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The Creative Industries are a set of interlocking sectors, and are a growing part of the global economy. They are often focussed on creating and exploiting intellectual property products such as the arts, films, games or fashion designs, or providing business-to-business creative services.
Definitions and context for the sector
The UK Government Department for Culture, Media and Sport (DCMS) define the Creative Industries as: “those industries 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 DCMS category list consists of production in the following sectors:
- Advertising
- Architecture
- Art and Antiques Market
- Crafts
- Design
- Designer Fashion
- Film and Video
- Interactive Leisure Software
- Music
- Performing Arts
- Publishing
- Software and Computer Services
- Television and Radio
The list has been influential and many other nations have formally adopted it. It has not, however, been immune for criticisms. It has been argued that the division into sectors obscures a divide between lifestyle business, non-profits, and larger businesses, and between those who receive state subsidies (eg: Film) and those who do not (eg: Computer Games). The inclusion of the antiques trade is often questioned, since it does not generally involve production except of reproductions and fakes. The inclusion of all computer services has also been questioned.
Some, such as Richard Florida argue for a wider focus on the products of knowledge workers and judge the creative class to include nearly all those offering professional knowledge-based services. At that point, the term begins to elide with Knowledge Economy and questions of Intellectual Property ownership in general.
There is often a question mark over the boundaries between Creative Industries and the similar term of Cultural industries. Cultural Industries are best described as an adjunct-sector of the Creative Industries, including activities such as: Cultural tourism & Heritage; Museums & Libraries; Sports & Outdoor activities; through a variety of 'way of life' activities that arguably range from local pet shows to a host of hobbyist concerns. The possible difference would thus be that the Cultural Industries are more concerned about delivering other kinds of value to society then simply monetary value, such as Cultural Wealth or Social Wealth.
Some nations, such as Hong Kong, have preferred to shape their policy around a tighter focus on copyright ownership in the value chain. They adopt the WIPO's classifications, which divide the Creative Industries up according to who owns the copyrights at various stages during the production & distribution of creative content.
Economic contribution
Globally, Creative Industries excluding software and general scientific Research and Development are said to have accounted for around 4% of the world's economic output in 1999, which is the last year for which comprehensive figures are available. Estimates of the output corresponding to scientific Research and Development suggest that an additional 4-9% might be attributable to the sector if its definition is extended to include such activities, though the figures vary significantly between different countries.
Taking the UK as an example, in the context of other sectors, the Creative Industries make a far more significant contribution to output than Hospitality or Utilities and deliver four times the output due to Agriculture, Fisheries and Forestry. In terms of employment and depending on the definition of activities included, the sector is a major employer of between 4-6% of the UK's Working Population, though this is still significantly less than employment due to traditional areas of work such as Retail and Manufacturing.
Within the Creative Industries sector and again taking the UK as an example, the three largest sub-sectors are Design, Publishing and Television/Radio. Together these account for around 75% of revenues and 50% of employment.
The complex Supply Chains in the Creative Industries sometimes make it challenging to calculate accurate figures for the Gross Value Added by each sub-sector. This is particularly the case for the service-focussed sub-sectors such as Advertising, whereas it is more straightforward in product-focussed sub-sectors such as Crafts. Not surprisingly, perhaps, competition in product-focussed areas tends to be more intense with a tendency to drive the production end of the supply chain to become a Commodity Business.
There has been a tendency for publicly-funded Creative Industries development services to over-estimate the number of creative businesses during the mapping process. There is also imprecision in nearly all tax code systems that determine a person's profession, since many creative people operate simultaneously in multiple roles and jobs. Both these factors mean that statistics on the Creative Industries should be treated with caution.
Wider role
As many first world countries now struggle to compete in traditional markets such as Manufacturing, many now see the Creative Industries as a key component in a new Knowledge Economy, capable perhaps of delivering urban regeneration, often through initiatives linked to cultural heritage and tourism. It is often argued that, in future, the ideas and imagination of countries like the United Kingdom will be their greatest asset. Indeed, UK government figures reveal that the UK's creative industries account for over a million jobs and brought in £112.5 billion to the UK economy (Creative Industries Mapping Document 2001).
Success factors
Individual companies operating in the Creative Industries encounter a series of barriers to growth as they mature, and there is no inevitable ladder that stretches from micro-business to public company. In fact, many of the founders of firms do not actually wish to grow but would better be characterised as Lifestyle Businesses. This is not to denigrate what they do in any way (many win multiple awards and collectively they generate wealth and provide large employment opportunities for many people) but Lifestyle Businesses tend to be less sustainable in the face of economic downturn, changing market conditions, or changes in an owner's health.
Long-term success and sustainability for Creative Industries firms depends on balancing the creative-, commercial- and social-capital building urges of the key individuals involved.
- A firm that lacks a strong creative urge will not produce distinctive work. A firm that is dominated by this urge may do brilliant creative work and even win awards, but is unlikely to prove sustainable
- A firm that lacks a strong urge to build commercial value will not have the foundations to survive the inevitable ups and downs of business. A firm dominated only by this urge is unlikely to provide a nurturing home for key creative talent and so, in time, will lose its distinctiveness or simply go bust. Many Cultural organisations fall into this category and depend on public subsidy or sponsorship to survive: such organisations are closely related to but distinct from the true Creative Industries.
- A firm that lacks the urge to build a positive learning environment of opportunity for its staff and wider stakeholders will lose their commitment rapidly, for Lifelong Learning is a key element of the Knowledge Economy. Firms that are dominated by the urge to build social capital are likely to suffer all the limitations of Lifestyle Businesses.
Measuring performance
As venture capital and Business Angel investors take a more active interest in the sector, analysts are starting to define indicators of success for Creative Industries firms. A range of financial Benchmarks have been proposed, including:
Gross Profit Sometimes described as 'the fundamental food of the business', this is also known as Gross income, Gross revenue, Revenue, or Net revenue. For the purpose of this analysis it is defined as that proportion which (Turnover less recharges) represents to Turnover in a given period. The Gross Profit figure excludes public subsidies or grants. As a rule of thumb, companies making less than 25% Gross profit may find it challenging to become sustainable.
Gross Profit Per Head An indication of 'How well the people generate this food', also known as Productivity, Output, Gross Income Per Employee, Fee Per Head, or Net income Per Employee. We define this here as Gross profit per full time employee in a given period. In service areas of the UK's creative economy such as Public Relations, figures around £60k might be typical, whereas commercial broadcasters can achieve £300k. In contrast, Performing Arts ventures may struggle to rise above £5k per head.
Gross Profit Growth This is a measure of the speed and direction in which the firm is running, also known as Growth or CAGR. Here it is defined as the amount by which Gross profit has grown over a year. A figure above 20% might be considered to indicate a potential 'high growth' company.
Operating Profit Margin Colloquially, the 'sweet music of a well-oiled machine', also known as Margin, Profit margin, Operating margin, Net pre-tax profit as % of Turnover, or Gross profit. Using a definition based on that portion of Gross profit which is Operating Profit in a given period arguably yields a more universal indication of a company's ability to turn the cash that sticks with it into profit for growth and sustainability. The wide range of business models operating in different sub-sectors of the Creative Industries makes it difficult to suggest universal benchmarks across the Creative Industries as a whole.
Financial benchmarks such as these are not the only indicators of success, and in isolation none can say what is right or wrong with a company, just as blood pressure or temperature alone cannot diagnose olympic potential or the cause of sickness in a person. But taken together with measures of softer qualities such as a firm's investment readiness, entrepreneurship, competitiveness, skills and ability to innovate, they are a useful tool for managers and investors.
"Creative industries"