The New Era of the Art Market

2020 Review and NFTs

by Alexandre Coxo, 5 April 2021

2020 was markedly different from what was expected, but the art market held up, with collectors showing interest in buying more after lockdown.

This article summarises the 2020 figures and the main trends in the art market.

Despite initial pessimism and an overall fall of 22% on the previous year, the year closed with sales significantly above 2009 levels.

The data come from the major platforms that analyse the art market: Arts Economics, Artprice, Art Basel, UBS Investor Watch Survey and Artfacts, and include figures from dealers, auction houses, art fairs, experts and collectors.

In general, however, these platforms still do not include data on the digital art market, which became more visible this year with the boom in sales of non-fungible tokens (NFTs).

At the end of this article, out of curiosity, I show the "Decision Tool" offered by Artprice, using Wassily Kandinsky as an example.

Countries' share of the global art market by value in 2020
© Arts Economics (2021)

In 2020, global sales of art and antiques were 50.1 billion dollars, a fall of 22% on 2019 and 27% on 2018.

However, online sales reached a record 12.4 billion dollars, double the previous year, making up 25% of the market.

Although the three main art centres, the USA, the UK and China, saw sales fall, they still account for most global sales by value, with 82% of the market. The USA kept its lead with a 42% share, and China and the UK had 20% each.

Sales in the US art market fell 24% in 2020 to 21.3 billion dollars, but remained 76% above the 2009 recession.

Sales in China fell 12% to 10.0 billion dollars, a less severe decline than in the other major markets.

Sales in the UK fell 22% to 9.9 billion dollars, the lowest level in ten years, but 10% above the 2009 recession.

Dealers

For dealers (gallerists, curators and art dealers) the consequences of the pandemic were very significant, with a 20% fall after 2% growth in 2019.

Cutting operating costs on staff and exhibition set-up allowed some to stay profitable. About 28% had higher income and 18% kept net profit at the same level.

Habits and priorities changed significantly, with a greater focus on existing clients, online sales and cost reduction, compared with the routine of setting up and taking down art fairs.

Despite this new focus, which raised awareness of the importance of communication, the average client base per dealer fell by about 15%.

Auctions

Public auction sales of fine art, decorative art and antiques were 17.6 billion dollars, down 30% on the previous year.

Private sales were conservatively estimated at 3.2 billion dollars, still up 36% on 2019.

The three major auction markets kept their combined 81% share of sales by value. China overtook the USA to become the largest market, with 36%; the USA had 29% and the UK 16%.

The largest sector in the public auction market was Contemporary Art (55%).

Sales in the Impressionist and Post-Impressionist sector, the dominant category for 30 years, suffered the biggest fall, down by more than half.

Art Fairs

Successive lockdowns forced the cancellation of 61% of planned fairs. Of the rest, 37% went ahead normally and the remaining 2% took place as hybrid or alternative events.

Of the fairs that took place, more than half offered a digital/online version of their halls.

Sales fell dramatically, accounting for only 13% of dealers' sales.

Despite everything, 80% of high-net-worth (HNW) collectors said they would be happy to attend any fair by the end of 2021.

"66% of respondents reported that the pandemic had increased their interest in collecting."

Breakdown by subject of works sold at auction
Art Market 2021 (Art Basel/UBS)

Online Market

Although sales overall fell sharply, online sales reached 12.4 billion dollars, double the 2019 figure.

The online market thus accounted for 25% of sales in 2020, the first time e-commerce's share of the art market exceeded that of retail in general.

Online sales in the dealer sector, including online art fairs, tripled to 39%.

Dealers found that most purchases were made by existing clients, suggesting that the existing audience adapted easily to online platforms.

90% of HNW collectors visited an art fair or gallery online viewing room (OVR) in 2020.

72% felt it is important or essential to have a published price next to artworks for sale online.

However, online channels were not the first choice for viewing art to buy: 66% of HNW collectors preferred to see a physical exhibition, against 22% who preferred online.

One advantage of digital channels is greater transparency about asking prices and sale prices. Digital payment methods provide a reliable record for everyone involved. Even for amounts above $10,000, the transparency of the process seems to boost sales.

Even so, unverifiable sales techniques, such as PDF price lists or private digital viewing rooms, will probably continue to be used to present works and close sales.

The art market saw more development and engagement in digital form than ever before. The ability to communicate and trade online during the pandemic was essential for businesses to survive, and most agree that many of the digital changes are here to stay.

However, few businesses are able or willing to move to an online format soon. Many collectors moved online for lack of options, but for most it is not their preferred way of engaging.

Price transparency has been the most important and most debated aspect of developing online platforms, and it is welcomed by collectors.

The challenge will probably be: how can the growth in digital sales and communication coexist with the excitement and social contact of visiting exhibitions and live events?

Collectors

In 2009, in the wake of the global financial crisis, the number of billionaires worldwide fell by 30% and their wealth by 45%. 2020 was different: the number of billionaires grew by 7% and their wealth by 32%.

Surveys of 2,569 HNW collectors, conducted by Arts Economics and UBS Investor Watch, showed active engagement with the art market despite the pandemic. 66% of respondents said the pandemic had increased their interest in collecting.

