The Business of Art

JULIA TAYLOR KENNEDY: Welcome to Just Business. I'm Julia Taylor Kennedy.

The value of art is incredibly subjective. Still, selling art is big business, and displaying it can be a money pit. This time on the podcast we're looking at business and art from two very different angles.

We'll begin with Amy Whitaker, a painter and government major who got her MBA at Yale University's School of Management, in part, to see what insights the private sector could lend to museum management. Whitaker has since written a book called Museum Legs that's chock-full of ideas for museums to give valuable experiences to new audiences without cheapening their output. Whitaker is also a teacher, bringing economics and business concepts to students at Sotheby's Institute of Art.

She has always been something of a renaissance woman.

AMY WHITAKER: I've always been someone who draws, but I was a political science major in college and actually a student government geek. My favorite class was constitutional law, and I only signed up for an art double major so that I could get into oversubscribed classes. I only majored in art because a professor confused me with a woman named Amy Woodward and ended up, in the process, talking me into taking the required majors' seminar.

I went to work in museums out of college because I believed they were public institutions and training the visual minds, like libraries for imagination. They are many other things, too, it turns out. I started launching this institutional critique in my head that I couldn't really back up because I didn't understand economics well enough, and the solutions to the problem were financial or economic. So I felt like I was this whiny complainer without any suggestions for what to do.

I happen to have always been a person who can do math or who likes math, like the girl on the math team. So I went to business school.

JULIA TAYLOR KENNEDY: Give me an example of something that you saw that you thought, "This doesn't seem quite right."

AMY WHITAKER: Systemic low pay of museum workers. People are being paid $18,000 to $19,000 a year as a starting salary in New York City, in an industry where the cost of living to sort of keep up appearances is quite a lot higher.

JULIA TAYLOR KENNEDY: That's for a full-time job?

AMY WHITAKER: For a full-time job. I negotiated to $23,000, to be totally honest. I think it was because, historically, the museum workforce has not needed the salary. They used to have standard forms at some museums where you could donate your salary back for a tax benefit. What would happen was that you would get a lot of people who were subsidized by some larger financial ecosystem, whether that was their parents or their spouse or some other source of wealth or income. Then you would have other people who were so passionate about the arts, they would make it work on a salary but then burn out.

JULIA TAYLOR KENNEDY: And so you saw this happening. How did your business education help you analyze a better way?

AMY WHITAKER: If you look at it strictly economically, you have a huge supply of workers in the field, so there's no problem from the museum's standpoint. But there are all these hidden costs that museums weren't taking into account—low morale and a less productive staff, a tendency for the people who stay, to be the most specialized, and for the people who go, to be the greatest generalists. So you would have people who would have stayed if they had been paid not that much more money, not market rate in another field, but $5,000 or $10,000 more a year, who would go work in advertising or go to law school or something else—

JULIA TAYLOR KENNEDY: Business school.

AMY WHITAKER: Or business school, exactly.

I always just thought it was a shame, because I wanted museums to be able to reach a broader section of the curious public, and I wanted the definition of art not to be so elitist and territorial and to include creativity in a lot of other fields. I felt that the workforce—although I know wonderful, broadminded, exceptional, curious people who still work in the arts, I know a lot of people who left to go work in other fields or who never would have considered it in the first place.

JULIA TAYLOR KENNEDY: The audience for fine art, whether it be music or visual, is graying. Museums are doing all kinds of things to try to bring people in. You mentioned in your book First Fridays, and other activities. But there are ways to do that well and ways to do it less well. What are some of your recommendations about ways to bring in more revenue, but not kind of cheapen your mission?

AMY WHITAKER: It's the $25,000 question, just to speak like a graying demographic in my game show references. I actually have this metaphor in mind that I think applies to nonprofit organizations generally. I like to picture a soccer field—or a football pitch, if you have a British audience—and I think that ideally economics is only on the defensive end of the field. It's what makes you more efficient to get the ball up the field. But if you're scoring on goal, it should be entirely driven by your mission. That should be the interplay of mission and finances.

I have to say, my own thinking has evolved a lot. When I was in business school, I was this prospective museum manager MBA. I wanted to take all the tools I learned and apply them to museums. It took me a few years after that to realize that actually maybe I didn't and maybe it was a time when restraint was required. Quite honestly, museums in New York can charge the $25 they do currently. They could charge $50, and a lot of tourists would still pay to go. I think there's a silent problem of alienating a target demographic by charging a lot of money to go to museums.

I believe that one of the highest public virtues is hospitality. I think that governments can mandate the inclusion of people, but fundamentally an individual person needs to feel invited to show up. A lot of times it's as simple as the tone. And it's a really awkward dilemma for museums because so much of the cachet of the art world is based on historically being elitist, and so much of including people is based on being genuinely welcoming.

