Memorandum submitted by Ingenious Media
Group Plc
This submission is respectfully presented by
Ingenious Media plc ("Ingenious" or the "Group")
specifically in response to the inquiry into new media and the
creative industries (the "Inquiry") announced by the
Select Committee on Culture, Media and Sport (the "Committee")
on 16 November 2005.
Our submission comprises this narrative and
an appendix. Our comments track the paragraph headings set out
in the Committee's press release. The Appendix provides a background
to Ingenious, describing our activities in the creative industries
and the perspective from which our comments are made.
SUMMARY
1. The media sector
— important for UK, representing one
twelfth of economy;
— growing at 8% per year;
— attractive to investors as offers
higher returns than other sectors;
— UK leading centre of creative excellence;
— secure investment flows essential
to growing domestic industry;
— media is global business—UK
has opportunity to take significant share.
2. Impact of new technology
— creates greater choice and access
to content;
— content key element at heart of new
technology;
— driving sector structural change
and reorganisation;
— new revenue streams created;
— existing funding sources from content
declining;
— new funding models required;
— UK market opened up to competition
from overseas content.
3. Impact of piracy
— threat to growth and sustainability
of the sector;
— investors will move to other sectors
or countries;
— Government needs to support international
copyright protection and enforcement.
4. Need to regulate new media platforms
— regulatory changes impact flow of
investment;
— changes in rights owning in TV sector
encouraged new investment;
— changes to advertising funded programming
may be helpful;
— need to preserve market equality
between regulated and unregulated platforms.
5. Balance of consumer and creators rights
regarding BBC Creative Archive
— tension between consumers and producers
of demanded content drives pricing;
— BBC public access initiative—must
not be allowed to undermine rights protection;
— clear distinction must be maintained
between commercial rights and public domain.
6. Other matters for the Committee to consider
— need to attract more investment into
the sector to build robust creative economy;
— need to encourage creative management
to obtain better financial and business skills;
— consider whether extension of quotas
to other sub sectors workable;
— consider all factors which may further
encourage investment—tax, levies, grants.
7. Conclusions
— opportunity for UK to be world player
with strong commercial creative companies;
— investment essential, but impacted
by new technology and regulatory changes;
— need for creative companies to professionalise;
— threats from piracy and other growing
creative economies;
— international rights protection essential.
8. Ingenious Media plc
— leading UK media investment company;
— one of UK's fastest growing company
by profit and turnover;
— introduced £3 billion of new
capital to the sector since 1998;
— working with cream of British talent
across the sector, including film, TV, music, theatre, computer
games, live events;
— speaks as investor in the sector.
1. Introduction
The media industry is important to the UK, representing
one twelfth of the economy. Our country is internationally recognised
as being a centre of excellence for creative enterprise, generating
significant overseas revenues and raising the cultural identity
of Britain. Harry Potter, The Beatles, Elton John, Pop Idol,
Who Wants to be a Millionaire are just some examples of British
creativity that have achieved global success. And it is important
to emphasise that media is a global industry and that British
creative companies and talent have the potential to generate substantial
overseas income from the exploitation of their rights internationally.
The European entertainment sector is growing by 8% per year, faster
than the European economy overall and British companies have the
potential to take a significant share of this growth. 19 Entertainment
(a company invested in by Ingenious) devised the Pop Idol
show which has been and remains hugely popular with audiences
around the world. The US version, American Idol, airs on
the Fox network. Peter Chernin, CEO of Fox, stated recently that
American Idol was the principal reason in the turn around
in Fox's ratings, underlining both the power of successful content,
but also how British creative companies can have influence even
in the largest media market in the world.
Pop Idol travelled across the world:
1.1 Britain's reputation for creativity
has been enhanced by the speed at which new technology has been
adopted here—from digital television through uptake of broadband.
Currently Britain has more broadband connections than any other
European country, providing consumers with a new means of access
to creative content— from both domestic and international
sources. This has raised challenges and opportunities for the
providers of content, as old delivery methods decay and existing
commercial structures need amendment to cater for the new media
landscape. Government and regulators are also faced with questions
as to whether the changes taking place should stimulate more or
less intervention and if so, how the balance between commercial
and consumer interests is to be maintained.
