The recent announcement of Sotheby’s acquisition by French billionaire Patrick Drahi has spurred many to think more closely about how the company and the wider art market might develop free of the constraints of short-term shareholders.
Mr Drahi bought an organisation that has two main existential questions to answer: how to prosper in an online world and how to guarantee a future generation of buyers through the expansion of its middle and youth markets.
"Despite what people outside the art market tend to think based on the headlines about colossal prices and world records, the auction business has historically been, and continues to be, a pretty low-margin proposition [for shareholders]," Tim Schneider, an art market analyst and author of The Great Reframing: How Technology Will (and Won't) Change the Gallery System Forever tells The National.
"The enormous sales prices get undercut by enormous costs.”
Sotheby’s annual shareholder report for 2018 lists “inventory sales, agency costs, marketing, salaries and administration” as its largest outgoings. For the years 2017-2018, total costs came to $812.1 million (Dh3 billion).
The Art Market 2019 report by Art Basel and UBS shows the auction sector (including both public and private sales) made up 46 per cent of the market, down 1 per cent year-on-year.
However, one area of growth has been online sales, which lies outside top-tier auction houses’ traditional remit. Sotheby’s annual investor report shows online buyers spent $220 million, a 24 per cent increase from the prior year. This year the digital marketplace has accounted for 37 per cent of all lots sold at Sotheby’s.
Part of Sotheby’s online sale growth has been generated by its BidNow real-time feature that is built into the Sotheby’s phone app. At 10,000-plus downloads on Google Play, Sotheby’s app is dwarfed by other auction sites such as eBay (100 million downloads.)
As Thomai Serdari, a strategist in luxury marketing at NYU Stern, points out, the audiences for such technologies are very different. "The issue is that Sotheby's is in the business of selling luxury goods of unique intangible value and this is a trait that is incompatible with how the public markets work," she tells The National.
Noah Wunsch, global head of e-commerce at Sotheby's, says despite the advent of new technology, the auction house will remain true to its roots. "The traditional auction model has succeeded at Sotheby's for nearly 300 years and we have no intention of moving away from it," he tells The National.
"We like to think of Sotheby’s as a 275-year old start-up, and we are continually looking to develop or acquire new digital technologies to complement our traditional auction mode.” He adds that 57 per cent of bids in online-only sales so far this year have been placed via a mobile device, many on items in non-traditional collections such as Supreme Skateboards, Stadium Goods Sneaker Collections and Hermes handbags.
“Online bidding is now the most popular way to bid among Sotheby’s clients, surpassing telephone bidding as a preferred method to participate in our auctions earlier this year,” says Mr Wunsch.
However, Wendy Goldsmith, the chief executive of Goldsmith Art Advisory, and former expert in 19th-century European art at rival auction house Christie's, is less convinced of the role of technology. "The bottom line here is that I don't think BidNow will have much effect on Sotheby's turnover," she tells The National.
"Don’t forget, this is simply another tool to bid in their live auctions, which one could always do by telephone in the past through an auction house representative in the sale room. It’s very difficult to reinvent the wheel in such a traditional market that is often led by personal and emotional decisions when purchasing a work of art.”
She concedes, though, that “younger bidders may now be more comfortable using the latest technology instead”.
Such technologies such as Sotheby’s BidNow do offer a potential solution to the top end of the art market’s other problem: falling volumes of sales.
A spring 2019 report by online auction and content platform Artnet shows there has been a contraction in the volume of auction sales yet, at the same time, an increase in the value of the sales that were made. It says the total number of artworks sold at auction dropped for four consecutive years to the end of 2018 and that 7.5 per cent of the total $29.1 billion revenue from fine art auction sales was generated from the sale of only two collections, the Rockefeller and Ebsworth estates.
While the volume of sales has shrunk, auction houses have been successful in achieving high prices for individual items. The average price for a piece of art has gone up to $59,000 earlier this year from $43,000 in 2013, “a rate of growth that far outpaces inflation", according to Artnet.
In response to the rise in sale values and drop in sale volumes, Sotheby’s has made a series of acquisitions to help it better target the middle market and younger buyers. In 2016, Sotheby's bought small art-tech companies such as Art Agency, Partners and Mei Moses Art Indices, an art-market analysis tool and in 2018 it picked up ThreadGenius, an AI start-up that recommends works of art to customers.
This has in turn helped Sotheby's lure a younger audience. According to a 2019 report by Art Basel and UBS, 53 per cent of millennials and 70 per cent of Gen Z buyers — those born in the mid-1990s to early 2000s — “always or often” use online platforms to purchase art, especially via Instagram. However, the report points out that the figures are only for high-net-worth collectors, and says little about the potential of the growth of online middle markets.
However, Mr Wunsch is upbeat about the art market’s accessibility online. “Average price points in the online-only sales tend to be more accessible, which can be attractive to people who are just starting out … offering price points for both new and seasoned collectors, from original film posters starting at $350 to [lots] like a pair of 1972 Nike "Moon" shoes, which sold for $437,500.”
Online auctions, he says, attract a high proportion of new buyers and bidders to the company, "some of whom are perhaps initially a little nervous participating in our live auctions straight away”.
How Sotheby’s, under Mr Drahi’s ownership, might pursue online growth and new buyers remains to be seen but by going private there should be additional advantages.
“To reach [emerging] customer segment[s], any auction house would need time to research the market and prospects and to develop a solid network that will facilitate its business,” says Ms Serdari.
She also points to Mr Drahi’s online credentials as founder and controlling shareholder of the Netherlands-based telecom group Altice. “[His] digital markets background will come in handy as he strategises … Sotheby's as a [21st century] auction house.”
Ms Serdari believes the traditional and the new will likely coexist. “Commerce takes place off and online but the challenge is to figure out the appropriate combination of channels.”
Mr Schneider, the market analyst, is more sceptical that concepts such as BidNow will be further developed under Mr Drahi.
“While it's reasonable to think that, as a telecoms magnate, Drahi would look to create new efficiencies through tech, [these] areas have allegedly been priorities since Tad Smith came on as chief executive [in 2015] … and they haven't made a tremendous difference [to] Sotheby's bottom line,” he says.
"The real advantage goes to who more progressively thinks about how things could be done differently in the future, not which one manages to more aggressively embrace how things have been done in the past.”
