A Creative Block? The Future of the UK Creative Industries
A Knowledge Economy & Creative Industries report
Benjamin Reid, Alexandra Albert and Laurence Hopkins, December 2010
Contents
Sponsors 3 Executive Summary 4 Introduction 7 1.1 The Creative Industries in the Knowledge Economy 7 1.2 The structure of the report 8 The UK Creative Industries to ‘Staying Ahead’ 11 2.1 Defining the Creative Industries – the DCMS 13 11 2.2 Linking the Creative Industries 12 2.3 Drivers of growth in the Creative Industries 14 2.4 The strength of the UK creative industries to Staying Ahead 15 2.5 Underlying fragility of the UK creative industries to Staying Ahead 16 2.5.1 Business growth and survival 16 2.5.2 Employment growth 17 2.5.3 Exports 18 The UK Creative Industries in the recession 20 3.1 The External picture – business change, and employment 20 3.2 The Internal picture – the evidence base 23 3.2.1 Impact assessment 23 3.2.2 Employment and Skills 25 3.2.3 Inter-relationships 26 The UK Creative Industries to 2020 29 4.1 Convergence, Digitalisation, Internationalisation 29 4.1.1 Convergence 29 4.1.2 Digitalisation 30 4.1.3 Internationalisation 33 4.2 The Creative Industries as a (potential) engine of growth 36 4.3 The Creative Industries as a (potential) engine of innovation 38 Conclusions 39 5.1 For the ‘theory’ – re-visiting ‘Staying Ahead’ 39 5.1.1 The model 39 5.1.2 The drivers 40 5.1.3 The sectors 41 5.2 The implications for UK policy 41 Contact details 44
A Creative Block? The Future of the UK Creative Industries A Knowledge Economy & Creative Industries report
Sponsors
The Work Foundation would like to thank the sponsors of its Knowledge Economy II and Creative Industries Programme, who have generously supported the production of this report. The views and conclusions set out in this paper do not however necessarily reflect the views of the sponsors.
Creative Industries Programme
Knowledge Economy II Programme
3 © The Work Foundation. A Creative Block? The Future of the UK Creative Industries A Knowledge Economy & Creative Industries report
Executive Summary
A Creative Block? The Future of the UK Creative Industries
Main messages The creative industries have rightly been celebrated as a UK success story. But have the recession and global industry change – including convergence, digitalisation, and international competition – eroded their ability to stay ahead, both within the UK and internationally? And does the government have sufficient clarity on the economic potential of the UK creative industries?
Looking at the effect of long- and short-term trends on the creative industries’ ability to assist the UK recovery, this report demonstrates how, despite unrivalled economic performance and their rightly- celebrated strengths, the UK creative industries are now under threat from a combination of recession- induced cuts, the global trends towards convergence and digitalisation, and concrete actions from other governments to maximise the recovery-boosting economic potential of their own creative industries. There is evidence that, unless acted upon quickly, there will a creative block to the UK creative industries’ achievement of their full potential as a driver of growth and innovation.
Implications for policy: 1. The government must pay greater attention to the eroding competitive position of the UK’s creative industries in relation to international competition: • Example: Extending the recently announced ‘patent box’ to include ‘copyright’ intellectual property would provide incentives to maintain a greater proportion of returns from creative businesses in the UK. 2. The government must increase its support for investment in creative industries research and technology innovation: • Example: One of the first generation of UK ‘technology and innovation centres’ (announced in the Comprehensive Spending Review) should focus on supporting innovation in the creative industries. 3. The government needs to provide consistent messages and policy to the industry, investors and potential new employees regarding its support of the UK creative industries as a growth sector: • Example: There are currently rather mixed messages: welcome continued support for creative industries development initiatives such as the Technology Strategy Board’s creative industries Knowledge Transfer Network, and creative industries’ inclusion in the BIS Growth Review, are mixed with moves to remove university teaching budgets for arts subjects, and reductions in budgets for public sector arts and cultural bodies.
Implications for research in the creative industries: The conceptual toolkit presented in Staying Ahead has held up well, despite the changes wrought by the recession. However, to be appropriate for examining the creative industries’ development through to 2020, the following revisions are required: • Industry categorisation: The ‘software’ designation from the original DCMS categorisation of the creative industries requires revision to take account of the newer, more complex business models. • Drivers of growth: An explicit acknowledgement of the role of global competition and technology change should be added to the eight drivers of growth and innovation identified by Staying Ahead . • ‘Spill-over’ model: Models of the flow of value in inter-relationships between creative organisations and the broader economy need to acknowledge the more complex networks within which most creative organisations are now operating.
4 © The Work Foundation. A Creative Block? The Future of the UK Creative Industries A Knowledge Economy & Creative Industries report
1. Context Three years on from the publication of The Work Foundation’s influential report for the Department of Culture, Media and Sport: Staying Ahead: the economic performance of the UK’s creative industries, this report examines whether the UK is best positioned to generate explosive growth from within its creative industries during the period of economy recovery. The report reflects on the ideas of Staying Ahead , and assesses its continuing suitability for ensuring the UK’s creative industries can continue to thrive in the digital age, by exploring:
• How the UK creative industries should be understood in a digital, globalised context. • How we can ensure the creative industries are on the front foot for the recovery of the UK’s economy. • Whether government policy is best positioned to meet the challenges faced by the UK creative industries.
2. Reviewing Staying Ahead In 2007 Staying Ahead drew on the state of the art in creative industries economics to provide a linked set of conceptual tools for understanding the creative industries: it adopted the DCMS’ mapping of creative industry sectors to develop an economic model of the ‘spill-overs’ of value from the creative industries to the broader economy, and articulated eight drivers of value and growth for the industry, including levels of demand, skills, the public sector architecture, and the intellectual property framework.
• Overall strength: The overall picture of the UK creative industries developed by Staying Ahead was of broad and deep strength – the UK creative industries were proportionately the largest in the world, comprising 7.3 percent of the UK economy, and 6.4 percent of UK Gross Value Added – equivalent to £57bn.
• Masking some underlying weaknesses: The overall picture masked some underlying vulnerabilities. Even in the boom years of the early 2000s there were years when the UK creative industries employment, business growth and contribution to GVA declined. The sector overall was highly reliant on specific sub-sectors for its overall growth: 45 percent of ‘high growth’ firms creative industries in terms of employment were from the software, computer games and electronic publishing sector, and these also account for 250,000 of the 290,000 total employment growth in the 10 years to 2007. Turnover growth between 2000 and 2007 was also highly reliant on outstanding growth in new software, computer games, and TV and radio firms.
3. Since Staying Ahead – the effect of the recession Staying Ahead was produced prior to the recession. There have therefore been considerable changes to the outlook for the creative industries in the period since its publication, both in terms of the ‘external’ picture of the industry, and the developing evidence base of research on economics in the creative industries:
• ‘External’ picture: Some sectors of the creative industries were hit very hard by the recession. For example the October 2008 Bellwether Report reports the largest ever fall in annual marketing budgets in the survey’s 9 year history, Arts Council England have been asked to make 29.6% from the spending round beginning in 2011, and employment in the arts, entertainment and recreation fell further than in the previous two recessions – by 23% between June 2008 and June 2010 in programming and broadcasting. An Experian study for SEEDA predicted that creative industries employment wouldn’t return to its pre-recession levels until 2020.
• ‘Internal’ picture: Effectively all sectors of the creative industries are now choosing to focus on their direct, and broader, economic impact at a national level. As well as economic studies of sub- sectors there is also more in-depth data looking the economic impact of geographic creative
5 © The Work Foundation. A Creative Block? The Future of the UK Creative Industries A Knowledge Economy & Creative Industries report
clusters, partnerships, initiatives, and programmes. The sector skills councils and the development of the ‘creative trident’ methodology by researchers in Australia has augmented the measurement of employment in the creative industries. Recent work by the Institute of Employment Studies has also expanded our understanding of career paths and choices in the creative industries.
In-depth studies of the operation of spill-overs, particularly of innovation, have improved our understanding of the inter-relationships between creative organisations and the wider economy: for example results of a NESTA study showing that UK businesses which invest twice as much as the average firm in creative services (as a proportion of their output) are 25 percent more likely to introduce product innovations.
These shorter-term changes have had a profound effect on the economics of the UK creative industries, and our ability to understand and interpret these economic shifts.
4. Looking to the Future of the Creative Industries Three key longer-terms trends have been altering the shape and approach of the creative industries – the recession has exacerbated those changes:
• Convergence: Continued technological and business model convergence has caused blurring or formally-stable industry categories – businesses like Zynga, the producers of hit Facebook application Farmville , are re-shaping markets and possibilities. The speed of change, particularly as businesses look to move into new areas in tough times, mean that the UK creative industries must invest more in creative-focused R&D, and look to exploit existing strengths through new business models.
• Digitalisation: The UK has, for the most part, embraced digitalisation, ranking fifth in the OECD in penetration of broadband, and there are digitalisation where UK businesses are leading the way, for example in internet advertising, where we hold an 18.9% share of domestic advertising spend (compared to 13% in US).
• Internationalisation: While the UK creative industries grew at an annual 5 percent on average between 1997 and 2004, compared with 3 percent for the rest of the economy, world trade of creative products annual growth rate of 8.7 percent during 2000- 2005. Although few directly threaten the UK creative industries in terms of size of GVA, many other countries are implementing explicit strategies for developing their creative industries, and these may be considerably more serious competition by 2020. For example, Taiwan recently announced a strategy to generate more than 20 percent growth in their creative industries, backed by a US$840m venture capital fund dispersed by private venture capital firms to creative businesses over the next four years.
These three trends present stark challenges for the creative industries. However, they also provide the key opportunities for the creative industries to drive of growth and innovation for themselves and the broader UK economy. Forecasts remain good – a consortium of creative industries saw the potential for a 9 percent growth rate, which would boost GVA to £85bn and create 185,000 new jobs, while the UK Commission for Employment and Skills believes that culture, media and sports occupations are forecast to have the fastest rates of employment growth in the economy between now and 2017.
If they are given the opportunity to harness these longer-term trends, they will be able to avoid a creative block, and will play a leading role in the UK’s recovery and expansion to 2020.
6 © The Work Foundation. A Creative Block? The Future of the UK Creative Industries A Knowledge Economy & Creative Industries report
Section 1 Introduction
The creative industries have rightly been celebrated as a UK success story. But have the recession and global industry change – including convergence, digitalisation, and international competition – eroded their ability to stay ahead, both within the UK and internationally? And does the government have sufficient clarity on the economic potential of the UK Creative Industries?
Three years on from the publication of The Work Foundation’s influential report for the Department of Culture, Media and Sport: Staying Ahead: the economic performance of the UK’s creative industries, this report examines whether the UK is best positioned to generate explosive growth from within its creative industries during the period of economy recovery. The report reflects on the ideas of Staying Ahead , and assesses its continuing suitability for ensuring the UK’s creative industries can continue to thrive in the digital age, by exploring:
• How the UK creative industries should be understood in a digital, globalised context. • How we can ensure the creative industries are on the front foot for the recovery of the UK’s economy. • Whether government policy is best positioned to meet the challenges faced by the UK creative industries.
1.1 The Creative Industries in the Knowledge Economy For the UK economy as a whole it is now clear that what got us to 2008 will not get us to 2020. The UK economy’s key drivers of economic and job growth through the 2000s were, firstly, the City of London and, secondly, considerable increases in public spending. These sources of growth are extremely unlikely to be as powerful in the UK’s economic story in the 2010s.
Instead, as has been widely argued, the UK economy must look to alternative drivers of economic and job growth. It must ‘rebalance’ its economy 1. And, while there can be no certainty as to precisely which organisations or groups will provide real growth for the UK – innovation may create jobs and industries in 10 years time that we have no conception of today – we can make some very well-informed projections:
• Firstly, growth is likely to come from the ‘knowledge economy’.2 The 2008-10 recession has accelerated the long-term structural change across all OECD countries from a manufacturing and heavy industry base to the knowledge economy.
• Secondly, they will come from knowledge-intensive services – it was the knowledge economy service sectors (including financial services) that led Britain out of recession in the 1980s and 1990s. It will be knowledge economy service sectors that will lead the way in the 2010s.
• Thirdly, they are likely to come from areas of existing UK strength relative to its international competitors – an element that partly explains the growth of the City of London in the 2000s. For the 2010s, these would include bio-technology, pharmaceuticals, and the creative and cultural sector.
