Pauline LeGall of the private art sales platform, Artviatic, sent some questions about the art market. You can read the answers on their website but there’s a bit of muddling as the remarks were translated into French and then are re-translated back into English on the website. With clarity in mind, we’re republishing the original responses here.
Q: It has been a bumpy year for the art market, with a lot of major political changes (vote on the Brexit, the election of Donald Trump…). How would you sum up this year ?
This year has been like Waiting for Godot: We can’t go on.We go on.
Q: Do you think that the election of Donald Trump will affect the market in the following year?
The election won’t effect the art market. Nor will Trump himself as president have a direct effect on the art market. But the global macroeconomic effects of numerous unexpected events will eventually have some sort of effect. Then, again, we would have said the same thing if Hillary Clinton had won. We just wouldn’t be so dramatic about it.
Q: Sotheby’s has been in the limelight in 2016 with a lot of structural changes, the acquisition of Art Agency Partners, of the Mei Moses Art Indices… Does this prove that big auction houses are endangered and must find new ways to exist nowadays ?
It is a bit odd to be suggesting the auction houses are endangered when just a year ago we were worried they would absorb whatever was left of the art market like a black hole. I would add that the Mei Moses deal is not in any way equivalent to Sotheby’s purchase of Art Agency, Partners.
What I think you are trying to get at is what is the future of the auction house. We tend to think of Sotheby’s, Christie’s and, now, Phillips because of their role in the Contemporary and Modern markets. But the third largest auction house is Heritage although it is often overlooked because it generates so much of its revenue from collectibles.
I mention Heritage because it seems to me your question is really about whether auction houses are profitable. More to the point, do the big auction houses have a future if they cannot generate greater profits.
We’re all more aware of this because the subject of Sotheby’s profitability and its prospects for growing its revenues, margins and profits has been the subject of public interest since activist investors took substantial stakes in the auction house.
So far, neither Sotheby’s nor Christie’s have been able to show that there is a path to increasing revenues or margins. Christie’s spent several years aggressively increasing the economic metabolism of the Contemporary and Modern art market—often through the aggressive use of guarantees—without dramatically changing the revenue or profit equation (or expanding other aspects of its business.)
Phillips has recently increased its overall sales volume as much by hiring staff as it has by using guarantees. Sotheby’s has done something similar on a larger scale. It also has the long-term prospect of possibly growing the advisory part of AAP’s business but that won’t be something we’ll be able to see or judge for some time.
The reason I prefaced these comments with Heritage is that there is a company that has grown revenues and implemented a number of different strategies when it comes to the use of the internet, reserves, bidding and the introduction of new categories that has created a—by most counts—very profitable private company.
Also worth noting is Taikang’s investment in Sotheby’s. Taikang’s parallel stakes in China Guardian and 15% of Sotheby’s also point to another potential future for the auction business. Phillips is privately owned by Russian luxury retailers. Christie’s is privately owned by a French luxury retailer. There’s always a chance—now pushed off at least three years by the Taikang agreement not to acquire more stock in Sotheby’s—that Sotheby’s could become a private company again and thus insulated from ‘extinction.’
Q: Private sales have been soaring this year. Do you think the art market is moving towards more privacy ?
You would know better than I whether private sales are really soaring but I don’t get the sense that we’re in period like 2010 or 2011 when private sales outshone the auctions.
On the contrary, the market still seems to need the validation of public prices or the public opportunity to bid. That’s one reason we’re seeing so many third-party guarantees. Buyers want to see other bidders to validate prices; sellers want the assurance of an agreed minimum price before going to auction.
After two or three years of fairly stable prices, it would make sense to see more private sales now that buyers and sellers ought to be more confident of their pricing benchmarks. But I would not see that as move toward more privacy. I’d see it as sign of sufficient pricing information to make it easier for buyers and sellers to come to an agreement on price.
Private sales are more convenient and efficient. There will always be two sides to this market.
