Advertising

• £5.3 billion (0.6% GVA) contributed to GVA[1], down 23% on the previous year
• 11,000 companies in the sector
• 247,000 staff in creative roles [1], including 153,000 people employed in advertising roles outside the Creative Industries sector.

The UK is the third biggest advertiser [45] in the world after the USA and Japan, with London overwhelmingly chosen as the EMEA hub for the major agency networks and media agencies alike. The total UK advertising market in 2008 stood at £17.5 billion [45], a decrease of £640m on the previous year and expected to fall again in 2009 due to economic factors.

The sub-sector is broadly divided into three supply chain stages: commissioning companies; media and creative agencies; and media buyers. The majority of the media is owned by a small number of large global corporations. Growth is being driven by the Internet, with online adspend reaching £3.3 billion in 2008 [19]. The Advertising industry as whole declined (-3.5%) in the final half of 2008 compared to the same period in 2007, despite a shift towards in Internet advertising [19] (Figure 14).

The downturn in TV advertising is already having an effect on the sector. In March 2009, ITV announced a pre-tax loss of £2.7 billion, which Executive Chairman Michael Grade attributed to “the most challenging [conditions in the advertising market] I have experience in over 30 years in UK broadcasting.” The news that WPP, the world’s second biggest advertising agency, is to move to Ireland is expected to cost the UK £204 million in lost tax revenue.

Architecture

• £4.7 billion (0.5%) contributed to GVA [1] in the UK down 2% on previous year
• 5,700 businesses
• 121,000 staff in creative roles [1], including 31,000 people employed in roles outside the Creative Industries sector.

The Industry is made up of many SMEs, typically comprising three or four chartered architects and support staff, and a few much larger multinational practices such as Aedas Architects, Foster + Partners, BDP, RMJM and Atkins. Similar to the Construction industry at large, fee revenues are concentrated towards the larger players: the top 2% of firms generating 80% of fees [20].

A downturn in that sector has led to an expectation within Architecture of less work in the first half of 2009, particularly amongst small practices [21] and that will have an impact on staffing levels [22]. Public sector commissioning is becoming increasingly important.

Overseas, the US Market is depressed with the Architecture Billings Index hitting a 13-year low of 33.3 [23].

Arts, Crafts and Antiques

The estimated total value of the Craft market in England and Wales has doubled in the last decade, from £400m in 1994 to £826m in 2004 [41]. The sub-sector employs approximately 110,000 people [1], many in one- or two-person micro-businesses.

The Craft sub-sector is itself made up of many diverse subgroups. Textiles, ceramics, wood, metal and jewellery are the most significant to the UK economy, though glass and furniture are growing in importance. 5.6 million pieces of craft are purchased by people living in England each year, 1.2 million pieces sold in London.

Fine Arts and Antiques contributed £490m to UK GVA, employing 22,900 people in 2005. The sub-sector generated £2.2 billion in 2004. The market comprises contemporary artwork, fine and decorative arts, restoration and resale of cultural property, valuation, cataloguing, exhibitions, auction and retail [12]. In recent years, Young British Artists (YBAs) have enjoyed success on the world stage, iconified by Damien Hirst whose 2008 auction smashed Picasso’s 1993 record.

The UK’s major galleries and museums contribute £1.5 billion to the UK economy, and attract 42 million visitors [42]. The UK is also home to the annual Frieze Art Fair in London each October, which features 150 of the most exciting contemporary art galleries in the world.

Computer Games

• £1.2 billion (0.1%) contributed to GVA [46], based on a proportionate estimate [1].

At $2.65 billion (£1.43 billion), the UK is the largest games market in EMEA and the third in the world after the US and Japan, with a 12.4% share of western retail sales [28]. The sub-sector is characterised by a high number of small independent developers and a few large Japanese, US and French-owned publishers, such as Sony Computer Entertainment, Nintendo, Electronic Arts and Ubisoft. In 2007, tax incentives overseas (USA, Canada, France, Switzerland, Germany and Australia) and a skills shortage at home led to the UK slipping from third to fourth largest producer of games by revenue after the USA, Japan and Canada. The huge market success of UK-produced game Grand Theft Auto, is believed to be a significant contributor to the UK regaining third position in 2008.

The sub-sector has a 20-year track record in creating new AAA IP within independent and publisher studios e.g. Grand Theft Auto and Tomb Raider. The year 2006 saw $730 million [28] (£395 million) invested in development, significantly more than third place Canada at $420m (£227 million [28]). Work for hire on third party IP dominates most developer’s output, capping growth potential and often leading to loss of talent to third parties [28]. Since 2000, there has been a 45% reduction in number of independent developers with 8.5% being acquired.

