creative clusters print v2

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Research report: November 2010

Creative clusters and innovationPutting creativity on the map

Caroline Chapain, Phil Cooke,Lisa De Propris, Stewart MacNeill

and Juan Mateos-Garcia


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DisclaimerThis work contains statistical data from ONS which is Crown copyright and reproduced withthe permission of the controller of HMSO and Queens Printer for Scotland. The use of theONS statistical data in this work does not imply the endorsement of the ONS in relation to theinterpretation or analysis of the statistical data. This work uses research datasets which may notexactly reproduce National Statistics aggregates.Copyright of the statistical results may not be assigned, and publishers of these data must haveor obtain a licence from HMSO. The ONS data in these results are covered by the terms of thestandard HMSO click-use licence.


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Foreword

No one doubts the economic importance of the creative industries to the UK. At 6.2 per cent of theeconomy, and growing at twice the rate of other sectors, they are proportionately the largest of anyin the world.

But there is some evidence that the UKs creative industries support innovation and growth inother parts of the economy too. The signicance of these spillovers has only recently begun to beexamined rigorously. And we know next to nothing about their geographical dimensions.

This gap in our understanding is what NESTA set out to address in Creative Clusters and Innovation,the outcome of a two-year collaboration with Birmingham and Cardiff Universities. The studyadopts the concept of creative clusters as a starting point to examine the role that creativeindustries play in local and regional innovation systems. Its publication accompanies an onlineplatform we have developed for users to examine creative industry concentrations at a ne level of detail in their localities.

As ever, I look forward to hearing your views.

Hasan BakhshiDirector, Creative Industries, NESTA

November, 2010

NESTA is the UKs foremost independent expert on how innovation cansolve some of the countrys major economic and social challenges. Its work isenabled by an endowment, funded by the National Lottery, and it operatesat no cost to the government or taxpayer.

NESTA is a world leader in its eld and carries out its work through a blendof experimental programmes, analytical research and investment in early-stage companies. www.nesta.org.uk


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Executive summaryIt has long been recognised that industrial clustering benets businesses bygiving them access to skilled staff and shared services, and the opportunityto capture valuable knowledge spillovers. This is equally true of creativebusinesses, as exemplied by Hollywood, or closer to home by a host of thriving UK clusters, from post-production in Soho to video games in Dundee.

This report is the most ambitious attempt yet to map the UKs creativeclusters, showing where they are, which sectors form them, and what theirrole is in the systems of innovation where they are embedded.

It makes a case for a new approach to local economic policy as it relates tothe creative industries: one that goes beyond urban branding rationales,and acknowledges their great potential as active players in localinnovation systems.

The research has shown that London is theheart of the creative industries in Britain,dominating in almost all creative sectors, andparticularly in the most intrinsically creativelayers of the value chain for each sector. Thehigh level of geographical detail used in themapping has allowed us to pin-point nineother creative hotspots across Britain. They are

Bath, Brighton, Bristol, Cambridge, Guildford,Edinburgh, Manchester, Oxford and Wycombe-Slough.

NESTA is making this unique dataset availableon an online platform that can be accessedat http://www.nesta.org.uk/areas_of_work/creative_economy/geography_of_innovation .This platform will enable its users to examinecreative industry concentrations at a high levelof geographical resolution. It will be updatedannually as a basis for policymaking at anational and local level.

The analysis also shows which creativeindustries tend to co-locate. Advertising andSoftware rms often cluster near each other;the same is true of Music, Film, Publishing andRadio and TV businesses.

It also shows that different cities across Britainhave different proles of specialisation: citiesacross the South present more diversity in theircreative specialisation, whereas Northern andMidlands cities (Manchester excepted) have

similar creative proles. This might reectcommon structural challenges for cities in theNorth, but it could also be indicative of a me

too approach to economic development thatcompromises cities competitiveness.

The research also shows that the creativeindustries are more innovative than manyother high-innovation sectors, for exampleprofessional and business services. Whatis more, the creative industries provide a

disproportionate number of the innovativebusinesses in most parts of the country.

The research analyses co-location betweencreative sectors and other innovativeindustries such as High-Tech Manufacturingand Knowledge Intensive Business Services(KIBS). It shows statistically robust patterns of co-location in several cases. Advertising andSoftware rms are very often found near bothHigh-Tech Manufacturing businesses and KIBS.Other creative sectors that provide content andcultural experiences show weaker, although stillsignicant, patterns of co-location with KIBS.

These ndings suggest the existence of complementarities between some creativesectors and innovative businesses in otherparts of the economy. These complementaritiesmay be brought about by value chain linkagesand shared infrastructures. They could alsobe a consequence of knowledge spilloversthat happen when creative businesses sharenew ideas with their commercial partners, orwhen creative professionals move into other

sectors, bringing useful ideas, technologiesand ways of working with them. In other cases,the presence of creative rms generates an
http://www.nesta.org.uk/areas_of_work/creative_economy/geography_of_innovationhttp://www.nesta.org.uk/areas_of_work/creative_economy/geography_of_innovationhttp://www.nesta.org.uk/areas_of_work/creative_economy/geography_of_innovationhttp://www.nesta.org.uk/areas_of_work/creative_economy/geography_of_innovation


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urban buzz that attracts skilled workers andencourages collaboration.

The report examines some of these issuesin further detail through four detailed casestudies of creative clusters, produced usingbusiness surveys and interviews with local

businesses and stakeholders. They are: Software in Wycombe and Slough.

Film Production, Post-Production and VisualEffects in Soho, London.

Media Production (including Radio and TVand Digital Media) in Cardiff.

Advertising in Manchester.

The case studies show how digitisation isdriving innovation in the creative industries,with most rms investing heavily in internalresearch and development (R&D), and devotinglarge numbers of their staff to technology-intensive activities in order to benet from thisdigital revolution.

The case studies also show that the mereexistence of a creative agglomeration isnot enough for the benets from clusteringto emerge. The other crucial ingredient isconnectivity between rms within a cluster,

with collaborators, business partners andsources of innovation elsewhere (both in theUK and overseas), and nally, with rms inother sectors that can act as clients, and asa source of new and unexpected ideas andknowledge. These three layers of connectivityare underpinned by a dense web of informalinteractions and networking.

Implications for policy

NESTA is publishing its detailed datasetonline, and will update it annually to providea powerful resource for local areas seekingto understand and support their creativeindustries. We are also publishing the surveyinstruments used to undertake the fourdetailed case studies, so that areas looking topursue more in-depth analysis for instance,to identify weak links in their networks thatcould be supported with targeted initiatives can easily replicate our approach.

Having a better understanding of an areastrue creative strengths makes it easier to createthe right conditions for further growth, and

to avoid wasting money on poorly consideredinterventions. Armed with this knowledge,policymakers concerned with local economicdevelopment should do the following:

Catalyse latent clusters rather than try tobuild new ones from scratch

Building clusters from scratch is notoriouslydifcult; far better to identify whether thereare any latent clusters hidden in theirregions or localities that would benet fromnetworking and awareness-raising. Increasingthe visibility of such clusters can also helpcreative graduates nd employment locally.

Think about which sectors work welltogetherThe co-location ndings presented in thisreport suggest that there are importantsynergies between some creative sectors,but not others. The same thing happensbetween creative sectors and KnowledgeIntensive Business Services, and High-TechManufacturing. Local policymakers shouldharness these complementarities, andavoid potentially wasteful one-size-ts-allstrategies for creative clusters that dont paysufcient attention to the distinctive needsof different sectors.

Universities should do more to promoteinnovation in increasingly tech-intensive

creative industriesIt is important to complement the somewhatnarrow view of universities as mostlyproviders of creative talent with a strongeremphasis on innovation. Technology-intensive creative industries, for example,have something to gain from tappinginto the public research base in their localuniversities. Universities should also providelocal knowledge hubs where creative rmscan share information and build strongernetworks.

Help remove barriers to collaborationEven if they are aware of each other, localcreative businesses may be keen to protecttheir valuable ideas or client portfoliosand be wary of collaborating for fear of disclosing sensitive information. Local bodiesneed to take this into account when theydesign initiatives to encourage networkingand knowledge sharing. NESTAs Connectprogramme has found that an airlockmodel where a neutral organisation actsas a go-between can help build the trust

needed to collaborate. Training sessions thatbring together professionals from differentcompanies to upgrade their skills can also act


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as venues for networking, killing two birdswith one stone.

Build bridges as well as towersAlthough investments in iconic publicbuildings may be a way to signal publiccommitment to an area, they are expensive.

In many cases, much cheaper initiatives tobuild links between potentially collaborativebusinesses and sectors may produce longer-lasting impacts for less outlay. Policymakersshould ensure the right balance betweenthe two types of public investment in thecreative industries.

Epilogue: East London Tech City as thebeginning of a new approach to creativecluster development in the UK?

The Prime Ministers recent announcement of the East London Tech City set of initiatives,aimed at building up the vibrant high-techand digital media cluster in Old Street andShoreditch, is a step in the right direction. 1 Rather than trying to create a new clusterfrom the ground up, East London Tech City isaimed at taking an organic, already competitivecluster to the next level, by providing it withthe right infrastructure (both physical anddigital), and developing its connections with

global companies and Londons world-classuniversities.

This should only be the rst step. Otherbudding creative clusters across Britain can,with the right policy interventions, becomeglobal hubs for high-growth, innovativecreative industries. This report has identiedwhere they are, and puts forward ways tosupport them.

