Case: City Symphony Orchestra The City Symphony Orchestra is a branch of the Center for Performing Arts.
It performs regular concerts throughout the year and has been reasonably profitable in the past. However, in recent years, concert attendance has been declining and the Orchestra is looking for ways to boost attendance. The traditional customers of the Orchestra have been the older and more affluent segment of the population that live in the suburbs. The recent boom in the high-tech sector, however, has created an affluent population that is younger and has different musical tastes.
This younger affluent group prefers to live in the city rather than commute from the suburbs. Older people concerned about crime in the downtown district do not like attending evening concerts. Increased traffic congestion also discourages them from driving into the city’s downtown cultural district. These are some of the main reasons why attendance has declined. To reach its traditional audience and to attract the younger audience, the Orchestra has decided to perform outdoor concerts in parks during the summer. It is in the process of selecting its mix of concerts for the upcoming summer.The summer season consists of 90 concerts given once per evening. When concerts are offered outside the Symphony Hall, the home base for the Orchestra, musicians are hired and paid on a per concert or nightly basis.
The Orchestra contracts with private firms for services such as ticket sales, transportation of equipment, sound technicians, and security. These too are paid on a per concert or per night basis. The Orchestra has a full-time permanent staff of a musical program director, box – office manager, administrative staff, and a director.These administrators are on salary. Other costs include office space rental, equipment, and utilities.
The Orchestra is considering three types of concerts for the next season: a. Classical selections from Beethoven and Brahms b. More Mozart—a selection from Mozart’s music c. Contemporary Pop and Rock Selections Table 1 contains the marketing department’s projections of sales and revenue for each type of concert.
Since this is a new direction with no prior sales history, the director of the Orchestra, Sarah Bernhardt, is concerned about the certainty of ticket sales.She has asked the box office manager to provide some sense of how sure he is that 141,000 tickets can be sold. She wanted to know the range of ticket sales so she could assess the risk the Orchestra faces. The box office manager has provided the following additional information.
CITY SYMPHONY CASE EXHIBITS Table 1 City Symphony—Proposed Season Concert Type Average Ticket Price Number of Nights Tickets Sold Variable Cost/Night Beethoven & Brahms $35 30 30,000 25,000 Mozart 30 30 45,000 27,500 Contemporary Pop 20 30 66,000 30,000 Total 90 141,000 Total Fixed Costs $1,000,000Table 2 City Symphony—Range of Sales for Current Mix* Ticket Sales Probability of sales 100,000 15. 00% 120,000 30. 00% 140000 40. 00% 160,000 15. 00% 100. 00% Table 3 City Symphony—Alternate Proposal Concert Type Average Ticket Price Number of Nights Tickets Sold Variable Cost/Night Beethoven & Brahms $35 20 20,000 25,000 Mozart 30 30 45,000 27,500 Contemporary Pop 20 40 88,000 30,000 Total 90 153,000 *The probability distributions in Tables 2 and 4 represent a simplification. In a real situation, we would compute the probability distribution of sales or each type of concert and the sum of the expected sales for each concert would be the expected total ticket sales. Table 4 City Symphony—Range of Sales for Alternate Proposal* Ticket Sales Probability of sales 130,000 10.
00% l50,000 20. 00% 170,000 35. 00% 190,000 30. 00% 210,000 5. 00% Required: Prepare a memo to Sarah Bernhardt, the Director of City Symphony, outlining your analysis, conclusions, and recommendations to help the company plan its coming season. Your memo must include an analysis of the issues stated in questions a—c below to address the business and strategic decisions outlined in questions d and e.Required: a) For the coming summer season, ignore the mix of concerts and the data in Table 2.
Calculate the breakeven point for ticket sales and the expected profit using average revenue per ticket and average cost per ticket. What is the safety margin? b) Now consider the data in Table 2 but ignore the mix of concerts; compute the breakeven point for ticket sales and the expected profit using average revenue per ticket and average cost per ticket. What is the safety margin? c) Assume that the box office manager would like to change the mix of concerts and has supplied you with the information shown in Tables 3 and 4.The cost information remains unchanged. Compute the breakeven point for ticket sales and expected profit using average revenue per ticket and average cost per ticket.
What is the safety margin? d) Should the Orchestra adopt the alternate proposal? Explain your reasoning with facts and analysis. e) In your opinion, is the City Symphony Orchestra pursuing the right strategy in terms of the location and mix of concerts? Explain your reasoning with reference to the key factors in the City Symphony Orchestra’s environment.