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The ambition of the European Union is to address the EUR 8 billion funding gap which is preventing the cultural and creative sector (CCS)[2] from growing, creating more jobs and stimulating economic and social renaissance. The European CCS is world leader in creativity but lacks the capacity to scale-up largely because of a deficiency in funding to allow it to reach out to expanding markets.

The EU has yet to make the most of its creative industries for the latter to benefit from the opportunities presented by the Single Market and by a globalised economy. We observe an increasing demand for creative products and services in emerging countries which are moving from manufacturing to service-based economies. On the other hand, people request authenticity and value the expression of local singularities.

In 2016 the European Commission created a Guarantee Fund with a budget of 180 million aimed at encouraging banks and other financial intermediaries to invest in the CCS through guaranteed loans. Research shows that financial intermediaries have a poor understanding of the CCS and doubt in its capacity to provide return on the investment. At the same time, the large majority of CCS entrepreneurs find it a waste of time to seek funding from financial institutions (64% in a recent UK Survey)[3].

Overcoming biases and prejudices

Access to finance is a twofold issue: understanding and managing different business cultures is one and the funding gap is another. The scope of the CCS’ economic and social contribution is not yet palatable to financiers looking to invest in the creative, experience and digital economy. The sector differs from “traditional” investment areas to the extent that it not only delivers financial results but also presents a social focus contributing to a society’s well-being, solidarities and ethics. The world of CCs is the world of artists, performers, directors, producers, publishers, designers and cultural workers who contribute to the production, distribution and marketing of cultural products and services.

Prejudices abound. They are linked to the artistic nature of the activities and images associated with art and culture: non-essential, subsidised, elitist, trivial or unprofessional because touching on the poetic, subversive, the utopian, subjective or the irrational. This vision of the CCS has hardly changed even with the emergence of cultural industries, still considered in most European countries as marginal and dependent on local public grants yet to be considered by analogy to R&D grants in the technology sector. The reason for such perception is mainly due to the fact that companies are largely micro in size, driven by passion and often not-for profit in nature. The market analysis that follows aims at addressing prejudices and misconceptions with a view to help improving investment conditions.

Creativity is driving the New Economy

Whilst cultural economics and statistics remain a recent discipline[4] it is important to highlight that today’s world is about being creative, generating dreams, cultivating imagination, design or entertainment. These activities are part of industrial, commercial or public policy logic to generate economic activities, propose appealing and valuable products and services or to make places more attractive (whether as part of urban and rural regeneration or to attract tourists and investors). Socially the arts and culture are at the forefront of the battle against exclusion, ill feelings and low esteem to generate solidarities and cultural pride essential for social cohesion. Art contributes to change perceptions, to express human’s ability to create and to question “progress”. it is an essential element of humanist societies that privilege individuals’ freedom of expression. These contributions of the CCS, whether in product/service design, user experiences or well-being, are rarely measured. Statistics focus on the capacity of the CCS to provide entertainment or in manufacturing and distributing cultural products or services with a siloed approach indifferent to new collaborative cultural work practices.

A largely service based post-industrial economy gives prominence to user experience, emotion, aesthetic, meaning, human centred innovation or entertainment. Art, fashion, design, image, games, architecture and music are essential elements of industrial, technological and commercial imperatives to bring style, beauty, edutainment or meaning to the act of consumption. Manufacturing is about seducing beyond a product’s functionality. In this spirit Apple became the largest company in the world. Steve Jobs, Apple’s founder stated: “You know, everybody has a cell phone, but I don’t know one person who likes their cell phone. I want to make a phone that people love”. The creative, emotional and intuitional dimension are at the heart of modern and competitive economies[5] as well as public policies.

