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.
INTRODUCTION
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.
BUSINESS GROWTH
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.
ROUTES TO
MARKET
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.
INTELLECTUAL PROPERTY
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.
CONCLUSION
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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