The Art Market is Broken
Discover more from The Letts Journal
The Art Market is Broken
Web 3.0, digital art and NFT's could change everything
The global art market was valued at $50 billion in 2020 (according to Statista), dropping by roughly $14 billion over the previous year, due to the impact of the pandemic. The market has rebounded strongly in 2021 to possibly closer to $70 billion. NFT sales apparently topped $40 billion - making the overall maths a little confusing. Something seems to be broken.
The art market is still dominated by physical art sales in physical galleries, art fairs and auction houses - you know, the pre-Google world. The art world is tough, the rules are mysterious to the uninitiated, and only a few make money. Most are not artists.
Life in the art market is torn between culture and commerce, nowhere better illustrated than in art galleries. They are the institutional gatekeepers/body-blockers to the art world and its paradoxes, yet despite their position at the intersection of culture and commerce, we know very little about their process and finances.
The art and its commerce come first. The artist often getting relegated to a distant studio - the last to get paid. The first to get sidelined in the convoluted and sometimes murky chain of moneymaking. Surely something needs to change.
The vast majority of artists are talented and produce valuable, independent art. They just need to get discovered more easily and their art needs to become more accessible. Surely this was what the internet was meant to make happen? Less dealer hype and more artist love.
Online art is a fast growing new trend - one that will surely change the dynamics as it already has for writers and bands and Kylie Jenner. Some in the art world will attempt to control digital and NFT art, but it may not be so easy this time around. You try smuggling digital art through a blockchain!
For centuries, the art markets have operated behind closed doors through a complicated network of collectors, dealers, galleries, and museums who guard art prices and artists work from all but a select group of professionals. The opposite of something like the stock market (Bernie Madoff aside), where the values of companies changing hands are publicly broadcast on an exchange, there are no such expectations for transparency.
Most galleries make their money from just a handful of artists. According to Magnus Resch, there are roughly 19,000 galleries in 124 countries in 3,533 cities worldwide. The US and Europe are home to 83% of all galleries worldwide, with 34% in the US. New York, London, Berlin and Paris are the cities with the most galleries.
Magnus Resch goes on to state that 55% of art galleries generate revenues of less than $200,000 and 30% run at a loss. Only 18% make a profit margin over 20% and a little under half of them have no full time employees!! Almost 90% of all galleries do not have a subsidiary making this one of the most fragmented industries around. It kind of leaves you wondering what many of them are doing?
Of all galleries, 93% deal in contemporary art; only 5% deal in modern art; 78% deal in nothing other than contemporary art. Galleries that deal in Old Masters show the highest profitability, galleries dealing in contemporary art the lowest. It seems that dead artists are worth more…
Gallerists fear artists as a top three competitor - which pretty much says it all. Too often there seems to be tension in the relationship. Stories abound about artists not being paid until well after an art sale and the occasional mystery of ‘lost’ artworks. Most galleries are short lived with more than half the galleries worldwide having started after 2000. I wonder why?
According to ACS data there are 1.4 million working artists. There are also estimated to be around 3.5 million professional photographers and millions more designers and filmmakers. And yet, the volume of global art sales reached just 31 million recorded transactions in 2020, down from over 40 million in 2019. There are almost as many ‘artists’ as there are transactions. The term broken could be an understatement. ‘Rigged’ might be a better word.
The answer could stem from the choke hold that traditional art galleries have on the market. It is a little reminiscent of high street retailers pre-Amazon. Or maybe more like Lucky Luciano during prohibition. There is no Amazon, ebay or Spotify for the art world. As a result it is one of the least transparent markets around with often no correlation whatsoever between the actual cost of producing art and its price/value/pie-in-sky.
Another problem stems from the artists themselves and the lack of DIY tools to help them with the commercial side of things. They can get so focused on the creative process that they forget to put the hard yards into valuing, promoting and selling their wares. A bit like designing the worlds coolest car but leaving it in the garage because the ‘other part’ is just too hard. And yet art enthusiasts love ‘authentic’ artists.
Apparently the most frequent visitors to a gallery are the art enthusiasts, who come to see the works of art, or the opening crowd, who attend a new exhibition for social reasons. Neither group buys in-gallery. And yet, the most frequent buyer is the art lover, which means that art buyers are quite capable of buying their own art online - and would likely enjoy following their favourite artists more closely. Instagram is a half start.
The pandemic urged auction houses and art dealers to stop dragging their heals and strengthen their digital departments. And with the pop of a machine gun Kelly the online art and antiques market doubled in 2020 compared to the previous year, reaching $12.4 billion in 2020, rising from $6 billion in 2019. Online art sales are 20% of art sales. And yet according to the UK’s Office for National Statistics internet sales now account for around 30% of total retail sales. Which means that online art sales are likely to continue to grow.
Millennial and generation Z artists are increasingly developing both physical and digital art with an online presence. Many of them cannot afford to live in a major city where most of the art galleries are located. As a result they have to make their online presence work for them.
And the behaviour of the art buyer is changing. They are younger, more digitally savvy and less inclined to show up to art openings and in-gallery exhibitions. They accept that art has broadened into photography, video, performance art and ‘conceptual anything-goes-art’. The idea rules. Digital art is cool. The new kind of art suits online.
All of this was brewing before the growth of the creator economy and the rise of unicorn’s such as Patreon for bands and Substack for writers. A new entrant, LettsArt, wants to become the Web 3.0 platform for visual artists.
At the same time digital art and NFT’s are upending the art market. Traditional galleries and auction houses are nervous because this market is driven by the internet and opening the market to younger buyers in their 20’s and 30’s, many of whom have ridden the crypto price surge and are looking for something to trade into before it all comes tumbling down - NFT art could be the answer.
These buyers have fewer walls, living in small ultra urban spaces, so digital art holds great appeal. After all, if you live in a box with more windows than walls and you can’t hang a picture, you can keep your NFT collection on a thumb drive. The demand is clearly there as NFT art sales have grown to become a $40 billion industry - almost overnight. Forget crypto or Al Capone, this is where the real action lies!
Mind you, this market is currently driven by early stage cryptocurrency exchanges that are niche, early adopter outlets for digi-art and collectibles. NFT art needs to move into the mainstream and out to the wider cash economy. Hopefully freer from the stranglehold of traditional dealers. It is interesting to note that many of the successful artists in digital auction sales are lesser known. It looks like the new, hip crypto collector is less influenced by the rules and stereotypes of the traditional art market.
It could be that the pieces are falling into place for artists to finally take advantage of the trend to buying art online, with the freedom and choice made available by NFT’s and digital. The conditions might even be there for an Amazon of the art space to emerge.
Web 3.0 will bring transparency to the art market and put power back into the hands of the creators. Dealers should take note. The old, opaque, back street dealer-driven world might soon be over.
“The art world feels very sexy to people because it is secretive,” Esther Kim Varet, the owner of the L.A. and Seoul gallery Various Small Fires, said at a panel discussion at Art Basel. “There are a lot of barriers and it feels exclusive once you get in. And I fear that the more pricing transparency there is … we’re going to have to invent new ways to create this aura of exclusivity or privilege. Not that those things are things that we should value but it’s just kind of what the art world is built on.”
Well, maybe no longer.
More than ever, the art market as we know it might be dead. Long live the art market.
Keep up to date with the Letts Journal’s latest news stories and updates on twitter.