1. See http://www.number10.gov.uk/news/speeches-and-transcripts/2010/11/east-end-tech-city-speech-56602.


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Contents


Part 1: Introduction to the report 8

Part 2: Putting creativity on the map 10

2.1 The rst geography of the British creative industries 10

2.2 The ndings of our mapping 12

2.3 The Geography of Creativity also examines statistical patterns in 16the clustering data

2.4 Taking stock of the ndings 16

Part 3: Innovation in the creative industries, nationally and regionally 17

3.1 Measuring innovation in the creative industries 17

3.2 Are the creative industries innovative? 17

3.3 Creative industries innovation at the regional level 20

Part 4: Creative spillovers and co-location 24

4.1 The case for creative spillovers 24

4.2 Co-location between creative rms and other sectors 25

Part 5: A tale of four clusters 29

5.1 Selection of the case studies 29

5.2 Methodology and Data 30

5.3 The ndings of the case studies 32

5.4 Summary of the case studies 40

Part 6: Conclusions and policy implications 426.1 Creative clusters in the new framework for local economic development 42

6.2 Zooming in on creative clusters, and supporting their innovation activities 43

Appendix 1: Industrial Classications of the Creative Industries, High-Technology 46Manufacturing and Knowledge-Intensive Business Services followedin the report

Appendix 2: Detailed results of the co-location analysis 51

Acknowledgements 55


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Part 1: Introduction to the report

The geographic dimensions of innovation

The concept of industrial cluster has playeda pivotal role in the analysis of innovation,and the formulation of policies to supportit since its introduction by Michael Porter in1990. 2 Industrial clusters are geographicalconcentrations of rms from the same sector or related sectors along the value chain thatcollaborate and compete with one another,and have links with other local actors (such asuniversities).

Industrial clusters can be a source of agglomeration economies the geographicalproximity of rms produces collective benets contributing to local competitiveness andeconomic growth. The presence of severalindustrial clusters in the same place can bringother benets too. These are referred to asurbanisation economies, which occur whenideas and knowledge jump across industriesgenerating unexpected, often more radicalinnovation outcomes. 3

Policymakers are showing a renewedinterest in clusters

With the recession, clusters have gained newcurrency in policy debates they appealto policymakers keen to kick-start self-sustaining growth trajectories in the face of ever-increasing global competition, and atight public purse. Nurturing high-technologyclusters is also seen as a way of rebalancingthe economy away from the construction and

nancial services sectors. In the USA, therehave been calls for the federal government toplay a more active role in catalysing industrial

clusters, 4 while the European Commission iscurrently developing a strategy to supportclusters across Europe. 5

In the UK, David Willetts MP, Minister of Statefor Universities and Science, used his rstspeech to state his belief in clusters as sourcesof innovation 6 the key policy developmentin this respect is the ongoing overhaul of theframework for regional development, with theabolition of Regional Development Agencies(RDAs) in England and the creation of LocalEnterprise Partnerships that, it is argued,reect more accurately the nations economic

geography. These new bodies, which willbring together local authorities, businesses,universities and local communities with the aimof driving private sector growth, should play acrucial role in nurturing the clusters on whichthe UK will rely for its competitiveness andprosperity in the coming years.

Creative clusters have not beenexamined from an innovationperspective

The evidence shows that creative rms tendto locate close to each other even more thanmost other sectors. 7 But, to date, there hasbeen little analysis of the direct contribution of creative clusters to local innovation.

Policies to support the creative industries at alocal level have tended to see them as driversof urban regeneration and branding. This isin line with the dominant interpretation of Richard Floridas work on Creative Cities and

the Creative Class.8 According to this view, thecreative industries act as providers of culturalamenities and services that make certain cities

2. Porter, M. (1990) Thecompetitive advantage of nations. London: Macmillan.

3. Jacobs, J. (1972) TheEconomy of Cities. London:Cape; also Feldman, M.A.and Audretsch, D. (1999)Innovation in cities: Science-based diversity, specializationand localized competition.European Economic Review.43, pp.409-429.

4. Mills, K., Reynolds, E. andReamer, A. (2008) Clustersand Competitiveness: A NewFederal Role for StimulatingRegional Economies.Washington, DC: BrookingsInstitution. Available at:http://www.brookings.edu/reports/2008/04_competitiveness_mills.aspx.

5. European Commission(2008) Towards world-classclusters in the EuropeanUnion: Implementing thebroad-based innovationstrategy. Brussels: EuropeanCommission. Available at:http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0652:REV1:en:pdf.

6. Willetts, D. (2010) Scienceto drive economic growth.Speech given at the RoyalInstitution, 9 July 2010.Available at: http://bis.gov.uk/news/speeches/david-willetts-science-innovation-and-the-economy.

7. Freeman, A. (2010) Londonscreative workforce: 2009update. GLA EconomicsWorking Paper Series, 40.London: GLA Economics.

Available at: http://legacy.london.gov.uk/mayor/economic_unit/docs/wp40.pdf [Last accessed 21 April2010].

8. Florida, R. (2004) TheRise of the Creative Class.London: Basic Books; alsoFlew, T. (2010) Toward aCultural Economic Geographyof Creative Industriesand Urban Development:Introduction to the SpecialIssue on Creative Industriesand Urban Development.The Information Society. 26,pp.85-91.


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attractive for a creative class of knowledgeworkers and their innovative employers. In thissense, they impact indirectly on the innovativepotential of the places where they are located.Although some policies have focused morebroadly on the creative industries as driversof local economic growth, and provided them

with business support (including grants andloans, training, networking and marketing),they have rarely focused on them as a source of innovation. 9

But the creative industries are an activeforce for innovation

Generating novelty is at the core of what manycreative businesses do. 10 Some creative sectors,such as Advertising, Design and Software,provide inputs and skills that are crucial tothe innovation processes of businesses inother sectors. 11 Creative businesses facinguncertain, ever-shifting markets havedeveloped organisational practices, skill setsand ways of working that can be fruitfullyapplied elsewhere. 12 In fact, David Willettsused the example of video games developmentin Dundee to illustrate the importance of clustering for innovation.

The magnitude of the creative industries

impacts on innovation has however onlyrecently begun to be examined rigorously.And we know next to nothing about theirgeographical dimensions.

The Creative clusters and innovationproject

This study adopts the concept of creativecluster as a starting point to examine the rolethat the creative industries play in local andregional innovation systems. In doing so, itaddresses gaps in our understanding of thedynamics of creativity and innovation at thelocal and regional levels. It also builds a robustand nuanced evidence base for the formulationof local, regional and UK-wide policies thatcan augment the contribution that the creativeindustries make to innovation and economicgrowth.

Structure of the report

Part 2 presents the main ndings of TheGeography of Creativity , an interim reportpublished in August 2009 where we mappedcreative clusters across the UK using economicgeography techniques.

In Part 3 of the report we draw on the latestUK Innovation Survey (UKIS 2006) to examinethe innovative performance of the creativeindustries nationally and regionally. Ouranalysis shows that the creative industries are,overall, highly innovative across a range of dimensions. This suggests that they play animportant role in the systems of innovationwhere they are located.

Part 4 focuses on potential spillovers fromcreative clusters. Highly innovative creativerms are a likely source of benecial creativespillovers in the rest of the regional economy.We identify the mechanisms through whichthis could happen, and explore the hypothesisstatistically through an analysis of the extentto which creative industries, High-TechManufacturing rms and KIBS rms are co-located at the Travel to Work Area (TTWA)level.13

The causal nature of the links between creativeindustries and innovation at the local level

are further explored, in Part 5, through fourin-depth case studies of creative clustersin Wycombe and Slough, Soho, Cardiff andManchester.

Part 6 discusses the ndings of the project,and presents their policy implications.

99

9. Evans, G. (2009) Creative

Cities, Creative Space andUrban Policies. UrbanStudies. 46, pp.1003-1040.

10. Stoneman, P. (2009) SoftInnovation. London: NESTA.

11. NESTA (2009) TheInnovation Index. London:NESTA; also Higgs, P.,Cunningham, S. andBakhshi, H. (2008) Beyondthe Creative Industries.London: NESTA; alsoBakhshi, H., McVittie, E. andSimmie, J. (2008) CreatingInnovation. London: NESTA.

12. Potts, J. and Morrison,K. (2008) NudgingInnovation. London: NESTA;

also Oakley, K., Sperry, B.and Pratt, A. (2008) TheArt of Innovation. London:NESTA.

13. Travel to Work Areasare geographical unitscomprising a local labourmarket. They are a morenely grained geographythan regions. A moredetailed denition of TTWAsis available at http://www.statistics.gov.uk/geography/ttwa.asp


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Part 2: Putting creativity on the map

2.1 The rst geography of the Britishcreative industries

Although there is a growing body of researchexamining creative clusters in specic placesacross the UK, no previous study has lookedsystematically at the geographical distributionof creative activities across Britain. TheGeography of Creativity , published in August2009, set out to address this gap. 14

Following two operational denitions of thecreative industriesThe mapping makes use of two alternative

denitions of the creative industries:

First, the ofcial denition used to produceestimates of the economic performance of the creative industries that was introducedby the Department for Culture, Media andSport (DCMS) in 1998. 15 This denitionincludes nine creative sectors Advertising,Architecture, Arts and Antiques, DesignerFashion, Video, Film and Photography,Music and the Performing Arts, Publishing,Software, Computer Games and ElectronicPublishing, and Radio and TV.

