Suite for the Sweet

Artist Resale Rights in the United States

By MICHAEL MCCULLOUGH          February 19, 2014

Whenever I read about efforts to legislate an “artist resale royalty” in the United States, there comes back into my mind the memory of a conversation I had about ten years ago when the British Parliament was debating the implementation of the EC Directive on artist resale rights.

I was interviewed by an aide to a British MP who was writing a report on the likely effect of the artist resale right upon the British art market. The artist resale right was adopted by the European Parliament in September 2001, and those countries like the UK that did not already have a resale right at that time were required to put one in place in 2006. The Brits were one of the last in Europe to adopt the right; the artist resale right was first introduced to Europe by France in the 1920’s (for auction sales only) – which is why it is often referred to by the French term “droit de suite”.

My interview focused on the competitive disadvantage brought about by the artist resale right to those British auctioneers who competed with auctioneers in the United States for consignments. It was my opinion at the time that the resale royalty put auctioneers in Europe at a competitive disadvantage to auctioneers in countries without the royalty. This is especially true at the high end of the art market where a seller can choose a sale venue in one of several different countries around the globe. I still believe this to be true, but I don’t think the royalty’s effect on the market is so great as to make it punitive; by way of example, the maximum payment under the UK law is €12,500, a miniscule amount in light of today’s nine-figure sale prices. In consequence of this, I don’t believe an artist should be denied the right to share in the financial gains upon the later resale of an artwork. I do, however, believe that-for very different reasons- there will not be an artist resale royalty in the United States anytime soon.

One of the founding principles of American jurisprudence is the idea that private property can never be taken by the government without just compensation. This is the concept of “what’s mine is mine and what’s yours is yours,” and Americans prefer things organize in this clear and tidy manner. In other countries, artwork and other types of personal property can be taken away by the government without any compensation; in other words, “what’s yours is mine.” Americans don’t care much for others coveting their wares; envy and jealousy are fine, but no coveting.

In light of this principle, the artist resale royalty looks very much like a version of “what’s yours is mine.” Most visual artists retain the copyright to their artwork, so they are free to exploit their images commercially should they choose to do so. And an artist can, and many do, create images in series or multiples, so that a single image or concept can be exploited over and over again. Many who favor the artist resale right point to the ability of authors and composers to be remunerated for the reproduction or performance of their work, and the artist resale right is intended to create a parallel benefit. This comparison breaks down very quickly when you realize that in the artist example no additional instance of the original artwork is brought to the market; the correct analogy would be if Salmon Rushdie could claim some further payment for every copy of Midnight’s Children resold in a used bookstore above the $13 price at which it was originally published in 1981. No such right exists today for the author or composer. In fact, what is being proposed in the artist resale royalty is a new right that is not really a royalty at all- it’s more like a profit share- and fits awkwardly with existing concepts of property and ownership. As I said earlier, such a right seems like a good idea at first blush, as most things do, but to justify the right upon the comparison of payments to authors and composers is dubious.

The strongest argument against the resale royalty is also the most fundamental; it simply doesn’t work. The high end of the global contemporary art market is driven by the sale of artworks done by about a thousand artists. The other million-and-a-half artists who worked at some point in the past seventy years are excluded from the revelry. The same is true for the visual artists of the Impressionist and Modern eras. If you don’t believe me then visit any regional auctioneer to view their auctions and you will find that many very good paintings and sculptures can be purchased for under $1000. Most of the artwork created over the past century, when adjusted for inflation, has not appreciated in value at all, so the concept of helping the poor, starving artist is little more than a fiction. The experience in Europe is that the vast majority of artist resale royalties are paid to artists or the families of deceased artists who are financially secure. The fact is that successful artists, just like successful authors or composers, are rewarded commercially; if you compare the art-derived income of creative individuals of equal seriousness and achievement across creative platforms, then you will find that visual artist do very well. Compare Damian Hirst in relation to Cormac McCarthy and Thomas Ades; Marina Abramovic to Joyce Carol Oates or Jennifer Higdon; or pick your own comparison. If you do it fairly, you will find that visual artists usually fare better than their peers who work on royalties.

