1. Digital disruption and the creative industries
Issues for Higher Education
Claire Enders +44 7831 214 036 claire.enders@endersanalysis.com
14 February 2013

2. Overview of the creative industries
• The UK creative industries is a large vibrant sector
• A broad spectrum of jobs for suits, creatives and techies
• Publishing, audio-visual, advertising, games etc
• Digital is disrupting some segments: newspaper
publishing, recorded music
• Although digital is a new opportunity for publishing
BUT…
• 2013 is year 4 of our “zombie recovery” from recession
• Graduates must compete fiercely for jobs, many low-
paid or part-time
• Employers often cite workplace skillset shortages
• Limited scope for new courses with pressure on funding
Digital disruption and the creative industries 2

3. Social context
• Outputs of the creative industries strengthen our
identity and sense of community on this island
• Identity is especially important in times of enduring
economic hardship
• Culture generates ‘feel-good’: the opening ceremony of
the Olympics, watched by 27 million people in the UK
• Defining “Who we are” outside this country: The
Olympics, Downton Abbey, Adele, 50 shades of grey
• A Washington Post columnist wrote: “If [the opening
ceremony] sometimes seemed like the world’s biggest
inside joke, the message from Britain resonated loud
and clear: we may not always be your cup of tea, but
you know – and so often love – our culture
nonetheless.”
Digital disruption and the creative industries 3

4. Public policy is confused
Positive factors:
• Coalition government has identified creative industries
as an engine for UK economic growth
• Longstanding tax credits regime for film extended to
animation, high-end TV production
• Education, research to gain copyright exceptions
Negative factors:
• Cuts to guardian institutions like Arts Council
• BBC is the largest single employer, including work
experience; frozen licence fee to 2016 led to cost cuts
• 50% cut to DoE budget means HE is “on its own”
• Delay to implementing Digital Economy Act to 2014
• IPO loosening IP regime due to Hargreaves Review
Digital disruption and the creative industries 4

5. Creative industries worth £36 billion, 2.9% of UK GVA
Gross Value Added in the UK creative industries by sector, 2009 (£million)
TV & Radio, £5,260, 14%
Advertising, £5,990, 17%
Digital & Entertainment
Media, £400, 1%
Software/Electronic
Publishing, £560, 2%
Architecture, £3,290, 9%
Art & Antiques, £260, 1%
Design, £1,790, 5%
Designer Fashion, £120,
Publishing, £11,560, 32% 0%
Film, Video &
Photography, £3,000, 8%
Music & Visual and
Performing Arts, £4,070, [Source: DCMS]
11%
Digital disruption and the creative industries 5

6. Creative jobs number 1.5 million, 5.1% of UK jobs
Employment in the UK creative industries by sector, 2010
Music & Visual and
Performing Arts, 292,536
, 19%
Publishing, 243,809 ,
16%
Film, Video &
Photography, 71,731 , 5%
Digital & Entertainment
Media, 13,179 , 1%
Designer Fashion, 25,583
, 2% Software/Electronic
Publishing, 23,205 , 1%
TV & Radio, 113,966 , 8%
Design, 208,810 , 14%
Crafts, 91,983 , 6%
Advertising, 268,254 ,
Art & Antiques, 8,818 , 18%
1% Architecture, 136,298 , [Source: DCMS]
9%
Digital disruption and the creative industries 6

7. Creative industries support 107,000 SMEs, 5.1% of UK total
Number of enterprises by sector in the UK creative industries, 2011
Film, Video & Music & Visual and
Photography, Performing Arts,
10,360 , 10% 30,460 , 29%
Designer Fashion, 970 ,
1%
Design, 14,720 , 14%
Publishing, 9,700 , 9%
Art & Antiques, 2,580 ,
2% Digital & Entertainment
Media, 440 , 0%
Software/Electronic
Publishing, 1,810 , 2%
Architecture, 11,700 ,
11% TV & Radio, 7,960 , 7%
Advertising, 16,010 , 15% Note: excludes sole traders.
[Source: DCMS]
Digital disruption and the creative industries 7

8. Disruption from rapid rise of internet and mobile devices
• About 80% of households now have PC internet access
• More people will access the internet by a mobile device
than by a PC by the end of 2013
• More than 8 million tablet owners by the end of 2012
• By 2017, the mobile internet will be virtually ubiquitous:
–Smartphone penetration will be close to 100%
amongst mobile phone users
–Tablet penetration will exceed 30% of adults and take-
up of e-readers will most likely be around 20%
–Mobile internet access over high speed 3G and 4G
networks, complemented by Wi-Fi, means high
quality ‘always-on’ access
Digital disruption and the creative industries 8

