R&D Tax Relief in the Creative Industries

This is part of our series of blogs on the way in which creatives may obtain finance for their work. Written by guest blogger David Farbey of Myriad Associates this piece reviews one aspect of the UK Tax system which could benefit creative companies – R&D Tax relief.

David writes how as well as specific funding and grants for creative projects, some activities undertaken by companies working in the creative sector may be eligible for public funding in the form of Research and Development tax relief.

What is Research and Development (R&D) tax relief?

R&D tax relief is a government incentive to encourage innovation. It is administered in the form of a reduction of or rebate on a company’s liability for corporation tax. R&D Tax Relief is not limited to any particular industry, and you don’t need to have a team of lab-coated scientists in order to apply. In the year to April 2016, the government gave away some £2.9 billion in this kind of tax relief to companies undertaking R&D across all sectors of the economy, benefiting more than 25,000 companies.

You do not have to be in profit to make a claim.

As R&D tax relief is a reduction or rebate on corporation tax, the first thing to know about claiming R&D tax relief is that you must be a UK company that’s liable for that tax. Your company does not have to be profit-making in order to claim a benefit under this scheme, as loss-making companies can get their R&D tax credit as a cash rebate. However, the R&D tax relief incentive isn’t available to self-employed people. The amount you can claim is related how much you have spent on R&D, and there is no upper limit on this.

What activities qualify as R&D?

The Government’s current guidelines state that R&D tax relief is allowed when a company is undertaking work that is attempting to make an advance in science or technology, or an appreciable improvement in existing technology. Such work must be aimed at resolving a technological uncertainty, and be aiming at a solution that was not readily deducible at the start of the project. Projects therefore proceed through experimental development and testing and as a result – even if the project does not succeed – add to the sum of knowledge in their field.

How does it work for Creative Activity?

At first glance the exclusive role of technology in defining R&D may seem to exclude the sort of creative activities that occur in the arts and the humanities, and although this approach is being challenged by research from NESTA and others, it remains government policy for the time being However, there is nothing to say that an entire project must fall under this definition of R&D in order to make a claim for tax relief. Hardly any aspect of modern life is entirely free of technology, and that includes the plastic, performing, and digital arts. If one segment of a project in the arts involves not just using technology, but developing new technology, then the costs of that part of the project may well be eligible for R&D tax relief.

How much is R&D tax relief worth?

Once you have demonstrated that you are undertaking a project that qualifies as R&D, you can calculate the expenses incurred by that project and, if you are a small to medium sized company, you can get back up to 26% of your R&D expense as a saving on your corporation tax bill. Loss making companies can surrender their losses for a cash payment worth up to 33% of the R&D expenditure.

“33%”

The most significant element of claimable costs under the scheme is staff costs, and this can include both your own staff and any subcontractors. Direct staff costs include salaries, employer’s National Insurance contributions, and any company pension payments. You can also claim up to 65% of subcontractor costs. The claim should relate to the amount of time actually spent on qualifying R&D projects, so for example if someone spends 30% of their time on R&D you can claim 30% of their salary costs.

How do you submit a claim for R&D tax relief?

Once you have calculated the amount you are entitled to claim as R&D expenditure you need to enter the amount on your company’s tax return form (known as CT600). If you aren’t ready to claim when you submit your original return, you can submit an amended return up to two years after the end of your company’s reporting period. That means that if for example your accounting period runs from 1st April to 31st March each year, you have until 31st March 2018 to submit an amended return with a claim for R&D tax relief for the period that ended on 31st March 2016.

In addition to submitting the correct figures on your tax return, it is a good idea to accompany this with a narrative report describing your project. Your report should explain what the technological challenges were, how you overcame them, and why the solutions you developed constituted an advance in technology. Many firms choose to use specialist consultants and advisers to help with preparing their R&D tax relief claims, as they have understanding and expertise in knowing what the tax authorities look for when they evaluate a claim.

David Farbey, Senior Technical Consultant, Myriad Associates

December 2017

About the author

David Farbey is a Senior Technical Consultant for Myriad Associates  and helps clients achieve their R&D funding by researching and writing technical reports to support R&D tax credit claims and grant applications. David is a Fellow of the Institute of Scientific and Technical Communicators (ISTC), and also a Fellow of the RSA. He serves on the ISTC Council and was Chair of the ISTC’s annual Technical Communication UK conference from 2012 to 2015
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New Investments in Content Creation

In the previous blogs on the Content Investment Forum organised by BCre8ive and Digital Catapult we covered the initial issues, and a range of experiences from freelancers and micro companies. In this final blog in this series we are looking at public commitment and private opportunities. The aim of the forum was to start a dialogue about how we could improve the investment landscape for content creation, given that the vast majority of active participants in the creative industries are freelancers and micro-companies of less than four people.

The story so far

The need to focus on content creation has been established, as has the need for new financial structures and support organisations. The key now is to review what is currently available and planned for 2018 and beyond. In particular, how the various options for finance and support can be co-ordinated and improved. In addition, there is the issue of identifying gaps in the content creation pipeline and how we might fill them.

Public Commitment

With a new Government Industrial Strategy – see previous blogs – and in particular the sector deal for the creative industries not yet published 2018 has a large question mark over what government support will actually be available. However, as was explained at the Forum two major aspects of funding are guaranteed. The first is the AHRC Creative Clusters programme. The second is the existing £400m Arts Council of England budget, and the equivalent for the other UK nations – over £200m.

