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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
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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
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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
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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:
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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.
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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
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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
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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
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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
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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.
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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.
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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
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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.
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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
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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
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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
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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?
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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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1
2
3
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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
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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
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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.
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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
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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 .
Birgitte Andersen, Birkbeck College
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
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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
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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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6
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
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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
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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
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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
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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
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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 martin@inngot.comMelanie Mousley Jones Project Leader melanie@inngot.com
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
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Appendix:Glossary of terms
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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
Birgitte Andersen, Birkbeck College
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
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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
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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/Recommended