Musings on Photography

Droit de Suite, reprise

Posted in business, Droit de Suite, ethics, the art world by Paul Butzi on May 20, 2007

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Mike Johnston, the proprietor of The Online Photographer, weighs in on the Droit de Suite issue, in the context of the reported 2.1 million dollar sale of a Cindy Sherman print.  Mike writes:

The main problem with Paul’s capitalistic critique is that the artwork increases in value not entirely because of what it is, but because of who the artist is, what her significance is, the publicity she engaged in, the awards she won, and everything else she accomplished and achieved in the meantime. In other words, Cindy Sherman herself has added to the value of her 1981 photograph since 1981, even though she hasn’t had possession of it. Art isn’t strictly a commodity, with just material commodity value and no other kind of existence. (Artists themselves “comment” on this fact all the time, for instance when Andy Warhol signed blank sheets of paper and sold them for $5,000 each.)

Mike raises what at first blush seems to be a persuasive argument, because the artist does affect the future value of a work after it’s been sold.

But art is not the only thing on the planet that exhibits the effect of having the value increase (or decrease) as a result of the behavior of the original seller.  If you bought furniture made by Sam Maloof, or Thomas Moser, that furniture has increased in value as the reputations of Maloof or Moser grew.  If you bought stock in an initial public offering, the value of the stock grew or diminished in part because of the efforts of the people who sold the stock – indeed, that’s the very reason for buying stocks.  Other things that exhibit this effect and are sometimes sold for prices that are large relative to the initial purchase price: first editions of books, original manuscripts of books whose authors become famous, autographs of celebrities, houses designed by architects who later become famous, automobiles built/designed by people who later built a successful brand identity (think Shelby), autos built by companies which went bust (think DeLorean), personal correspondence of someone who achieves great fame – the list is endless. 

A builder who builds a reputation as someone who builds houses of extraordinary quality increases the value of the houses he’s built and sold in the past.  A horse trainer who buys a promising colt, sells shares in the horse to defray the cost, and then trains the colt to be a winner increases the value of every share she sold.

Everyone, everywhere, is going through life, achieving things and failing at things, and affecting the value of things they don’t own.  In many cases, they affect the value of things they once owned and then sold. 

But artists feel that they’re special, and that (unlike everyone else) they deserve to share in any increase (but never in any decrease) in value of an object they’ve sold lock, stock, and barrel.  Everyone who sells something that’s later resold for a much higher price experiences regret.  Only artists, however, feel that the government should intercede to diminish their regret by using coercion to ensure them a share in future profits without forcing them to share in the losses as well. 

More on Droit de Suite

Posted in business, Droit de Suite, ethics, the art world by Paul Butzi on May 7, 2007

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Some interesting comments on the Droit de Suite post, here

If you write a book, you sell the right to publish that book to a publisher, you don’t sell them the book. If they reprint that book and charge a higher price, you get a better return. Or, if the original contract has expired and they want to reprint it, but another publisher has offered you a better deal, you can sell the rights to them. You’re not stuck at the original rate.

Sure, that’s a good plan.  And, of course, if the book doesn’t sell well, then the writer is taking the hit when the contract expires; the artist is taking all the risk of what happens when the contract expires, and is reaping all the rewards (or losses). 

Artists, even artists that produce one off works, could do pretty much the same thing – namely, they could lease work instead of selling it outright.  Then, when the lease term expires, they can adjust the rental rate.  They could either lease it to the same person, or lease it to someone else.  Problem solved.  Or, if they only want partial participation in profits, they could just sell shares in the work – say, sell 94 shares to the ‘new owner’, and retain 6 shares themselves.  When the artwork is resold, they would get 6% of any profit.  Of course, they would also have a 6% share in any losses.

If you’re a painter or a sculptor, each work is a one-time deal. If you sell one and it goes up in value, why shouldn’t you, the person who actually created the work, make at least some profit from its increased value?

There’s a simple reason why the artist shouldn’t make any profit from the increased value – it’s that they’re not taking on any of the risk.  The purchaser is taking on all of the risk associated with the future value of the work.  If the price rises, they get all the reward.  If the price falls, they take all of the loss.  The artist is taking on none of the risk, and thus shares neither in any potential profits nor in any potential losses.  As the promoters of lotteries keep telling us, if you don’t play, you can’t win.