As Andrew Chitty explained, the AHRC programme with an ambitious target budget of £80m, and as part of the new Challenge Fund, aims to create up to eight creative clusters in the UK with an initial spend of £29m. This will be achieved, via the University network, and will start delivering in autumn 2018 and run for the next five years . The idea is to use Universities resources and Cluster fund monies to solve creative industry problems.

The major limitation on this from the perspective of content creation is that much of the money may be spent on aspects of the creative industries which are not focussed on original content creation e.g. museum and gallery curation, In addition, the timescale has left little opportunity for freelancers and micro-companies to be part of the initial bid process. Therefore, ensuring the creative clusters, when final agreed upon, actually address content creation is one of the big challenges of 2018.

The various Arts Council’s programmes are effectively decided for the coming years. However, Francis Runacres, made it clear that there are sums in the next two years programme which could be still aimed at new groups. In addition, he asked for suggestions for the 2020-2025 programme, which could address the needs of the freelance and micro-company communities. Particularly relevant for new emerging digital art forms, short term projects and development work for individual artists in all mediums.

The Grants for the Arts programme with its small scale, fast turn around process, along with the renewed Games Fund, provide examples of how initial development support for new creative content can be supported. However, the key aspect of this type of funding is how do you then move up to the next level of development, and ultimately reach out to a large audience? This is not to suggest that all creative work needs to reach a mas audience but given that one art work can support a small studio – it is the commercial potential, which really needs to be identified.

This latter point also illustrates a key aspect of future investment. Namely, that productivity and profitability may come in multiples of work not in one big hit. There are few freelancers or micro-companies who will grow to be the equivalent of Aardman Animations or King – but it is definitely possible that 100 creatives could generate as much total revenue.

Private Opportunities

There are a number of ways in which private investment may engage with original content creation. These range from tax schemes through incubators to Angle support and crowdfunding.

The latter, which often initially amounts to ‘the bank of Mum and /Dad’ plus Friends, has seen numerous small designer companies launched and graphic novels get of the ground. The most successful crowdfunding has been committed documentaries with a clear target audience, and projects that are based upon an existing brand or personality.

The tax system has been a major focus of support for creative industries in the recent past. However, the recent HMRC clamp down on EIS usage for film production may be seen as a step backwards for investment in creative content. The point to make here is it is all about proving risk, and creative content creation is by its very nature risky. In addition, the other major tax break, around R&D spend, is still largely under utilised as a source of cash flow support for creative enterprises.

However, it is the area of incubators and accelerators, as Hazel Hutchison from Aegis pointed out, which is the key space in which investment has to date been lacking. It is also the part of the ladder of creative development, which has less risk than say the Grants for Arts level of activity. In addition, with effective portfolio development, it has the potential to unlock the numerous profitable creative activities, and support a range of freelance work.

The Future Approaches

In order to make this work, new types of organisation – such as the Biome Collective, with its core freelance members and wider associates – will be needed. Reviewing how Intellectual Property rights and values are distributed across several people or within a portfolio will also have to be addressed.

All of this speaks to a need to re-think how we make investments in creative content. Creating a ladder of opportunities as outlined by Peter Bazalgette in his independent review of the creative industries is essential. Critical to its success is a solid financial investment structure which reflects the reality of the sector and is agile enough to respond to changes in direction by creative. It will take patient finance in many cases and a portfolio approach to ensure the risk taken is not an attempt at the failed ‘cherry-picking’ model.

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Five Women at A Creative Content Investment Forum

This blog is a summary of comments made by five women, who spoke in panels at the BCre8ive/Digital Catapult Content Investment Forum in November 2017.  They covered the full spectrum of participants (see HERE for other speakers) from public sector and private investment to freelancers and micro-companies.  In this blog, the second of three, we look at what their experiences of content creation have been, and what lessons we can take forward for the future.

These range from film and VR to graphic novels, and illustrate the key problems new original ideas have in development, production and reaching the market. Their comments reveal the problems facing all start ups, and the unique opportunities available within the creative industries to build companies and reach global audiences.

Starting Up

Emma Hayley, founder of ‘selfmadehero’, a graphic novel publisher, talked about her first graphic novel project, a Manga version of Romeo and Juliet. She was sitting in on a friend’s stall at the London Book Fair, when an American publisher’s rep turned up for a meeting with someone one else. Taking the opportunity she pitched the idea, and left with a deal. She was now in graphic novel publishing, and ten years later she still is, and looking to expand.

In a more digital age and situation Deepa Man Kier googled VR in Belfast, and found the team she needed to create her first VR project and take it to SouthbySouthWest in the States. Deepa a full time visual artists was inspired by a VR experience to create one of her own, a classic case of pivoting, which was a central theme of the afternoon’s discussions.

In contrast, Harriet Rees, says she just doggedly pursues, over a number of years, her chosen film projects. Harriet is an example of the independent film producer, someone who collects a number of projects at an early stage, develops one or two, and then pulls together all the monies to make it happen. In Harriet’s case this was a UK Rom-Com, ‘Chalet Girl‘, for which she raised £6m.

These three examples of freelance individuals and micro-companies illustrate the vast range of possibilities to create IP and develop global opportunities.  However, they also exposed some of the limitations experienced by creatives in the UK.

Limits to Creation

Becky Gregory-Clarke, from Digital Catapult’s “CreativeXR” programme spelt out some of the problems the new area of AR/VR is experiencing. There are several reasons for a lack of investment, she stated, ranging from lack of uptake by the public to lack of monetisation options.  There is also currently a range of formats, and only one might win the race to popularity – so who do you back?  However, the key to solving these issues was the creation of content to test audience reactions, and build a solid base, from which to expand any teams or particular IP.

