Areti Gkypali and Stephen Roper
May 2018
Context
The UK’s creative industries are a national strength. They account for £91.8 billion of Gross Value Added (GVA) or 5.3 per cent of the whole economy. A high-growth sector, the creative industries grew by 45 per cent between 2010 and 2016, almost twice as fast as the UK as a whole. Consistent with this, the creative industries have been prioritised by the Government in its Industrial Strategy and have negotiated a sector deal.
Labour productivity in the creative industries tends also to be higher than in other sectors when comparing firms of equal size. However, a full account of productivity in the creative industries, and an assessment of what public policy can do to support it, requires a better understanding of how innovation happens in the creative industries, and if and how this differs from other sectors. In this analysis we use data from the Department for Business, Energy and Industrial Strategy’s (BEIS) latest Innovation Survey (wave 9), which covers a wide range of indicators capturing firms’ innovation processes in different sectors over the three-year period (2012–2014).
Table 1a shows that creative firms – as defined by the Department for Digital, Culture, Media and Sport (DCMS) – focus on organisation innovation broadly defined (51 per cent), and product innovation (25 per cent). This is consistent with the view that introducing product innovations disrupts internal business organisation routines, and thus also requires changes in internal organisation structure as well as in how creative firms interact with their external environment.
Table 1a. Basic innovation metrics within creative industries - percentage of innovating firms
|
Product innovation |
Process innovation |
Organisation innovation |
Ongoing innovation activities |
| Advertising and marketing |
25% |
19% |
51% |
26% |
| Architecture |
19% |
17% |
39% |
19% |
| Crafts and design |
40% |
>1% |
62% |
>5% |
| Film, TV, radio and photography |
28% |
15% |
47% |
19% |
| IT, software and computer services |
46% |
28% |
53% |
48% |
| Publishing |
21% |
13% |
50% |
19% |
Source: UK Innovation Survey 2015, ERC analysis. Creative industries, N=768.
Table 1b: Basic innovation metrics between creative industries and the rest of the economy - percentage of innovating firms
|
Creative industries |
The rest of the economy |
| Product innovation |
33%* |
22% |
| New to the market innovation |
14%* |
8% |
| Process innovation |
21%* |
16% |
| Organisation innovation |
52%* |
44% |
| Ongoing innovation activities |
32%* |
20% |
Source: UK Innovation Survey 2015, ERC analysis. Creative industries, N=768; all firms, N=14, 323
Notes:
- *indicates statistically significant creative industries sample proportion from the corresponding manufacturing sample proportion at the 95 per cent confidence level.
Compared with the manufacturing sector, creative businesses are less active in introducing process innovations – perhaps because their production models depend less on traditional 'production lines' and more on effective organisational management (Table 1b). Suggestively, the crafts and design sub-sector almost as a whole dismisses process innovation, with less than 1 per cent reporting having introduced a process innovation (though this finding may also reflect the fact that the crafts and design sub-sector has a disproportionately large number of smaller firms in the sample). Interestingly and depending on sub-sector, a relatively high percentage of creative firms (20 per cent - 48 per cent) report ongoing innovation activities, indicating perhaps a longer and/or continuous creative and innovation process required in order to remain competitive.
Protecting intellectual property in the creative industries
In some sub-sectors, a robust regulatory framework which protects intellectual property (IP) is required to ensure a fair return on investment and provide sufficient incentives for creators (CIC, 2014). The IP regime must strike the right balance between protecting firms' intellectual and creative outputs from imitation and permitting them to adopt and draw on others' ideas.
Consistent with this, the majority of creative businesses have more than one means of protecting their intellectual outputs. Copyrights and registered trademarks, it turns out, are the most popular formal means of protection with patents and design registration following closely behind. The publishing industry, followed by IT, software and computer services, are the most active in pursuing at least one of the formal routes of protecting their intellectual outputs.
Nonetheless, other, less formal means of protection including lead time advantages, complexity of goods and services and secrecy prove to be at least as popular appropriation strategies (Tables 2a and 2b). These practices seem to be particularly popular among the IT, software and computer services industry, where over 70 per cent of firms report to having adopted at least one of these practices to protect their assets. The complexity of goods and services provided seems to be a particularly effective means of protection and appropriation compared with other industries in the services sector – consistent with the generally high levels of product differentiation we expect to see in the creative industries.
