Textbook

Building the creative business: a practical guide for sustainable growth*

By David Court and Jason Potts

This book is for people working in creative and cultural industries. It describes the shape of these industries, their business dynamics, what’s different about them – and how the forces of change unleashed by digital technologies are reshaping them.

The premise of the book is that the creative industries share a common set of business problems, relating to the micro-size of most creative enterprises, the intangibility of the assets they create, the project nature of the work they do, and the resulting complexity of financing structures.

The book will be published by UK publisher Routledge in 2018.

Join our Reading Group and we’ll send you draft chapters of the book as they’re written. Of course we’d love to hear your comments! Here’s a chapter outline to get you started.

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Chapter outline

1. Art and business, creativity and management

Are art and business – creativity and management – in opposition, as some artists believe? And if so, can they be harmonised? In the Romantic conception, art was a vocation that should be carried on without thought of business. Paying attention to ‘grubby’ commercial considerations compromised artistry. Even today, some people working in creative industries see a polarity between ‘creatives’ and ‘suits’. In this view, creative people pursue their goals in an undeclared guerrilla war with managers. But historically, others have taken a less conflicted view. William Shakespeare combined his career as a playwright with a role as shareholder and actor in a London theatre company. Arguably, his success in business was an important enabling factor in his extraordinarily creative life. This introductory chapter makes the case that art and business not only go together but are mutually enabling.

2. From old to new media

The creative industries are experiencing rapid disruptive change. Digital technologies are rewriting the relationships between creators and audiences and the intermediaries who connect them. The changes include a radical restructuring of costs. Physical costs of making and distributing books, movies, records etc are consuming a smaller and smaller share of revenues as digital substitutes proliferate, while transaction costs – the friction in the system – are declining towards zero. We are witnessing the emergence of a global market for creative works and an unprecedented expansion of consumer choice. In this chapter we explore the implications for creators and managers.

3. Staring at a blank page

Many authors have described the terror of the ‘blank page’ – the moment when creative work begins and the author must conjure something from nothing. But creativity also takes place in a continuum where authors borrow and repurpose ideas, words, images and themes from their predecessors. Lewis Hyde has described this as a ‘gift economy’ where authors receive the gift of what has gone before and in turn gift their own work to those who follow after them. Creativity in this vision is incremental. Creativity is also sometimes described as based in freedom and at other times as a process dependent on discipline. This chapter investigates the dichotomies of creative work and the work practices to which they give rise.

4. Managing creative people and processes

What are the enabling conditions necessary for sustained creative work? And how can managers deliver them? These are old questions and different industries – theatre and live performance, publishing, film and television – have answered them in different ways. But what they have in common is the construction of processes and incentives that are tolerant of failure. Risk-taking is central to innovation and creativity and must be insulated from the risk aversion of normal business decision-making. This chapter explores how managers can enable risk-taking without endangering the enterprise itself.

5. Creative business structures

There has been ongoing innovation in the structure of creative enterprises since Shakespeare and his partners formed the Lord Chamberlain’s Men in the late 1500s. In theatre, a dual structure has evolved where leadership is commonly shared between a general manager and an artistic director. The film industry mirrors this structure with its division of management responsibility between producer and director. Hollywood also evolved the movie studio, where producers operate at a distance from the central studio functions of financing and distribution. More recently we have seen the emergence of network structures where activity is organised through loose connections rather than drawn tightly within the ‘membrane’ of the firm. This chapter offers a taxonomy of the business structures developed in response to the challenge of managing creative enterprises.

6. The project as enterprise

Creative workers traditionally have been very project focused, going from one project to the next. A frequent consequence has been a lack of focus on their own underlying businesses. All the attention goes to the project and the business suffers. In this chapter we seek to balance managers’ focus between project and enterprise. This balance is becoming more important as projects grow in scope and duration and creators seek to exercise more control. A recent example is James Cameron’s Avatar, which he has described as a 20 year enterprise spanning film, live performance and publishing.

7. Financing strategies

The creative industries present significant financing challenges. Since the assets being financed are intangible and their outcomes unpredictable, they defy standard financing models. More innovative approaches are required. The theatre and film industries in particular have developed novel financing strategies that take advantage of so-called ‘soft’ investors whose participation in a film or show is often cushioned by non-financial considerations. Creative industries operate with one foot in the money economy and another in the economy of ‘esteem’ or ‘prestige’. Understanding this duality is essential to creative financing. In this chapter we show how managers and investors can navigate the high risks of creative assets using techniques from portfolio theory and project financing to reduce risk and increase profits.

8. The asset class: intellectual property

The asset value of creative work is embodied in intellectual property, in particular, copyrights, designs, trade marks and patents. These exist both as financial assets and as legal instruments that give creators and their licensees control of works. Although these instruments have a long history – almost half a millennium – their scope and use remain contested. For creators, intellectual property is often a flawed asset, producing returns that are not commensurate with the risks they take to produce the work. In this chapter we track the evolution of intellectual property as an asset class and look at the strategies managers have used to build value.

9. The creative value chain

A notable characteristic of 20th century mass media was the long value chain separating creation and consumption. The length of the chain kept creators’ share of retail revenues low – typically between 5 and 15 per cent. Creators lacked bargaining power because retail channels were scarce and tightly controlled. Middlemen were therefore able to extract monopoly ‘rents’ and push risk back on creators and their investors. These characteristics appear to be breaking down in digital media. While there are still powerful intermediaries, their control of access to audiences is no longer absolute. This chapter investigates the implications for creators and managers.

10. Audiences who talk back

In the mass media of the 20th century, audiences were essentially  statistical: distant, sampled, voiceless. There was very little direct feedback and what there was came very late in the creative process – generally too late to be acted upon. Creators therefore had either to imagine their audiences or find proxies for them, for example relying on their own taste as a guide to others’ likely taste. By contrast, digital media bring creator and audience closer together and enable direct interaction. Audience feedback increasingly is part of the creative process, even part of the financing of projects, through crowdfunding. In this chapter we look at methods of audience engagement and show how creators and managers can use audience data and feedback to assist their decision making.