This lack of investment was highlighted by Deepa, who though she had had some success with her first VR project there was no guarantee she would find funds for the second.

A situation echoed by Harriet, who described the number of different people she is having to pull together again to make her second film. As she said she is a “classic UK cottage industry” playing against major global corporations.

Selfmadehero has been publishing numerous different types of graphic novels now for ten years. However, even with this track record Emma is dependent on public monies to support some of her artists in the early stages of development. Also for over four years Emma has been thinking about expanding and using her IP rights to reach other audiences. However, so far she has not had neither the time nor the money to do so.

Looking for Solutions

The dominance of freelancers and micro-companies in the creative industries, as illustrated by the people above, poses distinct issues for any future expansion in the sector.

The first of these is the need to support R&D across the sector. Some tax breaks do apply – more on this in a future blog – but development funds as a whole are extremely limited. The new AHRC Cluster funds will in part address this – more in the next blog. Also the extra £1m for the UK Games Fund over the next 3 years will help some. However, compared with the £6m needed to create one film, or the thousands needed for the development of any one project from a mobile game to a graphic novel, increased  development funding is critical to future creative success.

This was a point raised by Hazel Hutchison, a corporate fund director, who has been involved in investments in early stage Pret A Manger and Yotel plus some films. In her view she could think of no other industry sector where so many jobs were expected to be done by one person. Picking up on the example of the Danish Broadcaster, who had been behind the creation of The Killing, The Bridge and Borgan, she saw the need for sustained financial support for creative teams.

In this context there is clearly a role for venture capital  funds and Angel groups to take projects from the development stage through to production and exploitation. The creation of incubator and Accelerator Labs, working on a portfolio model is an obvious approach to be explored in the coming months as we work towards the follow up event to the Forum on March 19 2018.

Phil Parker with thanks to Kevin Marks

 

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The Future of Investment in Creative Content?

The Creative Investment Forum : Funding Creative Content

BCre8ive, and Digital Catapult, invited investors, creatives and public bodies to join forces on 7th November at Digital Catapult, in London, to start a dialogue about how to fund the future of the creative industries in the UK. This blog is a summary of the key points raised, and the examples highlighted, to illustrate the potential of the creative industries and the vast opportunity for public and private investment.

Setting the Scene

Creative industries are being disrupted on a regular basis – the business models are always evolving but as Jeremy Silver pointed out the UK is a real player in creative industries, with global reach.

Between 2010 and 2015 they grew by 34% – faster than any other sector  and contributed £87.4bn in Gross Value Added in 2015, according to DCMS.

“Creative and Cultural Industries revenues worldwide exceed those of telecom services (US$1,570b globally), and surpass India’s GDP (US$1,900b)”  Cultural Times: EY : 2015

The creative industries exported £21.2bn of services in 2015, but this is a small part of the cultural and creative sectors globally which were estimated, by EY, to be worth over £1.700bn. So as Phil Parker pointed out despite a 34% growth in the creatives industries in the UK in the last five years, there is still enormous potential for growth.

A Dynamic Force

Agile development has  been a key term in games development. Equally, pivoting has been seen as often key to the successful start-up. Both of these two elements of success were evidenced in the afternoon’s panel sessions. They ranged from the Biome Collective with its games projects for museum and public interactive spaces to Deepa Mann-Kier creating a new team in Northern Ireland to create RETNE, her first AR experience project.

Equally, Emma Hayley from SelfMadeHero talked about her opportunistic use of a chance meeting at the London Book Fair to pitch her first idea . It was a graphic novel – a Manga version of ‘Romeo and Juliet’, which still sells today, ten years later, and became the foundation for her publishing team.

Dominance of freelancers and micros

This flexibility is a central part of the creative content landscape and is brought about by the dominance of freelancers and micro-companies. They make up over 90% of the sector. Harriet Rees, the film producer of ‘Chalet Girl’ spoke about how she raised the £6m needed to make it. However, she also illustrated how she alone had to pull together all the elements and the finance. A daunting task for one freelancer, and how on a recent project a single decision, which had guaranteed the finance for a film, also led to the money potentially walking away.

It is the lack of development finance for projects, and key supporting structures, especially effective marketing teams, which is one of the elements  holding back the growth of the companies in the sector. It is almost impossible for freelancers and micros(with under four people) to move from the concept or SEED stage to global distribution, often using the web, without financial support.

The Current Landscape of Content Investment

There are numerous small public investment schemes. these range from the large scale £70m fund ‘Grants for the Arts ‘ administered by the the Arts Council of England, as described by Francis Runacres, to the Creative Scotland’s Opening Funding. These combined with various grants, and industry sponsored schemes provide a healthy environment for new ideas.

It is the next step that is singularly lacking. This is a swim or sink space, where you get lucky as a funder and back a winner from a small selection of the ideas out there or you lose everything.  This is clearly wasteful of investment but also many good concepts, and frustrates most of the talent.

Providing the finance to build a ladder of development beyond these initial stages of creation will be crucial to the productivity and the profitability of future investment.

The Main Investor Issues

Several key issues were raised by John Spindler from Capital Enterprise, and expanded on by Solomon Nwabueze from Creative England and are reflected in this blog, one of three blogs which will expand on this summary.  However, one key element was ambition and the need to support founders, at the upper level of investment, who wanted to sustain a UK based global business.

