Culture, Media and Sport CommitteeWritten evidence submitted by “The Brighton Fuse” Research Team at the University of Brighton, University of Sussex and Wired Sussex
Summary
This submission draws on emerging findings from “the Brighton Fuse”, a two-year study of the Brighton & Hove Creative-Digital-IT (CDIT) cluster funded by the Arts and Humanities Research Council (AHRC), and carried out in collaboration between local universities, industry and the Council for Industry and Higher Education.
1. Our findings show that Brighton & Hove CDIT companies strongly benefit from clustering. It is unlikely that effective universal communication would be enough to overcome this “local advantage”.
2. Contrary to conventional wisdom, neither Intellectual Property theft nor Access to Finance figure high among the barriers faced by our respondents. Instead challenges stem from high levels of competition in crowded and fast-changing digital markets, such as “apps”, and lack of skills to deliver innovative products and business models that stand above the crowd in such markets.
3. Addressing these skills gaps will require innovation in the way that universities coordinate their activities across departments, and in the modes of collaboration between universities and industry. Perhaps the Brighton Fuse project is an example of such innovation.
4. It is also important for policymakers to acknowledge that succeeding in the modern creative economy requires crossover between Technology, Arts and Management, as well as the right policies to support modes of innovation not currently catered for by schemes such as R&D Tax Credits.
5. The Submission
6. This submission is from the researchers working on “The Brighton Fuse” project funded by the Arts and Humanities Research Council. Partner institutions on the project are University of Brighton (Faculty of Arts and CENTRIM), University of Sussex (SPRU), Wired Sussex, and the Council for Industry and Higher Education. The principal investigator for the project is Dr. Jonathan Sapsed, at CENTRIM (University of Brighton).
7. The project is a two-year study of the Creative-Digital-Information Technology (CDIT) cluster of firms, freelancers and supporting public sector institutions—including arts and cultural institutions—in Brighton. The project aims to estimate the economic contribution of this cluster to the local economy, measure its performance in terms of growth and innovation, and identify the opportunities and challenges—that is, the barriers to growth—that it faces, with the goal of informing future strategies to make the cluster more competitive. It is doing so through a quantitative survey of 500 companies in the Brighton and Hove CDIT cluster, and more than 50 qualitative interviews.
8. Our data collection is still on-going but we are able to share what we believe are some important preliminary results that address the concerns of the Select Committee:
9. The Importance of Clusters in the Creative Sectors: Is there too much focus on hubs at the expense of encouraging a greater geographical spread of companies through effective universal communication?
10. There is a longstanding belief that proximity within clusters promotes beneficial exchanges of ideas and resources between firms. It also generates economies of scale in the shape of rich pools of skilled labour and providers of complementary inputs and services, which are available for firms in a cluster but not those outside.
11. The increasing availability and capabilities of information and communications technologies has led some to claim that this physical proximity is becoming less important, since people may interact across geographical space through broadband communications services: this is referred to as the “death of distance”. There is also a political sense that clusters and hubs privilege certain cities and regions and therefore ought to be discouraged in favour of more dispersed activity.
12. Our preliminary findings suggest that geographical proximity still plays a pivotal role in the production and innovation activities of companies in the Brighton & Hove CDIT cluster, partly explaining the double digits rate of growth in turnover and employment that our respondents reported between 2010 and 2011, in spite of the recession.
13. Respondents to our survey report that local networks and contacts act as a source of new ideas and inspiration (35%) as well as a recruitment pool and as a source of new opportunities for collaboration. Significant numbers of firms (>40%) claim that they help out other local businesses. 80% of respondents report that local collaborators are important for their firm.
14. These localised advantages appear to be self-sustaining: 9 out of every 10 respondents to our survey were not born in Brighton & Hove, but moved there because of its reputation as a creative place, its lifestyle and quality of life. These reputational effects also appear to hold for potential clients looking for innovative suppliers of creative and digital content and services—Almost half of our respondents say that Brighton’s reputation for its creativity is a boon to their business.
15. Interestingly, our research has found that the ICT platforms that, it has been argued, should diminish the tendency for creative industries to cluster, actually act to further support the dissemination of information within the Brighton & Hove CDIT cluster, complementing other informal face to face meetings, “meet-ups”, and events.
16. What does this mean for policy? While we do accept that a more egalitarian distribution of creative activities across the UK is desirable, and policymakers need to be careful of lavishing funds on those that need them least, they should also be cautious of efforts to “kickstart” new clusters from scratch, or uproot established ones thus dissipating their efficiency and ability to innovate. Our findings are consistent with the thrust of the academic literature, according to which the geography of creativity is “spiky” due to local sources of advantage that we doubt could be overcome by “effective universal communication” or other top-down interventions.
