I, at times (infact many times) wonder how art got this tag "Investment Product" and why art is very expensive. I think it is the work of selected few in the medevial Europe that led to the current pitiful state of Art Industry. I strongly believe art is a common man's product. Art needs appreciation and artist needs recognition. A person who can appreciate art needn't be a rich person and a rich person needn't particularly like or appreciate art. But the current industry structure is so that only rich is able to purchase art and majority of that rich is purchasing art more for a status symbol than for anything else. My neighbour has it, I should have it!! - As simple as that. The galleries promote art saying it is an investment product. I again believe that art can never be a popular investment. Here are the reasons why:
1. Price Discovery: Every investment product requires price discovery. Price of that product should be same at any particular time in any particular region irrespective of person purchasing or buying it. This happens through a basic economic principle called 'Demand - Supply'. If demand outstrips supply, price increases and otherwise. But in the case of art, till date there is no mechanism for finding the value of art. Nobody is able to give me a convincing answer on price discovery of artwork. An artist looks at a person and quotes a price. If i come in Benz, his price will be high otherwise his price will be low. In this kind of situation, no investment product survives. Investment requires market mechanised price discovery which art lacks...
2. Liquidity: Another major requirement for investment product is liquidity. Liquidity means how quickly one can purchase or sell the product. If i need money, i should be able to sell my investment product and raise money immediately and if i want to buy investment product, i should be able to buy it immediately. Stock, Real Estate, Bonds, Derivatives, Swaps, Futures - all are liquid products. But art is not. I can't just go to an exchange (in the first place there is no art exchange), sell art and get money. It is extremely illiquid. It takes years and years to get the artwork sold.
3. Regulatory Body: Every investment product requires a regulatory body that puts rules and checks whether rules are well followed. In fact, all major investment products have regulatory bodies like SEBI. They ensure that trading is happening as per rules. But in the case of art, there is no regulatory body. I was surprised to hear from artists that art galleries facilitate price fixing. A body profiting from art sale is also regulating it!!!!!! Galleries form cartel it seems and fix the price of artist. So, they effectively increase the price of artist or his artwork artifically. It is not the inherent value of artwork, it is the gallery's greed to make money that is increasing the price of artworks. This is the biggest offence to be committed in an investment product class.
4. Availability of information: An investment product requires free availability of information for people to make a decision. Companies, Governments all publish their financial information so that people can decide whether to buy that bond or stock or Real Estate. This helps in finding the true value of investment product. But in the case of art, information is very scarcely available. No artist publish his progress in career on a regular basis. The buyer should check out the artist progress and has to hard sell that information to another prospective buyer to make a sale.
5. Steady stream of income: An investment product should ensure a steady stream of income to the investment product holder like say Dividends, Rentals, Interest....But art doesn't provide any steady stream of revenue for the art holder. The art collector can't make money out of the artwork he has. It is just used to decorate the house.
6. Art for display: Finally, all other investment products are not for display. Like say, stocks, bonds and land - you can't use those to decorate the house where as art is used to decorate the house and display your aesthetic sense. So, art effectively is a consumer product that is somehow projected as an investment product. And this led the art industry into a huge rut. When you see a highly creative artist struggling to make ends meet, you understand how pitiful the state of industry is..
By all means, art is not an investment product as people projected it.
Art can be considered an auction product. Scarcity of the work is the one that should increase the price like any other auction product (Gandhi spectacles, blue diamond).
Now who is losing because of that tag 'Art is an investment'. Rich people aren't as for them the amount paid is nothing. Middle class & upper middle class also aren't as they refrain from buying art. For them it is expensive. So ultimately it is the artist who is losing. A quick study at the situation of artists explain it clearly. Artists are effectively catering to 1% of the market (the rich and elite) out of which only 20% may buy art and that gets spread across many artists. An artist can sell a maximum of 10 artworks a year and can earn some 2 - 3 laks maximum per year. And he should keep on creating new works irrespective of whether those get sold or not. So, there is a huge dead inventory in an artist house. A 90% dead inventory is the worst situation in any industry. There should be a way to mobilize that dead inventory and monetize that. DAW is actually targeting that market and is trying to mobilize that dead inventory and monetize it while making artworks affordable to common man.
I hope and sincerely wish artists understand my concept and encourage me that just think i am decreasing the value of their artworks (which i amn't doing as we are purchasing digital rights and these are very different from original rights).We are still facing a tough time as many artists are confined to this thought process of 'art as investment'. Some are getting convinced and many aren't. So, we aren't able to implement the concept exactly the way we wanted to at this point. I hope this one becomes success and artists understand that our true intention is to create additional revenue channel for them than just take their works for cheap and make money.
Adios
Raja Sekhar
CEO
Digital Art Works
www.digitalartworks.in