Culture, Media and Sport CommitteeWritten evidence submitted by Onedigital
FROM: ONEDIGITAL—REPRESENTING BRISTOL MEDIA, MANCHESTER DIGITAL, WIRED SUSSEX, D-MEDIA
Executive Summary
The UK has a recognized excellence in creative industries from film & TV to events to advertising. It is built on a foundation of small companies which may become key elements of major multi-national corporations.
Alongside the national work to enable easier lending, tax relief, and skills development, maintaining the health of the SME sector is crucial, and clusters are central to this. Onedigital represents four of the nine UK creative centres identified by NESTA—Bristol, Bath (through close collaboration in the West of England LEP), Manchester and Brighton. These centres have a strong foundation for growth, innovation and collaboration.
These are in-industry, locally-focussed membership organizations that have grown to financial independence. Members pay from their profits for the entities to exist on their behalf.
Their brokerage role is required for connection between micro-business and public sector support, and they function with very low capacity.
The best use of public sector funding would be to underwrite and support cluster-based activity. Public agencies such as Creative England and Creative Skillset have a role in promoting the industry and with funding directed through cluster organizations, a supply chain would be created to industry via the most effective delivery partners.
Onedigital is actively engaged with the developing cluster for Birmingham, and has the capability to develop a national network of world-leading quality.
New ways of wealth creation require innovation and collaboration—best delivered in a geographical centre with a rich ecology, common purpose and founded on trust.
1. Barriers To Growth
1.1 Creative companies
The Creative Industries sector is dominated by small businesses (generally <30 staff, predominantly <10 staff) with a high level of passion and commitment from the founding partners. These are bought up by larger companies, but generally maintain their staff base as the core of their value.
There are opportunities for both “Start-up” and “Step up” growth, which will require support. Companies are personal, and wary of the constraints of external private equity funding or bank debt.
Creating more jobs means creating more companies—but it should be noted that employee numbers are less important than talent & experience, and profit is a better measure than turnover. They will have a low level of FTE staff, so measures of growth must be appropriate—it’s advantageous and perfectly possible to run a creative company with increased profit but lower staffing and lower turnover.
1.2 Creative production
The sector creates both products and services—so a significant proportion of the industry is dependent on the health of rest of economy, which will be reflected in expansion and contraction noted by DCMS in the briefing document.
Some activity could be classified as manufacturing—the generating of new assets that turn a £10 tape into a £100,000 tape—whilst other activity promotes economic activity through PR, information & advertising.
Digital technology has driven convergence of these communication activities, creating Full-service agencies, and multiplatform TV companies.
Production activity creates new media assets, which are edited into products. Production ratios may be over 100:1, so the final delivered asset is accompanied by 100 more master assets. The exploitation of these assets is the key to growth in production, and is enabled by digital technology in production and delivery.
Income is often not generated at the point of delivery, but over a longer licensing period, which can be years rather than months.
The changing rules over IP must make the release of assets easier, enable international co-production and culturally-based delivery, and multiplatform production.
1.3 Areas for growth
The UK has world-class talent, built on a firm foundation, and the role of government is to enable the growth through the provision of effective infrastructure, the underwriting of company start-up and step-up.
These developments can only be effectively delivered with a deep understanding of the nature of the companies, in specific areas of the UK. For example, the Bristol/Bath area has three world-class strengths in animation, factual and publishing, but a very limited video game industry.
1.4 The value of networks in the digital world
The NESTA report on microelectronics Chips with everything shows the value of industry networks, and the need to support them. This is directly applicable to creative businesses.
For example, Bristol Media is itself a Creative Industry company, brokering and aggregating on behalf of the SME community. It is essential to recognize that development implies collaboration and that this has a direct cost. The four key areas for development and sector growth are in greater:
Experience—with designed interfaces, linked journeys.
Immersion—whether 3D, HD, cinematic or physical and emotional.