1 e.g. http://www.bbc.co.uk/news/10557724 ; Shanmugalingam, Puttick, and Westlake (2010) Rebalancing Act , London: NESTA, http://www.nesta.org.uk/rebalancing_act 2 www.theworkfoundation.com/research/keconomy.aspx
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• Finally, they will be sectors which play key roles in the overall UK innovation eco-system – providing innovation, new technology, approaches and skilled individuals to broader sectors of the economy.3
The Work Foundation’s Knowledge Economy research programme has investigated these elements in- depth. Within each group individual industries and sub-industries will rise and fall – as they always have done in a dynamic economy. But overall the 2020 UK economy will see a rising share of economic activity, innovation, exports and jobs across four broad areas:4
• The creative and cultural sector: bound together through ‘expressive value’ or copyrightable activity; • The ‘manu-services’ sector: which integrates technologically advanced manufacturing with high value services; • Low carbon goods and services: including the implementation of existing technologies, the expansion of advanced manufacturing processes, and the development of new and existing services;5 • High-technology services: including high-value added networked and intermediary services.
There has been acknowledgement that the creative industries are central to the UK’s economic recovery from the recession, and their success will be a key source of competitive advantage to the UK through to 2020 and beyond. What is vital now is to truly understand what is happening in the sector.
1.2 The structure of the report Since its publication in 2007, aspects of the Work Foundation’s report, Staying Ahead , have been used to inform industry and government policy in the Scandinavian countries, Australia, and by the EU, as well as in the UK. It therefore seems appropriate to use key elements of Staying Ahead as a frame to reassess the position of the UK creative industries for 2010 (See diagram at the end of this section ).
• This report opens by reviewing the key elements of Staying Ahead – the underlying industry categorisation of the creative industries, known as the DCMS 13, the ‘model’ which uses a concept of ‘expressive value’ to understand the inter-relationships between different elements of the creative industries, and the eight identified ‘drivers’ of growth for the creative industries ( Section 2.1 – 2.3 ).
• It then briefly reviews the strengths and potential weaknesses of the creative industries in the UK up to the production of Staying Ahead in 2007 ( Section 2.4 – 2.5 ).
• Section 3 examines developments in the UK creative industries since the production of Staying Ahead . Firstly, the ‘external’ changes wrought by the recession ( Section 3.1 ), and then, secondly, the ‘internal’ changes to the research evidence-base on the creative industries.
• Section 4 looks to the continuing effect on the UK creative industries of much longer-term trends than the recession – selecting, specifically, convergence, digitisation, and internationalisation
3 The CBI describes the development over the next decade of a ‘core plus periphery’ business model based on more collaborative working with a range of partners in different sectors’. Confederation of British Industry (2010) The Shape of Business: the next 10 years, www.cbi.org.uk/pdf/20091123-cbi-shape-of-business.pdf 4 Brinkley, Ian (2010) Innovation, Creativity and Entrepreneurship in 2020. London: The Work Foundation, http://snipurl.com/108gxq 5 Levy, Charles (2010) A 2020 Low Carbon Economy , London: the Work Foundation, http://snipurl.com/108gzu
8 © The Work Foundation. A Creative Block? The Future of the UK Creative Industries A Knowledge Economy & Creative Industries report
(Sections 4.1 – 4.3. ) – before looking at the effect of these trends on the prospects for the creative industries to be a driver of growth and innovation for the UK ( Sections 4.4 and 4.5 ).
• The final section returns to the key elements of Staying Ahead , and re-assesses them in the light of the preceding analysis ( Section 5.1 ). It concludes with a brief review of the UK policy picture in relation to the key challenges identified within the report ( Section 5.2 ).
In terms of scope, this report focuses primarily on the role, position, and potential of the UK creative industries to drive innovation and economic growth in the UK economy in the recovery period, and through to 2020. In doing so we are not suggesting that these are the only, or even necessarily the most important, possible outcomes of investing in and developing culture, art, and creativity. Decisions based on assessment of the benefits of participation in, and experience of, arts and culture should not be rendered purely in monetary terms. Other, more intangible benefits from arts and culture such as its potential to create social cohesion, or bring happiness, are important parts of the discourse on creative industries. However, we believe that, despite this, the economics of the creative industries constitute a worthy and important topic for research and policy in its own right, and this report limits itself to those issues.
For the most part, this report takes a ‘whole of creative industries’ approach. We are aware of excellent research work, and bold initiatives, within individual sub-sectors of the creative industries. Where appropriate to understand the bigger picture of the creative industries within the knowledge economy we draw on these sources, but the focus will be on ‘creative industries’ as a broad industry category.
9 © The Work Foundation. A Creative Block? The Future of the UK Creative Industries A Knowledge Economy & Creative Industries report
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Section 2 The UK Creative Industries to Staying Ahead
This section examines the period up to and including the publication of the Staying Ahead report in 2007 in 2007. We begin by re-capping the key ideas fundamental to, or developed within, Staying Ahead : these are, firstly, the definition of the creative industries on which it draws; secondly, the model of links between the creative and cultural industries it develops, and thirdly, the drivers of growth for the creative industries it identified (Section 2.1 – 2.3 ).
The report then reviews some of the key data regarding the creative industries in the UK which informed policy advice – such as Staying Ahead – prior to 2007. Our main message is that the broader picture of strength and growth for the creative industries as part of a thriving knowledge economy during the years 1995-2007 (Section 2.4 ) masked some distinct volatility, and even fragility, within individual sub-sectors of the industry.
2.1 Defining the Creative Industries – the DCMS 13 Staying Ahead employs the most globally-recognised structural definition of the creative industries, which was developed by the UK Department of Culture, Media and Sport’s Creative Industries Mapping Project. Its key publications in 1998 and 2001 6 brought together a formerly fairly disparate group of industrial categories under the broad heading of the ‘creative industries’. The industrial categories they coalesced in their mapping exercise became known as the ‘DCMS 13’:
• Advertising, Architecture, Art and antiques, Computer games, Crafts, Design, Designer fashion, Film and video, Music, Performing arts, Publishing, Software, TV and radio
By drawing together, in particular, the ‘arts’ or ‘cultural’ sector with a range of professional services sectors such as advertising, architecture and software,7 these publications provided an effective ‘blueprint’ for a new – and surprisingly large and influential – sector: the creative economy.
While the DCMS 13 – or variants of it – are now widely accepted within economic policy analysis, it should be acknowledged that the creation of the ‘creative industries’ was not universally welcomed. Some viewed it as – possibly inadvertently – emphasising the economic value of art and culture at the expense of its social potential,8 while others saw it as a sleight of hand to boost the ‘unjustified claim of the cultural sector as a key economic growth sector within the global economy’.9
The DCMS 13 provided a set of industrial sectors defined by their core activities: ‘the management of creativity and innovation in complex knowledge flows; a cycle from the generation of original ideas to their realisation and consumption, whether as performances, products or services. 10
6 DCMS (2001), Creative Industries Mapping Document 2001 (2 ed.), London, UK: Department of Culture, Media and Sport, http://www.culture.gov.uk/reference_library/publications/4632.aspx 7 O’Conner (2007) provides an in-depth history of this shift: O'Connor, J. (2007) The cultural and creative industries: a review of the literature , Arts Council England: Creative Partnerships 8 Oakley, K. (2006) 'Include Us Out—Economic Development and Social Policy in the Creative Industries', Cultural Trends , 15 , No. 4, 255-73 9 Garnham, N. (2005) 'From cultural to creative industries', International Journal of Cultural Policy , Vo, 11, No. 1, pp15- 29 10 Jeffcutt, P. (2000) 'Management and the Creative Industries.', Studies in Cultures, Organizations & Societies , 6, No. 2, 123-7
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2.2 Linking the Creative Industries At around the same time as the DCMS Mapping Project, Professor David Throsby developed an economic model to describe the economic inter-dependencies between some of what became the DCMS 13. His model described concentric circles, with the ‘cultural value of cultural goods’ being passed outward from an inner ‘core’ to broader economic categories which further commercialised those cultural goods.11
Staying Ahead built on Throsby’s central notion of ‘expressive value’ (in its broadest sense, every dimension which enlarges meaning and cultural understanding) as well as analysis by the KEA consultancy for the European Commission,12 to create a typology and model of the creative industries. The model highlights the connections, similarities and points of differentiation between the ‘core creative fields’, the ‘cultural industries’ and the ‘creative industries’ – see Figure 1. The Staying Ahead model articulates the way in which the creative industries commercialise acts of origination of expressive value. In addition, it sets them within the wider economic context, as manufacturing and service sectors ‘benefit from and exploit the expressive outputs generated by the creative industries’.13
Figure 1: A model of the economic relationships between the creative industries and wider economy Source: The Work Foundation, 2007
11 Throsby, D. (2001) Economics and Culture , Cambridge University Press 12 KEA European Affairs (Oct 2006) The Economy of Culture in Europe Prepared for the European Commission, http://www.keanet.eu/ecoculture/studynew.pdf 13 Andari et al. (2007) Staying Ahead: the economic performance of the UK Creative and Cultural Industries , London: the Work Foundation / DCMS, http://snipurl.com/stayingahead
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The model helps to describe why certain nations or markets might have more or less successful creative industries within their knowledge economy. A hypothetical example helps to make these inter- relationships clearer:
• Core creative fields: a nation which has high levels of individual and collective artistic and creative abilities – say in situation comedy drama – can create cultural products which are in-demand and high quality because of the strength of the core creative fields on which those products draw: writing, acting, directing. • Cultural industries: a nation with creativity and strength in its cultural products provides strong content – a situation comedy TV series – for organisations within the broader creative industries. • Creative industries: High quality cultural products like a successful situation comedy can attract, for example, innovative advertising which makes it accessible for a consumer-friendly price, and high-quality digital distribution technology made available by an innovative media or broadcasting company. • Rest of the economy: Because people are excited about the high-quality media – like our successful situation comedy – and want to access it through more distribution channels, consumption of smart phones increases.
The term ‘spill-over’ is often used to refer to these positive economic ‘externalities’ which are created from the production and commercialisation of knowledge. The image in the Staying Ahead model is of a tiered fountain, viewed from above, with value ‘spilling over’ from the centre outward. Partly this spill-over is because there are very few costs to replicating knowledge – so others can use, or fairly easily replicate a cultural ‘good’ which someone has created. Staying Ahead describes six main areas of spill-overs, through which value from the creative industries was transferred to the wider economy:14
• Organisational knowledge and creativity spill-overs – fostering creativity and innovation outside the creative industries. • Experiential knowledge spill-overs – Firms in the wider economy draw on creative business models to provide experiential services. • Interdisciplinary knowledge spill-overs – Creative industries have a culture of interdisciplinary working which can be passed onto firms in the wider economy: “Clearly, they have a strong interdisciplinary tradition which in some cases is driving innovations of social significance”. • Entrepreneurial knowledge spill-overs – the creative industries have a very high proportion of small firms. This is consistent with high levels of entrepreneurialism and spill-overs happen if they inspire risk-taking and entrepreneurial culture. • Job mobility spill-overs – Professionals carry over ideas and knowledge into other sectors on moving jobs – an important way of transferring tacit knowledge. • Demand spill-overs – Demand spill-overs for complementary products in other industries.
The Staying Ahead approach to spill-overs in the creative industries is predicated on the major carrier of growth and innovation being ‘outward’ from the core creative fields, through the cultural industries, the creative industries, and to the wider economy. It is this value spill-over between the elements of the DCMS 13 which drive innovation in the wider economy.
14 Andari et al. (2007) Staying Ahead: the economic performance of the UK Creative and Cultural Industries , London: The Work Foundation / DCMS, http://snipurl.com/stayingahead
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2.3 Drivers of growth in the creative industries Staying Ahead also identified eight drivers of growth for the creative economy. These drivers are the main factors or variables which determine whether or not there is a high degree of value spill-over out from the core creative fields through to the wider economy. Within a market economy control over these drivers is divided between the industry or sector, and the government: 15
1. Demand: The degree of demand for sophisticated goods and services, stimulated by early exposure to culture and increasing levels of education. 2. Diversity: The level of diversity to foster the conditions for creativity and innovation. 3. A level playing field: Whether there is a level playing field which encourages innovation and experimentation, and enhances diversity and growth in small and medium sized enterprises. 4. Skills: Whether there is the right balance and supply of education and skills, both in terms of specific skills as well as transferrable skills such as leadership and management. 5. Network strength: The degree of strength in networks to broker and harness capacity, so as to fully exploit market opportunities and generate creativity. 6. Public-sector architecture: Whether there is a fit-for-purpose public sector architecture, grants and institutions, to encourage strong spill-overs and connectivity between the core, the creative industries and the wider economy. 7. Intellectual property: The presence of a clearly-defined and enforceable regime of intellectual property rights, which is kept under review in light of ongoing technological change. 8. Building capacity: Building greater business capacity, particularly so as to overcome managerial and business discipline shortcomings, and access to equity and debt finance.