The particular popularity of informal intellectual property protection mechanisms in the creative industries may be explained by the challenges that its disproportionate number of small businesses face in resourcing the use of more formal alternatives.
Table 2a. Innovation appropriation strategies by creative industries - percentage of firms
|
Patents |
Design registration |
Copyright |
Trademarks |
Lead time advantages |
Complexity of goods and services |
Secrecy |
| Advertising and marketing |
54% |
55% |
61% |
55% |
60% |
65% |
66% |
| Architecture |
43% |
48% |
54% |
44% |
53% |
58% |
50% |
| Crafts and design |
38% |
43% |
43% |
40% |
50% |
57% |
50% |
| Film, TV, radio and photography |
55% |
57% |
60% |
58% |
56% |
60% |
59% |
| IT, software and computer services |
59% |
58% |
70% |
68% |
74% |
79% |
77% |
| Publishing |
63% |
63% |
70% |
67% |
63% |
65% |
62% |
Source: UK Innovation Survey 2015, ERC analysis. Creative industries, N=768.
Table 2b. Innovation appropriation strategies by creative industries and the rest of the economy - percentage of firms
|
Creative industries |
The rest of the economy |
| Patents |
55% |
55% |
| Design registration |
56% |
54% |
| Copyright |
63%* |
54% |
| Trademarks |
60%** |
56% |
| Lead time advantages |
63%* |
58% |
| Complexity of goods and services |
68%* |
61% |
| Secrecy |
65%* |
59% |
Source: UK Innovation Survey 2015, ERC analysis. Creative industries, N=768; all firms, N=14, 323
Notes:
- *indicates statistically significant creative industries sample proportion from the corresponding manufacturing sample proportion at the 95 per cent confidence level.
- •indicates statistically significant creative industries sample proportion from the corresponding services sample proportion at the 95 per cent confidence level.
Skills needs in the creative industries
The Innovation Survey can also be used to understand the innovation-related skills needs of the creative industries. Tables 3a and 3b show that skills needs in the graphic arts, layout, and/or advertising areas as well as multimedia and/or web design and design of objects and services are especially high.
Table 3a. Innovation skills distribution by creative industries - percentage of firms with skills (various measures)
|
Graphic arts/ layout/advertising |
Design of objects and services |
Multimedia/ web design |
Software development/data management |
Science and engineering employees* |
| Advertising and marketing |
47% |
30% |
46% |
35% |
23% |
| Architecture |
44% |
45% |
49% |
30% |
10% |
| Crafts and design |
57% |
52% |
55% |
<5% |
<5% |
| Film, TV, radio and photography |
43% |
23% |
46% |
28% |
16% |
| IT, software and computer services |
36% |
27% |
46% |
59% |
78% |
| Publishing |
44% |
22% |
42% |
37% |
10% |
*Sum of engineering/applied sciences and mathematics
Source: UK Innovation Survey 2015, ERC analysis. Creative industries, N=768.
Table 3b. Skill distribution for innovation by creative industries and the rest of the economy - percentage of firms
|
Creative industries |
The rest of the economy |
| Graphic arts/ layout/advertising |
43%* |
22% |
| Design of objects and services |
29%* |
13% |
| Multimedia/ web design |
46%* |
23% |
| Software development/data management |
41%* |
22% |
| Science and engineering employees* |
29% |
25% |
Source: UK Innovation Survey 2015, ERC analysis. Creative industries, N=768; all firms, N=14, 323.
Notes:
- *indicates statistically significant creative industries sample proportion from the corresponding manufacturing sample proportion at the 95 per cent confidence level.
Comparisons with other sectors
Tables 3a and 3b show that 78 per cent of IT, software and computer services firms report employing science and engineering employees. This finding is in accordance with a separate survey conducted in five EU countries among young firms in the creative industries, including the UK, which shows that creative businesses not only have a large share of workforce with a university degree, but also in disciplines such as science and engineering, (Protogerou et al., 2016).