17. This is not to say that new clusters cannot be born and become sustainable—Brighton and Hove’s CDIT cluster has done so. Our research has however found that this did not happen as a consequence of directed public sector support, large inward investments, the presence of “anchor” organisations like the BBC, or a better broadband infrastructure than elsewhere. Rather, it has done so in a rather more organic and not wholly coordinated way, involving business-driven networks such as Wired Sussex, two strong universities that generate talented graduates, and a grassroots artistic and cultural scene that has given the city a reputation that is attractive for would-be entrepreneurs. We should also mention the importance of being close to London, where many clients and collaborators for Brighton & Hove firms are located.
18. One of the aims of the Brighton and Hove Fuse project is to extract lessons from the experience of the Brighton and Hove CDIT cluster that will be applicable to other parts of the UK.
19. Barriers to growth in the creative industries—such as difficulties in accessing private finance—and the ways in which Government policy should address them
20. In addition to looking at “place-specific” drivers and barriers to growth, we have also looked at more general ones (note, as before, that the findings that we report are preliminary).
21. The most important hindrance identified by our respondents is the current economic climate. This may be interpreted in a number of ways, and there are likely to be sectoral differences.
22. Content businesses such as TV and Radio, Film, Publishing and Music also cited “too much competition in [their] markets”. For example, our qualitative research has suggested that firms that are trying to develop opportunities in the “app” market for smartphones, tablets and mobile devices are finding this to be a crowded space. While the “app” market has lowered barriers to entry in that creative and clever ideas can be developed relatively quickly by a small team, this has also meant that competition for visibility and sales is high.
23. Intellectual Property violation through piracy is a prevailing concern in white papers and government legislation. However very few firms in our sample have reported “Illegal infringement of [their] Intellectual Property (including copyright)” as an important barrier to their business (<5%). A similarly low number of firms reported generating substantial revenues from royalties from IP. The Brighton and Hove cluster appears to be predominantly a business-to-business service economy in which IP does not figure greatly. We know however that many businesses would like to generate more revenues from their own IP and if they did so it may be that piracy would then become a greater concern. But currently this does not appear to be a big issue for SMEs in the Brighton and Hove cluster, in spite of the attention this issue receives in policy circles.
24. More surprising is that only 18% of firms reported “difficulties in accessing external finance” as an important hindrance, since this is another issue that receives considerable attention. Policymakers, researchers and business people often indicate availability of external finance as a barrier to growth for UK technology firms. Venture capital and Business Angel finance in particular are seen as scarce in comparison with the United States. We know that the overwhelming majority of small firms are financed internally, and usually by family and friends. The reason why external finance availability is not a hindrance for over 80% of the cluster firms may be because creative-digital work generally does not require large lumpy investments that may be necessary in other technology businesses. Usually the largest cost is for labour and freelancers are typically hired as needed for projects. Also cluster firms may be aware of the difficulties of external finance and so find other ways of managing cash flow. So the results on barriers to growth are somewhat surprising since the two issues of IP and external finance that are commonly raised do not appear as important in this cluster.
25. An important step in our analysis is to consider whether “high growth” firms in the cluster face distinctive barriers to growth—for example, in terms of access to finance—compared to the average.
26. Ways to establish a strong skills base to support the creative economy, including the role of further and higher education in this
27. What is important however, is a lack of skills, an often-cited area of difficulty by policymakers and industry. Nearly 30 % of ICT firms and also creative services such as Advertising and Design in our sample mention gaps in their workforce skills as an important hindrance, while 25% of creative services also find lack of managerial skills in particular a hindrance. These results are in line with broader thinking and the government agenda of improving the skills pipelines for creative-digital industries, such as with the Next Gen report (Nesta, 2011).
28. These skills gaps are relevant because, as we mentioned in §22, one important barrier for companies in the Brighton and Hove CDIT cluster is the need to develop innovative products and business models to compete in new and rapidly changing digital platforms. If these companies are going to design and execute their creative and innovation strategies effectively, they will need access to the right production and management skills, which is a challenge currently.
29. The importance of skills is reflected in how our respondents perceive their competitive advantage. 80% of all firms saw technological expertise as a source of competitive advantage and 100% of the ICT firms. Managerial expertise is shown to be important for competitive advantage of 58% of all firms and particularly so for digital media firms (78%). The perceived importance of these skills as crucial for the success of businesses raises concerns over the gaps in their availability.