Because a number of these drivers are acknowledged as requiring government as well as industry development and intervention, it is appropriate that Staying Ahead was also a key document informing the creation of Creative Britain , a major policy paper on the creative industries released in 2008, and produced jointly by the DCMS, the former Department of Innovation, Universities and Skills, and the former Department for Business, Enterprise, and Regulatory Reform.16
Creative Britain sought to take a ‘whole of the creative industries’ approach to the development of the creative industries, and to firmly link those areas of strength to the broader economy: ‘the creative industries must move from the margins to the mainstream of economic and policy thinking’. This is evidenced by the cross-government collaboration in the report’s production, because different elements of central and local government have responsibility for different elements of the drivers – for example skills, media regulation, or government investment in cultural organisations.
Creative Britain explicitly looked to promote economic and job growth in the creative industries as a method of fostering broader economic growth – the spill-over model. It also either endorsed or instigated a broad span of initiatives for considering and promoting the creative industries as a cohesive and holistic economic category, including, among others, the Technology Strategy Board-sponsored creative industries Knowledge Transfer Network,17 the policy-focused Creative Economy Programme , and the industry and policy collaboration C&binet.18
15 Andari et al. (2007) Staying Ahead: the economic performance of the UK Creative and Cultural Industries , London: the Work Foundation / DCMS, http://snipurl.com/stayingahead 16 Creative Economy Programme (2008) Creative Britain: New talents for the new Economy : DCMS, BERR, DIUS, http://www.culture.gov.uk/images/publications/CEPFeb2008.pdf 17 https://ktn.innovateuk.org/web/creativektn 18 http://www.cabinetforum.org/
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The combination of the DCMS sector structure, the concentric circles model, and Staying Ahead’s eight drivers of growth, provide a strong platform and framework for analysing the creative industries, as is clear from the widespread take-up of Staying Ahead ideas within Creative Britain .
Following our re-cap of the main outputs of Staying Ahead, it is important to revisit some of the underlying data on the creative industries in the UK as it was understood prior to the impact of the credit crunch and subsequent recession in 2008. In the next two sections we look at some of the strengths – and underlying fragilities – present in the UK creative industries prior to Staying Ahead.
2.4 The strength of the UK creative industries to Staying Ahead The over-arching picture of the UK creative industries pre- the 2008 credit crunch is one of strong growth, a thriving sector for employment, and an apparent distinct competitive advantage:
• Size and value: In 2007, the creative industries made up 7.3 percent of the UK economy, and 6.4 percent of UK Gross Value Added – £57bn.19 By 2009 global media revenues were close to $600 billion and the UK share was an impressive $32 billion. • Growth: The creative industries were growing at a rate of 5 percent per annum. This compares to an average of 3 percent for the whole of the economy over this period. In the period 1998-2008 creative industry businesses as a whole (i.e. including other sub-sectors such as radio and TV), grew from 116,200 to 157,400. 20 • Employment: Using the DCMS’ workforce definition the sector, in the summer of 2008 the UK creative industries employed around 1.2 million people, more than financial services and pharmaceuticals combined. This is in addition to around 800,000 people employed in creative occupations outside the sector. 21 For the ‘cultural’ sub-sectors covered by Sector Skills Council CCSkills , including performing and visual arts, employment jumped from just over 300,000 in 1994, to 420,000 in 2009, and is predicted to rise, despite the recession, to almost 450,000 by 2014. 22
In short, Staying Ahead described a sector with a good track record of strength and growth in the UK – outpacing many other sectors in terms of jobs and GVA, and outperforming the creative industries in other OECD nations as a share of GDP.23
19 Andari et al. (2007) Staying Ahead: the economic performance of the UK Creative and Cultural Industries , London: the Work Foundation / DCMS, http://snipurl.com/stayingahead ; Meadway, J. and Mateos-Garcia, J. (2009) Demanding Growth , London: NESTA, http://www.nesta.org.uk/library/documents/PP%2001%20- %20Demanding%20Growth%20print.pdf 20 Department for Culture, Media, and Sport (2010) Creative Industry Economic Estimates , http://webarchive.nationalarchives.gov.uk/+/http://www.culture.gov.uk/reference_library/publications/6622.aspx 21 Department for Culture, Media, and Sport (2010) Creative Industry Economic Estimates , http://webarchive.nationalarchives.gov.uk/+/http://www.culture.gov.uk/reference_library/publications/6622.aspx 22 The National Employer Skills Survey – completed every two years, most recently in 2009 – is the largest skill focused survey of organisations in England and provides sufficient granularity to analyse the creative and cultural industries in isolation. http://www.ukces.org.uk/upload/pdf/NESS%20main%20report_1.pdf 23 See Potts, J. and S. Cunningham (2008) 'Four models of the creative industries', International Journal of Cultural Policy , 14 , No. 3, 233-47
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2.5 Underlying fragility of the UK creative industries to Staying Ahead The broad picture of strength and growth in the UK creative industries is well-known: a world-beating percentage of national GVA, and consistently growing faster than the economy as a whole. It was, and is, rightly championed as a key `UK economic strength. But the overall figures potentially masked some underlying areas of concern – including sub-sector variation in business growth rates, and considerable volatility year-on-year – even during the boom years before the 2008 credit crunch.
2.5.1 Business growth and survival The creative industries have a higher percentage of what are known as ‘high-growth’ firms 24 than across the UK economy as a whole. 7.5 percent of creative industries firms are classed as high growth, as opposed to 6 percent of all UK companies.25 But the whole-UK rate includes industry sectors in longer-term decline. Given the designation of the UK creative industries as a key success story, that the percentage of high growth firms is only marginally higher must rate as surprising.
There is evidence that the distribution of creative industries business size ‘bunches’ at around £300,000 - £400,000 annual turnover, suggesting that there are either barriers to growing beyond this point or conscious limitation.26 The sector overview also masks considerable variation within the sector – for example, the eight largest firms dominate TV & Radio and Publishing accounting for over 70 percent of turnover in those sectors, while 63 percent of overall turnover in Music & Performing Arts is accounted for by small firms. 27
15000
11554
10000 7849
4771 4096 5000 3565 2298 2054 537 865 446 400 283 224 24 Turnover GrowthTurnover(£m) 0 -76 -263 -206 -1034 Software and Television Advertising Film, Video Design Architecture Designer Music and Publishing Computer and Radio and Fashion the -5000 Games Photography Performing Arts
Start-ups in period 1995-2005 Firms already established in 1995
Figure 2: Total turnover growth due to start ups, and established businesses, for the period 1995- 2005 Source: Frontier Economics, 2007
24 The OECD definition of a high-growth company is one with 10 or more employees which experience employment growth averaging 20% or more per year over a three year period. 25 http://www.nesta.org.uk/press/assets/features/high- impact_firms_are_key_to_unlocking_growth_in_creative_industries 26 Clayton and Mason (2006) the Financing of the UK Creative Industries SMEs , Burns Owens Partnership and Pembridge Partners 27 Andari et al. (2007) Staying Ahead: the economic performance of the UK Creative and Cultural Industries , London: the Work Foundation / DCMS, http://snipurl.com/stayingahead
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In addition, there is considerable variation in prevalence of high growth firms across the sub-sectors of the creative industries, with software, computer games, and electronic publishing companies accounting for 45.3 percent of all high-growth creative businesses.28 This is supported by research from Frontier Economics in 2007 which examined turnover growth in the creative industries. It found that between 1995 and 2005 start-ups in the creative industries contributed £31.8bn of the £66.4bn total turnover growth for the creative industries, while established organisations (i.e. those established prior to 1995) across most sectors saw either negative or limited turnover growth, with the exception of TV and radio and software and computer games – see Figure 2 above.
There are also considerable differences in business survival rate across the creative industries. According to research by Frontier Economics, the three-year-survival rate for start-ups over 1996-2000 ranged from 73 percent in television and radio to 54 percent in designer fashion, against a UK average of 67 percent.29 The survival rate for publishing, design, architecture and software firms was below the UK firm average for the period. Only TV and radio, and music and the performing arts had better survival rates than the UK average as a whole.
2.5.2 Employment growth Despite the overall trend of employment growth for the creative industries pre-recession, available data suggests that employment and growth in the creative industries fluctuate considerably year-on-year. The creative economy displays volatility when comparing changes in GVA and business growth to changes in employment – see Figure 3 below.
Figure 3: Annual change in employment, business creation and GVA for the creative and cultural industries Source: DCMS, 2009
28 http://www.nesta.org.uk/press/assets/features/high- impact_firms_are_key_to_unlocking_growth_in_creative_industries 29 Frontier Economics (2007) Analysis of Firm Level Growth in the Creative Industries , London: DCMS, http://www.culture.gov.uk/images/publications/analysisfirm_levelgrowth_creative-industries.pdf
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‘High growth firms’ are as important for employment growth as they are for business growth – more than twenty five years ago David Birch argued that these high growth firms would be the prolific new job generators while the ‘elephants’ of the Fortune 500 would shed jobs. 30 This certainly seems to have been the case in the creative sector, as established firms reduced total employment by 120,000 between 1995 and 2005. 31 But the creative sector has only 7.5 percent of high growth firms in terms of employment – and they accounted for all the net employment growth in the creative industries between 2005 and 2008.32 Without these businesses the creative industries would have shed jobs over the last decade. 33
Similarly to the figures for economic growth, examining sub-sectors of the creative industries also shows marked variation in job growth rates:
• 45 percent of high employment growth firms in the creative industries were from the software, computer games and electronic publishing sector, and these also account for 250,000 of the 290,000 total employment growth in the 10 years to 2007.34 • Software, computer games and electronic publishing sub-sectors showed the highest growth in employment – 5% per annum between 1997 and 2008 – across the creative industries, while the three largest sub-sectors – design, publishing, and television and radio – together account for around 75% of revenues and 50% of employment. 35 • This finding of the major job growth in only a few areas of the creative industries is replicated across Europe, with the single category of ‘software consulting and supply’ accounting for more than half the employment growth in creative industries in the EU-27 in the period 2000–2007.36
2.5.3 Exports United Nations research which pre-dates the recession placed the UK as 4 th in the world in terms of creative ‘goods’ exports for 2005, but this was behind Germany, the US, and Italy, with a slower growth rate than the Germans. 37
Again, the overall picture obscures some important distinctions at the level of sub-sector, with the levels of pre-recession growth in exports being quite varied. As Figure 4 below indicates, some areas of the creative industries were losing ground in international markets through the 2000s even prior to the recession.
30 ‘High growth’ organisations are those which create a disproportionate number of jobs. This is defined by OECD as a 20 percent annual increase in employees. 31 Frontier Economics (2007) Analysis of Firm Level Growth in the Creative Industries , London: DCMS, http://www.culture.gov.uk/images/publications/analysisfirm_levelgrowth_creative-industries.pdf 32 Anyadike-Danes, Michael, Bonner, Karen, Hart, Mark and Mason, Colin (2009) Measuring Business Growth: High Growth Firms and their contribution to employment in the UK, Belfast: ERINI and NESTA, http://www.erini.ac.uk/Publications/PDF/ERINIMon44.pdf 33 http://www.nesta.org.uk/press/assets/features/high- impact_firms_are_key_to_unlocking_growth_in_creative_industries 34 Frontier Economics (2007) Analysis of Firm Level Growth in the Creative Industries , London: DCMS, http://www.culture.gov.uk/images/publications/analysisfirm_levelgrowth_creative-industries.pdf 35 Department for Culture, Media, and Sport (2010) Creative Industry Economic Estimates , http://webarchive.nationalarchives.gov.uk/+/http://www.culture.gov.uk/reference_library/publications/6622.aspx 36 EU Commission (2010) European Competitiveness Report 2010 – Commission Staff Work Document , Brussels, http://snipurl.com/eucompetitiveness 37 United Nations Conference on Trade and Development (2008) Creative Economy Report 2008: The challenge of assessing the creative economy towards informed policy-making, www.unctad.org/creative-economy
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Publishing 12.7% Architecture 12.2% Software, Computer Games and Electronic Publishing 11.9% Advertising 11.3% Radio and TV 6.9% Art and Antiques 6.5% Video, Film and Photography 3.6% Design -4.0% Music and the Visu al and Performing Arts -6.3% TOTAL 8.3% Figure 4: Annualised growth in exports by sub-sector (2000-2007) Source: DCMS, 2009
Section two of this report has reviewed the key elements of Staying Ahead , a major investigation of the economics of the creative industries in the UK. It provided a framework and set of tools for understanding and examining the creative industries, and for informing policy.
