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The art market in the 21st centuryfree

  • Natasha Degen

While the art market in the 21st century is small relative to other creative industries—and negligible in comparison to financial markets—it is bigger than ever before in terms of its geographical scope, consumer base, and influence on culture at large. Since the turn of the millennium it has expanded dramatically, even in the face of the worst economic downturn since the Great Depression. From 2000 to 2007 the size of the art market grew nearly threefold. After a brief contraction of 33% in 2009, the market recovered and achieved a historic peak of $68.2 billion in 2014, despite having since cooled (in 2017, sales totaled $63.7 billion; McAndrew 2018). Boosted by the rise of China and increasing wealth inequality, the art market has been reshaped by trends in the broader economy: globalization, privatization, and financialization. As the market adjusts to these new conditions, it has entered a transitional phase, with its business models evolving and its reach widening.

One agent of change in the 21st century was the rise of new markets—especially China, which accounted for one third of growth in the global art market from 2000 to 2014 (Citi GPS 2015). While China represented less than 1% of global market share in 2000, it grew to constitute 30% of the market in 2011, when China reportedly overtook the United States to become the largest art market in the world (McAndrew 2013). Indeed, it was illegal to own, inherit, or exchange works of art until 1976, after Mao Zedong died, and no art market infrastructure existed in mainland China until the 1990s. However, since the mid-2000s, China’s ascent has been rapid. Beijing Poly International Auction Company was only founded in 2005, but in 2010 it became the world’s third largest auction house in terms of sales, rivaling the auction market’s 250-year-old duopoly, Christie’s and Sotheby’s (see also Auction) (Conseil des ventes volontaires 2011). Moreover, China’s Taikang Life Insurance became Sotheby’s largest shareholder in 2016. (Taikang’s largest shareholder in turn is China Guardian, China’s second largest auction house.)

With China’s rise, Hong Kong has consolidated its position as the hub of the Asian market and an art capital on par with New York and London—buttressed by its free port status, advantageous geographical location, ease of doing business, and visa-free entry for nationals from around 170 countries. In 2013, Art Basel, arguably the world’s most important art fair, bought a majority stake in Art HK in order to gain a foothold in this market. Since then, it has become requisite for global art businesses to maintain a presence in Hong Kong. Although there is a tendency toward “home bias” in cultural consumption, taste in the Asian market has diversified. In recent years, its collectors have become major players in a wide range of sectors, including Western categories such as Impressionist and Modern art.

Another catalyst for growth was a marked shift in taste toward recent work. In the auction market, values for postwar and contemporary art rose by more than 450% from 2003 to 2007, reaching $4.8 billion in 2007. After losing 58% of its value in the aftermath of the financial crisis, the postwar and contemporary market rebounded in 2014 to a high of $7.9 billion, buoyed by a new curatorial and institutional interest (McAndrew 2017). Between 2007 and 2015, nearly half of the special exhibitions at major American museums focused on art created after 1970, according to The Art Newspaper. This is a notable turn from the 1980s and 1990s, when Impressionism was dominant; in 1997, only around 20% of shows organized by American institutions were dedicated to new art (Halperin 2017). By the early 21st century, even museums that were founded as encyclopedic collections devoted to historic objects, such as New York’s Metropolitan Museum of Art, started prioritizing contemporary art in response to a groundswell of public interest, as well as the collecting preferences of museum trustees and donors.

The preeminence of contemporary art as a collecting category was perhaps best evidenced by Christie’s inclusion of Leonardo da Vinci’s Salvator Mundi in its November 2017 Postwar and Contemporary Art evening sale in New York. Traditionally, top Old Master works would be auctioned in dedicated sales in London. Not only was this positioning meant to lure new buyers and trophy hunters, but it also helped make the work’s $100 million estimate appear less aberrant. The sale reflected a move toward greater cross-fertilization of periods and styles at auction, with sales grouped by price level rather than art historical category. Despite (or perhaps because of) this novel approach, Christie’s limited its exposure by lining up a third party to commit an irrevocable bid weeks before the auction, thus ensuring that the work would change hands for over $100 million. When the painting ultimately sold for $450.3 million—the highest price ever paid for a work of art—the guarantor earned an estimated $90–$150 million just for hedging Christie’s risk (Kazakina 2017).