Availability—via mobile devices, location-specific.
Economy—in new forms of workflow and distribution.
2. Overcoming Barriers to Growth
Creative companies are microbusinesses, so overhead rates—cost of infrastructure, cost of digital connectivity, rates and rents—are crucial to the health of the industry.
Bristol Media’s Barometer 2012 survey identified:
A failure in the provision and ease of SME loans from banks.
The difficulty of effective engagement with Private Equity finance, given the non-linear and unpredictable growth models of creative activity.
Issues over the removal of public sector grant funding for match-funding, often with onerous reporting and slow repayment that seriously affects cashflow.
Poor digital connectivity—73% of the respondents to the Bristol Media survey said their needs were increasing, and that bandwidth was a key factor in locating offices, alongside low rent and access to talent.
Creative Industries are recognized as a key sector within the West of England LEP, alongside Aerospace and Microelectronics, and represented at LEP Board level.
This enables the flow of funding from central government to specific Centres of Excellence and direct to industry through membership organizations.
Our recommendations are:
Make smarter development interventions—access to funding, local tax breaks, especially for start ups and companies “stepping up”. SME’s have capacity issues, and one year is a long time in Media. It’s only in Games, Feature films, and big documentaries (either big landmarks or formatted returning series) that contracts last a whole year.
Define the value of spillover to other industries, as noted by the NESTA Creative cluster report. This emphasizes the value of co-location with high-tech, and “Knowledge-intensive Business Services” (KIBS) including legal & financial services—(both Bristol strengths).
Ensure the government drive for broadband delivers effective, cluster-based provision alongside comprehensive coverage, and acknowledges the need for symmetrical delivery and low latency.
The industry runs on a commission model, with time for ideas development segmented out from production. Growth requires:
Investment support, including the enabling of collaboration, support for start-ups, and for businesses facing a step-change in capacity.
Connections with commissioning structures in media, private sector & public sector.
TV production retains a limited commissioning system in an asset-based world. Rights are often retained by commissioners with no plan or even potential to exploit them.
So, there is a market failure in a model that creates a single product from a range of activities, rather than creating multiple, multiplatform products that driving the maximum return.
There is a market opportunity in visual products that communicate effectively to all humans, regardless of language or culture, and can go beyond entertainment to cover universal areas including education & health.
We have identified a range of growth models that recognize both incremental and disruptive innovation:
Stimulating the formation of more small companies.
Providing equity income through mentoring.
Forming Joint Ventures.
In-sector collaboration.
Out-of-sector collaboration (eg with a technology company).
Maintaining company size whilst increasing GVA.
Mergers and Acquisitions.
Private equity or debt funding.
These will be developed as a pilot within the West of England LEP.
3. The Value of Clusters
Creative people want to live and work in specifically attractive places—tied to quality of life. The NESTA report on Creative Clusters identified centres in cities with a human scale, intellectual and cultural value.
The rise of digital production and delivery also creates greater value in the co-location of technology and creative activities. Collaboration requires working with people “not like me”—and here, location provides a common purpose.
According to NESTA’s report “Chips with Everything”, co-located working has provided a stimulus to developing enterprises for over a century. As early as 1890, Alfred Marshall, the precursor to modern cluster exponents, identified three factors that make geographic clusters beneficial:
Sharing of inputs: allows firms to procure inputs at a lower price as part of a cluster than they can in isolation.
Labour market pooling: Flexibility and mobility of labour is a key characteristic, lowering recruiting costs for companies and allowing knowledge spillovers to be shared more actively.
Knowledge spillovers: Workers learn from each other; companies have ready access to the latest ideas and innovations; close proximity to customers and suppliers makes it easier to understand customer needs and trends. This is combined with the ability to act flexibly and rapidly in response to this knowledge; being part of a cluster confers some of the scale benefits of a large vertically-integrated company, without the disadvantages of being slow to act.