Creating an artist resale royalty in the United States would also tarnish the attractiveness of art as an investment, thereby decreasing the pool of funds available to purchase artwork. Any legislation aimed at helping struggling artists should address the need for an initial market for their work, as today’s artist struggles for access but manages quite well once the market accepts them. A good way to help artists would be to give collectors incentives to buy more artwork- to abolish the sales tax on purchases of artwork below $5000 or to defer capital gains on artwork that is sold to purchase more artwork. Like it or not, the free market works very well for many artists and the goal should be to keep it that way.

Success in the Machine

Good Artwork Always Sells at the Right Price.

by MICHAEL MCCULLOUGH          November 6, 2013

A dozen years ago anyone who foretold the size and importance of today’s global auction market would have been looked on as a lunatic. And yet the truth is that the present market ought to have been predictable even during the Great Recession. Something like it was bound to happen as soon as the financial benefits of globalization started to kick in.

Of course, much of the success of the auction market rests upon the mechanics of the auction process itself. Take, for example, how auction estimates are set: every auctioneer will tell you that low estimates bring high prices. This sounds counter-intuitive, but it’s a fact that competitive bidding is never as robust as when the bidding starts at a relatively low level and works up toward the object’s market value. In consequence of this, auctioneers will always advise a seller to accept estimates lower than his or her expected return on an object in the hope that the bidding goes above the high estimate (auction estimates are always a range, such as $5,000-$10,000, with the former being the low estimate and the latter being the high estimate).

The dilemma for the seller is that the “reserve price,” the confidential price at which the auctioneer will sell the object, cannot exceed the low estimate (at least in honest auctions), so the seller takes the risk of the object selling to a single bidder at the reserve price in the absence of competitive bidding. A seller who wants the certainty of obtaining a high price will insist on higher estimates, and many of these lots fail to sell because bidders are reluctant to start bidding competitively at a high level. This week at Christie’s, Modigliani’s “Monsieur Baranowski” failed to sell because the estimates were set too high. The picture, estimated at $25–$35 million, would have had a much better chance of selling at the $25 million mark had the estimates been set lower at $20-$25 million, or at least would have sold within those estimates. In contradistinction, Kandinsky’s “Schwarz und Violett,” that had been estimated conservatively at $4.5 million to $7.5 million, sold for $12.5 million, still a good buy. All of this is to say that competitive bidding is as much an exercise in psychology as it is in economics.

Traditionally, about a third of the objects offered at the major auction houses do not find a buyer. Of those that do sell, about half sell within the estimates and half sell above the high estimate. This means that global auctioneers have a .667 success rate, which is also an outstanding batting average in the major leagues. It also means that the auction houses are very good at convincing their clients to accept reasonable estimates.

So, why is this important? Because auction houses make their money from charging the buyer’s premium, which is a percentage of the sale price of an object, calculated on a sliding scale that averages about 20%. While they also charge the seller a commission, referred to as the “vendor’s commission,” it’s usually negotiated away by sellers of high-priced objects and only ranges between 6-10% for lower priced objects. But the buyer’s premium is sacrosanct, never waived and is where most of an auction house’s revenue is gained. As a matter of fact, the major auction houses make no profit from the vendor’s commission at all, as it just pays for the lights. All of the year’s profits are made from collecting the buyer’s premium, a majority of which comes from only five collecting categories: Impressionist and Modern, Post-War and Contemporary, Old Master Paintings, Jewelry and Special Collections (single-owner sales such as Jacqueline Kennedy-Onassis or Liz Taylor).

All of this is why the “White Glove” sale, where 100% of the lots are sold in an auction, is so coveted among auctioneers. It means that the most profit possible was achieved from the sale, and results in the popping of champagne corks and cartwheels in the street…..literally.

Note: An earlier version of this article appeared on Gallery Intell.