Each sector includes the rms (andemployees) operating within a selectednumber of Standard Classication Codesat the four-digit level (SIC-4). The DCMSdenition also applies adjustment factorsto some of these codes because not allactivities inside them can be considered aspart of the creative industries for example,it is assumed that around 5 per cent of businesses in the textiles collection of SIC-4 codes are part of the designer fashion

creative sector. 16

Second, an experimental denition morerecently developed for the DCMS by FrontierEconomics.17 This denition classies rms ineach of these creative sectors (plus Design)into different stages (or layers) of a creativevalue chain, beginning with those activitieswhich are more intrinsically creative(for example, writing in the case of thePublishing sector), and ending with thoserelated to the production of complementaryinputs (in the case of the publishing sector,book binding and the manufacture of paper),as well as their sale.

By contrast with the DCMS ofcial denition,Frontier Economics classies rms andemployees into sectors (and the layers insidethem) that are disaggregated at the 5-digitSIC code level. It is assumed that these SIC-5codes are sufciently detailed not to requirethe application of adjustment factors in orderto distinguish between the creative andnon-creative activities that they capture.

See Appendix 1 for a list of the SIC codesincluded in each of the two denitions.

Zooming down from regions to micro-geographiesThe mapping of the creative industriesacross Great Britain is carried out at threegeographical levels, going from large areas tosmaller and more detailed geographies. 18

The regional level analysis focuses onGovernment Ofce Regions and Nations, of which there are 11 in Great Britain.

The middle level analysis examines 243 Travel

to Work Areas (TTWAs) which capture locallabour markets. 19

0

14. For an in-depth literaturereview of cluster studies inthe UK and overseas, seeDe Propris, L., Chapain,C., Cooke, P., MacNeill,S. and Mateos-Garcia, J.(2009) The Geography of Creativity. London: NESTA.

15. Department for CultureMedia and Sport (1998)Creative Industries MappingDocument 1998. London:DCMS.

16. In Geography of Creativitythese adjustment factors areapplied at the local level,whereas the DCMSs CreativeIndustries statistics arecalculated at the nationallevel.

17. Frontier Economics(2007) Creative industry

performance. A statisticalanalysis for the DCMS.London: Frontier Economics.Available at: http://www.culture.gov.uk/images/research/Statistical_Analysis_of_the_Creative_Industries_Frontier_Economics_2007.pdf [LastAccessed 21 April 2010].

18. Lack of standardisation inthe available data meantthat Northern Ireland hadto be excluded from theanalysis.

19. Travel to Work Areasare those where, of theresident economically activepopulation, at least 75 percent actually work in thearea, and also, of everyoneworking in the area, at least75 per cent actually live inthe area; see http://www.statistics.gov.uk/geography/ttwa.asp.


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The micro level analysis, at the highest levelof resolution, focuses on Middle Layer SuperOutput Areas (MSOAs), which are micro areasbased on population count. 20 There are 7,193MSOAs across England and Wales. 21

Using the most up-to-date dataWe use two indicators to help identifythe presence of creative clusters at eachgeographical level: the absolute numbers of creative rms in a given sector; and the sectorslocation quotient (LQ). Location quotients are

a standard metric of agglomeration in economicgeography that measure a given areas degreeof specialisation in a sector, compared with the

national average. A location quotient largerthan 1 indicates that a particular sector is moreimportant to the local economy than it is to theBritish economy.

These indicators were calculated using thelatest available data (2007 and 2008) on thenumber of rms classied according to SIC-4s(following the DCMS denition) and SIC-5s(following the Frontier Economics denition).SIC-4 level data were extracted from theAnnual Business Inquiry (ABI), and SIC-5 level

data from the Inter Departmental BusinessRegister (IDBR).

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20. See http://www.idea.gov.uk/idk/core/page.do?pageId=7175806.

21. Data availability issues meanthat our analysis didntinclude Northern Ireland.Data at the MSOA level of analysis are not availablefor Scotland, so while ourregional and TTWA analysescover England, Wales andScotland, the MSOA analysisonly includes England andWales.

Box 1: Dening creative clusters

The Geography of Creativity reviews theliterature on creative clusters and otherallied concepts such as cultural quartersand creative cities. Following Michael

Porter (1990), the literature presentsgeographical agglomeration as a necessary but not sufcient prerequisite forthe existence of a cluster. Firms in closeproximity need also to be related ascompetitors or collaborators and beembedded in a social and institutionalecosystem, including universities andsupport bodies. This is acknowledged in theoriginal Department for Culture, Media andSport (DCMS 2008) denition of creativeclusters, which also emphasises the rolethat policy can play in nurturing them.

This rm-level industrial analysis of creativeagglomeration contrasts with the work of Richard Florida and, in the UK, Clifton andCooke (2007), who focus on geographicalconcentrations of creative professionals,rather than rms, in a given place.

De Propris (2008) synthesises thesestreams of work in her denition of creative

clusters, which underpins this project.According to her, a creative cluster is aplace that brings together:

1. A community of creative people whoshare an interest in novelty but notnecessarily in the same subject.

2. A catalysing place where people,relationships, ideas and talents canspark each other.

3. An environment that offers diversity,stimuli and freedom of expression.

4. A thick, open and ever-changingnetwork of inter-personal exchangesthat nurture individuals uniqueness andidentity.

For measurement purposes, the Geography of Creativity employs data on the numberof rms located in a given area. Therelational, social and institutional aspects of clustering which are specic to differentplaces are then examined in the in-depthcase studies in Part 5 of this report.

Source: Porter, M. (1990) The competitive advantage of nations. London: Macmillan; DCMS (2008) CreativeBritain: New Talents for the New Economy. London: DCMS; Clifton, N. and Cooke, P. (2007) The Creative Classin the UK: An Initial Analysis. Centre for Advanced Studies: Regional Industrial Studies Research Report 43.Cardiff: Centre for Advanced Studies; De Propris, L. and Hypponen, L. (2008) Creative Clusters and Governance:The Dominance of the Hollywood Film Cluster. In: Cooke, P. and Lazzeretti, L. (Eds) Creative Cities, CulturalClusters and Local Development. Cheltenham: Edward Elgar. pp.340-371.


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2.2 The ndings of our mapping

a. At the regional level: Creative London,Creative South-EastThe regional analysis using both theofcial DCMS and the Frontier Economicsdenitions of the creative industriesconrms a strong concentration of creativeactivities in London, and, to a lesserextent, the South East of England (seeTable 1). This is particularly the case forthe most intrinsically creative layers of thecreative industries according to the FrontierEconomics denition (see Table 2).

This points to there being a creativeregional division of labour in Britain,with London specialising on core creativeactivities, and other regions and nationsproviding complementary inputs (such asraw materials and production technologies)that feed into the creative process.

b. At the TTWA level: creative hubs acrossthe UKOne important limitation of examiningthe industrial agglomeration of regions is

that their sheer size can hide substantialindustrial concentrations in specicareas. Indeed, our analysis at the moredisaggregated TTWA geographical levelreveals several creative agglomerations,in addition to London, not visible at theregional level (see Table 3 for a summary).

Most of these creative agglomerationsencompass several creative sectors at thesame time. They include Bath, Bristol,Edinburgh, Manchester, Brighton, Oxford,Cambridge, Wycombe-Slough andGuildford. Some other places specialising ina single creative sector are also identied.

c. At the MSOA level: a wide scatter of creative pockets of activityAdopting the highest level of geographicalresolution (MSOAs) produces an even morecomplex picture, with a large number of creative pockets including core creativeactivities scattered across Britain. 22

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Table 1: Measure of rm concentration (LQ) by creative sectors and by regions 2007 DCMS denition

Source: ONS, ABI.

Advertising 0.69 1.18 0.74 0.72 0.76 0.91 1.77 1.06 0.8 0.42 0.55

Architecture 1.39 1.07 0.86 0.93 0.97 1.04 0.81 1.06 0.96 0.75 1.42

Arts and Antiques 1.09 1.05 1.09 0.98 1.03 0.97 0.82 0.95 1.15 1.1 1.08

Designer Fashion 0.64 1.15 0.77 2.73 0.98 0.55 1.73 0.39 0.55 0.48 0.76

Video, Film and Photography 0.55 0.57 0.56 0.49 0.5 0.71 2.68 0.94 0.77 0.55 0.69

Music and the Visual 0.55 0.62 0.59 0.59 0.55 0.82 2.36 1 0.88 0.73 0.6and Performing Arts

Publishing 0.51 0.62 0.65 0.7 0.66 1.06 1.82 1.13 1.07 0.64 0.75

Software, Computer Games 0.71 0.97 0.64 0.73 0.81 1.09 1.31 1.41 0.87 0.52 0.75and Electronic Publishing

Radio and TV 0.38 0.53 0.36 0.3 0.43 0.56 3.05 0.9 0.74 0.96 0.56

Total Creative Industries 0.91 0.94 0.79 0.82 0.84 0.97 1.37 1.09 0.95 0.75 0.94

22. The risk that this resultcould simply reect therelatively large impactof random variations inthe numbers of creativebusinesses on the clusteringmetrics was addressed bysetting a high threshold inthe metrics used to establishcreative clusters at theMSOA level.


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Table 2: Measure of rm concentration (LQ) by creative sectors, creative layers and regions 2008 Frontier Economics.

