ART FAIRS REPORT | FALL 2014

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1. Introduction and Executive Summary

2. Best Strategic Moves (July – September 2014)

3. Key Trends

Exhibit 1: Top 10 Most Attended Art Fairs, 2013–14

Season

Exhibit 2: Top 10 Most Attended Museums, 2013ended

Museums, 2013

4. The Changing World of Art Fairs

Exhibit 3: MCH Group vs. SASI and Swiss Index

Exhibit 4: The Most Attended Fairs in Frontier Markets

5. Digital Challenge to the Art Fair Business

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6. Competitive Landscape and Pressure to Disclose

Trading Volumes

Exhibit 7: Top 10 Art Fair Brands

7. Q3 2014 Art Fair Facts, Q4 Art Fair Calendar

Exhibit 8: 6��&WY�+FNW�+FHYX�

Exhibit 9: 6��&WY�+FNW�(FQJSIFW

8. Further Information, Next Report, and Disclaimer

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Product Information

Skate’s Art Fairs Report is published quarterly by Skate’s LLC, a 100% subsidiary of ARTNEWS S.A. For our publication schedule and information on subscribing, please visit www.skatepress.com or call (212) 398-1690. For any inquiries, please contact us at skate@skatepress.com

While every effort has been made to make this report as complete and reliable as possible, we understand that there is always room for improvement and are open to any feedback, commentary, or corrections from our readers, which we would review and, if taken on board, reflect in the next report.

To report any data or other factual information to be considered for inclusion in our report, please send an email to skate@skatepress.com

To advertise in our reports or commission a custom research report from Skate’s, please contact us at advertising@skatepress.com

TABLE OF CONTENTS

http://freeportluxembourg.com/site/

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1. Executive Summary

Skate’s Art Fairs Report is, in a way, an offline equivalent of Skate’s Art E-Commerce Report, published on September 15, 2014. Rather than focusing on digital audiences for art-related businesses, it measures the physical traffic generated by art fairs and other key metrics of the art-fair industry. As was the case with Skate’s Art E-Commerce Report, the traffic numbers are best understood in a larger context—here, in the context of attendance figures for other major art venues such as biennials and museums.

The fairly obvious finding is that with all the much-talked-about proliferation of art fairs around the world, visitor numbers for fairs are significantly lower than those for nonmarket (and longer-lasting) art extravaganzas like biennials and are incomparable with figures for major museums. Viewed as commerce-driven events, art fairs are far less attractive to art-loving crowds than are biennials and museum exhibitions, which are seen as “pure culture.”

The world’s number-one operator by attendance is Swiss-owned MCH Group, which runs five art fairs each year (three under the Art Basel brand and two more under Design Miami) and gets 280,914 visitors per annum. 1 The world’s largest noncommercial art exhibition, Documenta, drew 904,992 visitors to its last edition, in 2012. 2 (Documenta takes place once every five years in Kassel, Germany.) And finally the world’s most visited art museum, the Louvre, welcomed 9,334,435 visitors last year. 3

According to Skate’s estimates, 80 major art fairs generate 1.2 million visitors per year, while the world’s top ten museums gross about 72 million annual visitors. (Look for further data in Section 3 of this report.) A very simplistic factoid based on the numbers above is that one can say that only one out of 60 people interested in the visual arts is prepared to buy a work of art, and far fewer actually do so. This is, of course, statistically inaccurate (based on just ten museums’ traffic numbers and the assumption that all people attending art fairs go because they are interested in buying art), but it still indicates a disconnect between the size of the art-loving population and the actual market size for quality art purchases at fairs.

Ironically, as was shown in Skate’s Art E-Commerce Report, this growing public passion for art can still be monetized, but on a different level. Vanity-fair operators and custom-printing sites like Art.com, Great Big Canvas, and Society6 have built their entire business models around mass interest in art, with their web-based, low-ARPU

4 volumes far exceeding the trading volumes recorded at art fairs.

1 Source: MCH Group. For more details, go to http://www.skatepress.com/market-notes/mch-group-art-fairs-will-see-over-300000-visitors-this-year/2 Source: Documenta.3 Source: Louvre, 2013.4 Average revenue per user, normally calculated on an annualized basis.

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The business of art fairs is driven by four factors: sponsorship revenue, the number and quality of exhibitors (predominantly galleries), attendance figures (visitors and ticket prices), and the ability to scale up (to have more than one show per year). While there are over a hundred art fairs held around the world these days, the business of art fairs is highly concentrated, in terms of show quality and major operators.

With regard to quality, there is a clear cohort of Grand Slam art fairs: nine flagship shows and a dozen satellite events anchor the global art-fair calendar. The Grand Slam fairs are further analyzed and ranked in Section 4.

On the business side, there are five major international art-fair operators that collectively control pretty much everything that matters, except for TEFAF, Art Dubai, Art Cologne, and ARCO. Two of them are big real-estate companies that have franchised out into fairs and exhibitions (MCH Group, which owns and operates Art Basel and Design Miami, and Vornado Realty Trust, which owns and operates the Armory Show and Volta under its Merchandise Mart division); one is a pure-play media group (Reed Elsevier, which owns FIAC, Paris Photo, and Viennafair); and two more are pure-play art-fair operators with strong art-business DNA (Frieze and Art Miami). Those operators are analyzed and ranked in Section 4.

Art fairs comprise a mature, well consolidated, and highly competitive industry, where newcomers are almost always doomed to long-term losses, where the capacity to grow is offset by the limitations of the art-world calendar and the risk of losing out on show quality, and where the ability to branch out into adjacent businesses like publishing and e-commerce is handicapped from the get-go by conflicts of interest with the fairs’ primary customers, the galleries.

The growth of art fairs in recent decades has eaten into the profits of art-media publications, as galleries have reallocated their marketing and advertising budgets from print ads to art-fair participation. This report will analyze how the art media have responded to this shift in Section 5, which also explains how the fairs have learned to exist in the digital world between their offline show dates. From now on, Skate’s Art Fairs Report will be released on a quarterly basis, tracking the performance of fairs and providing extensive data and facts on this essential segment of the global art industry.

