IP and Open Source Final Report

8/4/2019 IP and Open Source Final Report

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BEACON 10

IP & OPEN SOURCE

Final report


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Index

Project scope 3

Project methodology 4

Key findings 5

The business context 7

Business models: there are no magic bullets 19

16/05/2011 Final report for Beacon 10: IP & Open Source 2

The future is collaborative 25

IP: use it - or lose it 30

Investment: the elephant in the room 36

There is more to be done 42

Appendices 44


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Project scope


The speed of digital

convergence and theglobal nature of the digitalrevolution bring thecomplex issues of

intellectual property andcopyright centre stage forall. Long acceptedbusiness models are beingblown apart; the Internet isradically reshapingconsumer attitudes andbehaviour; and legalframeworks are not

keeping pace. These arecritical issues for a strongcreative and knowledgeeconomy for the 21stcentury.

Dame Lynne BrindleyCEO, British Library

New digital distribution networks are reshaping producers and consumers

attitudes towards intellectual property and fair use. New approaches to

intellectual property ownership and licensing, such as Creative Commons and

open source, are facilitating the evolution of new business models with

intellectual property at the very heart of the creative value proposition. It is

essential the framework is up to date, relevant, easily usable and fair.

This Beacon Project is one of a series of key industry topics being examined

by the Creative Industries Knowledge Transfer Network. The project aims to

create a strong positive vision of how the creative industries will reconcile the

tensions at the heart of this new era and develop models where successful

artists and businesses co-exist with empowered customers.

The Project, which ran from September 2010 to March 2011, took in views and

experiences from a broad range of creative industry sectors, including

performing arts, design, advertising, radio and TV, film and video, music,

publishing, video games and software.


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Project methodology


Intellectual Property (IP) is at the very core of the creative industries value proposition. The

Beacon Project, led for CI KTN by the innovation directory Inngot, provided an opportunity

to examine this central role of IP and assess how businesses can best harness it during a

period of rapid, technology-driven change.

In order to focus on principles rather than technicalities, the Project started with an examination of

the pressures on value generation, using these to understand the themes which underpin currentand emerging business models, and bring out the underlying IP strategies.

Through desk research, expert interviews, small discussion groups, larger workshops and a

national online survey, the Project uncovered and explored twelve strategic themes. Over 400

individual contributions have informed the development of this reports four provocations on the

biggest IP-related opportunities and threats facing creative organisations.

What are the keyissues for creativeindustries aroundvalue generation?

How arebusinessesmeeting thesechallenges?

Whatpatterns andprinciples areevident?

What are theimplicationsfor IPstrategies?


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Key findings: the context

Several technology trends are combining to place unprecedented

pressure on creative industry business models, particularly affecting

organisations producing digital content.

Consumer behaviours are also being driven by these technology

developments: they are adept at sourcing free content, regularly creating

and sharing it themselves.

This upheaval creates major issues for the protection and exploitation

of intellectual property, or IP, which is of vital importance because it

underpins value creation at every stage of business development.

Some creative organisations are finding ways to capitalise on the new,more connected marketplace using their IP in many cases by adopting

open approaches towards sharing it.

The strategic challenge for IP-intensive businesses relates to how they

can best embrace the opportunities to share as well as retain their rights,

and generate income through indirect as well as direct means.



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Key findings: the provocations


The future is collaborative. Joint working is essential if the industriesecosystem of micro and small creative businesses is to prosper. Over 80% ofsurvey respondents arecollaborating, and the majority are co-creating IP.These partnerships can generate scale and help secure new markets.

IP: use it - or lose it. The digital revolution makes IP protection more difficultand IP exploitation more critical. Scale is now a critical success factor for

many creative companies; legal and commercial frameworks and practicesneed to evolve to meet the needs of this new networked environment.

There are no magic bullets. Creative businesses need to use a range ofbusiness models, or sources of income, to cope with the demands of digital.The industries direction of travel is towards novel, shared methods of

revenue generation which will demand careful attention to IP management.

Investment: the elephant in the room. Creative businesses faceproblems sourcing working capital and finance for R&D and marketing, partlybecause reliance on intangibles means they have little security to offer. Theyhave to source money where they can, which is limiting their growth potential.

BUSINESSMODELS

COLLABORATIVEWORKING

ATTITUDESTO IP

INVESTMENT


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28/11/2010 Inception report for Beacon 10: IP & Open Source 7

THE BUSINESS CONTEXTDrivers of change: consumers & IP: key issues: value and IP:the new breed: directions of travel


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The empoweredconsumer: usersbecome designers

Drivers of change

Several technology trends are combining to place unprecedented pressure on established

business models in the creative industries. Some of the most important factors are:


Digital &physicalconvergenceblurs sectordistinctions,

especially TV,mobile & web

Open sourceand fallinghardwareprices drivedown costs

and reducetime to market

New devices, from tablets to3D printers, bring innovativeways for users to interact with

and create content

3G & broadband enable digital

content to be downloaded anddistributed - anywhere, anytime

Established

ways of

generating &

safeguarding

income arebeing overturned


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Focus sectors

Who is most affected:the digital cluster

The Technology Strategy Board has identified a cluster of content industries that are principally

delivering digital output and are technology-aided. These sectors include many businesses who

are most strongly affected by the drivers of change.


