Supporting Culture
                      Multiplication Effects of Subsidies to Culture in Brno

26. 3. 2009              Simona Škarabelová





n  In the beginning of 2007, Prague struggled with the decision whether to hold or not the Olympic
Games. Prague council representatives asked the prestigious PricewaterhouseCoopers firm to
elaborate analyses which reduce the high input costs of holding the Olympic Games (economic
calculations state 135 billion CZK, out of which 70 billion should be covered by taxpayers) by
multiplication effect benefits. Thus the Olympic investment should bring an additional multiplied
amount of 25 billion CZK according to the study.

n  Naturally, the multiplication effect theory is not generally accepted among economists (they
regard it as non-reputable). A discussion on this topic is logical and it currently takes place in
Brno as well, where the attention of multiplication effects is paid to the field of culture rather
than sports.

Short theoretical backgroung

n  It is understandable that theater visitors’ total expenses connected with visiting a theatrical
performance do not equal only the price of a theater ticket alone, but in fact they spend a much
higher amount of money. It can include, for instance, a fare price, expenses in a theater
refreshment bar, the purchase of a new dress, a visit at the hairdresser’s, and so on. These
expenditures, however, become an income of somebody else (outside the theater area) and part of
them can again become an expense of this other person and further an income of another person. This
is thus known as the so-called multiplication effect, i.e. the multiplication of a primary expense
of a theater visitor.

n  Even the supply side, i.e. the theaters themselves, will similarly initiate additional incomes
for their employees and various firms (their suppliers) through paid wages and payments for various
orders.



n  The sense of this reasoning is the fact that the multiplication effect will represent a bigger
benefit to the economy than the original amount of the primary expense (subsidies); and therefore
the possible change in expenses for culture should not be measured merely by benefits coming from
the field of culture itself, but also by benefits stemming from the multiplication effects. It is
absolutely obvious that the benefit from public funds expenses (subsidies) for culture would be
bigger under this conception than under the traditional one.

Results of existing surveys

n  Foreign analyses (in Rhineland-Westphalia, Vienna, Switzerland) as well as surveys conducted in
the Czech Republic (Marketing Laboratory Ostrava, STEM Prague) confirm the proposition that
theaters not only cost money, but they also bring it. They state that the amount visitors spend on
an admission ticket equals or exceeds the amount they spend on additional services (transportation,
refreshments, a visit at the hairdresser’s, etc.).

n  1 Swiss franc generates 3 francs.

Economic utility effects

n  Theater subjects spend a significant part of their expenditures on services and goods produced
in other branches of the economy; by doing so they ensure sales of further production.

n  Out of all public financial sources provided for theaters, a third of them returns back to
public funds in the form of both direct and indirect surcharge payments (it was proved that in the
Ostrava region 1 million CZK return out of the total 2.5 million CZK) because a theater is an
important tax and fee payer.



n  Theaters produce goods and articles of cultural nature predominantly from inland sources and
with minimum costs on material flows. They use mostly inland workforce, which is often highly
qualified, creative and with strong innovative abilities.

n  It is a relatively cheap source of development and economic prosperity.

n  Theatrical activities directly affect cultural tourism, which brings above-standard incomes for
public funds.



n  Out of the group of culture instruments, theater is one of the crucial economic tools for the
development of city and town agglomerations. Sociological studies show that agglomerations with
“cultural events” prosper even economically at the same time.

n  Theater as a culture product is part of the culture industry, which surpasses the traditional
industries thanks to its production of services and goods of cultural nature. In the USA it has
already reached 6% of GDP while in Germany it has reached 3% GDP with an ever-growing trend.

Social utility effects

n  Theatre is an important factor of social cohesion.

n  Theater is an important urban element. It becomes a natural center of a community and people.

n  It is the involvement of public funds that helps theaters to be democratic, open and accessible
for the majority of people. People’s participation in cultural wealth is guaranteed by the Charter
of Basic Human Rights and Freedoms. Theater reinforces democracy.



n  People’s cultural rights, namely the right for the protection of cultural heritage and an access
to it, the right to participate freely and practically in the use and performance of culture, the
right for the freedom of artistic activities and propagating their outcomes, belong to the declared
public interest.

n  Theater is directly connected with life quality.

n  Theater contributes to the cultivation and education of people.



n  As a place of so-called positive deviation, it is an instrument against criminality, social
deprivation, drug addiction, and so on.

n  In the globalization process it is a place of national and regional identity as well as
identification with one’s own cultural heritage including language. It identifies people with their
town (town district, region or country). Theater also easily crosses boundaries and barriers even
towards cultural minorities. Theater represents a highly mobile socioeconomic potential of a
community.