1.2 Ingenious makes this submission to the
Committee from the viewpoint as an investor in the sector. We
are concerned to understand any factor that may encourage or discourage
successful investment in creative businesses—whether those
factors be the impact of new delivery technology, the enforcement
of copyright legislation or the impact of regulatory changes.
1.3 We strongly believe that Britain has
the opportunity to maintain and grow world class creative companies.
To achieve this, consistent investment is needed in the sector,
primarily from private and public markets. We believe changes
in technology are generating a real opportunity for content producers
in particular to emerge from their traditional fragmented, lifestyle
existence to successful international businesses.
1.4 Technological change and new investment
alone will not ensure this opportunity is taken. British creative
businesses need to professionalise, transforming themselves from
producers to rights owners, exploiting all of the new revenue
channels that are developing. The management of these companies
need to acquire financial and business skills in line with both
their counterparts in overseas markets, (for example the United
States) and in more established industry sectors.
1.5 Government and regulators also need
to ensure that this opportunity is not lost, either by allowing
copyright protection to reduce or imposing or removing regulation
which unbalances the operation of proper market forces within
the sector. Government also has a role in encouraging entrepreneurship
and business education for media managers in partnership with
the private sector.
2. What is the impact upon creative industries
of recent and future developments in digital convergence and media
technology?
New technology is dramatically changing the
way in which content is consumed and paid for. It is creating
structural change in the media sector, as existing players attempt
to transform themselves away from reliance on old delivery systems
to embrace new technologies, new entrants emerge as significant
forces in the market and new content consumption patterns develop.
Consumers are taking advantage of the flexibility new delivery
offers—enabling viewing at any time or on demand, editing
content to exclude advertising or storing content for viewing
at a future time ("time-shifting").
2.1 Content is King
At the heart of all this lies content. Content
is the fuel that powers the media engine. It is consumer demand
for better access to compelling content, through enhanced technology,
which is forcing established media conglomerates to adapt themselves
in order to maintain their market shares of consumer spending.
At the same time new companies are entering the market as providers
of delivery technology (such as broadband) or devices that can
play content via such delivery (laptop, mobile phones, iPods),
competing with the incumbent distributors and platforms for the
best content, be it music, television, games or film, to attract
consumers to spend their money utilising their systems. This has
made content the key ingredient—providing opportunities
for creators of quality content to leverage off this increased
demand. In this sense, "content is king" and creative
industry, the developers and producers of consumer demanded content,
are positioned to make significant gains from the changing media
environment. This is an opportunity for Britain because production
companies here have strong creative abilities.
2.2 Content can have a long tail, appealing
to new generations of consumers, for example the continual international
appeal of music by the Beatles or the tale of Peter Pan, but delivery
technology can commoditise, reducing in price as mass consumer
uptake occurs.
New technology is increasing the importance
and value of quality content.
2.3 New technology integral to the history of
the media sector
Creative industry has traditionally benefited
from new technology, generating greater access and choice for
consumers of content, whether it is William Caxton's printing
press or 3G mobile handsets. It has also enhanced content itself.
For example the creation of computer games has been intrinsically
linked to new technology, which is continuing to develop through
advanced games consoles such as Xbox 360 and on-line gaming, where
gamers can play against other gamers located all around the world.
2.4 For some industries, notably film and
music, the invention and mass adoption of new delivery methods,
from cassette and VHS to CD and DVD, has resulted in consumers
repurchasing old content, driving growth in consumer spending
on these formats. Satellite and cable delivery further enhanced
content choice for consumers, led by Sky and generating a proliferation
of TV channels all offering content, from general entertainment
to niche. This has developed further with DTT (Freeview), encouraging
further uptake of digital TV in British households.
2.5 New delivery mechanisms also transform
the ways revenue is generated—for example DVD, music downloads
onto iPod or MP3 Players and mobile phone downloads, all have
their own separate pricing models and methods. These revenues
are slow to grow at first, complementing but not substituting
revenues from existing carriers (for example old VHS tapes when
DVD was introduced), but ultimately replacing them as each system
obtains mass penetration in the consumer market.
