TEMCI lecture notes
- Class 1 -
ECONOMICS & BUSINESS OF THE CRETAOVE INDUSTRIES
- Creative industries from a business perspective à the market is not a given, it needs
to be created (you need to create the taste for your own product)
- You need to interact with your market
PELTONIEMI (2015): Cultural industries
Cultural/ creative industries
- Highbrow / lowbrow
- Cultural industries are those that produce experience goods with considerable creative
elements and aim these at the consumer market via mass distribution
- Many cultural industries definitions begin from the nature of the value of cultural
goods
- Such goods offer a low level of utilitarian value, and a high level of aesthetic,
symbolic, social meaning and social display value
- Often used interchangeably
- Look at the full spectrum because the interaction between what is high or low brow
has all kinds of economic consequences
- Not relevant in terms of content
Business models
- Three main dimensions:
1. Where to find revenues
o Finding revenues is not just for for-profit organizations; in almost all sectors
o Relevant question for non-profits as well, just in different ways
2. Where to find the stuff that will make revenues come to us at minimal cost
o Exploitation of artists
o How to lower costs
3. If we can do 1 and 2, how to make sure it stays that way and my competitors do not
imitate me and destroy my relative advantages
Sources of revenue in the creative industries
- Selling the creative good
- Advertising goods of other producers
- Subsidies or no subsidies / sponsoring
- Other types of support for what we are because we are that (grands from foundations,
mecenae, corporate sponsorship, loyalty programmed)
- Revenues for the creative/cultural goods we offer for other goods we offer on the side
(e.g. restaurant)
FREY & STEINER (2010): Pay as you go
How/why to price
- To help fulfil its basic museum responsibilities, namely showing its collection
responsibly
o Too many visitors put the collection at risk and diminish the quality of the visit
- To achieve economic goals
o Revenue
1
, o Differentiation
- To achieve other social/political goals
o Getting the support of broader groups of stakeholders, e.g. by involving
schools
o This can lead to financial advantages if this contributes towards the museum’s
standing in the eyes of other stakeholders who provide revenue
à museums get subsidies when they help achieve certain goals – museum
presents valuable parts of national heritage to a broad community (not just rich
art lovers)
à big premium from getting younger ppl, people from lower income groups,
etc
à as a director, you don't necessarily need as much money as possible, but
you want to show the diversity of people visiting
à goal is to please those who give you subsidies/ corporate sponsors
- Museums à paying for tickets
- Frey & Steiner à pay as you go
- Price discrimination = asking for a different price to different ppl
Pricing schemes
- Fixed price
- Free entry (British museum)
- Museum club membership
- Voluntary donation
à at entry
à at exit
- Exit price
Frey & Steiner’s proposal
- Exit price could be:
o Fixed
o Completely voluntary & open
o Obligatory but variable
- Pricing at exit according to time spent inside
- Price that varies with an objectified experience
- Not a voluntary contribution on the basis of subjective perception of how good the
experience was, but a price that varies with an ‘objectified’ experience
Voluntary contributions afterwards – cost/benefit consideration
- Is it difficult/costly to make consumers pay? (e.g. because of weak intellectual
property rights regime or too open access?)
- Does the consumer feel a link with/responsibility towards the producer?
- Does the consumer feel pressure to pay?
- Does the voluntary contribution function as a quality signal to other consumers?
- Do even non-paying consumers spend enough on other things with the producer to
make it worthwhile?
