THE ECONOMY OF CULTURE IN EUROPE

Study prepared for the European Commission (Directorate General for Education and Culture)

October 2006

With the support of: MKW WirtschaftsforschungSaarbrücken, Innsbruck, München

The Ambition

• Put a figure on creative value

• Consider Europe’s competitiveness in the creative sector

• Provide evidence that the cultural and creative sector deserves support from policy makers

• Present a strategy for a creative Europe

• The context: the Lisbon Strategy

The Methodology and its limits

• Scarcity of available statistics• No standardised data categorisation at EU level

Developed own Methodology:• Eurostat/Amadeus/Unesco/EAO databases• Inventories of existing studies • Industry profiles• Case Studies

Excludes: Self-employed, small companies, large parts of the public economy, electronic commerce (“new economy”)

Results are a conservative estimate

Delineation of the cultural & creative sector

CIRCLES SECTORS SUB- SECTORS

CORE ARTS FIELD Visual arts CraftsPaintings – Sculpture – Photography

Performing arts Theatre - Dance – Circus - Festivals.

Heritage Museums – Libraries - Archaeological sites - Archives.

CIRCLE 1:CULTURAL INDUSTRIES

Film and Video

Television and radio

Video games

Music Recorded music market – Live music performances – revenues of collecting societies in the music sector

Books and press Book publishing - Magazine and press publishing

CIRCLE 2: CREATIVE INDUSTRIES AND ACTIVITIES

Design Fashion design, graphic design, interior design, product design

Architecture

Advertising

CIRCLE 3: RELATED INDUSTRIES

ICT manufacturers

DCMS’ approach to the cultural industries

• Creative industries include advertising, architecture, the arts and antiques market, crafts, design, designer fashion, film and video, interactive leisure software, music, the performing arts, publishing, software and computer games, television and radio

• DCMS’ findings for the UK in 2001:– Turnover: €165.43 billion– Value added to national GDP: €85 billion (6.8% of national

GDP)– Exports: €15.1 billion (4.7% of total exports)– Employment (private sector): 1.3 million people (4.3% of total

workforce)

Quantifiable socio-economic impact of the cultural and creative sector

TURNOVER The sector turned over more than €654 billion in 2003• Car manufacturing industry was € 271 billion in 2001.• ICT manufacturers was € 541 billion in 2003 (EU-15 figures)

VALUE ADDED TO EU GDP

The sector contributed to 2.6% of EU GDP in 2003 Real estate activities accounted for 2.1% The food, beverage and tobacco manufacturing sector accounted for 1.9% The textile industry accounted for 0.5% The chemicals, rubber and plastic products industry accounted for 2.3%

CONTRIBUTION TO EU GROWTH

The sector’s growth in 1999-2003 was 12.3% higher than the growth of the general economy.

EMPLOYMENT In 2004 5.8 million people worked in the sector, equivalent to 3.1% of total employed population in EU25. Total employment in the EU decreased in 2002-2004, employment in the sector increased (+1.85%).

Contribution of the European cultural and creative sector to the national economies

Source: Eurostat and AMADEUSData elaborated by Media Group

Turnover 2003, all sectors included (€ million)

14.60322.174

3185.577

10.111

612

10.677

79.424

126.060

6.922

84.359

508 759 673 236.235

61.333

18.155

884 2.205 2121.771

2.498

6.3584.066

6.875

33.372

132.682

14.841

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

Contribution to European competitiveness

The unrecognised competitiveness of the sector

• The cultural & creative sector suffers from stereotypes when it comes to assessing its economic performance

• Culture often perceived as a non-economic activity • Common perceptions:

– Individual artists– Heavily subsidised public organisations– “Cottage industry”

Assessing the competitiveness of the sector

Productivity: ratio between value added and employment costs• Average productivity level was 1.57 in 2003 (UK: 1.38); similar

to productivity level in other service sectors (typical productivity level of service industries included between 1.2 and 1.9)

Profitability: operating margin of companies • Average European level is 9% in 2003 (profit margin of 5% up

to 10% considered as an indication of a healthy level of profitability for service industries)

• UK: 8.7%

Intangible assets: ratio on turnover• EU25 Average is 4.2% (by comparison, the average ratio for

the Finnish ICT sector is 4.8%)• UK: 8.4%

Cultural Employment – Main Findings

• A total of 5.8 million people worked in the cultural & creative sector, equivalent to 3.1% of total employed population in the EU25

• Evolution 2002-2004: +1.85% (General trend = -0.04%)• Cultural employment is characterised by an inherent “flexibility”

requirement and “mobility” constraint• The sector is overwhelmingly made up of small/micro

businesses and self-employed• The level of qualifications is higher in the cultural and creative

sector than in most of the sectors of the economy

Cultural employment is of an “atypical” nature → frontrunner of tomorrow’s job market

Cultural and cultural tourism employment in the EU25 (2004 - in thousands)

957

181

883

182

467

156

496

122

379

180

296

47

231

34

136

20

97

42

89

27

76

40

94

19

79

32

81

22

81

9

78

11

51

20

53

10

46

16

29

1229

6

295

29

3

19

3

8

0

7

1 3

2 4

1

0

200

400

600

800

1000

1200

DE UK IT FR ES NL PL SE EL CZ PT BE AT HU DK FI BU NO IE SK SI LT LV EE CY IS MT LU

Cultural employment Cultural tourism employment

The role of public support

• Different levels of intervention– Financial (cinema – heritage – performing arts)– Regulatory (books, TV)

• Difficult to compare data - definitions

• Estimated total public expenditure (EU28) €46.6 billion (source: KEA) (UK: €5.1 billion)