2.6 The emergence of digital delivery, primarily
broadband and 3G mobile, is another cycle in this pattern of continual
technological change for the industry. This cycle is however distinct
because of the impact of the internet, enhanced by broadband.
Through this medium, consumers have themselves actively driven
change by utilising this technology to access content, for example
music, by file sharing, thereby focusing attention on the ability
of the internet to deliver content—but also the danger of
mass digital piracy.
2.7 Our view is that broadband delivery
of content will ultimately remove consumer's requirement for hard
carrier formats such as CD and DVD. Broadband uptake in the UK
has been one of the fastest internationally. This uptake will
continue to increase as the price of retail broadband continues
to decline and will be complemented by consumers purchasing higher
capacity delivery, as local loop unbundling allows ISPs to enhance
connections beyond standard (500b) to ranges up to 8mb and beyond.
These more powerful connections will enable consumers to enjoy
higher speed connectivity to content, replicating the example
of Korea, where higher capacity has driven mass on line games
participation. Speeds of 1mb, which is now becoming commonplace,
is sufficient to provide video capability over broadband.
The chart below shows projected broadband uptake
of European households to 2010:
2.8 A result of these developments is that
consumers can use their internet connections to access all forms
of content—music, film, games and television—either
through the use of their laptop and/or home computers or increasingly
in the future, through entertainment centres that can play all
content through broadband enabled delivery.
2.9 These exciting developments raise challenges
for commercial content businesses, Government and regulators alike.
New trading arrangements are needed to cater for on-line content
consumption, effective protection against digital piracy is required
and regulators struggle with the ability of consumers to access
all types of content from global, unregulated, sources.
2.10 Market reorganisation
The speed at which new generation mobile and
broadband delivery is being adopted by consumers is causing structural
changes in the sector, as existing companies either merge to maintain
market position, dispose of divisions representing obsolescent
technology or acquire other companies that allow them to enter
the new markets.
This can be illustrated as a cycle:
2.11 The newspapers are full of reports
of transactions evidencing this restructuring—the merger
of record companies Sony & BMG, Virgin mobile in acquisition
talks with cable operator NTL, ITV acquiring Friends Reunited,
Sky purchasing Easynet—all motivated by the fundamental
shifts in technology taking place. Broadband penetration of households
is growing at 20-35% per year, with 60,000 new subscribers every
week, with this means of delivery forecast to replace DVD as the
home entertainment system of choice for consumers. With 3G enabled
handsets now growing in number, as consumers upgrade their handsets
to new generation phones, demand for content delivered over this
system is growing. BT, a telecoms company, has also entered the
market, offering to provide broadband enabled Television services
through its new set top box. BT is announcing on a regular basis
that it has signed up new content and channels in an effort to
lure consumers to take its new service.
2.12 For the producers and owners of content
therefore, new technology—new delivery systems and new devices
enhance the potential for them to scale their businesses by enabling
them to exploit rights over a wider number of consumer access
points. System providers recognise the need to have demanded content
that will drive consumers to choose their platform, so competition
grows to acquire the best programming or creative content. 24
hours, a popular US show, was marketed by Sky to attract new
subscribers to the Sky platform on the basis that 24 hours
could only been seen on their platform—in other words,
demanded, compelling content being used to obtain consumer uptake
of a delivery technology.
2.13 Multiple exploitation opportunities
As each new technology has arrived in the market
place, the relevant business models of the creative industries
has had to develop to recognise the new "rights windows"
thereby created, to set the appropriate terms for exploitation
and monetisation of content rights and to ensure that such rights
are capable of protection from piracy or counterfeiting.
Each new device or system introduced potentially
creates a new window of rights exploitation for content creators.
When only linear TV, analogue radio and CD was available, the
producers of a show such as Pop Idol (owned by 19 Entertainment,
a company in which Ingenious invested) would try to obtain deals
with the respective broadcasters or distributors over these three
outlets.