Iron and Light

By MICHAEL MCCULLOUGH          May 31, 2013

MoMA Exhibition, “Henri Labrouste: Structure Brought to Light”

Very little in museum exhibitions of contemporary prints and photographs makes any deep impression on me these days. That is a confession of something lacking in myself, but it is not, as it may appear at first sight, a reason for ignoring the exhibition schedules entirely. MoMA’s special exhibition, “Henri Labrouste: Structure Brought to Light,” is a fascinating study of the evolution of architecture in the 19th Century from neoclassic idealism to modern rationalism, a transition accomplished through a re-interpretation of the ancient art forms, a reminder of why the study of Antiquity is still important today.

Henri Labrouste was a French architect who, from 1824 to 1830, studied at the French Academy in Rome, where he developed his ideas on “romantic rationalism” in architecture. Before Labrouste, the Beaux-Arts school insisted that architectural design should conform to certain ideals of structural form agreed upon by the Academy. Labrouste believed that architecture should reflect the needs of society, and his work reflects this rationalism by incorporating the technical aspects of industrial society in its design. Labrouste’s reputation rests on his Bibliothèque Sainte-Geneviève, Paris (1838–50), a superbly clear design in which an elegant cast iron structure seems to have been slotted into the cage of masonry: it was one of the first monumental, rather than utilitarian, public buildings to have an exposed cast iron frame in the interior. The masonry exterior is a powerful Cinquecento essay employing a range of semicircular-headed windows to illuminate the great library space inside. His work on the Bibliothèque Sainte-Geneviève placed Labrouste in the highest echelons of French Government architects, and between 1854 and 1875 he created the iron and glass interior of the Reading Room at the Bibliothèque Nationale in Paris. In consequence of these achievements, Labrouste was one of those rare artists whose works became a benchmark for aesthetic design, both in France and around the world. And Labrouste’s libraries are, to me, two of the most beautiful spaces in all of Paris.

My first encounter with the Bibliotèque Sainte-Geneviève was not in person, but through the eyes and ears of Stephen Daedalus in Chapter Two of James Joyce’s Ulysses:

Aristotle’s phrase formed itself within the gabbled verses and floated out into the studious silence of the library of Saint Genevieve where he had read, sheltered from the sin of Paris, night by night. By his elbow a delicate Siamese conned a handbook of strategy. Fed and feeding brains about me: under glowlamps, impaled, with faintly beating feelers: and in my mind’s darkness a sloth of the underworld, reluctant, shy of brightness, shifting her dragon scaly folds. Thought is the thought of thought. Tranquil brightness. The soul is in a manner all that is: the soul is the form of forms. Tranquility sudden, vast, candescent: form of forms.

As a young adult I visited Paris with the intention of photographing French architecture, and I remember being mesmerized by the quiet strength and utter accessibility of the Bibliotèque Sainte-Geneviève.  What I failed to realize at the time- but know now after seeing MoMA’s exhibition- is that Labrouste’s perspective on rationalism was not a revolutionary thought but an evolutionary one gained by re-interpreting the meaning of ancient Etruscan architecture.

The Beaux-Arts School in France in the 19th Century was modeled on the study of classical antiquities, so there was a great emphasis on maintaining classical forms of structure. Labrouste, as a young student, decided to look at the classical forms with a fresh eye. In his Master’s thesis on the Greek temples at Paestum, Italy, Labrouste was the first to theorize that the architecture at the site had evolved from the classical Greek architectural styles introduced by Greek migrants. The Beaux-Arts school taught that the buildings at the site that didn’t meet the perfection of classical Greek style must have been earlier and poor attempts that missed the mark. To Labrouste, the structures at the site, all built within 100 years of each other, marked the localization of techniques imported from Greece; Labrouste argued that the building that closely resembled classical Greek proportions was build first and the other structures came later, as the buildings evolved from a process of adaptation to the new colonial environment at a time when the local inhabitants “having grown more powerful, wished to create a new architecture.” These thoughts on the evolution and adaptation of architecture informed later architects on the purpose of their craft and are still with us today.