This section then reviewed the main elements of the data available on the UK creative industries at the time of the production of Staying Ahead . This found that the broad picture of economic strength and growth potentially masked some underlying vulnerabilities.
This framework and understanding can now be used to examine the changes and development of the UK creative industries through to 2010, and, in particular, the impact of the recession. In reviewing the relevance of the Staying Ahead models for 2010, our understanding of the creative industries needs to accommodate the significant effects that the recession has had on funding, enterprise, creativity and innovation.
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Section 3 The UK Creative Industries in the recession
In order to understand the continued relevance of the key Staying Ahead models for the current and future UK creative industries, we need to examine the changes to the creative industries, and to the economic study of the creative industries, that have taken place since 2007. There are two key elements to consider here. Firstly, change to the ‘external’ picture caused primarily by the recession ( Section 3.1 ), and secondly, changes to the ‘internal’ picture: how the evidence base for action and intervention in the creative industries has changed (Section 3.2 ).
3.1 The External picture – business change, and employment The creative industries are particularly vulnerable to economic downturns, partly because the disproportionately large number of very small businesses in the sector mean the sector finds it harder to absorb exogenous financial shocks. While, as noted in the previous section, the historical picture of the UK creative industries has been one of strong headline growth, the post-2008 recession has taken its toll in a number of ways – its impact can be seen both in business failure rates, and changes to employment.
This recession has seen a greater number of creative businesses wound up than in the two previous recessions 38 and sharply-falling demand as businesses and individuals deleverage has hit certain areas reliant on the creative industries very hard: even by the end of 2008, a quarter of independent music shops had gone out of business. The credit crunch occured exactly as many observers considered the creative industries gaining real policy traction – Northern Rock was nationalised the same month that Creative Britain was launched, and seven months before Lehman Brothers filed for bankruptcy.
Business-facing organisations in advertising and design have been affected significantly as clients streamlined and cut budgets for external costs. As an example:
• The advertising industry suffered the highest rate of business failure (13 percent) compared to other creative and cultural industries through the recession.39 The October 2008 Bellwether Report revealed that annual marketing budgets were revised down to the greatest extent ever recorded in the survey’s nine year history, indicating the increasing impact of the credit squeeze on budgets for main media advertising and ‘all other’ (includes PR, events sponsorship and market research). 40 • There has subsequently been a marked recovery in the advertising industry through a combination of innovative change and the recovery of media businesses which carry advertising, but the IPA/BDO Bellwether survey published in July 2010 reveals that marketing budgets were still being revised down on average in the second quarter of 2010, amid uncertainty regarding the economic outlook, with around 20 percent of companies reporting a downward revision against 15 percent that reported an increase. Business confidence also dipped with positive sentiment the lowest for a year. However, the rate of budget trimming for advertising was much slower than at the height of the downturn. 41
That the outlook should still be so uncertain more than two years after the first impact of the credit crunch is indicative of the depth of the recession’s impact.
38 Creative and Cultural Skills (2009) ‘UK creative and cultural industries in recession – initial impact’ 39 Creative and Cultural Skills and Skillset (2010) Strategic Skills Assessment for the Digital Economy, London, http://www.skillset.org/uploads/pdf/asset_14618.pdf?1 40 Quarter 3 2008 IPA / BDO Bellwether Report 41 Quarter 2 2010 IPA / BDO Bellwether Report , http://www.ipa.co.uk/content/Q2-2010-Bellwether-marketing- spend-down
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The subsidised culture sector has been also affected by planned reductions in government spending on arts and culture, with the Arts Council England being asked to make 29.6% from the spending round beginning in 2011.42 The cultural industries are likely to be more vulnerable and the most serious effects of the recession may still be in the future.43
For the economy as a whole employment levels have held up remarkably well compared to previous recessions, most probably because of greater flexibility in hours and wages, and a greater reluctance among employers to shed labour, especially more skilled labour. 44 This is not to say that there has not been a serious impact on creative industries employment: direct unemployment doubled in the creative industries from 43,445 in April 2008 to 83,660 in April 2009.45
An analysis of employment data up to quarter two of 2010 (the most recently available figures) shows that the change in employment for this recession in the broader creative industries has been similar to the two previous recessions – 1980-87, and 1990-93 – down about 5 percent. See Figure 5 below. However, breaking down that overall employment into two main creative sectors for which we have data – ‘information and communication’, and ‘arts, entertainment and recreation’ – we can see that there have been marked differences in employment terms: for the arts, entertainment and recreational services group, employment falls in this recession have been greater than in previous downturns, and for the information and communication services group the fall in employment has been much less.46
Figure 5: Employment change in three recessions compared Source: Office for National Statistics, Work Foundation estimates. NB: ‘Creative based sectors’ is a proxy category comprising information and communications, and arts, entertainment and recreation (SICs J and R).
42 http://www.artscouncil.org.uk/news/across-board-69-cut-funding-arts-organisations-201/ 43 NESTA (2008) Arts and the downturn , http://blogs.nesta.org.uk/attacktherecession/2008/12/arts-and-the- downturn.html 44 Brinkley, Ian (2009) Recession and Recovery to 2020 , London: the Work Foundation, http://snipurl.com/1mvo3b 45 New Deal of the Mind (2009) Do it Yourself: Cultural and Creative Self-Employment in Hard Times , London: Arts Council England, www.artscouncil.org.uk/media/uploads/downloads/ndotm.pdf 46 Brinkley, I, and Holloway, C (2010) Employment in the creative industries , London: the Work Foundation
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We can look at employment change in the creative industries over the last recession in more detail, but at the time of writing just for employee employment – e.g. excluding self-employment. The data is therefore more representative of the information and communication industries than it is arts, recreation and entertainment. We can augment the previous analysis by adding in a further creative industry: advertising and related services such as marketing. As Figure 6 below indicates, over the recession, employee employment across information and communication services (excluding telecommunications) fell by 6 percent, with exceptionally large falls in broadcasting and programming activities and other information services of 23 and 15 percent respectively. There were also large falls in employment in advertising and related services of 15 percent. In contrast, creative, arts and entertainment service employment (excluding self-employment) saw a rise. As a comparison, employment in all private-based service activity fell by just over 5 percent.
Figure 6: Jobs in some creative industries and sectors over the recession 2008 Q2 to 2010 Q2 Note: *SIC = 2007 Standard Industrial Classification. ** closest match to DCMS definition of the creative industries using the 2007 SIC codes. Creative industries excluded are: specialised design and architectural services (data not yet available) and fashion, other design, antiques, and crafts (no industrial classification exists). Source: Office for National Statistics, Work Foundation estimates.
Taken together, Figures 5 and 6 indicate a complex picture of labour market change, partly caused, and partly exacerbated, by the severity of the 2008-10 downturn. They also show a complex inter-relationship of different employment shifts within the creative industries. In general, those at the high-tech services like software have been less affected than earlier recessions, and those in arts and entertainment have been more seriously affected.
In terms of looking to the recovery over the next few years, a 2009 analysis by Experian for SEEDA forecast a 10 percent drop in employment in the creative industries in the UK from its 2007-8 peak, and that it would take until 2020 to recover its 2008 employment level – see Figure 7 below – although this analysis also forecast that the recession would not end until mid-2011.47 As Figure 7 shows, a 10 percent drop in creative industries employment would take until 2020 simply to reach its earlier peak even if the rate of employment growth returns from mid-2011 onward to the same pace it achieved through the boom years of the early 2000s.
47 Experian (2009) The Impact of the Downturn on the Creative Industries , South East England Development Agency, www.seeda.co.uk/_publications/impactDownturnCreativeIndustries09.pdf
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Figure 7: Total employment in creative industries in Great Britain 2001-2020 Source: Experian (2009) for SEEDA
For both business growth and employment, the recession has been a major threat to the position of the creative industries as a key growth sector – and the impact of some changes in public sector funding are yet to be felt. The major external changes which have affected the sector necessitate a revisiting of the Staying Ahead framework to assess whether those changes influence its effectiveness as a tool for understanding the sector.
3.2 The Internal picture – the evidence base At the same time as the recession has been causing major upheaval of the creative industries in the UK, work to develop the evidence-base for the economics of the creative industries has been proceeding apace. This gives us an opportunity to review the ‘internal’ changes to the evidence base, and for key areas in which new data has been developed which wasn’t available as Staying Ahead was being produced.
We begin by looking at the increased use of ‘economic impact assessments’ within the creative industries, before turning to changes to the evidence base on employment and skills, and concluding with a review of the more recent evidence examining the economic inter-relationships between elements of the creative industries.
3.2.1 Impact assessment As one source puts it, it seems the creative industries are beginning to ‘stop worrying and learning to love economics’. 48 The evidence base in terms of economic impact assessment has increased considerably in the last three years.
In Figure 8 below are a range of sub-sector studies which assess the economic impact (usually on the national economy) of those sub-sectors. The examples below are not intended to be exhaustive, by any means – nor is each sub-sector represented – but rather it is indicative of the range of new work in this
48 Bakhshi, H., Freeman, A., and Hitchen, G. (2009) Measuring Intrinsic Value: How to stop worrying and love economics , Mission, Models, Money, http://www.missionmodelsmoney.org.uk/papers/measuring-intrinsic-value/
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field within the creative industries in the UK. It is also not an evaluative list. While the methods seem to be coalescing in something of a standardised approach, some remain critical of the general use of economic impact assessments, viewing them more as lobbying tools than as data for informing industry strategy.
Computer Study: Oxford Economics (2008) The economic contribution of the Games UK Games Development industry , http://www.oef.com/free/pdfs/gamesimpact.pdf
Example findings:
• The UK games development industry contributes £1,016 million a year to UK GDP, taking into account direct, indirect and induced impacts • The UK games development industry contributes to the economy and Exchequer in a number of other ways not captured by the direct and multiplier analysis by stimulating the performance of other industries Craft Study : Creative & Cultural Skills (2009 ) Craft Impact and Footprint 2008/2009 , http://bit.ly/fLQrV5
Example findings:
• The craft sector makes a £3bn annual contribution to the UK economy, higher than that of the visual arts, cultural heritage or literature sectors • The craft sector contributes 12% of the creative industries sector’s GVA Film Study: UK Film Council (2010) The Economic Impact of the UK Film Industry , http://bit.ly/fzpAcO
Example findings:
• Taking into account all of the ways in which the core UK film industry contributes to UK plc, we calculate that it contributed over £4.5 billion to GDP in 2009 • The core UK film industry directly employed around 36,000 full-time equivalents (FTEs) in 2009 (including those self-employed) Fashion Study: British Fashion Council (2010) The Value of the UK Fashion Industry , http://www.britishfashioncouncil.com/valueoffashion
Example findings:
• Excluding the retail sector we estimate that the fashion industry directly generated £6.6 billion of GVA or 0.5% of total UK GDP in 2009 • Including direct, indirect and induced impacts, the fashion industry’s contribution to UK GDP is estimated to have amounted to £37.2 billion or 2.7% of total GDP in 2009 Figure 8: Example recent sub-sector economic impact studies in the UK creative industries
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As the range of areas from Figure 8 indicates, effectively all sectors of the creative industries are now choosing to focus on their direct, and broader, economic impact at a national level. The interest in economic impact assessments within the creative industries also extends to other configurations, including geographic creative clusters,49 partnerships,50 initiatives, and programmes.51 Individual creative industries organisations are also utilising the economic impact frame to understand their interaction with the broader creative industries – for example in 2009 the BBC commissioned a report on its economic impact,52 and Channel 4 includes a broader economic impact assessment of its role in the UK TV industry within their annual report.
3.2.2 Employment and Skills The evidence base on employment and skills in the creative industries has markedly improved in the last three years:
• Skills: The new iterations of the major National Employment and Skills Survey gives us skills needs breakdown by Sector Skills Council categories, as well as UK-wide. The creative industries’ sector skills councils themselves 53 have considerable more detail of longitudinal data regarding skills shortages and needs than three years ago. A key finding from this new data is that some skills shortages – in some specific technical areas, like broadcast engineering, as well as broader categories like management and business skills – are stubbornly persistent, despite the recession reducing overall demand.