But because technology has advanced, multiple
devices were available to exploit the show—or aspects of
it (music, clips, games), generating the opportunity to conclude
multiple platform deals both here and internationally.
2.14 Originally a talent show on ITV, Pop
Idol was produced in multiple territories worldwide, including
the hugely successful American Idol version on US TV, generating
revenues from merchandising, computer games, mobile downloads
and recording income from best selling artists discovered by the
show such as Will Young.
2.15 In the same way, a property like Harry
Potter grew from its original exploitation as a bestselling
book worldwide, to additional significant international exploitation
as films, merchandising, computer games, entertaining children
and adults alike across the world.
2.16 Because of the power of compelling
content, new technology is an opportunity to enhance exploitation
of rights, but it does not necessarily mean that the content owner
must own or control it.
2.17 Mark Thompson, Director General of
the BBC summed this up accurately when he said the BBC is contemplating:
"a migration from an organisation you associate
with TV and radio to an organisation which produces lots of content
which we get out to people on lots of different platforms and
devices. Ultimately the internet's going to be the most important
medium we operate in and it's going to be an important way of
delivering TV and radio. It already is ... The BBC's had an extraordinary
ability to reinvent itself repeatedly. It's a time when it needs
to change again." (The Observer, 8 January, 2006).
2.18 However, in some cases the number of
windows available for the exploitation of rights may ultimately
decrease where particular devices or technologies concentrate
consumption of content.
2.19 In the film industry, the original
model was for cinematic release, but new "windows" of
exploitation started to multiply, including VHS (and subsequently
DVD), pay television and free to air, in each case providing the
content owner with differentiated opportunities to separately
price the content for each window. Consumers wishing to see "first
run" films would go to its cinema release—those less
concerned about seeing the film first cycle might wait up to two
years before the film aired on free to air TV, having completed
its cycle through VHS/DVD and pay TV. But the impact of new technology
has been to shorten the timing between different exploitation
windows (so for example there is now a move to release films cinematically
and in DVD format at the same time). In addition, the film industry
may concentrate into two windows only—cinematic and video
on demand over broadband, with all other windows disappearing,
but so far the trends are difficult to read. In 2005 US box office
was down 7%, but in Korea (a highly developed market regarding
Broadband) box office was up 4%. Clearly, it is too early yet
to draw conclusions on the sustainability of cinema release as
a window.
2.20 New revenue streams—new funding methods
2.21 So as new devices and delivery systems
appear in the market, new revenue streams become available for
content. Worldwide mobile content revenues alone are forecast
to rise from $8 billion in 2004 to $35.3 billion in 2008 (source:
Strategy Analytics) and broadband delivered TV content from £10
billion in 2005 to £15.8 billion in 2012 (source: Spectrum).
Internet music sales exceeded $1 billion for the first time in
2005, accounting for 6% of world record sales. This was four times
the figure for 2004 (source: IFPI).
2.22 The dramatic forecast growth in revenues
over broadband and 3G can be illustrated below, showing our illustrative
estimate of the growth from 2004 as a base year:
2.23 But it is not all good news for content
producers, as they may not be currently positioned either to access
the new consumer revenues (because they cannot get their content
onto a mobile platform for example) or because they are reliant
on funding from broadcasters or majors to make their content,
and those companies themselves are being financially impacted
by new technology.
2.24 Traditionally the media sector has
generated revenue from two principal sources—consumer spending
and advertising. Consumer spending is now the most important component
in global revenues:
2.25 TV and radio broadcasters have derived
their profits from the amount of advertising time they can sell
in their programming, in turn utilising this to fund the production
or acquisition of creative content. But the impact of new technology,
both the internet and devices such as PVRs (personal video recorders),
has had a dramatic effect on the ability of advertisers to reach
audiences through these platforms. This is because viewers are
either utilising PVRs to cut out or skip advertising or are consuming
media content through non-traditional means such as the internet.
In the last quarter of 2005, internet advertising was the largest
constituent of ad spend, higher than TV and newspapers.