The UK is under-represented in the growing Massively Multiplayer Online Game (MMOG) market: of the 150 MMOGs currently available in the west, only six were created in the UK and only one has grown to achieve any commercial scale (Jagex’s RuneScape). MMOG, Casual and Mobile games companies have captured 56% of the VC games financing in the west since 2000.

Supply does not mirror demand. While the industry is struggling, the market is booming in the UK.

The wide-ranging impact of social media is becoming visible in the Games industry. Sony launched Media Molecule’s Little Big Planet in November 2008. While retail sales were initially slow, the BAFTA award-winning game now has 2 million users who have created over 700,000 custom levels. Little Big Planet also demonstrates the broadening access to social media, with levels created by users aged 4 to 60.

Design and Designer Fashion

• £12 billion (1.3%) contributed to GVA, of which £430m from Designer Fashion* [1]
• 116,000 people in creative roles [1].

Design is facing significant competition from China, Western Europe and the US. The UK’s design exports form a significantly lower proportion of its exports of creative goods than design goods from the other top 10 exporting countries [25].

Designer fashion, particularly from the well-known labels, is notoriously unprofitable acting as a loss leader in driving the highly profitable business of associated branded cosmetics and fragrances. The UK retail clothing sector

is valued at £22 billion [26] of which the UK adult designer market was worth £1.9 billion [27] and grew 2.5% in 2007. The sub-sector is characterised by a large number of small independent, vertically integrated fashion houses. The business is cyclical in nature and orientated around specific buying events, with upfront investment required to develop collections in advance of sales. With the decline in clothing manufacturing in the UK, fashion firms have moved towards value-add and International sales: 80% of small firms export their products. They make up only 6% of clothing and textile employment, yet account for 14% of the clothing and textile export value.

* Design sector contributed £11.6 billion to GVA in 2005 (2006 figure not available). Number of companies in the Design sector not available due to absence of suitable SIC codes. Similarly, there are differing views when it comes to employment within the sub-sectors with UKTI [24] estimates of 185,000 (2005).

Film

• £3.8 billion contributed to GVA [1]. up 27% on previous year
• $1.5 billion (£747m) spent on production, supported by UK tax relief [29]
• 9,300 businesses
• 65,000 staff employed in creative roles, including 15,000 people employed in roles outside the Creative Industries sector.

In 2007, the UK had the third largest filmed entertainment market globally, after the USA and Japan [29] with key strengths in Special effects and CGI. Typically, a healthy population of freelance specialists serves film production with teams being formed around individual projects.

Dominated by the large US studios, the Film sub-sector is characterised by a high degree of vertical integration with production and distribution residing within the same organisation. Studios are getting involved earlier in the production process, often signing development deals on projects before the scripting stage.

The Film Industry tends to perform well during recessions [30] with the weak pound and tax relief framework making the UK an attractive proposition to foreign production companies. The UK has a strong heritage in IP creation. Thirty of the top 200 films at the world box office in 2001-2007 were based on stories and characters created by British writers (generating £14 billion at the worldwide box office, e.g. JK Rowling and JRR Tolkien.

The UK has a highly successful postproduction industry, predominately based in London (Soho). Of the £1.5 billion ($2.7 billion) post and facilities global market, the UK captured £319m

($607m, 22%) in 2008 [47]. For feature films, postproduction accounts for roughly a quarter of a film’s production budget. UK Post and Facilities houses are world renown and, in the last twelve months, they have worked on major national and international features: The Boat that Rocked, Harry Potter and the Half-Blood Prince, The Dark Knight and Fast & Furious).

Music (including live music)

• £3.4 billion contributed to GVA [1]
• 28,000 companies
• 260,000 staff in creative roles, including 42,000 people employed in roles outside the Creative Industries sector.

On the world stage, the UK is the fourth largest producer of music for domestic or international consumption, behind US, Japan and Germany [35]. The industry is divided into recorded, live and publishing, and is dominated by four major labels (Warner Music, EMI, Sony Music and Universal Music), who shared 72% of the world market in 2005 [36].

In 2007, digital sales accounted for 15% of the total music market. Users legally downloaded 1.7 billion tracks, up 53% on the previous year and returned £1.5 billion ($2.9 billion) to the record companies in revenue [37]. Choice has expanded dramatically online, with users making their selections from over 6 million licensed tracks. Piracy within the industry is rife, with an estimated 34% of young internet users (15-24) file-sharing music illegally.

Sales of physical units have been trending downwards since 2005 [37], whereas digital sales have seen massive, but not proportionate grown (Figure 15). Over 92% of albums were sold in physical units; where as only 4.2% of singles were sold in the same way. Consequently at the end of 2008, album revenues were down on the previous year (-3.2%), whereas singles sales grew (+33%). Unfortunately, the growth of digital single sales does not offset the loss in physical album sales, the impact of which is most visible on the High street, as evidenced by the closure of Woolworths in December 2008 and Zavvi calling in the administrators .