• Employment: A key development in calculation of employment in the creative industries is the Creative Trident methodology , developed by the ARC Centre of Excellence for Creative Industries and Innovation (CCI).54 It analyses the ‘creative workforce’ – and tries to capture within the employment statistics more of those who might be in creative roles, but not necessarily within creative industries businesses. It therefore divides the creative workforce into three types of employment:
• ‘Specialist’ creatives – artists, professionals or creative individuals working in the creative industries. • ‘Support’ workers – staff in the creative industries providing management, secretarial, administrative and accountancy back-up. • ‘Embedded’ creatives – creative individuals ‘embedded’ in other industries not defined as creative.
Using Creative Trident provides a useful cross-classification of employment by industry and occupation.55 It has already informed the preliminary creative industries employment classification likely to be adopted as policy through the UN Commission on Trade and Development. 56
49 Chapain, Caroline, Cooke, Phil, De Propris, Lisa, MacNeill, Stewart and Mateos-Garcia, Juan (2010) Creative Clusters and Innovation: Putting creativity on the map, London: NESTA, http://bit.ly/gVBjAr 50 Burns Owens Partnership (2006) Study of the Impact of Creative Partnerships on the cultural and creative economy: report of findings , London: Creative Partnerships, http://bit.ly/hj4g4y 51 Hopkins, L, and Reid, B. (2010) The Economics of Cultural Leadership: An economic impact assessment of the Cultural Leadership Programme , London: the Work Foundation 52 Deloitte (2009) The Economic Impact of the BBC 2008/9 , http://bbc.in/i63uG9 53 e.g. http://www.skillset.org/research/index/#ssa ; http://www.ccskills.org.uk/Research/tabid/600/Default.aspx 54 Higgs, P. and Cunningham, S. (2007) ‘Australia’s Creative Economy: Mapping Methodologies. Technical Report.’ Brisbane: Centre of Excellence for Creative Industries and Innovation; Cunningham, S. and P. Higgs (2009) 'Measuring creative employment: Implications for innovation policy', Innovation: Management, Policy & Practice , Volume 11, No. 2, pp.190-200 55 Centre for International Economics (2009) Creative Industries Economic Analysis
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• Careers: Our understanding of creative industries careers and career paths is also enhanced. A major 2010 study by the Institute of Employment Studies traced the career and employment choices of a sample of graduates from creative industries subjects. 57 The vast majority are working within the creative industries, and are broadly satisfied with their involvement, although many engage with the industry as part of a range of ‘portfolio’ options beyond full time employment.
There is also more data regarding the more concerning aspects of creative industries careers in the UK, for example that many have few working benefits or prospects for promotion – some creative industries jobs were described by David Hesmondhalgh recently as ‘marked significantly by insecurity, inequality and exploitation’ 58 – or that a creative industries careers are only accessible to those from certain backgrounds.59
3.2.3 Inter-relationships Well before Staying Ahead , research provided an evidence base that creative businesses play a significant role in increasing innovation in organisations in other sectors. 60 But since 2007, research has continued to explore the nature and extent the economic value ‘spill-overs’ in terms of innovation – a concept which is at the heart of the Staying Ahead model.
The creative industries’ contribution to innovation can be characterised in three main ways:61
• Firstly, through producing ideas : a key characteristic of creative industries. The commercialisation of these ideas contributes – directly or indirectly – to the broader economy’s innovative potential and the generation of new products and services.62 These kinds of innovations are difficult to pick up with economic analysis, leading some to describe them it as ‘hidden’ innovation. 63
• Secondly, creative industries offer services which may be inputs to innovative activities of other enterprises and organisations within and outside the creative industries. A major study of non- creative industry organisations’ connections with creative businesses found that UK businesses which invest twice as much as the average firm in creative services (as a proportion of their output) are 25 percent more likely to introduce product innovations,64 since ‘supply chain linkages to the creative industries are positively related to innovation elsewhere in the economy. ’65
56 UNCTAD (2008) Creative Economy Report, www.unctad.org/en/docs/ditc20082cer_en.pdf 57 Ball, L, Pollard, E., Stanley N. (2009) Creative Graduates, Creative Futures , Brighton: Institute for Employment Studies, http://www.employment-studies.co.uk/projects/creative/creative.php 58 Banks, M. and D. Hesmondhalgh (2009) 'Looking for work in creative industries policy', International Journal of Cultural Policy , 15 , No. 4, 415-30 59 Shorthouse, Ryan (2010) Disconnected – Social Mobility and the Creative Industries , London, Social Market Foundation, http://www.smf.co.uk/assets/files/SMF%20Disconnected.pdf 60 DTI (2005), ‘Creativity, Design and Business Performance’, DTI Economics Paper No. 15, London. 61 Muller, K., C. Rammer and J. Truby (2009) 'The role of creative industries in industrial innovation', Innovation: Management, Policy & Practice , 11 , No. 2, 148-68 62 See also Higgs, P., Cunningham, S., and Bakhshi, H., (2008) Beyond the Creative Industries: Mapping the Creative Economy in the United Kingdom , NESTA, London 63 Miles, I., and Green, L. (2008) Hidden Innovation in the Creative Industries , NESTA, London, http://bit.ly/fOTnn1 64 Bakhshi, H. and E. McVittie (2009) 'Creative supply-chain linkages and innovation: Do the creative industries stimulate business innovation in the wider economy?', Innovation: Management, Policy & Practice , 11 , No. 2, 169-89 65 http://www.nesta.org.uk/library/documents/Report%20-%20Creative%20Innovation%20v5.pdf , see also Frontier Economics (2006), Creative Industry Performance, A statistical analysis for the DCMS , Frontier Economics: London
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• Thirdly, creative industries are intensive users of technology and often demand adaptations and new developments of technology, providing innovation impulses to technology producers. As the concentration of knowledge intensive services in the economy increases, the barriers between traditional industries and sectors tends to break down – this cross-fertilisation combines ideas of technology ‘convergence’ and their innovative deployment. 66 The social-networking-driven business model of firms like Zynga – see case study on next page – is a good example.
If we take design as an example of businesses drawing on the creative industries, then we can build a strong picture of the innovation spill-overs which relate one element of the creative industries to the broader economy. This would include evidence that manufacturers which draw on design increase productivity, market share and product quality,67 and that firms with higher design intensity have a greater probability of carrying out product innovation. Design expenditure also has a positive association with firm productivity growth. 68 In turn, firms which are purchasers of creative products as an important part of production are more likely to engage in design activities, to successfully introduce new and novel products, and to enjoy an expansion in their product range as a result of their innovation activities. 69 But although 41 percent of manufacturers see design as integral to their business, only 6 percent of businesses in trade and leisure services say this is the case and over half of UK firms say design has no role or only a limited role to play in their business. 70 Allowing the broader economy to understand the innovation possibilities of drawing on the creative industries remains a major challenge.
Despite these major extensions of our understanding of the inter-relationships and spill-overs between and beyond the creative industries, some commentators continue to feel that ‘the evidence base that underpins policy-making in the arts and culture sector, and the wider creative economy, is generally poor’, reflecting ‘a historic lack of interest in the economics of culture in the UK’.71 It is certainly the case that many of the inter-relationships are not fully articulated by empirical evidence. There are other concerns, both theoretical – for example the blurred nature of our understanding the economic incentives for individual creativity 72 – and more policy-oriented concerns, for example the tendency to imply science and technology, and not the creative industries, when talking about investing in innovation. 73
This section of the report has reviewed some of the key internal and external developments for the creative industries since 2007. The impact of the recession on the creative industries has been considerable, although less than might have been predicated in advance, for example in terms of employment. The evidence base for the economics of the creative industries has been considerably strengthened in that period, on skills, employment, and economic inter-relationships, although key challenges remain.
66 Sapsed, J., Mateos-Garcia, J., Adams, R. and Neely, A. (2008) A Scoping Study of Contemporary and Future Challenges in the UK Creative Industries Technical Report. Advanced Institute of Management Research (AIM), London, UK, http://eprints.brighton.ac.uk/5643/ 67 HM Treasury (2005) Cox Review of Creativity in Business: building on the UK’s strengths , London: HM Treasury. 68 DTI (2005), ‘Creativity, Design and Business Performance’, DTI Economics Paper No. 15, London. 69 Bakhshi, H. and McVittie, E. (2009) 'Creative supply-chain linkages and innovation: Do the creative industries stimulate business innovation in the wider economy?', Innovation: Management, Policy & Practice , 11 , No. 2, 169-89 70 See http://www.designcouncil.org.uk/our-work/insight/research/research-briefings/the-impact-of-design-on- business/ 71 Smith, M. (2010) Arts Funding in a Cooler Climate, London: Arts and Business, http://www.artsandbusiness.org.uk/news/2010/july/arts-funding-in-a-cooler-climate.aspx 72 Towse, R. (2010) 'Creativity, Copyright and the Creative Industries Paradigm', KYKLOS , 63 , No. 3, 461-78 73 See, inter alia , Annual Innovation Report (2009) BIS.
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Zynga’s Farmville www.zynga.com
Created by: Zynga, which was founded by Mark Pincus, Michael Luxton, Eric Schiermeyer, Justin Waldron, Andrew Trader, and Steve Schoettler in July 2007.
Size/amount of users: Daily Application Usage Monthly Application Usage 17,769,581 62,001,395 32,479,576 all-time high 83,755,953 all-time high Source: Inside Social Games 23 rd September 2010.
Zynga’s Farmville game is the largest and fasting growing social game in history. It was launched on 19 th June 2009, and by August 2009 had 11 million daily Facebook users, attracting an average of a million users a week. 74
Players create and manage their own virtual farm, investing, growing and harvesting a variety of crops for money and game points. Players also have options to invest in their farms by purchasing fruit trees and farm animals such as pigs and cows, and compliment their crops with other farm assets such as barns, windmills, greenhouses and tractors. Like a real life farm, when crops are well tended, farmers see their farms prosper and their bank accounts grow.
About Zynga: Zynga is a Web 2.0-based social network game developer located in San Francisco, California, United States. The company develops browser-based games that work both stand-alone and as applications on social networking websites. Zynga is the largest social gaming company with 27 million daily users and 93 million monthly users. Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Tagged, Yahoo! and the iPhone, and include FarmVille, Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, and Scramble.
The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel. However, Zynga also manages to transform its audience into successful businesses. According to the site Business Insider,75 the company is now valued at $4 billion (3.11 billion euros). Zynga takes around 40% of its resources from micro-transactions and selling virtual items. Players can either purchase credits outright through credit cards or Paypal, or participate in partnering advertising sponsorships like magazine trials and product sampling to earn their credits outside of the game. In Farmville, the virtual farmers can now buy seeds sponsored by real brands.
This business model is based on “free to play” games where the player does not pay access to the game itself, but the various objects that will enhance his game outside of investing time in the game. Zynga has become the pioneer in this market of virtual goods.76 It is also worth noting that the games are much cheaper to produce than the blockbuster games for home consoles.
74 http://zblog.zynga.com/?p=1008 75 http://www.businessinsider.com/digital-100#2-zynga-2 76 http://www.oroinc.com/farmvillethe-goose-that-lays-golden-eggs-for-zynga/
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Section 4 The UK Creative Industries to 2020
The UK creative industries have been a powerhouse for the UK economy, despite some underlying weaknesses. The improvement of the evidence base in recent years may help us to analyse the changes and allow us to be better informed about our options, but the effect of the recession has still been considerable. In this section of the report we consider the longer term prognosis for the UK creative industries, as the country recovers from recession and looks to grow strongly.
While the recession has been a sudden and major disruption to the general upward trend for the creative industries, there are a number of longer-term trends which were already strongly affecting the activities, configuration and make-up of the creative industries. It is important to focus on the effects of these longer- term trends ( Section 4.1 ) in order to understand how the UK creative industries can be a driver of growth and innovation in the recovery and through to 2020 (Sections 4.2 and 4.3 ).
In this section of the report we illustrate some of our central points with brief organisational case studies. The first, of innovative social networking game firm Zynga (at one point in 2010 the fastest growing internet business in the US), is on the preceding page.