CAVES (2003): contracts between art and commerce
- In cultural industries, suppliers of artistic inputs have to work together with suppliers
of humdrum goods
2
, - This leads to particular types of contracts in which the risk & rewards are distributed
very unevenly or “motley-crew” type of organization
- You need a lot of non-artistic inputs to create a consumer-friendly artistic product
- E.g. as a painter, you need an art gallery to sell your work; writer – publisher, theatre
group – physical theatre
- These contracts are usually very unequal
- Risk and reward unequally distributed à e.g. when gallery gets 50% of the income in
sales; usually first recording contracts are terrible
- This changes when one becomes superstar
(Inter)organizational structures in cultural industries
- Artist/facilitator deals
o Painter – gallery
o Writer – agent – publisher
o Musician – agent – recording company
- Motley crew deals
o Moviemaking
o TV series
Core characteristics of cultural production
1. Nobody knows
o Nobody knows about possible successes of your product
o People try to predict who or what will blow up, but nobody actually knows
(especially with starting artists)
o One of the most basic findings in marketing is that new products do very badly
(over 75% of new products disappear from the market in the first year)
o Caves only talks about output risk à if you are a producer of cars, shampoo
etc., if the product fails, you can use your inputs for something else (e.g. if a
specific car type isn’t successful, the steal doesn't use value, you can make it
into another type of car)
o In the creative industries à you can't repurpose; the inputs are of no value
once the product flops; you can't reuse à there is both input and output risk
o Therefore, you need to manage risk
2. Art for art’s sake
o A lot of ppl want to work in the creative industries à there is an oversupply of
artists
Unequal Contracts
- Nobody knows + oversupply give facilitators power to tell the artists that they better
sign or they can find 100 others who would
- Art for art’s sake means psychological income, which leads artists to be satisfied with
less other types of income
- People like to make art, enjoy their work à they get a psychological income;
therefore, they are easily exploited by not being paid properly
- Willing exploitation of the provider of the artistic value is essential to keeping costs
low in the creative industries
3
, WIJNBERG & GEMSER: Adding value to innovation
- The selection system framework = you want to know what makes you competitively
successful; who’s decisions actually determine the value of what you offer
- Competition can be understood as a selection system with particular types of selector
- Radical innovation, such as impressionism, often means a change in the selection
system
o The selected
o The selectors
o The selection system
à market = consumers are selectors
à peer = other producers are selectors
à expert = experts (consumers not producers) are selectors (celebrity
recommendation)
1. Market selection
- Based on consumers
- You can still have a monopoly
- The default notion
2. Peer selection
- Opinions of other producers are the most important determinant of
competitive success
- The more popular you are among your peers, the more successful
3. Expert selection
- Similar to the pharmaceutical industry
- If you want to be successful, your business model needs to be
suited for the type of selection system
Selectors and gatekeepers
- PELTONIEMI distinguishes between two types of gatekeepers
1. Upstream = firms that select artists or creative projects to bring to the market, e.g.
publishers, movie producers, etc.)
2. Downstream = individuals or organizations who select artists or creative goods
that have relatively high value e.g. reviewers, award juries, etc.
- Facilitators in CAVES are upstream selectors
- Selectors in WIJNBERG & GEMSER are mainly downstream selectors, who evaluate
producers & products
- Ppl who make music and try to bypass record labels (e.g. YouTube) à the consumers
then become both upstream and downstream selectors
à if you reshare/like/watch a video, you are increasing the market entry of the artist =
you are acting like an upstream selector
à a lot of positive reactions from consumers may result in a record contract à the
consumer works as a manager for the record label, by finding the talent
Art before impressionism
- Value determined by other artists in salon juries (peers and other producers)
4
- Class 1 -
ECONOMICS & BUSINESS OF THE CRETAOVE INDUSTRIES
- Creative industries from a business perspective à the market is not a given, it needs
to be created (you need to create the taste for your own product)
- You need to interact with your market
PELTONIEMI (2015): Cultural industries
Cultural/ creative industries
- Highbrow / lowbrow
- Cultural industries are those that produce experience goods with considerable creative
elements and aim these at the consumer market via mass distribution
- Many cultural industries definitions begin from the nature of the value of cultural
goods
- Such goods offer a low level of utilitarian value, and a high level of aesthetic,
symbolic, social meaning and social display value
- Often used interchangeably