Advertising 0.73 1.04 0.76 0.71 0.79 0.93 1.75 1.08 0.83 0.45 0.58 1

L1- Planning advertising campaigns 0.7 0.95 0.79 0.68 0.74 0.97 1.77 1.11 0.9 0.45 0.54 1

L5- Other advertising activities 0.8 1.21 0.72 0.78 0.9 0.85 1.71 1.02 0.7 0.43 0.66 1

Architecture 1 0.99 1.04 1.06 1 1.17 0.75 1.05 1.1 1 1.03 1

L1- Architectural design & urban planning 0.83 0.78 0.85 0.76 0.8 0.88 1.49 0.96 1 0.76 1.3 1

L2- Engineering advice & design 1.45 1.15 0.81 0.95 0.97 1.01 0.73 1.05 0.94 0.71 1.6 1

L3- Scientic Surveying (e.g. 0.95 0.93 1.04 1.04 0.95 1.19 0.83 1.04 1.16 1.1 0.9 1geological), construction, real estate

L4- Sale of construction materials 0.96 1.02 1.1 1.12 1.07 1.2 0.63 1.06 1.09 0.98 1 1

Arts, Antiques and Craft Activities 0.83 0.91 1.14 1.09 1.38 0.95 1.06 0.88 1.03 0.85 0.77 1

L2- Exhibitions & fairs, antiques 0.61 0.55 0.78 0.8 0.87 0.84 1.78 1.03 1.07 0.65 0.88 1

L3- Manufacture of jewellery, 0.98 1 1.28 1.28 1.75 0.98 0.6 0.82 1.06 1.06 0.8 1metal products, pottery

L4- Wholesale of craft products 0.68 0.95 1.09 0.92 1.06 0.97 1.43 0.91 0.96 0.61 0.65 1

Designer Fashion 0.97 1.11 1.05 1.19 0.94 0.82 1.33 0.79 0.85 0.86 0.93 1

L1- Fashion, interior & graphic design 0.74 0.7 0.82 0.89 0.74 0.95 1.83 1.07 0.84 0.54 0.66 1

L3- Manufacture of clothing 0.66 1.13 0.77 2.67 1.1 0.53 1.7 0.39 0.54 0.54 0.74 1

L4- Manufacture of textiles and fabrics 0.47 1.48 1.19 1.65 0.78 0.71 1.71 0.54 0.57 0.49 0.63 1

L5- Retail sale of clothes 1.26 1.13 1.12 0.95 1.04 0.85 0.97 0.84 0.98 1.13 1.16 1

Video, Film and Photography 0.67 0.65 0.68 0.57 0.58 0.78 2.34 0.97 0.8 0.6 0.7 1

L1- Specialist photography, production of 0.49 0.57 0.52 0.46 0.45 0.69 2.76 0.97 0.77 0.54 0.58 1 lms & documentaries, post-production

L2- Portrait photos 0.69 0.86 0.91 0.68 0.68 0.94 1.9 0.98 0.69 0.63 0.8 1

L3- Film distribution, camera 1.08 0.79 1.02 0.83 0.87 1 1.43 0.99 0.88 0.67 0.94 1 & lm manufacture

L5- Cinemas 0.95 0.92 0.9 0.55 0.79 0.76 1.4 0.83 1.26 1.38 1.19 1

Music and Performing Arts 0.55 0.6 0.59 0.57 0.55 0.83 2.35 1.02 0.88 0.74 0.57 1

L1- Live theatrical presentation, 0.4 0.47 0.48 0.43 0.45 0.79 2.7 1.06 0.85 0.59 0.47 1 artistic interpretation

L2- Casting, theatres and concert 0.56 0.58 0.45 0.59 0.58 0.71 2.65 0.9 0.76 0.63 0.65 1 halls, music publishing

L3- Sale of musical instruments, 0.68 0.74 0.82 0.71 0.64 0.95 2.08 0.99 0.79 0.63 0.53 1sound recording

L4- Wholesale of records 0.59 0.51 0.59 0.64 0.52 1.4 2.44 1.05 0.49 0.21 0.37 1

L5- Other recreational activities 1.25 1.18 0.92 1.1 0.99 0.88 0.57 0.91 1.28 1.83 1.15 1


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N o r t

h

E a s

t

N o r t

h

W e s

t

Y o r k s h

i r e

&

T h e

H u m

b e r

E a s

t

M i d l a n

d s

W e s

t

M i d l a n

d s

E a s

t

L o n

d o n

S o u

t h

E a s

t

S o u

t h

W e s

t

W a l e s

S c o

t l a n

d

G r e a t

B r i

t a i n

Publishing 0.81 1.01 0.8 0.93 0.99 1.03 1.2 1.1 0.97 0.88 0.74 1

L1- Journalism & news syndicates 0.54 0.67 0.54 0.76 0.58 1.01 2.19 0.94 0.67 0.59 0.96 1L2- Publishing 0.61 0.62 0.66 0.74 0.7 1 1.64 1.16 1.16 0.68 0.85 1

L3- Bookbinding, printing 0.72 0.99 0.76 0.95 1 1.06 1.22 1.15 0.98 0.85 0.63 1

L4- Manufacture of paper and ink 0.62 1.8 1.25 1.21 1 1.11 0.57 0.76 0.82 1.13 1.04 1

L5- Retail sale of books, newsagents etc. 1.34 1.25 1.08 0.91 1.05 0.84 0.94 0.81 0.92 1.12 1.27 1

Software and Computer Games 0.56 0.81 0.7 0.79 0.84 1.13 1.31 1.4 0.93 0.59 0.7 1

L1- Manufacture of video games, 0.49 0.72 0.63 0.75 0.82 1.16 1.47 1.46 0.83 0.49 0.67 1software development & consultancy

L2- Other computer related work 0.58 0.96 0.74 0.79 0.86 1.03 1.14 1.39 1.16 0.7 0.62 1

L3- Hardware consultancy 0.68 0.75 0.84 0.99 0.8 1.29 1.18 1.38 0.9 0.6 0.59 1

L4- Wholesale of hardware and software 0.66 0.9 1.01 0.94 0.99 1.2 1.08 1.23 0.86 0.62 0.77 1

L5- Retail sale 1.07 1.09 1.08 0.96 0.96 1.05 0.62 1.02 1.16 1.18 1.31 1

Radio and TV 0.72 0.85 0.77 0.8 0.83 0.94 1.63 0.97 0.91 0.98 0.79 1

L1- Radio & TV production and broadcast 0.36 0.54 0.36 0.34 0.44 0.56 2.99 0.9 0.74 0.99 0.56 1

L3- Transmitters and TV cameras 0.42 0.98 0.68 0.55 1.21 1.26 0.7 1.5 1.12 1.23 0.7 1

L4- Wholesale and manufacture 0.79 0.93 0.92 0.95 1.01 1.23 1.11 1.13 0.91 0.73 0.73 1of TV & cameras

L5- Retail sale 0.97 1.04 1 1.08 1.02 1.07 0.92 0.94 1.04 1.07 0.99 1

All Creative Industries 0.85 0.94 0.91 0.96 0.94 1.07 1.13 1.08 1 0.86 0.87 1

Layer 1 0.56 0.69 0.63 0.67 0.71 0.98 1.86 1.23 0.84 0.55 0.69 1

Layer 2 0.97 0.99 0.76 0.84 0.88 0.98 1.13 1.17 1.02 0.69 1.07 1

Layer 3 0.85 0.95 0.93 1.03 1 1.11 1.02 1.07 1.06 0.97 0.78 1

Layer 4 0.9 1.04 1.1 1.14 1.05 1.16 0.76 1.03 1.04 0.92 0.95 1

Layer 5 1.23 1.15 1.08 0.96 1.03 0.89 0.9 0.86 1.01 1.17 1.19 1

Source: ONS/IDBR (2008)


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Industry

DCMS Denition TTWALevel (Absolute numberof rms) DCMS Denition TTWA Level (LQ)

Table 3: Summary of creative clustering at the Travel to Work Area Level

Advertising

Architecture

Arts andAntiques

Designer

Fashion

Video,Film andPhotography

Music and theVisual andPerformingArts

Publishing

Software,ComputerGames andElectronicPublishing

Radio and TV

Large number of rms in

London and Manchester

Evenly distributed, withlarge numbers of rms inthe larger cities

Very evenly distributedacross the country, in bothurban and rural areas

Evenly distributed, with

larger number of rms inLondon, the South East,Birmingham, Manchesterand Cardiff

Large number of rmsin London, Manchester,Birmingham, Brighton,Bristol and Glasgow

Evenly distributed, withlarger number of rms inLondon, Manchester, Bristoland Brighton

Very large number of rmsin London, its surroundings,Cambridge, Oxford, Bristoland Bath, Manchester,Glasgow and Edinburgh

Evenly distributed acrossthe country, large numberof rms in London and itssurroundings, Birmingham,Manchester, Milton Keynesand Bristol

Large numbers of

rms around London,Manchester, Cardiff, Bristol,Glasgow and Manchester.Signicant presence in theSouth-West of London

South of London (from St Albans to Tunbridge Wells

and Guildford), a south belt around Manchester andBirmingham and its south counties, Warwickshire andWorcestershire. Higher than average agglomerationin Harrogate and Ripon and Blackpool

Concentrated in hot construction spots such asAberdeen, Newcastle and Southampton/Portsmouth

Very evenly distributed across the UK

Midlands, North London and around Manchester

Very highly concentrated in London and itssurrounding area (towards Oxford and Guildford, aswell as Slough and Wycombe), and Brighton, Bristoland Bath

London, Brighton, Bath and the South West of England

Strong concentration in Oxford, Bath and Minehead.Signicant specialisation in London, Cambridge,Peterborough, Ludlow and the North of Scotland

Clustering around the West of London, around atriangle Oxford-Cambridge-Reading and betweenBlackpool and Manchester

Very strong level of concentration with high

agglomeration in London and its surrounding areas(Wycombe and Slough), Brighton, Bristol, Cardiff and the North of Wales and Scotland


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2.3 The Geography of Creativity alsoexamines statistical patterns in theclustering data

The Geography of Creativity also usescorrelation techniques to identify statisticallysignicant patterns in the way in which

creative sectors co-locate with each other,and to explore similarities and divergences inthe creative specialisation proles of differentcities.

a. Creative co-location: some creativesectors tend to be found togetherThe analysis of creative sectors co-locationidenties two broad groups of creativeindustries that tend to be found in thesame places.

