(Kerry James Marshall, A Portrait of the Artist as a Shadow of His Former Self, 1980)
On the balcony of a sleek home nestled in the Los Feliz Hills, I had my first quasi-encounter with the art world. My buddy–the founder of a successful youth clothing brand–pointed to several artworks hanging on the walls. He highlighted 5-figure price tags and mentioned resale profits. I was intrigued. Who’s responsible for dictating value for such subjective items? How does one even begin to understand this world and its players? I have a never-ending mental bucket list—I added “research the art market” in between “do the overnight Mt. Fuji hike like Phil Knight” and “try a float tank.”
Often regarded as somewhat of a bon vivant, my interests have always spanned literature, music, and fashion. Yet, I’ve always avoided the art world. Although alluring, I deemed it as a world too fancy and sophisticated—a world shrouded in daunting elusiveness. Now, my objective is to demystify the art market, to break down its complexities and make it more approachable. In part one of this series, we’ll explore the market size, the industry’s dynamics, and the role of museums.
How Should We Consider Art?
What is art? A question that’s been debated for centuries. Deloitte describes art to their wealth management clients as, “an asset that is becoming increasingly a part of a family’s identity, as well an investment opportunity that offers returns and diversification.” Meanwhile, Canice Prendergast, an Economics of Art expert describes art as a “language that tells us about the world.” This rings true when you consider music and film—artistic mediums that serve as an evolving commentary on society. They have critiqued culture and politics, even sparking significant movements. However, in the realm of visual art, its exclusive audience often limits its broader impact.
Global Art Market Size
In 2022, worldwide art sales reached $67.8 billion. But don't be misled by this figure, the art market is incredibly small. To put it in perspective, in 2022, FedEx reported $94 billion in sales, and Target hit $106 billion. Each of these companies outperformed the entire global art market in revenue. Despite a significant boom over the last 15 marked by jaw-dropping $100m auction sales, the art market isn’t just small, it’s incredibly top-heavy. Only 25 artists account for 50% of contemporary auction sales. This is an industry with a ton of players, but virtually no one is making money.
For artists, the market poses a different challenge. They're often advised to set high prices for their work, reinforcing the perception of quality and value. Prendergast explains, “Unless you price high, people will think this is not a great artist. And what happens is, you walk into a gallery, and a painting is $100k, and it’s somebody you’ve never heard of before, and it’ll probably not sell, but in the view of the art world, this is the only thing I can do or else the collector won’t take it credibly.”
Business of Art
Viewed through the entertainment industry lens, art galleries are akin to talent agents. They're the Ari Emmanuels and Mike Ovitzs of the art world, tasked with discovering promising artists, promoting them to potential buyers, and nurturing their careers sustainably over a lifetime. A key distinction between galleries and talent agencies lies in the commission structure: while Hollywood agents typically receive 10% of their client’s earnings, art galleries command a hefty 50%. The most challenging part of a gallery's role is ensuring the longevity of an artist's career. A sudden, sharp increase in an artist's pricing can be detrimental, as a subsequent decrease might signal the end of their market appeal. David Zwirner, a leading figure in the gallery world, aptly describes this delicate balance: “Prices in the art market tend to follow a one-way path upward, as consistent growth is often crucial to sustain an artist’s career.”
Institutional Support
In the art world, securing a place in prestigious collections is a key gallery strategy for boosting an artist's demand. The Museum of Modern Art (MoMA) stands at the top of these esteemed institutions. Being featured in MoMA or similar venues significantly enhances an artist's reputation and appeal to collectors. Despite financial limitations, museums often get priority over high-net-worth buyers due to the long-term value they offer. Artists, like Tschabalala Self, a black artist from Harlem, seek to be part of art history, a legacy that museums uniquely provide. She remarks, "I’m usually relieved for the artwork to go into a museum collection. It becomes part of a history." Galleries sometimes encourage buyers to donate works to museums, securing both sales and institutional support. Glen Lowry, Director of MoMA, highlights their role: “We do not create financial value, we may incidentally create financial value by making a larger public aware of an artist's importance, but the value we create is our historical importance, it’s the ability to explain why an artist merits intense interest.”
Conclusion
In Part 1, we've examined the art market's magnitude, some influential players, and the pivotal roles played by galleries and museums. This journey has unveiled a world where art collides with commerce in the most bizarre, yet fascinating way. In Part 2, we will venture further, dissecting the intricacies of the primary and secondary markets, and shedding light on the nuanced challenges and tactics that shape the experiences of artists in this dynamic industry.