As strategic elements of competitive differentiation CCS activities are key factors to help businesses give a soul to products (through design, entertaining retail space or subscription services ) as well as assisting public authorities in planning public spaces through a strong cultural offer capable of retaining/attracting talents or in reinforcing social cohesion and conviviality. Cultural investment is increasingly linked to real estate and community development. CCS are also decisive elements in the development of digital services, in driving social media engagement, in collecting data on digital networks to generate advertising revenues as well as to serve data mining[6]. Besides practical and materialistic considerations art and artists’ intervention, at the core of CCS activities, are about elevating the human soul, challenging spatial, intellectual perceptions. They constitute a unique source of aesthetic and creation giving a sense of purpose. Financing CCS is about investing in entrepreneurs and cultural workers that contribute to make life more attractive, interesting, challenging and meaningful.

Furthermore, investment in CCS is about supporting the development of a networked collaborative economy that prototypes and experiments new ways of working and of sharing resources contributing to economic and social innovation. Creative hubs and cultural incubators or maker spaces are representatives of this new form of post-industrial activities triggering multi-disciplinary collaborations across skills and competences. This investment supports entrepreneurship, innovation, urban regeneration, sustainable tourism, artistic practices as well as more liveable places. For this reason, it is key to highlight that CCS are at the heart of the new economy to the same extent as ICT, mechanical engineering or the automotive industry. Today we can assert from our international experience that the EU is a world leader in creativity whether in fashion, design, architecture, cinema, music writing and publishing, advertising, cultural tourism, games, art management and dealing and artistic performances. This position is due to a large talent pool, a strong education system in art and design or cultural management as well as powerful cultural institutions (museums, orchestras, opera houses, theatres) throughout the continent. It is also the result of common social and political values stressing the importance of freedom of expression and collective memories (heritage) that contribute to nurture a unique creative ecosystem. Public policies on intellectual property, taxation, trade, education and art/culture have played a decisive role in enabling the development of this creative environment.

Sizing up the CCS market

This leadership has yet to appear in statistical overviews. Eurostat values the total value added of CCS at 290 billion in 2016. This is less than a quarter of the value of copyright industries in the USA[7] . Statistics at national level, when available are often more telling.

  • The German CCS in 2016 was valued at 99 billion[8]. CCS are as big as mechanical engineering in Germany. It is twice the GVA generated by the chemical industry or energy supply.
  • The UK creative economy alone represented 3.2 million jobs in 2017 (including IT software)[9] – with the sector valued at 118 billion. Since 2011 the UK creative industries workforce has added close to half a million job – an increase of 28% [10].
  • In France, culture and creative industries are defined more narrowly than in the UK for example excluding IT software. It employed 1.3 million in 2015 with a growth of 1.2% from the first study in 2013 (as opposed to 0.9% for the rest of the economy)[11]. In July 2017 BPI France estimated that the CCS sector (including gastronomy, luxury (fashion and beauty sectors) represented 100 billion around 5% of French GDP[12].
  • Italy’s leadership in heritage, fashion, crafts, publishing, gastronomy, design is recognized internationally[13]. The same for the Netherlands, Sweden and Denmark in architecture, TV series, games, music publishing and industrial design. It is accepted that Sweden’s balance of trade owed as much to Abba than to Volvo in the 80’s. Belgium, Hungary, Poland and Lithuania have seen a strong growth of their audiovisual industry largely driven by foreign investment and excellent technical skills and facilities. Cities like Lisbon, Barcelona or Brussels have become international hotbeds of creativity.

Taken together, figures from France, Germany and the UK already overtake Eurostat which gives a too narrow definition of CCS and which data are yet to reflect the extent of CCS economic and social contribution[14] notably in the fields of design, crafts, heritage, social media, live events (festivals), digital media platforms (such as Spotify or Deezer) and fashion.

Overviewing 11 cultural markets in the EU 28, EY estimated in 2012 that, creative and cultural industries (excluding art, heritage, IT software and design) were worth 535.9 billion[15]. Job creation in CCS grew on average by 3.5% a year from 2000 to 2007, and continued to grow at 0.7% annually between 2008 and 2012, even as the number of jobs in the rest of the economy fell 0.7%. With more than 7 million employees, of which 19.1% are people under the age of 30, culture and creation rank in the top three employers in Europe, just behind construction and food and beverage. CCIs provide work for 2.5 times more people than automotive manufacturers.