Henri Labrouste, Capital and base of a column of the portico at the Pantheon, Rome, 1925-1928, Pen, ink, graphite and wash on paper.

MoMA does a superb job of underscoring Labrouste’s contribution to modern architecture, but equally impressive is the reflection on Labrouste’s study of ancient design and how the ancients helped Labrouste find modernity. We’re reminded how the study of ancient art can help form great minds. It’s easy and sometime convenient to associate the collecting and study of ancient art with the wealthy class, but in reality the middle class is the main beneficiary of our museum collections of ancient art. Wealthy American student can afford to visit Italy and Greece on extended stays, and ancient art is readily accessible to them in situ, much the same as it was for Labrouste. Middle class students in America access ancient art by visiting museums and working with academic collections, and only on occasion do they travel abroad. And let’s not make the mistake of thinking that ancient art can be studied through photographic images; the exhibition also tells us how important it is for students to view ancient art in person. On display is Labrouste’s pen and ink drawing of a capital and base of a column from the Pantheon in Rome, an amazing study of structure and light that has an almost photographic quality to it; never could this work have been done without him spending countless hours viewing the site. Likewise, in his drawings of Paestum, the rendered shadows of feathers from arrows and the shadows of shields lashed to the marble columns are drawn so elegantly that it’s almost impossible to believe they were done by a human hand.

Recently, American museums have been pressured to return ancient artifacts to their source countries due to theft and misappropriation. While these institutions must comply with the law, some thought should be given to safeguarding the collecting of ancient art, as to insure that future students have access to broad collections of ancient art without having to travel thousands of miles to see them. As history teaches, the future will always depend upon the reconsideration of the past.
“Henri Labrouste: Structure Brought to Light”
Until June 24, 2013
The Museum of Modern Art, Special Exhibitions Gallery, third floor

A Breakdown in Appropriation

A New View on Using Copyrighted Images

By MICHAEL MCCULLOUGH          April 30, 2013

When a Federal court scratches its head about how to regulate the art market, get ready for total baldness as you start tearing out your hair. Last week, a Federal Appeals Court in New York issued one of the daftest opinions of recent memory in the copyright infringement case against Richard Prince. As you read the decision you get a sense that the court not only misunderstands the art market completely but that it lost track of what the copyright law was meant to protect. If the decision is not overruled by the Supreme Court then the case will certainly change the way artists use appropriated images.

I don’t think the judges ever thought to consider the difference between artistic and commercial achievements in the art market, a common problem in our larger society. And you can see this coming from a mile away when they cart out the Great White Father, himself, as the poster boy for 20th century expressionism. They describe Warhol’s work, incorporating appropriated images of Campbell’s soup cans or of Marilyn Monroe, as commentary on consumer culture and exploring the relationship between celebrity culture and advertising. The first error in this reasoning is that it’s Duchamp and not Warhol who sets the standard for artistic expression in the 20th century. The court forgets that appropriation, at its core, is a philosophical inquiry into a person’s relationship with the material world and not a psychological tour of the various artists’ and patrons contributing to the dialogue. Furthermore, Warhol’s appropriations were largely of images already commercialized, as his intent was to comment on a commercial, consumer society; since the images had been put into the commerce to promote products or people, the people who owned those copyrights were happy for Warhol to exploit them. During his lifetime, Warhol retained the copyright to his own artworks and never addressed the issue of any rights of the Campbell Soup Company. It’s interesting how the court completely misses that Warhol’s use of Campbell’s copyright was certainly a copyright violation in 1962. Warhol never sought permission from the Campbell Soup Company to paint their soup cans, but, then again, the company viewed his use of their copyright as amusing, expressive, and confirming the status of their tasty soup in American culture. All of this is aside from the fact that it was free advertising for Campbell’s, something no marketing department would balk at. It was only after Warhol’s death, when the Andy Warhol Foundation began making licensing agreements with various manufacturers to use Warhol’s imagery on products, that there was an official legal agreement between the Andy Warhol Foundation and Campbell Soup Company. Presently, both parties own a stake in the copyright and neither party can make licensing agreements without the other party’s permission.

