why Denvention costs $225
There has been some chatter about Denvention being the most expensive domestic Worldcon to date, and about how Montreal seems likely to be more expensive still. There is a reason Worldcons are run the way they are. Concoms could make different choices, but they are still constrained by the effects of the real world.
I'm not going to talk about expenses; managing expenses is a whole separate question of which there are many people more qualified than I am to explain. I'm going to talk about supply, demand, revenue, and marketing. I don't have hard numbers to work with, as Worldcons generally don't try to collect meaningful quantitative marketing data. Membership data, such as it is, tends to be interpreted in some rather odd ways. So I'll have to work with general assumptions.
First, I'll assume it costs about a million dollars to run a Worldcon. Doesn't matter what the actual figure is as all the calculations are proportional, this is just a rough estimate to scale the calculations.
Second, I'll assume that, for paying members, conventions fall into the category of luxury or discretionary expense, i.e. rational people do not buy convention memberships until after they have paid for housing and food. As with any economic analysis, individual motivations vary proportional to the size of the population (i.e. everyone has their own opinion), but aggregate behaviors can still be observed. Worldcons are in the same general category as other recreational activities, like travel.
Broadly speaking, travel is a very competitive, price-sensitive market; people will switch airlines for a small change in price. Demand is elastic, where the ratio of demand to supply is greater than one; in fact, to pick a broad aggregate that applies across many luxury sectors, the ratio is about three-to-one, i.e. for every 1% reduction in price, you will observe a 3% increase in demand.
The first mistake some conrunners make is to assume that in some way they control the price which is charged to attending members. (Again, we're not talking about the expense side of conrunning at all yet.) Worldcons attract a global audience. Most people come by plane and stay in a hotel. Transportation averages roughly $400 per person (including shuttles or whatever), and accommodation is about the same. So if attending membership costs around $200, the total cost of the Worldcon to the attending member is about $1000 per person.
So we look at the elastic demand ratio of 3. A 10% decrease in the cost of attending will result in a 30% increase in demand. Note, however, that the concom only controls 20% of the attending members' price paid. So from the convention's perspective, it takes a 50% decrease in the membership price to achieve a 30% increase in demand. Scaling this down, it looks like a 10% decrease in the attending membership rate results in a 6% increase in demand (which, at 10% off, works out to a 5.4% increase in revenue).
Let's say a "traditional" Worldcon would attract 5000 members. Reducing the attending membership rate by 10%, $20 per member on average, attracts an additional 300 members. Doing the math, $180 per member times 5300 members is $954,000.
Now we get to talk about expenses for a moment. Let's assume the per-member cost is not zero. Let's say the concom is wonderfully competent and efficient and has managed to reduce the per-member marginal cost to $10. So the extra cost is 300 members times $10 per member is $3000.
So the Worldcon, which formerly was breaking even, now has $954,000 in revenue and $1,003,000 in expenses, for a net deficit of $49,000.
For the sake of argument, let's assume this is the concom's problem, that the Worldcon will not intentionally loot the pass-along fund, sell the clubhouse, go bankrupt, pass the hat, or whatever. It has to make up that $49,000 from the expense budget. It has two choices: the committee can not tell members about the cuts. They can promise the exact same Worldcon for less money, and make the cuts secretly. The zoo game calls this negative reputation points, but what happens in economic terms is a reduction in demand for future Worldcons. Members will factor this into their expectations of future Worldcons. If we are talking about changing or fixing Worldcons as a category, not just foisting problems onto the next committee, this short-term approach will not work.
If we are to tell the members, now we are talking about marketing. Marketing is focused on four elements: product, place, price, and promotion. Here we are talking about changing the "product" of what is delivered to the members. I don't know what $49,000 buys: a con suite, mikes and speakers in program rooms, all of the guests of honor, giving up the main program space for a wedding on Saturday, whatever. It buys something, and that something has value to the members. This is hard to quantify, it takes research, but generally the same demand ration applies, that for every 1% less you get in the value of the product, the demand goes down about 3%. But to be charitable, let's assume that the demand element of the "product" is balanced, that every 1% reduction in value results in a 1% reduction in demand. So a 4.9% reduction in the value of the Worldcon results in a 4.9% reduction in the attending membership.