What surveys show at European level is that CCS is as large as the ICT sector, the investors’ darling. Statistics in France, Germany and the UK also show that they are growing faster than the rest of the economy and their development is intrinsic to new market demand and technology innovation. This is confirmed by Eurostat data showing that the number of companies and start-ups in the CCS are growing year after year[16]. Most recent figures from Eurostat show that around 8.4 million people are employed by the cultural sector across the EU (3.7 % of total employment). In 2016 there were 549 000 more (+ 7 %) cultural jobs in the EU than in 2011, showing an annual average growth rate (AAGR) of + 1.3 %[17].

In relation to market trends, total global Entertainment and Media (E&M) revenue will see a 4.4% AAGR rise over the five-year forecast period through 2022, reaching $2.4 trillion in that year, from $1.9 trillion in 2017[18]. In the EU, the video on demand (VOD) market has grown from 1,165 million revenues in 2013 to 5,131 million revenues in 2017. In particular, SVOD revenues have experienced exponential growth, from 363 million to 3,649 billion[19].

Three key trends also serve to show the importance taken by CCS in society:

  1. CCS are priority investment at city level to generate economic and social development.
  2. Big techs are main investors in CCS.
  3. Increased EU and local investment in CCS mitigate investors’ risks.

 

  1. CCS are main drivers of cities’ investment

 

“A city that wants to attract creators must offer a fertile breeding ground for new ideas and innovations. In this respect, part of what sets cities such as New York and London apart cannot be captured by rankings. Recent college graduates are flocking to Brooklyn not merely because of employment opportunities, but because it is where some of the most exciting things in the world are happening – in music, art, design, food, shops, technology and green industry. Economists may not say it this way but the truth of the matter is: being cool counts”.

Michael Bloomberg, former mayor of New York City and founder of Bloomberg the financial and data company.

 

Creative Cities are drivers of CCS development and acting as laboratories for the emergence of a creative economy that aggregates talents from various disciplines in business, technology, science and culture. Cities investment is due to increased evidence of the impact of cultural investment on urban regeneration. As a result, a large number of cities have made the development of their CCS a policy priority as part of economic development. Citieswith the ambition to attract talents and to become known as places of destination are on average spending 10 to 15% of their budget on culture.[20] In the EU, more than 100 regional authorities and countries are including cultural consideration in their Smart Specialisation Strategy, a pre-condition to access EU structural funds[21]. As a result, investment with a cultural policy scope is taking a different dimension serving innovation and regional development beyond cultural goals.

A modern “smart” city is one that offers cultural amenities (e.g. theatres, cinemas, shared spaces), free digital access to facilitate access to information, creative incubators, maker spaces, living labs, festivals, quality food and entertainment, art and design schools and artists’ residencies to attract talent and investment as well as to generate economic activities (including in culture and creative industries). In a post-industrial context, attractive cities are characterised by being home to smaller, specialized and networked interdependent organisations working in co-working spaces, and creative hubs. The co-operative environment facilitating networking and collaboration is a fundamental feature of successful cities wishing to support new forms of entrepreneurship and innovation. Most advanced cities are building this ecosystem to remain attractive but also to replace marginalised, abandoned (from outsourcing) or polluting industrial activities. This attractiveness contributes to the entire local economy from real estate, entrepreneurship, foreign investment or tourism. Investing in CCS creates an opportunity to offset industrial and demographic decline. It is also the an innovative way of addressing contemporary urban challenges such as unemployment, social exclusion and discrimination. Boosting local self-esteem and confidence among local communities, CCS are also instrumental in preventing talent drain and depopulation.

Local administrations are often better equipped to understand the peculiar potential of their city’s local cultural resources, to improve living conditions, to increase attractiveness and to generate new businesses or activities. With this specific knowledge and position, they can become financial intermediaries’ essential partners in improving funding access.