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2. Best Strategic Moves

The third calendar quarter is the quietest period for art fairs, with none of the Grand Slam fairs taking place. Nevertheless, a total of 12 art fairs occurred in Q3 2014, in places ranging from London to Seoul and the Hamptons, and from Rio de Janeiro to Istanbul and Chicago, and we note the following strategic moves for the period.

Rated # 1

Just two years after Merchandise Mart pulled the plug on the then 32-year-old Art Chicago show, the city’s alternative fair, Expo Chicago, seemed to gain traction, proving Merchandise Mart wrong. The third edition of Expo Chicago enjoyed local government support (helping to transform the city into a festival of visual arts in mid-September), a strong mix of 141 galleries, and title sponsorship from Northern Trust. This is a solid show in a major city that now has a clear position as the opening fair of the season, ahead of Frieze London.

Rated # 2

The Art Southampton fair (operated by Art Miami) was only in its third edition this year, yet it reported the largest attendance increase in July-August among the other shows. The total number of visitors grew from 16,300 in 2013 to 21,000 in 2014, a 29% increase. The fair was a case study for how the quality of exhibitors can improve the attractiveness of a fair. Art Southampton cut the number of participating galleries from more than 90 in 2013 to 84 in 2014, and achieved a far more pleasant fair experience for exhibitors, collectors, and visitors alike. Well done.

Rated # 3

Masterpiece London held its fifth edition this summer and scored a new title sponsor. RBC Wealth Management used its sponsorship of the fair in a manner similar to UBS’s backing of Art Basel events and Deutsche Bank’s support of Frieze. This is an important validation for this single-event business (Masterpiece London Limited runs just one art fair a year), which may have significantly improved the economics of the Masterpiece show.

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3. Key Trends

Skate’s highlights the following key trends in the global art-fair business:

1 Proliferation of art fairs should not be confused with the limited successes they are having so far in matching the audience numbers for major nonmarket art events such as blockbuster museum shows and art-world pilgrimages like the Venice Biennale and Documenta. (See more evidence of this in Section 3.) In fact, Skate’s observes a turning point in the growth of art fairs, as their business is increasingly being challenged by various digital platforms.

2 The top three art-fair operators—MCH Group (Art Basel and Design Miami), Reed Exhibitions (FIAC, Paris Photo, and Viennafair

5 ), and Frieze—are feeling the heat, and each of them has initiated management changes this quarter to bring new energy to the new season. 6

3 Increasing segmentation of art fairs into two primary categories: the Grand Slam fairs that dominate the global art-trade calendar and all the others. This segmentation is made more and more apparent by the quality of exhibitors, the cost of participation and sponsorship, and the growing gulf in art-fair experiences for both high-rolling collectors and average visitors. This is further covered in Section 4.

4 Emergence of Artsy as the digital art-fair platform of choice for both galleries and art-fair operators. This is further covered in Section 5, including measures of resistance taken by artnet, the incumbent leader in digital listings for galleries.

5 Increasing pressure for galleries to report trading volumes and prices for transactions completed at art fairs. This is examined in Section 6.

Skate’s aggregated data on 80 art fairs conducted globally for the season that spanned from fall 2013 to spring 2014 (ending on June 30, 2014), and our total count of reported admissions for all those fairs is 1.2 million visitors. The most attended art fairs are listed in Exhibit 1. The top ten art fairs grossed 736,282 visitors, or about 60% of the total for the season.

To put this in context, two non-trade art exhibitions—Documenta and the Venice Biennale—gross more visitors between the two of them (even though they only take place once every five and two years respectively). The last attendance for Documenta was 904,992 in 2012 and 475,000 for the Venice Biennale in 2013. 7

5 The Viennafair brand is owned by Reed Exhibitions but is operated by an unrelated third party.6 Read more about MCH Group’s management changes at http://www.artnews.com/2014/08/21/basels-annette-schonholzer-is-stepping-down/, about Frieze’s management changes at http://www.artnews.com/2014/09/25/frieze-names-victoria-siddall-director-of-all-fairs, and about FIAC’s leadership for the new FIAC Los Angeles at http://www.fiac.com/losangeles7 Source: http://www.labiennale.org/en/art/news/25-11.html?back=true

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However, the most successful art fairs have learned to cap their crowds and try to maintain a delicate balance between mass appeal and a pleasant experience. TEFAF in Maastricht, Netherlands, was perhaps the first art fair to make a conscious decision to curb its traffic growth, in 2007, which is partially due to the limitations of its host city’s infrastructure. 8 Fair organizers offered this official explanation:

Visitor numbers could have threatened the fair’s reputation for quality and exclusivity and so entrance prices were raised, which reduced the number of visitors to the fair to 70,842, a reduction of 15%. Many exhibitors commented that the lower visitors number had made the fair more comfortable and the atmosphere more conducive to buying. 9

The old Sotheby’s/Christie’s mantra of quality over quantity now seems to apply to art fairs as well. Real art buyers don’t like crowds, real galleries work for real art buyers, and successful fairs will welcome big crowds but will maintain crowd-control through elaborate VIP, super-VIP, and pre-VIP dosing of access. Just check your Art Basel pass and you will find an exact admission hour listed on it; the passes also vary in color depending on the entrance date (subtle crowd-control in the making).

