finance, investment and the creative industries

Dr Martin SmithSpecial Adviser, IngeniousInternational Creative MBA ConferenceLondon, 30 March 2012

Finance, Investment and the Creative Industries

Our Credentials

• Ingenious: $10 billion plus invested in creative assets since 1998

• More than 5,000 investors

• Investments, Ventures, Corporate Finance and Asset Management

• More than 80 films financed or co-financed, including Avatar

• More than 350 hours of prime-time TV drama financed

• Other investments in music, theatre, film, TV production, games, publishing, and marketing services

• Largest independent investors in creative content in Europe

www.ingeniousmedia.co.ukSlide 2 Ingenious

Structure of the Presentation

• Introduction: conceptual frameworks

• Entertainment industries and the digital revolution

• Exceptional risk profile of creative content businesses

• Main challenges for private investors

• Main challenges for policy-makers

• Qs pre-submitted by UCA

• Concluding reflections


Conceptual Frameworks

• Relatively new stuff!

• Binary divides and contested terminology

─ Art and commerce: show (+) business!

─ Cultural value, economic value

─ “Culture” and “entertainment”

─ Public subsidy, private investment

• Cultural economics/the economics of culture

• Technology, consumer behaviour and the creative process


Entertainment Industries and the Digital Revolution• Schumpeter and “creative destruction”!

• The impact of digital: (1) the “disintermediating” value chain

• Unparalleled opportunities for new entrants

• The ideology of “free” and consumer power

• Implications for the global majors: the breaking stranglehold of the “gate-keepers”

• The meteoric rise and power of the aggregators

• The impact of digital: (2) poor visibility on revenues and profits of new entrants


Technology and the Creative Process


Source: Technology Strategy Board.

Main Challenges for Private Investors

• Exceptional risk characteristics of creative content investment

- Not to be confused with creative services businesses

• Problem of valuing intangibles/IP in a “hits” and “misses” environment

• Fragmentation of markets and audiences

• Media owners having to work far harder to pay for content creation

• Collecting “raindrops” of revenue: licensing fees, royalties and micro-payments

• Shortage of matching business talent in the UK (contrast USA)

• Chasm of understanding between creative and financial communities

• How to compete against “free”!


Exceptional Risk Profile of Content Businesses

• Our focus is on the economic drivers behind the creative content business model – not the content genre

• Exceptional risks of creative content businesses:

• This risk profile is a distinctive barrier to investment not suffered by other industries, even other knowledge economy industries


High Sunk Costs “Hit Driven” Business

Wildly Uncertain Revenues

Portfolio Approach Necessary

Main Challenges for Policy-makers

• Industrial policy, or leave it to the market?

• Poor data, especially on economic “spill-overs”

- Dangers of “lobbynomics”

• Outdated IP regulation: the DEA and Hargreaves (UK)

• Maintaining public investment and creative infrastructure in an age of austerity

• “access to finance” and lack of business capacity: domestic and inward investment

• The skills agenda and the mobility of talent

• Fiscal policy: intense global competition


Qs Pre-submitted by UCA

• What do you see as the key challenges to finance for UK creative industries?

• What and who do Ingenious Media invest in?

• What are the key things you look for when investing in a business?

• Do you only finance blockbusters?

• Can education support in the development process?


Concluding Reflections

• The UK is a great feeding ground for creative talent

• But it has lost positions of business leadership in the global creative economy

• In music, film and games we have become a giant and successful off-shore “facilities house”

• Much of the commercial upside/serious profits generated by our creative and technical talent base goes overseas

• Are we content with that?


finance, investment and the creative industries

Documents

creative industries

creative infrastructure

creative process

creative destruction

creative assets

digital revolutionschumpeter

policymakersindustrial

knowledge economy industries