Artefact

Service

Content

Creative process

Output

Manual Technology-aidedP

hysical

Digital

Art &

antiquesCrafts

Architecture

Design

Advertising

Performing

Arts

PublishingFilm

Music

Radio & TV

Computer

games

Social

media


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Consumers and IP


A number of overlapping trends are apparent in consumer behaviours which create

additional challenges for IP owners:

Many onlinebusiness modelsencourage users

to generatecontent, as

opposed to simplyaccepting it

Many consumersseeking content

online dont

appear todiscriminate

between legal andillegal sources

With so much freecontent available

online, someconsumers dont

see why theyshould pay for

anything

How canconsumers tell the

difference?Do they care?

How can successfulbusiness models be

built from so littlesales income?

Who owns contentproduced in this

way and how can itbe exploited?

The social contextin which much

digital content isused encourages

sharing, whichcosts IP owners

sales

How can sharing befacilitated without

cannibalisingrevenue?


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Efficientmethods of

royaltypayment

Stayingwithin the

limits of fair

dealing

Determining

the identityof the rightsholder

Creatingworkablebinding

contracts

Enforcingrights in theevent of an

infringement

Obtainingpayment

from willingpurchasers

Detectingwhen an

infringementoccurs

Issues for creation &consumption


The laws that have traditionally formed the legal basis for monetising creative works are

under severe strain in the digital age, for owners and users of copyright:

Thecopyright

owner

Thecopyright

user


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IP underpins value at allstages of development


Early stage Growth Maturity

Direct income (differentiation: freedom to operate)

Trading value (ability to share/swap/translate)

Influence/reputational/brand value

Security value (to leverage funding)

Exit value (sale)

Profitability (loyalty/lock-in: bundling: cost advantages)

Share value (investment)

Indirect income (monetising data/delivery via advertising/sponsorship)

IP is not simply vital to income generation. It has potential to add value to creative

companies in a variety of ways:


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The new breed


Amazon has harnessed the webs

reach and flexibility to create adominant retail portal that hasspawned its own community,

The iPhone catalysed a

whole new form of contentthe app now taken to a

new level for the iPad.

Established and new businesses are innovating in this new landscape. In all cases,

copyright and other IP rights lie at the heart of the creative value proposition:

Creative

Commonsprovides aconvenient set oftemplates for IP

originators todetermine what toshare, and what to

retain,

Spotify enables consumersto access whatever musiccontent they want, without

having to buy or evendownload any of it.

Linux shows the potential power of opening upaccess to IP as a driver for business

innovation.

FarmVille has achieved huge scale byenabling online gaming to be a social, not

a solitary activity.

The Guardian has opened up itsnews archive for any business to

access enabling branded content

to be distributed via thousands ofnew channels.


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Directions of travel

The vertical axis plots the extent to which a

particular business model is dependent on direct

methods of value generation from intellectual

assets, as opposed to cases where original IP

creates value indirectly, such as via advertising.

The horizontal axis maps the extent to which a

creative commercialisation strategy relies on

holding ontothe IP, or allowing/enabling it to be

widely accessedin order to generate value thetrend exemplified by the open source movement.

The project survey enabled some conclusions to be

drawn about the industrys direction of travel:

towards indirect methods of value generation that

build on the way users share digital content.


A matrix was developed and refined throughout the project stages, to act as a road map

for positioning and exploring business models and understanding industry trends.


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Grouping the strategicthemes

The upper left quadrant, where rights are retained

and value is generated directly, was classed as

selling.

The upper right quadrant, where sales of IP are

facilitated by sharing, was called licensing.

The lower left quadrant, where rights are still under

the originators control but used to generate value

indirectly, was labelled as translating.

The lower right quadrant, where rights are

distributed in order to generate value indirectly, was

characterised as leveraging.


The four quadrants of the matrix were given labels to suggest where the emerging strategic

themes should be positioned relative to each other.


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Compiling the strategicthemes


The baseline stage of

the Beacon project

identified twelve

themes for detailed

exploration.

These themes were

explored by workshop

delegates, who used

them to produce

examples of future

business scenarios.

These themes are

summarised on the

following page and

explained in detail in

the scenarios report.