JULIA TAYLOR KENNEDY: And you see that awkwardness even with the way they request your donation. It's highly recommended. They all say it's a requested donation, but then it's very hard to actually deal with the shame of not paying and entering.

AMY WHITAKER: Yes. I'm a person in my jogging clothes giving a dollar to the ticket taker at the Metropolitan Museum of Art, completely.

So I think that, ideally, museums would be looking at the really big picture and figuring out which battles they want to fight. If they can make an extra $2 million a year on a very high ticket price, is it really worth doing that or is it worth getting sponsorship to have a lot of free days or, ideally, free admission all the time on anything but exhibitions and then to make the money up elsewhere?

Are there other sources of wealth? It's not just, can you, in a profit-motivated mindset, make $2 million more on admission? But, it's also what are you losing that you're not thinking about? A lot of that is hard to see because it's all the people who don't show up.

JULIA TAYLOR KENNEDY: If a museum isn't going to hit you up for a $20 entrance fee, what other revenue solutions do they have to be able to pay their employees a decent wage and put on these exciting educational programs and all of that?

AMY WHITAKER: Their basic sources of funding would be governmental, which is very low in the United States, or private foundation or corporate sponsorship.

JULIA TAYLOR KENNEDY: And the corporate sponsorship seems to be growing these days. That seems to be a more attractive sort of funding source.

AMY WHITAKER: Yes. I think that what happened was that museums were tremendously successful at fundraising, but for capital campaigns and not for operating expense. There's something in human psychology that it's more exciting to give money to a project than for the toilet paper. They used to have signs in the Tate Modern lavatories that said, "These loo rolls are supported by an anonymous donor." I think they might have been a joke.

But it's a problem. You had all these museums that went through massive building expansions and then were expecting that 2007-levels of corporate philanthropy would stay as they were, and then they didn't in 2008. They ended up with a $30 million hole in their operating budget.

To me, the question is: How do you change the conversation to encourage a kind of philanthropy that covers operating expenses, not just new buildings? Because what's really at stake is how we think about art economically. The classic philosophical arguments that you should have to pay for what you directly derive a benefit from—therefore, if it costs $75 per person to operate a museum, you should buy a $75 ticket—the way I would want to reframe that conversation is in terms of what role creativity and imagination play in society in general.

Economically, we are really good at valuing things that have known characteristics. Creativity—you have no idea what something is worth at the moment you're developing a new idea, and so you can't really value very well what it is to have a museum or what it is for people to make art, any more than you could have known 20 years ago that one day Mark Zuckerberg would start Facebook.

What I hope to do is to invite more people into the conversation around art by redefining art more broadly. If we start talking about the MRI machine or medical device invention or the way that Lionel Messi plays soccer or Petraeus and the imagination required to write the counterinsurgency field manual—if you start thinking about all of those things as part and parcel of a more creative, artistic think tank, if art museums become platforms for conversation about creativity across fields, then I think you have a much easier argument for even governmental funding of art museums. Creativity is a basic human birthright and innovation is a fundamental, actual engine economically.

JULIA TAYLOR KENNEDY: That's a really interesting way of putting it. I immediately remember how the Musem of Modern Art featured the ampersand a couple of years ago as a design element, which is, of course, tied to some commercial purpose.

AMY WHITAKER: I think about this a lot, because my father is a scientist and my mother is a professor of humanities. When I was on book tour for Museum Legs, I was in Birmingham, Alabama, where I grew up, and a colleague of my father's who is a neurosurgeon came to a museum event about the book and gamely participated in a conversation about museum strategy and then afterwards said, "I don't normally hang out in conversations like this. I hope that was okay."

It occurred to me, this is a guy who has the manual dexterity to operate on people's spines, who is in a discovery- and invention-driven medical research field, and who can read an MRI like the back of his hand. Why do we not talk about him as an artist? Why do we have such a strong separation between art and science?

So I wanted to think about how you can include someone like that in the broader conversation about art. If Leonardo da Vinci were alive today, I'm not convinced that he would be in art school—three-quarter-top sneakers, smoking a cigarette, talking about Derrida. It's much easier to picture him in a technology-driven field or a science-driven field. That doesn't mean that he wouldn't have also been in the arts; it just means that they are particularly siloed at this point historically.

It's a perennial problem. The classic question is, you have a government with limited funding, a government spending $100 on one of three things: (1) children with cancer; (2) roads; (3) art museums. It's pretty easy to choose the third-place finisher, right? You have to really take a systems view to figure out how art is important in relation to necessity.

