• Accessibility
• Email alerts
• RSS feeds
• Contact us

AI and creative technology scaleups: less talk, more action Contents

---

Chapter 4: Scaling up: creative technology

The economic potential of createch

142.The economic contribution of the UK’s creative industries is well documented. Figures suggest that the sector contributed £126 billion in gross value added to the UK economy in 2022 and accounted for 2.4 million jobs.319 The previous Government’s Creative Industries Sector Vision document stated that the sector’s output was growing more than 1.5 times faster than the rest of the economy, and that its workforce was growing at five times the UK rate.320 The sector also exports over £45 billion in services and over £9 billion in goods, with a total trade surplus of almost £20 billion.321

143.The UK is a global leader in this sector.322 Maxime Saada, CEO of French media company Canal+, which recently listed on the London Stock Exchange, said that “London is the best location for Canal+, as a global media and entertainment powerhouse, to list as a publicly traded company”.323

144.The Government’s industrial strategy Green Paper noted that the sector as a whole is “highly innovative”.324 Createch, when businesses develop or adapt technologies in novel ways to enhance cultural experiences, artistic outputs, and creative processes, is seen as providing particular opportunities for advancements. As Nick Poole, CEO of video game trade body Ukie, explained:

“Very often you set out with a creative vision and the technologies do not exist to deliver it, so you have to innovate along the way. It is less driven by what is available off the shelf and more by the art of the possible.”325

145.CoSTAR, a government funded creative innovation network, cited video games, extended reality technologies and virtual environments as examples of creative technology that have already led to “significant growth and investment” in the UK.326 Research by Data City suggests the annual turnover of the ‘digital creative industries’ sector is £32.6 billion, with average company growth at 8.3 per cent annually.327 In 2023, the UK video game industry was valued at £7.82 billion, bigger than music, film or TV.328 ABBA Voyage, a virtual concert experience featuring digital avatars of the Swedish pop group created by visual effects artists,329 is estimated to have contributed £1.4 billion to the UK economy since opening in 2022.330

146.Innovation in the creative industries has “produced spillover benefits across the wider economy in diverse areas such as defence, agriculture, healthcare and education”.331 Caroline Norbury OBE, CEO of Creative UK, characterised the sector as “a petri dish for innovation”, noting for example that game engine technology is now used in the automotive and aerospace industries.332 Paul Murphy, Partner at Lightspeed Ventures, cited AI, 3D drones and motion capture as technologies that originated in the creative sector.333

147.Ms Norbury told us that, despite this, there is a political and public perception that “the creative industries are not proper, grown-up, serious places”.334 Estimates suggest that between 2016 and 2021, around 1 per cent of UKRI spending was invested in the creative industries,335 which witnesses told us was significantly below the sector’s share of the economy.336

148.The Council for Science and Technology (CST) recommended in 2023 that:

“public investment in R&D in the creative industries should reflect the size, economic contribution, and future growth potential of the sector … Government should look to grow our creative industries companies on a similar scale to how France has grown its luxury goods market. This would help ensure creative businesses capitalise on the tech opportunities of the fourth industrial revolution and scale up to become global leaders.”337

149.Mr Poole told us that more could be done to champion the sector, to combat the trend of successful firms moving their operations overseas:

“There are countries where there is very overt public, political support for their creative industries. We do not have that. If we are genuinely going to interrupt this cycle of offshoring the value of our creative industries, we need a visible, above the line display of that support.”338

150.Sir Chris acknowledged that the Government needs to provide “a degree of education about how valuable the creative industries are in general to our economy”, and take further steps to champion the sector.339 Launching the Creative Industries Growth Summit in January 2025, the Chancellor noted that the “creative industries are a British success story with a big part to play” in delivering the Government’s growth ambitions. The Government announced a “£60 million package of support to drive growth”, and said that UKRI would prioritise the sector in response to the CST’s recommendation.340

151.Createch is an important growth driver in the creative industries, which in turn is one of the key sectors identified in the Government’s industrial strategy Green Paper. The innovative products and services it generates also provide spillover benefits in other areas of the economy.