9. Publishing: a sector in decline
• Newspaper publishing: in sharp decline
–Structural and terminal decline of print newspaper
–Digital pennies replace print £
–Lots of free news; only premium is pay-for
–Pockets of opportunity for video and online
journalism, citizen journalism
• Book publishing: disruption ahead
– High street retailing in decline
–Opportunity for ebooks
–Open Educational Resources (OERs)
–Distance learning
–elearning in the classroom
–Professional training
Digital disruption and the creative industries 9

10. Newspaper circulation is declining, and decline is accelerating
UK annual print circulation (m)
Metro launch
iPhone launch Penetration:
75% smartphone
6,000 Sky and BSB Launch of BBC 40% tablet
Google achieves
merger News 24
scale
iPad launch
5,000
4,000
3,000
2,000
1,000
0
1987 1992 1997 2002 2007 2012e 2017f
Daily national newspapers Sunday national newspapers Regional newspapers
2012 Estimates based on reported ABC data: Jan-Nov for national newspapers; Jan-Jun for regional newspapers and B2C magazines
[Source: Enders Analysis based on ABC data]
Digital disruption and the creative industries 10

11. News: Newspaper publishers shift to digital
Estimated share of revenue from digital (%)
60%
50%
50%
40%
30%
23%
20%
12%
10%
5% 5% 5%
0%
FT Business Guardian News and Associated and Trinity Mirror plc Johnston Press Archant
Media Northcliffe
Columns with no fill are estimates based on available data
2007 2008 2009 FT Business includes Mergermarket, a 50% share in The Economist and BDFM as well as the FT itself
[Source: Enders Analysis based on company data]
2010 2011 2012
Digital disruption and the creative industries 11

12. News: BBC accounts for 47% of news consumption
News day by organisation (%)
BBC
2.51.21.0
0.4
ITV
3.5
3.3 C4
5.6 C5
Sky
News International
8.8
47.2 DMGT
Trinity Mirror
Telegraph Media Group
11.6 Northern & Shell
Guardian Media Group
Lebedev Foundation
8.5
0.7 4.7 Pearson
1.1
Other
[Source: Enders Analysis from ABC, BARB, Nielsen, NRS and RAJAR]
Digital disruption and the creative industries 12

13. Economics of online news: digital pennies for print £
• UK Google News sources 4,500 English-language news
services, including newspapers, newswires, blogs, etc.
• The famous brands from the pre-internet era continue
to receive the lion’s share of users and time
• Mobile device usage will reduce the share of long tail as
consumption is more app-driven on a small screen
• However, compared with print, all screens reduce the
time spent with branded news bundles as a whole
• Digital does not – and never will – attract the
advertising CPMs of print, except in the most premium
environments (FT homepage, for example)
• In general, the large-scale newsrooms will shrink in the
next few years, and some will vanish entirely
Digital disruption and the creative industries 13

14. Online news: citizen journalists
• Reliance on citizen journalism at the local, regional and
national levels will inevitably continue to grow
• Real value of citizen journalists is to ‘witness and
record’, thus requiring video and digital native skills
• Professional journalism can not be replaced by citizen
journalists with any degree of consistency and reliability
• Reader comments and feedback on news services are
often counter-productive for the ‘publisher’ brands
• Paywalls, registered users and reader editors help
preserve a quality, paid-for (premium) news ecosystem
• The skills at the heart of news provision are most
diluted by the “snacking” in the digital news ecosystem
Digital disruption and the creative industries 14

15. News: Print publishers dominate online news served to mobile devices
Print businesses share of time spent online (%)
80% 75% of mobile news
consumption is to
70% print publishers
60%
50%
40%
30%
20%
10%
0%
News Niche* Family Tech Finance Arts Sports Books Music Fashion* Food*
All devices Share of time spent with top 50 websites in each category; *top 50 websites account for less than 80% of time spent in category
[Source: Nielsen NetView]
PC (home and work)
Digital disruption and the creative industries 15

16. Audio-visual: a sector that is in mild decline
• Recorded music lost sales, but live music rose sharply
• BBC and commercial radio consumption is very stable
• Despite rise and rise of the internet in the home, the
economy of broadcast TV is stable
• BBC Studios and ITV Studios sustain in-house
programming, and Channel 4 largely commissions
• Total commissioned programming to independents -
estimated at £2.4 billion - has softened in recent years
• BSkyB spending £600 million in UK-originating
programming
• BFI announced 30% decline in film investment in 2012,
largely due to lower interest from Hollywood studios
Digital disruption and the creative industries 16