While standard innovation performance indicators drawn from the UK Innovation Survey do not fully capture the unique traits of innovation processes in the creative industries as described in Miles and Green (2008), they do provide an immediate comparison with other sectors for those traits they do capture. For example, Chapain et al., (2010), using Community Innovation Survey (CIS) data for the UK covering the period 2004-2006, find that creative industries are more innovative than knowledge-intensive business services and engineering-based manufacturing. On the other hand, Rodríguez-Pose (2014a;b) provide evidence that the creative sector is more innovative only insofar as it introduces entirely new products: a result echoed by Lee and Drever (2013) for creative firms operating in London.
Tables 4 and 5 below compare the creative industries and the manufacturing and services sectors using a variety of innovation-related indicators drawn from the UK Innovation Survey (2012-2014). Specifically, Table 4 revisits and explores key differences among sectors in terms of innovation performance indicators, intellectual property protection strategies and skills needs. Table 5 sheds light on the differences and similarities in terms of innovation investments, barriers, collaboration partnerships and public support among the three sectors.
A broad finding in Tables 4 and 5 is that the creative industries lie somewhere between the services and manufacturing sectors in innovation performance. In the area of organisation innovation, the creative industries are significantly more likely to introduce organisation innovations (52 per cent) than even manufacturing (48 per cent) and the services sectors (43 per cent). And in the area of new to the market innovations, the creative industries (14 per cent) are almost as likely to innovate as manufacturing (17 per cent). While the creative industries introduce significantly fewer product and process innovations than manufacturing, they also report significantly fewer abandoned innovation projects. This may arguably reflect the fact that the fixed and direct costs of doing innovation are less in the creative sector compared with manufacturing.
Table 4. Sectoral comparisons among creative industries, manufacturing and other services - percentage of firms
|
Creative industries |
Manufacturing |
Services |
| Basic innovation (output) metrics |
|
|
|
| Organisational innovation |
52%** |
48% |
43% |
| New to the market innovation |
14%* |
17% |
6% |
| Product innovation |
33%** |
38% |
18% |
| Process innovation |
21%* |
26% |
14% |
| Abandoned innovation activities |
7%* |
10% |
4% |
| Ongoing innovation activities |
32%* |
33% |
18% |
| Appropriation (IP) strategy |
|
|
|
| Patents |
55% |
59% |
54% |
| Design registration |
56% |
55% |
53% |
| Copyright |
63%** |
55% |
54% |
| Trademarks |
60%* |
59% |
56% |
| Lead time advantages |
63%* |
63% |
57% |
| Complexity of goods and services |
68%* |
69% |
60% |
| Secrecy |
65%* |
64% |
57% |
| Skills distribution |
|
|
|
| Graphic arts/layout/ advertising |
42%** |
24% |
22% |
| Design of objects and services |
29%** |
25% |
10% |
| Multimedia/web design |
46%*• |
24% |
23% |
| Software development |
41%** |
25% |
22% |
| Engineer/applied sciences |
13%* |
33% |
9% |
| Mathematics/statistics |
15%** |
11% |
10% |
| Total observations |
(764) |
(2,454) |
(10,423) |
Source: UK Innovation Survey 2015, ERC analysis.
Notes:
- *indicates statistically significant creative industries sample proportion from the corresponding manufacturing sample proportion at the 95 per cent confidence level.
- •indicates statistically significant creative industries sample proportion from the corresponding services sample proportion at the 95 per cent confidence level.
Interestingly, when it comes to IP protection, the creative industries, manufacturing and services present no significant differences in terms of patent and design registrations. However, as expected, the creative industries make significantly more intensive use of copyright (63 per cent). By comparison the use of copyright for manufacturing was 55 per cent and that for services 54 per cent. Unlike patents, where the focus is on protecting the 'idea', copyright is focused on protecting the 'expression' of the idea (Hesmondhalgh, 2007). This distinction is of crucial importance in that creative entrepreneurs need sufficient incentives to transform their ideas into expressive creative outputs. Another interesting finding from the comparison between sectors is that the creative industries pursue with greater intensity informal protection strategies compared with the services sector but not compared with manufacturing.
Finally, in terms of skills needs, the creative industries are almost twice as intensive in their use of creative skills as the services sector. Creative companies are also significantly more likely to deploy these skills than manufacturing companies. Interestingly, they are also more likely to even manufacturing to make use of mathematics/statistics skills. The exception to this pattern is the employment of engineering and applied sciences graduates where they are much more frequently employed in manufacturing.