SELLING THEMES

LICENSING THEMES

TRANSLATING THEMES

LEVERAGING THEMES

Collaborativecommunities

Conveniencestores

The longtail

Built forsharing

The newroyalty

Back tothe garret

Fuelling

technology

Virtual

appetizers

Intangibles

into tangibles

Onlinehoardings

IP forfree

21st centurypatronage


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Summary of the twelve themes

Online Convenience Stores. Producing standardised

products that tap into the growing demand for easily

accessible and downloadable content.

The Long Tail. Targeting a specific niche, using the

internets universality and scale to make harder-to-reach

audiences profitable.

Built For Sharing. Creating legal and organisational

structures to make sharing easier, like Creative

Commonsand the Open Source movement itself.

The New Royalty. Obtaining a large number of

potentially very small commission payments (particularly

for performances).

Back to the Garret. Prioritising low overheads and

independent working in order to accommodate uncertain

income streams.

Collaborative Communities. Co-creation of end

products which can achieve scale and whose rewards

can be shared by a group.


Fuelling Technology. Adapting creative concepts to

suit new devices (typically making content IP

subservient to the device providers interface).

Virtual Appetisers. Using a Freemium model where

content is provided at no charge, to encourage some

users to trade up to a paid-for service.

Intangibles into tangibles. Converting digital

products into tangible items, often in order to create

scarcity value.

21st Century Patronage. Creating digital content to

order, either by being commissioned for a specific end

product or sponsored to produce it.

Online hoardings. Making content as widely available

on the web as possible, and monetising it via

advertising models.

IP for Free. Giving content away for at no cost in order

to generate value in other ways, for instance through

data acquisition.


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Themes becomeprovocations

As the strategic themes were examined in the

workshop environment and used to model future

scenarios, it quickly became apparent that

many were not operating in isolation. For

example, communities need rules to facilitate

sharing, and may need either to interface with

shop fronts, or to become distribution channels

themselves. They may need to attract

benefactors or sponsors to operate, and may

target their activities at specialist niches.

As these connections were explored, theycoalesced into four provocations:

Business models: there are no magic bullets

The future is collaborative

IP: use it - or lose it

Investment: the elephant in the room



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28/11/2010 Inception report for Beacon 10: IP & Open Source 19

BUSINESS MODELS: THERE ARE NO MAGIC BULLETS

Digital technology has opened up consumption and sharing, and in doing so, has underminedestablished business models the ways in which creative businesses generate income. This is mostobvious in the music industry, but its effects are increasingly felt in other sectors, including broadcast,

film, games and publishing.

No single new model, or magic bullet, is apparent in any of these industries. Instead, creative businesses are

having to exploit a range of different routes to market, many of which involve adapting or even re-inventing their

core IP to some degree.

Just as technological change has created the potential for more rapid and widespread IP adoption, it also meansthat scale is becoming increasingly vital just to create the optionto monetise it successfully. Even when scale isachieved, the challenge remains to translate digital activityand usage(free services/value/brand) into income(through viable business models).

While many creative companies remain largely dependent on direct revenue for now (from content sales orcommissions), the Beacon survey suggests new income is increasingly likely to come from indirectmeans suchas advertising or spin-off merchandising . The direction of travel is towards the lower right hand corner of theproject matrix, involving models which require IP to be shared and distributed, rather than exploited solely by its

originator creating a raft of new commercial and IP challenges.


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Views from the experts


Established industry models built around

IP exclusivity, control and limited windowsof release are giving way to consumer-driven approaches where no singleeconomic model will assure commercial

success.

Liz Rosenthal, Power to the Pixel

Were at the beginning of a revolutionary

moment in how people interact with theinternet.

Matt McAlister, Guardian Media Group

The search for a single solution is missing

the point, because there isnt one.

Tom Morgan, National Portrait Gallery

We cant have business models that dont

take advantage of the content-sharing anduser-interaction offered by the newtechnology.

Birgitte Andersen, Birkbeck College

The internet has created bigger monopolies

than existed before.

Feargal Sharkey, UK Music

Lots of content isnt really worth anything

in its direct form but its still possible tocharge if supply is constrained bytechnology, and to have barriers for contentthat is high value and time-critical.

Christian Ahlert, Open Business CC


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Views from the survey


In the world of photography, there is too much of an

attitude that photography should be free to all,irrespective of the fact that someone will have made anexpenditure to create the image in the first place andthat they have a right to earn money from producing

the work. This has come about through the explosionof internet accessibility to images as well as otherinformation.

Survey respondent, photography

Like many creatives, I find open source to be inspirational

yet I fear it. There seems to be a growing ignorance aboutthe necessity of compensation for creative work, as theweb has created a virtual free for all.

Survey respondent, design & publishing

Copyright is the most

important business tool Ihave. Even UK law is notentirely on my side as itallows newspapers and

magazines (for example) touse my work and not give acredit. Publishers frequentlyuse my work withoutconsultation and expect me tosecond guess uses and onlypay on invoice a thoroughly

disreputable situation in myopinion.