The rst group includes Advertising,Designer Fashion and Software,Computer Games and ElectronicPublishing.

The second group includes Music andthe Performing Arts, Video, Film andPhotography, Publishing, and Radio andTV.

This nding supports the idea that placesendowed with certain resources suchas specialised labour pools, physical and

digital infrastructures and markets attractsome creative activities but not others.It also suggests that there are synergies,complementarities and knowledge spilloversbetween some creative sectors, but notothers.

b. Creative specialisation: homogeneity inthe North, diversity in the SouthWe also build a specialisation prole forevery TTWA in Great Britain by ranking allcreative sectors in each of them accordingto their level of specialisation as indicatedby LQs. These rankings are then comparedusing ranked correlation techniques. Thisanalysis identies signicant similaritiesbetween the specialisation proles of somecities located in the North of England,Yorkshire and the Midlands (with theexception of Manchester). By contrast,cities across the South prove to be morediverse in their creative specialisations.

2.4 Taking stock of the ndings

The Geography of Creativity presents, for therst time, a rich and multi-layered pictureof the geographical distribution of creativeactivities in Britain. Although London ispredominant in most creative sectors and

especially in the most intrinsically creativestages of the value chain, we also identifyother places that create above their weight or alternatively, that create under the radar.

The statistical analysis of co-location andspecialisation has potentially signicantimplications. It suggests that there maybe important interdependencies andcomplementarities between different typesof creative activities. So one size ts allpolicies for creative industries might not be themost efcient way to support creative clustergrowth.

The high levels of homogeneity in thecreative proles of cities in the North and theMidlands might help to explain why they arelagging in the development of their creativeindustries. While the specialisation of citiesfurther South seems to reect their distinctivesources of competitive advantage (for example,Cambridge focuses on Publishing and Software,two sectors linked to its strong research andtechnology base), cities in the North, with the

notable exception of Manchester, are foundto focus and compete in the same creativesectors.


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Part 3: Innovation in the creative industries, nationallyand regionally

The mapping of the creative industries acrossBritain presented in Part 2 is the rst steptowards analysing their role in the innovativedynamics of the places where they are located.In Part 3, we provide an overview of some of the difculties with measuring innovation inthe creative industries, and then examine it atthe national and regional level using data fromthe 2006 UK Innovation Survey (UKIS 2006).The ndings from this analysis support theidea that the UKs creative industries play animportant role in the dynamics of innovation of the places where they are located.

3.1 Measuring innovation in the creativeindustries

Traditional indicators of innovation fail tocapture many innovative activities in thecreative industriesAs with services,23 the innovative activities of the creative industries are only imperfectlycaptured by traditional hard indicators suchas R&D investments or number of patents. Theinnovation outputs from services and creativebusinesses are instead very often intangible,co-produced with customers, simultaneous(consumed as they are produced),heterogeneous and perishable. As such, theyare difcult to measure. 24 They include theadoption of new organisational arrangementsand market innovations, inter-organisationaland client-facing innovations, and aesthetic or soft innovations. 25

Organisational and service innovations arebeing increasingly recognised

An increasing interest in wider formsof innovation beyond those which aretechnology-intensive or science-based, and

recognition of the importance of services inWestern economies, have informed the mostrecent denition of innovation published bythe OECD in the Third Version of the OsloManual. This denition acknowledges the non-technological aspects of innovation. 26

Along similar lines, the UKs Department forBusiness, Innovation and Skills (BIS) denesorganisation and marketing innovationsas including new knowledge managementsystems, changes to the organisation of work and its management, changes in therelationship with other rms, changes in

design and packaging and changes in sales ordistribution methods. 27

But some innovation processes and outputsin the creative industries are still not wellunderstoodInnovations in these industries tend to presentan aesthetic, artistic or stylistic element. 28 In a recent NESTA report, Paul Stonemandenes soft innovation as that which primarily impacts upon sensory perception and aestheticappeal rather than functionality of goodsand services. This form of innovation istherefore dependent on individuals subjectiveassessment, and hard to evaluate.

3.2 Are the creative industriesinnovative?

Bearing all of this in mind, we have compileddata from the UKIS 2006 to assess the levels of innovation in the creative industries. The UKISincludes data on services as well as tangible

good innovation, measures of wider innovation such as organisational change and the useof Intellectual Property measures capturing

17

23. Abreu, M., Grinevich, V.,Kitson, M. and Savona, M.(2008) Taking ServicesSeriously: How policycan stimulate the hiddeninnovation in the UKsservices economy. London:NESTA.

24. Nijssen, A.F., Edwin, J.,Hillebrand, B., Vermeulen,P.A. and Kemp, R.G.(2006) Exploring productand service innovationsimilarities and differences.International Journal of Research in Marketing.23(3), pp.241-251.

25. Miles, I. and Green, L.(2008) Hidden Innovationin the Creative Industries.London: NESTA; alsoStoneman, P. (2009) SoftInnovation. London: NESTA.

26. An innovation is theimplementation of anew or signicantlyimproved product (good orservices), or process, a newmarketing method, or anew organisational methodin business practices,workplace organisation orexternal relations. (OECD(2005) The Measurement of Scientic and TechnologicalActivities: Oslo Manual 3rdEdition. Paris: OECD, p.46).

27. DIUS (2008) Innovationmodes and productivity inthe UK. London: DIUS.

28. Schweizer, T.S. (2003)Managing Interactionsbetween Technologicaland Stylistic Innovationin the Media Industries.Technology Analysis andStrategic Management.15(1), pp.19-41; alsoHandke, C. (2006)Measuring Innovation inMedia Industries. Availableat: http://www.recida.org/downloads/handke2.doc [Last Accessed 21 April2010]; also Stoneman, P.(2009) Soft Innovation.London: NESTA; alsoCastaer, X. and Campos,L. (2002) The Determinantsof Artistic Innovation:Bringing in the Role of Organizat ions. Journal of Cultural Economics. Vol.26,pp.29-52.


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some aspects of service and soft innovationwhich are crucial in the creative industries (seeBox 2 for a summary).

The then Department of Trade and Industry

already used data from a previous UKIS in astudy of innovation in the UK that includedan overview of innovative activities in the UKs

creative industries at an aggregate level. 29 Itsndings supported the idea that the creativeindustries are more innovative than the rest of the economy as a whole. The DCMS used thesame data to show that they present levels of

innovation activity above even sectors deemedto be highly innovative such as Engineering-based manufacturing or KIBS. 30

8

29. DTI (2006) Innovationin the UK: Indicators andInsights. DTI OccasionalPaper No.6. London: DTI.

30. Wilkinson, A. (2007) AnAssessment of ProductivityIndicators for the CreativeIndustries. London: DCMS.

Box 2: The 2006 UK Innovation Survey

The 2006 UK Innovation Survey survey,undertaken by the department for Business,Innovation and Skills (BIS) was sent to28,000 rms with 10 or more employees

and obtained a response rate of 53 per cent(14,870 rms). It asks rms about theirinnovation behaviours from 2004 to 2006.The survey sample is stratied by rm sizeand by sector (based on the 2003 StandardIndustry Classication (SIC)) as well as UKGovernment Ofce Regions and Nations(DIUS, 2008). The UKIS sample is notsuitable for analysis below this geographicallevel.

The sample frame doesnt cover all theSIC codes used to measure the creativeindustries according to their ofcialDCMS denition. Nevertheless, growingattention has been paid to these industriesin the last two editions (DIUS, 2006and 2008). The survey includes creativesectors such as Advertising, Architecture,Arts and Antiques, Designer Fashion,most of Publishing (except News agencyactivities) and most parts of Video, Filmand Photography and Software, ComputerGames and Electronic Publishing. Thesurvey, however, excludes rms in Radio

and TV, and all rms in artistic and literacycreation and operation of arts facilitieswhich are part of the Music, Visual andPerforming Arts sector (Appendix 1provides the detailed list of the SIC codesfor the creative sectors that are covered bythe UKIS survey).

The UKIS is part of a pan-Europeaninitiative and follows the general guidelinesfor measuring innovation as dened in theOslo Manual (OECD, 2005). It provides

information on: Product innovation where a rm

introduces a new or improved product,including both tangible goods as well asservices. A distinction is made betweenproducts that are only new to thebusiness, and those which are also new tothe market.

Process innovation where a rmintroduces signicant changes in theprocesses through which it producesgoods or services, again distinguishingbetween processes new to the businessfrom those which are new to the industry.

Categories of innovation-relatedexpenditures such as R&D investments,acquisition of capital goods and software,and design activities.

