Anyone is welcome to add to this; it's a very American, east coast, view and, I'm sure, could use some additions.
When did ballet moderne begin? Probably with John Butler and Glen Tetley in the 1960s. They experimented with combining modern dance and ballet techniques. Wits complained that they merged the awkwardness of modern dance with the artificialty of ballet. Modern Dance purists were furious that their art had been pillaged -- the contraction on pointe, taking something that is the soul of Graham technique and making it decorative -- is one of the most often cited examples of this. Ballet purists complained that this wasn't ballet. Balanchine and Ashton were entering the most productive phases of their careers.
In the 1970s, Robert Joffrey, who directed a small, rootless company which had an eclectic repertory and some very interesting, though certainly not first-rate classical, dancers, began to invite modern dance choreographers to make "ballets." The critics went bananas; they loved it. This was art. The theory was that because there weren't a lot of good, young, ballet choreographers out there, ballet was fallow (or had run its course) and that creativity had to be imported.
That's the roots of what's happened today. Lots more things have come into play, not the least of which is money. Ballet moderne is much cheaper to produce (smaller casts, less elaborate sets and costumes, taped music). Audiences, especially ballet-new audiences, like it (if you had a hanging on stage, you could get people "new to ballet" to come, but that wouldn't make the hanging a ballet). Several modern choreographers got on the "circuit," getting plugged into the cycle of grant-getting, etc., and ballet companies stopped trying to encourage classical choreographers -- not in all cases, but definitely in some. In others, there's a "house choreographer," usually the artistic director, who does not welcome rivals, and churns out his versions of "the classics" which now includes Romeo and Juliet and Cinderella -- and Dracula.
I actually think that ballet moderne is beginning to run its course. It may turn into another form entirely; I could imagine a Joffrey-type ballet invented today that took the pop variety of contemporary ballet on a very successful cross-country tour. (I'm not necessarily against that.) The trend now is tipping in favor of the house choreographers (like Kent Stowell and Ben Stevenson) who are making wildly popular, though not, I would argue, anywhere near great, "full-evening" ballets that audiences adore. The advent of the Eifman Ballet is part of this trend. (I'm not at all saying that this is a good thing, just that the ballet moderne wing is fading.)
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