4.1 Convergence, Digitalisation, Internationalisation A number of longer-term trends have been altering the supply chains, business models, industry structures, and firm configurations in the creative industries. Here we focus on three which we believe have an important effect which the recession has exacerbated, and which we believe will continue to drive sector- wide change through to 2020 and beyond. We therefore briefly explore the main effects of convergence (Section 4.1.1 ), digitalisation ( Section 4.1.2 ) and globalisation, or internationalisation ( Section 4.1.3 ) on the creative industries.
4.1.1 Convergence Convergence, and in particular digital convergence, is a perennial topic of debate within the creative industries and the broader technology sectors. This may be because – despite its technical definition – convergence describes a continuously-developing process rather than any endpoint; a blurring of aesthetic and technological distinctions between media platforms.77 The issues surrounding convergence, at their most basic, call into question the media experience for the user, and simultaneously herald a re-negotiation of expectations for content producers, advertisers and users/audiences.
At its heart convergence is the disruption caused to traditional industry categories and value chains, allowing organisations to operate in spaces in the value chain from which they were previously excluded. Convergence therefore opens up significant opportunities for organisations to develop new business models, and to offer new products and services. It is because of the opportunities afforded by convergence 78 that the Technology Strategy Board has identified the convergence of new media platforms and the increased digitisation of networks as a priority area of investment in its Creative Industries Strategy.79
During its history, the term ‘convergence’ has sometimes designated attempts to standardise on specific technology platforms across devices – having one controller for your TV, video, lights, and stereo was once
77 MIT’s Convergence Culture Consortium 78 Technology Strategy Board Knowledge Transfer Network: http://bit.ly/eQNd5f 79 Technology Strategy Board (2009) Creative Industries Technology Strategy 2009-2012 http://snipurl.com/1lxty5
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the goal.80 Now, with the internet as a ‘standard’ but highly flexible platform, convergence implies the multiple and overlapping boundary-crossing activities blurs, as more players in the market. These players themselves play a wider range of roles – purchaser, viewer, seller, contributors, consultants – at the same time. Zynga’s Farmville application (see case study) is an excellent example. The firm crosses boundaries between games developer, social network, marketing information processor, and retailer (selling branded ‘virtual’ goods). The users share an experience but also enter into – sometimes as a seller, sometimes as a producer – a virtual economy, all accessible from anywhere with an internet connection.
Because of the impact of convergence on the creative industries, it is important that the UK:
• Exploit existing strengths through new means and models, rather than holding on to business models that are fatally eroded by convergence: creative businesses tend to have core skills in artistic and creative content, and should focus on the experience of the user rather than on the specifics of the converged technologies that have brought about the current situation.
• Look to understand who is controlling the transaction modes: content producers, aggregators, users, etc.: in other words who is making money out of the converged user experience, and who is mixing the converged relationships together. Creative businesses should continue also to be part of the discourse questioning who has – and who lacks – the right to be part of the converged media experience and when that matters.81 • Focus on investment in R&D: both in terms of further technological development to provide better tools for producers and consumers of media content and services, and to ensure that the UK stays at the leading edge in developing hardware and software that meet needs in these areas.
The constantly-shifting relationship between technologies, producers, consumers and content will continue to have significant impacts on wide-reaching areas in the future. When content is distributed in different ways, to different platforms, with users that increasingly demand new ways of using the content, the creative industries must learn to work with these changes and continue to adapt to the consequences.
4.1.2 Digitalisation The UK has, for the most part, embraced digitalisation. For example the UK ranks fifth in the OECD in penetration of broadband, and 11th in households with PCs.82 Consumers were quick to respond to e- commerce, becoming the largest online retail market in Europe. There are also areas of digitalisation where UK businesses are leading the way, for example in internet advertising, where we hold an 18.9 percent share of domestic advertising spend (compared to 13 percent in US). 83
As digitalisation has progressed, there has been a proliferation of intermediate and consumer digital assets and a further increase in data volumes requiring more computing power to process and bandwidth to transmit. The doubling of notional computing power every two years described by Moore’s law continues, with the growth in processor performance, storage capacity and sensor resolution, supporting demand for high data rate applications.84 This increased speed of knowledge exchange is a central advantage, and challenge, for knowledge-intensive service sectors like the creative industries.
Bristol’s Watershed Media Centre provides an excellent example of a UK creative industries business moving innovatively into the digital space, seeing it both as a way of enhancing the art produced, and its increasing impact on the broader economy.
80 Mueller, M. (1999) Digital Convergence and its consequences The Public Vol.6 (1999),3 , 11-28 81 http://creativeindustriesktn.org/blog/2010/08/convergence-conversations-1-matt-locke/ 82 OECD (August 2006) International Measurement of the Economic and Social Importance of Culture 83 TSB Driving Innovation Creative Industries Technology Strategy 2009-2012 http://snipurl.com/1lwqyp 84 TSB Driving Innovation Creative Industries Technology Strategy 2009-2012 http://snipurl.com/1lwqyp
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Watershed Media Centre, Bristol www.watershed.co.uk
Created by: a group of three companies: Watershed Arts Trust and two wholly-owned subsidiaries of the Trust – Watershed Trading and iShed CIC. It is run by Managing Director Dick Penny.
Turnover: an annual turnover of approximately £3.8 million.
Detail: The Watershed Media Centre is a cultural exchange centre and key broker for innovation in creative businesses, providing new network opportunities for cultural organisations and social enterprises 85 . Watershed is more than just an arts cinema; it is a creative ecosystem, ‘pushing the boundary not only in the invention of new work, but in the subsequent consolidation of that work in new patterns of shared meaning, new cultural genres’. 86
The Watershed Media Centre opened in two disused warehouses at Saint Augustine's Reach, part of Bristol Harbour in 1982. Following a major refurbishment in 2005, the building houses three cinemas, a café/bar, events/conferencing spaces, and office spaces for administrative and creative staff. The buildings are also host to Futurelab, and UWE eMedia Business Enterprises.
In the digital domain, Watershed's dShed.net website displays digital art from international artists alongside work by local community groups and it also hosts the annual online short-film festival Depict.org. In 2006 eShed.net began development as a showcase for digital art made by young people in and around Bristol. Staff at Watershed are also involved with creating and running electricpavilion.org, electricdecember.org and bristolstories.org.
iShed is Watershed’s venture that enables and supports innovation and collaboration between computing, communications and the creative industries. iShed facilitates partnerships between industry, artists and creative companies identifying funding opportunities and supporting new ideas. Through events, networking, consultancy and projects, iShed gives people and ideas the time and space to develop, be explored, debated and delivered.
Watershed Arts Trust is a company limited by guarantee and a registered charity. As well as its own commercial income (through Watershed Trading), Watershed Arts Trust is funded by national and regional arts funders such as Arts Council England South West, Bristol City Council, South West Screen, South West Regional Development Agency, University of the West of England, TLT Solicitors. However, Watershed Trading Company generates a financial contribution for Watershed's artistic and cultural development through the operation of the Café/Bar and Conference services.
85 Creative Economy Programme Infrastructure Working Group (August 2006) 86 Producing the Future: Understanding Watershed’s Role in Ecosystems of Cultural Innovation (2010) International Future Forum
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Because of the impact of digitalisation on the creative industries, it is important that the UK:
• Continue to invest both public and private money in developing its network infrastructure: the recent announcement regarding ‘Britain’s superfast broadband future’ 87 with the ambition of delivering a ‘digital hub’ in every community, and to ensure the UK has the best broadband network in Europe by 2015, has been broadly well received by the vast majority of ISPs. It is important to note the potential here for job growth and economic growth: a study by the London School of Economics calculates that having a superfast network throughout Britain would create 280,000 new jobs, and the Federation of Small Businesses estimates that it could add £18bn to the UK's GDP.88 However there remains a concern that this potential increase in GDP would not being directly accrue to UK-based businesses.
• Continue to explore new business models which can capture expressive value through a robust system of copyright, but which accepts the tide of ‘costless’ digital distribution cannot be turned back: the Digital Economy Act attempted to resolve some of these thorny issues, but has resulted in some serous disputes, with broadband providers contesting it in the High Court. 89 The distribution of profits in creative industries digital value chains will shift, and some will lose out, but a manageable system for enforcement of creative businesses’ intellectual property must be found. The Act has long divided the creative industries, and a further re-examination of the issues, and a proper debate is needed.
• Keep all parties’ voices heard in the debate regarding ‘net neutrality’ – particularly small organisations who make up the vast majority of the UK creative industries: the issue of so-called ‘net neutrality’ is of vital importance for the future of a fully digitised Britain. In its purest sense, it means that there should be no prioritisation of any types of traffic by network operators – all paths/speeds are equal and content providers cannot charge for a faster service provision.90 Whether and where there should be a principle of non-discrimination regarding different forms of internet traffic carried across networks is strongly related to future innovation possibilities for the creative industries. As Alyssa Cooper of the Oxford Internet Institute notes:
When traffic management and net neutrality issues are discussed in the press, the debate is often explained as a battle among Internet giants, with big network operators on one side and big content and service providers on the other. What this framing overlooks is the importance of fostering the giants-to-be: those companies, products, and ideas that may not even exist yet, but that, like so many before them, will come to permeate the Internet experience. The UK gave birth to one of the great innovations of our time, the World Wide Web. The fate of the next Tim Berners-Lee hangs in the balance [but with net neutrality] he and all other innovators like him, can follow in the footsteps of today’s Internet giants .91
87 http://www.culture.gov.uk/news/media_releases/7619.aspx 88 http://www.guardian.co.uk/politics/2010/dec/06/extra-50m-superfast-broadband-uk-2015 89 http://www.ft.com/cms/s/0/bfe86574-8ab7-11df-8e17-00144feab49a.html#axzz16g7M6NW1 90 Net Neutrality and the Open Internet: The Consumer Perspective. UK market and regulatory context. Alex Blowers, International Director OfCom 7 September 2010 91 http://stakeholders.ofcom.org.uk/binaries/consultations/net-neutrality/responses/Cooper_A.pdf
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Crystal CG International http://www.crystalcg.co.uk/
Crystal CG was appointed as the Official Digital Imaging Services Supplier to the London 2012 Olympic and Paralympic Games in 2009. Crystal CG was also the Olympic Games Graphics Design Services Supplier for the Beijing 2008 Olympic Games. Crystal CG International is the European Headquarters of Crystal CG – a worldwide digital media company founded in Beijing in 1995. Crystal CG employs 3000 people around the world, specialising in digital animation and interactive virtual reality.
As the Official Digital Imaging Services, Crystal CG’s digital images will be used to assist in the planning and communications around the 2012 games in a variety of areas including venues, games operations and sport presentation. The team will also be involved in creating visuals for marketing, branding, design and logo creation for the games, as well as the games’ mascots.
Few would question that the UK’s creative industries should be completely open to foreign investment and competition, but the appointment of Crystal CG as the Official London Olympics supplier has sparked some controversy, particularly within London’s animation industry in Soho, 92 as some saw the appointment as a missed opportunity to support home-grown animators and the broader UK creative industries.
Crystal CG has extensively commissioned UK firms for work under its Olympic contract. For example, the 2012 mascots, Wenlock and Mandeville, were designed by London firm Iris and the music for the film was composed by a young British composer. Crystal CG International group also has an explicit strategy of recruiting Europeans for European markets and offices. 93 Indeed foreign direct investment agency Think London helped Crystal CG International to set up a London base from which to expand into the European markets and go on to be a London Olympic Games Digital Imaging Services Tier 3 supplier.
Talk of a ‘threat’ to the powerhouse UK-owned digital agencies is overstate the case. But almost one in eight of Chinese foreign direct investments (FDI) into London in 2010 has been into creative sector, placing it amongst the top three industries for Chinese investment into the capital. 94 High value and creative businesses from China have been recognising the massive market potential for their products and services in Europe. It is indicative of increasingly sophisticated international competition to the home- grown UK industry in this space.
4.1.3 Internationalisation While the UK creative industries grew at an annual 5 percent on average between 1997 and 2004, compared with 3 percent for the rest of the economy, world trade of creative products annual growth rate was 8.7 percent during 2000-2005, and reached US$424.4 billion in 2005.95 For the EU-25 countries as a whole, the creative economy has grown a massive 12 percent faster than the overall economy in 1999- 2005,96 and global creative goods trade in 2005 was 47 percent higher than in 2000, totalling US$ 335.5 billion.
