The Growth Review and the creative industries

by Caroline_Norbury on 31-Jan-11 10:30

Several business leaders in the creative industries have called for the need for a national strategy for the sector.  Despite the often quoted statistics* about the strength of creative businesses in the UK, I must confess to always feeling slight unease within audiences when I quote them (see figures below).  There’s a sense that the figures are not quite believable and that the creative industries isn’t really a “proper” industrial sector.
 
It’s heartening to see therefore, that the Government is seeking to change this and that those most proper of all departments, HM Treasury and the Department for Business, are reviewing the role of creative and digital industries within the Growth Review.  This Review is focusing on two areas – how government can address barriers to growth in sectors with the potential to expand and structural reform within the broader legislative, financial, competition and planning environment.

What does this mean in practice though for a sector that is constantly changing, where businesses are often multi-disciplinary, where many of the players fall below the radar of official statistics and whose activity spills over into other sectors whose value is easier to calculate?   There is often a definition problem – what businesses exactly are we talking about, what should we be counting and how should we be measuring value?  Maybe it is not just a problem with definitions; perhaps we’re also using the wrong language.
 
I contend that businesses, organisations and individuals working in the creative industries are defined as much by their behaviours and characteristics as they are by the products and services they produce. The expansion of pervasive media, the low cost of entry into the digital space and the propensity to co-produce, self-distribute and promote via social networks are all characteristics that have been common for those working in creative and culture businesses and less so in the corporate sphere.  However, we now see the language of partnership, co-development, co-creation and distributed value chains making its way into big business as the corporate world tries to understand how it can harness these emerging trends to create value and profit.

The problems many creative businesses suffer from are similar to those in other more traditional sectors – they need good transport links, fast broadband access and a skilled workforce – no difference here with aerospace, manufacturing or financial services.  However, because they are predominantly SMEs and micro-businesses they are generally under-capitalised; IP protection is paramount, but difficult, whilst the exploitation of IP hard to maximise.  Talent retention outside London is tough; access to finance is challenging and international competition difficult particularly in industries such as TV and Games where there are significant tax benefits overseas.

What can government do to change this and why should businesses in the creative industries have ‘special treatment’?  ‘Special treatment’ is a loaded term and not one I would use.  What is required, however, is a cultural shift within government policy and we need this cultural shift to feed its way into day to day business.  Here are a couple of suggestions.

We have to engender a culture of valuing creativity.  How many businesses would be prepared to work for free?  Yet if you are a designer it is generally expected that you will turn up to prospective clients with ideas already worked up for them.  Why is it acceptable to pay a lawyer or an accountant an hourly rate for their advice, but not pay a creative company or practitioner for their ideas?

We have to invest in ideas because they create value.  Few economists or industrialists would dispute the importance of R&D – but most creative SME’s are debt-financed start-ups, working on a project by project basis.  They do not have a line in their budget for R&D.  A national programme which made available small amounts of proof of concept and seed-corn funding  specifically for creative and digital businesses, could provide a test-bed environment for new products and services.  There have been small pilot programmes throughout the UK – led by NESTA and the regional screen agencies among others, but notably no national programme of significance.

Most importantly we have to improve access to finance for creative SMEs.  Many creative businesses operate in a knowledge vacuum, unaware what their options might be or how to access available money. Many see bank loans or more usually, their own savings and debt, as the first option and have little knowledge about equity finance.  Furthermore, they often do not have a direct route to the market and are part of a complex value chain.  They don’t know how to connect with corporates, how to create scale and how to protect their IP.  This makes it difficult for them to assess the full value potential of their product or service.  Finally they are dealing with an investment community that still holds memories of the dot.com crash and who view these businesses as “lifestyle”, run by non-business professionals, with no protectable IP which is difficult to value and hard to market.

I have four modest suggestions to address the problems with access to finance:

• Increase and improve investment-readiness advice and support.  Engage business to business mentors and ensure that business advice is available that will specifically address the core issues preventing investors taking a second look at many creative businesses.
• Educate the financial community.  Improve information about successful creative businesses; promote and publicise those case studies which demonstrate models of success.
• Change the model.  Engage the creative community in looking at new ways to address the problem of under-capitalisation and lack of investment.  Explore opportunities such as peer-to-peer lending, micro finance and involve the financial community alongside. 
• Adapt existing government incentives, such as the Enterprise Investment Scheme and the R&D tax credit, and ‘creative industries-proof’ them. 

It is government’s job to create the best conditions for growth and prosperity – economic, social and cultural.  It does this by promoting competition, ensuring markets function properly and intervening when there is a market failure.  My hope is that the Growth Review takes account of the cultural change that is driving emerging trends and that it factors this in to its plans to improve the prospects of the wider economy.

We are all producers, creators and distributors now. Trends such as gamification (the use of game play in a non-game environment), the desire for higher levels of experiential value and personalisation coupled with the prevalence of ubiquitous media technologies, tools and applications can only increase the appetite for more products and services from this sector.  It’s not neat, it’s not easy to count and it’s not easy to show how money will be made, but it’s managing to grow much more quickly than many of those sectors we understand and can count, so maybe we ought to take note and adapt our industrial policy accordingly.

These are the most recent DCMS statistics for the Creative Industries, published December 2010:

• creative industries contributed 5.6% of the UK’s Gross Value Added in 2008 
• exports of services by the creative industries totalled £17.3 billion in 2008, equalling 4.1% of all goods and services exported 
• there were an estimated 182,100 businesses in the creative industries on the Inter-Departmental Business Register (IDBR) in 2010, this represents 8.7% of all companies on the IDBR 
• software and electronic publishing make the biggest contribution to GVA of the creative industries, at 2.5% in 2008. They also make up a large number of total creative firms (81,700). 

Tagged:Caroline Norbury, Growth Review, Creative Industries

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