30. 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; The work of the Creative Industries Council and other public bodies responsible for supporting the sector
31. As regards the inquiry’s central interest in government and public sector support for the creative economy we make some preliminary observations based on our research findings.
32. With reference to the tax reliefs debate we would only say that we have found that significant numbers of firms in our sample (30%) give their staff time to pursue their own innovation projects. These bona fide R&D projects often turn out to be important in incubating ideas for new products and services that sustain business when older offerings reach the end of their life cycle. We have also found cases where these projects have been realised in new spin-off organisations following the demise of the original business, so that they play a role in sustaining employment and innovation in the cluster as a whole. For example, the largest games company in Brighton & Hove—Black Rock—was closed by its owner, Disney, in 2011, yet fifteen “spin-out” companies were created subsequently (colloquially referred to as “the Black Pebbles”) that have stayed in the area. The ideas behind many of these companies had been generated internally, during “ideas generation” sessions.
33. It is not clear that this kind of innovation project would be deemed R&D and therefore eligible for tax reliefs, in spite of how it generates “spillovers” that are clearly not captured by the firm that undertakes them (Black Rock, in the example above). If the application process could be made practical and productive for the small firms engaged in this activity this could be a support for innovation, as well as cluster resilience against the failure of key businesses.
34. The skills base is an obvious area where policy can have a beneficial impact. Our research largely concurs with the conclusion and recommendations of the Livingstone-Hope review mentioned above, which examined the video games and special effects industries. What we find when looking at a broader range of firms is that sectoral needs differ. An adequate response to the skills gaps cannot be focused on solely increasing numbers of computer science graduates, although programming and IT skills are indeed in scarcity. Management, Arts and Design skills matter too. In this respect, much of the policy discourse and debate oversimplifies the creative economy by assuming a divide between science and technology and creativity and the arts, and neglecting the management side. This does not correspond to our understanding of how firms marshal skills and resources to create the products and services that underpin the creative economy. Organisations developing digital and social media, web and television content, digital marketing and search do not identify with either “STEM” or “the arts”, but necessarily combine and recombine these knowledge bases and assets as required for their work. Ensuring that all these types of skills are available is a necessary condition for growth.
35. Addressing current needs by Continuing Professional Development has a difficulty in providing a mix of skills appropriate to these differentiated needs. Firms in the creative economy tend to be small and have little discretionary budgets available for training and staff development. They cannot therefore delegate large numbers of staff for courses that may only be partially relevant to their requirements. In addition the range of courses and variants on offer from universities can be confusing to the small firm.
36. For universities there is a difficulty in tailoring courses for small firms since validation processes for accreditation tend to work at different time scales to small firms, and cost structures may not be sufficiently flexible. In addition the requirements of firms in the creative-digital economy may require an interdisciplinary approach that does not match the typical faculty and school structures of a university. New forms of provision are needed that can release academics from institutional procedures and expectations and make them more responsive to the particularities of the creative economy. This may also involve some flexibility in for example, involving business practitioners in delivery and promoting mentoring programmes.
37. There have been various public sector funded initiatives that have delivered useful contributions to the Brighton and Hove creative-digital-IT cluster, often with the universities working in conjunction with intermediaries such as Wired Sussex. These include an internships programme between University of Sussex and Wired Sussex, and the extensive ProfitNet programme of peer-to- peer learning networks involving over 500 entrepreneurs and local businesses facilitated by University of Brighton. There have also been valuable joint research projects involving universities and industry. The overwhelming contribution of the universities however is in providing a continuous pool of talented graduates to enter the creative economy, in spite of specific skills shortages. We have also found evidence of people who came to the city to study in universities and wished to stay subsequently and became entrepreneurs.
38. We have not found significant evidence of direct government support for firms or for the cluster in general. This is not a story where the cluster has grown through government fiat and investment. Brighton and Hove has not enjoyed the benefits of a large-scale influx of cultural investment such as the BBC moving to Salford, or the drive for an Olympic Park legacy. This successful cluster has over a period of some 20 years grown steadily and organically, but not noisily. Nevertheless there are vibrant, dynamic companies and supporting networks and behaviour such that the cluster is resilient. Now that the cluster has reached a certain scale of activity there are some infrastructural concerns that government can help with. Ultra-fast broadband capability would benefit these firms that are dealing with large data transmission work on a daily basis. Similarly there is a shortage of suitable and secure office space for these businesses in the city. These infrastructural capital concerns may be addressed by policy and would be major sources of support for a cluster that is already growing, but faces constraints.
November 2012