17. BBC and commercial radio: Robust reach and steady listening
Total listening per week (millions of hours)
1,200
1,000
Peak gap for BBC
800
600
400
200
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
All Radio All Commercial All BBC [Source: RAJAR, Enders Analysis forecasts]
Digital disruption and the creative industries 17

18. Radio: Leading BBC and commercial brands are largely complementary
Listeners of leading BBC and commercial radio brands, Q4 2012
85%
Five Live Bubble size = network reach
talkSPORT
80% Sports Extra
75%
Five Live
Planet Rock
70%
Share of Male listeners
65%
6 Music
60% XFM
Kerrang! BBC Local/
55% Absolute Network
1Xtra LBC Regional
Radio 4
Asian Radio 2
50% Gold Extra
Network
Radio 1
Radio 3
Real Radio Classic FM
4
45% Smooth
Choice
Kiss Capital Heart
40% Magic
35%
25 30 35 40 45 50 55 60
Average age
BBC Global Radio Real and Smooth Radio [Source: Enders Analysis from RAJAR]
Digital disruption and the creative industries 18

19. Audio-visual: UK is world-class
Turnover and programming in audiovisual activities, 2008 (€ m)
12,000 €9 billion of turnover; €10 billion
of production
10,000
8,000
6,000
4,000
2,000
0
TV programming & broadcasting activities [Source: SBS database, Eurostat]
Motion picture, video and television programme production activities
Digital disruption and the creative industries 19

20. TV: PSBs lost share of viewing in digital switch-over due to more choice
Average daily viewing share (%)
100%
90% 20.0 21.9 23.0 24.4 24.7 25.3 26.6 26.9 26.3 27.2
80% 1.9
2.4
4.1
6.1 8.1
70% 9.6
10.6 11.6 12.8 12.9
60% 39.8
39.1
37.7
35.1
50% 33.1 31.6
30.2 28.6 28.0 26.7
40% 1.6
2.0
2.5 2.9 3.5 4.0
30% 4.3 5.2 5.6 5.8
20% 36.6 34.6 32.7 31.6 30.6 29.6 28.4 27.7 27.3 27.4
10%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
BBC 1&2 BBC Digital ITV1, C4, C5 Other PSB Digital Other [Source: BARB/InfoSysTV]
Digital disruption and the creative industries 20

21. TV: Future ad revenue looks shaky because of the economy
TV NAR (£m, nominal)
4,000
3,626
3,500 3,514
3,326
3,000 2,954
2,500
2,000
1,500
1,000
500
0
2007 2008 2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
[Source: Enders Analysis]
Central Upside Downside
Digital disruption and the creative industries 21

22. TV: Internet content unlikely to displace TV content on the TV set
Devices used to connect the TV set to the internet (%)
90 Older people much less likely
to connect
80
70
60 56.6
Gamers connect the TV set to the
50 internet to game
40
30
Smart TV is very
small
20 15.0
14.0 13.8 12.8
10 5.9 7.8
4.3 5.2
2.0 2.4
0
Smart TV: SmartTV: BluRay PS3 Wii Xbox 360 AppleTV TiVo Sky+ Other None
ethernet wifi player
Base: 4,006 adults 16+
Total 16-24 25-34 35-54 55+ [Source: Deloitte; GfK]
Digital disruption and the creative industries 22

23. Display advertising: still below the 2007 peak
UK display advertising revenues by medium (£bn)
9.9
10.0 9.7 9.6
9.5 9.5 9.4
9.3 9.3
8.9
9.0 8.7
8.3
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f
National newspapers Regional newspapers Consumer magazines Business & professional magazines TV Internet (PC and mobile) Outdoor Radio Cinema
[Source: Enders Analysis from AA/Warc]
Project title, date 23

24. Key conclusions
• Constant pressure on topline of creative industries due
to digital disruption, shift of budgets to the internet,
and zombie recovery
• Consumer behaviour is being transformed by mobile
devices and discarding PC-based habits rapidly
• Value to the user of the content is meshed with the
device and eco-system
• Media companies must adapt to content delivery on
multiple devices, screen sizes, operating platforms
• Resilience of TV revenues and programming
investments, but budgets are tighter
• SMEs have to juggle marketing, production and tech
• Expect graduates to mainly “learn by doing”
Digital disruption and the creative industries 24

25. Issues for higher education
Support self-education and continuous learning Jobs
Solutions for older workers to re-train market
Mesh creative, technical and business skills
Universities
Encourage work experience
Colleges
Reward team work
Encourage basic Maths and English
A balanced curriculum, including Arts
Schools
Digital disruption and the creative industries 25

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Digital disruption and the creative industries 26