152.It is vital that the Government’s industrial strategy, its creative industries sector vision, and its innovation investment priorities reflect the economic value and true growth potential of createch, and the creative industries more broadly. We welcome the Government’s recognition at the Creative Industries Growth Summit that the creative industries will play an important role in meeting its ambitions for growth.

153.We urge the Government to remain steadfast in championing the creative industries sector and supporting its innovative businesses to scale. It should not underestimate the role of creative technology scaleups in helping the creative industries realise their full growth potential, and should remain alert to the needs of these businesses in its wider efforts to “turbocharge growth” in the sector.

Challenges to scaling for createch companies

154.We were consistently reminded that the creative industries sector is almost entirely made up of SMEs, of which a high proportion are micro businesses.341 According to UKRI, “this suggests there is significant potential for creative businesses to scale up.”342

155.Some have done so on a trajectory comparable to other high-growth technology startups. Mr Taylor cited Improbable, a British company building metaverse software, as an example of a UK unicorn.343 Stakeholders emphasised, however, that there are “vastly different perceptions and levels of understanding of what scaleup looks like across the creative industry subsectors”,344 and many businesses are not aiming for this kind of growth.345 Witnesses from the University of York set out that “in our six-plus years of working with regional creative companies, less than 2 per cent demonstrated scaleup activity”.346 Mr Glick told us that there are “some subsets of the creative industries that just will not ever scale”, and identified “businesses that are creating or developing new technologies” as “the real drivers of the economy”.347

156.Sir Chris warned, however, that “it is quite dangerous when you start splitting up the individual sectors”. He proposed that the creative industries should still be considered as a “single ecosystem”, but taking the different business models and growth trajectories of subsectors into account.348

157.The creative industries are fragmented and have a high proportion of micro- and small businesses. Some creative technology SMEs are not looking to scale in the traditional venture capital model. But it is important that those with ambitions for high growth are supported to pursue this goal. High-growth tech scaleups in the creative industries should be afforded the same opportunities as those operating in any other key growth sector.

Finance

158.Our previous report on the creative industries reported that createch companies raised between 22 and 34 per cent less later-stage funding than other types of businesses.349 Peadar Coyle, Founder of AI audio scaleup AudioStack, suggested this stems from the way creative ventures are viewed by investors:

“Creative businesses are perceived as less IPO-able, less valuable, et cetera. Whether that perception is true is separate from the fact that it exists”.350

159.Stakeholders argued that creative sector companies are also considered “riskier” than other investment opportunities.351 Contributing factors include their ‘hit-driven’ nature; the fact that creative assets are often intangible; and a lack of available data to demonstrate that creative industries businesses are sound investments.352 Relatedly, witnesses told us that the creative technology firms that “most closely resemble ‘traditional’ tech business models, structures or growth journeys” are those most able to attract growth investment.353 A 2024 report from the Creative Industries Policy and Evidence Centre (Creative PEC) noted that more data on returns and exits is needed to boost investor confidence.354

160.Responding to this inquiry, the Creative PEC suggested that perceptions among business owners themselves regarding “investors’ understanding of the creative industries” can deter them from even applying for finance.355 This may apply to public funding too: UKRI told us that “creative businesses historically haven’t been funded, so they stop applying for finance as they don’t feel relevant”.356

161.Our evidence highlighted some examples of progress since our 2023 report. Creative UK explained that certain banks are developing products to assess the value of intangible assets more effectively, and called on the Treasury to remain engaged.357 According to the Creative PEC, “recent years have seen financial innovations” that provided new ways to support creative sector businesses to grow.358

162.The Creative PEC noted that the “forthcoming changes” to the British Business Bank (BBB)359 would provide further opportunity for “innovation in financial services” for the sector.360 The CBI recommended that it establish a “dedicated” fund for creative tech scaleups, “modelled on its successful Life Sciences Investment Programme”.361 The call for a specialised financial vehicle aimed at unlocking additional private sector investment was echoed by others.362

163.Mr Taylor agreed that its new British Growth Partnership (BGP) would create a “regulatory umbrella under which we could, if the new Government choose, seek other sectoral focused funds” aimed at catalysing private sector investment.363 In January 2025, the Government announced that the British Business Bank would “increase its support for the sector to help the UK’s Creative Industries realise their full growth potential”, although details of how this support will be delivered are not yet available.364

164.Mr Poole stressed that any interventions must be designed in collaboration with the relevant industries, warning that “otherwise, we are inheriting models of innovation and growth that simply do not really apply”. He said that a recent roundtable with the BBB, while valuable, had been “like two indigenous tribes meeting in the forest for the first time, speaking entirely different languages with very different cultures.”365

165.The Government is right to explore options for improving access to finance for creative businesses. This could involve a specialised financial vehicle aimed at catalysing investment into innovative creative technology businesses. Any interventions should be co-designed with industry and accompanied by work to track the performance of creative investments to improve investor understanding of and confidence in the sector.