Exhibit 1: Top 10 Most Attended Art Fairs, 2013–14 Season

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RANK ART FAIR NUMBER OF VISITORS NUMBER OF GALLERIES OPERATOR

1 ARCO Madrid 100,000 219 IFEMA

2 Art Basel 92,000 285 MCH Group

3 Art Basel Miami Beach 75,000 258 MCH Group

4 TEFAF 74,000 295 TEFAF

5 FIAC 73,543 184 Reed Exhibitions

6 Art Miami 72,500 258 Art Miami LLC

7 Frieze London 11 70,000 152 Frieze

8 The Armory Show 65,000 222 Merchandise Mart

9 Art Basel Hong Kong 65,000 303 MCH Group

10 Paris Photo 55,239 136 Reed Exhibitions

10 Ranking includes established art fairs only; there were high attendance numbers reported for some younger fairs in countries ranging from Argentina and Turkey to India and South Korea. For further attendance-ranking methodologye, see Section 4 and Exhibit 4.11 Frieze London attendance is an aggregate of Frieze (60,000) and Frieze Masters (10,000).

9 Source: TEFAF official timeline, http://www.tefaf.com/DesktopDefault.aspx?tabid=33

8 Source: http://www.tefaf.com/DesktopDefault.aspx?tabid=33

Source: www.skatepress.com and art fairs’ official disclosures.

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Another interesting indicator of quality over quantity is the fact that ARCO tops the list of most attended fairs

12 but is widely seen as a “can-skip” event for the professional art world. It is owned and operated by the Madrid-based trade-show powerhouse IFEMA (Feria de Madrid), which runs dozens of fairs across various industries (including three additional mostly local shows dedicated to art, antiques, and collectibles: Almoneda, Almoneda Navidad, and Feriarte), and it is very good at generating mass interest in its consumer fairs—hence, the top attendance numbers.

Attendance comparisons between art fairs and museums are even less accurate than estimates for potential art-fair traffic. Nevertheless, it is still a useful data set to have a look at—and to marvel at the difference in market size between the low “view-but-do-not-touch” average check for museum attendance versus the “come-and-buy” appeal of art fairs. The fact of life is that the third most visited museum in Paris, the Musée d’Orsay, has about three times more visitors per annum than all 80 major art fairs combined (Exhibit 2), even though its numbers declined in 2013 compared to the previous year.

RANK MUSEUM VISITORS PER YEAR, 2012 VISITORS PER YEAR, 2013 CHANGE, %

1 Louvre 9,720,260 9,334,435 - 4.0%

2 British Museum 5,575,946 6,701,036 + 20.2%

3 Metropolitan Museum of Art 6,115,881 6,226,727 + 1.8%

4 National Gallery (London) 5,163,902 6,031,574 + 16.8%

5 Vatican Museums 5,064,546 5,459,000 + 7.8%

6 Tate Modern 5,304,710 4,884,939 - 8.0%

7 National Palace Museum (Taipei) 4,360,815 4,500,278 + 3.2%

8 National Gallery of Art (Washington, D.C.) 4,200,000 4,093,070 - 2.5%

9 Centre Pompidou 3,800,000 3,745,000 - 1.5%

10 Musée d’Orsay 3,600,000 3,500,000 - 2.8%

Exhibit 2: Top 10 Most Attended Museums, 2012–13

Source: The Art Newspaper.

Museum attendance data can also be an interesting indicator for the potential success of an art fair in a given geography. As much France prides itself on its cultural exceptionalism, the country’s three largest museums (in terms of visitors) lost traffic in 2013—no wonder we didn’t see a proliferation of new art fairs inFrance. In contrast, double-digit attendance growth at the two largest British museums is a nice sign of strong public interest in the arts in the country (including tourist flow), and the spillover effect is strongly felt in its dynamic art-fair scene, where even during the dull Q3, Masterpiece London managed to gross 35,000 visitors. As another example, with all the investment that went into Art Dubai in recent years, the fair scored just 25,000 visitors this year. The United Arab Emirates can’t expect to turn a desert into a cultural paradise by merely hosting a fair and announcing ambitious new museums; an art-loving community requires time to take root.

12 Sources of traffic data: official ARCO press release, 33 rd edition http://www.ifema.es/Institucional_06/noticias/NoticiasdeFerias/ferial/INS_034413_06

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13 Art Cologne, the world’s oldest art fair, is still very much alive and ranked eleventh on Skate’s list of art-fair attendance, with 55,000 visitors and 221 exhibitors in 2014. The fair is owned and operated by local company Koelnmesse GmbH.

4. The Changing World of Art FairsThe world of art fairs is changing, and so is the art trade. What started in the German-speaking world (Cologne in 1967

13 and then Basel in 1970) as a novel way to bring art galleries and collectors together in cities that they would otherwise rarely (or never) visit became the primary channel for the flow of the global art trade. Galleries live and breathe by attending art fairs, following up with collectors after the events, and securing new artists beforehand. The art-fair calendar dominates the lives of art-industry professionals; it anchors travel plans for collectors and absorbs most of the marketing and travel budgets of participating galleries. While there are no pure-play art-fair operators listed on the stock exchanges, MCH Group is a good proxy given the significant contribution of the Art Basel and Design Miami brands to its top line. MCH Group’s stock performed brilliantly over the last few years (beyond the months shown in Exhibit 3), producing 77% returns (in Swiss Francs) to its shareholders over the last five years.

Exhibit 3: MCH Group Share Price vs. Skate’s Art Stock Index and Swiss Index

Source: www.skatepress.com-30

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Art fairs changed the art trade, and now the changed art trade is changing art fairs in so many ways. First and foremost, art fairs, as a mature industry, went through the same segmentation process as the auction houses, with a clear pack of Grand Slam fairs emerging on top: the three Art Basel shows, the three Frieze editions (including Frieze Masters), and one TEFAF, followed by the Reed-operated FIAC and Paris Photo properties, and the Merchandise Mart–run Armory Show and Volta fairs.

