Memorandum submitted by the National Endowment
for Science, Technology and the Arts (NESTA)
Why is NESTA responding and who does it represent?
1. NESTA, the National Endowment for Science,
Technology and the Arts, is working to transform 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.
2. We act as a catalyst for UK innovation.
Our partnerships and networks broker ideas across sectors, accelerating
the process of innovation. Our pioneering models of investment
are being adopted by organisations throughout the UK. Our strong
evidence base helps to influence policy.
3. Underpinning our work is the fundamental
view that successful innovation fuels long-term economic and social
progress in the UK. It's an essential ingredient of our competitive
edge in the global marketplace.
4. We have recently published a report,
Creating GrowthHow the UK can develop world class creative
businesses, which highlights the massive opportunities that
exist for our creative industries in a global market, but also
notes the vulnerability of the sector in the face of international
5. In response to the Committee's inquiry,
we would like to highlight the relevant key findings from this
research, focusing on our recommendations to support the growth
and global competitiveness of UK's creative businesses.
The UK's creative industries in a global economy
The UK has a wealth of creative talent and the
creative industries represent a significant part of our economy.
In the past 10 years, UK policymakers have led the world in recognising
and supporting the creative industries, and these sectors have
been seen as some of the success stories of the economy. A growing
international market is there to be won by creative businesses
that are willing able to innovate. Some UK businesses are already
exploiting these opportunities, but others need more help to do
so. The UK's creative businesses have the potential for outstanding
success, but a renewed approach to policy, one which focuses on
business growth, is needed in order to ensure the future success
of these sectors in an increasingly competitive international
environment. We need to grow more world class creative businesses,
resolve issues relating to distribution and access to markets,
and encourage more creative businesses to innovate.
Our Key Recommendation
6. Creativity is key to the knowledge economy
and to ensuring that the UK is more globally competitive. UK policymakers,
trade associations and other relevant parties need to identify
key commercial objectives for each sector of the creative industries
for the next 10 years, and consider what these objectives will
require from related policy areas, such as education and skills,
and science and technology research and development.
7. This response highlights some of the
key findings made in our report, Creating Growthhow
the UK can develop world class creative businesses, published
in April 2006:
The UK's creative industries are
facing increasing international competition.
These challenges are balanced with
More creative businesses need to
prioritise commercial growth.
The UK needs a more coordinated agenda
for the creative industries.
8. For each of the above, this response
discusses the issue, its relevance and provides specific recommendations.
THE 10 YEARS"
The UK's creative industries are facing increasing
9. Creative businesses and policymakers
need to appreciate the scale of the competitive challenges now
facing the sectors in the UK. From film production to design,
new international centres for creative business are developing
rapidly and underpinning the importance of globalisation to UK
creative industries. These are challenging established businesses,
including those based in the UK. UK television exports have fallen
for the second year running (despite an overall increase since
1998). In design, overseas earnings have halved since 2001, while
the value of exports in music, the visual and performing arts
in 2003 was down 20% from 2000.
10. International competition and approaches
to globalisation are being supported and driven by policies that
are often more ambitious and more focused than those in the UK.
These policies have a greater focus on commercial value (especially
from content industries), an emphasis on cross-sectoral working
(within and beyond the creative industries), and a desire to identify
and exploit emerging opportunities (including export markets).
For example, in Singapore the Creative Industries Development
Strategy in 2002 identified the creative industries as one of
three priority areas of the "service economy" for the
development of a more entrepreneurial and globalised economy.
This includes an explicit objective to double the contribution
of the creative industries to GDP, to a level comparable to the
US and the UK. Industry-specific blueprints have been formulated
within this overall strategy, including for design and media.
Similarly aggressive strategies are apparent in France (for the
games sector), in South Korea (for digital cultural content and
media). The political context may be very different in these countries,
but approaches such as these will increasingly inform the competition
faced by UK creative businesses in the international market. There
should be no room for complacency among policymakers or in the
creative industries themselves.