This effect is amplified by the open culture of the internet, and changes in opportunities for effective, creative work. A study by Emergent Research presented at the 2011 CoWorking Europe Conference identified that:
“The rise of the independent workforce is structural (at least, within the western world). Even more striking, the majority of the independent workers and entrepreneurs choose to become independent. They will need locations to meet, work and network.”
It is central to the connection between corporates and entrepreneurs.
“The technology is getting every day more complex. Innovation cycles shorten. Big companies are always more risk averse. Most of them can’t dance in a time of agility. Innovation is already coming from the outside, especially from startups and creative individuals. Co-working spaces can both play a role as trend-watchers and serve as a bridge between innovators and big organisations.”
4. Developing the Talent Base
Creative companies are learning organizations—developing concepts, creating prototypes and sharing knowledge on a daily basis. They will identify the need for external training when glass ceilings are hit, and at that point should be able to draw on support from public bodies including the Sector Skills Councils.
The role of Universities in supplying suitable graduates in a wide range of fields is central, and the development of industry assessment of courses as part of the awarding of the “Skillset Tick” is welcome.
It is also vital that the future workforce has greater diversity, and creates opportunities for talented “digital natives” outside FE & HE. This will require the brokerage, evaluation and delivery of effective, designed work experience, internship and apprenticeship programmes, which requires a closer working relationship with cluster groups such as the onedigital members.
It should also be recognized that media practice is used as a means to provide stimulating activity for young people with low prospects of a working life in the industry, and although opportunities in digital communications are expanding, there is still an over-supply (in numerical rather than quality terms) of aspiring young people. It is good to note that the current BFI Talent Campus project defines participants as “Committed and Talented”, rather than simply disadvantaged. This will enable the clear support of talent from challenging backgrounds.
As with the creative industries, there are key locations for University and FE provision of the talent base that will sustain future growth, and a need for greater collaboration—founded on trust, talent and a common purpose.
In September 2010 the Council for Industry & Higher Education (CIHE) published “The Fuse” and launched the concept of CDIT—Creative, Digital and Information Technology—linking the development of technology with the development of content.
The report says: The UK has an historic opportunity to be a global leader in CDIT. There is serious competition and many barriers to success in policy, behaviour and funding. So we must act now, or risk being left behind in the digital explosion.
It has two key recommendations:
Universities and Funding Bodies
The Funding Councils should give the same priority to technology-heavy CDIT programmes as they do to STEM projects.
Universities must embrace—and be rewarded for—the interdisciplinarity that is fundamental to the development of successful CDIT products, services, practices and content.
Universities must open themselves to more and better ways of working with graduate-rich small and medium-sized CDIT businesses.
Business
CDIT businesses must contribute systematically to the development of courses for the graduates they hire by working with universities to ensure a broad range of business “touch points” for students.
Business-HE collaboration should be at the heart of the new Local Enterprise Partnerships.
Major CDIT businesses should build on best practice and work jointly with universities to help develop graduate rich SMEs.
It is apparent that these growth aims are entirely dependent on strong links between localised business and learning centres. Quite simple, colleges find it hard to deliver an employable workforce without existing in a varied creative economy. The research work is continuing at Sussex University, and includes input from Wired Sussex.
In December 2010, Universities UK published “Creating Prosperity—the role of Higher Education in driving the UK’s Creative Economy”.
Once again, it notes the importance of the creative economy around a university—the role of the cluster. Closer working can create growth of the UK creative economy through:
research that supports innovation in the creative economy;
new models for interacting with creative businesses;
acting as hubs for innovation at the heart of regional creative clusters;
the development of talent and high-level skills for the creative economy;
activities that enhance the employability and enterprise skills of students and graduates; and
provision of tailored and high-quality continuing professional development (CPD) to the creative industries.
5. New Ways of Working
The Work Foundation report “Shaping Up for Innovation” published in September 2010 highlighted that:
“Innovation requires getting value out of invention. This requires important inputs from the creative industries such as advertising and design as well as good management, organisational expertise and outstanding leadership”.