Aesthetic utility effects

n  interpretation, preservation and the development of cultural heritage,

n  space for new artistic work,

n  a place of experimenting, innovation and creativity as the determining phenomena of current
years,

n  a place of lively communication as well as space for self-reflection of people through arts,

n  overlaps to other kinds, genres and media, including a direct influence on the film and
audiovisual arts,

n  space of an alternative to commercial activities.

Research methodology in Brno theatres

n  The primary research took the form of addressing subscribers and visitors of the three theaters:

n  National Theater (thereinafter NT)

n  Brno City Theatre (thereinafter BCT)

n  Center of Experimental Theater (thereinafter CET)

n  A printed questionnaire was given to 3,500 BCT subscribers and 2,700 NT subscribers. All of them
could choose between filling out the questionnaire in a written form and filling it out on the
theater’s webpage. These data were used for examining the “theater – visitor” relationship.

n  The secondary research focused on addressing economic departments of the theaters so that it
would be possible to obtain information from the existing materials for the second and third part
of the research, i.e. “theater – theater” and “theater – suppliers”.

The basic premise of the research consisted of three partial hypotheses:

n  a theater subsidized from a town budget induces through its products primary as well as
additional expenses on goods and services satisfying needs of its customers – theater visitors (an
analysis of the “theater – visitor” relationship) – ONLY THIS WAS CONFIRMED

n  a theater subsidized from a town budget is not only an artistic unit, but also a production
one;  it induces multiplication effects in further economic activities of those entrepreneurial
subjects that operate primarily within the given area and for a financial compensation for which
they provide a theater with their products (an analysis of the “theater – theater” relationship);

n  a theater subsidized from a town budget induces payments back to the town budget but even the
state budget (an analysis of the “theater – suppliers” relationship).

Results of the “theater – visitor” relationship analysis

n  When classifying external effects, the following division was used:

n “direct” external effects

n “indirect” external effects.

n  Direct external effects are connected with every visit of a theatrical performance, and their
value is consumed at a single moment.

n  Indirect external effects then represent expenses that are not directly connected with the visit
of a theatrical performance but they are results of even other factors. Moreover, their value is
not consumed instantaneously at a single theater visit but they transfer their value gradually. It
is obvious that both direct and indirect external effects can be further classified as necessary
and voluntary. Necessary external expenses are understood as those expenditures that a visitor has
to pay at any theater visit (e.g. fare price); on the other hand, the term voluntary includes
expenses whose amount depends on personal habits of a visitor (e.g. refreshments).

Subscribers’/Visitors’ expenses connected with their visit in the monitored theaters (in %)



n  The highest amount is represented in all the three cases by refreshments, followed by the
program brochure; expenses on this item correspond to the price level of program brochures in the
monitored theaters. Expenses on babysitting correspond to the fact that BCT has the highest number
of visitors in the productive age (NT has the highest proportion of seniors while CET has the
highest proportion of students). On the other hand, the amount of voluntary expenses on a visit at
the hairdresser’s, cosmetics and manicure can be explained by the dramaturgy of the theaters
(“high-class art” versus “experimental”), which is reflected both through the premises of the
theaters and the structure of visitors. Other expenses represent purchases of CDs, books, DVDs, and
so on, and they correspond to the production of these supplementary materials by the theaters, i.e.
so-called merchandising.

Conclusion - A research carried out in three theaters in Brno proved that:



n  People’s expenses connected with visiting theatrical performances induce, i.e. multiply, their
further external expenses, namely:

n  When a visitor spends 1 CZK in the price of an admission ticket, he or she spends on average
1.57 CZK on other additional expenses (an average of the three theaters).

n  By purchasing a ticket and watching a theatrical performance, which will induce direct expenses,
public funds would obtain on average 15.23 CZK from taxes. This approximately corresponds to 7.8%
of an average ticket price.

n  Theaters as subsidized institutions induce, i.e. multiply, additional incomes for various
sectors (branches) through their demands on these sectors (branches). Theaters thus act as
production units that are in many ways linked with the economic life of towns, regions and the
country. Thanks to this fact they return to public funds on average (of all the three theaters)
approximately 50% of the obtained subsidies.