These challenges are balanced with significant
11. On one measure the creative industries
constitute a larger part of the economy and employ more people
than the financial services sector. The most recent estimates
suggest that the creative industries account for 8% of the UK
economya total of £56.5 billion. Exports by the creative
industries contributed £11.6 billion to the UK's balance
of trade in 2003. The UK has led the world in terms of developing
the creative industries as a focus for policy, and there has been
a rapid growth in initiatives across the UK to support the development
of creative businesses.
12. The global market value of the creative
industries increased from $831 billion in 2000 to $1.3 trillion
in 2005. For example, global revenues from cinema admissions amount
to $25 billion, the same size as the market for computer and video
games. Similarly, the world market for mobile music is expected
to reach $6.4 billion by 2009.
13. Globalisation raises a number of challenges
for policymakers to ensure that the UK continues to develop world
class businesses in the creative industries. It is vital that
these businesses have international reach and the ability to operate
strategically within international markets. Globalisation by definition
also ensures that there will be increased competition in our home
markets. This competition is being driven by ambitious and commercially
focussed policies and strategies that have been developed in other
countries. We recommend that UK policymakers, be they Whitehall
based or in the creative sectors themselves, should likewise review
their policy strategies. We also recommend that business support
and other support organisations such as the British Chambers of
Commerce must build on strengthening the ability of UK businesses
to reach external markets and consolidate their position within
them. Specific suggestions regarding these are provided in the
More creative businesses need to prioritise commercial
14. Three key issues need to be addressed
across the UK's creative industries:
the lack of scale of most businesses;
difficulties in accessing markets;
a lack of innovation to cope with
and exploit structural changes in these industries.
15. (i) Many creative owner-managers
take an "organic" approach to the growth of their businesses,
by adding slowly to their customers and clients through the distinctiveness
of their creative work. However, the purpose of creative business
is to harness and exploit creativity in a commercial context and
for commercial ends. Creative businesses in the UK need a greater
awareness of business strategy skills and related core skills
such as financial planning.
16. More of these businesses need to grow
into world class businesses that achieve significant international
success and reach. Too many UK creative businesses have been unable
to respond effectively and on a scale that ensures their survival
and continued growth in the face of international competition.
Policy and support initiatives across the UK need to include a
stronger focus on how these types of businesses might be developed.
This is not about picking winners. Rather, it is about being more
responsive to the actual needs and ambitions of individual creative
businesses, some of which do have a strong focus on achieving
high growth and international reach.
17. To face the challenges that globalisation
brings to the creative industries business support services need
to focus more on core skills, such as business strategy, financial
planning and marketing. Such services will need to understand
the motivations of creative entrepreneurs and present business
skills in a language and in a form that they will respond to.
Equally, the creative industries need to understand the importance
of having these skills particularly in the context of the opportunities
that globalisation brings. Furthermore, given the range of the
support that is available, organisations such as NESTA should
act as accessible gateways for creative businesses that are looking
for public investment, support and development, and opportunities
18. We would also recommend that a distinct
system of targeted support for businesses with high growth potential
should be developed. This could include the development of Creative
Accelerator Funds across the UK to invest in and support these
creative businesses. Organisations such as NESTA could help to
develop, pilot and evaluate new approaches to investment, support
and business development in the creative industries, especially
for those businesses with high growth potential.
19. (ii) In one survey commissioned
by NESTA, the most commonly identified barrier to growth for creative
businesses was difficulty in accessing customers. Throughout the
creative industries, the primary routes to domestic and foreign
markets can be dominated by a few large "gatekeepers",
including retailers, publishers, and distributors. In several
cases these gatekeepers operate across sectors, and many are foreign-owned.