Table 5 suggests that the creative industries also invest more heavily in innovation compared with the services sector, but less so than manufacturing. The main exception to the latter finding is that the creative industries are significantly more likely to report investing in training (25 per cent), emphasising again the crucial role played by talent in the creative industries.
A striking finding is that the creative industries are almost as engaged in R&D activities as manufacturing (and considerably more so than services). This is in marked contrast to what traditional statistics on R&D spend by UK companies imply (ONS estimates for business expenditure on R&D are not available at the four-digit level so we are unable to provide numbers), pointing to a disconnect between how R&D activity is perceived by creative businesses themselves and what the official statistics capture – an area of current debate (Bakhshi and Lomas, 2017).
Table 5. Sectoral comparisons among creative industries, manufacturing and other services - percentage of firms
|
Creative industries |
Manufacturing |
Services |
| Innovation investment |
|
|
|
| In house R&D |
35%* |
38% |
16% |
| External R&D |
10%* |
11% |
5% |
| Capital acquisition |
45%* |
44% |
34% |
| External knowledge acquisition |
6%* |
7% |
4% |
| Training investment |
25%** |
21% |
14% |
| Design investment |
21%** |
26% |
10% |
| Market introduction of innovation |
31%* |
29% |
20% |
| Barriers to innovation |
|
|
|
| Perceived economic risk |
10%* |
10% |
6% |
| Direct costs of innovation |
10%* |
12% |
7% |
| Cost of finance |
11%* |
9% |
7% |
| Availability of finance |
12%* |
10% |
7% |
| Lack of qualified personnel |
8%* |
7% |
4% |
| Lack of information on technology |
1% |
2% |
2% |
| Dominant firm |
4%* |
8% |
5% |
| Uncertainty of demand |
5%* |
7% |
4% |
| UK regulations |
4% |
4% |
4% |
| EU regulations |
2%* |
5% |
4% |
| Innovation collaboration (openness) |
|
|
|
| Collaboration with UK partners |
33%* |
36% |
22% |
| Collaboration with EU partners |
13%** |
19% |
7% |
| Collaboration with partners from other countries |
14%* |
15% |
7% |
| Public support for innovation |
|
|
|
| UK regional support |
6%*• |
9% |
3% |
| UK national support |
11%* |
12% |
4% |
| European support |
3%* |
3% |
1% |
| Total observations |
(764) |
(2,454) |
(10,423) |
Source: UK Innovation Survey 2015, ERC analysis.
Notes:
- *indicates statistically significant creative industries sample proportion from the corresponding manufacturing sample proportion at the 95 per cent confidence level.
- •indicates statistically significant creative industries sample proportion from the corresponding services sample proportion at the 95 per cent confidence level.
When it comes to innovation barriers, the creative industries are more likely to identify the risks, costs and financing of innovation as well as lack of qualified talent. However, creative businesses do not consider demand uncertainty and regulations as especially important barriers to their innovation activities. From a geographical perspective, the majority of partners with which creative businesses collaborate come from within the UK (33 per cent) followed by partners outside Europe (14 per cent). This contrasts with manufacturing, which relies proportionately more on European partners (19 per cent) for innovation than partners outside the EU. Finally, according to the UK Innovation Survey, proportionately fewer creative businesses receive support for innovation from the UK regional structures compared with manufacturing but not services. There is little difference across sectors in the extent to which how many businesses receive support at the national level or from the EU.
Conclusions
Analysis of the UK Innovation Survey emphasises the importance of innovation in the creative industries, with firms investing heavily and achieving levels of innovation above those in other services sectors and in some cases, like R&D, comparable with manufacturing. Organisational and process innovation prove to be most common. Firms in the creative industries also seek to protect their innovations using a range of both formal and strategic intellectual property protection strategies. Copyright is particularly important.
This said, it is important to recognise one significant limitation of the UK Innovation Survey for looking at creative industries. Many creative businesses are small with less than ten employees - micro firms – and these micro firms are, due to the survey design, excluded from the UK Innovation Survey. If, as the industrial strategy suggests, the development of creative industries is a policy priority we need to re-think the exclusion of micro firms from this type of government survey.
Acknowledgements
With thanks to Hasan Bakhshi and George Windsor for their work and editorial support on this document.
Endnotes
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