JULIA TAYLOR KENNEDY: How you can nurture someone who will design a good road.

AMY WHITAKER: Yes. And it's very hard. Creative greatness—someone who is going to design an amazing new road doesn't often set out to do that. It's very process-based. They are at point A. They are not going to point B; they are inventing point B. It's very hard to map out economically. So you have to look for other sources of merit and hard work. In a way, it requires a much more elastic notion of economics in the first place.

JULIA TAYLOR KENNEDY: Amy Whitaker, there's so much here, and we could keep going forever. But it's wonderful to have you on Just Business. Thanks for joining me.

AMY WHITAKER: Julia, thank you so much. It's a pleasure to talk to you.

JULIA TAYLOR KENNEDY: Amy Whitaker teaches art business at Sotheby's Institute of Art. She's also a painter and author of a book called Museum Legs.

At first blush, Osman Khan's résumé doesn't read art innovator. He has a master's in industrial engineering from Northwestern, followed by a few years in that field, and an MBA from Harvard. But after being laid off as a banker during the global financial crisis, Khan got together with two friends who shared a similar frustration. All of them were interested in collecting art, but had difficulty entering the market. The red tape and energy it took to purchase high-end art at galleries and art fairs proved daunting.

So the three friends got together to start something new. It's an online marketplace for high-end art called Paddle8, and Khan says his company is revolutionizing transparency and access in this exclusive market.

OSMAN KHAN: In general, what we foresaw was the collector basically becoming more nomadic. In traditional times, New York galleries were serving New York collectors, London galleries were serving London collectors, and so on and so forth. But in the era of Internet and the evolution of online purchasing, the collector didn't necessarily need to be in the same place as the market. You had the person in Los Angeles buying in New York and so on and so forth. They wanted the means to be able to buy art without actually having seen it. The feedback we were getting was that there is a price point at which people were willing to transact online.

Thinking about all the primary sellers of art, if you were able to aggregate them under one platform and then layer on top of that the technology, you really would be creating the Amazon for fine art. You know the price point. So, literally, what we did was try to replicate all the different buying constructs, all the different sellers of art, as well as the technology platform, all under one. That's where we are today. We grew the business on the shield of the gallery business because that gives you validity and credibility in the marketplace. It also is the best way to seed your initial inventory, because the galleries do have the most reputable artists and the best art on hand. We moved into art fairs because art fairs, again, are a sort of self-selecting, curated group of galleries.

Just creating that transparency that says you could buy this work from a charity auction on Paddle8 or maybe you could buy that same artwork from a gallery or whatever have you—just overall creating that sense that you have all these buying mechanisms available to you in one go and then you can actually do the whole sale just became very compelling.

That is really what Paddle8 is today. We will never replace the gallery infrastructure. We don't want to disrupt that modus operandi, because I think there's always going to be a need for galleries. However, what you can do is be a better sales tool for a gallery.

What does that really mean? It means that galleries don't like to deal with the payment and shipping and the insurance. If you can help them sell better, it becomes a much more compelling proposition for them than being just another sales platform. That's why, when we charge galleries, there's no fee for listings. We don't charge subscription fees. We don't do anything like that. It's a small, nominal processing fee if the transaction goes through us.

It sort of goes in the face of what other organizations charge, because they have high commissions or they have subscription listing fees, like artnet. Our model has always been what the virtual allows you to do is to actually do just that—be able to list for free and have as much inventory as you want online so that you can have the maximum number of eyeballs. We do believe that our technology is so robust that it will actually enable you to want to use it more and more, and the more transactions we process, we take a processing fee on top of that.

So it goes opposite to the more traditional commission-based model, which a lot of people do. The notion is always, if you are commission-based, the galleries just want you to sell the inventory for them. But I think we have moved away from that, to say, "Look, do whatever you want. It's free. There's a platform. We want you to use it to the max. You can share images. You can do everything you want. And if you happen to do a sale through us, that's great. It's only because you value the actual technology that we have on hand."

JULIA TAYLOR KENNEDY: Say I'm a consumer and you're the Amazon of the art world. The difference is, if I'm buying a $20 book, my risk is not as great as if I'm buying a piece of fine art, where it's really an investment and also something that might be on display for decades in my home. Have you bumped up against that concern from consumers? Is there a way that collectors can sort of take things temporarily or see something in person that's listed on your site, even in a gallery across the world, on a purchase like this?