It notes the value of business/educational collaboration, which will be geographically-based:
“It might be sensible to leave it to universities to innovate and to present bids that boost the innovative potential of their students, particularly improving interdisciplinary working between STEM subjects and creative subjects”.
The NESTA Creative Cluster report identified 9 areas outside London—Bath, Brighton, Bristol, Cambridge, Guildford, Edinburgh, Manchester, Oxford and Wycombe-Slough. The South West is highest scoring cluster outside the London hinterland (London + SE + East), and the report identified a greater diversity of approaches in the South than North—due to an historical “me-too” approach.
The research analyses co-location between creative sectors and other innovative industries such as High-Tech Manufacturing and Knowledge Intensive Business Services (KIBS).
Its case studies show how digitisation is driving innovation in the creative industries, with most firms investing heavily in internal research and development (R&D), and devoting large numbers of their staff to technology intensive activities in order to benefit from this digital revolution. It recommends that policies should:
Catalyse latent clusters rather than try to build new ones from scratch.
Promote sectors that work well together.
Enable and encourage Universities to promote innovation in increasingly tech-intensive creative industries.
Help remove barriers to collaboration—NESTA’s Connect programme has found that an “airlock” model where a neutral organisation acts as a go-between can help build the trust needed to collaborate. (the key role of onedigital partners).
“Build bridges as well as towers”—creating virtual, place-based connections not require the building of new centres.
It is notable that the creative/digital community in Birmingham has contacted all the member organizations of the onedigital coalition in order to establish the best route for developing an effective cluster.
The NESTA report notes:
“There is also clear evidence for the value of co-location in developing enterprising, agile businesses. Many of the mechanisms for the knowledge and network spillovers described above—such as commercial relationships and collaborations, and labour flows across sectors—are more likely to take place between firms that are located close to each other.”
6. Taxation
The Creative Industries Corporation Tax Relief proposal set a very high benchmark of £1 million per hour. It limits of tax breaks for drama, when many large scale documentaries are in a similar bracket.
The TV business increasingly relies on multipartner co-productions, with a mix of funding, resource and production talent provided by the partners. The Treasury definition of Co-production as requiring production by all partners may actually reduce quality, and complicate relationships and thus management overhead.
It should be for the companies to define the collaboration that creates the best product. It may be co-funding—with money from one partner, and craft skill from another—is the most effective, enabling a skills development in UK, even if money comes from, and returns to, a collaborating country.
7. Intellectual Property
We welcome the work of the Hargreaves team, and note a fundamental requirement that any change to the IP Law further enables the move from “product based” to “asset-based” working, encouraging the originators of assets to develop wider markets for a range of products alongside the original commission.
8. The Value of Public Sector Support
It is apparent that creative companies are small, highly-focused and highly talented “cells”, which exist in a wider, generally geographically-defined, ecology. Collaboration will be key to future growth, so the existence of cluster organizations provides a vital link between Central Government and micro-businesses. The aims of public funding should be to:
Underwrite activity to ensure it will happen, and engage small companies with minimal risk.
Ensure financial support is provided to the most effective delivery agents, closest to the demand.
Provide the right metrics for growth—eg net profit, not necessarily FTEs.
Drive infrastructure to provide what specific high-value experts need (eg 1Gb/s broadband).
Support the in-industry practitioners, and organizations that work in the commercial world.
We welcome the work of the Creative Industries Council, and believe it could be more porous to industry input from onedigital or it’s partner organizations around specific topics.
In summary, the Creative Industry sector has clear centres of activity—“clusters” which have grown organically by providing a high-quality environment and knowledge base. This provides a firm, trusting foundation for growth and innovation. Supporting these centres, underwriting development plans to drive collaboration, and providing tax breaks and discounted opportunities will be the best means to stimulate growth.
November 2012