This note forms LW Theatres Group Limited’s response to the call for evidence by the Department for Digital, Culture, Media and Sport (“DCMS”) as regards the impact of the current Covid-19 epidemic.
LW THEATRES GROUP LIMITED (“LW Theatres”)
LW Theatres is a theatre company based in London, owned by Andrew Lloyd Webber.
LW Theatres own and operate seven of the most prestigious and desirable theatres in the world, including the iconic London Palladium and the stately Theatre Royal Drury Lane. We play host to some of the world’s best musicals and plays, as well as a popular variety of concerts and comedy.
The LW Theatres portfolio also includes Her Majesty’s Theatre, the Cambridge Theatre, the Gillian Lynne Theatre, the Adelphi Theatre (owned in association with Nederlander International Limited) and The Other Palace.
We are the largest operator of musical theatre in London with 1 in 3 of all visits to a London musical being to a LW Theatres venue. Resident shows currently suspended include Matilda the Musical and the world famous The Phantom of the Opera.
These are the main challenges facing the theatre industry due to the current Covid-19 epidemic, and the areas in which we require further support from the government:-
1. Clarity on ending Social Distancing measures and/or the use of technology to find an alternative solution to reopen
2. Coronavirus Job Retention Scheme
3. Business Rates Relief
4. VAT Deferral
This submission is primarily concerned with London’s theatres and the ecology within which they operate, and the impact thereon of the Covid-19 epidemic.
More than 15.3 million people attended London theatres in 2019 – nearly 1 million higher than Broadway – equating to £799 million in box office revenue and generating £133,165,820 of VAT. Of the £799 million generated, £523m (65%) came from the box offices receipts of musicals with the remainder generated by plays, operas, dance etc.
London theatres rely upon audiences not just from across the UK but from around the World. The West End and other London theatres are a vital component of the tourism industry in London and play a major part in drawing audiences to London who then go on to spend additional money across London in restaurants, on hotels and through the transport system.
While the government mandated lockdowns of theatres and live venues are in place, this revenue has dropped to zero with no income available to cover running costs during the closure period or pay the 290,000 people employed in the UK theatre industry.
The most immediate consequence of the Covid-19 epidemic on London’s live theatre and entertainment sector has been the complete closure of theatres and live venues by the UK government, and the catastrophic impact of going (overnight) from a thriving sector to zero income.
1.1. Effect on LW Theatres’ business
This closure has had a dramatic effect on LW Theatres’ business as all seven of its theatres are now closed and zero revenue is being generated. Our revenue has fallen from £10m per month to zero, with around 200,000 members of the public per month no longer visiting our theatres. As a result, LW Theatres losses are increasing very rapidly as every day goes by and will be extremely large by the end of the year.
Taking one specific example, the production of ‘Waitress’ at the Adelphi Theatre was due to play until 4th July 2020 but as a result of the lockdown will now not be able to re-open in 2020. This will result in a loss of nearly £5m of gross box office revenue.
Every penny of profit made from our largely grade I and grade II listed theatres is ploughed back into their conservation and improvement. With our theatres shut, an earmarked sum c. £500,000 per month cannot be spent within the industry (and supporting industries) on the refurbishment of these heritage assets that are of great importance both economically to London and historically to the nation.
The operation of LW Theatres relies entirely on producers supplying us with content to present on our stages. The future programming of this content is at risk for a number of reasons:
i) producers are unable to commit to considerable pre-production costs (sets, costumes etc.) when the date that theatres can reopen is unknown. New large-scale West End musicals can cost in excess of £10m to stage and can require anywhere from 4 to 12 months of planning prior to a confirmed opening date;
ii) productions on limited engagements may not be able to recoup costs on a reduced run necessitated as a result of the current closure;
iii) advanced ticket sales have severely declined since the start of the lockdown meaning that box office advance sales will be much lower than required at the point of reopening;
iv) uncertainty around audience numbers and the willingness of audiences to commit to expenditure when theatres can eventually reopen; and
v) investors are nervous about committing to future projects in the current climate of uncertainty.
