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Late on a sunny spring afternoon in Niagara-on-the-Lake, Ont., a few stragglers are enjoying tea in the overfurnished drawing room of The Prince of Wales Hotel. Among Louis XV reproductions and Chinese vases, they sip Ceylon tea served from massive china pots and nibble cucumber sandwiches plucked from three-tiered silver cake stands. It's excellent fare--the scones are buttery; each cake is a little bijou of the pastry chef's art--but at $28 a head, The Prince of Wales could claim to serve the most expensive afternoon tea in Upper Canada, beating out top-tier Toronto hotels such as the Four Seasons ($18.50) and Windsor Arms ($20).

At the same hour, 170 kilometres westward, a crowd of early diners are feasting on foie gras, venison and pear tart in the airy, modern dining room of Rundles restaurant, overlooking the Avon River in Stratford. The food is delectable, but the prices aren't quite as whimsical as the wooden whirligigs that decorate the room. A 1997 Ontario chardonnay will cost you $59.95 a bottle, and the bill for two can easily top $250.

Welcome to the economy that theatre has built. It's booming.

Both the Stratford Festival and the Shaw Festival in Niagara-on-the-Lake have enjoyed record-breaking ticket sales in recent seasons as more and more visitors savour the genteel delights of the theatre towns. Stratford sold 590,000 tickets last year; with TV heartthrob Paul Gross starring in Hamlet and a revival of Fiddler on the Roof also on the playbill, it expects to break 600,000 this season. Shaw's sales peaked last year at 338,000, but the festival is not complaining. It foresees sales of at least 325,000 tickets by the end of its season in early November, and has already extended the musical She Loves Me all the way to Dec. 10.

At the festivals, administrators attribute their success to strong playbills, successful marketing and strenuous efforts to build the ranks of their members--who not only buy tickets but also make donations. Of course, they are also benefiting greatly from a roaring Ontario economy that has buoyed up disposable incomes, and a low dollar that brings Americans here and keeps Canadians at home. Today, both festivals raise more than three-quarters of their revenue from the box office, the concession stands and the gift shop; 40% of those sales are made to Americans.

Welcome to the theatres the economy has built. They're soaring.

In the age of perpetual cutbacks, arts organizations are often cast as starving beggars pleading for public charity. In summer theatre, nothing could be further from the truth: The Ontario festivals are tourism fat-cats who feast on private dollars. During a decade when government funding of the arts has been steadily shrinking, the festivals' incomes and expenditures have steadily grown. Stratford is the largest performing-arts organization in the country, and its $35-million budget has increased almost 50% in the last five years. With smaller theatres and fewer seats to fill, Shaw's growth has been less spectacular but is certainly healthy.

It's a seasonal business and a cyclical one, highly dependent on confident consumers with lots of discretionary dollars, but the payoffs are big: Shaw and Stratford fuel local tourism, creating an economic impact that's about 100 times larger than the modest government grants they receive. No wonder that towns from Wolfville, N.S., to Drayton, Ont., have been getting in on the act, creating a decade of unprecedented growth in Canadian straw-hat theatre.

From the first, the Stratford Festival was conceived as an economic development project. As such, it has been a giant success: When the festival recently asked the Conference Board of Canada to measure its impact, the board calculated that the organization generates 6,000 jobs, $170-million worth of tourism, $346 million in overall economic activity and $64 million in taxes. All that for a modest $1.5 million in federal and provincial arts grants, and a property-tax exemption from the city.

In a much smaller town that welcomes a lot more tourists, the impact of the Shaw Festival is harder to measure: Started as an amateur event in 1962, the festival helped launch a tourism boom in historic Niagara-on-the-Lake. The city of Stratford figures that it welcomes about half-a-million tourists every year because that's how many tickets the festival sells; in Niagara-on-the-Lake, only a tenth of the estimated three million visitors are seeing a play. Many of the others are day-trippers on tour buses who will only stop to admire the architecture and buy some fudge before hurrying off to Niagara Falls. The festival, which can take credit for bringing the big-spending over-nighters to town, estimates that for every dollar spent in its theatres, 10 more are spent in town. It's a generous quantifier but one in line with estimates of Stratford's impact, and would suggest that the Shaw generates $127 million for the local economy.

