Support for the creative economy

Written evidence submitted by the Advertising Association [SCE 060]

Summary

· Advertising is a major creative industry and a critical source of funding for other creative industries . I t makes a powerful economic contribution by facilitating interaction between business and consumers .

· Advertising in the UK is responsibly practis ed and well regulated. However, there are regulatory threats to advertising growth. We believe advertising self-regulation is a successful system and must be maintained as the media landscape shifts and advertising technologies develop.

· We are deeply concerned by the draft EU Data Protection Regulation, which could damage direct marketing, internet advertising , and the UK economy both off and online, and call for greater engagement from UK representatives in Europe to meet this threat.

· More generally, in debates that touch on advertising or its regulation, we believe there needs to be more awareness of how advertising works and its importance to the creative industries and the economy, and a greater focus on evidence.

· A dvertising benefits from creative hubs and clusters , but we take an expansive and ambitious view, believing the UK can be a creative hub for the rest of the world. We make suggestions , including across skills, exports and inward investment , that would help support this goal.

The Advertising Association

1. The Advertising Association (AA) represents all sides of the advertising and promotion industry in t he UK- advertisers, agencies and the media. We promote and protect adv ertising in its broader sense: from advertising in all media to direct marketing and promotional marketing. We communicate its commercial and consumer benefits and we seek the optimal regulatory and self-regulatory  environment. Our goal is that advertising should enjoy responsibility from its practitioners, moderation from its regulators, and trust from consumers. 

2 . We take a threefold view of advertising’s contribution to the creative industries and the economy :

i) Advertising is the second largest creative industry by Gross Value Added (GVA), and growing, as well as the second largest by employment. [1] Advertising spend was worth more than £16bn to the UK economy in 2011. [2] Marketing communications encapsulates a wide range of dynamic, ever changing activities. Including sponsorship, production spend, and all forms of marketing, its overall economic contribution is as much as £30bn, which breaks down as below. [3]

(Source: IPA Bellwether)

Government figures show advertising employs 268,000 people. [4] Advertising methods are continuously evolving and new businesses and models have emerged since this methodology was established, so we believe thousands of employees are not captured in these figures-such as those working in online intermediaries that facilitate the buying and selling of online advertising space.

ii) Advertising is not only a major creative industry in its own right, but unique in that it funds other creative industries as well. Advertising spend in 2011 was as follows:

MEDIA

£MILLIONS

PRESS*

4093.2

TV**

4986.6

RADIO**

549.7

OUT OF HOME*

947.7

CINEMA

171.3

INTERNET*

5051.2

DIRECT MAIL*

1728.6

* Includes production costs

** Includes sponsorship and production costs

(Source: AA/Warc Expenditure Report)

This is a major investment in creative content and innovation, while internet spend in particular pays for much of the free content and services available online and invigorates the UK’s £121bn internet economy.

iii) Advertising drives the broader economy . It’s core role is allowing the interaction between businesses that make and sell products and services , and the people and businesses that use them. This process helps meets consumer needs while inspiring competition, productivity, efficiency, and innovation. Analysis suggests that through such processes, advertising fuelled about 15 percent of GDP growth in the G20 over the past decade. [5]

We address the Committee s areas of interest in turn:

" 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 "

3 . We see advertising support for the Olympics and Paralympics (as well as continuing support for sport) as an example of the kind of contribution marketing communications make s to society. S ponsors raised £700m of Locog’s £2.2bn budget. Advertisers not only helped the staging of the Paralympics, but also showcased disabled athletes alongside able bodied ones which drove interest and awareness . Most of Channel 4’s broadcasting, including its coverage of the Paralympics, is funded by advertising and sponsorship .

We make suggestions for building on advertising’s contribution below .

" 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 d epartments inhibits this sector "

4 . Advertising’s major barriers are regulatory threats at both domestic and European levels .

Regulation

5 . The Advertising Association strongly believes that self-regulation is the most effective mechanism for maintaining standards. The Advertising Standards Authority celebrated its 50 th anniversary this year and we note the high levels of respect and recognition that it enjoys from the public . The self-regulatory system is an asset for consumers and government , who can be confident that advertising is leg al, decent, honest and truthful without any cost to the taxpayer .

6 . Self-regulation must remain as the bedrock of UK competitiveness in marketing communications , and in encouraging advertising and advertising dependent businesses to export and grow. As the online economy grows and digital advertising models evolve, only proportionate, evidence-based self-regulation will be able to move with the pace and subtlety required to maintain our advantages.

Government and policymakers

7 . Despite this, we are often concerned by mixed messages from policymakers on the value of advertising to the UK and how confident they are in its regulation .