Research and development (R&D) tax credits

166.Issues with R&D tax credits were raised as another financial barrier for creative businesses, as HMRC’s definition of R&D excludes arts and humanities research.366 Dr Martin Smith argued that the “long-running saga of R&D tax credits” speaks to an “underlying conceptual bias as to what constitutes ‘innovation’”.367 The Government suggested that creative businesses “do not recognise that what they are doing is R&D/innovation” and therefore do not apply for credits.368 Some stakeholders argued that expanding eligibility would incentivise more investment in cutting-edge creative projects.369

167.Our report on the creative industries recommended broadening the definition, as did the Council for Science and Technology’s 2023 letter on creative R&D.370 Sir Chris Bryant said that the Treasury had “closed down” the conversation about expanding its definition of R&D, but acknowledged that this was “still very live among the creative industries”. He said the topic would form part of discussions relating to the development of the Government’s industrial strategy.371

168.We reiterate our previous recommendation that the Government should change the definition of R&D for the purpose of tax relief to include more of the creative sector.

Access to talent and resources

169.We heard that createch companies are competing with other technology and AI firms for the same limited supply of talent and specialised computing resources. Mr Barratt said scaleups face challenges holding onto employees who want to be solving “more interesting problems” in other areas, such as AI or automotive, where they can also earn higher salaries.372 In addition, individuals whose education and experience combines both the creative skills and technical knowledge that createch firms need are rare.373

170.Stakeholders argued that better integration of STEM and arts subjects was needed to create a talent pipeline with the right blend of technical skills and creativity.374 However, we were warned that the “extraordinary pace of change” in both sectors meant that “curricula quickly become out of date”.375 Mr Poole added that “by the time you have come through a syllabus-driven course, the industry is five years on from where you have been trained”.376 In January 2025, the Government identified skills shortage as a growth barrier in the sector, and said it would make changes to apprenticeships “recognising the particular needs of the creative industries”.377

171.Dr Trevor Davis commented that access to specialised facilities, such as motion capture studios and VR labs, was limited due to high costs and weak academia-industry partnerships.378 Evidence from the CoSTAR National Lab explained that creative technology firms tend to require “a different kind of compute configuration than foundational research work”.379 Prof Smith warned that “you will not get the innovation challenges that the creative industries offer to foundational technologies unless they have access to that compute”, and emphasised the “necessity for creative industries to be considered in the demands for compute capacity”.380

Intellectual property and copyright

172.We heard from Dr Aislinn O’Connell that creative technology companies, which are often “boundary-crossing, genre-busting and disruptive”, face particular challenges in understanding how intellectual property law applies to their activities and assets. In immersive storytelling, for example,

“while rights and assets are likely generated, it is unclear whether these things are protectable by trade mark, patent, or copyright”.

This can restrict scaling since the need to seek specialist technical or legal advice takes time and “comes with inevitable cost barriers”.381

173.According to Dr O’Connell, such issues are “likely to be exacerbated as AI use increases, as there is still a broad lack of clarity on copyright subsistence in AI-generated and AI-assisted works”.382 Other witnesses raised similar points.383 We heard that although AI has recognised benefits for the sector, and has been adopted in areas such as post-production, it remains “a controversial topic”, primarily due to concerns relating to copyright infringement and the potential for job losses.384

174.Stakeholders from the University of Edinburgh explained that the regulatory and legal issues surrounding AI technologies have implications for not just creators but

“those whose creative technology innovations are dependent on larger scale AI models as a foundation … as well as those attempting to deliver an original technical solution that is vulnerable to scraping, replication, or absorption into an AI model without permissions.”385

175.The ambiguity of the UK’s current position on the application of copyright in relation to AI was consistently cited as a factor limiting growth and innovation.386 Our reports on large language models387 and the future of news388 highlighted the need for a clear legal framework that reassures rightsholders that their content is protected by the UK’s copyright regime.

