Dr Martin Smith Special Adviser, Ingenious International Creative MBA Conference London, 30 March 2012 Finance, Investment and the Creative Industries

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 1 Ingenious

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 2 Ingenious

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 3 Ingenious

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 4 Ingenious

Technology and the Creative Process 5 Ingenious Source: Technology Strategy Board.

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”! 6 Ingenious

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: This risk profile is a distinctive barrier to investment not suffered by other industries, even other knowledge economy industries 7 Ingenious High Sunk Costs “Hit Driven” Business Wildly Uncertain Revenues Portfolio Approach Necessary

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 8 Ingenious

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? 9 Ingenious

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? 10 Ingenious