…the seller did nothing except buy it and hold it.

A lot of artists suffer from the misconception that the buyer did nothing.  But, of course, the buyer DID do something – they exchanged money for the ownership of the work.  As a result, they’ve incurred what the financial world calls ‘opportunity cost’ – the value of the investment they could have made instead of buying the artwork.  Even if the only alternative was to buy a long term CD, they’d still be earning interest on that money.  Instead, they bought the artwork, they’re taking all the risk that it might decrease in value (a common outcome with art purchases) and thus they have the right to all the appreciated value. 

And, I’d point out, without that buyer, the artist is left with a very nice artwork that he can’t sell, and thus it has a value of zero.  Economists have a good way to thinking about a financial transaction – it’s that the way it works when no one is being coerced is that the seller gets the money, which they value more than they value what’s being sold.  And, of course, the buyer gets the thing being sold, which they want more than they want the money.  Both participants walk away with something they wanted more than what they had when they started.  Unsurprisingly, this theory explains a vast swath of human behavior.  It’s a very useful theory, because it so accurately predicts so much.

Artists would do well to study this theory.  They should study it because it’s much more useful than the Artist’s Fantasy Theory of Economics, which states that, in a just world, art buyers would grovel at the artist’s feet for the privilege of buying the artist’s work, would apologize for being wealthy enough to buy art, and would insist on paying more than the asking price as a token of their appreciation of the artist’s ongoing creative struggle.

The gallery did nothing except sell it. There’s no creative input in either of those activities (if something as passive as displaying something and saying, “Hey, wanna buy it?” can be called active). The artist, on the other hand, made it, and without that act of creation the other folks would have nothing to “do”.

Once the gallery has made the initial sale, they’re no longer involved and don’t get any profit from subsequent sales, so I’m not sure why they’re being discussed at all.  But the gallery quite clearly did something of value – they coordinated the sale.  If galleries don’t create value for artists, no one is holding a gun to the artist’s head and insisting that they do business with those galleries.  Lots of artists (me included) do direct sales instead.

Right now, I’m involved with a group of artists putting together a coop gallery to show and promote our work.  It’s an exercise I recommend for anyone who is suffering from the hallucination that galleries don’t do anything and don’t incur any costs while selling artwork.  Short incomplete list of just the overhead items: rent, paying staff to keep the gallery doors open, phone bills, printing costs for promo cards, paint to repaint walls, accountant’s fees, costs for wine and food at receptions, insurance to cover artwork while it hangs, B&O taxes, legal fees, web hosting fees, ISP costs.  The list just goes on, and on, and on.  Truly, the list would not only stun a stoat, it would stun a really, really hard to stun stoat.  If you were to find the stoat that, of all the stoats in the world, was hardest to stun, it would stun THAT stoat. 

As for the perception that the purchaser of the work and the gallery didn’t do anything ‘creative’ – once the artist has made the work, they haven’t done anything creative either.  And, while I realize that in Artist Fantasy Universe, no one is financially compensated for anything which is not extremely artistic and creative, in the real world people earn money all the time, deservedly, for doing things which are not very creative. 

Most artists don’t make a lot of money from their art. Even with “droit de suite” this is the case. France, crazy country that they are, figured that keeping artists eating keeps them creating art, thus keeping culture alive.

Enacting Droit de Suite legislation that affects sales of artwork that was initially sold BEFORE the legislation was enacted essentially grants artists a share in any potential profits (but no share in potential losses) and thus amounts to taking money out of art owners’ pockets and placing it directly in the pockets of artists.  Regardless of the nobility of the sentiment behind this, it is theft. 

If you don’t think so, imagine for a moment similar legislation which insisted that all artists must make up a part of any losses suffered by art purchasers, but didn’t give artists a share in potential profits.  Ah, I can hear the outrage now.