While recorded music has experienced a slow down, publishing and live revenues continue to grow, with spending on live reaching £1,279m in 2008 against estimated values for retail of £1,240m [38].

The sector has seen the emergence of a raft of aggregator and intermediary new entrants in the digital arena developing new models for monetisation of music services and products (e.g. Spotify, Last.fm).

Performing Arts

• £4.5 billion contribution to GVA.

The Performing Arts sub-sector includes Theatre, Opera, Ballet and Dance. Statistics for Performing Arts in isolation are difficult to obtain and where available can be inconsistent.

Creative and Cultural Skills attribute a £4.5 billion UK GVA contribution to Performing Arts, £1.9 billion to Visual Arts and £4.2 billion to the commercial music industry [39].

Many companies in the sector rely on public sector funding, operate on a not-for-profit basis and subscribe to business models similar to those of charities. These organisations are typically small in size and vision driven. They are experiencing skills shortages, particularly in management and business skills.

Attendance of events has remained strong. A survey [40] taken in 2005/06 reported 26% of adults attended a theatre performance, 23% a play or drama, 4% an opera, 4% a ballet and 2% a contemporary dance event.

Publishing

• £9.5 billion contribution to GVA [1] down 3% on previous year
• 6700 companies.

The UK publishing industries generate more than £22 billion in sales annually and £2 billion in export revenues for UK plc. Its contribution to GVA accounts for about 30% of the Creative Industries as a whole. Most staff are employed in the publication of books, magazines, newspapers and their digital analogues.

The key market drivers are public sector purchasing (education), advertising and consumer spending. Both advertising and consumer spending are adversely affected by recession and for which publishing competes with other Creative Industries [32]. The international use of English and the increasing role it plays as a second language represents a great opportunity for the sub-sector.

Whilst academic publishing were early to exploit the benefits of digital distribution, others sectors have been relatively slow adopters of digital technology. Despite a number of false dawns, users have shown a preference for physical reading experiences, but digital content distribution to electronic devices shows the direction of travel. Content is starting to appear for an ever widening set of mobile devices, both bespoke (Kindle, Sony eBook reader) and repurposed (in December 2008, Harper Collins announced a deal to publish the 100 Classic Book Collection for Nintendo DS). The growth of electronic consumption opens Publishing up to the same piracy threat so evident in Film and endemic in Music.

Online publishers are making historic information available on an unprecedented scale. Google have made over half a million public domain books searchable online or downloadable to PCs, mobile phones or eBook readers [33]. Europeana, a search platform to a collection of European digital libraries, currently contains around 2 million digital items, such as paintings, books and films, and is expected to grow to 10 million by 2010.

Newspapers have been affected by a decline in advertising revenue. The Sun announced a cut in its cover price to 30 pence in August 2008 to bolster circulation, currently at 3 million [34]. In November 2008, the publisher of the Daily Mail reported a 9% drop in profits. Search Engines’ rapid aggregation and indexing of news has attracted criticism and put further financial pressure on Newspaper publishers.

TV and Radio

• £5.1 billion contributed to GVA [26], no change on previous year
• 5000 companies
• 103,000 staff in creative roles [1], including 12,000 people employed in roles outside the Creative Industries sector.

TV and Radio is the fourth largest creative sub-sector by revenue in the UK at $22.4 billion (£11.2 billion) according to figures from 2007 [18], [45]. The world market for UK originated content has been growing, and stood at £2.6 billion in 2004 [31]. The UK sub-sector is unique in the quality and success of its strong public service broadcasters (PSBs) alongside regulated subscription services (e.g. BSkyB, Virgin Media). Sales to UK digital channels, international customers and secondary rights are becoming more significant and now account for in excess of £1 billion.

The evolution of the sub-sector has arguably tended to favour the growth of industry heavyweights or ‘super-indies’: diversified companies producing multiple genres for almost all of the major broadcasters, and exploiting key rights and brands in the global market – a prime example being Endemol. It is estimated that in 2004 the top 10 production companies by turnover accounted for close to half of the entire turnover and hours of output of the sub-sector.

Changes within the Advertising sub-sector are affecting many of the Creative Industries, particularly TV. ITV’s pre-tax loss for the 2008 financial year and their subsequent cutbacks [51] are a clear indicator of the consequences of TV advertising revenue shifting towards Online. This commercial pressure, coupled with the need to sustain the cultural and social contribution of public service programming, led Lord Carter to examine the role of a second PSB of scale [14].

The BBC launched iPlayer in July 2007 and similar offerings since have been released by ITV, Channel 4 and Sky. The number of iPlayer users rose 27% in April 2008 to 21m, up from 17.2m in March. The growth of this type of application and other high bandwidth services is placing a greater load on broadband infrastructure, which in turn affects network performance for all users.