Support for the creative economy

Written evidence submitted by Pact [SCE 011]

Executive summary

The sectors within the creative economy have many similarities but also many differences

· The creative industries are an important group within the UK economy, adding 2.89% of gross value added (GVA) in 2009.

· The term encompasses many different industries from architecture to fashion, and incorporating the industries within the media sector including film, television, radio and video games.

· There are many similarities between these sectors, which are linked by their focus on producing creative ideas.

· However there are also many differences and the issues affecting sectors which own the IP rights to their ideas have different needs than service-based industries.

It is important that we continue the legacy of the successful London 2012 Olympic and Paralympic games by continuing to promote British creative excellence

· British television and film is successful around the world and the opening and closing ceremonies of the Olympic and Paralympic games were a great showcase for the sector.

· Pact understands the importance of international trade for the future development of the sector and supports its members in accessing foreign markets.

· We welcome the Government’s recent adoption of a co-production treaty for audiovisual works, which will enable closer collaboration announcement of closer collaboration between the television and film industries of Britain and Brazil.

International exploitation will continue to play an important role in future growth in the sector

· International revenues in the independent production sector have grown rapidly and we expect this trend to continue in the coming years.

· Pact welcomes the support afforded by the Government to support access to market in this sector.

· We urge the Government to give greater prominence to the creative industries in official trade missions overseas, given the importance of this sector to the British economy.

The copyright framework is effective and should be protected

· The success of the independent television production sector shows the effectiveness of the copyright regime in the UK.

· While we support the recommendations on access to orphan works in the Hargreaves Review of Intellectual Property and Growth, we do not support the hypothesis that the copyright regime in the UK is not effective.

· Furthermore, we are concerned about the introduction of a Digital Copyright Exchange.

· Should the Government wish to extend copyright exemptions, there would need to be a compensatory mechanism for rights holders, such as the European blank tape levy (to which the UK currently opts-out).

· We would support the introduction of a voluntary system for rights holders to advertise their rights should they choose to do so, but this must not form a system of collective licensing.

· The UK must promote the adoption of international AV numbering system such as ISAN, as identified in the Hooper Report on copyright works.

· We call on the Government to take the necessary steps to ensure that the Digital Economy Act is implemented as soon as possible following delays as a result of legal review.

· We are concerned about the Government’s proposals to grant powers which would enable the Secretary of State to make amendments to copyright legislation without sufficient Parliamentary scrutiny.

· We therefore urge the Government to review its proposals under Clause 56 of the Enterprise and Regulatory Reform Bill.

The creative sector tax reliefs will attract more content production to the UK

· We support the Government’s intention to introduce tax reliefs for animation, high-end television and video games.

· Provided that it receives the necessary state aid approval, this will provide valuable support to the British creative economy.

· The reliefs will strengthen the UK television production sector and enable British producers to be more competitive internationally-particularly against countries with existing tax credit systems.

Children’s programming is under threat from declining investment

· Pact is concerned about the continuing decline of investment in children’s programming by UK broadcasters.

· We have urged the Government, as part of its Communications Review, to consider ways in which this important area of programming can be protected from future decline.

· The Committee might wish to consider whether it would be appropriate to extend the system of tax reliefs to support this difficult but important area of television production.

The new creative sector tax reliefs will boost funding for training in the sector

· Investment in skills and training is important for the future of the television production sector.

· Pact and our members will work closely with Creative Skillset to consider how best to use the benefits of the creative sector tax reliefs to support training and skills in the sector.

Broadband enables creative companies around the world to work together

· It is no longer necessary for companies to be based in close geographic proximity in order to do business together.

· Provided that commissioning and tendering processes are fair and transparent, geographic location should not be a significant factor in a company’s ability to do business in the creative economy.

· Provided that everyone has adequate access to broadband services, British creative companies can build partnerships and share expertise with companies around the world.

· Pact is working with the Creative Industries Council and Creative Skillset to support the introduction of virtual boards to enable SME boards to seek input from experts on relevant issues.

Pact is a member of the Creative Industries Council

· Pact is an active member of the Creative Industries Council.

· It is a useful forum in which leaders in the creative industries can meet with political leaders to discuss issues and input into the policy-making process.

· However it is important that the Government takes into consider the significant differences in the business needs of companies in the creative economy, which can vary significantly.

Introduction

1) Pact is the trade association which represents the commercial interests of the independent production sector.