But now we are no longer talking about a $49,000 hole. If you make the $49,000 in cuts, what you end up with is 245 fewer members. So in practice, you now have membership revenue of $908,100 and costs of $1,000,550, for a deficit of $92,450.
I haven't talked about market segmentation. Obviously local members face a different situation than non-local members. It doesn't help much. Lowering the price will have a net positive (revenue) effect on some local members (who don't stay at the hotels), but the reduction in the value of the "product" will have a disproportionate effect on non-local demand. Ultimately you would probably see more reduction in non-local members than you could gain locally, but it takes a lot of research here and it's reasonable to just ignore this minor aggregate effect. The point is that things are interrelated; you can't just argue about one benefit and ignore other side effects of a decision.
Overall, given conservative do-it-the-way-we-did-it-last-year management, although the aggregate demand for a Worldcon (including transportation and accommodation) is elastic, the specific demand for the portion of revenue under the convention's control is inelastic. The effect of airlines or hotels on the overall experience is minor. If we assume five days and sixteen waking hours per day, the 8-12 hours we spend on travel and the time we spend in the hotel room at the beginning and end of the day is quite small compared to time we spend at the actual convention. If the airline sucks (and because they really are in an elastic-demand situation, they have to cut costs, so they often do suck), it's just a story to tell to friends, it doesn't change the entire convention experience. Concoms generally must balance their budgets, and given functionally inelastic demand, the price pressure will always be upwards. Committees cannot balance their budgets by lowering prices and hoping people will show up. Supply and demand curves are not straight lines, but for the small amount of latitude that committees actually have, the demand curve is almost a straight line (mathematically a tangent).
There are other solutions: get sponsors, put more actual effort into making the convention good, etc. What these approaches boil down to is the product. If we improve Worldcons, we will get more people to attend.
But I want to get back to price, because what the price question boils down to is quantity versus quality. Do we want to offer a lot less Worldcon to a few more people? Setting aside any preferences or questions of morality or purpose or whatever, I think the actual numbers would show that if we offer less product, people won't show up. In the example cited above, the frenzy of cost-cutting doesn't balance the budget until you reach an actual curve in demand. What this works out to is, instead of 5000 people paying $200 each, you get 4000 people paying $180 for a much less interesting convention. That's not better, and it's not a viable strategy. In the long run, if you lower the price, you end up with fewer members. That's why concoms don't do this. An ironic but valid corollary is that with proper management, raising the price can create resources to improve the convention with the end result of a higher membership count. Which, I assume without having any inside information or asking anybody, is what Denvention and Anticipation are trying to do.
If we want to help Worldcons and fandom grow (and I do), we can't do it by fidding with prices or doing what we did last year. We need a new, real focus on marketing, and we need to attack "tradition" as a problem to be solved, not a shibboleth to be revered. We have to stop trying to find "people like us" and start trying to figure out how to make what we do relevant to the large potential audience out there.
Though seriously my approach is not so radical. I don't think the problems of fandom, or even of Worldcon membership levels, is within the control of Worldcon concoms. I have another equation to think about: assume there is some proportion of members of your local convention who attend Worldcon. If we want to increase the absolute number of members of the local community who attend Worldcon, we can either increase the numerator of this fraction (increase the total number of members of your local convention) or reduce the denominator (increase the proportion of members of your local convention interested in Worldcon by marketing to them one-on-one). What the Worldcon concom can do is change its culture, by encouraging the entire Worldcon membership to become more involved in local fan communities, by making Worldcon the "cream of the crop" and not a (dead) end in itself.
I don't care. I figure if we fix fandom in general, Worldcon will take care of itself, and if we allow potential fans to dribble off to web sites or commercial expos, nothing we do for Worldcon will be enough. So one of Worldcon's most useful and self-serving purposes could be to improve communication between and within the disparate groups of the global fan community, to find ways to deliver the message, to market, to the potential audience. If we really want to grow Worldcon, we can't do it by crawling up or down the supply and demand curves. We have to change the culture, change the product, push the whole demand curve to the right. That's how Internet-based cultures and organizations are succeeding today.