Success frequently depends on securing an agreement with a gatekeeper,
who can hold much of the leverage in a deal, resulting in many
transactions which may disproportionately favour the gatekeeper
over the creator. This structure can impose severe challenges
on creative businesses, particularly start-ups and SMES, in terms
of accessing and developing their routes to customers and global
markets. In addition to stifling growth, the unfavourable terms
imposed upon creators also reduces their incentive to explore
new markets or develop innovative products.
20. For example, in a recent NESTA report
on commercial challenges within the Creative Industries, it was
noted that more than 80% of music sales in Europe are controlled
by the four major music labels. The eight largest book retailers
have just under two thirds of the UK's overall book market. Within
the film industry, six distributors account for 87% of the UK's
box office share.
21. If UK creative firms are to take advantage
of the opportunities provided by globalisation, they must have
access to the established and emerging global markets. They must
also be armed with the skills, knowledge, and contacts necessary
to successfully incorporate foreign targets into their business
strategy and product or service development. UK firms need to
be "born global", with foreign markets and sources of
capital integrated into their strategy from the outset. Global
success will require a more thorough understanding of the customers,
needs, and culture of target markets.
22. The government should conduct a competitive
review of the distribution and retail elements of the creative
industries, particularly with regards to the ability for UK creative
SMEs to gain access to foreign markets on favourable terms.
23. The government should explore public
support for the development of stronger, potentially state-supported,
international distribution entities and networks in those sectors
where a lack of scale has seriously disadvantaged UK creative
businesses in accessing international markets.
24. The government should enhance its efforts
regarding advice and business support to SMEs which can benefit
from engagement with foreign markets and sources of labour or
intellectual capital. The UKTI, RDAs, Business Link and other
support entities should extend their efforts to identify and target
high-potential SMEs with products or services which are particularly
applicable to other markets. Furthermore, commercially-oriented
curricula and other qualifications should include elements relating
to accessing foreign markets and leveraging foreign resources
25. (iii) Creative businesses need to
focus on commercial innovation if they are to respond to the challenge
of increased global competition. This includes moving into new
markets and reaching new customers by exploiting skills and resources
developed in existing and emerging markets, using digital technologies
for distribution in order to bypass traditional distribution channels
or extend into new markets, and moving from producing to owning
26. There are many examples of UK creative
businesses innovating in their strategies, processes and business
models, developing and diversifying their markets and achieving
greater growth and profitability. Although these examples are
encouraging, the opportunities that exist for commercial innovation
need to be better promoted and supported, and must be oriented
towards both domestic and foreign activity. In particular, there
needs to be a much greater focus on the opportunitiesand
challengespresented by digital technologies and the internet.
27. Trade associations and other organisations
such as NESTA need to do more to identify and promote these forms
of innovation amongst creative businesses. As an example of finding
new markets and customers, such organisations could fund and support
innovative projects to integrate outputs from the creative industries
into products and services from other sectors. Furthermore, a
foresight review should be conducted on the innovative exploitation
of new technologies by the creative industries, in order to anticipate
future trends and extend into foreign markets.
28. The DTI and UKTI could do more to encourage
cross-firm and cross-sector collaboration to create or enter new
markets, and to leverage foreign resources and intellectual and
29. HM Treasury should explore expansion
of tax mechanisms which could stimulate UK firms to more actively
pursue foreign business where appropriate.
30. The UK needs to nurture and support
a new generation of creative entrepreneurs who place strong and
sustained commercial growth alongside creative expression at the
top of their ambitions. Potential world class businesses will
benefit from clearly differentiated systems of investment and
support. This support needs to be intensive and highly ambitious,
to grow the UK's creative economy within the context of international
markets and supply chains. The aim must be to develop the kinds
of media-entertainment conglomerates and brands that can challenge
existing players in the global market and generate significant
jobs and wealth for the UK economy.
31. A growing international market is there
to be won by UK creative businesses that are able to innovate
and do not see any inherent conflict between creative excellence
and commercial success. The ambition to win a greater share of
this market will help to ensure that the UK becomes a creative
hub for the world.