2) The UK independent television sector is one of the biggest in the world. Despite the difficult economic climate, independent television sector revenues have grown from £1.3 billion in 2005 to nearly £2.4 billion in 2011. [1]

3) The sector is creatively, economically and internationally successful, and it produces and distributes approximately half of all new UK television programmes [2] as well as content in digital media and feature film.

4) The independent television production sector employs more people than the television divisions of the BBC, ITV, Channel 4 and Five combined. [3]

5) Pact welcomes the opportunity to respond to the Culture, Media and Sport Select Committee’s timely inquiry on support for the creative economy.

The creative industries are extremely important to the British economy

1.1 The DCMS definition of creative industries are "those industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of economic property". [4]

1.2 The British creative industries-from art to architecture, fashion to film, are extremely important to the British economy. In 2009, they contributed 2.89% of gross value added (GVA) [5] and the Government has repeatedly cited the creative industries as one of the most important areas in boosting Britain’s return to economic growth.

1.3 The creative industries are often linked together as they have many similarities in that they are all sectors in which creative, innovative ideas are developed and exploited commercially.

1.4 Many companies in the creative sector are SMEs and many face similar issues, such as securing access to finance. This is a particular issue in this sector as they are high-risk industries where big hits can deliver a large return, but other projects are often less successful.

1.5 However there are also many differences between companies in the creative sector. For those who own their intellectual property rights, such as television and film production, copyright protections are paramount to success. Whereas other more service-based industries such as advertising or architecture have different needs.

1.6 It is therefore important that, when developing its approach to the creative economy, the Government understands and takes into consideration the different needs of people working in the creative sector.

How best to develop the legacy from the Olympics and Paralympics of the display of UK talent in the creative industries in both Opening and Closing ceremonies and more generally in the design of the Games

1.7 The London 2012 Olympic and Paralympic Games were a great showcase for British creative talent.

1.8 Pact was privileged to participate in events of the Cultural Olympiad which complemented the events of the Opening and Closing ceremonies of both games.

1.9 The British television and film industries are world-renewed and receive enormous commercial success and creative recognition in foreign markets.

1.10 Pact supports its members by facilitating their access to international markets and organising attendance at important sector trade fairs such as MipCom in Cannes and the Rio Content Market in Brazil.

1.11 The Government provides valuable financial support to independent producers to help them access markets in the form of grants issued by UKTI. These Tradeshow Access Programme (TAP) grants are awarded to SMEs who have been exporting for less than 10 years and they enable many independent producers to meet with international buyers and promote their content overseas in order to grow their businesses.

1.12 In the past decade, the independent sector has grown from a cottage industry into one with sector revenues of £2.4 billion in 2011-up from £1.6 billion in 2004. This has been in driven in large part by consistent growth in international revenues, which grew 9% in the past year and now account for revenues of £1.5 billion. [6]

1.13 Brazil is a particularly important market for British independent producers. The Brazilian television market is The Brazilian TV sector is experiencing rapid growth, with digital television take-up increasing 20% in 2010 to 59% of all households [7] and sector revenues rising to £10.6 million in the same year. [8] Television sector revenues and revenues per head are now greater in Brazil than in any of the other BRIC countries.

1.14 Pact strongly welcomes the British Government and the BFI’s work to agree on a formal co-production treaty for audiovisual works with Brazil. This new treaty, which was signed in September 2012, is great news for independent producers.

1.15 It cements the developmental work between Pact and our Brazilian counterpart, ABPITV (Brazilian Independent TV Producers Association) with whom we signed a cooperation agreement at the Rio Content Market earlier this year. The purpose of this agreement was to develop closer links between the Brazilian and British production sectors for the mutual benefit of both countries and we are very pleased to see that the momentum from this agreement has led to the development of a formal co-production treaty.

1.16 This close ties established between the UK and the next Olympic host country, Brazil, will continue to be an important area of focus for independent producers in years to come.

Barriers to growth in the creative industries- such as difficulties in accessing private finance – and the ways in which Government policy should address them. Whether lack of co-ordination between government departments inhibits this sector

1.17 For several years now, growth in the independent television production sector has been driven primarily from international revenues, including the sale of television programmes and programme formats into other territories.

