Select Committee on Culture, Media and Sport Written Evidence

Memorandum submitted by NESTA

  NESTA, the National Endowment for Science, Technology and the Arts, welcomes the opportunity to respond to the Culture, Media and Sport's inquiry into new media and digital convergence.

  NESTA is working to increase the UK's capacity for innovation. We invest in all stages of the innovation process, backing new ideas and funding new ventures that stimulate entrepreneurship. We support the growth of the next generation of creative entrepreneurs through business training and professional development, awards and investments in start-up creative businesses and enterprise education for young people. During the past year we piloted schemes in business support to creative entrepreneurs in different regions, which we are now rolling out across parts of the UK. We are also beginning to have an impact on the curriculum for potential creative entrepreneurs at undergraduate level.

  We are in a unique position as both a funding practitioner and a contributor to public debate through our evidence-based policy programme. In April we are to publish our latest research into business growth in the creative industries. Our response to this inquiry draws on some of this material.

About NESTA and this Inquiry

  1.  NESTA aims to be the strongest single catalyst for innovation in the UK. Through a range of pioneering programmes, we invest at every stage of the innovation process. NESTA's work in the creative industries takes the form of business support and investment, network development and research. We are to publish new research into developing creative businesses in the next few weeks. In the last year NESTA has helped to launch over 50 new creative businesses and invested over £1 million in creative industries in the UK. (Annex A provides further information on NESTA's work to support the creative industries.)

  2.  This inquiry focuses on the challenges and opportunities for the creative industries arising from the development of new media platforms. NESTA's response, which draws on the forthcoming research, primarily addresses the first two issues of the inquiry regarding the impact upon creative industries of recent and future developments in digital convergence and media technology; and the effects of unauthorised reproduction and dissemination of creative content using new technology.

  3.  The key points of our submission are that

    —  The UK's creative industries need to be able to exploit and not be undermined by new media platforms.

    —  The policy framework should assist small content producers in both accessing consolidated distribution channels and in creating new routes to market, by providing information and advice.

    —  These innovations are necessary for the UK's creative industries to respond to the threat of stronger international competition and to exploit the increasingly global nature of these markets.

    —  The creative industries should be further supported in terms of business support and networking as a means of furthering commercial growth.


  4.  The UK retains many valuable advantages with regards to the creative industries. It has a wealth of creative talent, a sustained interest in the creative industries from national and regional policymakers, a strong reputation for education in creative subjects in higher education, and a range of well-known creative companies and brands. We now need to leverage these advantages to ensure that the UK maximises the economic potential of its creative businesses and focuses on developing world class creative businesses.

  5.  New technologies in the creation and distribution of creative products and services offer the creative industries massive opportunities for future growth. The UK's creative industries need to anticipate and exploit these developments. In particular, these new technologies open up many opportunities for UK creative businesses to counter and circumvent existing disadvantages in distribution.


  6.  For many creative businesses the commercial impulse appears to be just one motivation amongst many, and not always the most prominent one. Work undertaken by Skillset found that two thirds of independent television producers lacked a business plan, and 40% stated explicitly that their businesses are "not primarily about making money".[57]57

  7.  Associated with low-levels of business knowledge and planning are barriers in accessing finance because of lack of investor readiness. Another issue is that creative businesses can have trouble identifying value in their content and sufficiently protecting that value. Last year, contributors at NESTA discussion forums on growth in the creative industries said that lack of business skills meant they sometimes could not respond to the new structures emerging within the creative industries.


  8.  A challenge facing many creative enterprises is how to reach clients and customers when the principal routes to market are dominated by a small number of gatekeepers—retailers, publishers or distributors. Gatekeepers can shape the products that come to market and impose aggressive terms of trade on their suppliers.

    —  More than 80% of music sales in Europe are controlled by the four major labels.

    —  The eight largest book retailers have just under two thirds of the UK's overall book market.

    —  Six film distributors account for 87% of the UK's box office share.

    —  A quarter of the top-20 video games are released by just one publisher.

  9.  It can be difficult for small content producers to know how to access the industry oligopolies and so take advantage of new platforms. This is a key area where government intervention could support creative businesses, through schemes that assist them to get access to contracts with the gatekeepers. Support for creative businesses has tended to ignore the very real structural constraints that characterise these sectors. Another way to look at this is from a national perspective: it might not be such a cause for concern if more of the gatekeepers were British businesses generating more revenue for Britain.

  10.  However, the rise of digital communications has led to new ways in which businesses can interact, market and sell to customers and clients. In particular, businesses are starting to disrupt and by-pass the gatekeepers, and so transact directly without having to go through the existing distribution and sales channels.

  11.  For example, there is a massive growth in new non-retail distribution channels for games, the so-called "network games market", which includes mobile, digital television and PC platforms. This market is growing at more than seven times the rate of the traditional retail-based games market. By the end of 2005 the network games market is estimated to constitute 15% of total games software sales in the western markets (Europe and North America).[58]58

  12.  A new generation of publishing companies have emerged, with greatly diminished start-up costs. The Amazon platform and relationship with digital printers means that once a book is ordered it can be printed and delivered in seven to eight days. However, distribution is only part of the story: promoting book titles, getting reviews and coverage are all expensive, and it is difficult to compete with established publishers who have extensive marketing resources and relationships with retailers.

