Government should step back to allow the creative industries to flourish

By Dale Bassett, Research Director of Reform.

The independent think tank Reform today publishes a collection of essays on the future of the creative industries. The book, "A creative recovery", features contributions from leading experts on media policy and a foreword by the Culture Secretary, Jeremy Hunt. An extended version of this essay appears in the book, which is available at www.reform.co.uk.

The UK is in a unique and strong position as the world of media and the creative industries continue to flourish, develop and morph into forms we can barely imagine today. The pace of change is dizzying: Facebook was established only seven years ago and Google a decade ago; indeed, the world wide web itself has been in existence barely 20 years. The creative industries in the UK will become even more important as Government seeks to rebalance the economy away from financial services, globalisation provides the threat of competition but the opportunity of new markets, and technology reduces costs for existing companies but also barriers to entry for competitors.

There are a number of threats that could jeopardise the UK’s position as the world moves on. Technology could entrench existing competitive advantages at the expense of innovation. Piracy continues to threaten investment in content. The movement of revenues away from the creation of content to its aggregation (think of Google) could endanger the supply of content, as could the fragmentation of revenue and the market as a whole as more content providers, TV channels and publishers fight for advertisers’ and consumers’ money.

Yet the UK has got this far, punching above its weight, and leading the world in quality of output and innovation in technology, content and revenue generation. How can the sector enshrine this competitive advantage in this brave new world, in the face of challenges domestic and foreign?

The economics have changed

Undoubtedly, the economics of the new media world require a big adjustment on the part of “old” media companies. Content distributed digitally will earn less than on traditional analogue platforms. Advertising revenues are split amongst more TV stations and indeed more platforms, fragmenting the money available for the creation of new content. Pay TV has rapidly increased in popularity but users are not inclined to pay for “commodity content” such as general news. The licence fee may be under threat from the Coalition Government.

At the same time, the world of content creation has been thrown open. Just a few short years ago this was the monopoly of an elite of companies in the media world; no more. Open sourcing, YouTube and the blogosphere mean that anyone can now create content and distribute it to a mass audience. Media companies must develop new business models to accommodate the new, open, competitive, cross-platform market, realising that this can in fact increase the consumption of media – and therefore, potentially, revenues.

Time for government to step back

Will Government let the sector adapt to this new economic reality? As competition increases, regulation should be pared back. If this does not happen, the commercial sector’s revenues could shrink and investment in content creation could fall. Combined with increased pressure on the licence fee, this could create a downward spiral that endangers the future of the creative sector in the UK.

But the current environment of clumsy regulation and heavy intervention seems unlikely to leave the commercial sector much room to develop and expand in these ways. Over-regulation of the sector needs to be reduced to allow the creative industries to realise their potential.

A new role for policymakers

What then should be Government’s next step? While the threats to the future health of the creative industries are profound, the right policy decisions can help to create an environment in which the sector can realise its potential, capitalising on its already impressive strength. There are five main areas for policymakers to address.

Infrastructure

The case for investment in infrastructure is clear: without it, it will be impossible for the creative industries to realise their full potential. This does not mean that a fiscally-straitened Government necessarily needs to spend cash itself – but it needs to achieve a balance that encourages private investment while protecting consumers’ interests.

Intellectual property

Piracy is perhaps the single biggest threat to investment in content creation. Yet as long as the market fails to provide what consumers want, it will continue to thrive. Government must create a level playing field and better enforce existing copyright law. Even more importantly it must find the right balance of intellectual property protection for the new digital world, allowing rights holders to secure a decent return on their investment but not stifling innovation in distribution and use of content or the entry of new players into the market.

Competition and regulation

As the shape of the world changes, so must the shape of the industry if it is to survive. Companies must compete – but they will also need to co-operate, collaborate and consolidate to develop new solutions to the challenges of a sector in constant flux. Policymakers must strike a balance between ensuring healthy competition in the interest of the consumer and allowing companies to develop new strategies (including acquisition) to respond to this ever-evolving world. The line between TV and internet has almost completely gone; the market definitions used by government and its regulators in constraining companies’ activities should be updated to reflect this reality. Similarly, the anachronistic regulatory environment must be updated. Analogue-era regulations that distort competition between broadcasters are not appropriate for the digital world.

Public Service Broadcasting

The existing Public Service Broadcasting (PSB) model, well suited to the analogue age, is hopelessly inappropriate in a world of hundreds of channels, iPlayer and YouTube. The BBC will find it increasingly difficult to justify its £3.5 billion licence fee that, irrespective of its potential impact on the commercial sector, seems simply unfair in a time when an increasing number of people just do not watch the BBC’s output. PSB obligations on the other old analogue broadcasters seem unwarranted in the new environment.

The business environment

If the Government wants to attract investment to the UK creative industries, it should focus on creating a competitive business environment in which the sector can thrive. The right regulation, infrastructure, intellectual property protection and competition policy are of course all key parts of this. So is the more general business environment, including tax policy. And crucially, the Government must ensure the UK continues to build a highly skilled workforce, adaptable and ready to tackle the as yet unknown challenges the sector will face in the coming years and decades.