Investment

What does Vulcan’s investment in virtual reality tell us about the art market?

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Is the art world facing digital disruption in the wake of a 20% fall in auction sales last year?  Vulcan, the US private investment group founded by the late Microsoft founder Paul Allen, seems to think so.  

Vulcan has invested in a series of VR productions such as Drop in the Ocean and X-Ray Fashion, where viewers wearing headsets follow a story by becoming immersed in it. 

Weakness at the top of the market is driving the slump. Total auction sales of works over $10 million dropped by 35% in the first six months against the same period in 2018

Vulcan cites research from Stanford University: “Researchers developed a VR experience, called Becoming Homeless and found that people who underwent the scenario created actual sense memories and a deeper level of empathy for characters and issues.” 

On 20 February, digital developers are planning to open a VR world called Decentraland which will allow viewers to live, and travel, in a weird alternative reality. The project raised $25 million in August 2017 and wants people to invest in its virtual real estate.

Elsewhere, a number of online sales platforms and independent advisory firms are springing up, disrupting traditional pricing techniques driven in the auction room. Eugenio Re Rebaudengo, an art collector, has created a successful hybrid of online and exhibition services called Artuner.

Alternatives to static art could have a big impact on millennials, according to experts. Art commentator Georgina Adam says: “The hierarchies of the past do not interest them. They are happy to mix high and low art, and indeed all forms of creative expression from art and music to dance and performance. And they often do not collect for the long term.”

Adam’s book, the Dark Side of the Boom, has thrown light on the way forgeries, slippery dealers and money laundering have distorted the barely-regulated art market. The “Me Too” generation is unlikely to be impressed by the art world’s lack of transparency.

As regards current sales trends, data from auction houses Christie’s, Sotheby’s and Phillips, analysed by ArtTactic, a research group, showed a 19.8% fall in auction sales in 2019. 

Commenting on the first half of the year, Artnet, another data provider, says: “Weakness at the top of the market is driving the slump. Total auction sales of works over $10 million dropped by 35% in the first six months against the same period in 2018.”

The UK saw auction sales fall 24% in the first six months of 2019 due, says Artnet, to Brexit, while China experienced a 10.5% dip.

Philip Hoffman, chief executive of independent advisory firm Fine Art Group, doesn’t disagree with the data, but he warns you need to view it in context.

He pointed out that Peggy and David Rockefeller auctioned blockbuster pictures by Picasso, Monet, Matisse, and others, worth $835 million in December 2018: “This sale created a fall in auction sales the following year: without it, sales of art would have been roughly flat over three years.”

There are fears that the coronavirus will damage sales this year, particularly Hong Kong, a big centre for art sales, even though the US economy is reflating. Wealthy investors held back from selling in 2019 but Hoffman points out blockbuster sales this year are capable of reigniting the market, as collectors and museums compete for the best. 

For example, fugitive billionaire Joseph Lau is likely to seek £20-30 million, according to Bloomberg, by auctioning David Hockney’s The Splash, which fetched £2.9 million in 2006, the last time it came to market. Auction houses are competing to clinch the sale of art by Andy Warhol, and others, worth $700 million by Harry and Linda Macklowe, currently divorcing.

Hoffman adds: “We are continuing to sign up clients in their late 30s and 40s. There is no shortage of money available to invest.” 

The bigger question is whether there will be enough money to mop up sales over the long term as wealth passes into younger, digitally-enabled, individuals.

According to data supplier Wealth-X, high net worth individuals in the US will pass $8.8 trillion over to millennials, with $1.9 trillion comprising illiquid assets such as real estate or art. A Wealth-X survey suggests that people aged 70-plus rank art as their six most popular interest. 

But it drops off the list for among those aged less than 50, who prefer technology, philanthropy and sport.

When enjoying their art, the older generation like to reflect on the way they have multiplied money invested in art several times over. 

This incentive is entirely absent as far as the next generation is concerned, particularly when they prefer to immerse themselves in VR.

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