By Maria Alexander
The COVID-19 pandemic presented challenges to many, but also fostered creativity, resilience, and innovation. Many industries, including the art industry, have become more reliant on digitalization to recover markets once dependent on in-person experience and interaction.
Considering that confidence in the contemporary art market has dropped 85% since September, it is clear that shortcomings of digitalization and its transaction speed persist. While digitalization in the art industry can be seen as one positive outcome of the pandemic, smaller art businesses are struggling to reap the benefits of digitalization due to their lack of technology infrastructure and client exposure. While these concerns are pronounced in the art business, digitalization also raises cultural concerns such as the preservation of artistic value and integrity.
The Plight of Small Art Galleries
Similar to many other industries, the pandemic has exposed larger corporations’ ability to sequester resources and influence to keep their businesses afloat during economic downturns. Art galleries’ business is fueled by discretionary spending and is dependent on travel and in-person contact and networking. While gallery sales have fallen 36% across the art industry in the first half of this year, smaller galleries have experienced a greater fall in sales in comparison to larger ones. Small galleries, with turnovers of between $250,000 and $500,000 a year, experienced the greatest downsizing (38%) and decline in total sales (47%), according to the Art Basel and UBS Global Art Report. On the bright side, only 2% of galleries in the survey were forced to close down completely.
One of the main reasons for the disparities in economic survival is the difference between small and large galleries’ digital infrastructures. Larger galleries, museums, and auction institutions are more likely to have advanced online networks in place, easing the transition into full digitalization. However, even for prominent galleries and auction houses, the process of digitizing databases has been sluggish since databases can include thousands of works. For smaller firms, the process is even less streamlined. It is important to note that smaller businesses face the compounded challenge of lacking both existing online networks and the luxury of a prolonged implementation period—unlike big players in the industry who can rely on other temporary strategies like listing artwork on friendly exchanges.
Indeed, online transactions are barely a lifeline for many galleries, and especially not for small businesses. A quarter of the galleries surveyed in the Art Basel and UBS Global Art Report made no online art sales this year. Although digital advancements and infrastructure look like a promising step, digitization is not a viable short-term strategy due to unaffordable capital expense. Yet in the long-run, advanced digital infrastructure is promising for both consumers and businesses and is likely to lead to greater price transparency, especially with blockchain-based technology, which increases liquidity.
Protecting and Celebrating the Work of Small Artists
Before the pandemic, many rising artists relayed the creative narrative of their work, gauged audiences’ reactions and opinions, and gained traction through in-person shows. These fairs brought in about 46% of gallery sales last year. Since the pandemic, artists face hurdles with the market’s transition to impersonal online viewing and purchasing.
Demand for time-based viewing rooms--digital portals where buyers can view the artwork they’re interested in and explore the piece’s history and the creator’s background--has skyrocketed since the onset of the pandemic. Although this innovation is an exciting step, it is often difficult to judge art based on a virtual first impression. Additionally, these online viewing rooms collect statistics from the viewer, such as how long they viewed the work and how many visits the viewing room received. As a consequence, buyers may only be enticed to explore rooms that have garnered the most visitors, leaving less opportunity for other artists to showcase their work.
One highlight for small artists during this time is the use of user-driven platforms like Instagram where every artist’s work is easily accessible to the general public. Disregarding algorithm issues associated with app feeds, Instagram is known for housing talented artists who lack opportunities elsewhere.
Connection and Gratification: Online is Here to Stay
Technology has changed the way that art is bought and sold in three areas: how it is displayed to buyers, to how it is paid for, and how ownership is exchanged. This online process is much more simple than if conducted in person, so in theory, it is more efficient for both buying and selling parties.
Transaction speed encourages the collection of art for portfolio gains and commodification, but can create a potential disconnect between the art and the buyer. This is not a new phenomenon in the industry, but still a prevalent one. Similarly, since most art is now being sold online, buyers are acclimating to digital galleries.
Once consumers adjust and react to the new market structure, will in-person transactions and viewing opportunities wholly reclaim art sales? According to Suzanne Gyorgy, the
Head of Art Advisory and Finance at CitiBank, it’s not likely. In a report published by Citi Bank Global Perspectives and Solutions, Ms. Gyorgy wrote that “even when in-person auctions return in full, we feel that online sales are here to stay and will continue to play a growing role in the art market.”
Yet despite the tumult in many aspects of the industry, art is performing well in investment portfolios. According to the Masterworks.io price-weighted All Art Index, the art market was up by 5.5%, outperforming ten other major classes of assets. Additionally, a report by Citi Bank Global Perspectives and Solutions affirms the commodification of art, stating that there is a growing enthusiasm for portfolio diversification through art acquisition.
Bright Spots in a Bleak Industry
While digitalization invites commodification, optimism prevails in many sectors of the art industry. Since the beginning of the pandemic, an average of 59% of art collectors reported an increased interest in collecting. Since art is considered a luxury market and the pandemic has disproportionately impacted lower-income families, many collectors are able to carry on and support the industry.
Despite new challenges the art market is rapidly evolving as a consequence of the pandemic. Yet the power to change the market remains in the hands of consumers. As small galleries recover, they will need foot traffic, not IP traffic, to stay open. A responsible consumer can drive the market in a direction that ensures small art galleries can survive, and ultimately makes all players better off.