92 http://www.westendextra.com/news/2010/may/2012-olympic-mascots-made-china-label-animates-mp-mark-field 93 http://www.ft.com/cms/s/567b7a04-9dbd-11df-a37c-00144feab49a.html#axzz17hLEpQAp 94 http://www.thinklondon.com/media_centre/content/July- September_2010/Chinaxs_creative_industry_dominates_London_FDI.html 95 United Nations Conference on Trade and Development (2008) Creative Economy Report 2008: The challenge of assessing the creative economy towards informed policy-making, www.unctad.org/creative-economy 96 European Commission (2010) European Digital Competitiveness Report, http://snipurl.com/eucompetitiveness
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Taiwan’s creative industries, for example, are not on an economic par with the UK’s in 2010, but they have identified it as a strategic priority, approved a strategy which targets a $30bn in creative industries activity by 2012, and established a US$840m venture capital fund dispersed by private venture capital firms to creative businesses over the next four years. The strategy is designed to generate more than 20 percent growth in the Taiwanese, create 200,000 jobs, triple overseas sales of media products, and stimulate local consumption of cultural and creative products and services. 97
Figure 9: Employment in two creative based sectors compared in 2010 Note: share of total employment. Sources: Eurostat, Q1 2010; US Bureau of Labor Statistics, August 2010
As a percentage of total workforce in the creative industries, even after the recession the UK is ahead of others in the G7, and tops the table for percentage employed in arts, entertainment and recreational services – see Figure 9 above. But in absolute terms, by 2008 China’s creative sector employment was already at 1.52m,98 and in 2005 China provided 33 percent of world creative industries goods exports – higher than their 11 percent share of all world goods exports. 99 The Crystal CG case above provides evidence of Chinese-owned creative industries companies competing very successfully at the high-value- add knowledge-intensive end of the creative industries in the UK, not just as a provider of cultural good exports such as CDs and DVDs.
From the point of view of its impact on the creative industries business, it is important that the UK:
• Maintain an awareness of the activities and strategies of other nations in the creative industries, as well as take full part in international activities to promote the creative industries: As Dale Bassett notes: ‘the UK needs to out-think competitor economies, but also to see which
97 http://www.cabinetforum.org/blog/taiwan_targets_the_creative_industries/ ; see also Ben-chaung, W., L. Shang- chia and C. Fang-yi (2010) 'National Policy and the Promotion Model of Cultural and Creative Industries in Taiwan', International Journal of Business Research , 10 , No. 1, 121-32 98 http://www.ceauk.org.uk/2008-conference-papers/Zhen-Ye.pdf 99 UNCTAD Global Databank on world trade in creative products / UN Comtrade – WIFO calculations
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international economies might be doing better and why, so as to adopt and potentially beneficial strategies.’ 100
The UK has led the way in the size and power of its creative industries, and it also led on analysis and data through the DCMS mapping project. As other OECD and EU countries develop more sophisticated creative industry strategies 101 with an eye to replicating the success of the UK, the UK must continue to be at the forefront of analysis and action. For example, UK creative organisations should look to play a full role in European Creative Industries Alliance – an €100 million ‘platform’ that will bring together organisations across the union.102
• Ensure an internationally competitive environment for investment and gaining rewards from creative industry activities: the historical success of the UK creative industries suggests the UK has been, for the most part, a competitive environment for the development of creative businesses. However, it cannot assume that this will continue, as others look to move into similar knowledge- intensive and innovation-rich areas. As a recent Universities UK report concluded:
The UK is not alone in recognising the potential [of the creative industries as a key growth sector]. Countries across the world are making substantial investment in the creative industries and their supporting infrastructure, and global competition is accelerating. This investment ranges from the use of tax breaks and other fiscal incentives, such as those used to support the games industry in Canada and France, to the massive direct investment in new media cities and clusters in Asia and the Middle East. In this fast moving and highly competitive environment, the UK must look to its strengths, and invest in the development of high-level knowledge, creativity and skills. 103
• Call for better international data: The quality of data for global comparison of creative industries is patchy, and often is subject to considerable lag – global creative industries trade data available now mostly pre-dates the recession. The problem is particularly acute regarding data on trade in creative services . The UK should take full part in initiatives such as the UNCTAD global creative industries trade and employment statistics project.104
The three longer-term trends of convergence, digitalisation and internationalisation, combined with the more short term changes wrought by the recession, are changing the face of the UK creative industries. Understanding their combined impact is crucial if the UK is to be able to rely on the creative industries as a driver of growth and innovation in the recovery.
100 Bassett, Dale (ed). (2010) A Creative Recovery: How the UK’s creative Industries can regain their competitive edge , London: Reform, http://bit.ly/dEw02W 101 http://ec.europa.eu/culture/our-policy-development/doc/GreenPaper_creative_industries_en.pdf 102 http://www.europe-innova.eu/web/guest/home/-/journal_content/56/10136/178407 103 Universities UK (2010) Creating Prosperity: the role of higher education in driving the UK’s creative economy , London: EKOS Consulting, pii, http://bit.ly/eeOq9S 104 European Commission (2010) European Digital Competitiveness Report, http://snipurl.com/eucompetitiveness
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KARMARAMA http://www.karmarama.com/
Income growth in last 5 years: 260% 50% leap in income and profits in 2010
Karmarama is one the fastest growing independent advertising agencies in the communications industry, with 62 staff, an additional 25 people in their joint-venture TV production company Kream, and a further 3 in their new joint-venture PR agency Kaper.
Karmarama is an independent creative agency focused on big ideas without boundaries, from TV ads to online communities, and is passionate about effectiveness not creative awards. Karmarama clients include Nintendo, Unilever, lastminute.com, BT Plusnet and Costa.
2010 has seen excellent new business results for the agency, with new client wins adding over £25 million to the agency’s billings. BT Plusnet, la Senza, Virgin Media TV and the Southbank Centre all joined the client list. This year has also seen significant organic growth for the agency. In some cases clients have invested more in communications in 2010, but in every case income has been grown by winning projects over and above traditional advertising briefs - with Karmarama doing more work in non-traditional areas such as digital, delivering digital solutions for over 80% of clients.
Karmarama remains creative and entrepreneurial, innovating as the market changes. They have created new jobs through the launching of a joint-venture PR agency, and a joint-venture content production company, Kream. They have also hired to fill new types of jobs reflecting a more digital economy, with roles such as Creative Technologists or Social Media experts to help deliver digitally led campaigns for clients.
4.2 The Creative Industries as a (potential) engine of growth Despite the difficult conditions in the recession for the creative industries in the UK, we believe the growth prospects look fairly good, and could be excellent. This report has already reviewed why, from the point of view of the overall UK economy, the creative industries are in a position to drive growth: its existing UK strength, and its role in the broader growth sector of knowledge intensive services.105 Other forecasts also depict a potentially bright outlook for creative industries growth:
• A report supported by supported by 17 cultural bodies, including Arts Council England and the Museums, Libraries and Archives Council (MLA) suggested that, even in the current climate, a 9% annual growth rate could be achieved by 2013 provided that Government continues its support. Culture Capital - a Manifesto for the Future further claimed that a 9% growth rate would boost GVA to £85bn and create 185,000 new jobs. 106
• In terms of employment, NESTA forecasts 4% or higher annual growth, while the UK Commission for Employment and Skills believes that culture, media and sports occupations are forecast to have the fastest rates of employment growth in the economy between now and 2017. 107 While we
105 Foord, J. (2008) 'Strategies for creative industries: an international review', Creative Industries Journal , 1, No. 2, 91- 113 106 Museums, Libraries and Archives (2008) Cultural Capital - a Manifesto for the Future, Investing in Culture will build Britain’s Social and Economic Recovery 107 UKCES (2008) Working Futures 2007 – 2017 Evidence Report 2 , December: Warwick Institute for Employment Research and Cambridge Econometrics
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believe the creative industries can be a source of more, good jobs in the future, we would caution that the creative industries role in job creation should be seen as much about driving future exports, technology applications, and innovation both within the sector itself and across the rest of the economy as about job generation directly. 108
• A recent PwC forecast suggested that the UK entertainment and media market would grow by 3.7% per annum on average for the 4 years to 2014,109 and the UK continues to have areas of real export strength in the creative industries – for example TV formats.110
For the UK creative industries to be an engine of growth will require attention from both the industry and government – benign neglect is unlikely to result in the sector achieving its full potential when, as we have seen, so many international competitors are making the creative industries a strong area of economic focus.
LBi http://www.lbi.co.uk/
Founded in 1995 LBi currently employs almost 500 digital specialists in the UK and provides marketing and technology solutions to a range of quality clients including BT, M&S, Virgin Atlantic, Electrolux, Etihad, Unilever, Lloyds Banking Group, Barclays and E.on.
LBi also works across a network of 26 offices in 16 countries, with a total of 1800 digital experts delivering ideas across communications, service design, branded content, technology innovation, mobile, CRM, digital media planning and buying, social media, EPR, and hosting. The result is a vertically integrated digital agency with innovation at its heart and management teams in each market with a profound understanding of the implications of a digital world.
This year, LBi has expanded its media offering by merging with search specialist, bigmouthmedia , to make LBi the largest digital marketing and technology agency in Europe. Bigmouthmedia clients include BT, British Airways, Europcar, Fujitsu and Radisson.
Highlights for LBi in the past 12 months include winning accounts with E.ON , the UK’s leading power and gas companies, Virgin Atlantic, Ericsson and Comparethemarket.com. Bigmouthmedia wins include Standard Life, Littlewoods Europe, Habitat , Dyson, and Radisson.
LBi has been awarded the number one Digital Marketing Agency in the NMA Top 100 Interactive Marketing Agencies 2010 for the second year running.
108 Brinkley I, and Holloway, C. (2010) Employment in the Creative Industries , London: the Work Foundation, p12 109 http://www.faep.org/emr/pdf/Presentation_Marieke_vd_Donk_PwC.pdf 110 http://www.independent.co.uk/news/business/analysis-and-features/britain-finds-an-export-star-at-last- 2097783.html
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4.3 The Creative Industries as a (potential) engine of innovation The possibility for explosive growth in the UK creative industries through improving its role as the ‘engine’ of innovation in the economy is an exciting prospect. We believe that the key is to ensure the creative industries are position at the heart of the broader national innovation eco-system.111
As this report has suggested in earlier sections, research data already shows the creative industries playing an important role in wider innovation. But the government, industry and individual creative industry organisations are all likely to benefit from viewing the creative industries as key moving parts in a cohesive and adaptive national innovation eco-system:
• Government: Establishing the environment in which innovation can flourish. This would include a coherent network of ‘intermediate institutions’ which would nurture that eco-system.112 This is unlikely to be successful if creative subjects are seen as less of a priority than STEM subjects.113
• Industry: Particularly as convergence continues, sub-sectors of the creative industries need to view themselves in relation to the innovation eco-system. They will not be able to hang on to older business models, but will thrive if they position themselves as part of a networked culture of innovation within a much broader economy. 114
• Individual organisations: Individual organisations in the creative industries must develop a core competency as innovators, deliberately looking to where their innovation might have an effect outside their organisation and sector. 115 Central policy will not create innovation, but it can give it space and support to flourish. As sector barriers and categories collapse, innovative connections between organisations will create new kinds of value chains116 (see also case study of LBi above)
This section of the report has examined the impact of longer-term trends on the creative industries’ prospects as driver of growth and innovation as the UK recovers from the recession. It has found that, when understood from within the current context of recession and recovery, the UK creative industries are at a crossroads – they have the clear potential for explosive growth, and to play a major role in the development of innovation within the national innovation eco-system. However, their underlying volatility, and their relatively weak state immediately post-recession compared to the strategies of international competitors, mean they are at risk of failing to fulfil that potential.
111 A National Innovation System is the ‘eco-system’ of institutions, agencies, bodies, funding flows, technology and knowledge transfers, and channels, which supply a national economy with innovations. See Lundvall, B.-Å. (ed) (1992), National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning, London: Pinter 112 Brinkley, Ian. (2010) Innovation, Creativity and Entrepreneurship in 2020, The Work Foundation 113 Jaaniste, L. (2009) 'Placing the creative sector within innovation: The full gamut', Innovation: Management , Policy & Practice , 11 , No. 2, 215-29 114 Bakhshi, H. and Throsby, D. (2010) Culture of Innovation: an economic analysis of innovation in arts and culture organisations , London: NESTA, http://www.nesta.org.uk/library/documents/Culture_of_Innovation100610.pdf 115 Ramstad, Elise (2009) ‘Expanding innovation system and policy - an organisational perspective’, Policy Studies , Vol 30, No 5, pp533-53 116 Connell, David, and Probert, Jocelyn (2010) Exploding the Myths of UK Innovation Policy: How ‘Soft Companies’ and R&D Contracts for Customers Drive the Growth of the Hi-Tech Economy, UKIRC / EEDA, http://www.ukirc.ac.uk/object/report/3341/doc/full_report.pdf
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Section 5 Conclusions
5.1 For the ‘theory’ – re-visiting ‘Staying Ahead’ This report has looked back to the development of Staying Ahead in 2007, examined the effect of the recent recession, and looked at drivers of change in the creative industries between now and 2020. We are in a position to examine the relevance of the ideas and approach developed in Staying Ahead for the next ten years.