This top brass of fairs alone takes nine long weekends out of one’s annual schedule (and that’s with some of the fairs running concurrently), covering three continents and clocking tens of thousands dollars in travel expenses alone. Many of the blue-chip galleries that attend all the key fairs spend millions on renting space, getting art in and out, promoting their attendance in the media, and paying for collectors’ entertainment. There is a waiting list and an often very political vetting process to get into the major fairs, and the attendance numbers and per-square-meter rental costs point to a huge differentiation in economics between the Grand Slam fairs and the rest. Grand Slam fairs are trade shows of global importance and must-attend events. All the other fairs are a combination of old “grande dames” like Cologne, Brussels, and ARCO; new experimental breeds like the Moving Image or Affordable Art Fair franchises; and often lavishly funded regional ventures that are often more about promoting the ambitions of local elites and governments than about contributing to market trends or sales volumes (fairs in new markets like Dubai, Singapore, Russia, Brazil, and India).

Taking part in art fairs taught the galleries to be agile and ready to face the world. A modern, successful gallery today is no longer a local institution; it is a truly international business able to survive the cutthroat competition of the global art trade. Now, the business of art fairs faces the threat of market dislocation, and as with every other mature industry around the world this threat is driven by technology and changing consumer patterns.

The core of any art fair’s value proposition is its ability to match the gallery with new potential art buyers and the convenience of maintaining connections with existing collectors. In recent decades, art fairs benefited from the reduced cost of international travel, and they cannibalized art-media publications, as galleries saw a greater payback on art-fair participation than on print ads. The growing rental costs for gallery spaces in global art centers such as New York, London, Zurich, and Munich, and the need to internationalize earnings through a broader customer base made art fairs the ideal format for galleries to execute the modern business model of the nomadic art dealer with one of two flagship stores in their home cities and the global presence built within art-fair programming.

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This core value proposition worked well for the art fairs and was the reason for their growth. However, the tide is changing. Skate’s believes there is a strong and accelerating headwind produced by modern technology and demographic shifts that make it increasingly more efficient and justified for art galleries to move their focus online and save massively on fair attendance and logistical expenses.

What puts even more pressure on art-fair operators is the fact that the proliferation of fairs around the world has made it much more difficult to get galleries to pay. Every art fair wants a quality mix of galleries and is often prepared to offer many perks to attract internationally recognizable exhibitors, from price reductions to paid accommodations to lavish entertainment for the galleries’ clients. The net result is that established galleries concentrate their marketing budgets on a smaller number of Grand Slam fairs and attend a significant number of second- or third-tier fairs for free or almost free. Very often, new art fairs are seeded by owners who are not focused on immediate returns, with their investment in the fairs driven by personal egos, regional/sovereign government ambitions, urban-development logic, value-enhancing use of idle real estate (if a space sits vacant, it’s nice to at least have an art-fair circus fill it up for a few days), and various other factors supporting the irrational economics of the art-fair business.

SHOW DATES, LAST SHOW NUMBER OF VISITORS COMMENTS

Arteba (Buenos Aires) May 23–26, 2014 100,000 Not really an emerging fair; has been through 23 editions so far

Korea International Art Fair (Seoul) Sept. 25–29, 2014 85,000Number of visitors for 2013; $17.2m in sales reported for 2013.

KIAF went into its 14th edition this year

Contemporary Istanbul Nov. 7–10, 2013 72,000The eighth edition, in 2013, claimed a 67% sell-through rate of a total $92m worth of

artworks exhibited; 3,000 pieces sold, implying an average price of $20k apiece 14

Art India Jan. 30–Feb. 2, 2014 67,000 15 Last year, original founder Neha Kirpal brought on two seasoned art-fair professionals, Sandy Angus and Will Ramsay, as partners; results to be seen

Shanghai Art Fair Nov. 14–17, 2013 60,000 Claimed sales of RMB 140m ($22.8m) 16

ArtRio Sept. 11–14, 2014 52,000Data for 2013; information from this year‘s fourth edition

was not available at the time of publication

Source: www.skatepress.com and art fairs’ disclosures.

Exhibit 4: The Most Attended Art Fairs in Frontier Markets

14 Press release from November 13, 2013 (tagged as November 18). http://contemporaryistanbul.com/en/press/releases.html

15 The fair avoids per-event disclosures and instead publishes attendance numbers for its whole history: 400,000 total visitors for six editions. http://www.indiaartfair.in/default.aspx

16 Source: http://www.sartfair.com/2014/eweb/show.asp?id=3526

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This trend is best seen in new art markets like India, China, and Brazil, where local art-fair operators clearly subsidize international galleries to come and try to compensate their economics through gate receipts, positioning these fairs as mass spectacles. Some of their attendance numbers are staggering, but we made a decision not to include them in our list of top established art fairs by attendance, as they simply subscribe to a different format.

To clarify, Exhibit 4 does not imply that those art-fair operators subsidize attendance by major galleries. Skate’s produced this ranking to demonstrate that some of the world’s largest attendance numbers can be found at art fairs that stay well outside the mainstream fair calendar. As will be discussed in Section 6, proving to galleries that they can actually sell art at fairs is key to the business-development strategy of art-fair operators, who need galleries to disclose their sales at fairs as a way to convince other galleries that they can make sales as a result of attending. (The accuracy of this data is another question.)

The level of disclosure by some art fairs in Exhibit 4 is quite revealing, particularly Contemporary Istanbul’s release of its sell-through rate, total sales volume, and estimate of the number of artworks sold. This allowed Skate’s to derive some very rare data points for trading activity at fairs. Using Contemporary Istanbul’s figures, one can conclude that each gallery made an average of $600k in sales, which breaks down to every gallery selling 30 artworks priced at $20k each. This looks almost too good to be true.

As a result of the art-fair revolution and its transformative effect on the art market globally, galleries switched from being deeply local businesses with operations built around their physical spaces into agile enterprises roaming the international art-fair circuit and doing most of their business outside their flagship stores. These galleries are increasingly ready to take the next step—to move online and reduce their dependency on the fairs. As with the rise of art fairs, this transformation will not happen overnight and in fact many fairs will remain intact. But we’ve likely reached a turning point, as more galleries start to trust the Internet and embrace new technologies faster. See Section 5 for more details.