2.26 This has resulted in the level of advertising
spend on traditional platforms—newspapers, TV and radio,
declining sharply. Consequently, these traditional funding sources
of content have less money available to fund content producers.
In addition, subscriber revenue from TV has now surpassed advertising
revenue in Western Europe, again highlighting the importance of
consumer spending.
2.27 This gives a commercial imperative
to creative businesses to innovate not just in their content,
but in the manner in which they finance their production and monetise
their rights. This requires new commercial and pricing structures
to be evolved, as producers or content owners negotiate with companies
who themselves are emerging as a direct result of technological
advances—mobile phone operators, ISPs and IPTV (TV over
broadband) operators. These structures will develop as consumer
usage grows, primarily led by the method of delivery (3G or DSL),
the player or device used (mobile, iPod, laptop, games console,
TV) and the packaging of the content (download, stream, clip).
Once again we believe that "archive" or catalogue content
will be repurchased by consumers, through DSL delivered video
on demand services, digital downloads of music, film or television
programming, enabling consumers to store content on hard drives
and to dispose of existing carriers such as CDs, DVDs and video
recorders. However, this may not replicate the impact of CD or
DVD, to the extent consumers uplink existing content on CD, DVD
to new players such as MP3 or laptops.
2.28 The emergence of these new revenues
have prompted rights owners to seek a direct participation in
consumer spend—for example revenue sharing arrangements
between mobile phone operators and content providers, where the
content owner receives a percentage of all fees generated by his
content being downloaded. Consumers are paying for content through
different means for example as charges on their phone bill or
through credit card transactions on the internet and content owners
need to devise appropriate systems for accessing or participating
in this spend.
2.29 On-line, interactive advertising is
generating new funding and revenue, particularly in the games
sector, by providing advertisers with a new, precise route to
consumers, as well as generating new revenue for developers. On-line
games are now being created within which advertisers can place
real time advertising (for example in a racing game having interactive
advertising screens around the virtual track). This enables the
developer to monetise his potential ad inventory in the game,
providing either additional production funding or profit on the
game. At the same time, advertisers are attracted to this mode
of advertising as the technology allows them to track how often
their advertising is viewed, when and by whom, allowing them to
tailor more effective campaigns for their brand clients.
2.30 Nevertheless, it is also our opinion
that in some areas of the creative industries, the impact of new
digital technology will create a stronger need for independent
sources of capital, as the major conglomerates (such as TV broadcasters)
find that they are less able to fund production due to falling
advertising. In addition, larger content producers may need to
convert themselves from producers to rights owners, establishing
direct consumer interfaces for the first time, moving away from
traditional routes such as through a broadcaster or major record
company. Revenues through this approach are unlikely to substitute
those available through traditional exploitation on TV for some
time, but will again emphasise the need for producers to either
self finance content creation or access other sources, as the
traditional "majors" decline in importance.
2.31 New technology should also help creative
companies reduce the costs of producing film, TV and music, although
in games, the costs of production are escalating.
2.32 All of these developments encourage
investors to believe that there will be opportunities to make
successful investments. However they are also concerned by the
extent to which new technology is used by consumers to circumvent
payment, depriving the producer of the ability for him and his
investors to recoup the cost of producing such or of making a
profit.
3. What are the effects upon the various creative
industries of unauthorised reproduction and dissemination of creative
content, particularly using new technology; and what steps can
or should be taken—using new technology, statutory protection
or other means—to protect creators?
3.1 Piracy and unauthorised reproduction
has always been present in creative work, whether by the unauthorised
copying of a book or the counterfeiting of CDs or DVDs through
to today's file sharing on the web.
3.2 We see this as a major threat to the
stimulation of a robust creative economy, as it removes from creative
businesses the ability to monetise and collect revenue from their
content, discouraging investment and stifling opportunities for
these companies to emerge as substantial businesses.
3.3 The impact of piracy on the music industry
has been well reported, as consumers used the internet to access
music without paying, undermining investor confidence in the business
as profits were impacted by lost sales to the record companies.
In the US alone, CD album sales fell from $14 billion in 2000
to $11 billion in 2004, principally as a result of on-line piracy.