1.18 At £776m, international revenues grew by 31% in 2011 and now account for 32% of total sector revenues. [9]

1.19 The main barrier to television exports is not being able to identify and secure meetings with the key commissioners in that territory. This requires an in-depth knowledge of the relevant market and the ability to travel to meet with the commissioning broadcasters as television deals are most often negotiated face-to-face. For SMEs with limited financial resources, this can be a barrier to accessing new markets.

1.20 Pact strongly welcomes the support offered by UKTI to support independent producers in accessing international markets. This funding has played a significant part in enabling producers who might not otherwise have the resources available to grasp opportunities to develop their export strategies.

1.21 However, we consider that this financial support could be more effectively administered than it is at present if the Government was to appoint trade associations and other private sector bodies with a good understanding of the relevant markets to administer the grants, rather than third-party events management companies who lack the sectoral expertise and industry contacts.

1.22 Another way in which the Government could do more to promote creative sector exports is by more regularly inviting representatives from the creative industries to accompany Ministers on official trade missions.

1.23 In our experience, there is very seldom representation for the creative sector on these visits, which tend to focus on more traditional business sectors such as manufacturing, engineering and finance.

The impact on the creative industries of the independent Hargreaves Review of Intellectual Property and Growth, and the Government’s response to it.

(i) The Hargreaves Report

1.24 By and large, Pact considers that the UK copyright regime is operating effectively. This is demonstrated by the strong growth in the independent production sector. Without adequate legislative protections, independent producers would not be able to exploit their intellectual property rights and continue to invest in high-quality original UK content.

1.25 Given this, Pact was surprised by the Government’s decision in late 2010 to commission an independent report into how the IP system could be improved to help the UK economy grow.

1.26 Pact actively engaged with Professor Hargreaves’ review which asked a range of questions on the potential barriers to growth in the IP system and how to overcome them and on how the IP framework could better enable business models appropriate to the digital age. [10]

1.27 However we were concerned that the Government did not consult with industry prior to launching this review. Had this happened, it is likely that the tone of the consultation document-which appeared to start from the position that there was a problem with the UK copyright framework-would have been different.

1.28 In future consultations, Pact strongly believes that the Government should seek informal views from interested parties in order to develop a sound understanding of a range of views on the topic under consideration in advance of setting up an inquiry or review into a particular issue.

1.29 Pact’s full response to the Hargreaves review on intellectual property is available on the relevant section of the IPO website. [11]

(ii) The IPO copyright consultation

1.30 In its response, the Government broadly accepted Professor Hargreave’s recommendations. The IPO then ran a consultation on how to take the proposals forward.

1.31 Pact engaged fully with this process, by submitting written evidence and attending the seminars held by the IPO. For ease of reference, a summary of Pact’s position on the key issues identified during this process are outlined below.

a. Orphan works

1.32 Pact supports the use of orphan works, provided that adequate protections are in place should the rights holder be identified at a later date. This includes the need for the rights user to conduct a diligent search to try to identify the rights owner prior to using the work, and for funds to be placed in escrow for a period of time in order to provide compensation to the rights owner should they emerge once the rights have been used.

1.33 We consider that, provided that these measures are taken to protect the rights owner, the remedies for the use of orphan works should be civil, not criminal.

b. Extended collective licensing

1.34 We believe that rights holders must be able to control access to their rights in order to be able to fully exploit opportunities to generate a return on their investments. A system of extended collective licensing would distort the market value of rights and would not take into account the many reasons why rights may be out of commerce.

c. Copyright exceptions

1.35 Pact does not consider that there is a need for a statutory exception for private copying.

1.36 Industry solutions, such as UltraViolet [12] , which enable consumers to develop digital libraries of content which they have purchased and view it on a range of different devices already exist and will continue to be developed in the future.

1.37 However until these services have been fully developed and marketed to consumers it is important that the industry is afforded adequate legal protections against copyright infringement in order to protect their intellectual property rights.

1.38 If the Government wishes to go further that the existing copyright exceptions, there would need to be an alternative mechanism through which rights holders could be compensated for the use of their work. For example, the British Government could adopt the European blank tape levy system, whereby a national levy is introduced on recording equipment and/or blank recording as a copyright royalty to provide a means of compensating rights holders.

(iii) The Hooper review

1.39 In parallel to the IPO consultation on copyright, the Government commissioned Richard Hooper to run a review on the proposals put forward by Professor Hargreaves to introduce a Digital Copyright Exchange.