Survey respondent,music, advertising, publishing


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Where are businessesactive now?

While it is no surprise to find that most businesses

are most active in some form of selling based on

their IP, it is telling that many businesses said theyoperate in more than one quadrant:

19% placed themselves in just one quadrant

48% had activity in two quadrants

24% had activity in three quadrants

9% were active in all four quadrants


The percentages shown below indicate the proportion of survey respondents who operate

at least partially within each of the four quadrants identified by the project.


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Whats the direction oftravel?


These pie charts show where businesses are looking for these fresh paths to income. Given thecreative industries historical concentration on direct selling and licensing, the data indicate that

indirect methods are increasing in importance, and that the model of choice is to have a broadcombination of routes to revenue.

43% of respondents said they intend to explore new ways of generating income.Revenue models in all four quadrants are being explored, and 55% of those who areexploring new models are looking in more than one quadrant.

Translating

%exploring

% notexploring


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Recommendations

Metadata is key. A better ability to track the origin and use of creative content is vital for

future monetisation of both retained andshared IP. There are implications for metadata

standards, its protection, and accessible registration of IP ownership.

Consumers need clearer guidance. Convergence is working against the need to make

consumers better informed on origin and ownership. New technical and marketing solutions

are needed to help users distinguish authorised and unauthorised sources.

More test beds are needed. As scale is now so critical, facilities like IC Tomorrows

digital test bed can give businesses a better chance of success by enabling them to try out

new functionality and approaches to value creation on realistic platforms.


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2

3


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25

THE FUTURE IS COLLABORATIVE

Beacon Project participants reflect the diverse nature of the ecosystem that makes up the creativeindustries. Survey respondents are predominantly micro in size (67% with 10 or fewer employees and

long-term associates) but include a significant number of medium and large companies (20%). Most

firms (of all sizes) have traded for over five years (61%).Smaller businesses exhibited a strong desire for the internet to remain a free and open space where newapproaches can flourish through collaboration and sharing, along the open source model. The Beacons

evidence confirms that a lot of collaboration does occur, with 81% of respondents already having at least someinvolvement in it.

Although having the ability to bounce ideas off others is cited as the benefit most often realised from joint

working, blue sky thinking is not the prime motivation: almost half of collaborators frequently charge for theirinvolvement. Similarly, when asked which benefit they most wanted in the future, new ways to monetise our

outputs emerges as the top answer, given by one-third of respondents.

Co-creation raises particular challenges around IP ownership. Workshop participants identify the need for asupport infrastructure to help creative businesses in realising their digital potential. Their scenarios suggest anenthusiasm for bottom-up, industry-led groups, that can assist companies by setting out clear frameworks ofrights and responsibilities, delivering practical assistance, providing inspirational success stories and helpingthem achieve scale.

Support for this ecology is also important to help individual businesses to compete more effectively with large

corporations, who have the muscle to harness the internet as a distribution system, leveraging their scale and

their IP rights.


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Views from the survey


Current collaborative legal frameworks

are costly to challenge and maintain -creative commons is not yet an effectivealternative. Cloud technology andadvances on pay-pal type systems may

make collaboration more attractivemonetarily for freelancers, the dominantgroup in the CIs.

Survey respondent,film & video, music, radio & TV

Providing IP arrangements and legislation

which make copying, sharing and re-mixingeasier, while still protecting the interests ofartists and authors, is a vital challenge for this

century. A better balance must be struckbetween ease of access and distribution andprotecting authors' work and reputations.Systems of micro-payment, Creative Commonslicensing and shared licensing arrangementsshould all be examined.

Survey respondent, finance/funding

I don't think we need to change legislation as

such - just the interpretation of legislation (caselaw) and find legal systems (such as creativecommons) that serve the need of collaboration(as I strongly believe that collaboration is the

future of any successful economy).Survey respondent, education/training

I have a specific need for better legal

frameworks with regards to joint IP

ownership in collaborative situations. Icurrently engage in a number of openinnovation projects which require clearrevenue-share, joint trademarkownership and joint IP ownershipagreements.

Survey respondent, software


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Presence of collaboration

Overall, the survey results indicate a high degree of collaborative activity 81% of all respondents

said they were involved in it to some degree. Collaborative working emerged as being particularly

prevalent among education, administration and software sectors.

One-person businesses emerged as the group least likely to be collaborating, at 61% - similarly, it

is less prevalent for solo sectors like photography.

There is a clear commercial intent behind collaborations: 90% of them involve charges at least

some of the time: 45% said charges are at least frequent: 17% always charge for this type of

activity.



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Benefits of collaboration


Of those who collaborate, the most common motivation is bouncing ideas off others (83%), but itis also the easiest to realise, with only 6% indicating they were yet to experience this benefit.