3.4 This threat of digital piracy affects
many of the sub-sectors of the industry that we look to invest
in, primarily film, television, games and music. Illegal downloading
of films is already growing. Out of 44 million European broadband
subscribers it is estimated that 75% uses a peer to peer network
each month, enabling illegal transfer and downloading of films.
The British Video Association estimates that 50,000 people a week
in the UK are downloading TV programming over broadband—and
this number is growing.
3.5 We do not comment on whether specific
new legislation or regulation is required, but we emphasise that
Government has an important role in ensuring that copyright protection
is recognised and enforceable internationally and that legislation
is kept updated to reflect technological advances.
3.6 As importantly, Government has a role
in encouraging positive consumer attitudes to copyright and the
benefits this provides for our economy.
4. What is the extent to which a regulatory
environment should be applied to creative content accessed using
non-traditional media platforms?
4.1 We make no specific recommendations
as to the regulation of content on new delivery platforms, but
we recognise that this is presenting challenges both for Government
and regulators, as well as investors and commercial enterprise.
Our view as an investor is that the market should decide and regulation
should only be introduced to rectify market failure.
4.2 As we indicate above, new technologies
are revolutionising the manner in which content is funded and
paid for—as well as migrating consumers onto new delivery
devices such as mobile and laptop. Regulation will need to keep
up with these developments. The BBC license fee is already being
extended, we understand, to catch TV broadcast over mobile, but
there maybe difficulties in differentiating "viewers"
on the internet if they are accessing programming on demand, in
a similar way to the purchase of DVDs for example. In addition,
funding incentive for films that may require a "theatrical
release" could have to change if film concentrates to a VOD
delivery only format.
4.3 We would though like to note that regulation
can have a significant impact on the availability of capital in
the sector. The changes to rights ownership in the TV production
industry as a result of the Communications Act is a good example.
4.4 Prior to this legislation, independent
production companies surrendered all rights in their programming
to a commissioning broadcaster, normally in return for a production
fee. This meant that these companies were wholly reliant on financing
by the broadcaster and were not building any value, as the worldwide
rights in successful shows were owned by, and were exploited by,
the broadcaster.
4.5 The ability of independents to retain
international and second window rights has had a dramatic effect
on encouraging private investment. This is both because the independents
now can separately exploit these rights, but also because new
technologies are providing additional opportunities for them to
monetise this content (eg mobile phone clips, DVD, download over
broadband). It has transformed these companies from producers
to rights owners. Ultimately, some of these companies may become
consumer facing, using broadband for example to create direct
relationships with their viewers, by supplying programming directly
under their own brands.
4.6 Ingenious has been central to generating
new investment into the independent sector and the creation of
merged "super-Indies", which have taken advantage of
the new rights regime to attract finance and scale their businesses.
Ingenious advised Talkback in its sale to Pearson, Hat
Trick in its financing by Kleinwort private equity and Shed
Productions and RDF Media in their listing on the AIM
market last year.
4.7 These changes in rights ownership are
driving increases in revenues for the independent sector, with
revenues for the sector forecast to rise from £780 million
in 2004 to £1.5 billion by 2014. But as importantly they
encourage "British" production, both production that
can have international appeal and commercial returns.
4.8 Both the independent quota and the BBC's
window of creative opportunity are benefiting the growth of the
independent sector and give investors comfort as to the sustainability
and scaleability of these businesses.
4.9 Additionally, we strongly support the
review of regulation of ad funding in programme making. As we
note above, creative companies will need to access other sources
of funding to fund their production and the market should be allowed
to provide this. We believe that regulation should be relaxed
in this area, subject to the presence of ad funding being properly
disclosed to viewers.
4.10 Finally we would note that regulation
should not be allowed to generate uneven competition between existing
technology and new technology, the debate regarding TV versus
internet broadcast regulation being in point.
5. Where should the balance lie between the
rights of creators and the expectations of consumers in the context
of the BBC's creative archive and other developments?
5.1 We recognise that the BBC Creative Archive
is an initiative by a public broadcaster to encourage innovation
and creativity within the nation. However, this must not be taken
as a benchmark or precedent for the exploitation of rights generally
within the commercial sector and copyright must continue to be
enforced.