The Opportunities

As Patrick Bradley of Station 12 pointed out content is the reason platforms and distribution networks survive.  Critical to this success will be a focus on quality in a mass content creation world dominated by self-made content on social media and global corporations on the established and emerging networks.

In this context the new AHRC Creative Clusters programme and the UK government’s new Industrial Strategy will play a key part in shaping the opportunities for investment and growth in one of the world’s largest and most dynamic industries.

The Next Step

At the end of the afternoon’s panel sessions and discussion it was announced that there would be a follow up session on Monday March 19 2018. At this event the goal is to devise a new investment programme aimed at freelancers and micro-companies making creative content, and support them in producing new successful creations and companies.

If you would like to attend the follow up session please write to us at phil@bcre8ive.eu or hilary@bcre8ive.eu

Thanks to Jeremy Silver, Simon Bond and Darren Murphy at Digital Catapult for helping make this happen.

Thanks to all the panel members – fuller accounts of all their contributions can be read in the follow up blogs.

The first of which ‘New Funding for Creatives?’ can be read HERE

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New Funding for Creatives ?

BCre8ive invited investors, creatives and public bodies to join forces on 7th November at Digital Catapult, in London, to start  a dialogue about how to fund the future of the creative industries in the UK.  This blog is the first of three which will pulls out of this afternoon’s packed discussions the key points as we look forward to 2018.

This opener looks at the bigger landscape laid out at the introduction and opening sessions by Phil Parker(BCre8ive), John Spindler,(Capital Enterprise); Patrick Bradley(Station 12), Solomon Nwabueze(Creative England) and Jeremy Silver (Digital Catapult). A landscape of big corporations, thousands of freelancers, a huge global market and massive opportunities.

Setting the Scene

Creative industries are being disrupted on a regular basis – the business models are always evolving but as Jeremy Silver pointed out the UK is a real player in creative industries, with global reach.

Between 2010 and 2015 they grew by 34% – faster than any other sector  and contributed £87.4bn in Gross Value Added in 2015, according to DCMS.

“Creative and Cultural Industries revenues worldwide exceed those of telecom services (US$1,570b globally), and surpass India’s GDP (US$1,900b)”  Cultural Times: EY : 2015

The creative industries exported £21.2bn of services in 2015, but this is a small part of the cultural and creative sectors globally which were estimated to be worth over £1.700bn. So as Phil Parker pointed out despite a 34% growth in the creatives industries in the UK in the last five years, there is still enormous potential for growth.

The Investor’s Issues

John Spindler stated that Capital Enterprise had only invested in 4-5 creative startups out of the 110 they had invested in, in the last four years. There were three key issues for him which made investing difficult : –

  1. The sector is fragmented, divided between big corporates, and individuals with creative ideas;
  2. Creatives focus more on their status as ‘artists’ , than on how to sustain themselves as a business;
  3. There is a lack of good teams, who can provide clear sustainable routes to recoup investment.

Fragmentation, in particular, the absolute dominance of freelancers and micro-companies in the sector was one of the major reasons for starting this dialogue, and the call to look for new ways of supporting the creatives and companies.

Distribution verses Content

Solomon Nwabueze, with a background in music and arts broadcasting, picked up on the point that distribution is the key to creative success. In particular, that there is a problem in the film, mobile games and music industries, where platforms control who can and cannot make money. Therefore, investing in content becomes a problem. In this context timing, lack of development and marketing are key factors in any content’s success.

Patrick Bradley agreed that distribution does play a major role but sees investment in talent and content as being the key deciding factor in which platforms succeed or fail. Therefore, an essential part looking forward is to support content creation in order to give companies an edge in the crowded market place. He stated that the UK needs to grow bigger content creation  companies – the BBC cannot do everything.

Patrick stated that UK investors are risk averse compared with US investors, where this is a bigger domestic market, and therefore, more opportunities for success. Overcoming this risk aversion is a key aspect of re-thinking how to fund content creation in the UK.

A Long Term Vision

In the introduction the issue of patient finance was illustrated by the success of Papenburg,  a small town in Germany, which now dominates the world production of major ships, including Disney’s fleet, despite being on a small river twenty miles from the sea. The key is it has been family owned since the Eighteenth Century, has adapted/pivoted throughout its history, and focused on quality..

John Spindler pointed out that Skype and Spotify had both been developed in London, but with non-UK founders. A problem compounded by  the propensity, especially in the UK media sector, for owners to sell out rather than build a global company. This highlighted the need to look to founders i.e. creatives, who have  a long term vision, and are prepared to adapt to changes as the market changes.

The question is can this be done with a select few being supported as has been the case with nearly all the government backed initiatives or do we need to support the many and then develop those who show potential? In order for the latter to happen there is a need to create a ladder of investment, as suggested  in the Bazalgette review.

One aspect of this may be the outcome of the recent UK Treasury consultation on patient finance.

What Next?

Having spelt out the main issues confronting any investment in the creative and cultural industries the discussion moved on to the recent experiences, and needs, of freelancers and micro companies, and the existing public funds available to support new creative content creation.  The latter ranged from ACE’s £440m including the £70m ‘Grants for the Arts’ to the AHRC’s £80m Creative Clusters Programme.

All of these points will be discussed and more in the next two blogs.

Phil Parker with thanks to Kevin Marks.

