1. Overview of Industry

1. Original art up to now sold either by auction houses such as Sotheby’s, Christie’s, Butterfield & Butterfield etc. or by galleries. Sales of Sotheby’s increased from $337m to $367m between ’97 & ’98. Sector as a whole had sales of $6.4 billion in ’97 (figure from US Census but also includes art museums).
2. Recent development – growth of online art sites. Three categories: Online divisions of art auction houses (Sotheby’s in alliance with Amazon, Ebay with Butterworth & Butterworth) and portal sites such as artnet.com; sites like PaintingsDirect.com, NextMonet.com, IncredibleArt.com that sell original art by lesser-known painters, and sites like art.com & barewalls.com that sell posters and prints. All of these sites are a year old or younger.
3. Technological change that helps – broadband access; image is the natural product to sell on the internet?
4. Prices – PD.com average price is $600 (with highest of $3,800) while artnet.com average is $3,200.
5. Different business models: PD, NM etc. charge a commission (50%) while artnet charges a fee (from the alliance gallery) for posting.
6. Revenues – artnet says it sold $1 million in auctions over 6 months including a $168,000 transaction. But Paintingsdirect.com sold $12,000 last year!
7. Cost structure – little by way of variable costs other than advertising costs although advertising costs are high (details later). Shipping, procurement (& manufacture) costs borne by artists in many cases.
8. Product differentiation – heart of the matter; in a world of thousands of artists and semi-knowledgable buyers, is the main purpose of these online galleries to certify quality? Or will the lowest common denominator in taste and price (Kincaid?) prevail driving everybody’s (*artist’s and gallerys’) profits down to zero?
9. Questions: I) will customers buy art online at all (the touch, feel factor), ii) will they buy from a variety of artists at different prices – so same as today except a much bigger market and iii) will buyers buy directly from the artists, i.e., is there a role for a middleman?

j. Future – global art market? Market segmentation with Large numbers of middle to lower level artists constituting on segment of the market and high art the other? Art co-mingled with other products?