Even long-running, well-established productions are at risk. Producers are having to cover certain ongoing costs of productions during the closure period (actors’ retainers – as most don’t qualify for the self-employed government help, staff, equipment hire, marketing etc.) and will have to spend a considerable amount on the relaunch of each production despite having had no revenue for a prolonged period. These ongoing costs during the closure could equate to as much as £50,000 per week for a major production with the cost of reopening and relaunching a production anywhere from £500,000 to in excess of £1m.
1.2. Effect on individuals working in the industry
These closures have had a considerable knock-on effect for everyone engaged in the sector:
The UK government has introduced a number of schemes intended to mitigate against the impact of Covid-19 across all industry sectors. While some of these schemes have been effective in countering the negative effects on the theatre and live entertainment sector, there are a considerable number of areas where these schemes have failed to provide adequate support to individuals and businesses within the live entertainment sector.
The CJRS has been instrumental in staff retention and LW Theatres has furloughed all staff who, in the current situation, are unable to work (e.g. bar and front of house staff). However, LW Theatres still faces high weekly operational costs, with zero income: a scenario that is unsustainable.
2.1. Coronavirus Job Retention Scheme
The CJRS introduced by the government for the purposes of helping businesses avoid making its employees redundant has been effective in the sector.
However, the theatre industry will require the CJRS to be extended and remain at a viable level until theatres can be reopened at full capacity. Operations will remain severely affected (with the majority of theatres remaining closed) until that time. If a clear path for reopening is not identified by June/July, the much-loved British pantomime season hangs in the balance; affecting c. 35 regional theatres as well as many London based venues. Some of them will close indefinitely.
2.2. Business Rates Relief
Every penny of profit made from LW Theatres is ploughed back into the conservation and improvement of our grade I and grade II listed buildings.
The business rates relief scheme introduced by the government is restricted to premises which are reasonably accessible to visiting members of the public. While theatres and venues are therefore theoretically covered, this relief fails to recognise that theatrical and live entertainment companies are not generally run out of venues but are operated through offices and non-publicly accessible premises. For example, while LW Theatres owns seven theatres to which the relief will apply, it also operates premises out of which these theatres and their operations are run. We anticipate having to pay full business-rates on these premises under the current rules, notwithstanding that the closure of the theatres has cut revenues to zero.
If the buildings eligible for the business rates holiday could include the offices and non-publicly accessible premises occupied by theatrical and live entertainment companies, producers and directly reliant businesses this would provide welcome relief to the industry.
Furthermore, we are of the opinion that the business rates relief scheme should be extended for at least an additional year to assist the longer-term recovery of the sector.
2.3. VAT Deferral
The ability to defer VAT payments is useful for the sector, however an extension of the period covered (beyond the quarter already announced) will provide further benefits.
The government needs to put significant additional pressure on insurance companies to pay out on business interruption and denial of access policies in order for businesses and productions to continue to support their workforces and enable these businesses to survive until they are able to fully reopen.
Specifically, we strongly disagree that Covid-19 should be excluded from a business interruption insurance policy because it is a new disease and we encourage a broad interpretation of the requirement for ‘physical’ damage that treats loss of the function or use of a property as ‘physical’ damage. Furthermore, we do not consider that a denial of access claim should require a specific incident or occurrence at or within a specified radius from the insured premises – the government order to close theatres due to the Covid-19 epidemic is causing a legitimate denial of access to our insured premises.
In addition, the government should consider backing an insurance scheme in order to enable theatrical productions to re-start/get off the ground in the near future.
2.5. Government Strategy for Lifting the Lockdown
The overall lack of certainty and ambiguity in the government’s approach to tackling the epidemic, in particular the longevity of the restrictive measures currently in place regarding Social Distancing and closure of public venues, has made it all but impossible for the sector to make any plans, even tentative, for its recovery. Ambiguous government statements made without any further clarification are creating considerable uncertainty and confusion within the industry (whereas we welcome recent news about track and trace).