I won’t even begin to address Warhol’s use of celebrity images, as that discussion could take volumes to complete. Suffice it to say that most, if not all, of Warhol’s celebrity subjects would have happily given their and their photographers’ copyrights in those images in exchange for Warhol’s endorsement of their iconic status. The fact that the court made no distinction between Warhol’s use of consumer products and his use of celebrity imagery is another sign of something gone awry.

In contradistinction, the photographs done by Cariou and appropriated by Prince were not put into the consumer culture in any comparable way to the images appropriated by Warhol. Again, the court misses the idea that Warhol’s use of images certainly violated copyrights at the time; it’s just that the owners didn’t object because they already had the iconic status that Warhol was commenting on, so the use offered no harm to them. In contrast, Prince’s use of Cariou’s images does nothing for Cariou and allows Prince to exploit Cariou’s work in a way the copyright law was meant to dissuade. And here’s another comparison that is telling: Warhol only sold five of his 32 soup can paintings at the opening show in 1962 for a hundred dollars each. On the other hand, some of Prince’s paintings and collages in the Canal Zone series sold for over one million dollars. Could the court have considered the economic exploitation as a factor in whether Prince’s use was a “fair use”?

The answer is yes, but they decided not to. The Copyright Law of 1976 allows a court to consider “the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes.” This part of the law is meant to favor nonprofit uses over commercial uses, but within the realm of permissible commercial uses the court could have considered the commercial exploitation of Cariou’s photographs. Instead, they decided that since Prince’s works were “transformative” they were not going to “place much significance” on the fact that the use was commercial. In essence, the commercial versus nonprofit distinction has been abandoned.

The court also said that Prince’s work needn’t comment on Cariou’s images or on aspects of popular culture closely associated with the images, as the law does not require the secondary use to comment on the original artist or work, or on popular culture. They found that twenty five of Prince’s artworks make fair use Cariou’s copyrighted photographs because they are “transformative.” The other five works were sent back to the lower court for a decision based upon the courts new standard.

Now that an artist need not justify the secondary use with some specific commentary or criticism, the new work must only alter the original with “new expression, meaning, or message” to qualify as a fair use. In that regard, Judge Barrington Parker, Jr. wrote, “[w]hat is critical is how the work in question appears to the reasonable observer, not simply what an artist might say about a particular piece or body of work. Prince’s work could be transformative even without commenting on Cariou’s work or on culture, and even without Prince’s stated intention to do so.”

Of course, the “reasonable observer” in the final analysis will be a judge, so it will be difficult for an artist to make any decisions about employing fair use without the aid of a lawyer. And that- the need to have a lawyer in the artist’s studio passing judgment on the work- might just mark the end of appropriation art as we know it.

The Economics of Art

By MICHAEL MCCULLOUGH          March 28, 2013

From the Soft to the Nonexistent Middle Market

Andy Warhol is quoted as saying “[a]n artist is someone who produces things that people don’t need to have but that he – for some reason – thinks it would be a good idea to give them.” I don’t know if this is an accurate quote, but it does touch upon some important concepts in today’s art market. What made Warhol so brilliant was his understanding of how surplus capital in an economy enables an artist to make a business out of giving people things they don’t need. And underlying this notion of serving a nonexistent demand is the truism that selling art is even more of a game than making it.

For gallerists who don’t understand this concept, the art market has become a difficult place to do business. For the past six years, those selling in the middle market have found it difficult to find buyers for low and medium priced works. This is not generally true for larger galleries who report strong sales in higher priced works. Many people have contemplated the motivations of buyers at the high end of the art market, as opposed to the more important question of what makes this type of market possible in the first place.