176.Matt Clifford’s AI Opportunities Action Plan recommended that the UK reform its text and data mining regime so that it is “at least as competitive as the EU”.389 Our report on the future of news cautioned strongly against “adopting a flawed optout regime comparable to the version operating in the EU”. Witnesses to that inquiry told us the EU’s regime lacked transparency about illegal scraping and the use of crawlers, as well as a clear enforcement mechanism for infringements.390

177.We called on the Government to establish a framework that “helps the creative industries strike mutually beneficial deals with tech firms, aligns incentives, respects intellectual property and champions responsible AI development in the UK”. Any new regime would need to offer transparency mechanisms, technical enforceability and meaningful sanctions for non-compliance.391 The Government’s response to the action plan referenced the consultation on AI and copyright it launched in December 2024.392 The consultation proposed a “data mining exception which allows right holders to reserve their rights, underpinned by supporting measures on transparency”. We noted that the consultation document does not include details about enforcement on sanctions for non-compliance under such a regime. The consultation is expected to conclude in February 2025.393

178.AI is one of many technologies driving innovation in the creative sector. However, the use of copyrighted content to train AI models without permission or compensation has raised alarm. Creative rightsholders must be able to exercise control over their intellectual property. Clarity around copyright is also important for creative technology companies to feel confident in their own use of AI tools for innovation. The Government is right to try to make progress on this issue through its consultation on AI and copyright. Resolution of this issue is urgent.

179.If, following its consultation, the Government decides to progress its proposals for a broad text and data mining exemption with a mechanism to allow rightsholders to reserve their rights, this must be underpinned by strong transparency measures, technical enforceability, and meaningful sanctions.

Government-funded programmes

180.There are a number of Government initiatives aimed at supporting growth in the creative industries, including:

• The Creative Industries Clusters Programme (CICP) was launched by the Arts and Humanities Research Council (AHRC) in 2018 with a £56 million initial investment.394 It established nine creative clusters around the UK, each focusing on different subsectors of the creative industries. The aim was to provide a catalyst to drive innovation, boost skills, and create products and experiences that could be marketed. Funding for the first wave of the programme ran from 2018–23.395 A further £13.5 million was announced in November 2024 for two further clusters, including one focused on createch, based in the West Midlands.396
• CoSTAR is a £75.6 million national research and development network of laboratories that are developing new technology for gaming, TV, film, performance, and digital entertainment sectors.397 The programme is delivered by AHRC, and will run until 2029. The CoSTAR national network comprises a National Lab, three Network Labs (focusing on live production, video games, and screen) and a Foresight Lab.
• Innovate UK’s Creative Catalyst programme provides financial and non-financial support for creative businesses, from startups to growth-stage companies.398 Through the programme Innovate UK have offered £50,000 grants with simplified applications and attracted over 3,000 applicants since 2021. The programme also involves Investor Partnership support, aiding SMEs to secure follow-on private investment.
• The Create Growth Programme is a DCMS initiative set up in 2022 with £17.5 million initial funding, supporting creative businesses to explore and secure commercial investment opportunities in six regions outside of London. It is partly administered by Innovate UK.399

181.In addition to these targeted programmes, Innovate UK’s BridgeAI and Digital Catapult programmes run initiatives focused on tech and AI adoption in the creative sector.400 Funding announced in January 2025 at the Creative Industries Growth Summit provided additional support for existing initiatives, including the Create Growth Programme.401 As discussed in Chapter 2, stakeholders were supportive of these programmes in principle, but criticised a lack of consistency, clarity and coherence.402

182.Our 2023 report on the creative industries questioned the decision by UKRI to prioritise projects such as the Creative Catalyst programme, rather than continuing funding for the Creative Industries Clusters Programme. This was despite its good performance, which we heard “far exceeded expectations”.403 The final evaluation of the CICP identified that 107 startups, spinouts and scaleups were generated, with businesses supported by the programme leveraging a total of £57 million of co-investment of follow on funding.404 We recommended that UKRI identify options for continuing support for the most successful projects after the initial funding ended in 2023.405