And, more to the point, there’s no evidence whatsoever that Droit de Suite actually ends up putting more money in the pockets of starving artists.  None.  What happens is that art buyers discount the future profits of any sales, and incorporate this discounting into the price they’re willing to pay.  So Droit de Suite just drives prices down, resulting in LESS up-front money in the artist’s pocket.  In the final analysis, what Droit de Suite does is take money OUT of the pockets of starving, emerging artists (because prices are depressed to offset the risk of Droit de Suite payments if the work appreciates) and moves it into the pockets of established, successful artists whose work is being resold (because only the work of established, famous artists ever gets resold, and on average, because the price discounting will be based on averages, but works which appreciate greatly will outperform the average).  There are people who think this is a grand plan, but I’m not one of them.

One other point, this one in response to your asking why the artist should share in the profit, but not the risk. Simple answer – the artist already took the risk, devoting, potentially, a large part of their life to creating the work.

Yes.  The artist took the risk of investing time, energy, and money in creating the work initially.  The compensation for this risk is reflected in the price of the first sale.  But specifically, the artist does not participate in any of the risk AFTER the sale, and thus does not participate in any of the reward, either.

Let me put it like this: once the artist has sold the work, ALL of the risk is borne by the purchaser, and there’s no possible scenario in which the artist can lose money as a result of price changes in the work that’s been sold.

Droit De Suite

Posted in business, Droit de Suite, ethics, the art world by Paul Butzi on May 3, 2007

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Supporting Droit du Suite is an example of how I think artists, as a group, are often delusional about how the marketplace works.  The basic idea of Droit de Suite is that an artist should get a share of any increase in value that occurs after the sale of an artwork.

Sometimes, someone buys an artwork, and then later sells it for a higher price than they bought it.  Without Droit de Suite, the profit of the sale goes to the person who bought the work and subsequently sold it.  If an artist sells an artwork for, say, $500, and then the buyer eventually sells it for, say, $50,000, the buyer nets a profit of $49,500, and the artist’s share of this profit is… zero.

Proponents of Droit de Suite say that’s not fair.  The artist did all the work, the buyer did nothing but hold the work for a while, and yet the artist gets nothing but the original $500 and the buyer gets $49,500.  Not fair, not fair!

So what Droit de Suite does is this: whenever an artwork is sold, the original artist gets a cut of the sale price (for example, in France, between 1% and 3% of the sale price goes to the artist).

So here are the problems I see with Droit de Suite:

  • In some implementations, the cut that the artist gets is based on the selling price, not the profit.  So every time the artwork changes hands, the artist gets paid.  Again.
  • Even in those cases where the artist only gets a share if there’s a profit, prices are not adjusted for inflation.  So if I bought a work for $1000 in 1970, and sell it for $2500 today, under Droit De Suite, the artist might get 3% of the sale, or $75.  This might seem fair, but in fact, after adjusting for inflation, the value of the work has actually declined – $1000 in 1970 dollars is about equivalent to $5300 in 2007 dollars.  So, in reality, there’s been no profit at all.  I’ve lost money on the sale, and the artist gets 3% anyway.  Raw deal for me, eh?  (in some places, proposed rules DO adjust for inflation, but that’s not the norm)
  • Prices are not adjusted for opportunity cost.  To really be fair, the profit should not only be adjusted to take into account losses due to inflation, but also the opportunity cost of having invested in the art.  In other words, if I buy treasury notes, I can expect a riskless rate of return of something like 4% after allowing for inflation.  The idea of Droit de Suite is to allow the artist to participate in gains due to increased market demand for his/her work, not to allow the artist a cut of the time value of money.  So the profit should be adjusted to take this into account, but isn’t.
  • Let’s suppose that you’re going to buy a three handled moss covered family credenza.  But the sales contract stipulates that, if you ever sell the credenza, the woodworker who made it will get 4% of the sale.  If you have half a clue, you factor this future loss of profit from a sale into the price you’re willing to pay.  The same will be true with paintings, sculpture, photographs – any art work.  In the end, Droit de Suite doesn’t put more money in the pocket of an artist, it just changes the time the money arrives and increases the risk.  A lower selling price today may or may not be worth a shot at a royalty later.  Remember, not every work of art is resold.

Are those the only economic arguments against Droit de Suite?  No.  The list is nearly endless.

But here’s the part that I think is most telling.  Droit de Suite insists that the artist get some of the positive advantage from the increase in the value of the work after he/she sells it.  If this is fair, then I think the artist has a responsibility to share in the loss if the work declines in value.

Why should the artist get to participate in the wins, but not be obligated to participate in the losses?

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