Just over half of collaborators are currently developing new assets (56%), but 81% are

accessing expertise you dont possess, both of which have IP implications.

Currently experiencing

%

Hope to experience in

future % *

Total (currently or

hoping to) %

Ability to bounce ideas off others 83 6 89

Accessing expertise you dont possess 81 11 92

Better access to markets/customers 70 22 92

Improved market intelligence 67 19 86

Greater scale and competitiveness 59 23 82

Developing new assets 56 23 79

New ways to monetise our outputs 44 33 77

Other 7 5 12


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Recommendations

Co-creation needs practical support. Better information and advisory resources are

required to help businesses navigate the rights issues that arise when sharing and jointly

developing content, which looks set to become increasingly prevalent.

Community matters. Vibrant local ecosystems can form a valuable springboard for new

ventures, and a starting point for collaborative working. Established companies and

organisations can take the lead in sponsoring their formation.


4

5


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IP: USE IT OR LOSE IT?

Open, shared approaches to revenue generation are still fundamentally underpinned by IP rights.

Whether companies choose to distribute their output or retain all rights for themselves, legal andcommercial frameworks remain central to value realisation.

Beacon Project contributors express frustration with IP laws on two fronts. On the one hand, copyright is failingto offer their works adequate protection in the digital age. While technical solutions may be able to addressinformation deficits around who has used what and when, these will not solve the issues of scale and influencemany specialists simply cannot afford to enforce their rights if they are infringed.

On the other hand, copyright is also seen as a barrier to exploitation because of the practical difficulties

involved in determining ownership of existing IP and gaining consent to build on it, even for non-commercialpurposes. This view is particularly evident within the software, broadcast and film sectors, fuelling debate aroundissues such as fair use and orphan works.

The business model evidence from this Beacon Project indicates that the creative industries are being pushedincreasingly towards realising value from IP sharing. The precedent of open source suggests that highest valuewill be placed on IP that delivers scale through widespread adoption and use. Only the largest businesses canretain full commercial control over their IP and many of them are choosing not to do so. This suggests that formost creative industry companies, the priority must be to exploittheir IP as widely as possible, since a

protectioniststance may not work.


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Views from the experts


If youre not going to be able to defend

your IP in court, whats it worth?

Shaun Fensom, Manchester Digital

I cant think of another time in history

where we have new technology and a newbusiness model, and we protect the peoplewho are not able to adjust. If we do, thereis certainly a danger of over-regulation as

we will impede innovation, competition andnew entrepreneurship taking advantage ofthe technological opportunities of thefuture .


The response [to infringement] should be

a graduated one, but there needs to be aclear message that further action couldfollow if the behaviour doesnt change.

Marianne Grant, MPAA

We have to make it as convenient to get

our legal stuff as it is to steal it...The law itself is generally not the problem -its the contract or agreement that is put

into place...There is no point in forcing through a law

that in our hearts we dont think is going to

work.

John Howkins, The Creativity Group


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Views from the survey:voices for change


The current copyright law around content

& distribution of that content is built on thecopyright of books & music which areoutdated now especially in this internetera. We need to rethink the whole copyright

law and the way that the rights forpublished works are created, attributed andassigned.

Survey respondent,film & video, publishing, radio & TV

We have taken the view that IP strangles

innovation and actively sought to mitigatethe effect by using open source, creativecommons and a variable scale of chargeson licences based on the users social

aspect and ability/will to collaborate...Survey respondent, sustainable communities

Patents and other IP are only worth

anything to large rich companies as theyhave the cash and hence legal muscle topursue infringement. Small companies likemine have ZERO protection from IP as wecannot afford to take things to court.

Survey respondent, admin & support

[The current framework] makes

organisations very, very defensive in

protecting IP. It is becoming very difficult toget a simple IP non-disclosure agreementsigned between two parties who want tocollaborate without endless tos and fros

with lawyers.

Survey respondent, finance/funding


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Views from the survey:voices of caution


IP is necessary at present as it is already

extremely difficult to realise value fromone's creative assets. Clients will pay(happily even) for work done by othertrades such as garages and plumbing but

they think that artists and designers enjoytheir work and only need the exposure asreward!

Survey respondent, film and video/publishing

Current arrangements with softwarepatents in the EU suits us well, but it wouldbe a very different story if we adopted USstyle patent legislation.

Survey respondent, software

The Government seems to listen to

creative industries (not creators)

whinging about barriers to innovation

without considering the effects on thecreators themselves. They listen to music

and film industries complaining aboutillegal downloads of their copyright

material (not the artists??) but what

about individual artists, musicians,photographers etc who constantlyexperience their work being ripped off,blatantly copied, stolen or otherwise used

without any form of recompense. It is thebusiness model adopted by these hugeindustries that has caused their problemnot the copyright laws.

