| BUSINESSWEEK ONLINE : DECEMBER 27, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| WHERE TO INVEST -- THE INVESTMENT SPECTRUM
Q&A: Sotheby's and Christie's: Houses Divided about the Net In Q&As, their CEOs hold forth on the current art boom and e-commerce The venerable auction houses Sotheby's and Christie's have been enjoying the fruits of an art market that hasn't been this strong since the sizzling late 1980s. Both had robust sales at this fall's showcase auctions in New York and London. Lately, however, the two companies have diverged significantly in their strategies for offering auction sales over the Internet. Sotheby's is very bullish on the Net's prospects and is following a two-pronged strategy. It recently launched a joint-venture art and collectibles auction site with Amazon.com, dubbed Sothebys.Amazon.com. And it is upgrading its own Sothebys.com Web site to offer online auctions, far more online content on artists and the art market, and other services. Christie's, on the other hand, is skeptical of the Net's potential. It recently pared back its ambitious Internet strategy. Now, it will focus on upgrading its Christie.com site to offer online auctions and more content on artists and the art market. But the site will be mainly an adjunct to Christie's traditional auction businesses. Rumors that Christie's would sign a big deal with an online provider have proved unfounded. Business Week Online contributing editor Thane Peterson checked in by telephone with Diana D. Brooks, CEO of Sotheby's, and Christopher Burge, CEO of Christies's Inc., the U.S. arm of the auction house, and got their views on the state of the art market, the recent fall auctions, and the potential of the Internet in their business. Edited excerpts follow: Sotheby's Brooks: "A Whole Culture Is Going to Have to Change" Q: Some commentators think that the art market is getting overheated at this point. What is your feeling? A: The art market right now is somewhat different from prior markets in that the quality of the art is really driving things. If you have high-quality works of art for sale, you can assume that the works are going to do well -- maybe even better than you ever imagined. But what's interesting is that they are being bought by traditional collectors. These are mainly not people who've never bought [art] before. They're all people we know. This is not an art market [like the late 1980s] where 75% of the art is being shipped to other parts of the world [to go] into storage. There's no activity that could be characterized as speculation. Everything that's being acquired is going to someone's home -- it's part of a collection. And it's not surprising, given the enormous amount of wealth that's been created, that you would see people pay very, very strong prices for objects.... There is an enormous amount of demand, and supply has started to come into place. In the last year, we've sold some extraordinary works of art. And they have brought prices that far exceeded anything we've imagined before. But when you think about it, you understand it. Because the collector's never going to be able to buy an object like this again. For example, when we sold the Patek Philippe Graves pocket watch for $11 million. That was, obviously, an enormous price. But you're never going to be able to buy an object like that again unless this one comes back on the market. Same thing with the George Bellows painting that [sold] for $27.5 million. We had three bidders up to about $16 million, and from $16 million up two bidders. And whether they paid $1 million more or $3 million or $4 million more really wasn't of consequence. Because if they didn't buy this picture now, they knew they wouldn't get another chance. Q: Well, O.K. But I talk to some pretty savvy collectors, and they're starting to get a little leery of some of the prices being paid. They say there's a lot of new money in the market that isn't necessarily smart money. A: I don't necessarily agree with that. I think that the new players in the market are very intelligent people, and they have good advisers. Yes, they may pay enormous prices. But compared with the amount of wealth they've accumulated, it may not be an enormous price for them. If you have somebody who has made hundreds of millions or a billion and they end up paying $10 million or $15 million or $20 million for a painting, why not? They already own their houses, and they already own their boats and their cars, and if you think about it, this gives them enormous pleasure. Now, whether they will continue to collect in a significant way if there's a downturn in the financial markets, I don't know. Q: What is your feeling about the potential for Internet sales? A: Success in the online business would be if we could do $100 million in sales in six months, and if we could sell more than 40% of what we offered. If you look at the other online sites at the top end -- that would be eBay or Icollector or Amazon.com, Artnet.com -- you see that only about 5% of the art and collectibles they offer over $200 is actually selling. Maybe it's 10% to 15%, but it's not more than that. Our goal, obviously, is going to be to achieve a significantly higher success rate on what we offer. I think a couple of things are going to need to happen for us to be really successful in the business. People are going to have to be comfortable buying online. And I do think there are a lot of people today who have the wherewithal to buy art but have just never come to Sotheby's or a dealer. Buying online is a new way for them to become