The Year Ahead for ... Creative Industries

Will Hutton on the threat of the web, the economy and monopolies to the UK's creative businesses, and why they need to think internationally.

2011 is when the new normal begins with a vengeance. Many in the advertising and media world hanker for a return to business as usual - the decade up to the 2008 financial crash. Sorry. That was a fantasy world of never-ending credit growth, rising property values and limitless rises in consumer spending. It is dead and buried; there can be no repeat, in particular of ever-rising advertising spending, for many years ahead.

There is one economic ray of light. The international economy will continue to recover in 2011 and 2012. Britain has a two-tier economy: a knowledge-based, internationalised economy that will thus fare comparatively well despite the overall adverse picture; and the rest of the economy - perhaps three fifths in all, and largely outside London and the South-East - which stagnates, its crisis intensified by the speed and severity of the Government's deficit-reduction programme. Creative industries that are neither international nor hooked into the knowledge economy - for example, regional and some national newspapers, advertisers serving clients in domestically focused, low knowledge-intensity industries, trade publishers, small independent television producers - face very lean pickings.

That downside risk is made worse by the urgent need to develop business models that can contend with the creative destruction launched by the internet. Creative industries have always had at their core the commercialisation of original "expressive value" - whether an ad, a TV programme, film or fashion item. Since expressive value is easily copied, British governments have long accepted the case for granting copyright, without which the creative author - I use the term in its widest sense as general creator - could not pay his or her bills. The internet and the "doctrine of free" have shaken this edifice to its foundations: copyright is the building block of every creative business because it delivers a recurrent income stream.

There are two potential ways forward. One is to accept that copyright of commodity creative products is dead and to look for ways of developing niche creative slots and commit to continual and open innovation. The other is to use the new technology to create firewalls to protect the copyright of the originator. Businesses are experimenting with both in varying degrees: nobody yet knows with any certainty how to create recurrent income streams in our digital, wired age.

There is, of course, another route - sheer market power. The event of 2011 will be whether News Corp's bid for the balance of BSkyB it does not already own will be nodded through by the British Government. If successful, then, by 2015, News Corp - owned and controlled outside the UK by non-British nationals - will account for half of all UK TV revenues, and half of UK newspaper circulation. Scale and an unrivalled capacity to bundle media offerings will allow Rupert Murdoch to solve the puzzle confronting smaller publishers, producers, broadcasters and even advertisers over how to recreate their business model: develop an astonishing monopoly. It could happen in no other democracy.

The sole line of defence, now that the European Union has supinely ruled in favour, is Ofcom's plurality review. Jeremy Hunt is due to rule on its interim report very soon. Ofcom has recommended that the bid be referred to the Competition Commission because Ofcom can see very clearly how the UK media market is likely to develop. Hunt will court endless judicial reviews if he does not follow Ofcom's recommendation. Murdoch was a formidable entrepreneur with his creation of Sky, but yesterday's entrepreneur is tomorrow's monopolist. What the Competition Commission decides will be a pivotal moment for the British media and our creative industries.

But there are many more challenges for which the creative industries need innovative support from government. The creative industries are a UK success story. But they are highly volatile and fragile - and more dependent on the UK economy than they should be. World trade of creative products grew at an annual rate of 8.7 per cent during 2000-2005, two thirds faster than the growth of the UK creative industries. Many other countries are implementing explicit strategies for their development. For example, Taiwan recently announced a strategy to generate more than 20 per cent growth in its creative industries, backed by an $840 million venture capital fund dispersed by private venture capital over the next four years.

Our strengths, BBC Worldwide and some creative industry multinationals such as WPP excepted, remain resolutely domestic. The UK has embraced digitalisation, ranking fifth in the OECD in penetration of broadband, and UK businesses are leading the way in internet advertising, where we hold an 18.9 per cent share of domestic adspend. But where foreign governments have decided to develop industrial policies - computer games is a good example - there has been an alarming exposure to foreign take-over and ruthless shipping of our intellectual property abroad. Other parts of the sector are no less vulnerable.

The speed of change is bewildering. The UK needs to develop an innovation and investment ecosystem that is kinder to the challenges the creative industries confront. We need to be more alert to the danger of monopoly; Murdoch is only the more conspicuous example of many. We need to upgrade our policies on copyright, and I look forward to the Hargreaves Review. We need a tax regime to support domestic origination of UK creative content. The lack of incentives for high-quality committed ownership and long-term financing that afflicts the rest of British business hits creative businesses particularly hard. There needs to be intelligent reform. We must sustain, not cut, our investment in the cultural core of the sector. Above all, Britain needs to build on the success of BBC Worldwide - Europe's biggest distributor of European content - and offer avenues to overseas markets for other creative industries beyond public-service TV programmes. Sir Martin Sorrell at WPP has trailblazed; others should follow his lead. Last but not least, the industry needs a forum through which it can speak with a common voice.

It is a sobering picture - but with the right framework from government and sufficient dynamism from the sector, the next decade could be transformatory. After all, the creative industries are themselves a key component of the knowledge economy. Optimists project a doubling of the long-run growth rate to a potential 9 per cent, which would create 185,000 new jobs and a £85 billion sector. But it will only happen if we think internationally, create the appropriate ecosystem and ruthlessly confront monopoly - a paradigm shift. Hunt has to show he understands the game-changing possibilities - but, equally, the industry has to help him understand how the game is changing. And to help itself before it looks to government.

Will Hutton is the executive vice-chair of The Work Foundation.

Further information on The Work Foundation's Creative Industries research programme is available at www.theworkfoundation.com.