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Key Concepts: Creative Industries

Creative Industries

Computer KidThe idea of the ‘creative industries’ is still fairly new, and there are competing definitions and concepts: some people prefer the terms ‘cultural’ or ‘copyright’ industries.

But they all point to the same fundamental idea – of an industry whose core value-creating activity lies the making of meaning, or value or emotion. This is done by telling stories, making pictures, designing objects, staging events – cultural activities. Add technology and management, and you get film, broadcasting, the music industry, computer games, fashion, and so on.

The UK’s Department of Culture, Media and Sport coined a formal definition in 1997 that is widely, but not universally, accepted: “Those activities 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 intellectual property”.

The Creative Industries include:

    > Advertising
    > Architecture
    > Crafts and designer furniture
    > Fashion clothing
    > Film, video and other audiovisual production
    > Graphic design
    > Educational and leisure software
    > Live and recorded music
    > Performing arts and entertainments
    > Television, radio and internet broadcasting
    > Visual arts and antiques
    > Writing and publishing

In a very literal sense, the creative industries, and the creative entrepreneurs at the heart of them, are the manufacturers of the information economy.

Creative Businesses

We can distinguish four kinds of creative business.

1. Manufacturers Of Hardware For Creative Consumption

Many people do not count the manufacturers of consumer goods such as cameras and televisions as part of the creative economy, because they are trading in physical and not intellectual property.

They are not included in the UK’s definition, but they are in UN’s – which is why China has the world’s largest creative economy according to the UN data.

But what about game consoles and the iPhone? These are hardware goods, but the manufacturers’ sales income does not nearly cover the cost of development and manufacture. The profit for the PlayStation and Xbox comes from licenses paid by the games makers, and with the iPhone, from Apple’s share of apps fees.

This is a new business model, where the hardware manufacturers are trading in intellectual property, and it means we must think about them differently. It is potentially very disruptive. Could someone do for the television what the iPod has done for music?

2. Distribution Platforms

Businesses like television networks, film distributors and publishers are highly sensitive to economies of scale, and so there are a few big oligopolies – just a couple of big TV networks in each territory for example. It is the same in the distribution stage of most advanced industries – think of supermarkets or petrol stations.

And as in other industries, this is a lower value-added operation. Normally it is safe, but now new technology is creating new business models and great uncertainty for distributors. Film, television, publishing, news, music – are all in crisis, mainly because of the internet.

The situation is also difficult for government, because structural changes mean changes in the rules: about how to allocate broadcast spectrum, about technical standards and protocols, about monopoly businesses, about cross-border trade, about new kinds of work, a whole host of things. In particular, the rules about trade and ownership of intellectual property are fundamentally challenged by digital technology.

3. Creative Service Providers

The third kind of creative business are professional service providers: graphic designers, copywriters, actors, film directors, advertising agencies, editors, event producers, architects. They generally work for a fee, though they may also have a profit-related stake in a project.

These are the firms that provide creative services to other sectors of the economy – adding meaning to T-shirts and drinks and shoes. This is a huge growth area.

These firms are essential in the process of monetizing creative products. But they don’t actually make them.

Also included here are businesses that create value by trading in intellectual property rights, licensing assets across media platforms, repurposing brands and so on.

4. Creative Content Producers

Finally there are the core value-creating businesses in the creative economy – composers, film-makers, writers, original designers and so on. There is no business for any of the others without them.

These businesses suffer from three weaknesses:

    Resource unreliability: content is made by individual creative talent, which from a business point of view makes it intrinsically unreliable. This can be overcome to some extent with the studio system that we see in film and architecture, in computer games and also with visual artists like Tracey Emin and Damien Hirst.

    Industry structure: once the content is made, the producers need a distribution business to get the finished work to customers. Which makes the distributors, who usually have little competition, extremely powerful.

    Demand uncertainty: even if it gets distributed, no-one can tell if a creative product will be a success: even stars and industry leaders regularly produce flops. ‘Nobody knows anything’ as the famous screenwriter Bill Goldman said.

It is the third problem that is the real killer. Creative producers cannot properly describe their products before they are made, and no-one can predict how much they will earn. There is no way round this: the creative industries are a hit (or miss!) business.

More Key Concepts:    Creative Economy   |   Creative Clusters