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Creative Clusters and the 90%

Nearly 90% of the Creative Industries are composed of micro companies of under four people or sole trading freelancers, according to the latest industry surveys. So how will the Creative Clusters plans announced by AHRC, and at the heart of the Independent Review of the Creative Industries, engage with these small independent operators, and help the majority of the sector deliver on the UK Government’s Industrial Strategy goals?

What do Freelancers and Micro-Companies Need?

The Creative Industries Federation survey of freelancers in 2017

https://www.creativeindustriesfederation.com/publications/creative-freelancers  found there were three key things they wanted, across all the various sectors

  1. Access to finance
  2. Legal Advice and support
  3. Access to workspace

This is a good starting point but it also points to other major challenges within the Creative Cluster bids.

During the last three years BCre8ive Labs have discovered many commercial ideas, which were supported by companies ranging from Warp Films to Dubit, but which needed additional development and financial support.

The Pipeline Problems

In BCre8ive’s ‘Expanding the Creative Pipeline  three other areas were identified.

One, improving access or improving the talent pipeline to the creative industries is identified as a crucial aspect of the creative clusters’ strategy. However, the key areas of distribution and marketing are not specifically addressed. In the independent review a focus on building a new export focused aspect to the Dept. of International Trade, may go someway towards the latter.

The importance of the former can be seen in the current BFI’s enquiry into the state of independent film in the UK, where 900 films were released last year, but few received commercial distribution. https://www.screendaily.com/production/bfi-to-investigate-health-of-independent-film-sector/5119831.article . The latter is an on-going problem, which was partially addressed by a UKIE one day event on marketing for freelance games designers, but needs a more sustained and comprehensive approach.

Too Many Creatives Not Enough Connections

The fractured and insecure nature of the creative industries makes engagement for large centralised programmes of all types difficult. There are few effective networks, and none, which cover all the creative disciplines present across the diverse sectors. This leads to many thousands of graduates, and others, starting creative projects and/or careers in their Twenties and leaving by their mid-Thirties. A vast waste of not only talent but potentially highly commercial Intellectual Property (IP).

Therefore, building a long-term support network is critical. It needs to be cheap, if not free, to access, available online, and cover the whole of the UK.

How will Creative Clusters reach out to this disparate and uncoordinated set of potential partners?

In creating such a UK-wide structure Universities, and in particular their post-graduate, incubator, and alumni networks need to form a research and advice system for all creative graduates. In addition, funding for creative content development and exploitation needs to become part of the curriculum of all creative related courses, and not just STEM activities.

How will the various bids for money deal with the lack of finance for micro-companies and freelancers?

The Universities and Cluster Groups need to join with a wider funding network, and engage with such initiatives as the Creative Content Investment Forum on Nov 7 2017. https://www.digitalcatapultcentre.org.uk/event/creative-investment-forum-funding-creative-content/

Supporting individuals freelancers, or micro-companies may lead to the odd success but the aim needs to be create a portfolio of projects, and activities, which will attract new monies and long term investment across the creative industries.

For a full overview of the problems facing investment in the creative industries read the following blog http://blog.bcre8ive.eu/what-are-the-problems-with-funding-content/ 

The Big Question

IP creation is at the heart of any creative project. Therefore, the vital question which needs to be addressed by the Creative Clusters is –

‘What will be the nature of the offer to the content creators with respect to IP and development support, which ensures not only their participation in Creative Clusters but also the economic growth envisaged by the Industrial Strategy which is paying for it?

Phil Parker

 

A version of this blog will appear on the AHRC website with respect to their Creative Clusters Programme

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What are the problems with Funding Creative Content?

On November 7th 2017 a Forum is being convened, by BCre8ive and Digital Catapult, in London to look at the funding for content creation in the creative industries.

In the recent survey of creative freelancers in the UK access to finance was cited as a consistent problem. An issue which was also identified as needing attention in the independent review of the creative industries by Peter Bazalgette. While research into the productivity of the creative industries found that investment had fallen consistently since the end of the 1990’s.  Why is investment in creative content so problematic?

The aim of this blog is to try to answer this question – by the way there is no simple answer – and to point to ways in which it could be improved. Something which will be pursued at the Investment Forum.

There are numerous ways you are able to raise money to pay for your creative work. These range from the most obvious of being commissioned through loans and equity to crowdfunding, personal donations to DIY.  The latter has proved very successful for vloggers with millionaires being created on YouTube, while the commissioning approach is still the bedrock of the visual arts and broadcast, including increasingly the streaming channels. So why has investment declined?

Everything is Cheaper

Much of the investment in the recent past has focused on technological advances in content creation. These have ranged from lighter cameras to 3D rendering from faster streaming to design apps. All advances which have made the creation of content cheaper. The argument then flows that access to production is cheaper, fewer people are needed to complete tasks and thus there is less need for finance/investment. Though this is obviously true it fails to take into account that someone, somewhere, has to pay for the content to be created in the first place, for these economic benefits to have any benefit at all. There may be cheaper resources but if you have no money to use them, they might as well not exist.

A Lack of Opportunity

Some have  suggested that perhaps it relates to a lack of investment opportunities.

In the digital age the business model for content is increasingly ‘winner takes all’ with a few huge hits driving the economics of the industry. The creative content sub-sectors have also been hard hit by IP piracy. It may be the case that the combination of these two trends has reduced the potential profitability of the large majority of SME content firms, making capital investment both less attractive and less feasible.