5.1.1 The model The Staying Ahead model of ‘spill-overs’ between elements of the creative industries remains a powerful tool for conceptualising important economic relationships – one that retains a useful flexibility to be deployed in many different contexts. 117 More recent research (reviewed in Section 3 ) has strengthened the evidence base for aspects of the theorised economic links within the model.
However, the current model represents spill-overs in such a way as to suggest that the primary ‘flow’ of value is outwards from the centre to the edges. But, as other models have shown, there are different ways to represent the process of the ‘spilling-over’ of expressive value. The value models of organisations such as Zynga or Karmarama – drawing on new value models in a digital economy – no longer fit in so readily to either the DCMS definitions of the thirteen creative industries, nor the concentric circles model.
A useful example is given in the recent EU Competitiveness paper.118 It charts the interdependencies in a creative industries supply chain of (primarily) service organisations in Denmark – see Figure 10 below. Its web of connections and over-lapping value-chains describe a more complex set of relationships than the Staying Ahead model.
Figure 10: Supply chain linkages between different creative industries in Denmark Note: the numbers represent the share of intermediate production in total production. Only higher-than-average supplier chain linkages are shown. Source: Danish Input-output table by price unit, supply, use, supplying industries
117 Cunningham, S. (2009) 'Trojan horse or Rorschach blot? Creative industries discourse around the world ', International Journal of Cultural Policy , 15 , No. 4, 375-86 118 EU Commission (2010) European Competitiveness Report 2010 – Commission Staff Work Document , Brussels, http://snipurl.com/eucompetitiveness
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Explicitly acknowledging within the model the ‘within band’ flows of expressive value, and the degree of ‘reverse’ flow from the outside to the inside of the model, maybe be more appropriate for analysing the more boundary-spanning innovative organisations which are emerging across the creative industries. Similarly, the Creative Trident method of categorising creative employment allows a more complex and nuanced picture to be painted when exploring the flows of expressive value.119 Combining it with an adjusted Staying Ahead model would provide a strong basis for the creative industries to conceptualise themselves in the coming decade.
These adjustments could be allied to a focus on further refining the evidence base for the model with clearer and more usable data to help policy-makers and the industry.120 This would help to address what Martin Smith for Arts and Business feels is the undervaluing of the arts and culture sector within the creative because of the lack of a truly reliable basis for assessing the contribution to GVA attributable to government investment in the arts and culture sector through the DCMS, the arts councils and other funding mechanisms’.121
5.1.2 The drivers Staying Ahead’s eight drivers of growth in the creative industries also all remain relevant for guiding growth in the creative industries to 2020. In some cases, they are more salient even than in 2007 – for example the drop off in private consumer demand, and public sector funding for the creative industries, the continued difficulties in reforming the intellectual property framework, and on-going an persistent skills gaps.
There are perhaps the two omissions from the current set of drivers which this report’s review of the current picture suggested should be added:
• Global competition: The need to take a more ‘outside-in’ view to the UK’s competitive environment in the creative industries: the drivers do not explicitly refer the changing international picture. The drivers focus on what is happening within the UK creative industries and don’t take sufficient account of the shifting the global balance of trade and business models. Viewing the creative industries as part of a national innovation eco-system would sharpen the focus on the role the creative industries are, and could be, playing internationally.
• Technology change: Technological change as an explicit driver of industry change and growth, as well as being a source of innovation. At a time when there is a strong focus on science in relation to technology and innovation, it is important to explicitly make the case for the role of the creative industries as a developer, exploiter, user and innovator in the area of technology. 122
119 Higgs, P. and Cunningham, S. (2007) ‘Australia’s Creative Economy: Mapping Methodologies. Technical Report.’ Brisbane: Centre of Excellence for Creative Industries and Innovation. 120 Bassett, Dale (ed) (2010) A Creative Recovery, London: Reform, http://www.reform.co.uk/LinkClick.aspx?fileticket=WJFgJ%2bNklDU%3d&tabid=118 121 Smith, Martin (2010) Arts Funding in a Cooler Climate, London: Arts and Business, http://www.artsandbusiness.org.uk/news/2010/july/arts-funding-in-a-cooler-climate.aspx 122 Council for Industry and Higher Education (2010) The Fuse: Igniting High Growth for Creative, Digital and Information Technology Industries in the UK , Creative, Digital and Information Technology Task Force, http://www.cihe.co.uk/wp-content/themes/cihe/document.php?file=1009TheFuse.pdf
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5.1.3 The sectors The DCMS 13 – as deployed in Staying Ahead – have provoked much discussion concerning whether they truly reflect either the coherence or the complexity of the underlying sectors. In general, it must be acknowledged the categorisation has served well enough to be adopted within many different international jurisdictions and to inform policy choices in disparate continents. Also, that the links of the model – which is based on the DCMS segmentation – should be repeatedly evidenced in empirical work also speaks in the DCMS 13’s favour.
However, some aspects do require revision. The most difficult sector to accommodate within the segmentation, both for practitioners and data analysis purposes, is ‘software’. The Technology Strategy Board’s 2009 visualisation of the creative industries gives a picture that clarifies some of the difficulties, particularly around that problematic ‘software’ category.123 They differentiate sectors by, firstly, the degree to which the industry’s output is digital or physical, and secondly by the role of technology in the creative process – see Figure 11 below.
Figure 11: Re-describing the UK creative industries. Source: the Technology Strategy Board
Dropping the over-arching ‘software’ category from the sector would be controversial, as it would probably sharply diminish the headline figures for the creative industries GVA and employment footprint. However, in terms of understanding the ways in which those more digital and technology-driven areas can draw on the creativity of the rest of the sector, this would be a more helpful tool.
Where we might take issue with the re-description is in the (probably unintended) suggestion that areas further up and further right on the model are somehow more important or closer to the cutting edge. While some of the broad descriptors are helpful, as we would expect with industry convergence, plenty of organisation break the mould – for example the strongly digital and technology-aided Labcraft project in the area of craft.124
The key elements of Staying Ahead remain relevant and important for supporting innovation and growth in the UK creative industries post-recession. However, each key element requires some adjustment to
123 Technology Strategy Board (2009) Creative Industries Technology Strategy 2009-2012 http://snipurl.com/1lxty5 124 http://www.opx.co.uk/work/project/lab-craft/
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account for the effects of a better evidence base, and the impact of both longer- and shorter-term economic trends. As a toolkit for working with and in the creative industries, with these adjustments they are ready to provide insight and support for the creative industries as drivers of growth and innovation within the UK’s knowledge economy.
5.2 The implications for UK policy This report has demonstrated that the UK creative industries are a powerful and exciting sector, with huge potential to play a central role in leading the UK out of recession. But it has also indicated that the UK creative industries have always had a degree of underlying fragility and volatility – something which has been exacerbated by the recession. While it remains comparatively strong to in international terms, it has reached this position from an exceptionally high starting point. We would argue that the UK creative industries are now at risk. Not immediate or catastrophic risk, but at risk of failing to fulfil their considerable potential, which is to continue on their world-beating path right through to 2020. This full growth potential of the UK creative industries will not be achieved automatically. We believe there is a strong role for coherent and co-ordinated policy action to ameliorate that risk. Since taking office in May, the government has a powerful story of deficit reduction, particularly with regard to the public sector, but now it looks to build a story of growth. For the creative industries, that story of growth requires support in three key areas, under which fall a number of policies, many of which are not creative industries-specific. They are, firstly, the competitive environment for the UK creative industries on a global stage, secondly, the role of the creative industries within a robust innovation eco- system, and finally, the avoidance of mixed messages and actions with regard to the creative industries.
The international competitive environment We believe that the government should pay greater attention to the eroding competitive position of the UK’s creative industries in relation to international competition. The highly-focused creative industries development strategies of several nations – particularly those in South East Asia who have hardly experienced recession – might be minor challengers to the UK today, but will be considerably tougher competition should their stated target trade and growth increases be achieved between now and 2020.
The government needs to improve its awareness and reaction to the fast-paced changes in relative international competitiveness in the creative industries. Formerly strong UK creative industries sectors like computer games have been particularly vulnerable to the UK’s shifting relative competitiveness, and other formerly robust sector could follow without prompt action.
While the government appears to have ruled out up-front tax breaks for specific sections of the creative industries with its reversal of the proposed tax cut for the games development industry, 125 we believe there are other routes to explore. One option would be to develop intellectual property policy and fiscal policy in tandem. The government has already shown it is open to this kind of tweaking of the competitive environment to encourage private investment – and maintain profits in the UK – with its proposed 10% rate ‘patent box’126
We believe that extending the ‘patent box’ to include ‘copyright’ intellectual property would provide strong incentives to maintain a greater proportion of returns from creative businesses in the UK, as well as attract international investment in new developments for creative goods and services.
125 http://spong.com/article/23222/Vaizey-No-Video-Games-Tax-Breaks-Consideration-for-Four-Years 126 http://blogs.wsj.com/source/2010/11/30/gsk-makes-use-of-governments-patent-box/
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A robust innovation eco-system The government should view the creative industries as a central part of a robust national innovation eco- system.
If the creative industries are consistently viewed as part of the broader innovation eco-system – part of a creative link between technologies, products and markets – then a number of broader policies which would benefit them become clearer. These would include strong support for faster broadband infrastructure127 – we welcome the government’s recent announcement of pilot areas for super-fast broadband – and net neutrality, as equal access effectively prioritises the smaller challenger businesses who drive job growth in the sector.
The other area which comes into focus when the creative industries are part of the innovation eco-system is investment in development – both of people and products – and research. The recent focus on Science, Technology, Engineering and Mathematics is likely to see the UK miss the chance to capitalise on its great strengths in the creative industries. 128 Investing in skills and people development will be central to realising the creative industries’ potential.
We also believe the government should increase its support for investment in creative industries research and technology innovation. That is what we believe that the government should commission one of the first generation of UK ‘technology and innovation centres’ (announced in the Comprehensive Spending Review) with a focus on supporting innovation in the creative industries.
Mixed messages? Recent announcements by the government clearly indicate their interest and attention on the creative industries. We welcome the inclusion of creative industries as specific area of focus in the recently- announced joint BIS / Treasury Growth Review 129 , and it is important that the prime minister explicitly noted the role of the creative industries in his speech on growth to the CBI conference.130 Other welcome moves include the retention of public infrastructure development bodies such as the Technology Strategy Board’s creative industries Knowledge Transfer Network.
However, we believe there is a danger that the creative industries is ‘always the bridesmaid…’; that is, although it is often invoked, there is a lack of follow through in a consistent across policy areas and the creative industries as a whole – from successive governments. Major initiatives such as the C&binet 131 and the former Creative Economy Programme seem to have rather withered on the vine. And the prioritisation of STEM subjects could signal to talented new entrants to the creative industries that the government does not see the creative industries as a real driver of growth.
We believe the government must provide consistent messages and policy to the industry, investors and potential new employees regarding its support of the UK creative industries as a growth sector.
127 http://www.guardian.co.uk/politics/2010/dec/06/extra-50m-superfast-broadband-uk-2015 128 e.g. http://www.guardian.co.uk/education/2009/jul/28/creative-industries-investment-university 129 http://www.bis.gov.uk/policies/growth/growth-review 130 Monday 25 October 2010, http://bit.ly/g4KoW5 131 C&binet was created by DCMS to foster international dialogue about the creative economy, with a focus on the four main themes: 1) access to finance for creative industries, 2) new business models for online content, 3) Developing talent and 4) securing creative rights. http://www.cabinetforum.org/
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Contact details
Prepared by:
Dr Benjamin Reid Programme Lead [email protected]
Alexandra Albert Researcher [email protected]
The Work Foundation is the leading independent authority on work and its future. It aims to improve the quality of working life and the effectiveness of organisations by equipping leaders, policymakers and opinion-formers with evidence, advice, new thinking and networks.
The Work Foundation is the trading name for Landec Ltd, a wholly-owned subsidiary of Lancaster University
First published: December 2010
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