OSMAN KHAN: That's a great question. We have done over 2,200 transactions and have not faced a consideration where the authenticity or the condition has come into play. I think that's largely a testament to—we spent a lot of time when we started on articulating a legal structure and a contractual framework that would really protect both the buyer and the seller at all times. Typically, when you buy a piece of art from a gallery, you have to give them 100 percent of the money up front before they will ship the work or sell it. In our agreements, the gallery only gets 50 percent and 50 percent gets remitted to them after the piece is shipped and we know that it was shipped, based on the condition they disclose when they initially list the piece of art.

What does that do? It gives the buyer some certainty that what they are getting is exactly what they signed off on or what they were thought they were getting, and it creates some protection. Secondly, everything comes with a guarantee of authenticity.

I think what happens is, when you create all these checks and balances, you know what you're getting along the way, and the consumer is generally very happy with the outcome.

There will be a situation at some point along the way where some collector will say, "I'm unhappy with the piece." I think we always try to be a little bit more forward-thinking in how we might solve that problem. But to date it hasn't come up. That's sort of along the lines of where we are.

JULIA TAYLOR KENNEDY: How did you personally get attracted to the art market? It's so different from industrial engineering and banking.

OSMAN KHAN: After I graduated with my master's, I was working for the United States Postal Service in Detroit and looking at how you optimize mail claims, as well as a number of other organizations. I went from there to work for DaimlerChrysler, and they had this whole issue with thinking about how you ship cars. My background has always been in thinking about industries that are inefficient and are in need of better optimization, if you will.

Then in business school I took a class that was called Structural Inefficiency of the Creative Industries. It was talking about various sports business. It was talking about media. One industry that they talked about was the art market. It's one of the last unregulated, behind-closed-doors industries that was ripe for an overhaul, if you will. It was not actually just an overhaul from the online perspective, but somebody raised a point in the class that most galleries don't accept credit cards. Most galleries manage all their transactions on Excel or on sheets of paper.

As an overall industry, for hundreds of years, it has operated under one mechanism and one framework, largely because it has worked. But there are all these efficiencies that you could implement into its system to make things even more seamless and a little more transparent for the industry as a whole.

When I left business school, I went into banking. I was in-between jobs and Aditya Julka [Paddle8 co-founder] had just exited his company, as well. Literally, we were walking around New York trying to go to galleries, trying to think about where we could buy some art—nothing extravagant, but just navigating the market and trying to get a sense of "how do I buy something?" The real frustrating part was that he and I both, separately, had bought a piece from a gallery, and the sheer process of paying for it, finding insurance, getting it shipped to our apartment and so on and so forth, was such a cumbersome process that we were, like, look, every other industry has been able to find a way to sort of make the process for a collector so much more seamless. There has to be a better way to do this.

I think that started to evolve into an idea that not only do we want to make it easier for someone to find the art. Part two of it is the ability to actually get that service or good in your home, whatever it is, very seamlessly. That's where the idea really started.

JULIA TAYLOR KENNEDY: When I think about those questions, you might think that the art market has stayed that way because it's almost attractive that you are entering this exclusive society, in a way, that you can only enter it if you are able to jump over a certain hurdle, and there's almost a pride in being able to jump over that hurdle.

At the same time, art is about the most subjective product you could find. It's great to talk to you about putting it in true business terms, but do you ever step back? When you were attracted to this piece that you bought for your apartment, do you think about what it means to put a price on a pure creative production as a piece of art? How does that make working in the art market different from a more utility-based market?

OSMAN KHAN: Absolutely. I think it is always the biggest challenge, asking galleries to list the prices of the artwork online, because they want collectors to come to their own opinion and they want to guide them to a certain price or indication of price, whatever have you.

I couldn't agree with you more. It actually is a big challenge for us is as to how do you balance what is actually very exclusive—it's an insular society; it's very much about how do you navigate it, what makes it so attractive in its own right—versus trying to open up the Pandora's box, if you will, and let everyone see what's behind the closed doors. We face that every day. Our view has just been that the way art has been transacted for so long worked largely because of the broader environmental dynamics, if you will, the fact being that in market transactions you had a much smaller buying set of individuals, and it wasn't very geographically dispersed.

The reason we're willing to push the envelope a little bit and ask for the transparency in the pricing is because inherently we really do believe that there's a benefit to the sellers of art as well. Traditionally, if you were a gallery operating on the Lower East Side and you had your fixed collector base of a couple of hundred people, whatever it is, that model worked. But the reality is that the buying set for your art now has expanded so much that it's actually a limiting factor for you not to be able to disclose a little bit more and open up yourself to a bigger buying base. It's the nature of how business is being done. Running a gallery is an economically burdensome challenge; it costs a lot to run a gallery.