Survey respondent, arts & design


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Is IP legislation a helpor a hindrance?

The Beacon Project survey asked respondents to indicate how far they felt a number of different

types of intellectual property were enablers of growth and innovation, or barriers to it.

While creative businesses generally view registered forms of IP protection (patents, trade

marks and designs) as being more enablers than barriers, around half have an ambivalent

view, and a significant minority feel they dont know enough to comment.

Taken as a whole, creative businesses are more likely to feel that the copyright framework

acts as an enabler, especially in published works and websites. However, a significant

minority highlight copyright as a barrier, especially those from a software, film and video

background. The more actively engaged businesses are in collaborative working, the more

reservations they have about the operation of IP frameworks.

Very few creative businesses view relationship-based forms of intangibles as barriers, and

assets which are embodied and protected by staff, such as customer relationships and

technical know how, are particularly respected.

Company/brand reputation comes across as the strongest enabler of growth and innovation,

with 80% consensus though only 36% see a trade mark as an enabler.



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Recommendations

The Hargreaves review has provided an opportunity for this project to contribute formal

evidence on the fitness for purpose of IP frameworks. A diversity of strongly held views is

apparent on issues such as fair use and orphan works, which makes it difficult to make

specific recommendations about legal changes. However, two points are apparent:

The principle of copyright is vital. The creative industries form an ecosystem of small and

large businesses who have to interact with each other. The automatic provision of copyright

is a key element in creating the basic rights needed to realise economic value.

Focus on exploitation. Measures to update copyright law should pass the test of facilitating

growth and innovation in the creative industries. However, legal change alone will not

facilitate exploitation this requires industry-led, commercial solutions.


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7


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INVESTMENT: THE ELEPHANT IN THE ROOM

Changing business models have had consequences that go beyond income generation. They mean thatthe funding which used to circulate internally within industries (particularly in music, film andbroadcast) is under great pressure. During this turbulent period, the need for externallenders andinvestors to better understand how value is created through creative activity emerges as paramount.

With the question of f inance continually recurring in project interviews and workshops, the projects online surveyseeks to quantify some of the issues raised. Its findings are summarised on the following pages.

Two specific challenges emerge. Firstly, while creative businesses are heavily dependent on their IP, their banksfind it difficult to attribute value to these assets when seeking security for borrowing. Secondly, where therelationship between creative output and income generation is indirect, and a businesss strategy revolvesaround sharingIP rather than retaining control over it, investors find it hard to understand how they can obtain areturn on their capital.

If these problems are not addressed, the pressure on creative industries to shrink or at least not to attempt to

grow can only increase.


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A selection of views


I need inspired marketing of new ideas that is

entirely funded by future profits. A sort of inventor'sversion of the student loan.

Survey respondent, design

Less investment is clearly a bad

thing for creativity... If you wantquality, at some point someone hasto invest in it.

Feargal Sharkey, UK Music

The funding landscape in the UK

does not favour innovation -organisations in the UK want to see aproven track record in a business orproduct before they will agree tofunding... at which point the funds

are generally no longer needed.Lenders/VCs have a much lower riskthreshold in the UK which isgenerally why start-ups get snappedup by US firms.

Survey respondent,music, radio & TV and software

In my experience to date traditional lending

organisations such as the banks have absolutelyno concept or understanding of IntellectualProperty at all... if you don't have anything physicalthat they can see and touch, then forget it. Even

when they do talk to you they will want personalguarantees at least equal in value to any facilitythey extend to you. If there could be some sort ofaccepted standard accounting practice that gave avalue to IP... in a way that the banks could get theirheads around it would be a huge leap forward.

Survey respondent, publishing & software


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Funding is in short supply


The CI KTN IP & Open Source Survey findings confirmed that creative companies are using

a wide variety of funding sources to run and grow their businesses - including quite a few

they dont like.

As would be expected, the most used funding source, by some margin, is the reinvestment of

previous profits and surpluses, employed by over 70% of respondents. Bank overdrafts, loans frombusiness partners/family/friends, credit cards, equity finance from existing shareholders and bank

loans also feature prominently. These are present in 24% - 31% of cases.

However, it is clear that the three external sources which are most used are the least liked.

27% of respondents used credit cards but only 4% saw them as preferable. Bank overdrafts

were used in 31% of cases but preferred by just 14%: loans from family and friends were used in

29% of cases and preferred by 12%.

Equity investment emerges as the most sought after form of external business funding, with 29%

preferring new angel investment and 25% preferring to obtain additional finance from existing

shareholders. However, just 7% said they had actually obtained new angel investment.


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Businesses are looking togrow, not just survive


28% of the businesses responding to the survey said that they had actively sought external

finance in the last two years.

The top three reasons for seeking external finance were for working capital, research and

development and marketing. However, when asked to choose the single most important reason,

R&D came out on top perhaps because it is the hardest activity to fund from business as usual.