The practice of guaranteeing minimum prices and surrendering commissions, adopted to attract consignments and win market share, has resulted in razor-thin profit margins for the biggest-ticket sales. When Peter Brant sold Jeff Koons’s Balloon Dog (Orange) for $58.4 million at Christie’s in 2013, it broke the record for the most expensive work by a living artist. Yet, according to Brant, the auction house made no money from him, having waived the seller’s commission and having offered him a large share of the buyer’s fees (Bowley 2014). Christie’s meanwhile incurred significant expenses, purchasing insurance and newspaper ads, printing lavish catalogs, and installing the massive sculpture in front of their Rockefeller Center headquarters. This meant little to no profit from the sale overall. The question of profitability has led to changes in leadership and personnel shakeups, as well as new business strategies.

Sotheby’s in particular, a publicly traded company, signaled a shift toward vertical integration through a series of acquisitions in 2016: the Mei Moses Art Indices, an art data firm that uses repeat sales to track market performance; Orion Analytical, a materials analysis firm; and, most controversially, the advisory firm Art Agency, Partners, acquired for $85 million (Sotheby’s Annual Report 2016). In addition to opening a new revenue stream for Sotheby’s, Art Agency, Partners is part of a strategy to “remake the auction house into something like the big banks but for tangible assets,” as Marion Maneker has written, with a trading floor (the auction room), a private sales division, a financing arm, and an advisory business analogous to a bank’s wealth management group (Maneker 2017). As of 2018, the advisory arm has also signed a dozen artists’ estates. Although not without precedent (e.g. Christie’s representation of the Ruth Asawa estate), the move of auction houses into this space raises questions about potential conflicts of interest: can an advisory firm embedded in an auction house impartially advise clients on which artists or artworks to acquire, and from whom, or how an artist’s estate should sell their assets?

The gallery sector is also in a state of flux. At the highest, most competitive, reaches of the business, Leo Castelli’s global cooperation model, in which artists are represented in different markets by different galleries that partner and coordinate, has been largely supplanted. Instead, the so-called mega-galleries have embraced a new paradigm: the gallery as a global brand with dozens, if not hundreds, of employees and multiple locations in cities across the globe. Among them, Gagosian has seventeen locations worldwide, Pace Gallery nine, Hauser & Wirth eight, David Zwirner seven, and Marian Goodman three. Regardless of the location, these galleries consistently occupy impressive, photogenic “white cube” spaces, which not only act as extensions of the gallery’s brand (especially now that installation shots—emailed, posted, liked—are a crucial marketing tool) but also play a role in attracting and retaining artists.

As mega-galleries expand globally, thorny situations sometimes arise when artists are represented by multiple competing galleries in the same city or region. The new full-service model acts as an appeal to artists for exclusive and global representation, giving galleries greater control over their artists’ markets, allowing for greater efficiency, and procuring more art for an ever-increasing number of exhibitions. The demands for fresh material from various gallery locations and art fairs has resulted in expanded artist rosters, with the number of artists listed on the mega-galleries’ websites increasing substantially from 2008 to 2014: Gagosian by 36%, Pace by 65%, Hauser & Wirth by 59%, David Zwirner by 58%, and Marian Goodman by 26% (Winkleman 2015).