8 . We are concerned by the tone of discussion around marketing’s role in social issues. Because advertising is, by definition, very visible, it acts as a lightning rod in public policy matters . There are regular debate s about whether marketing restrictions should be introduced across a range of products or services . All too often, this is without reference to evidence that regulatory intervention would achieve anything ; the cost any restrictions represent to the creative industries and the economy ; and existing, effective codes of practice, which are greatly preferable to heavy- handed government mandates .

9 . As a result, we would prefer to see a clear evidence threshold established for media regulation , and greater cohesion between departments looking at advertising’ s economic and cultural value ( DCMS, Treasury and BIS ) , those considering the role marketing plays in social contexts (Health, Education and the Home Office) , and those making decisions over procurement (the Cabinet Office) .

10. While the DCMS generally supports advertising’s value, this position is not always recognised by other departments. We accept the need for spending reductions but are disappointed that the Cabinet Office framed cuts to ad budgets as a reduction in "wasteful" spending. Though government ad spend has fallen to around £555m from a peak of £732m in 2009, it is now forecast to grow again. This is a valuable investment in the country’s advertising infrastructure and entirely appropriate given the value of such spending in meeting public policy goals. We would welcome more creative thinking about how to maximise value from public spending, such as whether the companies making ads for the government could retain secondary IP rights, rather than Government taking all IP rights even when it has no intention of using them.

Data and Digital

11. Like the rest of our media and communications, advertising’s future is increasingly personal, portable, interactive and social. This process is driven by data and advances in technology.

12. The UK is a leader in commercial media , and its prominence is particularly apparent in digital advertising . A third of the UK’s ad spend is digital , a higher proportion than anywhere else in the world. The UK accounts for a quarter of Europe’s €21 billion annual digital ad spend . This is an enormous investment in our fast growing online economy and helps pay for content and services online .

13. The UK ’s strengths in creativity and innovation remain at the heart of these developments , and are underpinned by a successful self-regulatory system . However, we must ensure that as technology advances and advertising methods adapt, the regulatory framework does not shift in a way that impacts our advantages.

14 . For this reason, w e are deeply concerned by the draft EU Data Protection R egulation and believe it must be urgently addressed . Among other things, the Regulation widen s the definition of personal data, require s explicit consent to use it , and introduce s a technically unfeasible "right to be forgotten" for consumers. We believe these rules unnecessarily bring swathes of new information into the regulatory net . This will badly hamper the smooth running of the internet (i.e. with constant pop-ups requesting to use information ) , and will undoubtedly impact the UK’s £7bn direct marketing and internet advertising industries and the hundreds of thousands of people they employ.

15 . The Regulation will not only affect online advertising, a key funding mechanism for online creative content, but will directly impact the operation of creative enterprises trying to deliver their content digitally, as well as businesses in other industries that are also making more of their services and products available online. There will be further serious implications for employment and growth in offline direct marketing firms, such as direct mail, which accounts for a quarter of the Royal Mail’ s business . [6]

16. While we agree it is time to update data rules, it must be done in a way that balances the rights of consumers against the needs of business.

17. We are reassured that the DCMS and the MoJ are treating this issue as a priority but believe that across British representation in European legislative bodies , there must be a much more concerted effort to meet this threat .

Inward investment, exports and access to finance

18 . It is important that government continue to monitor the tax and investment incentives available internationally, to ensure that we do not fall behind other European advertising and media hubs.

19 . Access to finance is not considered a primary concern by advertising agencies , mainly because advertising businesses enjoy low capital start-up costs . The agency sector is thus dominated by entrepreneur driven SMEs. However, for media and advertising start-ups developing new technologies and innovations, there are barriers for scaling, and these businesses would potentially benefit from easier access to finance.

20 . Advertising is already a major service exporter, worth £1.5bn in 2009 . [7] W e believe this could be encouraged further through global marketing of the UK as a centre for commercial communications and branding by UKTI.

" The impact on the creative industries of the independent Hargreaves Review of Intellectual Property and Growth, and the Government’s Response to it. The impact of the failure, as yet, to implement the Digital Economy Act, which was intended to strengthen copyright enforcement. The impact of proposals to change copyright law without recourse to primary legislation (under the Enterprise and Regulatory Reform Bi ll currently before Parliament) "

21 . Adverts frequently involve the licensing of copyrighted material . F or instance, many adverts licence music for use in broadcast or film ads. PRS reports that in 2010, advertising and sponsorship accounted for £94m of revenue for the music industry . [8] This is an example of advertising funding of the creative industries through the copyright system , and in the case of music helped to offset declines in other types of revenue . Advertising also provides critical exposure for artists and stimulates interest in their work .

22 . The integrity of the copyright regime is a major concern for the media owners among the AA’s membership. C opyright infringement erodes their ability to attract audience s and invest in content , which in turn may have implications for advertisers and agencies.

