrity;

c) it would channel the interest of some local businesses to commit themselves financially to the Festival, it would allow them to commit by exactly the amount they want, it would protect these commitments, and it would reward them accordingly;

d) it would take advantage of, and fully realise, the Festival’s potential to become commercially sustainable; and

e) it would introduce and test a new model of organisation and entrepreneurship in the arts, which, if eventually successful, could be applied much more widely, in the UK and other countries.

It may have been a failure for Coase, but it does not need to be a failure for Sidmouth.


Notes

1 The AFO study is based on a methodology developed by the New Economics Foundation (Sachs, 2002). Although the methodology is available to the public, details of its application to this particular study are not. For alternative methodologies, see Ralston and Stewart (1990), Bryan et al (2000), Breen et al (2001) and Gursoy et al (2004).

2 This assumption is not essential and will be relaxed later on. Typically an individual or a local company could both benefit from the Festival, and suffer from a Festival-provoked negative externality, at the same time.

3 Not all Coase bargains, or potential Coase bargains, are equally important. For example, the local resident who fails to find a space to park during Festival week can be safely ignored by the Festival. The fact that this local resident may be worse off as a result of the Festival is not a problem that, by itself, could prevent the Festival from taking place.

4 Another minor potential Coase bargain, which is interesting for different reasons, is that between the Festival and Sidmouth Cricket Club. The latter had been using its grounds as a temporary car park during Festival week, and charging individual drivers. The Festival management argued that, since the Club was benefiting (by about 4,000 per year, Dowell et al, 2004), it should make a contribution towards Festival costs. The Club argued that, since it was providing this essential service, the Festival should compensate the Club, over and about the parking fees that individual drivers paid (folk18). What makes this case interesting is that the relevant Coasean, or Coase-style, broadly defined property rights are such that they do not support either claim (clear and unambiguous property rights is one of the conditions required for an efficient solution to be reached).

5 For the official history of the Festival, see Schofield (2004a). Other useful references are Sidmouth Herald (2001a, 2004a) and Dommett (1994).

6 But it was not only the huge crowds and the impossibility to find a parking space which misleadingly suggested success. The official Festival website ( www.sidmouthfestival.com ) had been announcing for a while that all full week, day and ‘workshop’ season tickets had been sold out, and that all the voluntary steward positions had been allocated. These are obviously additional symptoms of possible Festival success.

7 An alternative possible ‘solution’, mentioned among others by the front-page Sidmouth Herald story, would be for 200 local businesses to donate 1,000 each, towards the wet weather buffer (Sidmouth Herald, 2004b; Dowell et al, 2004; Schofield, 2004b). We will come back to this question because the 200.000 fund was an essential aspect of any key private contract allowing this Coase bargain to succeed.

8 Some of these questions have relatively ‘easy’ answers. Insurance costs were going up, because the law had changed and a culture of litigation was becoming more pervasive. Health and safety regulations were becoming more stringent. Ticket prices did not increase further, because they had already increased by over 25 percent between 2000 and 2004. Also, the Festival management must have been aware that performers and public prefer fuller rather than sparse audiences, and that typical Festival-goers feel strongly about issues of fairness and loyalty (Kahneman et al, 1986; Becker, 1991; Courty, 2003).

9 A possible answer is that non-profit enterprises are not unusual in the performing arts. According to Hansmann (1981), this could be the most efficient way of organising a system of voluntary price discrimination. The system encourages donations from ‘intramarginal’ customers, that is, customers who know that they are receiving a service which to them is worth substantially more than the price of their tickets.

10 Back in 1980, Mrs. Casey Music had also acted as an artists’ agency (Schofield, 2004a, p. 115).

11 Mrs Casey Music also organises Towersey Village Festival in Oxfordshire ( www.towerseyfestival.com ) and ‘Folk in the Fall’ in Central London, and is involved in the Association of Festival Organisers (AFO, www.afouk.org ). For a comparison between the Sidmouth and Towersey Festivals, see Table 2.

12 The Festival budget increased from 130,000 in 1987, to 750,000 in 2004 (Schofield, 2004a, pp. 145, 216).

13 The artistic integrity and credibility of the Festival have never been seriously questioned. As we shall see, if there ever was a major credibility problem at all, it would not have applied to artistic but to management matters. This problem could have increased as 2004 approached.

14 The Festival Director was a key member of the pro-Festival coalition and possibly its leader and most respected spokesman.

15 In 2004, the Festival employed eight year-round full-time workers, and about 500 volunteer stewards (who received a full week season ticket in exchange for up to 35 hours of work during the Festival week).

16 Local opposition to the Festival goes back a long way. Local residents who do not like the Festival may not be a majority, but they are vociferous and possibly influential. Festival- goers were being described as ‘riff-raff’ as early as 1971 (Schofield, 2004a, p. 66). In the early days Festival-goers were rejected even by some of the local pubs, on the grounds that they were ‘unwashed beatniks of dishevelled appearance’ (Schofield, 2004a, p. 49). These attitudes would contribute to poison the relationship between the Festival and some sectors of the town, including some local businesses, for many years to come. They possibly played an important role in the Coase Theorem failure of 2004.