Summer theatre, a phenomenon that now begins in April and extends into December, has transformed these towns into pretty communities peppered with artists, wealthy retirees, and merchants specializing in Elizabethan knickknacks and pricey Irish sweaters. In Stratford, businesspeople only wish their theatre would follow Niagara's lead on an extended season and help them push local tourism into the Christmas market. Their counterparts in Niagara dream of an additional venue that would expand the Shaw Festival's capacity.

Underneath the gloss, Stratford remains a place of industry, a city of 30,000 where the principal employers produce latex trim and bearings. But while the workers are busy churning out automotive parts, the tourists provide a market for amenities quite unknown in most manufacturing towns. The chic boutiques, fancy restaurants and independent bookstores in turn create the kind of place that can attract such exotic retirees as writer Timothy Findley and a host of lesser-known seniors ready to move into riverside condominiums or renovated Victorians. The streets are leafy, the economy is nicely mixed, employment runs at 2.2% and the commercial vacancy rate is minuscule.

Perhaps the most remarkable spinoff from the festival is the Stratford Chefs School, a non-profit wintertime training program run out of Rundles and The Old Prune restaurants since 1983. Graduates have gone on to cook in the best restaurants from Whistler, B.C., to Prince Edward Island, but many just stay put, creating posh bistros and further fuelling Stratford's restaurant boom.

Niagara's culinary standards, once notoriously low, have got a boost from the new restaurants opening in the adjacent vineyards, but the town's forte remains accommodation in fancy hotels and bed-and-breakfasts. With a population of less than 5,000, the old town feels the burden of tourism more acutely than Stratford. Moreover, its reputation for overpriced luxury has been greatly enhanced by Si Wai Lai, the irrepressible Chinese immigrant who has built up a four-hotel chain there. After opening the Shaw Café & Wine Bar, where a statue of the playwright stands in the middle of a fountain, she reached new heights with the $26-million renovation of the 108-room Prince of Wales Hotel. There, her taste for interior décor leaves more discreet residents gasping for breath. On weekends, a basic room costs $375 a night. "I hate to hear 'Niagara-on-the-take,'" says local restaurateur Scott Aspinall, citing the nickname the artistic community has often given the town, "but it's easy for a visitor to get that impression."

The Shaw Festival is worried that potential visitors may think the town's streets are overrun, the hotels overpriced and the shows sold out. Speculating why this season's ticket sales will not beat boffo 1999, staff point out that the festival isn't offering the ever-popular thriller this year--but they also wonder about those $375 rooms. "The whole town--berserk is too strong a word--but the cost of everything has gone up dramatically," says Shaw chairman Richard McCoy. "It's not helpful."

This spring, the Ship's Company Theatre in Parrsboro, N.S., was busy replacing the planking on the deck of the M.V. Kipawo. The old ferry once took passengers across the Minas Basin to Wolfville, but now serves as the theatre's stage in this seaside town 21/2 hours northwest of Halifax. The restoration got a boost from a federal grant and local donations of lumber. The theatre, which draws tourists from Moncton, Halifax and the United States, enjoyed record ticket sales in 1999, up 14% from '98, and it has expanded its playbill in recent seasons.

Meanwhile, in Drayton, they were talking bigger-and-better merger, as a festival that began modestly 10 years ago in an old civic opera house at a Southwestern Ontario crossroads was proposing to join the Huron Country Playhouse to create a non-profit, five-venue chain that will share productions among theatres in Drayton, St. Jacobs, Penetanguishene and Grand Bend. Drayton owes 700% growth to standard straw-hat fodder such as Lend Me a Tenor and Damn Yankees.

"The man who was dragged here 10 years ago by his wife is now booking 20 subscriptions six months in advance," says Alex Mustakas, the artistic director of Drayton Entertainment, who started out supervising three volunteers and selling 14,500 tickets for one theatre. He's now selling--pre-merger--100,000 tickets in three theatres and employing 100 people at the height of the season. Drayton Entertainment has got the nod from Ontario Tourism Minister Cam Jackson as the kind of venture he likes to see: The organization doesn't receive a penny in government grants.

