Finance, Investment and the
Creative Industries
Dr Martin Smith
Special Adviser, Ingenious
International Creative MBA Conference
London, 30 March 2012
Our Credentials
• Ingenious: $10 billion plus invested in creative assets since 1998
• More than 5,000 investors
• Investments, Ventures, Corporate Finance and Asset Management
• More than 80 films financed or co-financed, including Avatar
• More than 350 hours of prime-time TV drama financed
• Other investments in music, theatre, film, TV production, games, publishing,
and marketing services
• Largest independent investors in creative content in Europe
Slide 1 Ingenious
www.ingeniousmedia.co.uk
Structure of the Presentation
• Introduction: conceptual frameworks
• Entertainment industries and the digital revolution
• Exceptional risk profile of creative content businesses
• Main challenges for private investors
• Main challenges for policy-makers
• Qs pre-submitted by UCA
• Concluding reflections
Slide 2 Ingenious
www.ingeniousmedia.co.uk
Conceptual Frameworks
• Relatively new stuff!
• Binary divides and contested terminology
─ Art and commerce: show (+) business!
─ Cultural value, economic value
─ “Culture” and “entertainment”
─ Public subsidy, private investment
• Cultural economics/the economics of culture
• Technology, consumer behaviour and the creative process
Slide 3 Ingenious
www.ingeniousmedia.co.uk
Entertainment Industries and the Digital Revolution
• Schumpeter and “creative destruction”!
• The impact of digital: (1) the “disintermediating” value chain
• Unparalleled opportunities for new entrants
• The ideology of “free” and consumer power
• Implications for the global majors: the breaking stranglehold of the
“gate-keepers”
• The meteoric rise and power of the aggregators
• The impact of digital: (2) poor visibility on revenues and profits of new
entrants
Slide 4 Ingenious
www.ingeniousmedia.co.uk
Technology and the Creative Process
Source: Technology Strategy Board.
Slide 5 Ingenious
www.ingeniousmedia.co.uk
Main Challenges for Private Investors
• Exceptional risk characteristics of creative content investment
 Not to be confused with creative services businesses
• Problem of valuing intangibles/IP in a “hits” and “misses” environment
• Fragmentation of markets and audiences
• Media owners having to work far harder to pay for content creation
• Collecting “raindrops” of revenue: licensing fees, royalties and
micro-payments
• Shortage of matching business talent in the UK (contrast USA)
• Chasm of understanding between creative and financial communities
• How to compete against “free”!
Slide 6 Ingenious
www.ingeniousmedia.co.uk
Exceptional Risk Profile of Content Businesses
• Our focus is on the economic drivers behind the creative content business
model – not the content genre
• Exceptional risks of creative content businesses:
High Sunk Costs
“Hit Driven”
Business
Wildly Uncertain
Revenues
Portfolio Approach Necessary
• This risk profile is a distinctive barrier to investment not suffered by other
industries, even other knowledge economy industries
Slide 7 Ingenious
www.ingeniousmedia.co.uk
Main Challenges for Policy-makers
• Industrial policy, or leave it to the market?
• Poor data, especially on economic “spill-overs”
 Dangers of “lobbynomics”
• Outdated IP regulation: the DEA and Hargreaves (UK)
• Maintaining public investment and creative infrastructure in an age of
austerity
• “access to finance” and lack of business capacity: domestic and inward
investment
• The skills agenda and the mobility of talent
• Fiscal policy: intense global competition
Slide 8 Ingenious
www.ingeniousmedia.co.uk
Qs Pre-submitted by UCA
• What do you see as the key challenges to finance for UK creative
industries?
• What and who do Ingenious Media invest in?
• What are the key things you look for when investing in a business?
• Do you only finance blockbusters?
• Can education support in the development process?
Slide 9 Ingenious
www.ingeniousmedia.co.uk
Concluding Reflections
• The UK is a great feeding ground for creative talent
• But it has lost positions of business leadership in the global creative
economy
• In music, film and games we have become a giant and successful off-shore
“facilities house”
• Much of the commercial upside/serious profits generated by our creative and
technical talent base goes overseas
• Are we content with that?
Slide 10 Ingenious
www.ingeniousmedia.co.uk