23 . The copyright system must balance the importance of protect ing copyright holders against the need for a system that does not overly impede advertising agencies who depend on appropriate access to copyrighted material .

" 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 cer tain sectors in the 2012 Budget "

24 . The AA is concerned that the specific exclusion of advertising from the creative tax relief consultation suggests a low appreciation of the scale of advertising’s contribution to the creative economy. We note strong support among the agency services section of our membership for widening tax reliefs from the 2012 Budget to i nclude advertising productions.

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

25 . Advertising will need 20,000 new skilled workers by 2014. [9] While "advertising" is considered synonymous with the agency services sector, this is only one part-albeit an important one- in a much wider story , which also features brands and a multitude of commercial media channels . " Advertising " encapsulates a very wide range of activity spanning the work of creative, media planners, statisticians, coders and analysts , to name a few . The employees filling these roles are drawn from all education al backgrounds, from school leavers to post-graduates.

26 . There is synergy between advertising’s requirements for technical and creati ve talent and that of other industries (as outlined below ) . However, meeting advertising’s skills needs means more than prioritising creative subjects. There must be a broad emphasis on a range of skills, including quantitative and computer based. This is particularly important as digital and data-driven marketing comes to account for an ever greater share of advertising spend . We should also ensure that university courses are better attuned to recent developments in media and communications .

27 . There needs to be an immigration regime that is flexible enough to ensure businesses can access the skills they need from abroad, particularly where businesses wish to expand into the UK or serve overseas markets. Immigration is a particular impediment for our large, international agency groups who need a consistent throughput of talent to maintain their leading positions.

" 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 eff ective universal communication "

28 . As noted earlier, a dvertising is only partly defined by creative agencies . It is also a funding model for the creative industries , part of the innovative business culture that makes the U K a world leader in creativity, and a commercial activity critical to the 60% of the economy built on consumer spending.

29 . Thus , firms operating in the "advertising industry" are already integrated with those in other industries. They contribute to the creative industries by funding creative work , but also invest in many of the same personnel and services . For instance, the screen industries depend on a highly developed infrastructure spanning everything from creative and technical talent to studio and post - production facilities . This means advertising productions represent a major investment in exactly the same infrastructure that the screen industries depend on . Advertising a lso invests in the same talent- for example, among British Academy Award winners for Best Director, Tom Hooper and Sam Mendes have both directed adverts. For this and other reasons, advertising firms are inclined to locate in the same areas as other creative businesses.

30 . We feel that this intimate relationship should be better recognised by policy makers . Whether we are looking at finance , skills or infrastructure, support for advertising directly translates into support for the rest of the creative industries.

31 . We appreciate the advantages of nurturing hubs and clusters for companies making advancements in digital and online technologies, which is extremely important to maintaining our leading position in digital advertising.

32 . As explained, advertising overlaps not just with other creative industries, but with businesses operating in all parts of the economy and all over the country as well . The UK in itself has the potential to be an international " hub " for businesses with advertising and media dependence , or which produce branded goods or services, and need to locate global or regional functions (such as marketing departments) . For instance, 127 commercial media channels already broadcast to overseas markets out of the UK. We also note that advancements in broadband coverage make it easier for agency operations to develop in the regions.

33 . For these reasons, we believe that hubs already play an important role in driving advertising , and can continue to do so , but that we should also be ambitious on a national and international scale .

" The work of the Creative Industries Council and other public bodies respon sible for supporting the sector "

34 . The AA is represented on the Creative Industries Council along with a number of our members . We support the collective work of the CIC and its continuation under an industry chair man with ministerial representation . The AA is helping to deliver some of its projects, including the setting up of a website to showcase British creative work internationally.

35 . The Central Office for Information was closed earlier this year as a result of reductions to public budgets. We are understand ing towards the reduction in government spend , but were disappointed by the loss of the COI, which was a valuable source of marketing expertise close to government . As government advertising spend remains an important source of income for the industry, we remain positive about the potential for the Government Communications Centre , though we are still anxious that there be full awareness at the heart of government of how broad marketing communicat ions is, how it operates, and the overall role it plays in the economy .

November 2012


[1] DCMS Economic Estimates 2011

[2] AA/Warc Expenditure Report

[3] IPA Bellwether

[4] DCMS Economic Estimates 2011

[5] McKinsey & Company, Advertising as an economic growth engine (2012)

[6] Direct Marketing Association, Putting a price on direct marketing (2012)

[7] DCMS Economic Estimates 2011

[8] PRS, Adding up the UK Music Industry 2010 (2011).

[9] Credos projection based on DCMS data, Feb 2012

Prepared 17th November 2012