Figures from Berlin and London are enlightening:

  • 20% of Berlin businesses are active in the cultural and creative industries[22]. CCS generates 8.5% of Berlin’s gross value added in 2014. Every eleventh person is working in the creative industries in Berlin. It is part of policy on innovation to support the implementation of design approaches in other industries to nurture cross-industry collaborations and creative spillovers. Berlin has more than 50 innovation labs and creative hubs.
  • London’s CCS represents 11.1% of the city’s total GVA. Between 2009 and 2015 the GVA of CCS increased by 38.2 % (compared to 30% across sectors. 1 out of 7 persons employed in London are working in CCS[23]).

The same picture is true for large and medium sized cities all across Europe[24].

 

  1. Big Techs are large investors in CCS

The successful integration of CCS services (design, music, apps, video, retail experience inspired by luxury fashion, clever and arty marketing) in technology is an integral part of Apple’s success story. Steve Jobs understood the importance of associating creativity with technological innovation to give its products an identity, an aesthetic and a soul[25]. This led Apple to be one of the most successful companies in history. The recent downfall of Apple on the stock market marks the passing of a golden age for the smartphone (hardware). It shows that the action is now in streamed services such as games and entertainment. Service is the second largest source of business for Apple. Selling music subscriptions and the apps or the Cloud now represent 17% of revenues with an average growth rate of 23% per year since 2006. Financial analysts see this as a ’primary growth engine’. Apple services (largely entertainment) now represent 10 billion in quarterly revenues[26]. The target annual revenue is set at $50 billion by 2020[27]. This is transforming Apple into one of the largest entertainment/media company in the world. Apple is only one example to illustrate this trend.

With globalization and digital shift creative assets are more and more in demand:

  • to feed in digital networks
  • to justify premium subscription services
  • to develop libraries for mobile video consumption
  • to develop augmented and virtual reality experiences.

Pay TV platforms offer hundreds of channels and AV series are taking new shapes from lasting 30 seconds to one-hour length. This translates in an increased demand for content and creative entertainment supplied by CCS. As evidence of the digital onslaught, the digital global music market became the primary revenue stream for recorded music in 2015, overtaking sales of physical format. Digital revenues now account for 45% of total revenues compared to 39% for physical sales. Performance rights revenues to producers and artists represent the remaining 14%.[28] The EU has a strong music sector and market (publishing, recording, live performances) in all music genres (classical/jazz, pop, rock, rap) with local music (non-English language) representing large market shares.

Consumption of cultural content will increasingly happen on mobile platforms, predominantly smartphones. Total revenue on mobile platforms were $58.6 billion with mobile game representing 82% of all revenues. The game global market is expected to reach $138 billion in 2018, mobile gaming representing more than half of the revenue – $ 70 billion growing 25% year on year. Augmented Reality (AR) and artificial intelligence (AI) enhanced applications will consolidate mobile platforms as primary access to digital services and content. The EU is market leader in game production.

This demand for content is also well illustrated by investments made by big tech firms. In 2013 Netflix, the video streaming services invested 1.8 billion in content, of which 440 million was in non-US content. In 2018 Netflix announced $10 billion investment in content, 1 billion in Europe alone[29]. Recently adopted EU regulations requiring presence of 30% European content on digital platforms will consolidate this demand. Netflix had 137 million streaming household subscribers in 190 countries in third quarter of 2018 (from 33 million at the end of 2012) showing the increased demand for subscription services.

The subscription model is replacing the traditional ownership model, giving CCS new growth opportunities. For instance, Spotify, the European based music subscription services had 83 million paying subscribers in June 2018 growing from 57 million in June 2017. Revenue grew by 39% in 2017 reaching around 5 billion in 2018. Spotify has 157 million monthly active users in 61 countries. The company went public in April 2018.

Alphabet (Google and YouTube – 1.7 billion users) launched a new music subscription service in 2018 to compete with Apple and Spotify. Alphabet is under pressure to seek licence from right holders when uploading videos on You Tube according to draft EU legislation on copyright. Facebook (2.2 billion users) and Amazon are also moving aggressively to develop music and video streaming services. Tencent in China (1.1 billion users) saw a considerable drop in its profit in 2018 following government intervention to limit access to video games thus showing the dependency of digital platforms on revenues from entertainment and cultural services [30].