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5. Digital Challenge to the Art Fair Business

The art fairs’ primary customers are the galleries, since they are the ones who generate most of the revenues (more than 50% for many art-fair operators). The galleries also supply both the content and quality traffic that make art fairs a hotbed for new ideas, a showcase for old and new art, and a meeting place for art-industry players and their clients.

Galleries attend art fairs to sell. For many of them, the fair circuit is a primary distribution channel and often the only international business development strategy they have. Consistently being present at the right art fairs also helps galleries win over talented artists and represent them at home and around the world.

Since the outset of the information age, various digital platforms were of genuine interest to art dealers, being the naturally born business-savvy individuals they are. In spite of having a reputation for being reluctant to adopt new technologies, galleries were in fact very fast to switch to the Internet for informational and research purposes, and quickly embraced listing platforms. German-based artnet is perhaps the best example; it enjoyed the advantage of being a first-mover into the gallery-listing business, and over the years it built an operation with close to $10m in annual revenues from listing fees and related services alone. Nearly 3,000 galleries were listed on the artnet Gallery Network at its peak, before the economic crisis of 2008.

However, the key functionality of any transaction, the trust between art buyer and seller, was lacking in the digital realm, and galleries’ use of the Internet remained limited to information and the generation of leads. The rise of art fairs and their international reach delivered a far superior payback on galleries’ marketing dollars than did advertising in print publications or listing on aggregator sites. For a few years, it looked as though a digital change was not destined for the art world: galleries focused on fairs, and artnet’s gallery-membership numbers went in a free fall. By June 30 of this year, the artnet Gallery Network had approximately 1,500 members (2,108 for the same period in 2010 and 2,066 in 2011). 17

In 2011, the New York–based start-up VIP Art Fair, an entirely digital fair, made an extraordinarily loud debut and introduced a new high standard for art presentation and user experience to the gallery-listing business. Dealers again responded enthusiastically to what they thought would be a new generation of digital marketing for them. But the VIP Art Fair became a victim of its own success—it crashed, folded, and was eventually acquired by Artspace through an asset sale. 18

The success of the VIP Art Fair made it clear that galleries just needed the right product to handle more of their business online and on mobile devices. Thanks to technological advances and demographic changes, they observed more and more of their clients becoming comfortable with making significant purchases based solely on online interactions.

17 Ample research and source disclosure files about the artnet Gallery Network can be found at http://www.skatepress.com/art-stocks-profiles/artnet18 In an interview with Skate’s, Artspace CEO Catherine Levene confirmed that Artspace has no intention of resurrecting the VIP Art Fair, neither as a brand nor as a listing service.

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Skate’s believes the right product is finally here. New York–based Artsy narrowed its focus to gallery-listing services earlier this year (from its originally broad and ambitious quest for a business case), and this move has yielded very strong results. Artsy merged art-fair distribution channels with digital strategy, giving galleries an integrated solution for the digital presentation of their booths and inventory management of their artworks.

Artsy has plenty of aspiring competitors, including several collection-management platforms such as the very focused New York player Collectrium. However, Artsy has mastered a key competitive advantage by becoming the digital partner of choice for the world’s major art-fair operators—including the big three: MCH Group, Frieze, and Merchandise Mart—uploading gallery inventories for 31 fairs last season, and it aims to do much more in the season that started this fall. This is starting to look like a killer application for galleries, who can greatly expand their digital presence through one provider (both at fairs and outside of them), and Artsy has a firm grip on this particular art-fair angle.

In September, Artsy claimed to have more than 1,900 galleries on its platform, thus overtaking the incumbent artnet in terms of the number of listed galleries. The breadth of artnet’s gallery inventory is larger (170,000 artworks uploaded on artnet versus 135,650 works on Artsy

19 ), and artnet can perhaps still charge more (the company made slightly over $3m in gallery-listing revenues in the first half of 2014.)

20 But Artsy is probably getting there. Skate’s estimates that Artsy’s revenues from its gallery-listing business will reach more than $3m this year.

Is the increased adoption of high-resolution inventory listings on digital platforms a threat to the art fairs’ bottom lines? The answer is hardly straightforward, but there are solid reasons for fair operators to worry, since digital platforms like Artsy (and still artnet) have some leverage here.

First, they have traffic. Below is a comparison of web traffic between Artsy, artnet, and a few art-fair franchises. Skate’s included the Armory Show to demonstrate how single-event brands come up weaker than multi-event franchises on digital traffic:

20 Additional data sourced directly from artnet and Artsy’s public disclosures.

19 As per Artsy’s disclosure to Skate’s.

21 Average monthly page views in thousands (’000), June–August.22 For methodology of Skate’s Digital Score refer to Skate’s Art E-Commerce Report, September 15, 2014, available for download at www.skatepress.com

PROPERTY WEB TRAFFIC (’000) 21 FACEBOOK (’000) TWITTER (’000) SKATE’S DIGITAL SCORE

22

artnet.com 2,060 98 658 10.06

artsy.net 1,100 36 101 5.23

artbasel.com 207 288 138 2.38

frieze.com 230 67 155 2.08

thearmoryshow.com 63 23 43 1.15

Source: Skate’s Art E-Commerce Report, September 15, 2014.

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Ironically, Art Basel’s web traffic is insignificantly higher than the number of people who attend its fairs in person, and artnet and Artsy each command more (or comparably more in the case of Artsy) unique visitors than the total number of people visiting the world’s 80 largest art fairs online. The quality and level of engagement of this audience is a different matter, but the digital platforms clearly have an upper hand over any art-fair franchise in terms of their ability to bring collectors to art dealers’ booths.

The second advantage for digital platforms is the convenience of shopping online. Most collectors today have lived the art-fair experience and are unlikely to go to all the Grand Slam (not to mention second-tier) fairs. Once introduced to buying art, collectors now find it increasingly more favorable to window-shop online rather than wander into a brick-and-mortar gallery, avoiding sales intimidation and spending less time to see more. Of course, online platforms are no substitute for the electrifying experience of a VIP preview at a major fair, but they definitely allow collectors who visit fewer art fairs to stay connected to other fairs online. This is classic consumer empowerment in the making.

