U.K. Study Says Private Sector Undervalues Creative Industries
U.K. Study Says Private Sector Undervalues Creative Industries

Ed Vaizey, the U.K.'s government minister for culture, communications and creative industries, yesterday (Oct. 10) expressed his dismay at British investors' failure to appreciate the creative businesses' financial value.

Speaking during a media briefing at the London Festival Hall, Vaizey was commenting on Risky Business, a new report by the research institute Demos. The study attacked U.K. investors and financial institutions for failing start-ups in various sectors, including music, film, fashion design and computer games.

And Vaizey agreed that British investors' blind spot to the contribution creativity and intellectual property make to the national economy has driven U.K. talent into the arms of foreign investors.

"There is a cultural obstacle to investment in the creative industries. I do think that there's a real problem there," he said. "Even when they (creative companies) reach a certain size, they will almost always sell to a U.S. company or investment house, which I think is regrettable."

Noting that the U.K. coalition government, which came into power May 2010, was still young and needed time to address these deficits, he accepted most of Demos' findings that creativity is overwhelmingly undervalued by banks and investors.

The report's co-author Helen Burrows declared: "Investors' perception that the creative industries are riskier than other sectors is a myth."

She pointed out that start-ups within the creative sectors had a higher survival rate than most U.K. industries. Based on interviews with creative companies, including British record labels Beggars Group and PIAS, and data from the U.K.'s Office for National Statistics (ONS), creative-industry businesses had an average 49.7% survival rate five years after they launched.

This compares with a 46.9% average survival rate for the rest of the U.K. economy and much healthier than the 34.7% survival rate for companies in the hotel and restaurant businesses.

Creative businesses accounted for about 6% of the country's gross domestic product, twice the average in Europe (based on the most recent figures from 2008) and between $60 billion and $80 billion in value. They also represented 182,000 companies last year, and comprised 7.8% of the total workforce.

Banks and investors, however, do not seem to understand the numbers and continue to block access to funds, Burrows continued. Creative entrepreneurs cannot "shake off the stigma that, in terms of business, they are riskier than the average," she said, while good business propositions are "being turned down due to prejudicial assumptions" by creditors and investors.

She said the report urged the government to ignite investors' confidence in creativity by updating its definition of what a creative business is. "Companies like Google and Spotify are not included in the government's definition of the sector," she said. "This sector is invisible in official government data."

Speaking on an accompanying panel, Ian Livingstone, life president at U.K. games developer Eidos (now part of Japanese games-and-media group Square Enix), noted: "Investors think of (creative works) as fluffy, which is damaging. The U.K. creates the best IP properties in the world and yet is unable to own it without access to finance."

One solution is increase the dialogue and face-to-face meetings between investors and creators, advised another panelist Jenny Tooth, a director at U.K. private-investment firm Angel Capital Group.

"There is a lack of interface between creative industries and investors," Tooth said. "The fact is that investors are placing money in creative businesses, but they do not understand the value of what they are doing. We need more raw data about the success stories."

"The report gives further credence to our warning that the growth potential of the creative industries is threatened by a lack of finance," commented Feargal Sharkey, CEO of U.K. Music, the umbrella organization for all British music-related industries. At such a critical time for the economy, we cannot afford to ignore this warning."