Understanding the future of productivity in the creative industries, CQW,2016 p41

The ‘winner takes all’  approach to creative content  has long been seen as the basis for ‘cherry picking’ the likely winner from a vast array of potential creative projects and products. The equivalent in many people’s eyes to gambling as compared to backing a proven product or market in the retail or utilities sectors.  However, this does not appear to stop people backing yet another artisan beer company or investing in a prototype battery, all of which may fail economically, just as easily as a creative project.

Access to Audience

Gate Keepers for many creative investments are another barrier to early stage investment in certain sub-sectors of the creative economy. From fashion buyers and TV commissioners to book editors and gallery owners, the gatekeepers, have a for a long time controlled who can make money from creative content. So, for instance, it has been easy to invest in, or lend to, a TV company that already has a commission, but not to a new company developing a programme without  such a commission, yet which may in the longer term be more successful.

The digital age with web distribution and social media, challenges this business model. The success of niche products and labels, the growth of self and e-publishing, the online distribution systems from music and games to video have created ways to by-pass gate-keepers and establish revenue streams directly with audiences and consumers.

Too Much Content

Everyone knows the statistics. Sixty hours of video uploaded to YouTube every minute. Five hundred games launched daily in the AppStore. One million songs released annually. Over 150,000 books published annually in the UK. Over 900 films released in the UK in 2016. We live in an era of mass creative content, with numerous ways in which to consume it.

The key to understanding this issue is to recognise that ‘Quality still Rules’. The vast majority of creative content has obvious faults. The way to avoid being swamped by the numbers and the content is to focus on those projects and products that have been  well developed. It is not about the idea, or the track record, it is about the quality of the creative content itself, and its potential.

A Little Knowledge is a Dangerous Thing.

So how can anyone decide which individual creative projects will succeed, and how much money will they make?  Well the simple answer is people have been making these types of decisions since the dawn of creativity. Initially it was patronage, then local markets, then specialist collectors and commissioners, and now it is crowds plus versions of all the previous options. However, tying to choose without any knowledge of the audiences, markets, distribution, and revenue streams places serious limitation on much investment. The aim of current investors must be to improve their knowledge of the creative markets, or to work with people who do have this knowledge.

Lack of Contacts

Over 90% of the creative industries is made up of freelancers and micro-companies, who employ less than four people. They are distributed across the country, and are now connected with clients and suppliers largely through digital networks. They work on up to 100 or more contracts a year, with no spare development monies, little or no marketing experience, and often no or only local support networks.

The problem for investors is this fractured market lacks obvious contact points, has no clear investment strategy, is individualised and often shows little interest in engaging with traditional forms of investment.  This lack of an effective interface between the creatives and investors is a key problem which needs to overcome if the potential of the creative industries is to be realised.

Why Invest?

Given all of these issues and obvious structural problems why should investment be made in the creatives industries?

First it is a current economic success story.

“The Creative Industries are a success story, playing a key role in the UK’s economic recovery. They contributed £87.4bn in GVA in 2015, 5.3% of the UK economy (comparable to the Construction or Information sectors) and between 2010 and 2015 grew by 34% – faster than any other sector.

They have also outperformed other sectors in terms of employment growth:between 2011 and 2016, employment in the sector increased by 25.4% (circa 400,000 jobs) compared to 7.6% average across the wider UK.

The sector is also a net exporter of services (£11.3bn surplus in 2015).”

DCMS Sector Economic Estimates 2017  :DCMS, 2017

Second it has potential growth

“The UK  Entertainment and media sector, alone,  will grow at a compound rate of 3% per annum over the next 5 years to be worth £72 billion by 2021.”

The 2017 Entertainment and Media Outlook :PriceWaterhouseCoppers

Third its importance is global

“Creative and Cultural Industries revenues worldwide exceed those of telecom services (US$1,570b globally), and surpass India’s GDP (US$1,900b)”

 “Cultural Times – The First Global Map of Cultural and Creative Industries”.EY  2015

In this context investing in the creative industries is a good option – the question is how?

More on this at the Creative Investment Forum : Funding Creative Content.

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Creative Clusters and what they mean for you.

In the last month, two major UK Government initiatives have called for Creative Clusters to be supported and created across the UK. The first was the AHRC announcement of £80m  for creative clusters hosted by Universities. The second as part of the Independent Review of the Creative Industries 2017 by Pater Bazelgette, who called for £500m Creative Cluster fund support.

So what is a Creative Cluster? Why are they so important? How will they work for the vast majority of freelancers and micro-companies, who make up over 90% of the Creative Industries in the UK?

Using the existing information form NESTA, AHRC and the Independent Review this blog seeks to answer these essential questions, which will determine investment and support for creatives over the next five years, and beyond.

What is a Creative Cluster

A Creative Cluster is defined by NESTA as a geographic concentration of creative businesses and workers, often linked to similar value chains, that collaborate and compete with each other.

Clusters can often include other institutions linked to the value chain
such as higher education institutions (HEIs), cultural institutions, trade associations and government bodies which support the cluster in a number of ways.

Creative Clusters come in different sizes and configurations and can have a broad array of individual features which facilitate inter-organisational collaboration, including incubators, accelerators, shared hub space and studios.

All of which means that groups of companies, and to a lesser extent freelance individuals operate in a limited geographical space predominantly the larger cities. 47 of these were identified by NESTA in its ‘The Geography of Creativity in the UK‘ report in 2016.

Included in this list were the predictable London Bristol, Glasgow, Belfast to the less so  Leamington Spa, Medway, Warrington & Wigan and Exeter.

These locations will form the base for new investment and support over the next five years, based upon the stated aims of the current creative clusters programmes..

Why are they so important?