Mergers and acquisitions in the media sector are on the rise because of the increased value of copyright catalogue (in music, movies, TV, videogames) for media companies. Analysts expect consolidation in the TV and music business with Asian businesses looking for acquisition of creative assets in fashion, music, audiovisual or design[31].

  1. Increased public investment in CCS which acts as a risk mitigator.

It is important to acknowledge the financial and regulatory efforts made by public authorities to encourage private investment in CCS. Independently of the EU Guarantee Fund and the Creative Europe programme[32], there are now a range of powerful dedicated EU policy actions to support the development of CCS in Europe in recognition of the strategic importance of the sectors. CCS investment is now embedded in major EU funded programmes notably in relation to regional development and innovation. The future EU financial framework (MFF 2021-2027) anticipates dedicated actions to support digital media and CCS as part of the digital agenda and Invest EU programmes. EU Trade and External Action policies are also geared towards supporting the development of CCS in third countries seen as essential in nurturing European values, in promoting EU CCS, intercultural dialogue and developing cultural exchanges.

At European and national level public intervention is geared towards sustaining a strong local CCS and to attract investment (notably in audio-visual). Public regulation aims to promote market access for local players and to sustain social objectives. This includes quotas for local content on networks[33], investment obligations, lower VAT on cultural products and tax schemes to encourage investment in CCS (notably in arts and cinema). EU policy on State Aid is allowing State support to cultural industries[34]. A strong intellectual property framework in the field of copyright also contributes to help CCS growth and fight piracy.

National public grants were estimated to amount to 80 billion a year in the sector (2014)[35]. They act as R&D investment in creation and production. A large number of EU countries are keen to support cinema and TV production by offering generous investment terms to make the territory attractive to foreign productions notably Hollywood. Producers are encouraged to cumulate various national funding schemes to limit investment risks. Countries or local authorities also offer manufacturing industries “innovation vouchers” to encourage the call on designers to improve industry processes and marketability of products and services (design, brand narrative packaging or social media presence).

For a New Financial Partnership

Investment in CCS is a way to participate in and to benefit from the growth of the sector and from the increased demand for creative skills and competences. Investment in CCS also strengthens entrepreneurship (including social entrepreneurship) capabilities in local creative ecosystems, it boosts demand for content on digital platforms and finally encourages creative spillovers in other industries. Crossovers across creative and digital start-ups are opening up new growth pockets. The CCS Guarantee Facility is the opportunity to develop a partnership with financial intermediaries involving other investors such as tech companies or public authorities. Risk assessment processes are not fundamentally different from other industries. The Capacity building scheme[36], which is rolled out as part of this Guarantee Facility, aims at providing tools to facilitate such assessment as well as bridge the gap in understanding between the financial sector and CCS. KEA will play its part in addressing the existing funding gaps and in contributing to raise awareness on the potential of the CCS.

 

Philippe Kern, KEA – February 2019


[1] This article has been prepared in the framework of KEA’s work on the Capacity Building scheme of the EU Guarantee Facility provided by the European Commission and operated by the European Investment Fund to encourage investment in the cultural and creative sectors. The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the position of the European Institutions.

[2] Cultural and Creative Sectors are the arts, heritage sector (museums) cultural industries (music, television, film, videogames, publishing) and creative industries (design, architecture, advertising, crafts and fashion).

[3] Creative Industries Council (UK) – Access to Finance, 2018. 72% of creative SME’s using funding said they did not have enough finance.

[4] The first mapping of the CCS in Europe dates from 2006, KEA – The Economy of Culture in Europe, European Commission, Brussels. The first mapping of CCS in France, the State investing the most in the sector (€10 billion/year from the Ministry of Culture) in Europe, dates from 2014 only!

[5] see notably: Gilles Lipovetsky et Jean Serroy, L’esthetisation du Monde – Vivre à l’âge du capitalism artiste, Gallimard 2013, as well as B.Joseph Pine and James Gilmore, The Experience Economy, Harvard Business School Press, 1999, Boston , Scott Lash and John Urry, Economy of Signs and Space, Sage Publications, 2002, London.