Such overnight success is not guaranteed. Just ask the folks in Wolfville, where the Atlantic Theatre Festival has struggled to make a go of running a classical repertory company since its founding by Michael Bawtree in 1995. Rapidly accumulating debts it couldn't pay, the company soon cut down on Shakespearean productions (too many actors) and almost went under last year. Today, Bawtree is gone, the festival has cut a $2.3-million budget by a million and has started to pay down its debt. The Bard makes a cautious comeback with a brief run of Macbeth at the end of this season. "The bank has been very patient," says general manager Bruce Klinger.

From the start, Wolfville's plan was probably too ambitious. It imported the Stratford model holus-bolus, setting up shop in a hockey arena newly renovated for its purposes. It began as a $1.5-million professional organization that would stage first-class productions of Shakespeare and other classics in a university town an hour north of Halifax--an area with a fraction of the population base on which the Ontario festivals draw. Acadia University lent the arena, the town paid to fix it up, and the Nova Scotia government helped with start-up costs. But box office receipts and donations were never enough to cover operating expenses.

Of course, Stratford was also ambitious in its early days: Its founders' notion was always to create a national--rather than regional--theatre. They invited the great British director Tyrone Guthrie to head up the effort. Yet, it also began, in the days of more predictable government grants, with a six-week season housed in a tent, and has taken 47 years to create the behemoth--the largest repertory theatre in North America--that it is today.

Shaw's rise was never so preordained. The festival only became a fully professional venture in 1967, and for years thereafter its dull productions of Shaw and fluffy treatments of lighter playwrights of the same era won it the nickname "the Shoddy Festival." It was Christopher Newton, artistic director since 1980, who turned a sow's ear into a silk purse by putting an intellectual spin on the mandate: Shaw would be a festival dedicated to plays about "the beginning of the modern world," while still programming the musicals and mysteries that keep the bus tours coming.

Today, both Ontario festivals stand apart from the straw-hat theatres as organizations with much greater artistic pretensions, but they are, still, just bigger exercises in crowd pleasing. The proof lies in the dollars: The Stratford Festival, which gets 81% of its income from sales and another 14% from fundraising, receives only 4.4% of its budget in government grants; at Shaw, it's 6%. The theatres to which they might like to compare themselves--Britain's Royal Shakespeare Company and Royal National Theatre--get about 40% of their operating funds from government. (To the extent there are any large, non-profit theatres in the United States, they are much richer in private money: The Guthrie Theater in Minneapolis, Minn., started by the same British director who came to Stratford, has a $47-million (U.S.) endowment fund, whose income in 1999 covered about 14% of the theatre's budget.)

Government dollars buy a different kind of theatre than do box-office dollars. At Stratford, Richard Monette hires Paul Gross to play Hamlet, programs Broadway chestnuts like The Miracle Worker and turns Shakespeare or Molière comedies into gag-filled laugh fests because he is running a theatre that is 81% commercial. At the big Festival Theatre in Niagara, Newton carefully balances his serious Shaw (this year it's The Doctor's Dilemma) with his light entertainment (Thornton Wilder's The Matchmaker), while reserving the Royal George Theatre for nakedly populist thrillers and musicals, and the Court House Theatre for brief runs of more difficult plays.

The festivals' recent economic success has helped them with capital costs--a new roof at the Shaw; the renovation of Stratford's Festival Theatre--and with the launch of cherished development programs--co-producing new Canadian plays in Toronto for the Shaw; establishing a conservatory for young actors in Stratford. But the artistic risks the money has permitted are modest. Shaw has skipped the thriller this year and staged William Golding's dystopia Lord of the Flies. Stratford put Ben Jonson's The Alchemist on the thrust last year, producing an Elizabethan play all but unknown to Canadian audiences in its largest theatre, and is offering a new Canadian play (Timothy Findley's Elizabeth Rex) at the smaller Tom Patterson Theatre this year.