So while art fairs are unlikely to start immediately losing galleries and visitors, the medium-term effects will be unavoidable. The unique value proposition of art fairs is eroding (discussed above), and many rational art-fair operators may start looking for an exit and/or consolidation soon.

Should art fairs find a way to ban the use of proliferating digital technology at their events? Skate’s doesn’t think so. Embracing technology to enhance the art-buying process creates a better experience for both the gallery and the collector, and art fairs shouldn’t stand in the way. In addition to increasingly forming digital partnerships with Artsy (see the case study in Exhibit 6), there are multiple other ways that art fairs could evolve with the times. These include emphasizing different mediums (it’s not very exciting to browse online for performance art or sculpture), adding more entertainment to the programming, and offering a richer arts-connoisseurship experience (rather than simply looking for the right piece to buy).

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Some shows are clearly moving in that direction. Art Basel Miami Beach now offers around-the-clock entertainment in conjunction with the main event, and FIAC is doing a great job of spilling the fair onto the streets of Paris. Some amazing new formats are also coming into full bloom. Skate’s particularly likes Ars Electronica, which has evolved since its first show in 1979. The high-tech arts and creativity fair brings more than 75,000 visitors and 500 exhibitors to the Austrian industrial city of Linz (which played a particular role in art history as Hitler’s designated repository for the world’s most important art), combining the fair, a citywide festival, and multiple awards into a very cool and memorable show that cannot be substituted with an online experience.

Turning art fairs into live performance festivals is likely going to be a prime strategy for those fairs marginalized by the existing Grand Slam calendar and something that is very much worth doing in order to catch up with major artists, who are increasingly bringing performance into their practices. As the Financial Times put it, contemporary artists have “proved that painting could rival younger media as spectacle, theatre, performance.”

23

Artsy’s value proposition to an art fair is that it amplifies exhibition capabilities by making the fair’s content available

to global audiences online and by providing digital aids to on-site visitors. Artsy launched its mobile and on-site

technologies for art fairs at the 2014 Armory Show. These are 1) the Artsy iPhone app: a personalized fair guide

with mobile mapping and informational tools; and 2) Artsy Columns: freestanding digital screens on the premises

that display real-time data on “trending” artists, artworks, and exhibitors. The new technologies were designed to

enhance the on-the-ground experience for fairgoers, and Artsy now offers a mobile fair guide to every fair with which

it collaborates, accessible via the Artsy iPhone app. More than 200,000 visitors from 195 countries engaged with Artsy’s

Armory Week coverage in March 2014, which featured 6,320 works from 306 exhibitors across six fairs in New York.

(This included exclusive partnerships with the Armory Show, ADAA, and Moving Image.) During the fairs, over 70,000

users either downloaded or upgraded the Artsy app. Artsy can also supply art fairs with a post-fair report, ranking the

galleries’ booths by digital traffic generated (and thus helping the fairs improve the gallery mix for subsequent shows)

and providing its client galleries with valuable visitor data.

Exhibit 6: Case Study of a Digital Partnership with Artsy

23 In the context of this sentence, critic Jackie Wullschlager mentioned Royal Academy blockbusters by Anish Kapoor (who drove a “paint train” through the gallery in 2009 and David Hockney (with his greatly enlarged iPad sketches from 2012). “Interview with Anselm Kiefer, ahead of his Royal Academy show,” Financial Times, September 19, 2014.

Source for data points: Artsy

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6. Competitive Landscape and Pressure to Disclose Trading VolumesWith the abundance of art fairs worldwide, the market simply consists of global art-fair operators (see Exhibit 6) and local players. Some of them are deeply entrenched corporate giants like IFEMA (Feria de Madrid) in Spain (which operates four trade shows centered on art, antiques, and collectibles, including ARCO); others are fragile start-ups like Cosmoscow in Russia.

The global art-fair landscape is dominated by ten names (although we may have missed a few other players’ global aspirations and will gladly take feedback from them about this report). It’s worth noting that all three of the strongest players in the art-fair industry run their fairs as noncore (or one of many) business segments.

Swiss-listed MCH Group is leading the pack with three Art Basel and two Design Miami shows dominating both the offline and online fields. MCH Group is a major owner of commercial real estate and an operator of multiple trade shows, primarily in Switzerland. Several Swiss municipalities are significant shareholders of MCH Group. 24

Reed Exhibitions, part of the Anglo-Dutch Reed Elsevier conglomerate—a leading provider of professional information and workflow solutions in the science, legal, medical, risk-management, and business sectors—is mounting a very credible challenge to MCH Group. Reed will expand from owning and operating three art shows to four in 2015 (adding FIAC Los Angeles). If one attaches to that the small Viennafair (owned by Reed but operated by a third party), it has a roster of five shows, which is likely to bring Reed close to MCH Group’s overall attendance numbers of more than 300,000 visitors per year.

Perhaps the most intriguing corporate player in the field is Merchandise Mart. Merchandise Mart Properties, Inc. (MMPI) is a division of Vornado Realty Trust (a blue-chip, New York Stock Exchange–listed real-estate behemoth with market capitalization of $19.2bn as of Sep 19, 2014). It is a leading owner and operator of integrated showroom and office buildings, as well as trade-show facilities, bringing buyers and sellers together through market events, trade and consumer fairs, and conferences. The company owns the Armory Show, Volta (New York and Basel), and the Architectural Digest Home Design Show.

The Vornado logo is ubiquitous across the New York real-estate landscape. The firm could have owned the entire art-fair world if it wanted to, but so far it gives the impression that it simply doesn’t care. By pulling the plug on Art Chicago a few years ago (see Section 2 of this report and the notion of Expo Chicago filling the gap) and considering the sale of all its art-fair properties two years ago, the firm showed clear signs of a lack of strategic interest. Despite suffering from inadequate parent-company support, the Armory and Volta properties have managed to remain respectable, but the elephant is in the room. Does Vornado still care about its fairs? Will it divest at some point soon? We will definitely be watching.