Management-related changes sometimes referred to as widerinnovation. These are strategic changes

in the organisation of a business or its functions, aimed at improvingcompetitiveness through increasedefciency or services improvements. (DIUS, 2008: 7)

Use of Intellectual Property Rightssuch as patents, copyright, trademarks,condentiality agreements and otherinformal methods.

Source: OECD (2005) The Measurement of Scientic and Technological Activities: Oslo Manual 3rd Edition.

Paris: OECD; DIUS (2008) Persistence and change in UK innovation: 2002-2006. London: BIS.


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Our analysis partly updates those studies usingmore recent UKIS data. But it also goes beyondthem in disaggregating the creative industriesinto those specic sectors that are includedin UKIS 2006. Following Abreu et al. (2008),we examine product innovations (which canbe tangible goods or services), and process

innovations.31

We also try to capture soft or aestheticinnovation outputs (that might be particularlyrelevant for the creative industries) througha composite indicator that measures whethera rm has used formal (including patents,trademarks, copyright or registration of design)or informal (condentiality agreements,secrecy, lead-time advantage or complexity of design) intellectual property (IP) protectionmethods during 2004-2006 we refer to it asthe Intellectual Output Index. 32

These protection methods apply to goods,services, processes and other intangible

outputs of innovative activities. No assumptionhas been made about the intellectual propertymethods adopted by different economicsectors. By including informal methods of protection, this indicator takes into accountthe difculty that some creative rms face informalising their innovation outputs. 33

The creative industries display high levelsof innovation...Table 4 and Figure 1 conrm that the creativeindustries overall display levels of innovationabove the national average for all indicators.The differences are particularly visible in theuse of internal R&D and the extent to whichthey launch new products in the market.

This does not mean that the creative industriesare the most innovative sector in the UKeconomy. Engineering-based manufacturingand Other Manufacturing tend to innovate intheir products and processes more frequently.It seems that the innovation prole of the

31. Abreu, M., Grinevich, V.,Kitson, M. and Savona, M.(2008) Taking ServicesSeriously: How policycan stimulate the hiddeninnovation in the UKsservices economy. London:NESTA.

32. Stoneman, P. (2009) SoftInnovation. London: NESTA.

33. A cautionary note regardingthe analysis below is thatdifferent creative andindustrial sectors presentqualitative differences intheir innovation processesand outputs in that sense,different rates of innovativeactivity as indicated byUKIS might have as muchto do with such differences(and the extent to whichtheir respective innovationoutputs are captured bythe survey questions) asthey do with the actuallevels of innovation in thesectors being considered.

Nevertheless, suchcomparisons are standardin the Innovation Studiesliterature. See Smith,K. (2006) MeasuringInnovation. In: Fagerberg, J.,Mowery, D. and Nelson, R.(Eds) The Oxford Handbookof Innovation. Oxford:Oxford University Press.

I n n o v a t

i o n

i n t a n g

i b l e

p r o

d u c t s

( g o o

d s

)

I n n o v a t

i o n

i n s e r v i c e

p r o

d u c t s

I n n o v a t

i o n

i n p r o c e s s

I n n o v a t

i o n

i n p r o

d u c t

o r p r o c e s s

i n n o v a t

i o n

I n t e l l e c

t u a l

O u

t p u

t

I n d e x

Table 4: Innovation activities and outputs by sector (percentage of all rms in each sector) 2004-2006

Source: ONS. NA indicates cells with data that cannot be made available due to potential disclosure issues.

Innovation in Advertising NA* 26% NA* 26% 65%

Architecture 11% 28% 17% 32% 61%

Arts and Antiques 11% 20% 10% 23% 33%

Designer Fashion 31% NA* NA* 32% 57%

Film, Video and Photo 10% 18% 9% 20% 45%

Publishing 30% 19% 14% 35% 62%

Software 38% 55% 26% 59% 81%

Total Creative Industries 17% 30% 16% 34% 57%

Engineering-based Manufacturing 32% 14% 21% 39% 63%

Other Manufacturing 32% 14% 23% 40% 59%

Retail & Distribution 13% 18% 8% 21% 34%

KIBS 9% 26% 18% 31% 53%

Other Services 6% 16% 6% 18% 27%

All industries 14% 18% 12% 26% 41%


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34. These comparative resultsmight appear to conict withthose of the aforementionedDCMS (2007) study.However, note that Table4 focuses specically onthe introduction of newproducts and processes, anduse of IP measures. Thiscontrasts with innovation

activeness, a wider indicatorwhich also considersinnovative activities inprogress or abandoned,as well as innovationexpenditures in differentareas both of which areconsidered in the DCMSstudy.

35. Once again, we advisecaution in the interpretationof these results, asdifferences in innovativeperformance across regionscould be explained byvariations in the sectorbreakdown of the creativeindustries in different places.For example, those regionswhere there is a majorityof Software, ComputerGames and ElectronicPublishing rms (whichwere shown to be the mostinnovative creative sector)will present higher levelsof innovation than thosewith a predominance of Artsand Antiques companies(which are less innovativeaccording to UKIS data). Assuch the results discussedabove reect as much onthe differences in make-upbetween creative rms andnon-creative rms insideeach region as they do

differences in innovationwithin creative sectors acrossregions.

creative industries resembles most closely thatof KIBS rms, particularly in the importance of innovation in service provision. 34

...but there are visible differences in theinnovative performance of specic creativesectorsAs Table 4 shows, the most innovative creativesector is Software, Computer Games andElectronic Publishing, where almost 60 per centof rms report having innovated in product orprocess from 2004 to 2006. Firms in this sectoralso rely strongly on IP measures.

There are many innovative rms in othercreative sectors such as Advertising, Publishing,Architecture and Designer Fashion. By contrast,Film, Video and Photography and Arts andAntiques rms show an innovation performancebelow the national average for most variables.

Reecting the results for the creative industriesoverall, specic creative sectors are usually lessinnovative than manufacturing in terms of newtangible goods and production processes,

and more so in respect to services. Thisdifference is particularly visible in the case of Advertising, Architecture and Software, which

often provide business services to companies inother sectors.

3.3 Creative industries innovation at theregional level

Although the creative industries have beenshown to be at the forefront of innovationnationally, they could contribute more directlyto innovation in some regions, and less so inothers. This is an important question for theanalysis of the impact of creative clusterson innovation. We have examined this issuethrough an analysis of regional innovationactivities by creative rms using UKIS 2006data. Our ndings are presented in Tables 5, 6and 7, and Figure 2. 35

The creative industries contribute directlyto regional innovationTables 5 and 6 show that the creative industriesare generally ahead of the rest of the regionaleconomy in their innovative performance

no matter where they are located (withthe notable exception of London, which isdiscussed below). The differences with other

InternalR&D

10

30

40

20

80

70

60

50

0

ExternalR&D

Machinery,equipment

and software

Externalknowledge

Training Design Marketintroduction

Creative industries Other industries All industries

Percentageof all firms

Figure 1: Innovation-related activities by creative businesses and other sectors in the UK

Source: ONS.


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C r e a t

i v e

p r o

d u c t

i n n o v a

t i o n

( n e w

t o r m

)

O t h e r s e c t o r s

p r o

d u c t

i n n o v a

t i o n

( n e w

t o m a r

k e t )

C r e a t

i v e

p r o c e s s

i n n o v a

t i o n

( n e w

t o

i n d u s t r y

)

O t h e r

s e c t o r s

p r o

d u c t

i n n o v a

t i o n

( n e w

t o r m

)

C r e a t

i v e

p r o c e s s

i n n o v a

t i o n

( n e w

t o r m

)


p r o c e s s

i n n o v a

t i o n

( n e w

t o

i n d u s t r y

)

C r e a t

i v e

p r o

d u c t

i n n o v a

t i o n

( n e w

t o

m a r

k e t )

O t h e r

s e c t o r s

p r o c e s s

i n n o v a

t i o n

( n e w

t o r m

)

Table 5: Innovation performance at the regional level: creative industries and other sectors 2004-2006

North East 33% 21% 15% 6% 16% 11% NA* 4%

North West 37% 21% NA* 7% 15% 11% NA* 3%

Yorks & Humber 32% 19% 17% 6% 16% 11% NA* 2%

East Midlands 36% 23% 15% 7% 15% 11% NA* 3%

West Midlands 34% 22% 15% 8% 21% 13% NA* 3%

East 36% 25% 17% 8% 19% 12% 10% 3%

London 19% 20% 11% 6% 7% 11% 4% 3%

South East 40% 20% 16% 8% 19% 11% 8% 3%

South West 33% 24% 15% 7% 15% 11% 5% 2%

Wales 34% 21% 12% 7% 11% 12% NA* 3%

Scotland 30% 19% 10% 6% 20% 11% NA* 3%

Average 33% 21% 14% 7% 16% 11% 7% 3%

Region

Source: ONS. *NA indicates cells with data that cannot be made avai lable due to potential disclosure issues.

Table 6: Innovation performance at the regional level: creative industries and other sectors 2004-2006

Source: ONS. *NA indicates cells with data that cannot be made avai lable due to potential disclosure issues.