The Creative Industries are dominated by micro enterprise and freelancers, who do not have the resources for extensive research and development, to retain skilled staff in lean periods or offer support and skills training.  Therefore, the argument is that clusters of creatives supported via Hubs, information networks and shared skills are able to work more effectively.

Evidence gained form the Fuse programme suggest that creative firms, who work with or near to science and tech companies tend to be even more efficient and have a higher potential for growth.

The work of NESTA, and others, has led to a view that government support and increased investment in creative clusters will create more work and greater growth for the sector as a whole.  This is seen by many as essential as automation takes over large parts of the economy, and in an era where globally the creative sector is due to expand faster than any other.

How will they work for the vast majority of freelancers and micro-companies, who make up over 90% of the Creative Industries in the UK?

The AHRC Creative Cluster programme, is supported by a £39m Industrial Strategy Challenge Fund grant as part of a projected total spend of £80m. It is designed to support six to eight existing clusters. The shortlisted proposals will be made know in early 2018, while the final group of successful Cluster Bids will be announced in July 2018.

For a summary of the programme’s area of Research and Development go here

The stated aim of the programme is to work with existing clusters. Therefore, any region or city which does not have identified cluster will not be part of this new growth and support strategy. Given that 47 clusters were identified by NESTA and 14 of these were seen to have a high concentration and high growth there is clearly substantial room for more support than this programme is able to supply.

The biggest challenge the Universities hosting these clusters face is that within the time frame most will not be able to include many micro-companies or freelancers in their initial proposals.  The net result of which is that the more established media and creative production companies,  who make up less than 10% of the sector, will end up setting the agenda. There is also the possibility that some cluster/s will end up being dominated on the industrial side by tech or advertising groups, who obviously make use of creatives, but are hardly likely to focus on their needs, as opposed to their own.

A framework for what the majority of the sector needs was highlighted in the Creative Industries Federation report ‘Creative Freelancers’ published in July 2017.  A summary of the specific needs across the freelancers, who are 47% of the sector, drawn from this report were :-

  • Access to Finance
  • Legal advice and support
  • Access to workspace.

The challenge for freelancers and micro-companies is to make contact with the initial short listed host Universities and insist on their specific needs being part of the final proposal.

Given these issues how will the £500m fund being called by Peter Bazelgette add to the effectiveness of creative clusters?  Obviously it will be able to reach out beyond the limited number possible in the AHRC programme.  The review argues for Creative Clusters to be designed from the bottom up.

……support for regional growth is prioritised through
an approach based on the City Deal model, supported by a £500 million Creative  Clusters Fund.”     Independent Review of the Creative Industries 2017

This overcomes the limitations of  a centralised approach, but is still aimed at already existing clusters, with all the limitations identified above.

This highlights one of the most important aspect of the creative industries. It is made up of freelancers and micro-companies, who operate across the UK, and often via a digital network. In the age of fast broadband, pdfs, skype,compression software, and digital rendering  to say nothing of Facebook, Instagram, the App Store and e-publishing is the idea of a physical based cluster really the only answer to creating growth, and supporting the vast majority of those who do, and will, work in the creative industries?

Creative Clusters have been identified. Some will be funded. More could  be funded to good effect. For them to really benefit the vast majority of  creatives they need to embrace support for the freelancers and micro-companies.  However, they are obviously on their own not enough to unlock the full potential of the creative pipeline.

 

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£80m University funding for Creatives Clusters

This blog provides a summary overview of the Art and Humanities Research Council (AHRC)’s new call for Universities and Companies in the Creative Industries to bid for support for a new government backed fund.

NOTE: You will need to act fast to be part of this program’s initial call briefings are taking place in October 2017 and expressions of interest at the end of this month.

The AHRC Creative Industries Clusters Programme is an £80 million-plus research and development investment to establish eight Research & Development Partnerships in existing creative clusters across the UK, along with a Creative Industries Policy and Evidence Centre to provide insight and independent analysis on the creative industries that will be of national and international significance.

For this blog we have selected the key points relevant to creative freelancers, micro companies and SME’s working in the creative sector.

To view the full  call for proposals please go to https://ceprogramme.com/#ccp

To attend the briefing on this call for bids please attend one of the briefing sessions listed here http://www.ahrc.ac.uk/newsevents/events/calendar/creative-industries-clusters-briefing-events/

“Our investments will focus on early-stage, risky research and development where funding is often difficult to obtain. However, the innovations produced by our investment must have the potential to contribute to commercial outcomes.

The aim of the Programme is to establish and develop industry-focused R&D Partnerships linked to existing creative clusters, anchored in a lead Higher Education Institution(HEI).

For the purposes of this Programme, a ‘cluster’ is defined as either a geographical concentration of interconnected creative enterprises, organisations or institutions; or a sector-based collection of entities that operate in specific fields but do not necessarily fall within pre-existing recognised boundaries (e.g. government office regions).”                                                        AHRC Pre Call Announcement – Final Call

The Creative Cluster Programme

A maximum of eight Research and Development Partnerships (R&D Partnerships –

Each led by an HEI located anywhere in the UK. Creative R&D partnerships will bring together HEIs, creative industries businesses and other key stakeholders.

Funding £6-9m per partnership(incl. minimum of 33.3 per cent matched funding) with an AHRC contribution of £4-6m FEC for 54 months(October 2016-March 2023)

A Policy and Evidence Centre for the Creative Industries Sector – _led by and HEI or recognized independent Research Organisation, this will offer independent analysis on the creative industries for business and policy makers, identify research gaps, and co-ordinate data and analysis on the key challenges for the sector.