24 For more information on MCH Group, go to http://www.skatepress.com/art-stocks-profiles/mch-group

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TEFAF is a truly odd player on the list. The only single-show company that operates more as a foundation than a business (since 1979), TEFAF benefits from the strength of its status as a highly influential fair, but it has been unable to expand. The following TEFAF disclosure is telling:

In March 2013 TEFAF announced that it had entered into exclusive discussions with Sotheby’s to explore the possibility of developing

a high-end art fair in China via Sotheby’s Joint Venture in Beijing with GeHua. Over the past few months TEFAF, with Sotheby’s

assistance, was able to develop a detailed proposal for exhibitors to consider, which had the support and co-operation of the Chinese

authorities and fulfilled all the local requirements. Although the art market in China is growing rapidly and there is considerable belief

in its potential, the feedback from many dealers indicates that the majority feels that exhibiting in mainland China is something that

they would consider at a later date. While the interest in and the appetite for Western art is undoubtedly growing, there is a belief

that the market for many of the specializations represented at Maastricht is still evolving. The Executive Committee and the Board

of Trustees of TEFAF Maastricht have therefore reluctantly concluded that a high-end art fair, as presently envisaged, in Beijing is not

viable at the current time. 25

Well, perhaps China is the wrong place to go first, but TEFAF is clearly losing its momentum to scale up.

BRAND OWNER AGGREGATE ATTENDANCE RANK THE IN ART-FAIR INDUSTRY

RANK IN THE ART-FAIR INDUSTRY UNDER SKATE’S DIGITAL SCORE

ART BASEL MCH GROUP 1 1

PARIS PHOTO REED EXHIBITIONS 7 2

FIAC REED EXHIBITIONS 4 3

FRIEZE FRIEZE 2 4

DESIGN MIAMI MCH GROUP 8 5

THE ARMORY SHOW MERCHANDISE MART 6 6

AFFORDABLE ART FAIR AAF 14 7

ART MIAMI ART MIAMI LCC 5 8

TEFAF TEFAF 3 9

VOLTA MERCHANDISE MART 18 10

Exhibit 7: Top 10 Art Fair Brands (ranked by Skate’s Digital Score)

The other players on the list are pure-play art-fair franchises, of which Frieze takes a focused, high-quality approach; Art Miami LLC aims at carefully selected art-consumption growth spots with seven shows in the United States (Art Silicon Valley, Art Wynwood, Art Southampton, downtown fair, Context, Aqua14, and Art Miami); and the Affordable Art Fair centers on the lower end of the market in more than a dozen cities around the world.

As documented above, large corporate-backed franchises clearly dominate the art-fair landscape by any metric, forcing others to build their businesses around available slots in the calendar. Proving to galleries that they can sell at those fairs is key to attracting both a quality mix of galleries and decent collectors. This sets in motion the trend of art fairs publishing galleries’ trading volumes or disclosing selected transactions made at the fairs. The accuracy and reliability of this data is hard to judge; perhaps the only accurate metric is the insured value of art properties present at the fair. The actual sales are difficult to track since many of them technically get completed after the fair is over and there is no public record of any sale other than the red dots that some galleries place next to sold artworks. Thus, from a statistical point of view, art fairs’ disclosures make for an interesting read

26 but are inconsistent and not standardized. There is no accepted convention for these disclosures yet.

25 Source: TEFAF disclosure at www.tefaf.org26 See TEFAF sales disclosure at http://www.tefaf.com/media/tefafmedia/Sales%20TEFAF%202014.pdf. Art Cologne has one of the most interesting sales disclosures and can be accessed at http://www.artcologne.com/en/artcologne/presse/presseinformationen/index.php?aktion=pfach&p1id=kmpresse_artcolognee&format=html&base=&tp=k3content&search=&pmid=kmeigen.kmpresse_1397562967&start=0&anzahl=10&channel=kmeigen&language=e

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7. Q3 Art Fair Facts, Q4 Art Fair CalendarThe third quarter saw a grand total of 12 art fairs from Skate’s list of 80 major fairs, and three of them (KIAF in Seoul, Moving Image in Istanbul, and the Affordable Art Fair in New York) closed their doors after this report went into production.

Based on traffic figures released by the fairs, ArtRio was by far the largest event this quarter, with 52,000 visitors (a suspiciously identical number to the one given for 2013). ArtRio’s website barely functioned, gallery attendance was weak, and reports of sales at the fair were almost nonexistent, so Skate’s remains skeptical about the significance of this marketplace. SH Contemporary in Shanghai seems to have been an event of the same quality. That fair failed to provide visitor numbers and other essential statistics within ten days after it closed, highly unusual for the industry. This further justifies Skate’s decision to base attendance rankings on established fairs only (as per Exhibit 1).

On the other end of the attendance spectrum is Cosmoscow, which (after a few years’ hiatus) returned with a new event this year, ignoring international sanctions and the overall gloominess of business confidence in Moscow. No wonder Cosmoscow was the least attended art fair this quarter, with only 7,000 visitors and 26 galleries present. These statistics can probably only compare with the Istanbul edition of Moving Image, for which we had no attendance figures when this report went into production, with all other fairs doing significantly better on gallery participation and visitor numbers this quarter.

The Hamptons, London, Chicago, and Berlin were the prime hotspots for art-fair activity in Q3 2014, while other locations strived to find attention. Still, all 12 of the Q3 events combined are of little significance when compared to the big season of art fairs that hits in Q4, in terms of traffic numbers, quality of galleries, and volume of sales. See the calendar of Q4 art fairs in Exhibit 8.