Q: Speaking of auction houses, one of the big issues this year were guarantees on big sales. Can you tell me what were the effects of these guarantees on the market according to you?
I think the effect of these guarantees is to bring more work to market than might find its way there without the inducement of a guarantee. Selling art is inherently risky because of the heterogenous nature of art (few works are alike so there is little in the way of direct pricing information.)
Guarantees transfer that risk and facilitate transactions. Guarantees can subsidize sales; however, they don’t inflate prices. Buyers still have to want to buy. Sellers still have to want to sell.
Q: For the last couple of years, auction houses have invested in developing online auctions. Do you think that could be the real future of the art market or is it still a bit insignificant?
The dollar volume of art sold online is still insignificant in terms of the overall art market. But that’s not nearly as important as the real issue which is with the idea that there is something called an online auction.
Auction houses now tout online bidders but those are often bids made by someone sitting in front of computer screen watching a live auction. How is that different from a telephone bid? The online bidder might even be sitting in the auction room and bid via smartphone through the “online” portal. Is that an online sale? Is a bid left in the order book and executed by the auctioneer and online sale? That’s one of the oldest forms of bidding.
If an auction specialist sends a client a Jpeg, exchanges emails with the specialist about the work and then buys it without entering the sale room, is that an online sale?
My point, as obnoxiously as I am making it, is that I believe the weakness of the ‘online’ category is believing that art will be sold in some way that is similar to the way sales are made on Amazon or eBay. That is, I think, what people are picturing when they say online.
I think the art market—auctions and private sales—has already integrated a great deal of mobile and internet communications into its current business model. Don’t look for that to be the ‘disruption.’
Q: This year we also saw the closing of several “middle-sized” art galleries, and light was shed on their financial troubles. How do you see that crisis evolving in the future ?
I don’t know that some galleries closing can be called a crisis. Galleries go out of business all the time. The broader economic landscape favors participants who are either bigger or, for the lack of a better term, lighter.
By that, I mean in many industries you are either seeing specialization and unbundling or consolidation. There are a number galleries that are getting bigger, more global and more influential. Many would say that Zwirner and Hauser + Wirth are in much more dominant positions today than they were 3-4 years ago.
A number of European galleries are opening outposts in London, New York or Los Angeles. These may not be your vision of mid-sized but they probably fit that definition in the current marketplace.
Meanwhile, several individuals have become important players in some highly specific markets over the same time period. So, yes, there’s plenty of change and its not evenly distributed by any means. But there is a great deal of movement. So I would guess there will be more movement in both galleries growing toward the top end and other specialists emerging.
Q: There were fewer masterpieces on the market and lower prices during the big sales and art fairs. Do you think this might change in 2017?
I have no idea what will happen in 2017. I’ll be curious to see. My hunch is we will see real growth again when buyers get excited about certain artists who are well-known but have not been as sought after as others. We also need a few new artists to fall into favor.
Q: In general I felt like there was not a lot of space left for risks, for example during the art fairs. Would you say that art collectors are playing it safe lately?
I don’t think collectors are play it safe. I think they need something to get excited about.
I think there is always a pendulum swing between discovering new artists and a flight toward quality. I think what changes is what we perceive as quality. It’s usually not something completely unknown. And I think you can see that a little in the number of works by Josef Albers, Alex Katz and George Condo on sale at Art Basel in Miami Beach this year.
Q: What positive developments did you see on the market this year?
Again, the most positive thing about 2016 was that sales levels remained stable throughout the year. Sales were down substantially but remained at a steady level throughout the year.
The level of interest in work priced from a few hundred thousand to a few million dollars seemed relatively strong too. Indeed, that’s where the art market needs to go show that it can grow long term.
The art market will be a lot healthier and more viable over the long term if 100 $1 million paintings are sold than if one $100 million painting is sold.
Q: How do you see the art market evolving next year?
Again, don’t have any insight into the future.