Which I think is not what many of the current crop of conrunners, "smofs" if you will, understand or are interested in. There's too much politics, too much focus on who is in charge instead of what the whole group has to do, too many big-fish-little-ponders, too much attention to the ancient history of whatever fans did with typewriters and mimeographs in the '30s and '40s instead of what people are actually doing today, too much attention to paper-based books instead of the many different media fans use. Fandom was once irrelevant to society at large, and for some people that isolation is a good thing that they want to hold onto, no matter what the cost to the future of fandom. They think the "greying of fandom" is desirable or inevitable, or both, and that whatever might follow will not really be "fandom". And yet, it really will be, it just won't be the old pharts' fandom. Like any living community, we need to adapt to the world as it really is, not cling to ancient social and economic niches.
We have many options for how to make bigger and better Worldcons. Lowering the price is not a practical alternative on its own. (It could happen with other increases in revenue, reductions in cost, economies of scale, etc.; it's just not something that can be accomplished in isolation.) If we want Worldcons to grow, they have to change. The first step is to figure out what the collective purpose of the community is. We're not there yet. A lot of people have their invidual opinions about this, but there has been no attempt to reach consensus because there seems to be no priority at discovering workable goals. The status quo today works and can continue to work, but what we get from making no strategic decision is just a trend of gradually increasing prices.
I'm not criticizing Denvention, or Anticipation. The time for thinking about strategic changes is before site selection; once you've made commitments to the voters, you're stuck with them. I do not claim to have the answers. But I do know who does have the answer to what the attending members want: the attending members themselves. Before we can chart a new course for fandom, we need to make the chart. We need to seriously start collecting data, in an organized way, about what fans want to see at future Worldcons. We can figure out what expenses get the best bang for our buck and which just support dwindling communities of interest. If we survey our existing members, we will get information about "people like us", but we will also get information about their friends, and that's exactly the direction I think will be most useful to investigate. Once we discard the failed proposition that more members means more revenue, we can pursue other options.
Edit: lj-cuts added for brevity
I'm not going to talk about expenses; managing expenses is a whole separate question of which there are many people more qualified than I am to explain. I'm going to talk about supply, demand, revenue, and marketing. I don't have hard numbers to work with, as Worldcons generally don't try to collect meaningful quantitative marketing data. Membership data, such as it is, tends to be interpreted in some rather odd ways. So I'll have to work with general assumptions.
First, I'll assume it costs about a million dollars to run a Worldcon. Doesn't matter what the actual figure is as all the calculations are proportional, this is just a rough estimate to scale the calculations.
Second, I'll assume that, for paying members, conventions fall into the category of luxury or discretionary expense, i.e. rational people do not buy convention memberships until after they have paid for housing and food. As with any economic analysis, individual motivations vary proportional to the size of the population (i.e. everyone has their own opinion), but aggregate behaviors can still be observed. Worldcons are in the same general category as other recreational activities, like travel.
Broadly speaking, travel is a very competitive, price-sensitive market; people will switch airlines for a small change in price. Demand is elastic, where the ratio of demand to supply is greater than one; in fact, to pick a broad aggregate that applies across many luxury sectors, the ratio is about three-to-one, i.e. for every 1% reduction in price, you will observe a 3% increase in demand.
The first mistake some conrunners make is to assume that in some way they control the price which is charged to attending members. (Again, we're not talking about the expense side of conrunning at all yet.) Worldcons attract a global audience. Most people come by plane and stay in a hotel. Transportation averages roughly $400 per person (including shuttles or whatever), and accommodation is about the same. So if attending membership costs around $200, the total cost of the Worldcon to the attending member is about $1000 per person.
So we look at the elastic demand ratio of 3. A 10% decrease in the cost of attending will result in a 30% increase in demand. Note, however, that the concom only controls 20% of the attending members' price paid. So from the convention's perspective, it takes a 50% decrease in the membership price to achieve a 30% increase in demand. Scaling this down, it looks like a 10% decrease in the attending membership rate results in a 6% increase in demand (which, at 10% off, works out to a 5.4% increase in revenue).
