Why is art expensive?

Here is an interesting article on why artwork is expensive.My comments are marked in red...

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Suppose you see a painting for sale for $1890, and you think to yourself, “Good grief, that’s a lot of money. Why on earth does it cost so much?” Well, you've got to think of it in terms of what goes into producing such a thing.

Here’s an approximate breakdown of that $1890:

* Materials: canvas, primer, paint, frame supplies, and hardware: $200

This shows that the entire raw material supply system should also be changed to bring down the cost

* Overhead: Cost of tools, easel, computer, sketchbooks, camera, brushes, desk, chair, office supplies, file cabinets, shelving, rent or mortgage for studio space, phone, Internet, and utilities for studio, work truck for transporting art and materials, car insurance, gas, business licenses, taxes, etc., ad infinitum:  $250

Not much can be changed here

* Gallery

commission: 40%-50%. 40-50% margin is way too high. There should be a better way for art works to reach the person. Galleries are set up in high end areas. So rentals are very high. They have to charge this much amount to pay their rents and overhead costs.

* The artist's time - After I subtract the cost of materials and overhead from my cut of the sale ($940), this is what is left as payment for my time:

$500

So this is the real value of the artwork. Rest everything (excluding some component of the first one - materials) is over head. There should be a way to bring down this overhead. 

It takes on an avg, 20 hrs to do the painting. For this painting, I end up getting about $25/hour. To put that in perspective, graphic designers charge $60-$75, a good attorney or therapist may charge more than $100.

So, what is the core of the problem? I believe it is just selling only one artwork of a kind. So, every new artwork, he has to put all his effort again in creating it. Then again it will be expensive. And more over around 90% of art works won't be sold for an artist. So 10% should bear the cost of those 90% unsold artworks. Then why not duplicate and reduce the cost. This is where DAW comes into picture. We make multiple copies of the artworks and sell those at a lower price point. This way we increase the target market for artworks and thus sell many artworks (Without any time and effort of artist). This generates additional revenue for the artist. So, an artist is getting more than what he was earning initially.

Note: The core of the blog is taken from this article: http://www.articlesbase.com/visual-art-articles/why-art-is-expensive-704229.html

Economic principles behind Digital Art Works

What is Digital Art Works - Digital Art Works is into selling global art at affordable rates. This looks like a very simple concept till one finds out the underlying factors behind the launch of this seemingly simple concept.

Many (in fact every) products in the world go through a 4 stage life cycle - Niche & Status Symbol, Niche & Fashionable Item, Commodity & Fashionable Item, Pure Commodity, Death.Take any product and look at it through this 4 stage life cycle lens and you understand how a product moves in its life time. I will take a classic example of mobiles to explain it in the Indian context. 

In the late 90's having a Black & White bulky Nokia phone was considered a status symbol. Only the uber rich were able to afford it and rest others envy them for their mobile phone. Later on due to technology advances, cost came down and the product moves from Niche & Status to Niche & Fashionable Item. Now the upper middle class were able to afford this mobile phone and the mobile phone became wide prevalent. At this stage the uber rich moved to a new phone discarding this one. And then it became commodity & fashionable item. By then, it became accessible to even middle class and it became wide prevalent. Middle class started flaunting it among the fellow middle class people. After a few years, i guess by 2005, it became a pure commodity. Poor, old and 'I don't care how a mobile phone looks' people were the only ones using it. By 2009, it was discontinued and we hardly see that bulky Nokia phone in the market. 

This happens to every product. Even for cricket which is once hailed the rich man's sport. And cars - Before Ford invented Model T, cars were rich men thing. After Ford's Model T, it became a common man's thing. Even in India, it is now becoming a common man's thing. People like Henry Ford, Richard Branson envision the need for moving the product from Niche segment to mass segment and in the process revolutionize the entire industry. We are in a way now trying to emulate Henry Ford in the field of art.

There are some products which are always maintained as the rich man's object. Brands like Louis Vuitton, Chanel ... they maintain their position by keeping the prices high and by maintaining artificial scarcity. With the current technology they can make LV a common man's bag but they don't. In fact, i heard few years back LV had put a condition that only one bag for one Japanese customer may be during Japan's roaring 80s. And the other one is natural resources. By nature, they are limited and thus their price is high. But also it is an open secret that DTC maintains artificial scarcity by stocking diamonds in its warehouses to maintain the price.

With this brief background, lets see how art is positioned in the market. Art is always maintained as mainly a rich man's thing by maintaining an artificial high price for the art work.  Nobody knows how the artwork is priced. Middle class envy those rich buying the art thinking they are sophisticated. Galleries are very uninviting for the normal person. But should art be only for rich. A thorough study revealed that art appreciation doesn't require richness and art can be a common man's thing. So effectively increase the supply of artwork and bring down the price of artwork. We explored ways to increase the supply and found one great solution (kudos to the technological advances). We thought we got the killer application and reached artists to get the artworks. But to our utter dismay, none of the artists seemed interested in our concept. They haven't given us the digital rights of the artworks. And upon exploration we realized that they are too deeply rooted into those preconceived notion that art should be sold expensive that they don't want to sell it cheap. We tried to convince them by showing the comparision between price and scale. Lower price can be compensated with higher scale. But few seemed convinced.

And also the marginal cost of selling a print for the artist is zero. He just creates the artwork and thats it. Where are his marginal revenue is very high. It also didn't seem to convince many artists. Of course, the fact that ours is a startup made them skeptical about this entire thing. But we wanted to prove them that this works and we are looking forward for a day when artists come to us and give us the artworks for the sale. 

There is a saying 'Nothing stops the idea whose time has come'. We believe the time has come for this idea and we want to make it happen...

Happy Ugadi

Digital Art Works wishes you all a very happy and prosperous Ugadi. May this new year brings loads and loads of happiness to all of you....

Digital Art Works Team

An event at HITEX

Dear All,

      Last weekend there was an event at HITEX, Hyderabad organized by IT/ITes Association of AP to showcase the start ups from Hyderabad. We had put up a demo stall to showcase our start up. We are very glad to inform you all that we received tremendous response for the demo stall. Unlike many stalls that had just put some computers and explained the concept, we had actually put the artworks (framed) and even sold the artworks to show them how this entire thing works. We had put up a Flash presentation explaining our concept in a Dell laptop and also a gallery showing our artworks in a MAC computer. This is the closest we are able to go to the real business. Some 7 people purchased artworks there and we got some 4-5 bulk order expression of interest. Many people who visited the stall liked the innovativeness of the concept. The beauty about this idea is that though the concept we are selling looks very simple, the thought process behind designing this concept is very complex. It involves all the economic principles present. I believe if this concept works, it creates a disruption in the art industry. We strive to make it work and we need all your support to make it work. 

Here are some pictures from the event -

Art as an investment

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