[6] BPI France Le Lab, Creativité Déroutée ou Augmentée- Comment le Numérique transforme les industries de la French Touch – Juin 2017

[7] https://iipa.org/files/uploads/2018/12/2018CpyrtRptFull.pdf Copyright industries in the US economy prepared for IIPA, December 2018.

[8] The gross value added (GVA) in Germany was 74.2 billion in 2009. Only the automotive industry is outstripping the CCS sector in Germany with 144 billion – Source Federal Ministry of Economic Affairs and Energy.

[9] www.thecretiveindustries.co.uk (06.09.2018).

[10] The UK Media and Entertainment Sector is worth 106 billion in 2017 according to Deloitte (Media Metrics 2017)

[11] Source EY study 2015 – Panorama de l’économie de la culture et de la création. October 2015. CCS are valued at 83 billion (direct and indirect revenues)

[12] Source: BPI France Le lab – June 2017 (idem)

[13] EY “Creative Italy” Ministry of Culture of Italy, 2016

[14] For a critical analysis of statistical data on CCS please consult KEA, Feasibility study on data collection and

analysis in the cultural and creative sectors in the EU, September 2015 as well as https://keanet.loc/zh-hans/ccs-recommendations-data-collection-2/

[15] https://www.ey.com/fr/fr/industries/media—entertainment/ey-creating-growth-key-facts

[16] https://ec.europa.eu/eurostat/statistics-explained/index.php/Culture_statistics_-_cultural_enterprises#SBS_data.C2.A0:_number_of_cultural_enterprises.2C_value_added_and_turnover

[17] https://ec.europa.eu/eurostat/statistics-explained/index.php/Culture_statistics_-_cultural_employment

[18] Source: Global Entertainment and Media Outlook, 2018

[19] Source European Audiovisual Observatory

[20] This first edition of the Cultural and Creative Cities Monitor from the European Commission (July 2017) shows how well 168 selected cities in 30 European countries perform on a range of measures describing the ‘Cultural Vibrancy’, the ‘Creative Economy’ and the ‘Enabling Environment’ of a city, using both quantitative and qualitative data. https://composite-indicators.jrc.ec.europa.eu/cultural-creative-cities-monitor/

[21] https://ec.europa.eu/regional_policy/sources/docgener/informat/2014/smart_specialisation_en.pdf

[22] Source: Berlin Third Creative Industries Report.

[23] source GLA economics – July 2017

[24] The Cultural and Creative Cities Monitor, European Commission, 2017 provides a common evidence base at city level that highlights the importance of culture and creativity and their contribution to improving socio-economic perspectives and resilience. https://ec.europa.eu/jrc/en/publication/eur-scientific-and-technical-research-reports/cultural-and-creative-cities-monitor-2017-edition. The impact of the opening of the Guggenheim museum in Bilbao is well documented, as well as impact of European capital of culture (see Mons 2015 for instance).

[25]“Leonardo [da Vinci] was the artist but he also mixed all his own paints. He also was a fairly good chemist. He knew about pigments, knew about human anatomy. And combining all of those skills together, the art and the science, the thinking and the doing, was what resulted in the exceptional result”. Steve Job.

[26] FT 03.01.2019 – Apple cuts sales forecasts on China weakness

[27] FT, the iPhone may not be what finally pushes Apple over $1 trillion, Tim Bradshaw 29.05.2018

[28] IFPI Global Music Report 2016

[29] FT 28.08.2018 Netflix plots $1 billion European investment drive.

[30] FT 8.08.2018 and 29.05.2018

[31] FT , Sony ATV boss predicts deal making surge 1 January 2019. Prices have soared — EMI was valued at $4.7 billion in the deal Sony announced in May 2018, more than double that of 2012.

[32] https://ec.europa.eu/programmes/creative-europe/node_en

[33]https://ec.europa.eu/digital-single-market/en/promotion-and-distribution-european-works

[34] http://europa.eu/rapid/press-release_IP-17-1341_en.htm

[35]Eurostat

[36] http://www.eif.org/what_we_do/guarantees/news/2018/kea-deloitte-ccs.htm

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