C r e a t

i v e

W i d e r

I n n o v a

t i o n

O t h e r

s e c t o r s w

i d e r

i n n o v a

t i o n

C r e a t

i v e

C o

l l a b o r a

t i o n

f o r

i n n o v a

t i o n


c o l l a b o r a

t i o n

f o r

i n n o v a

t i o n

C r e a t

i v e

c o l l a b o r a

t i o n

o u

t s i d e o

f t h e

r e g

i o n


c o l l a b o r a

t i o n

o u

t s i d e o

f t h e

r e g

i o n

C r e a t

i v e

I n t e l l e c t u a l

P r o p e r

t y I n d e x

A l l s e c t o r s

I n t e l l e c t u a l

P r o p e r

t y I n d e x

A l l S e c

t o r s

C o p y r

i g h t u s e

North East 64% 29% 23% 10% 83% 78% 61% 36% 7%

North West 48% 29% 10% 11% NA* 74% 61% 44% 8%

Yorks & Humber 56% 28% 12% 11% NA* 85% 53% 40% 6%

East Midlands 44% 29% 20% 13% 73% 86% 49% 44% 9%

West Midlands 51% 27% 14% 12% 76% 82% 59% 45% 9%

East 46% 34% 22% 13% 88% 90% 57% 47% 11%

London 16% 39% 17% 10% 86% 68% 50% 43% 15%

South East 32% 36% 17% 12% 84% 84% 66% 47% 13%

South West 42% 30% 15% 11% 79% 80% 59% 41% 7%

Wales 59% 26% 14% 9% NA* 78% 58% 41% 8%

Scotland 45% 28% 15% 9% 62% 66% 59% 36% 10%

Average 46% 30% 16% 11% 79% 79% 57% 42% 9%

Region


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sectors are particularly striking with respect tothe introduction of products that are new tomarket: creative rms in almost all regions aretwice as likely to have introduced new productsto the market as businesses in other sectors.

This does not mean that the creative industriesare the most innovative sector at the regionallevel. Table 7 shows that Engineering-basedManufacturing companies are more likely tointroduce new products in all regions apartfrom the North East. Something similarhappens with Other Manufacturing businesses(which include food, wood, paper, chemical,rubber, metal, non-mineral metal productsand furniture manufacturing), The South Eastand Yorkshire and the Humber being the onlyexceptions.

The creative industries are clearly shown to be

more innovative than retail and distribution,KIBS and Other Services on all these measures,with London again the only exception.

And they punch above their weight asregional innovatorsTable 7 estimates the weight of creativebusinesses in the regional populations of innovators in products or processes drawingon ABI and UKIS 2006 data. It shows that forall regions and nations with the exception of London, the proportion of creative industryinnovators is larger than one would expectgiven their weight in the regional economy. Forexample, while creative businesses comprise14 per cent of all rms in the South East, theyconstitute 22.5 per cent of all innovators inproducts and processes.

Why is London the outlier?In Part 2 we showed that London presents thestrongest concentration of creative industriesin Britain in some sectors, overwhelmingly so.And those rms based in the capital specialise

in the most intrinsically creative stages of thevalue chain. However, our analysis in this Parthas also shown that these creative rms are

0.06

0.56

0.63

0.67

0.69

0.71

0.84

0.98

1.23

1.86

0.55

0.07 0.08 0.09

London

South East

South West

West Midlands

ScotlandNorth West

North East

Wales

Yorks &Humber East Midlands

East

0.10 0.11 0.150.13

Locationquotientfor corecreative

activities

Reported copyright use in the region

Figure 2: Location quotient for core creative activities, and share of rms in all sectorsthat report the use of copyright as important or very important to protect innovation


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C r e a t

i v e

i n d u s t r i e s

R e t a i

l &

D i s t r i b u

t i o n

A l l

i n d u s t r i e s

E n g

i n e e r i n g -

b a s e d

M a n u

f a c t u r i n g

K I B S

S h a r e o

f C I s i n

t h e r e g

i o n a l

e c o n o m y

O t h e r

M a n u

f a c t u r i n g

O t h e r

S e r v i c e s

Table 7: Firms product or process innovation by industrial sectors and regions 2004-2006 (percentage of all rmsby sector in the region).

North East 37% 35% 45% 18% 31% 18% 24% 12%

North West 37% 38% 37% 27% 30% 14% 26% 12%

Yorks & Humber 36% 39% 33% 19% 31% 20% 24% 10%

East Midlands 38% 38% 48% 25% 32% 16% 28% 11%

West Midlands 39% 40% 47% 20% 35% 16% 27% 11%

East 38% 47% 44% 25% 36% 23% 30% 12%

London 19% 33% 41% 19% 30% 18% 22% 18%

South East 43% 44% 38% 19% 30% 18% 27% 14%

South West 35% 41% 38% 25% 36% 21% 28% 12%

Wales 34% 41% 40% 17% 31% 18% 25% 10%

Scotland 37% 38% 40% 18% 31% 18% 24% 12%

UK 34% 39% 40% 21% 31% 18% 26% 13%

Region

Source: ONS.

less innovative than the rest of the economy,as well as those in other regions. 36 This seemsbroad-based.

One potential explanation is that thecontent innovation that Londons creativeindustries specialise in that is, aestheticor soft innovation is not captured well byconventional measures of innovation such asthe introduction of new products, services orprocesses. That London appears to specialisein this form of content innovation is seen inFigure 2. This shows that the propensity touse copyright measures to protect innovationin a region is positively linked to the degreeto which that region presents a high intensityof rms engaged in more intrinsically creativeactivities, as captured in the creative layer 1according to the Frontier Economics denitionof the creative industries and this time,

London is at the top. 37

36. The low levels of innovativeperformance by Londonrms more generally havealready been highlightedelsewhere. See Robson, S.and Kenchatt, M. (2010)First ndings from theUK Innovation Survey2009. Available at: http://www.statistics.gov.uk/elmr/03_10/downloads/ELMR_Mar10_Robson.pdf [Last accessed 21 April2010].

37. See Part 2 for a descriptionof the Frontier Economicsdenition, and AppendixZ for a list of the industrialactivities comprised inlayer 1.


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Part 4: Creative spillovers and co-location

The high levels of innovation in the creativeindustries reported above supports the ideathat, in addition to contributing directly toregional innovation processes through theinnovative activities in which they engage,they could also do so indirectly , by generatingspillovers that benet the wider economies of the places where they are located.

This part of the report reviews existing studiesthat articulate the mechanisms through whichsuch spillovers might take place, and presentsthe results of a statistical analysis of the co-location patterns between creative rms and

those in other highly innovative sectors suchas High-Tech Manufacturing and KIBS. Suchpatterns might indicate though of course notprove that spillovers indeed take place.

4.1 The case for creative spillovers

Innovation can generate benecialspillovers in other sectorsIt is generally acknowledged that innovativesectors and activities such as R&D are animportant source of spillovers with benetsthat spread across the economy. 38 Thesespillovers occur where the knowledge activitiesof one rm or industry result in economicbenets for another one that the former isnot able to fully capture. Establishing theirexistence and magnitude is important forpolicy: their presence is an instance of marketfailure that may justify the introductionof measures to support the activities thatgenerate them (if the benets of interventionare shown to outweigh the costs) for

instance, tax credits for R&D, and publicinvestment in the science base. Otherwise, theywill occur less than would be socially optimal.

A typology of creative industry spilloversAs we noted in Part 3, the consideration of the creative industries as a force for innovationis only a recent development and in no smallpart a reection of NESTAs previous research.Only a few studies have begun to examinethe creative industries from an innovationperspective. This means that there have beenfew analyses of the potential spillovers thattheir activities generate. We now draw on anemerging body of literature that looks into themechanisms through which creative spilloverscould occur. In doing so, we build on andaugment the typology of creative industry

spillovers developed by Frontier Economics forDCMS in 2007.39

Knowledge spillovers occur when new ideasand technologies developed by creativebusinesses are fruitfully applied elsewherewithout compensation: for example, theuse of social networking features originallydeveloped by digital media companies tomanage communications in businesses. Insome cases, these spillovers are mediatedby business-to-business interactions, forexample, design rms working with clients indifferent sectors have been shown to channelknowledge beyond their brief and acrossrms, thus producing unexpected novelty. 40 NESTA research shows that rms that spenddouble the average on creative inputs are 25per cent more likely to introduce productswhich are new to the rm or market. 41

Australian economist Jason Potts arguesthat many creative businesses organise theirproductive and innovative activities usingopen and collaborative models which are

more suitable for highly dynamic competitiveenvironments, and that these models canspread to those businesses in other sectors

4

38. Griliches, Z. (1992) The

Search for R&D Spillovers.Scandinavian Journal of Economics. 94 Supplement,pp.29-47.

39. Frontier Economics (2007)Creative Industry Spillovers:understanding their impacton the wider economy.London: Frontier Economics.

40. Hargadon, A. and Sutton,R. (1997) TechnologyBrokering and Innovationin a Product DevelopmentFirm. Administrative ScienceQuarterly. 42, pp.716-749;also Sunley P., Pinch, P.,Reimer, S. and Macmillen,J. (2008) Innovation in a

creative production system:the case of design. Journalof Economic Geography. 8,pp.675-698.

41. Bakhshi, H., McVittie, E. andSimmie, J. (2008) CreatingInnovation. London: NESTA;also Sunley P., Pinch, P.,Reimer, S. and Macmillen,J. (2008) Innovation in acreative production system:the case of design. Journalof Economic Geography. 8,pp.675-698.