  13.  Independent films struggle to reach a small number of screens outside of major metropolitan areas. Part of the problem is the existing delivery mechanism: 35mm celluloid prints are expensive to produce and can discourage the distribution of specialist films. The UK Film Council is addressing this with its Digital Screen Network—a £12 million programme that enables existing cinemas to upgrade to digital exhibition facilities.

  14.  The Association of Independent Music (AIM) campaigns and negotiates on a number of issues facing independent music labels. Recently it has established AIM Digital to help its members better understand and benefit from new media. AIM's collective licensing deal has enabled independent labels to secure distribution deals and negotiate revenue shares with the major download sites.

  15.  Filmmakers in the North of England and Scotland are being encouraged to exploit the opportunities brought by mobile distribution platforms through Pocket Shorts. In this scheme, filmmakers, digital artists and animators can apply for production funds (provided by NESTA) to create short films for mobile phones. The production teams are partnered with a mentor, while workshops are held to give people a better understanding of what can be done with the medium.

  16.  Digital technologies are transforming creative production and increasingly how creative goods are sold and consumed. Business support should include routes to market, helping creative businesses with advice on how to take advantage of these opportunities.


  17.  It is important that creative entrepreneurs can exercise informed choice about how their content is used, understanding how to both protect and release rights to that content. For many creative enterprises it is not so much legislation that determines how effectively they can exploit IP, but rather knowledge and good business practice.

  18.  Own-It was established in 2004 to address the growing needs of creative enterprises as they attempt to understand and make the most of their intellectual property rights. Own-It works across the sector, advising freelances, entrepreneurs and small businesses on how to retain, defend, negotiate, value and exploit their intellectual property.

  19.  ACID (Anti Copying in Design) is a sector trade association combating plagiarism in the design and creative industries. It was established in 1996 by a group of designers, who were becoming increasingly concerned about copyright theft and its impact on small enterprises and sole traders. ACID works to raise levels of understanding and awareness among designers themselves, as well as providing access to legal services, lobbying for legislative protection, and pursuing and deterring infringers.

  20.  Another way to encourage informed choice in IP use, is to support enterprise education for young people. NESTA is engaged in creating a new generation of entrepreneurs for the UK, instilling drive and creativity at a young age. Enterprise education should include the exploitation of ideas and intellectual property. It not only helps creators to determine their needs, but can also educate consumers and deter piracy.

  21.  The retention and exploitation of IP can enable businesses to generate a wide range of different and scalable revenue streams. Some producers are managing to overcome the dominance of gatekeepers by developing innovative new approaches and business models, and there are opportunities for such models to be adopted more widely.

  22.  The lines between sectors in the industry are becoming increasingly blurred in some areas. Ideas are exploited across a range of platforms—film, TV, books, games and so forth. The intellectual property regime, and the wider regulatory environment, should respond to multi-platform issues. It may require a fundamental review of intellectual property rules, accounting for industry convergence. A fresh look at the issues could focus on how markets are structured and how the content is used. New business models should also focus on how we capture and extract wealth, such as selling a download as a product and looking at usage charges instead of ownership.

  23.  To ensure that the UK continues to innovate there may be better ways of making some content public in order to encourage innovators to add to and exploit that content. Creative Commons and the Adelphi Charter provide a middle ground between the extremes of copyright-control, and the uncontrolled exploitation, of intellectual property. They focus on using a range of copyright licences, freely available for public use, which allow creators to fine-tune control over their work, so enabling as wide a distribution as possible. The UK needs to be a frontrunner in terms of intellectual property reforms in order to enable our creative industries to have an international lead.

  24.  Much of the value of a creative enterprise lies in its intellectual property, and acquiring, defending and exploiting these rights is critical to its success. This presents important questions as to how enterprises can best be supported. In particular, these concern the most effective models for providing affordable access to intellectual property advice, and how intellectual property advice can be better integrated into mainstream business support, alongside finance, management and other business practices.


  25.  The UK's creative industries need to focus on commercialisation—innovating in terms of business models, access to and relationships with customers (including international customers), awareness and exploitation of intellectual property, strategic and fundamental business skills, and networking within their sectors and beyond.

  26.  Innovation in these areas will be necessary in order for the UK's creative industries to respond to stronger international competition and the increasingly global nature of these markets, cope with the inevitable uncertainties relating to the economic cycle and generate sustainable growth through these cycles, and exploit the structural developments in these industries and markets rather than suffer from them.

57   57 Skillset (2005), Independent Business Development Scheme, (Skillset, London). Back

58   58 Screen Digest/Entertainment and Leisure Software Publishers Association (2005), European Interactive Games-The 2005 State of the Industry Report, (Screen Digest/ELSPA, London). Back

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