Individual outposts are also growing in size and ambition. For instance, Hauser & Wirth’s 116,000 sq. ft complex in Los Angeles features a restaurant and bar, houses a bookstore, runs an education program, and hosts months-long exhibitions (atypical for commercial galleries whose shows usually last six weeks). At the time of its opening in 2016, it was helmed by Paul Schimmel—the former chief curator of the Museum of Contemporary Art, Los Angeles—operating, in effect, like a public institution from which one could buy works off the walls. This may be a harbinger of what is to come; Pace is consolidating its New York operation—in 2018 spread over three locations—and building an eight-story, 75,000 sq. ft headquarters. Mere blocks away, David Zwirner is planning a five-story, $50 million gallery designed by Renzo Piano, and Hauser & Wirth is constructing a five-story, multi-gallery building that will include a bookshop and a restaurant.

These new strategies have consolidated power and influence in the hands of a few select players, to the extent that artists represented by five galleries (David Zwirner, Gagosian, Hauser & Wirth, Marian Goodman, and Pace) received 30% of solo shows in American museums between 2007 and 2013 (Halperin 2015). It is a chicken or egg scenario, however: these top galleries often represent the artists with the greatest critical renown and market appeal, although they also happen to have the most resources to hire museum liaisons, directors of education, and in-house book publishers, who have done much to cultivate relationships with institutions and increase these galleries’ and their artists’ prestige and visibility.

Homogeneous taste—exacerbated by an influx of new buyers and the parallel rise of the art advisory business—has only reinforced a winner-takes-all market. In the first half of 2017, just twenty-five artists were responsible for nearly half of the $2.7 billion in contemporary auction sales worldwide (Halperin and Kinsella 2017). Almost all of these artists were also affiliated with mega-galleries. But for new buyers, who may lack confidence in their own taste and also the time to research and source less-familiar artworks, purchasing established, blue-chip names reduces search costs and perceived risk. These artists’ prominence means that their works are better known, as are the stratospheric prices that they command, making their “consumption” all the more conspicuous.

The superstar effect has contributed to increasing polarization in the business. According to a 2011 report published by CINOA, the Brussels-based federation of art and antiques dealers, the top 2% to 5% of dealers are responsible for well over half of the value of sales in the gallery sector (McAndrew 2011). Indeed, Gagosian Gallery alone is estimated to sell $1 billion of art per year (Lipsky-Karasz 2016) and, in 2017, David Zwirner reported selling 1,400 works for a combined worth “well over $500 million” (Lubow 2018). There is similar dynamic at play in the auction sector, where the ten largest multi-national auction houses account for over 65% of sales. Market share is directly correlated with price levels: in the gallery sector, while only one in fifty sales exceeds $1 million, such sales generate 18% of the total value (McAndrew 2018). In the auction business, sales over $1 million represented less than one in a hundred transactions but accounted for over 60% of the sector’s value.

Stiff competition from the top, plus mounting overhead costs—rising rents, the expense and grind of attending multiple art fairs, etc.—has led to a spate of middle-tier gallery closures. Functioning as a kind of double-edged sword, art fairs have both facilitated sales, accounting for 46% of dealer sales in 2017, and made the current model increasingly unsustainable (McAndrew 2018; see also Biennials and art fairs). Meanwhile, more and more low-cost, collaborative initiatives have emerged, including pop-ups, gallery-share partnerships, and month-long art fairs/residencies. Online sales offer another alternative and are poised to be a driver of structural innovation (see E-commerce and the art market). The gallery model that necessitates a permanent physical space appears ripe for upending.

The foundations of the art market resisted change for generations. The bricks-and-mortar model has a long historical lineage; it can be traced back to Watteau’s 1720 painting of his dealer’s shop, which not only depicts Edmé-François Gersaint’s enterprise but also reveals the marketing potential of the gallery space itself. Similarly, the basic auction house model, which also dates to the 18th century, has remained centered almost exclusively on auctioneering until its recent expansion. With its two main business models evolving, and a digital revolution looming, the art market seems to be on the cusp of profound change. Still, the imposition of neoliberal logic on culture appears unlikely to abate. From polarization in the market, to the blurring of boundaries between the commercial and the non-commercial, to the use of art in the service of urban regeneration, a distinct economic worldview is now ingrained in the institutions that display, circulate, and transact art.