17 Major private-sector sponsors, national or international, were notoriously absent from the official list of sponsors / donors / patrons. And it goes without saying that the Festival had not been taken over by a large corporation and become the ‘??? Sidmouth International Festival’, where ??? stands for Coca-Cola, Disney, Nike, Nokia, Sony, Toyota, or whatever.

18 Another positive externality of the Festival is that it has made the character and structure of migration to Sidmouth much more favourable and interesting than elsewhere. A good example is Stephen Wozniak, the owner of a Sidmouth-based website ( www.seered.co.uk ), which, together with Derek Schofield’s book (Schofield, 2004a), is one of the two best sources of information on the Festival saga.

19 Some of the reactions by anonymous internet contributors may be worth recording: ‘There may not be such a thing as a free lunch but many folk are not looking for one. Shouldn’t you be able to sing and then eat your own sandwiches on the seafront, without someone expecting payment?’ ‘How about selling tickets to get into Sidmouth? We could have road blocks, where anyone going anywhere near Sidmouth is hauled out of their cars and all their money is forcibly taken from them? That should generate enough money to keep the Festival going for a few years.’ ‘… [the Festival management] … appears to wish to charge everyone for breathing in the Sidmouth air …’ (folk25g). ‘… of course you can’t expect all those crowds of people soaking up the Festival atmosphere in the town to pay, even if the organised side of the Festival indirectly generated a lot of that atmosphere.’ (folk25h).

20 These two types of festival, the urban multi-firm one and the rural one-company one, are in many ways completely different. However, some interesting links may exist between them. For example, Matthew Street and Creamfields, both of them in Liverpool, take place at the same time, the August Bank Holiday weekend. It could be argued either that the two Festivals are competing for the same pool of potential customers, or that they are sharing this pool. Or even they could be generating positive externalities for each other. Some visitors would come to Liverpool only because both Festivals are happening at the same time, which gives these visitors a choice. But maybe they would not bother to come to Liverpool, if only one of the two Festivals was on, but not the other.

21 Since only some local businesses benefit from the Festival, whereas others are left untouched, and a third group are hurt by it, it would have been a waste of time to approach the local Chamber of Commerce. But contacting individual businesses one by one was bound to be equally unsuccessful, because of lack of business-specific information and attempts at free riding.

22 There is a long tradition of Sidmouth Festival organisers complaining about local businesses. Schofield (2004a, p. 126) offers an example from 1982. At least partly this could be related to an anti-business, left-wing ideology which was shared by many Festival-goers in the early years. But the fact that, as mentioned before, some local residents and local businesses opposed the Festival and treated Festival-goers with contempt from the very beginning did not help. For a perceptive analysis of historical tensions between working class and middle class approaches to English folk, see Dommett (1994).

23 It is possibly unfair to judge the Festival management by its behaviour at the time of the 2004 crisis. By the spring of 2004 (or even long before that), the situation was possibly desperate, and the only thing left to do was to wait for a miracle to happen. Only a miracle could have brought the 200,000 needed to save Sidmouth Festival in its pre-2004 form. On the other hand, it could be argued that the Festival’s 50-year history of spectacular blooming and booming could not have happened, without its fair share of ‘miracles’. Many of these ‘miracles’ would have been impossible without the creativity, dedication, generosity, talent and vision of the 1987-2004 management team (and those of its predecessors before 1987).

24 At the time of this writing (November 2004), potential organisers of a ‘fringe’ Festival in 2005, which would be followed by a ‘full-scale’ one in 2006, seem more interested in being approached by performers, rather than by potential financial backers, volunteer workers, or managers (Folk South West et al, 2004; Thomas, 2004). It looks like they are trying to avoid the difficult questions, at least in the initial stages of the process of putting together a new Festival.

25 An arrangement by which there would be some Festival management participation in SFSS (a minority one), or in which Festival management rewards would be related to Festival profits, would be necessary in order to guarantee that the Festival management would not engage in ‘excessively’ risky activities, or related forms of moral hazard or similar principal/agent problems.

26 Differently from previous sponsor / donor / patron arrangements, SFSS would allow potential ‘supporters’ or ‘investors’ to make decisions on a wide range of options, following their own private information. The new system would encourage them to ‘reveal their preferences’ by buying a particular number of shares, or not buying. Whichever business (or individual) holds more shares, it would be, either because it (or he or she) stands to benefit more from the Festival, or because it (or he or she) cares more passionately than others about the need to support the Festival (or, ‘has more faith in it’).

27 The proposed new SFSS ownership and entrepreneurial structure amounts to a peculiar form of ‘privatisation’, in that local government or its nominees would be excluded from it, and from any related day-to-day decision processes (unless they become shareholders). On the other hand, the new SFSS structure could also be seen as a ‘friendly buy-in’ by some, or many, stakeholders (in some respects, the opposite of a management buy-out).

References - see separate webpage or the full pdf version

Tables - please refer to the full pdf version. (seems to be no longer available on the web)


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