• Estimates of licence fees for public broadcasters in 2000: €16 billion• Public support to culture as a share of national GDPs is

between 0.5% and 1% of national GDPs

• Justification: democratic empowerment, education, promote values, reinforcement of identity, social cohesion, factor of economic progress

The indirect contribution of the cultural & creative sector to the Lisbon Agenda

Indirect contributions of the cultural & creative sector to Lisbon

• The cultural & creative sector is crucial for the take off of ICTs

• The cultural & creative sector has a multiple role to play in local development – powerful catalyst for the tourism industry– strategic importance for growth and employment in cities

and regions (“creative cities”)– significant social impact (culture as a tool for urban and

regional regeneration)

The interdependence between the cultural and creative sector and ICT

INCREASED GROWTH PROSPECTS FOR ICTsMedia content → key driver for ICT uptake

Examples: broadband penetration, 3G mobile phones, digital TV

GROWTH PROSPECTS FOR THE CULTURAL & CREATIVE SECTOR Digital technology is radically transforming the production, circulation and consumption of content, leading to new supports, applications and content offerings

The Long Tail Theory

Outlook - PWC

• New spending streams on ICT-related media (Internet, digital music, online video games, digital TV, VOD) will account for 12% of the total increase in entertainment and media spending until 2009

• Compound annual growth for Europe is forecast at 6.5%

• From a market valued at USD 417 billion in 2004 to USD 572 billion by 2009

Source: Global Entertainment and Media Outlook – PWC (June 2005)

Culture as an engine for the emergence of creative hubs and local development

Three distinct roles for culture in local development:

1. Cultural activities attract tourists

2. Culture goods and services produced at a local level and benefiting from “cultural clusters”

3. Cultural activities have significant social impacts

Tourism: one of the most important industries in Europe

• Tourism sector generates 5.5% of EU GDP (3 to 8% in individual member states) and up to 11.5% when integrating indirect impacts

• 2 million enterprises employing more than 9 million people across Europe

• Europe: most visited destination in the world (443.9 million international arrivals in 2005)

• Europe: 55% market share of the global tourism industry

Culture as an engine for tourism

• Heritage

• Arts fairs

• Museums and exhibitions

• Festivals and trade fairs

• The performing arts

• Film tourism

Film tourism in the UK

People are interested in visiting locations in which a film or a scene was shot

• Doubling of visitors in Alnwick Castle, location for Hogwarts School of Magic in the Harry Potter films. Overnight revenues from tourism increased to almost €13 million a year

• Queen Elizabeth suite at the Crowne Hotel, Amersham, has been booked up a year in advance after “Four Weddings and a Funeral”

• Rosslyn Chapel on the outskirts of Edinburgh is well-known thanks to the numerous film scenes screened there. It can easily be combined with other cultural attractions in Edinburgh

Creativity as a tool for local development (1)

“Creative cities”

London & the creative industries:• 6% annual growth between 1997 and 2002 (3% for the whole economy)• 40% of the UK’s creative capital• Second largest business sector (29 billion GBP annual turnover) and third

largest sector of employmentMontréal:• The “video games industry’s Hollywood”• A broad range of tax credits and local support measures• Multimedia companies provide 3,500 jobs (2005)

Creativity as a tool for local development (2)

A Welsh creative family enterprise: Ty Nant

• Designed an innovative cobalt-blue bottle of mineral water• Won a long list of Design Awards• Ranks first by value in the UK (estimated turnover of around £4 million)• Exports 60% of its production to some 30 different countries• Employed 38 staff in Llanon in 2004

The role of culture in urban and regional organisation

Culture is a major tool for territorial and social cohesion

Main objectives:

• Cultural diversity• Inclusiveness• Territorial cohesion• Community identity

A Welsh success: the Aberystwyth Arts Centre

• Located within the Aberystwyth University Campus, the Centre hosts and organises a wide variety of activities including performing arts, cinema and art education.

• The Centre is the main regional employer: 40 full time and 119 part time employees

• Turnover: £3.3 million in 2004-2005 (71% from earned income, 29% from public grants)

• Significant indirect impact on the local region: £5.7 million of turnover in total, £1.6 million of income, and 150 full time equivalent jobs→ The Centre is both a driver of local demand and activity and a driver for visitors. It also fulfils essential education and enlightenment functions

A strategy for creativity: Europe, UK, Wales

A strategy for a Creative Europe/UK/Wales

• Europe’s competitiveness rests in culture and creativity

• Post-industrialised knowledge economy

The challenges:• Europe’s global and national champions• Weak export potential• Sector is SME-driven• Nature of cultural products• Market fragmentation

The European cultural and creative sector - Strengths and weaknesses

Plenty of individual talent but with limited business skills and attracted to the USA (creativity drain)

Some of the largest competitive players at global level

but they lack same power and leverage than the US-based creative industries on governments

A myriad of creative SMEs with strong local presence

market access and undercapitalisation problems

Importance of the public sector but a resistance in taking stock of international challenges

Sustained consumer demand (growth in demand for content)

but poor understanding of consumers’ demand in relation to the digital economy

Strong IP laws in the EU but poor enforcement in some countries (piracy levels) and subsidising broadband rollout.

Recommendations for a Creative Europe/UK/Wales

1. Establish a stronger quantitative evidence base for policy makers

2. Integrate the culture and creative sector into the Lisbon Agenda

3. Support the Digital Shift4. Address chronic under-funding of cultural & creative

industries5. EU regional policy to boost creativity6. Support cultural diversity in Europe and internationally7. Create coherence and engage with the creative sector

Next steps

• EC Communication on Culture (spring 2007)

• Culture Council in Brussels (24-25 Ma y 2007)

• Follow-up with the Portuguese and Slovenian EU Presidencies

Download the PDF file of our study The Economy of Culture in Europe

from the welcome page at www.keanet.eu

THANK YOU!