I think our view has always been that the reason we go in and ask for the prices or the reason we try to push for that is that if you are able to give us a little more transparency, we're able to give you access to a broader community of collectors, who, because they are not necessarily from the art market, but they are people who are willing to buy, will buy because we have told them that this is a curated set of great artworks. But giving them that price is that extra nudge to get them across the finish line to hopefully potentially transact online.

I think if you approach it that way and it's not that we're just trying to get the whole world to know what the price of your art is and undermine the subjective value of the artwork itself, it has a little bit more of an impact for galleries to want to disclose what the prices are.

JULIA TAYLOR KENNEDY: Like many people, I have watched a documentary called Exit Through the Gift Shop that was produced by the elusive, famous street artist Banksy. In that documentary he levies a criticism, saying that the art market sort of encourages people who see a commercial trend, art that sells well, and jumps on that trend, producing art that may not be fresh, not original, because it's financially rewarding. What do you think about those sorts of criticisms and questions?

OSMAN KHAN: I agree with it. The notion is that there is a commercial element of art that's emerging and people are producing to sell to the masses. We see that even at Paddle8. If I look at our charity auctions, brand-name artists producing a specific set of work or specific types of work that are recognizable and usually identifiable to collectors will sell better. That sort of creates this vicious cycle of wanting to have the same sorts of works over and over again.

That being said, I think one of the things that we have tried to do very, very differently is to take and embrace the curatorial approach to selling artwork.

For example, I find Robin Williams interesting. I watch all his movies. I know he's a big art collector. I would be interested in knowing what he's collecting. It just so happens that he collects a lot of things that are not necessarily mainstream or that are mass-commercially produced, or whatever the case may be. If you give me some insights into what he's collecting, why he's collecting it, and where I can actually go buy it, I think it creates a much stronger demand in a collector's mind about potentially buying that artwork, but necessarily being focused on who is buying the same pieces over and over again from something else that might be a little bit more mass-commercial in nature.

But just broadly stepping back, I do agree that there is an evolving sort of trend about producing the same artwork that may have more commercial appeal. But, looking through a business lens, it's not surprising that that's the case, because again, at the end of the day, there is this evolving need to justify sales and create the business of whatever it might be. So it's sort of a catch-22 in that respect.

JULIA TAYLOR KENNEDY: It's a tension in all the creative markets.

As you track these 2,200 transactions that you have done, are you finding that you are attracting a younger, sort of fresher, new collector base?

OSMAN KHAN: Absolutely. Without a doubt, as a startup, when we first launched, I would say the first 500 transactions were all predominantly the big markets, as you would imagine—New York, London. They were predominantly collectors or they were friends or people who were close to Paddle8, advisors.

Over, I think, the last six months, largely because of our marketing efforts, our partnerships in emerging markets, as well as in other pockets of the country, domestically and internationally, where there are other newer and nascent collectors who are evolving—San Francisco, Austin, we spend a lot of time in Chicago—my background being from the Middle East, we went to Dubai, Qatar, where there are people who are extremely interested, but just don't have the access, it is definitely a newer and more emerging collector base.

There is without a doubt this hunger to want to buy art. There are people who are just like myself who have a little bit of disposable income, are really interested, but don't really have the access. But there is a very rapidly growing new collector base and new wealth or up-and-coming individuals, whatever the case may be, who are, like I said, very hungry, very interested, and are just looking for more portals to buy art that are beyond just the galleries. That was the more traditional route, and that still continues to be a little bit more behind-closed-doors. If there's an ability for them to go online, to find it a little bit more seamlessly, and then ask the right questions, I think the transactions will absolutely keep coming through.

JULIA TAYLOR KENNEDY: Before I let you go, I have one more very serious question: When I Googled you, I found another Osman Khan online, who is a fine artist. From his picture, I figured out he's not you. But I was curious if you have met, or whether he has an edge or less of an edge for being represented by Paddle8, because of the confusion.

OSMAN KHAN: I actually didn't even know there was another person who is an artist. But now I feel like I need to go out and find him and get him on Paddle8 somehow.

JULIA TAYLOR KENNEDY: I'm glad I could make a connection.

Osman Khan, thanks so much for coming on to Just Business. It was a pleasure to have you.

OSMAN KHAN: Julia, thank you so much for having me. This is great. If you have any other questions, please let me know. Always happy to talk about Paddle8 and the broader market.

JULIA TAYLOR KENNEDY: That was Osman Khan. He's co-founder and managing director of Paddle8, an online marketplace for high-end art.

That wraps up our look at the business of art. I'm Julia Taylor Kennedy. Thanks to Terence Hurley and Emil Chireno for their contributions to this podcast. Thanks to Tony Higgins and the band Computer Magic for our music. And thanks to you, our listeners, for joining us.