1.40 Whilst Pact is strongly against the introduction of any form of compulsory licensing for audiovisual works, we see the merit in introducing a voluntary system whereby rights holders could advertise their rights should they choose to do so. It is vital, however, that this does not form a system of collective licensing.

1.41 Pact supports the recommendation in the Hooper report that the audio-visual industry must adopt standard identifiers to facilitate the identification of audiovisual works.

1.42 In the audiovisual industry there are two systems of identifiers for audiovisual works - the International Standard Audio-visual Number (ISAN) and the Entertainment ID Registry (EIDR). Both of these identifies work in much the same way as the International Standard Book Number (ISBN) numbering system for written works.

1.43 In his report, Hooper recommended that ISAN and EIDR should be interoperable standards so that producers, broadcasters and other audiovisual rights holders can choose the system that best meets their business needs.

1.44 Pact considers the adoption of identifiers for audiovisual works to be a top priority for the sector in order to ensure that adequate data is available to identify the legitimate owner of copyrighted material.

1.45 Pact believes that the objective of the Government’s policy on copyright should be to manage the delicate balance between encouraging access to content so that it can be used in innovative new ways with the need to protect the property rights of those who have invested in creation and development of existing material.

1.46 An effective IP regime balances these important, sometimes competing, aims on an even-handed basis, ensuring the maximum economic surplus for UK consumers and businesses. This should be the objective of the Government’s IP policy.

1.47 We are concerned that, given the significant number of reviews on this issue in recent months, this balance is not in equilibrium at the moment. In order for IP-owning sectors within the creative industries to continue to flourish, it is important that adequate copyright protections continue to be afforded so that these businesses are able to exploit their IP rights to enable them to grow.

The impact of the failure, as yet, to implement the Digital Economy Act which was intended to strength copyright enforcement.

1.48 Pact strongly supports the measures to address copyright infringement which were introduced in the Digital Economy Act. We believe that the notification process introduced in the Act is an effective measure to address the issue of illegal peer-to-peer file sharing.

1.49 However, the success of this legislation remains uncertain. It has been two years since the Digital Economy Act was passed and the measures introduced in the Act to tackle copyright infringement have been severely delayed due to a lengthy legal challenge.

1.50 Now that the Court of Appeal has upheld the High Court’s ruling in support of the Act, we hope that the Government will be able to implement these measures as soon as possible.

The impact of proposals to change copyright law without recourse to primary legislation (under the Enterprise and Regulatory Reform Bill currently before Parliament)

1.51 Pact shares the concern of many copyright-owning sectors within the creative industries about the potential ‘Henry VIII’ powers which are proposed to be awarded to the Secretary of State under Article 56 of the Enterprise and Regulatory Reform Bill which proposes to confer powers for the Minister to be able to add or remove exceptions to copyright with limited Parliamentary scrutiny.

1.52 Pact is extremely concerned about the potential implications of this clause which could make the future protection of the independent production sectors most valuable assets -intellectual property rights-subject to change at the discretion of whoever happens to whoever happens to be Secretary of State at that time.

The extent to which taxation supports the growth of the creative economy, including whether it would be desirable to extend the tax reliefs targeted at certain sectors in the 2012 Budget

1.53 Pact strongly supports the Government’s proposals to introduce new creative sector tax reliefs for high-end television, animation and video games.

1.54 The introduction of these new reliefs in April 2013, subject to state aid approval, will provide valuable economic support to the independent production sector and the inward investment to the UK will provide an important boost to the British economy.

1.55 The new reliefs will also strength the UK television production sector and enable British producers to be more competitive internationally, particularly against countries such as France, Ireland and Canada were generous tax relief for television and film production already exist.

1.56 Pact is extremely concerned about the continuing decline in investment in children’s programming by British public sector broadcasters. In 2011, the PSBS channels invested £102 million in children's content. Five years earlier, this figure was £132 million. [13]

1.57 We have urged the Government, as part of its Communications Review, to consider ways in which this important area of programming can be protected from future decline.

1.58 As part of this inquiry, the Committee might wish to consider whether it would be appropriate to extend the system of tax reliefs for the creative sector to support children’s programming as well as animation in order to secure the long-term viability of UK children’s television production, which continues to play an important role in children’s lives, as identified in a recent Ofcom report. [14]

Ways to establish a strong skills base to support the creative economy, including the role of further and higher education in this

1.59 Pact supports the Government’s intention that certain measures should be introduced to enhance the skills and talent base in the production sectors which stand to benefit from the new tax reliefs to support future growth in the sector.