Millennial collectors spent the most, with 30% spending more than $1 million, against 17% of Boomers.

Despite the restrictions in place, HNW collectors bought through a range of channels, with 81% having bought art from a gallery and 54% at auction.

Dealers were the preferred channel, with most HNW collectors preferring to buy in person, while 29% liked buying online and 14% chose phone or email.

A third of HNW collectors tried buying from new galleries, and 41% bought only works by artists they already collected.

Collectors say they want to be active in the market in 2021, with most planning to buy and 35% thinking of selling works.

However, motives for reselling vary and may relate to changes in personal circumstances as well as opportunistic or speculative financial reasons.

Half of the collectors who resold were motivated by financial reasons: 33% sold to make some kind of investment or financial return, while 17% had other financial reasons (such as needing cash or credit). For the rest, the reasons were related to the content of their collections or lack of display space.

Economic Impact of the Pandemic

There were an estimated 305,250 businesses in the art and antiques market, directly employing about 2.9 million people.

More than 2.6 million of these workers are in the gallery and dealer sector, where the number of active businesses fell by 5%.

Art fairs were no longer the largest area of ancillary spending; building digital platforms accounted for the biggest shift in resources.

The New Era of the Art Market

Despite the scope of the Art Basel/UBS Investor Watch study, new platforms for selling and producing art were not considered. Since 2012, non-fungible tokens (NFTs) have been used to sell works of art, both digital and non-digital. Sales volume has grown in recent years, with very significant growth in 2020.

With the increased use of digital media caused by the pandemic, the NFT market grew strongly in both the number and value of sales. Recently, a piece of digital art sold for 69 million dollars.

These data were not covered by the traditional art trading platforms. However, several galleries and curators are already promoting and reselling works in this format or using the technology.

The sales platforms show both the works they offer and the data associated with them: price, sales history, owners, etc. The increased transparency, and the ease of tracing a work's history, has attracted artists and collectors.

There are several business models, from open marketplaces to members-only markets, with direct purchase from the artist or curator-mediated sales; the offer is large and similar to existing structures. Some of the most popular marketplaces for buying NFTs in 2020 were:

• https://niftygateway.com/
• https://superrare.co/
• https://foundation.app/
• https://zora.co/
• https://rarible.com/
• https://mintable.app/
• https://opensea.io/

But what is an NFT?

A non-fungible token (NFT) is a type of cryptographic token that represents something unique. Unlike cryptocurrencies such as Bitcoin and other utility tokens, NFTs are not interchangeable with one another.

A fungible item, like money, can be exchanged for another. A dollar can be replaced by a euro, as long as the value is considered equivalent, to perform exactly the same function. A non-fungible item, on the other hand, is unique, like a work of art.

In other words, an NFT defines the owner of a particular set of data; that data might be a JPEG file, a video, a song, a video game, a text document, etc.

So an NFT contains something specific and individual, as well as the record of changes of ownership of the token itself. Unlike a physical good and most digital products, an NFT includes a record of every purchase and sale since it was created.

The NFTs used to sell works of art are linked to the Ethereum blockchain. Its features make it possible to define the owner of the data the token holds, or of the real or digital objects that data refers to. For example, if an NFT contains a JPEG image, whoever holds that NFT owns the image. If an NFT holds a text document certifying the authenticity or ownership of an oil painting, whoever holds that NFT owns the document and therefore the painting.

The great advantage of NFTs is the security of the record offered by blockchain technology. This makes the digital scarcity of a file verifiable, along with its owners. Another advantage, common to digital formats in general, is that the same file can be read on several platforms and screens.

The drop in cultural activity caused by the pandemic increased consumption of digital products, engaging cultural channels in a different way. It may be too early to know whether NFTs will represent a significant share of the art market.

Artists of all kinds seem interested in this technology, from David Hockney to Alexandre Farto (aka Vhils), and several galleries and curators already promote NFT-based artworks, both new works and digitised earlier ones.

The weaknesses pointed out in this technology relate to how it is produced, which allows the use of material of uncertified origin, and to greenhouse gas emissions, as blockchain processing uses a great deal of energy.

However, the great advantage is that it empowers the artist in terms of ownership, followed by ease of verification (unlike a painting forged by a skilled craftsman or an unregistered digital painting). This way the artist can know when, where and for how much a work was sold, even on the secondary market, and set in advance the fee they want to claim on transactions.

Decision Tool - Artprice

Artprice is one of the platforms that publishes art market data, and it has made available its analysis of the market for works by Wassily Kandinsky.

In 2020, Kandinsky ranked 125th, 22 places lower than the previous year in the overall ranking, but with a 2% gain in price, even though total turnover was roughly half that of the previous year: €8,439,384. The main sales location remains the USA.

The best-selling pieces are prints, with 76% of sales, followed by drawings/watercolours with 16% and other pieces with 8%. This shows an increase in sales of prints and a decrease in original works.

Read the Artprice article by clicking the button

Artprice

Number of lots sold
© Artprice.com

Contrary to initial predictions, the pandemic was not the main cause of the losses in volume and value in the art market. The shutdown of the art fair sector clearly showed that the sector was tied to dispensable market routes.

Even though 61% of fairs did not take place, collectors bought more, even without counting the new NFT market.