comfortable with art. No. 2 is the whole technology issue. Today, our digital imaging is really fantastic compared to where it was two years ago. But if you're dealing with a 56K [modem] on your home computer, it takes a whole lot more time to get that image up than it does if you're on a cable modem, for example. So the whole ease of access is going to be important. And the faster technology changes and the faster the move to broadband, the more successful we're going to be. Third, we have to get traditional buyers more comfortable with using computers. We have 4,500 dealers signed up to be associates who will sell exclusively on our site anything over $300 that they offer online. But only 1,300 of them had e-mail addresses when we signed them up. It's going to take two or three years for this to be as successful as I think it can be. It's not going to happen overnight. A whole culture is going to have to change. But we truly believe it is going to change. Q: And the $100 million in online sales, is that an annualized rate of sales? A: That would be the combination of sales on Sothebys.Amazon.com and Sothebys.com, the two sites together. It won't happen in the first six months because we haven't even launched Sothebys.com yet. But if we start having a running rate of $15 million to $20 million in sales per month, I would say the business would be starting to show what it can be. I think it could be significantly greater than that later. Q: And Sothebys.Amazon.com will focus on the lower end? A: Well, it will be different. All of our coins, stamps, toys, Hollywood memorabilia will be sold exclusively on the Sothebys.Amazon site. Jewelry and watches will be sold on both sites.... The Sothebys.com site will also be more traditional. It will be more related to the art market. The online sales will be a little bit longer in duration, more theme-oriented, and more aligned with the live-auction business. There will be very significant content about shows, artists' records, how do you define good from bad. There will be all sorts of features. Q: I still find it hard to believe that someone will pay $27.5 million for a George Bellows painting online. A: Probably not yet. But it could be it will be sold live and online at the same time. Effectively, I could be the auctioneer at the podium, and I could have bidders in the audience and someone sitting somewhere in the world at a terminal bidding, too. Q: Are there areas that are more amendable to online sales? A: Well, people already are comfortable with some areas. Coins, sports memorabilia, jewelry. Furniture is actually doing remarkably well, which was a surprise to us. Books, photographs, prints will be very popular. Paintings will be a little more challenging, although up to the $10,000 to $20,000 level there will be no problem. Single-owner sales -- personality, celebrity kinds of sales -- will be very successful. Q: Finally, there is a lot of new money coming into the art market. What is your advice for relatively inexperienced collectors? A: I have to say that I've been enormously impressed with the amount of homework new buyers in the market have done. We always say to new collectors, "Ask for advice. It's always good to have a dealer you're comfortable with. We can always set you with one if you want. Always ask about condition, the maximum you should spend on a work. And you've got to love what you're buying." There are so many new [art buyers], but they're so serious about what they're buying. Ten years ago, when new people came into the market, they'd first come in at $100,000, then go to $500,000, then buy something for $1 million. Today, we're seeing people come in and not hestitate to buy a $10 million or $15 million work of art on their first buy. That's because so much wealth has been created in recent years. But they're asking all the right questions. They don't just come in and put their hand up in the air. Christie's Burge: "Nobody...Has a Clue" How to Use the Net Q: Some art gallery owners and others are saying the art market is getting overheated. What is your take on that? A: Not a lot has changed in that respect since last year. For the most part, in the classic areas of 19th century painting, decorative arts, American painting, etc., if a work is deemed to be of first quality and rare, it may well bring a very surprising price, comfortably exceeding expectations based on previous prices. In other words, we have an extremely strong market throughout every area of our business for what is perceived as top quality. On the other hand, if something is perceived as sort of a B+ or B- object, the market has not changed over last year, or the year before, or the year before that. There are almost two art markets: one for rarity and quality and another for general merchandise that we sell, which has seen very little inflation over past years. Usually, a sign that the market is overheating is when both areas of the market gallop ahead and particularly when works of lesser quality far exceed expectations. That's a sign that the money coming into the market isn't very perceptive. We haven't seen that. Q: Going back over recent auction sales, which rare and historically valid works stick out in your mind? A: In the 19th Century Painting Sale, the superb Monet water lillies [which sold for $22.5 million]. It's very rare that pictures of its square format come to sale. There are perhaps one or two others. And the great Picasso portrait of Marie-Therese [which sold for $45.5 million]. There we had some guidelines. A [Picasso portrait] called Le Miroir sold for $20 