Let's say a "traditional" Worldcon would attract 5000 members. Reducing the attending membership rate by 10%, $20 per member on average, attracts an additional 300 members. Doing the math, $180 per member times 5300 members is $954,000.
Now we get to talk about expenses for a moment. Let's assume the per-member cost is not zero. Let's say the concom is wonderfully competent and efficient and has managed to reduce the per-member marginal cost to $10. So the extra cost is 300 members times $10 per member is $3000.
So the Worldcon, which formerly was breaking even, now has $954,000 in revenue and $1,003,000 in expenses, for a net deficit of $49,000.
For the sake of argument, let's assume this is the concom's problem, that the Worldcon will not intentionally loot the pass-along fund, sell the clubhouse, go bankrupt, pass the hat, or whatever. It has to make up that $49,000 from the expense budget. It has two choices: the committee can not tell members about the cuts. They can promise the exact same Worldcon for less money, and make the cuts secretly. The zoo game calls this negative reputation points, but what happens in economic terms is a reduction in demand for future Worldcons. Members will factor this into their expectations of future Worldcons. If we are talking about changing or fixing Worldcons as a category, not just foisting problems onto the next committee, this short-term approach will not work.
If we are to tell the members, now we are talking about marketing. Marketing is focused on four elements: product, place, price, and promotion. Here we are talking about changing the "product" of what is delivered to the members. I don't know what $49,000 buys: a con suite, mikes and speakers in program rooms, all of the guests of honor, giving up the main program space for a wedding on Saturday, whatever. It buys something, and that something has value to the members. This is hard to quantify, it takes research, but generally the same demand ration applies, that for every 1% less you get in the value of the product, the demand goes down about 3%. But to be charitable, let's assume that the demand element of the "product" is balanced, that every 1% reduction in value results in a 1% reduction in demand. So a 4.9% reduction in the value of the Worldcon results in a 4.9% reduction in the attending membership.
But now we are no longer talking about a $49,000 hole. If you make the $49,000 in cuts, what you end up with is 245 fewer members. So in practice, you now have membership revenue of $908,100 and costs of $1,000,550, for a deficit of $92,450.
I haven't talked about market segmentation. Obviously local members face a different situation than non-local members. It doesn't help much. Lowering the price will have a net positive (revenue) effect on some local members (who don't stay at the hotels), but the reduction in the value of the "product" will have a disproportionate effect on non-local demand. Ultimately you would probably see more reduction in non-local members than you could gain locally, but it takes a lot of research here and it's reasonable to just ignore this minor aggregate effect. The point is that things are interrelated; you can't just argue about one benefit and ignore other side effects of a decision.
Overall, given conservative do-it-the-way-we-did-it-last-year management, although the aggregate demand for a Worldcon (including transportation and accommodation) is elastic, the specific demand for the portion of revenue under the convention's control is inelastic. The effect of airlines or hotels on the overall experience is minor. If we assume five days and sixteen waking hours per day, the 8-12 hours we spend on travel and the time we spend in the hotel room at the beginning and end of the day is quite small compared to time we spend at the actual convention. If the airline sucks (and because they really are in an elastic-demand situation, they have to cut costs, so they often do suck), it's just a story to tell to friends, it doesn't change the entire convention experience. Concoms generally must balance their budgets, and given functionally inelastic demand, the price pressure will always be upwards. Committees cannot balance their budgets by lowering prices and hoping people will show up. Supply and demand curves are not straight lines, but for the small amount of latitude that committees actually have, the demand curve is almost a straight line (mathematically a tangent).
There are other solutions: get sponsors, put more actual effort into making the convention good, etc. What these approaches boil down to is the product. If we improve Worldcons, we will get more people to attend.