The majority of all creative businesses surveyed, 59%, said that lack of funding was a

constraint on their organisations ability to innovate and grow.

The respondents who felt their growth was most constrained through lack of funding were those

whose activities included design, radio & TV and education/training, followed by music and

software. The problem was most acute amongst businesses that were small but not micro

enterprises, and who had been trading for less than five years.


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Any external funding isdifficult to obtain


Outcome % of those seeking finance

Unable to obtain any finance 28

Obtained some but not all 35

Obtained all but with some problems 22No problems accessing finance 15

As the table above shows, of the businesses who had actively sought external funding, the vast

majority had encountered at least some problems along the way, and more than a quarter had

been unable to access any finance at all.

The problems were spread across most creative sectors, with indications that software, design andpublishing businesses are amongst the worst affected.

In addition, a substantial 43% of respondents said that security and/or personal guarantees

had been raised as an issue by their lender.


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Recommendations


Improve the flow of risk capital. Prospective creative industry investors need to beidentified and targeted, to facilitate contact with innovative new businesses, and drive theprospects of successful equity financing for young IP-rich creative enterprises.

Strengthen the quality of the pipeline. Creative entrepreneurs looking to grow need to be

as investment ready as possible, and need access to more support in preparing credible,evidence-based plans.

Find ways to express the value in IP and intangibles. Greater visibility must be achievedfor both formal intellectual property and the other intangible assets used by creative

companies within investment and lending decisions. Lenders and investors need to see theconnection between IP assets and income, and attribute value to them.

CI KTN passed the survey findings to the Department for Business, Innovation and Skills as

a submission to inform its pre-Budget work on creative industry funding.

The extension of R&D Tax Credits and EIS tax reliefs announced in the Budget will be welcomed by

businesses seeking to innovate and obtain external investment.

8

9

10


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There is more to be done

This Beacon Project has explored the key opportunities and challenges that face creative businesses in

exploiting their IP in an increasingly open environment. There is more to be done to help new and

existing ventures to prosper in this new climate, hence the ten recommendations contained in this report.

Business models: there are no magic bullets Recommendations 1, 2, 3

Since in most cases the ultimate arbiters of success or failure are consumers, more needs to be done to trace and

inform usage and to test models prior to their release.

The future is collaborative Recommendations 4, 5

Current spending pressures will make it difficult for publicly funded networks to continue the intensity of industry

support provided in the past. New ways will need to be found to help businesses help themselves.

IP: use it - or lose it Recommendations 6, 7

The basic principle of copyright provides a well-established foundation. However, it is not a panacea; whether or not

the framework is updated, creative industries need to update and refine commercial practices.

Investment: the elephant in the room Recommendations 8, 9, 10

While it is understandable to find financiers currently feeling risk-averse, knowledge-based creative businesses

need better access to funding if they are to grow and succeed.



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5/16/2011 Document Title 43

Head and registered office: South East and sales office:Technium Digital 99 Milton ParkSingleton Park AbingdonSwansea SA2 8PP Oxfordshire OX14 4RY

This project has been led by www.inngot.com

Telephone: 01235 85 40 85Project contacts:

Martin Brassell Chief Executive [email protected] Mousley Jones Project Leader [email protected]

The Creative Industries Knowledge Transfer Network accelerates innovation among theUKs creative businesses by delivering valuable insights into technology trends and

developments, promoting funding and collaboration opportunities and turning visions ofthe future into business success. We are creating a unique place for innovators to meet,share ideas and shape the future through our social networking platform for innovators.We are also running a series of high profile Beacon Projects that exam some of the keyissues faced by the creative industries in relation to technology-focused innovation.

The Creative Industries KTN is funded by the Technology Strategy Board, thegovernments innovation agency. Its work supports the aims and objectives of the

Technology Strategy Boards Creative Industries strategy report.

The Creative Industries KTN was established by a consortium led by the University of theArts London. The other partners are Imperial College, London, RIBA and TIGA

CI KTN contact: Jeremy Davenport 020 3355 3062
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Appendix:Glossary of terms


Some of the terms used in the Beacon Project documents may be unfamiliar, while others are open to a number of different

interpretations. Here are the meanings we have applied to some key terms for the purpose of these reports.

