Scaling up the creative industries

Professor Feng Li is Chair of Information Management at Cass Business School.  He recently published a research paper The digital transformation of business models in the creative industries: A holistic framework and emerging trends in Technovation which discussed how the creative industries can develop improved business models through digital transformation.  He now considers these ideas in an exclusive opinion piece for Cass.

What are the creative industries?

The creative industries in the UK are worth £92 billion, employ 2 million people and are growing twice as fast as the rest of the economy, with an annual service export value of over £21 billion.  From arts, architecture, publishing and advertising to films, TV, music, fashion and design, video games and crafts, these industries represent some of the sectors and domains where the UK possesses genuine global competitiveness.  They are not only a significant engine of economic growth, job creation and social cohesion, but also a hub of managerial innovation and experimentation and new organisational and business practice which stimulate innovation and entrepreneurship in other sectors of the economy.

Although the creative industries in the UK are highly adept at developing new ideas, and many creative businesses have achieved enviable commercial successes both in the UK and internationally, the creative industries as a whole are still far from as effective as they could be.  This particularly applies to exploiting and capturing the full commercial and cultural values of their creations and rapidly scaling up their operations internationally.  This is clearly reflected in the large number of small and micro businesses in these sectors; and the financial struggles experienced by a large number of highly skilled people in creative professions.

Identifying and adopting new business models that are financially sustainable and operationally scalable, particularly those enabled by digital technologies, can help British creative businesses to scale up their successes and capture a larger share of the value they create, further increasing their contributions to the British economy.  This has been recognised within the UK’s Industrial Strategy, and in particular, the new Sector Deal for the Creative Industries which follows similar deals announced for the life sciences, automotive, construction and artificial intelligence sectors.

The success of any commercial venture depends critically on the underpinning business models to take them to market, without which, the economic and social impacts of the these ventures – even those based on the most creative ideas or advanced technologies - cannot be realised.  While the Sector Deal is a step in the right direction, it could be more effectively focused, particularly in supporting creative industries to adopt new business models enabled by digital technologies.

Digital transformation of business models in the creative industries

The creative industries provide an ideal setting for a systematic examination of business model innovations. They cover the full range of organisational characteristics and activities, from large multinationals, national and regional businesses to micro-businesses; and from digital native sectors (such as digital games) where many new business models are developed, traditional sectors that have been transformed by digital technologies (e.g. publishing, advertising, design and music), to areas where the full impacts of digital technologies are still to emerge (e.g. fine art, craft, museums and cultural heritage).  Understanding the digital transformation of business models in the creative industries is not only important for the future growth of the sector, it can also shed light on the future directions of digital transformation in the wider economy.

The huge gap between rhetoric and reality

Based on empirical evidence from a comprehensive study, this research first identified significant emerging trends in the digital transformation of business models in some leading creative businesses around the world, and then explored the extent to which these trends have been adopted by the creative industries in the UK.  The study found that although some creative businesses are at the forefront of adopting new business models enabled by digital technologies, such new business models are only slowly adopted by the creative industries more generally and the gap is considerable.  Most businesses in the creative industries are still at relative early stages of adopting new business models enabled by digital technologies, which is true even in some digitally native sectors.  However, a small number of creative businesses are actively experimenting with new ways of creating and capturing values through digital innovations.

The portfolio business model

A significant emerging trend is the increasing adoption of a ‘portfolio’ of business models to maximise revenue generation; and this study identified at least four distinctive variants. First, the market portfolio, when some firms simultaneously deploy two or more business models to tackle different market segments. Each of the business models might not be new, and the financial returns in some markets segments are often financially modest, but by sharing costs, the combined revenues often make the ‘portfolio’ financially lucrative, thereby making each market niche viable.

Secondly, since many creative products can be consumed at different levels of value-added, or re-combined as new products, this creates opportunities to develop a wide range of new niche products by monetising different stages of work-in-progress. This is called the product portfolio.  For example, an oil painting by a famous artist is sold as the final product, but the images of different stages of producing the painting is digitally captured and consumed either as new products, or as supplements to the final product. One frame of an unfinished painting can be consumed digitally or printed out as a new piece of artwork. Similar examples were found in films, music, publishing and media.  The revenues and impacts are maximised and the resilience of the business is enhanced.

Thirdly, the multi-sided business models, which have been widely adopted by large digital firms – Google, Facebook, Alibaba and Tencent - in the USA and China, where value is created through interactions with multiple stakeholders upstream, downstream and horizontally.  However, some creative businesses in the UK are experimenting with similar business models.  In the music industry, for example, revenues are increasingly extracted through ‘360 degree contracts’, not only from music sales, but also from advertising, live concerts, merchandise and appearances. Similar examples are found in films and performing arts.

Fourthly, some firms adopt a portfolio of different business models sequentially over time to maximise revenues. For example, a digital artist first charged live audience an entrance fee to experience the process of art creation in his digital studio with 360 degree screens (similar to going to the theatre). The completed digital art is then licenced to clients for a fee.  Eventually, the artworks and bespoke products (e.g. a signed print) are sold to collectors.

By capitalising on core capabilities to maximise revenues from different markets, products and stakeholders over time, the portfolio models can significantly enhance a company’s financial sustainability, reduces risks and increases resilience.  A range of other emerging trends have also been identified by the study.

The creative industries sector deal

The creative industries sector deal includes £150 million of government-industry investment into creative businesses, and a £20 million cultural development fund. This is a good start but much more is needed to help the creative industries to thrive globally.

The deal emphasises that the priority for the sector is scale, particularly in helping the SMEs and entrepreneurs that overwhelmingly make up the sector to grow, but in addition to basic business training, leadership development should focus explicitly on helping creative businesses and entrepreneurs identify and adopt new business models to scale up their businesses and capture the values they create.  This calls for a targeted approach to help creative businesses to address long term business growth alongside the creation of new ideas.

It is essential for creative businesses to work with leading business schools at the forefront of business research in understanding digital transformation and identifying sustainable and scalable business models, and in particular, adopting effective approaches to manage the transition to new technologies, new business models and new organisational forms.

Professor Feng Li (PhD, FBAM, FAcSS) is Chair of Information Management at Cass Business School.  His research examines how digital technologies can be used to facilitate strategic innovation and organisational transformation across different sectors and domains. He is particularly interested in emerging strategies, business models and organisational designs; and advises senior business leaders and policy makers on how to manage the transition to new technologies, new business models and new organisational forms. His research has attracted over £40m external research funding, and key findings have been published in leading academic journals and widely reported by business oriented magazines and newspapers in different languages. Feng is Fellow of the British Academy of Management (FBAM) and Fellow of the Academy of Social Sciences (FAcSS).