FAIR DATES OPERATOR VISITORS EXHIBITORS COMMENTS

Masterpiece London June 26–July 2 Masterpiece London Limited 35,000 163Rated # 3; see Section 2. Reported strong sales,

including one piece at $20m

ArtHamptons July 10–13 Hamptons Expo Group 14,000 87 Special emphasis on Korean art

Art Southampton July 24–28 Art Miami LLC 21,000 84 Rated # 2; see Section 2

British Art Fair September 10–14 Not clear Not disclosed 56Website was down post-fair. Royal College of Art

hosts the event

ArtRio September 10–14 BEX 52,000 106 Website barely working

SH Contemporary September 10–14 BolognaFiereNo results repor-ted as of Sept. 25

100About 60% of galleries from Asia; the show was cancelled in 2013

Art Berlin Contemporary (ABC) September 18–21 abc-gwb Veranstaltungs UG 28,000 112 Paired with Berlin Art Week

Expo Chicago September 18–21 Expo Chicago 35,000 140 Northern Trust as title sponsor

Cosmoscow September 19–21 Cosmoscow 7,000 26 Sponsored by Piaget, Guerlain, and Porsche

Exhibit 8: Q3 Art Fairs Facts

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NAME STARTS ENDS CITY

Asia Art Fair 16-SEP 21-SEP New York

Art Berlin Contemporary (ABC) 18-SEP 21-SEP Berlin

Amsterdam Drawing 18-SEP 21-Sep Amsterdam

Expo Chicago 18-Sep 21-Sep Chicago

SUMMA Contemporary Art Fair 18-Sep 21-Sep Madrid

Houston Fine Art Fair 19-Sep 21-Sep Houston

Pop Shop Houston 20-Sep 21-Sep Houston

Affordable Art Fair 25-Sep 29-Sep New York

Korean International Art Fair (KIAF) 25-Sep 29-Sep Seoul

ArtInternational 26-Sep 28-Sep Istanbul

NY Art Book Fair 26-Sep 28-Sep New York

Viennafair 2-Oct 5-Oct Vienna

(e)merge art fair 2-Oct 5-Oct Washington, D.C.

Art Market Budapest 9-Oct 12-Oct Budapest

Art Silicon Valley 9-Oct 12-Oct San Francisco

ArtVerona 9-Oct 13-Oct Verona

Frieze London 15-Oct 19-Oct London

Frieze Masters 15-Oct 19-Oct London

1:54 Contemporary African Art Fair 16-Oct 19-Oct London

Kinetica Art Fair 16-Oct 19-oct London

World Wide Art Los Angeles 16-Oct 19-Oct Los Angeles

FIAC 23-Oct 26-Oct Paris

MIA&D Fair Singapure 23-Oct 26-Oct Singapore

Young International Artists (YIA) Art Fair 23-Oct 26-Oct Paris

Art Taipei 31-Oct 3-Nov Taipei City

Abu Dhabi Art 5-Nov 8-Nov Abu Dhabi

IFPDA Print Fair 5-Nov 9-Nov New York

Art San Diego 6-Nov 9-Nov San Diego

ARTISSIMA International Fair of Contemporary Art 6-Nov 9-Nov Torino

Sculpture Objects Functional Art + Design (SOFA) Fair 6-Nov 9-Nov Chicago

Paris Photo 13-Nov 16-Nov Paris

Contemporary Istanbul 13-Nov 16-Nov Istanbul

PINTA New York 13-Nov 16-Nov New York

Art Miami 2-Dec 7-Dec Miami

Miami Project 2-Dec 7-Dec Miami

Red Dot Art Fair 2-Dec 7-Dec Miami

SCOPE Miami Beach 2-Dec 7-Dec Miami

SELECT Contemporary Art Fair 2-Dec 7-Dec Miami

Aqua Art Miami 3-Dec 7-Dec Miami

Artexpo New York 3-Dec 7-Dec New York

Design Miami/ 3-Dec 7-Dec Miami

UNTITLED. 3-Dec 7-Dec Miami

Art Basel Miami Beach 4-Dec 7-Dec Miami

New Art Dealers Alliance (NADA) Miami Beach 4-Dec 7-Dec Miami

PULSE Miami Beach 4-Dec 7-Dec Miami

Exhibit 9: Q4 Art Fair Calendar

27

27 Includes fairs held in the last two weeks of September that could not be covered due to this report’s editorial and production deadlines.

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8. Further Information, Next Report, and Disclaimer

This is the inaugural issue of Skate’s Art Fairs Report and, as such, some important art fairs may have been left out of our ranking tables. We would be delighted and thankful for any additions, feedback, and advice on what we might have missed.

Please note that we have intentionally excluded all nonprofit operations (e.g., fairs run by art-dealer associations).

To submit your information for future editions of Skate’s Art Fairs Report (published quarterly), discuss any issues related to methodology, or provide any suggestions, please contact us at skate@skatepress.com.The next issue of Skate’s Art Fairs Report will be published on January 15, 2015, and will include our annual ranking of the world’s 80 most important art fairs with full 2014 attendance and exhibitor data.

Disclaimer

The analysts who work on the Skate’s Art Fairs Report do so free from any management or commercial influence in preparing their rankings and analysis of the art-fair industry. Although Skate’s makes every effort to objectively and impartially collect, prepare, and present the findings, data, or relative standings stated in this report, Skate’s does desire to disclose the following affiliations and relationships that relate to certain parties that are profiled in this report:

1. Skate’s LLC is 100% owned by ARTNEWS S.A. ARTNEWS S.A. is one of the largest shareholders in artnet AG, which has been mentioned in this report.

2. Many of the companies ranked in this report are existing advertisers in various media properties operated by ARTnews LLC, which is a subsidiary of ARTNEWS S.A.

3. Nothing in this report can be interpreted as a recommendation to invest in any stock, bond, or other securities, and no representation is being made to the completeness of the data and art-industry sample set. For any omissions or corrections, please contact Skate’s editorial team at skate@skatepress.com.

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New York, NY 10010, USAPhone: (212) 398-1690 www.skatepress.com