1.60 Pact and our members will work closely with Creative Skillset over the coming months to consider how the benefits of the creative sector tax reliefs might best be used to support the development of training and skills in the sector.

1.61 A strong skills base is vital to the continued success of the independent production sector in the future and as such independent producers take the issue of skills and training very seriously.

The importance of "clusters" and "hubs" in facilitating innovation and growth in the creative sector. Whether there is too much focus on hubs at the expense of encouraging a greater geographical spread of companies through effective universal communication

1.62 Given the rapid improvements in broadband communication, the need for close proximity between buyers and suppliers in the television industry has been significantly diminished.

1.63 While we welcome the BBC’s investment in production hubs outside of London such as Media City in Salford and Pacific Quay in Glasgow, which boost investment and opportunity in these areas, in is not longer necessary for creative industries to be clusters around central hubs.

1.64 Rather we consider that, provided that the commissioning processes employed by the broadcasters are fair and transparent, producers should be able to base themselves across the country and compete fairly for commissions regardless of where they are based.

1.65 It is true that in television production, face-to-face meetings are still important in securing a commission, but communication via video conferencing can help to address any potential issues. It is also important that broadcasters should continue to offer regular commissioning days in locations around the country so that producers can remain informed about forthcoming opportunities and recent commissions.

1.66 In our view, given the improvements in technology, there is too much focus on creating and maintain creative hubs at the expense of ensuring that opportunities are fair and transparent so that they can be accessed by companies regardless of where they are based.

1.67 One of the ways in which Pact is facilitating the development of effective communication between companies with mutual interests, regardless of where they are based, is by working with the Creative Industries Council and Creative Skillset to support the introduction of virtual boards.

1.68 The aim of this project is to create a network of people within the creative industries who can work together, either on an ad-hoc basis or by forming more formal links, to share experiences and provide guidance to each other as necessary. This service could be particularly valuable to SMEs in the creative sector who may not have the resources to employ permanent non-executive board members, but who could gain valuable insights from liaising with experienced business executives on particular issues. It could be that the person best qualified to provide advice on a particular issue is based at the other side of the world, but provided that both parties have adequate broadband access, with the use of virtual boards, this would not matter.

The work of the Creative Industries Council and other public bodies responsible for supporting the sector

1.69 As outlined above, Pact works closely with the Creative Industries Council and other relevant bodies such as Creative Skillset to develop initiatives within the sector.

1.70 Pact’s Chief Executive, John McVay, is a member of the Creative Industries Council which is a useful forum in which leaders in the creative sector can meet with Government Ministers to discuss issues of relevant and input into the policy-making process. This provides a valuable opportunity for industry representatives to voice their concerns directly to political decision-makers.

1.71 However whilst we strongly welcome and support this initiative, it is important to note, as mentioned at this start of this response, that although there are many similarities between companies in the creative sector, there are also many differences. Different sectors within the creative economies have very different business models, both domestically and internationally. Some sectors, such as independent film, television and new media production, are copyright owning businesses whereas other industries, such as advertising, are service-based.

1.72 This means that on certain issues, different sectors can have very different-and sometimes competing-needs on the same issue.

1.73 It is therefore vitally important that, in forums such as the Creative Industries Council, the views from a wide cross-section of businesses are taken into consideration by the Government as part of its analysis.

October 2012


[1] Pact Census Independent Production Sector Financial Census and Survey 2012, by Oliver & Ohlbaum Associates Limited, August 2012

[2] Ofcom, Communications Market Report 2010: independents produced more than 50% of qualifying network programming by hours and 46% by value

[3] Employment Census 2006, Skillset

[4] DCMS Creative Industries Economic Estimates, December 2011

[5] Ibid

[6] Pact Census 2012

[7] Ofcom International Communications Market Review (ICMR) 2011, 14 December 2011, p. 112

[8] Ofcom ICMR 2011, p. 123

[9] Pact Census 2012

[10] Call for Evidence: Independent Review of Intellectual Property and Growth, December 2010: www.ipo.gov.uk/ipreview-c4e.pdf

[11] www.ipo.gov.uk/ipreview-c4e-sub-pact.pdf

[12] www.uvvu.com/

[13] Ofcom PSB Report 2012

[14] Ofcom’s Children and parents: media use and attitudes report 2012

Prepared 17th November 2012