But I want to get back to price, because what the price question boils down to is quantity versus quality. Do we want to offer a lot less Worldcon to a few more people? Setting aside any preferences or questions of morality or purpose or whatever, I think the actual numbers would show that if we offer less product, people won't show up. In the example cited above, the frenzy of cost-cutting doesn't balance the budget until you reach an actual curve in demand. What this works out to is, instead of 5000 people paying $200 each, you get 4000 people paying $180 for a much less interesting convention. That's not better, and it's not a viable strategy. In the long run, if you lower the price, you end up with fewer members. That's why concoms don't do this. An ironic but valid corollary is that with proper management, raising the price can create resources to improve the convention with the end result of a higher membership count. Which, I assume without having any inside information or asking anybody, is what Denvention and Anticipation are trying to do.
If we want to help Worldcons and fandom grow (and I do), we can't do it by fidding with prices or doing what we did last year. We need a new, real focus on marketing, and we need to attack "tradition" as a problem to be solved, not a shibboleth to be revered. We have to stop trying to find "people like us" and start trying to figure out how to make what we do relevant to the large potential audience out there.
Though seriously my approach is not so radical. I don't think the problems of fandom, or even of Worldcon membership levels, is within the control of Worldcon concoms. I have another equation to think about: assume there is some proportion of members of your local convention who attend Worldcon. If we want to increase the absolute number of members of the local community who attend Worldcon, we can either increase the numerator of this fraction (increase the total number of members of your local convention) or reduce the denominator (increase the proportion of members of your local convention interested in Worldcon by marketing to them one-on-one). What the Worldcon concom can do is change its culture, by encouraging the entire Worldcon membership to become more involved in local fan communities, by making Worldcon the "cream of the crop" and not a (dead) end in itself.
I don't care. I figure if we fix fandom in general, Worldcon will take care of itself, and if we allow potential fans to dribble off to web sites or commercial expos, nothing we do for Worldcon will be enough. So one of Worldcon's most useful and self-serving purposes could be to improve communication between and within the disparate groups of the global fan community, to find ways to deliver the message, to market, to the potential audience. If we really want to grow Worldcon, we can't do it by crawling up or down the supply and demand curves. We have to change the culture, change the product, push the whole demand curve to the right. That's how Internet-based cultures and organizations are succeeding today.
Which I think is not what many of the current crop of conrunners, "smofs" if you will, understand or are interested in. There's too much politics, too much focus on who is in charge instead of what the whole group has to do, too many big-fish-little-ponders, too much attention to the ancient history of whatever fans did with typewriters and mimeographs in the '30s and '40s instead of what people are actually doing today, too much attention to paper-based books instead of the many different media fans use. Fandom was once irrelevant to society at large, and for some people that isolation is a good thing that they want to hold onto, no matter what the cost to the future of fandom. They think the "greying of fandom" is desirable or inevitable, or both, and that whatever might follow will not really be "fandom". And yet, it really will be, it just won't be the old pharts' fandom. Like any living community, we need to adapt to the world as it really is, not cling to ancient social and economic niches.
We have many options for how to make bigger and better Worldcons. Lowering the price is not a practical alternative on its own. (It could happen with other increases in revenue, reductions in cost, economies of scale, etc.; it's just not something that can be accomplished in isolation.) If we want Worldcons to grow, they have to change. The first step is to figure out what the collective purpose of the community is. We're not there yet. A lot of people have their invidual opinions about this, but there has been no attempt to reach consensus because there seems to be no priority at discovering workable goals. The status quo today works and can continue to work, but what we get from making no strategic decision is just a trend of gradually increasing prices.
I'm not criticizing Denvention, or Anticipation. The time for thinking about strategic changes is before site selection; once you've made commitments to the voters, you're stuck with them. I do not claim to have the answers. But I do know who does have the answer to what the attending members want: the attending members themselves. Before we can chart a new course for fandom, we need to make the chart. We need to seriously start collecting data, in an organized way, about what fans want to see at future Worldcons. We can figure out what expenses get the best bang for our buck and which just support dwindling communities of interest. If we survey our existing members, we will get information about "people like us", but we will also get information about their friends, and that's exactly the direction I think will be most useful to investigate. Once we discard the failed proposition that more members means more revenue, we can pursue other options.
Edit: lj-cuts added for brevity