The difficulty of thinking about art as a commodity is that the supply side of the equation works differently in the art market when compared to other industries. In most markets, the supply fluctuates- both up and down- based upon the capacity of producers to meet demand; if demand falls then producers cut production. In contradistinction, artists give art to the world out of their need for expression, something necessary for their survival; most artists would continue creating art regardless of whether anyone purchased their work. In essence, the production side of the art market might be constrained when there is excess demand, but production would exist in some form or another even if there were no demand at all.

Consequently, the gallerist has to act as the regulator of supply, releasing works to the market in order to manage demand. And the better the gallerist is at creating demand and regulating supply, the more successful the gallerist will be. This might sound like market manipulation, and it is, but you have to remember that the supply side of the art market works differently than other markets.

Think for a moment about the most quintessential of American purchases: the automobile. Americans not only adore their cars, but need them in order to function in society. Except for in a few major cities, it’s not possible to live and work in the United States without a car. Necessity drives car purchases in the first instance, and vanity only enters the picture when you consider all the extras that you really don’t need but might desire anyway. Americans don’t buy art in the same way they buy automobiles. As Warhol points out, art is not a necessity for most people; it’s a luxury or, as some people in the art market like to call it, a “vanity” purchase. Most American homes are devoid of original artwork, especially of a quality recognized by art critics as important art.

I should add that none of this analysis reflects upon the art itself. Yes, art can be uplifting, and it can make us think about the world in a different way, and our cars can’t do that. And, yes, artists play a very important role in our society. But that role is not a function of the market. This is the crucial point. People pay large sums of money for artwork because they want to own, and thereby control, the dissemination of the artists’ output. Collectors want to be associated with a certain works of art because it either suits their aesthetic needs or it somehow reflects their style or philosophy. These are individual tastes and motivations not easily quantified in a market-type analysis. This is why it’s so difficult to predict trends in the art market because only the top gallerists and major collectors are in a position to understand them.

The only constant assumption in art market is that art is purchased with excess capital. Throughout history and in all economic systems- from Ancient Egypt to the Qing Dynasty China- a surplus of capital in an economy is necessary in order for the arts to flourish. Steadily since the end of the Second World War, industry in the United States has produced surplus capital and those surpluses have to be expended somehow. The first task was to build roads, then it was about creating great achievements in science and last came the focus on the arts. In any society, when the wealthy have amassed sufficient wealth, they have time to spend it on other things: in their pastime, the wealthy become art lovers.

Currently, we have the greatest disparity ever between the wealthy and the middle class in the United States and, indeed, throughout the world. In consequence of this, successful artists don’t pander to the bourgeois tastes of the middle class. Today’s art is big, bold and expensive. And in the great cities of our world dwell the wealthy art collectors who worship this aesthetic.

It comes as no surprise that Jeff Koons was a commodity broker on Wall Street for six years before making it as an artist. He, like Warhol before him, seems to understand the nature of markets and the needs of surplus capital. Some people might wonder if a giant, metallic-blue balloon dog is worth $5 million, not realizing how ridiculous the question sounds. You really shouldn’t expect a serious answer to such a dull question. These inquiries originate from people who neither have the money to buy art nor the imagination to apprehend why somebody else would. And you don’t have to be a genius to understand this concept; my father, who is neither an economist nor philosopher, told me as a child that “something is worth whatever somebody is willing to pay for it. Period.”

All of this might sound cynical but it’s really not. For at least the last century, the dominant world view among artist and intellectuals has been materialism, wherein art has become a game by which people distract themselves from the meaningless of life. The great detraction of materialism is the dullness and pointlessness of things, thus the search for happiness, beauty and wisdom becomes ever more important. People acquire certain artwork because they believe it reflects who they are or who they would like to be, and then everybody who visits their apartment or house can see them on view. And the more art they buy of a certain artist or genre, the more they are invited to exclusive events and the more access they have to the art. Thereafter, they are recognized by the market as an important collector, and the literati toady them immediately for the need of something to write about. Have you noticed how newspapers are now filled with editorials and lifestyle pieces, only because they are cheaper to write than hard journalism?

None of these trends in the art market are likely to change anytime soon. Then again, very few people stand to benefit from them.