5.2 We also see that the new delivery technologies
will encourage new creativity, as individuals create content to
be made available on broadband or mobile. In some cases, this
content is already generating revenue, for example mobile phone
operators paying a small share of revenues for the most frequently
downloaded public submissions on their public access area.
5.3 We are concerned, however, that initiatives
such as the Creative Archive, will encourage consumers to expect
that content delivered on broadband should be for free.
5.4 Ultimately, if we are to have a strong,
commercial, creative industry, consumers cannot expect rights
produced commercially to be available to them for free. Should
this occur, our creative economy will be damaged, as investors
will seek safer homes for their money than the media sector.
6. Other matters we think the committee should
take into account
6.1 New technology is raising many challenges
and opportunities for the commercial sector, investors, government,
regulators and consumers.
6.2 However, in addition to the questions
raised above, we think serious consideration needs to be given
to how investment into the sector is further encouraged and how
professionalisation of creative management can be accelerated.
In our view there is a need to increase the amount of investment
available to support the growth of creative companies, as the
traditional sources of investment capital, the major conglomerates,
decline.
6.3 As important is how Britain can maintain
and grow its domestic creative economy, given that the reduction
in barriers to entry, both through technology and regulation,
are enabling overseas companies to access the UK consumer.
6.4 We think that the market alone may not
be sufficient to either safeguard our creative economy, or to
create conditions that will attract more investment. We think
there may be a case for examining whether quotas for other types
of content should be considered—for example games, music
and film, reflecting the example of the TV production sector,
and whether these would stimulate the establishment of scaleable
businesses in those sectors of the creative economy. This would
not just influence investors, but may have cultural benefits.
6.5 In addition, all factors which might
impact upon or encourage more investment should be looked at,
including the effect of tax, levies and grants. What is clear
is that there remains a "gap" for early stage creative
companies, ie those seeking to raise under £2 million of
capital. Ingenious has addressed this through the launch of its
VCTs for the music sector and also the launch of Ingenious Media
Active Capital, which will concentrate predominantly on unlisted
UK progressive media companies. However, for those companies just
starting up, sometimes needing sub £1 million finance, access
to this capital is very hard to come by. Without adequate "seed"
capital, young media entrepreneurs will be held back from establishing
their companies. Ingenious supports a discussion with Government
and private finance to address this gap.
6.6 Creative companies also need to help
by obtaining better business and financial skills, to enable them
to attract investment and compete in the global market place.
6.7 We would be willing to work with the
Committee to further explore these issues and potential recommendations
or solutions.
7. Conclusions
7.1 The views of Ingenious are based upon
the needs of investors. To the extent that de-regulation or the
creation of public domain access for rights damages the marketability
and valuation of rights overall, this will be substantially detrimental
to the availability of development finance for creative companies.
7.2 This ultimately will be damaging to
the UK economy, because our creative industries have worldwide
recognition and the ability to earn revenues globally from the
rights generated. There is an opportunity to build our creative
industries further by attracting capital into the sector based
upon the growth in consumer spending on media, driven by new digital
delivery of content.
7.3 If however the value of rights is undermined
by consumers being led to believe that all rights in content should
be for free, then investors will leave the sector and identify
safer sectors to invest in. We believe that protection of rights
is technology neutral. It is irrelevant what delivery technology
is utilised, rights must still be paid for.
7.4 Unless this principle is maintained,
and creative owners are able to monetise their content effectively
and make a market for their products, our creative industries
will suffer because:
(a) investors will be frightened away and
will look for other sectors/countries to invest in;
(b) British creative talent will migrate
to those locations or territories in which they will be paid for
their works;
(c) Britain will cease to be an important
world hub for creative excellence, resulting in a lowering of
our cultural profile internationally;
(d) employment opportunities in a sector
which is rapidly developing within our economy—as well as
internationally—will decline; and
(e) tax revenues in the form of income and
sales taxes generated off growing consumer spending on media will
no longer be available to Government.
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