As a result, investors and producers are faced with no alternative other than to withdraw funding from future projects, further inhibiting the recovery of the sector. Theatrical productions take a significant period of pre-production planning and financial commitment for months, and often years, prior to their opening in the West End. With no guarantee or time-frame around a return to normal working practices and audience numbers it has simply become unviable for planning to continue without any individual venture leaving itself highly exposed by circumstances beyond its control. There is a significant element of producers not wanting to be a “canary down the mine” in terms of leaving their own ventures open to potential failure in the immediate period coming out of the lockdown.
3.1. Long-Term Impact of Covid-19
It is highly likely that the long-term effects of Covid-19 will be equally as negative on the sector as the short-term effects. Some of the anticipated longer-term effects are that:
The cost of creating a new musical production can be comfortably in excess of £10 million and even with successfully high ticket sales productions will often not recoup that initial investment for three or more years whilst also maintaining operating costs, often up to £300k per week following opening. Due to these high initial upfront costs and ongoing costs of operation, significant high-risk investment is key to any production and without it, the industry will see a steep decline in new productions. This is particularly important to theatre owners such as LW Theatres who rely on a steady supply of productions by independent producers to fill their 7 theatres.
3.2. Looking to the future
3.2.1. Clarity on the timing for lifting the lockdown
Any decisions to ask the industry to open again need to be made with a degree of certainty, as incurring the considerable costs necessary to reopen a production only to immediately have to close down would be financially devastating for producers and theatre operators.
It is wholly unrealistic for theatres to reopen with current Social Distancing measures in place. Aside from the economic impact of reducing audiences to an estimated 30% of normal capacity (which is unsustainable), it is not feasible for backstage staff/crew, musicians and onstage cast to fulfil their roles whilst observing current Social Distancing measures.
3.2.2. Continuity of the government support measures
As the easing of Social Distancing guidelines and sector reopening are likely to be carried out in stages (with theatres likely to be amongst the last to reopen), the support measures put in place by the government should also be withdrawn in stages, with the theatrical and live entertainment sector continuing to receive support until it has been able to both fully reopen and has also shown signs of sustainable recovery. Without this, redundancies will be inevitable and deep. Theatres will not be able to continue to pay staff without receiving income or government support. Unlike many public-facing businesses (such as retail and leisure sectors), theatrical productions cannot reopen at short notice – a not insignificant amount of time is needed to reopen even existing productions, rehearse (or re-rehearse) companies and build up adequate advanced ticket sales before they can be safely and sustainably opened (or reopened) to the public. Not less than 3 months’ notice will be required in order to reopen West End theatres.
It is also worth noting that even productions already running at the time of the Covid-19 closures will be forced to incur significant costs in order to remount and reopen. These costs, while not quite as high as the costs of opening a brand new production, will mirror the same spending pattern with equivalent amounts being spent on re-rehearsing and carrying out adequate technical rehearsals within theatres. In addition, producers reopening their productions will almost certainly need to invest significantly in marketing their reopening to the same extent as a new show, in order to regenerate interest and ensure ticket sales are sufficiently high to cover weekly running costs. Producers of musicals are expecting to spend at least £500,000 on marketing alone to relaunch their productions. The result will be that millions will have to be spent and committed simply to get existing productions back to the position they were in before the government lockdown.
3.2.3. Venue capacity and ticket prices
In most cases significant levels of audience attendance are required before most theatrical productions are able to cover their weekly expenses meaning that the potential of having to implement Social Distancing rules (such as running venues at less than half capacity) are a non-viable solution for the theatrical sector. New large-scale West End musicals can cost in excess of £10m to stage and they rarely recoup. Breakeven is achieved at c. 60-70%, making Social Distancing a non-starter.