Business model: A method of trading and means of selling. These are not mutually exclusive, i.e. businesses can

employ more than one of them

Convergence: A term used to characterise the alignment or merger of historically separate sectors, technologies or

approaches for example, digital music players and mobile telephony

Creative Commons: A set of templates for licensing content that enables users to waive some of their statutory rights

while preserving others, typically used to facilitate sharing

Freemium: A term used to characterise the practice of supplying some content free of charge in order to attract a

subset of users to consume additional content on a paid for (i.e. premium) basis

Intellectual property: Ownership rights over intangible assets which are protected by law. Principally involves copyright for

the creative industries, but includes patents, trade marks and registered designs

Metadata: Most frequently used in this context to characterise the large quantities of information which can bederived from the consumption and usage of online content, often through tags embedded within it

Open Source: A collaborative process of development where knowledge is pooled to create a particular outcome

without asserting individual ownership. Most frequently used to describe software development

methods, but with broader applicability. Closely associated with open innovation


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Appendix:The IP & Open Source experts

Christian Ahlert, Open Business CC


Tim Collins, DC Thomson

Stephen Dunn, Guardian Media Group

Shaun Fensom, Manchester Digital

Marianne Grant, Motion Picture Association of America

Robert Hahn, Guardian Media Group

Simon Hopkins, Unthinkable

John Howkins, chair of the Creativity Group and the

Adelphi Charter


Jackie Maguire, Coller IP Management

Matt McAlister, Guardian Media Group

Tom Morgan, National Portrait Gallery

Phil Parsonage, The Foundry

Carolyn Reynolds, Lime Pictures

Liz Rosenthal, Power to the Pixel

Fergal Sharkey, UK Music

David Tovey, Classic Media

The baseline for this Beacon project and its ongoing direction were both informed by importantcontributions from experts drawn from across the creative industries. CI KTN and Inngot would like to givespecial thanks to the following for their valued participation in this project:


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Appendix:The workshop process


After explaining the thinking behind the

four quadrant approach, Martin

Brassell, CEO of Inngot, provided

commentary on the individual themes.

A small group format was then used to

explore the selected themes in the

context of a future business idea.

The projects workshop sessions

were designed to be both

informative and highly

participative.

Facilitator Chris Grant of 14a

Conversationsled attendees through

a number of exercises to gather and

compare their views on current and

future opportunities and threats.

Jackie Maguire, CEO of Coller IP

Managementprovided delegates with

intelligence on the current intellectual

property landscape and the then recently

announced government review of IP.

She also provided advice and assistance

to participants on the IP challenges

inherent in their ideas.


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Appendix:The IP & Open Source Survey

The online survey for this Beacon project was conducted over a three-week period from late January to mid-

February 2011. As well as being promoted to the CI KTN community, almost 30 further local creative industry

networks helped to raise awareness of the survey amongst their membership, contributing to a strong response with

342 participants in total.

The survey questions were designed by Inngot and Emergent Research to inform the projects conclusions using thefour provocations as an outline structure:

Which of the identified business models , with their varying IP approaches, are organisations using

now? Which would they like to use in the future?

How many organisations are collaborating now? What benefits are they getting?

Is IP a help or a hindrance when doing business? What are the industrys views on the mechanics

of using it?

How are creative businesses being funded at present? Is lack of funding a barrier to growth and

innovation in the sector?

Respondents were profiled by sector, size and age of company in order to see which of these factors proved to be

predictive. A more detailed summary of findings is provided in a separate document.



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Appendix:Some recommended reading

Government and government funded publications

The Copyright, Designs and Patents Act 1988

(available at www.legislation.gov.uk)

the way ahead: A copyright strategy for the digital

Age 2009 (available at www.ipo.gov.uk)

SABIP-commissioned papers on consumer attitudes

and awareness (various available at www.ipo.gov.uk)

NESTA creative clusters and innovation report(available at www.nesta.org.uk)

The Creative Industries Technology Strategy (available

at www.innovateuk.org under publications)

Other useful publications

The RSA Adelphi Charter, 2005 (available at

www.thersa.org)

Creating growth: a blueprint for the creative industries,

CBI, 2010 (available at www.cbi.org.uk)

How much do music artists earn online? (available at

www.informationisbeautiful.net )

Can user-generated content generate revenue? ByPrice Waterhouse Coopers (available at www.pwc.com)

Shackling the digital economy means less for everyone,

by Birgitte Andersen (available at www.dime-eu.org)

A wide range of documentation on issues relating to IP and Open Source was studied during the BeaconProject. Those wishing to know more about the subject may find the following of particular interest:
http://www.legislation.gov.uk/http://www.ipo.gov.uk/http://www.ipo.gov.uk/http://www.nesta.org.uk/http://www.innovateuk.org/http://www.thersa.org/http://www.cbi.org.uk/http://www.informationisbeautiful.net/http://www.pwc.com/http://www.dime-eu.org/http://www.dime-eu.org/http://www.dime-eu.org/http://www.dime-eu.org/http://www.pwc.com/http://www.informationisbeautiful.net/http://www.cbi.org.uk/http://www.thersa.org/http://www.innovateuk.org/http://www.nesta.org.uk/http://www.ipo.gov.uk/http://www.ipo.gov.uk/http://www.legislation.gov.uk/

IP and Open Source Final Report

Documents

Transcript of IP and Open Source Final Report