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that engage with them he refers to this as acreative nudging of innovation. 42

Knowledge spillovers can also be embodiedin labour ows. Creative professionalssuch as designers, advertisers or softwaredevelopers may be employed outside the

creative industries, bringing with them newtechniques, ideas and ways of working.Or, they may start spin-off companies ina different sector for example, ApplesSteve Jobs and Steve Wozniak met whileworking at Atari, a video games developer. 43 NESTA research shows that creative and artsprofessionals have skill sets that can induceinnovation in the organisations that employthem. 44

In addition to these creative pushknowledge spillovers, there are also instanceswhere creative businesses can make theirsuppliers more innovative through knowledgeembodied in their sophisticated demand (thisis what innovation researchers call demandpull effects). 45 The development of newcomputer chips and server technologiesin response to the graphically intensivedemands of video games developers is oneexample of this.

The literature on user innovation has shownthat some lead users with advanced needs

in some cases develop new technologiesto address them, and that these are thenadapted and commercialised in the market byspecialist suppliers. A recent NESTA study of user innovation across the UK economy hasshown that the creative sectors consideredexplicitly in the survey (Software and OtherCreative Activities, including Architecture,Advertising and Photography) presentcomparatively high levels of user innovation,which might spill over into their suppliers.50 per cent of all the Software rms and25 per cent of those in Other CreativeActivities reported that they engage in userinnovation. 46

Product spillovers take place when creativegoods and services increase demand forcomplementary goods in other sectors, or areadapted to other markets: the widespreadavailability of online music increases theattractiveness of iPods, or a Disney lmgenerates additional revenues through thesale of merchandise and toys.

Network spillovers occur where the merepresence of creative businesses in a givenplace benets other local rms. Floridas

Creative Cities noted how a thrivingcultural scene attracts knowledge workers,who can then be employed by other localbusinesses (or indeed bring in foreigninvestment from companies attracted by thestrong local talent pool). 47 Michael Storperand Tony Venables argue that the creative

industries also create an urban buzz oratmosphere which is more conducive to localcollaboration and innovation. 48

4.2 Co-location between creative rmsand other sectors

Location, location, locationMany of the mechanisms for the knowledgeand network spillovers described above suchas commercial relationships and collaborations,and labour ows across sectors are morelikely to take place between rms that arelocated close to each other.

The economic geography literature has alsoshown that specialist knowledge conducive toinnovation is often hard to codify into easilyunderstandable instructions and information. Inorder to be communicated effectively betweendifferent parties, there needs to be a degreeof trust between them this trust emergesmore easily on site through face-to-face

interactions.49

All of this creates barriers for the perfecttransmission of knowledge to places faraway, making it geographically sticky. Animplication of this is that knowledge spilloverstend to degrade with distance geographyand location matter for innovation. It alsomeans that the presence of spillovers candrive the rms that benet from them closerto their sources as when corporations setup a subsidiary somewhere near to a researchlaboratory: in this sense, the close location of rms in the same place could be explained byspillovers between them.

A rst step towards establishing creativespillovers in the local economyHere we consider the results of a statisticalanalysis looking into the patterns of co-location between the creative industriesand two other innovative sectors, High-TechManufacturing and KIBS.

The presence of such patterns might suggest

strong value chain inter-linkages (rms inthese sectors are found in the same placesbecause they trade frequently) and benecial

25

42. Potts, J. and Morrison,K. (2008) NudgingInnovation. London: NESTA.

43. Kent, S. (2001) TheUltimate History of VideoGames. New York: PrimaPublishing.

44. Oakley, K., Sperry, B. andPratt, A. (2008) The Art of Innovation. London: NESTA.

45. Markusen, A., Gilmore,S., Johnson, A., Levi, T.and Martinez, A. (2006)Crossover: How ArtistsBuild Careers acrossCommercial, Nonprot andCommunity Work. Availableat: http://www.haassr.org/html/resources_links/pdf/caCrossover.pdf [Lastaccessed 21 April 2010].

46. Flowers, S., von Hippel, E.,deJong, J. and Sinkowicz,T. (2010) Measuring UserInnovation in the UK.London: NESTA.

47. Florida, R. (2004) The

Rise of the Creative Class.London: Basic Books.48. Storper, M. and Venables,

T. (2004) Buzz: face-to-face contacts and theurban economy. Journal of Economic Geography. 4(4),pp.351-370.

49. Iammarino, S. and McCann,P. (2006) The structureand evolution of industrialclusters: Transactions,technology and knowledgespillovers. Research Policy.35(7), pp.1018-1036.


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knowledge spillovers (mediated by thosebusiness to business transactions, labour owsand informal networking which occur moreeasily when rms are close to each other).The reason we focus on high-technologymanufacturing and KIBS rms is that thesesectors are perceived to embody high levels of

innovation.Co-location does not, however, implycausation: proximity between creative rmsand these other sectors does not demonstratethe existence of creative spillovers. Indeed,there could be backwards spillovers from othersectors into the creative industries. Or therecould be other underlying factors unrelated tospillovers which underpin co-location suchas the presence of universities or a researchinfrastructure attracting many rms to a givenplace.

As such, the ndings below should be seenas indicative rather than demonstrative of creative spillovers. The direction of causality,as well as the role of other environmental andinfrastructural factors in the local dynamics of creativity and innovation, is explored in thecase studies presented in Part 5.

Data and methodology for the co-locationanalysisOur study of co-location uses the location

quotients of the nine creative sectors identiedby the DCMS mapping of the creativeindustries, and of the industries included inthe denitions of High-Tech Manufacturingand KIBS produced by AeA and EFILW.50 Thelocation quotients have been calculated atthe TTWA level (which captures local labourmarkets) using ONS data.

The value of the partial correlation coefcientsbetween each of the sectors being comparedindicates the likelihood of nding themstrongly concentrated in the same places(in which case the sign of the coefcientis positive) or in opposite places (in whichcase the sign is negative). For example, apositive correlation coefcient of 1 means thatwhenever one nds one sector in strength,the other is always present with the samestrength. The results can be considered onlyrobust when they are statistically signicant that is, when signicant underlying patterns aredetected in the data.

The total number of rms in a TTWA has been

used to control for the industrial mass of eachof the considered places, thus attenuatingurbanisation effects that could account for

the simultaneous strong presence of severalsectors in more industrious areas. Although theway in which location quotients are calculated(capturing the weight of a sector in the localeconomy relative to their national importance)should in principle reduce the severity of thiseffect, by introducing industrial mass as an

additional control, we have sought to reducethe effects on the correlation of other factorsthat may be approximated by it for instance,better infrastructure that benets all rmslocated in a place, or large consumer markets.

Many creative sectors co-locate with High-Tech Manufacturing and KIBSTable 8 presents the results of the analysis of co-location between the nine DCMS creativesectors and High-Tech Manufacturing and KIBSrms at the aggregate level. 51

Advertising, Designer Fashion and Software,Computer Games and Electronic Publishing areshown to co-locate signicantly and stronglywith KIBS (coefcients above 0.5). All thesesectors also co-locate signicantly, althoughless intensely, with High-Tech Manufacturingbusinesses.

Most other creative sectors co-locate withKIBS, but not with High-Tech Manufacturingindustries. Their pattern of co-location withKIBS is strong for Architecture and Video, Film

and Photography and weak for Music and thePerforming Arts, and TV and Radio. The Artsand Antiques sector presents negative patternsof co-location with other innovative sectors:this sector tends to be found strongly in TTWAswhere KIBS or High-Tech Manufacturers areabsent.

A more detailed analysis of co-locationThe results of a more detailed examination of co-location patterns between creative sectorsand specic sectors within the High-TechnologyManufacturing and KIBS categories arepresented in Table 9. 52

Firms in Advertising co-locate strongly withsome KIBS businesses such as HardwareConsultants, Accountants, Consultantsand Market Researchers. Firms in DesignerFashion are found close to some High TechManufacturers Computer Manufacturing andMeasuring Equipment as well as InformationTechnology (IT)-based KIBS activities suchas Hardware Consultancy, Data Processingand Database Work. Predictably, Software,

Computer Games and Electronic Publishingpresent very strong co-location patterns withIT-related high-tech sectors and KIBS such

6

50. AeA (2002) High-TechIndustry Denition.Available at: http://www.aeanet.org/Publications/Idmk_denition.asp; alsoEFILW (2005) SectorFutures: The knowledge-intensive business servicessector. Available at: http://www.emcc.eurofound.eu.int/publications/2005/ef0559en.pdf [Lastaccessed 21 April 2010).See Appendix 1 for the SICcodes included in thesetwo denitions. The SIC-92used in the AeA denitionhas been linked to the SIC-2003s according to whichONS data are currentlyclassied. Any SIC codes inthe DCMS denition havebeen removed from these

denitions to avoid spuriouscorrelations.51. See Appendix 2 for tables

with the values of thecorrelation coefcientssummarised in Tables 8and 9.

52. Arts and Antiques is notincluded in the table: Table9 shows that this creativesector shows negativecorrelation coefcients witha large number of High-TechManufacturing and KIBSsub-sectors.


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as Business Consultancy, Management of Holdings, Marketing Research and Personnel.

Other creative sectors that focus on contentproduction and cultural experiences display

positive co-location patterns with KIBS and,interestingly, with R&D, both scientic andin the social sciences. Their patterns of co-location with KIBS tend to be neverthelessweaker than those observed for Advertising,Software, Computer Games and ElectronicPublishing.

In a few cases, negative patterns of co-locationare identied between creative sectors andHigh-Tech Manufacturing sectors. This is trueof rms in Video Film and Photography, Musicand the Performing Arts, and TV and Radio,on the one hand, and rms involved in theManufacture of Motor Vehicles, on the other.

Interpretation of the co-location results:what brings these sectors together?The co-location analysis shows clearlythat creative

creative clusters print v2

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