With big budgets and talented actors, both theatres can often wrap wholly commercial imperatives in an artistic coating of smooth performances and well-researched program notes. The choice between commerce or art is starker if you look beyond Shaw and Stratford to their smaller brethren. In 1975, a group of enthusiastic young theatre types founded the Blyth Festival in the small Huron County farming community of Blyth. Twenty-five years later, the theatre has expanded but, with a $1-million budget and annual sales of about 30,000 tickets, it's a mere shadow of Shaw, which grew up in the same fit of 1970s cultural enthusiasm. One important reason for the difference is that Blyth is a tiny place, with few amenities, that can't touch Niagara for location. But another reason is programming: Blyth has obstinately insisted on producing nothing but Canadian plays.

"We hoped 25 years ago that we could produce a really significant Canadian festival," says artistic director Anne Chislett, a founder who returned to the festival in 1998. "We haven't been able to grow as much as we hoped. We don't want to become big for the sake of becoming big but to do more work."

Chislett acknowledges that Blyth purposely has carved out a specialized niche--"We will never draw--nor will we try to draw--the numbers you will draw for Annie Get Your Gun"--but she also notes that Blyth's tickets sales have dropped from a high of 40,000 in the 1980s, a time when there were only a handful of summer festivals to compete with. Today, the Association of Summer Theatres 'Round Ontario (ASTRO) boasts 28 members, up from 18 in 1990.

The Kingston Summer Festival's experience has been even less happy. From 1993 to 1999, artistic director Jim Garrard was developing new work, often with local themes, including Sir John, Eh?, a musical about Canada's first prime minister, and The Convict Lover, a play based on a young girl's secret relationship with a prisoner. None of it was hugely difficult fare, but it also wasn't the Broadway musical nor the British farce that Kingston was expecting. After two years of deficits and Garrard's resignation, the city severed its ties with the festival and handed it over to a gathering of local companies that provide more predictable entertainments.

So, summer theatre is a creature of the marketplace almost entirely dependent on the affections of tourists and their disposable incomes. At Stratford or Shaw, a low-budget overnight stay to see one play will cost at least $200 for two, and the bill for a two-night theatre weekend with a special dinner and a nice hotel could easily top $1,000. When a recession hits, that little trip to the festivals is often the first thing to go. Indeed, the theatres' administrators recognize that their organizations are economic barometers, since both of them had money-losing years in the early '90s. Stratford dipped into reserves to post break-even budgets; Shaw retired an accumulated deficit last year.

This season, the boards of corporate poo-bahs assembled to advise the Shaw and Stratford festivals are unalarmed by stock-market conniptions and interest-rate increases. Neither theatre is cutting back the 2001 playbill, now fully programmed and ready for unveiling before the end of this year's season. But if it comes, they are ready to meet a downturn. Both organizations have worked hard to build up their membership lists, reckoning that patrons who have some further investment in the festival are more likely to stick around when times get tough. Both are stowing away endowment funds so that, in some distant future, they will become less reliant on box office. The province, which has cut operating money with one hand but increased capital grants with the other, provides matching grants for the purpose. The Stratford endowment now stands at $10 million; Shaw has $5 million. And, in the end, both are businesses that will do what it takes to stay afloat.

"We are all thinking the bubble might burst," says Stratford chair Sandra Pitblado, "but while the bubble is in full swing we are being cautious and planning for the future."

The bubble is still inflated, but there are some small signs of economic softening in both towns. In Stratford, despite the festival's best year ever, some bed-and-breakfast owners were reporting a slow start to the season. There's new competition this year in the shape of the 82-room Arden Park Hotel, and the spring was rainy. In Niagara, not only is the Shaw unable to match 1999's remarkable ticket sales, but hotelier Lai has not, in the end, found enough customers willing to pay more than $300 a night for rooms at The Prince of Wales. She's now advertising weeknight packages as low as $195 a night, while in the Christmas shop a few doors away Mountie pull toys are marked down to $9.99.

There, on a recent evening, a lone visitor could be seen tugging on a string to watch the Mountie's little red legs bob up and down, up and down. She wasn't buying but, with 10 minutes to curtain, wasn't in any great hurry to move on: In this town, it's never more than a few steps from the gift shop to the theatre.

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