million several years ago. We had heard that the owner has had several handsome offers. He definitely valued it at more than $20 million -- probably more like $30 million or $40 million.... Q: Some commentators have said there is now a floor price of $40 million for really good Picassos. Does that seem correct? A: Well, I don't know. I think that's dangerous. I think estimating is a slightly more sensitive art than creating a floor because two or three paintings go for $40 million.... Nonetheless, this is an area of Picasso's work that is very sought after now, whereas 10 or 15 years ago it was much less sought after. Everyone [then] was looking for the Blue Period, Rose Period, and Cubist pictures. Q: I know you don't like to talk about specific buyers, but the rumored buyer of that Picasso [Leslie Wexner, chairman of The Limited, Inc.], is an experienced longtime collector. Are the experienced collectors [most of whom bid anonymously] still willing to pay top dollar? A: Yeah, that's the interesting thing. We saw the experienced collectors of the 1980s stepping out of the market in 1988 and 1989. They felt that the market had got overheated, and that it was way above any consensus of value. That is not the case now. We've got a lot of experienced buyers -- many of whom were in the market in the mid-1980s, before 1988-89 -- who are still in the market today. There are also many new collectors who have come in in the 1990s and who have become experienced buyers who are also still in the market. I don't see any sign of experienced buyers saying, "This market's too hot. I'm stepping out now." Q: On the other hand, everyone is talking about a lot of new money coming in, from entertainers, Internet entrepreneurs, or whatever. A: Absolutely. But almost all of that new money is coming in sensibly and cautiously. So many of these new buyers bring their curators, their restorers, their outside advisers, and will come in 10 times, 15 times, to look at works of art. These are not casual buyers. And that hasn't changed in the last 24 or 36 months.... That's very different from the 1980s, when nobody asked any questions. The dealers knew they could sell anything in Japan, and the Japanese were buying for reasons that had nothing to do with aesthetics. Q: Last year, you were saying the Japanese were parceling out the huge stocks of Impressionist works that they acquired in the 1980s, trying not to tank the market by selling too many at any given time.... A: Yes, and that carries on. Everyone has gotten so used to that by now. A number of works in both houses [Christie's and Sotheby's] came from Japan. It still goes on because there's still quite a lot [of paintings] to come. They've given us freer range in setting estimates and reserves, and as a result we've done extremely well for them -- though not well in terms of what they paid in yen [for the works] 10 years ago. Q: And there was nearly a 50% increase in the take at the major auctions at Christie's and Sotheby's this fall in New York. A: Right. But you should bear in mind that we're nowhere near where we were in the 1980s -- we were probably $100 million short of [sales for] the same period in 1989. That tells you how crazy that market was ten years ago. Q: What is your take on buying art over the Internet? A: In the next decade of two, the Internet will become a great deal more sophisticated, and we will all figure out how to use it to our best advantage. But right now, nobody in the auction business has a clue how to do that, frankly.... Certainly, we are forging ahead on the Internet. But we're essentially putting the Christie's you know up on the Internet. We're tailoring our existing business to the Internet, and we'll go forward from there. Q: But questions of Christie's strategy aside, how practical is it for collectors to shop online and do research online? A: My advice has to be traditional: You must look at a work of art before you buy it. Yes, you can buy certain [prints and other] multiples online. There's an industry standard for describing prints, coins, and some other things. You can actually buy them, and the description will tell you precisely what you're getting. But on the other hand, in many areas you don't know. I would say to any collector wanting to buy an important work of art: You must look at it first. Q: What's happening in the Old Masters market? Any special opportunities for collectors there? A: The Old Masters market has continued to strengthen. It recovered later than most of the rest of the market, partly because it went down later. When we were all floundering around in 1991, it was at all-time highs. In 1993, as the rest of the market was beginning to recover, [the Old Masters market] went into a nosedive. It has now come around, and that market is very strong. But strong in the same way the other markets are, with buyers getting very good advice, and very good things bringing top prices. Q: Any final words of advice to investors in art? A: If we're going to give advice to investors, my advice is as always: Don't invest in art! Do not look at works of art as an investment. The Internet has not changed that. The strong market has not changed that. If anything, it suggests that you should look more carefully than before, learn more, get more advice than ever before. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
RELATED ITEMS Still Life with Surreal Price Tag PHOTO: Meatworkers' Congress, Circa 1940, by Weegee ONLINE ORIGINAL: Sotheby's and Christie's: Houses Divided about the Net INTERACT E-Mail to Business Week Online | |||