Funding Minimum £8m (incl. min 25% matched funding) with an AHRC contribution of £5m FEC for 57 months (July 2018 – March 2023)

NOTE: This Centre will no directly involve creative companies in its bid.

Areas for R&D Research within the Cluster Programme

  1. New Business Models and IP

Creative industry businesses rely not just on their ability to create new intellectual property but, critically, on their ability to extract value from it.

2. Collaboration

How do universities need to evolve to effect productive collaboration with the creative industries?

3.Investment

What needs to be done to align incubators, public and private investors, financial service providers and the research sector to provide innovative new products, services and experiences with the widest access to capital and investment to scale up and reach the market? How can specific product and service innovations opportunities provide evidence for and drive the need for change?

4. International Trade

How can regulators, the creative industries and the research base work together to ensure businesses continue to access the people, skills, supply and distribution chains they need to thrive and grow trade opportunities? How can specific products or services illustrate the potential for this?

5. Diversity & Equality

How can new innovation models and industry/research partnerships break down this pattern and deliver wider access and opportunity for the diverse creative talent of the UK?

6. Skills Shortage

A demand for new skills is being created by new technology-enabled modes of creativity, evolving markets for new kinds of products and changing ways of engaging audiences and consumers. How can partnerships between industry and universities lead the way in fusing the creative, digital, STEM and entrepreneurial skills of a new workforce equipped to span research and industry?

Key Points in Application/Bid

There needs to be a clear strategy based on evidence of the strengths of the creative cluster the University/ies will be working within; how these issues and opportunities impact (as opportunities or threats) on that geographical or sectoral grouping, and to provide the basis of how a strong industry/HEI research partnership will address this.

Successful proposals will convincingly reference the above opportunities and threats for the sector and may provide arguments based around other dynamics of change.

The bid will need to :-

  1. Focus on one or more specific challenge in the development of products, services and/or experiences. The challenge must be capable of being delivered by the cluster.
  2. The Partnerships will develop appropriate, optimal modes of working between business and the research base; offer innovative R&D opportunities to help shape a new type of industry-focused researcher; and develop the new highly skilled multidisciplinary workforce that the sector needs to compete on the global stage.
  3. The partnerships will need to demonstrate strong leadership from both the HE sector and industry, and will be led by an appropriately qualified individual with a demonstrable and relevant track record, based at an HEI eligible to hold Research Council funding
  4. HEI have to have HEIF allocation based upon an eternal income in excess of £250k.

Timetable

Call document published Late September 2017
Statement of intent submission deadline Late October 2017
Stage 1 deadline December 2017
Stage 2 deadline April 2018
Stage 2 assessment and interviews June 2018
Announcement of successful Creative R&D Partnerships July 2018
Launch of the Creative R&D Partnerships October 2018

 

 

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Creative Freelancers Future in the UK.

The Creative Industries Federation this week published the results of the survey we asked BCre8ive members and supporters to fill in earlier this year.  You can download the full report HERE. The survey involved 700 freelancers from across the Creative Industries plus fifty major companies. In this blog we look at some of the key recommendations, which are now with the Government, and form part of the Creative Industries response to the UK Governments new Industrial Strategy.

While the government were asked at a policy level to  look at the following points

  1. Recognise the importance of the creative freelance workforce

2. Make self-employment, across all sectors, part of a Department for Business, Energy,    and Industrial Strategy (BEIS) ministerial brief

3. Introduce an immigration system that works for creative freelancers

4. Support a creative careers campaign – a UK-wide advertising campaign that inspires people to enter into the creative industries and dissolves misperceptions about careers within it, including freelance work

5. Ensure that the way government ranks higher education institutions does not disadvantage those institutions where students become freelancers instead of taking staff jobs after graduation.

The key areas identified for practical support were:-

  1. Support an independent UK-wide virtual hub – a ‘business booster network’ – which signposts existing business advice, local support services, and facilitates peer-to-peer mentoring
  2. Protect freelancers’ creative workspaces against development into residential spaces.
  3. Fund the accreditation of online courses aimed at freelancers
  4. The freelance workforce should be considered as part of HM Treasury’s review of patient capital (investment with no expectation of turning a quick profit)
  5. Pilot mechanisms to provide sustainable social security for freelancers
  6. Provide extra support during transition to Making Tax Digital and quarterly tax returns.

It will be the autumn before we know what the Government’s response will be. In the meantime, it is worth contacting your local MP about these key points in order for those formulating policy to fully appreciate the scale of what is required.

Much of the report reflects BCre8ive’s ‘Expanding the Creative Pipeline’  from the creation of a UK-wide virtual ‘hub’, referred to as a portal in the BCre8ive paper to the question of reviewing investment strategy for the Creative Industries.

The nature of freelance portfolio working has at last begun to be recognised. This pattern of employment involving several short term contracts as the main source of income, with often massively fluctuating levels of earning from year to year and periods of no-earning being common, or as part of a low income p/t employment economy, poses major problems for systems set up for people who are in full-time work.  Systems which range from tax and social security to mortgage providers and large educational establishments.

With at least 43% of the Creative Industries being freelance, and the Creative Industries being identified as one of the five pillars for the new government’s industrial strategy now is the time for change.

Adopting the results of the survey and addressing the key issues of diversity and the marketing and export of freelance content and the importance of micro-companies who make up another 50% of the creative industries is essential if we are to fulfill our full creative potential.

 

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