183.During this inquiry, we heard a similar mix of praise for the programme and frustration about its short lifespan.406 Stakeholders from the University of Edinburgh told us that the impact of the CICP was “significant, and in some cases entirely transformational”. However, it expressed disappointment that “the programme concluded just as the clusters were well established”.407

184.Ms Norbury said that the creative industries “need predictability and reliability … we need to believe that everyone is in it for the long haul”. She added that “arbitrary bits and bobs of programmes” do not provide the necessary confidence for founders or investors.408

185.UKRI acknowledged in its evidence that CICP participants said that “a lack of a ‘scaleup road map’ identifying the clear routes and advice available for SMEs to exploit” was a barrier to scaling, as was the lack of a “coherent ecosystem providing the business support, knowledge and advice” alongside funding.409 However, Prof Smith disputed that UKRI “walked away”, arguing that many of the successful clusters continued to receive funding from other programmes, including CoSTAR.410

186.Prof Smith said that UKRI was working on a pathway for innovative creative companies to move through the various initiatives it offers, and “would welcome from the committee the pull towards cohesion”.411 Supplementary evidence provided by UKRI describes its Creative Catalyst programme as:

“a pipeline, guiding companies through successive growth stages … starting with small grants and advancing to secure private investment through IUK’s Investment Partnership initiative”.412

187.We heard mixed views on the commercial focus of these programmes, including from those administering them. UKRI stated that CICP participants felt there was a lack of business support, knowledge and advice to help SMEs to scale up, with mentoring and support often not considered in offers for funding.413 Evidence from the CoSTAR National Lab, which is delivered by AHRC, noted that an “over dependency on R&D grant funding without business growth support” had seen “several mid-size companies working in innovation technologies either substantively down-size or fold as they were unable to access finance for growth support”.414

188.Witnesses also raised questions about the efficacy of distributing funding through universities.415 These concerns were also raised during our previous inquiry by Dr Martin Smith, who said that the “‘R&D’ agenda is often set by academics with little or no commercial experience and little interest in building sustainable businesses”.416

189.Finally, we heard that a lack of cohesion can lead to duplication, and that UKRI could play a greater role in connecting innovators and customers within the creative sector. Mr Barratt suggested that UK funding bodies should link existing projects to encourage collaboration and create scale, rather than funding the same project twice, describing an example related to his games studio, Cooperative Innovations:

“Recently we had a platform called Curatours, which is a virtual museum and heritage platform we had developed with £25,000 of funding from Innovate UK … Then we see £8 million or £9 million go to universities to do the same thing, rather than doubling down on what we had invested ourselves. It is a shame really, because we end up running around trying to connect the dots, whereas it seems like something overall could have closed that circle for us.”417

190.Prof Smith said that a “requirement from government for [UKRI] to be clear and joined up would be incredibly useful”, and warned against the forthcoming industrial strategy introducing “a set of piecemeal recommendations and a lot of individual schemes”.418 Sir Chris agreed that more “consistency and clarity” is needed across government programmes, which he said need to be brought “into a single space”. He said that the department had not yet undertaken “concerted work” to learn lessons from previous programmes, but that it would be completed ahead of the industrial strategy.419

191.Initiatives focused on clustering have proved successful for facilitating growth in the creative industries. However, the current landscape of initiatives aimed at supporting innovation in the sector lacks cohesion. A more streamlined approach is needed to avoid duplication and inefficiency, alongside longer-term funding commitments that offer greater stability to business owners and investors. The tendency of Ministers and government bodies to constantly reinvent or introduce new initiatives is having a detrimental effect on the very businesses they are hoping to support.

192.DSIT, as the department responsible for UKRI, and DCMS should undertake a critical review of the cumulative impact of the various initiatives aimed at supporting innovation in the creative industries, with a view to reducing their complexity and developing a coherent pathway for progression for businesses. Ministers must guard against the temptation to introduce additional initiatives in the Government’s forthcoming sector plan. AHRC should use its convening power to foster closer connections between cultural institutions and creative technology scaleups.

---

• A-Z index
• Glossary
• Contact us
• Freedom of Information
• Jobs
• Using this website
• Copyright