If ever there was a sign of the changing nature of British enterprise, it was the publication late last week of the CBI’s new ‘Creative Nation’ report.
Here was the UK’s premier business organisation, traditionally associated with the manufacturing industry, throwing its considerable weight behind the far less tangible businesses of computer games, rock bands, books and movies.
Almost by stealth the creative industries have become one of the UK’s most successful sectors, currently accounting for more than 10 per cent of the UK’s total exports of services and sustaining over two million UK jobs. In a still sluggish economy, the creative industries are generating rapid growth propelled by the powerful engine of digital media. The Department for Culture, Media and Sport reports that there are almost 100,000 businesses in the creative industries sector in the UK, over 90 per cent of which are SMEs.
The CBI is in no doubt of the potential. It says, for instance, that the UK music industry has the potential to double its share of US album sales by 2025, but worryingly argues that we are in danger of slipping behind international rivals, like Germany, on economic indicators such as project start-ups.
One of the most important limiting factors is access to finance. Despite all that proven potential, creative companies can still find it hard to raise the growth capital they need. Film makers in particular are hurting. Despite strong box office sales, investment into British film fell by 30 per cent in 2012 – something to remember amid this week’s excitement about the BAFTA nominations.
Somehow the traditional sources of investment which work for manufacturing don’t work for the creative industries. Approaches to the most obvious source of finance, the City, often comes to nothing amid mutual incomprehension between creative entrepreneurs and conservative investors.
The fact is, there is still too great a divide between the creative industries and the wider investment community. Traditional investors remain suspicious of a sector it inaccurately perceives as highly risky, while creative companies often baulk at the requirements of investors in terms of reporting, guarantees and returns on investment.
My own company, Edge Investments, is one of a handful of venture capital specialists trying to address this gap in the market, harnessing Government incentives to direct capital where it is needed. Specialist Venture Capital Trusts (VCTs), for example, can offer attractive capital returns and downside protection. At a time when it is increasingly difficult for retail investors to make a decent return, specialist VCTs offer the opportunity for tax payers to secure a stake in growing businesses at an effective 30 per cent discount.
We will continue to play our part and we certainly welcome the CBI’s intervention, but it is clear that what is required is a greater mutual understanding between investors and the creative sector. The opportunity is enormous: the PWC global entertainment and media outlook 2013-2017 predicts that entertainment and media spending will grow at a 5.6 per cent compound annual rate to £1.35 trillion over the next four years.
UK culture – and the unique creativity which propels it – is one of the defining characteristics of today’s Britain. It is key to our global appeal, and is a sector is which we can genuinely say the UK punches above its weight.
Let us hope that with the backing of the CBI and with increasing attention being paid by Government, that UK investors can be persuaded to unblock the funding logjam which threatens the ability of Britain’s creative talent to maximise its growth potential.