For example, on average a West End musical requires 55% of the venue’s tickets to be sold in order to meet the production’s running costs. For more expensive shows such as The Phantom of the Opera this can be as high as 65% or more. For more than 30 years this has not been an issue for Phantom which typically has an average attendance over 95%, however, it is highly unlikely that once the lockdown measures are lifted we will see these levels of attendance, particularly as The Phantom of the Opera (like many other long-running West End musicals) is extremely popular with international tourists. Significant support will be needed in the form of a campaign to build confidence in overseas tourists, to communicate the message that “London is Open/Safe”.
The other key metric for theatres is the average ticket price (“ATP”) achieved across all ticket sales to the public. If consumer confidence is low when theatres reopen then theatres may have no choice but to dramatically reduce ticket prices. In that event, the numbers of tickets sold becomes even more important and the respective percentage of a venue’s seated capacity at which a production is viable only increases.
It is our opinion that it is not financially viable or operationally feasible for theatres in London to reopen with Social Distancing measures in place.
3.2.4. Consistent approach to implementing safety measures
Before we reopen theatres, the government needs to work with us to develop a clear set of safety guidelines to enable a consistent approach throughout the industry. It is anticipated that a lack of such clear guidelines would result in varying measures and policies being implemented by different organisations, resulting in an increase in public confusion and a greater lack of confidence in attending live events.
3.2.5. Government investment in the industry
Finally, the Government should consider increasing its investment in the theatrical and live entertainment sectors. An increase in tax breaks and other similar financial incentives would also assist in countering a general overall reduction in available capital. The Government should also consider what measures can be put in place to make insurance coverage for Covid-19 and similar epidemics obtainable at an affordable price.
3.2.6. Technological development (to curtail or replace implementation of Social Distancing)
Social Distancing means no more theatre. And if it is to be maintained until the end of 2020, then it leaves theatre around the country in a dire situation. In itself, it is a very blunt instrument that prevents economic recovery and the development of a “new normal” across most aspects of life. Uncertainty about when and how Social Distancing might be lifted (worst case, “eased”) is causing considerable damage to the theatre industry. If the annual British pantomime season cannot go ahead in December 2020 then many institutions will simply go under. Christmas largely generates the profit needed to subsidise the rest of the year. Decisions to mount and go on sale with panto in December 2020 need to be taken in June, or July at the very latest.
In order to reopen theatres and live entertainment at the same time as protecting our audiences and staff, we encourage government to study models from around the world, particularly in South Korea, which has demonstrated significant success in adopting technology to manage and assess risk:-
Testing & Tracking measures adopted in South Korea: use of app to assess and manage risk
First and foremost, South Korea’s government and the Korean Center of Disease Control (KCDC) has made testing widely available (via their universal healthcare system) and returns results to people’s mobile phones within 24 hours of testing. Authorities then support the testing by undertaking contact tracing and employ technology to help do so. People who have tested positive are asked to recall their recent movements, aided by GPS tracking and credit card transactions. In real time, the KCDC issues alerts to every mobile phone in the country about where infected persons have been. The KCDC alerts appear on people’s phones in form of notifications and do not require people to open an app. The alerts do not reveal the individual’s identity.
This publicly available information allows businesses like theatres to engage with their patrons by setting up internal checks and systems. A major theatre in Seoul has created an app (based on the KCDC guidelines), which assesses whether a patron may pose a risk to others in the theatre. A patron cannot enter the venue until they’ve filled out the theatre’s survey made available on the app. If someone hasn’t got access to the app to fill out the survey, the venue asks the patrons to fill out the survey manually upon arrival, which is assessed before they enter the venue. The app asks patrons to confirm whether they have visited an area with a confirmed case in the last fourteen days. If they have, the patron must advise if they’ve been tested. The app evaluates whether the patron is at high risk of being a suspected case, if the answer is yes then they’re not permitted to attend the performance until they’re cleared. The results of the survey have to be presented with your ticket before entering the theatre.
Any technology of this nature would of course have to be developed in line with the UK and European privacy regulation.