- Look at the full spectrum because the interaction between what is high or low brow
has all kinds of economic consequences
- Not relevant in terms of content
Business models
- Three main dimensions:
1. Where to find revenues
o Finding revenues is not just for for-profit organizations; in almost all sectors
o Relevant question for non-profits as well, just in different ways
2. Where to find the stuff that will make revenues come to us at minimal cost
o Exploitation of artists
o How to lower costs
3. If we can do 1 and 2, how to make sure it stays that way and my competitors do not
imitate me and destroy my relative advantages
Sources of revenue in the creative industries
- Selling the creative good
- Advertising goods of other producers
- Subsidies or no subsidies / sponsoring
- Other types of support for what we are because we are that (grands from foundations,
mecenae, corporate sponsorship, loyalty programmed)
- Revenues for the creative/cultural goods we offer for other goods we offer on the side
(e.g. restaurant)
FREY & STEINER (2010): Pay as you go
How/why to price
- To help fulfil its basic museum responsibilities, namely showing its collection
responsibly
o Too many visitors put the collection at risk and diminish the quality of the visit
- To achieve economic goals
o Revenue
1
, o Differentiation
- To achieve other social/political goals
o Getting the support of broader groups of stakeholders, e.g. by involving
schools
o This can lead to financial advantages if this contributes towards the museum’s
standing in the eyes of other stakeholders who provide revenue
à museums get subsidies when they help achieve certain goals – museum
presents valuable parts of national heritage to a broad community (not just rich
art lovers)
à big premium from getting younger ppl, people from lower income groups,
etc
à as a director, you don't necessarily need as much money as possible, but
you want to show the diversity of people visiting
à goal is to please those who give you subsidies/ corporate sponsors
- Museums à paying for tickets
- Frey & Steiner à pay as you go
- Price discrimination = asking for a different price to different ppl
Pricing schemes
- Fixed price
- Free entry (British museum)
- Museum club membership
- Voluntary donation
à at entry
à at exit
- Exit price
Frey & Steiner’s proposal
- Exit price could be:
o Fixed
o Completely voluntary & open
o Obligatory but variable
- Pricing at exit according to time spent inside
- Price that varies with an objectified experience
- Not a voluntary contribution on the basis of subjective perception of how good the
experience was, but a price that varies with an ‘objectified’ experience
Voluntary contributions afterwards – cost/benefit consideration
- Is it difficult/costly to make consumers pay? (e.g. because of weak intellectual
property rights regime or too open access?)
- Does the consumer feel a link with/responsibility towards the producer?
- Does the consumer feel pressure to pay?
- Does the voluntary contribution function as a quality signal to other consumers?
- Do even non-paying consumers spend enough on other things with the producer to
make it worthwhile?
CAVES (2003): contracts between art and commerce
- In cultural industries, suppliers of artistic inputs have to work together with suppliers
of humdrum goods
2
, - This leads to particular types of contracts in which the risk & rewards are distributed
very unevenly or “motley-crew” type of organization
- You need a lot of non-artistic inputs to create a consumer-friendly artistic product
- E.g. as a painter, you need an art gallery to sell your work; writer – publisher, theatre
group – physical theatre
- These contracts are usually very unequal
- Risk and reward unequally distributed à e.g. when gallery gets 50% of the income in
sales; usually first recording contracts are terrible
- This changes when one becomes superstar
(Inter)organizational structures in cultural industries
- Artist/facilitator deals
o Painter – gallery
o Writer – agent – publisher
o Musician – agent – recording company
- Motley crew deals
o Moviemaking
o TV series
Core characteristics of cultural production
1. Nobody knows
o Nobody knows about possible successes of your product
o People try to predict who or what will blow up, but nobody actually knows
(especially with starting artists)
o One of the most basic findings in marketing is that new products do very badly
(over 75% of new products disappear from the market in the first year)
o Caves only talks about output risk à if you are a producer of cars, shampoo
etc., if the product fails, you can use your inputs for something else (e.g. if a
specific car type isn’t successful, the steal doesn't use value, you can make it
into another type of car)
o In the creative industries à you can't repurpose; the inputs are of no value
once the product flops; you can't reuse à there is both input and output risk
o Therefore, you need to manage risk
2. Art for art’s sake
o A lot of ppl want to work in the creative industries à there is an oversupply of
artists
Unequal Contracts
- Nobody knows + oversupply give facilitators power to tell the artists that they better
sign or they can find 100 others who would
- Art for art’s sake means psychological income, which leads artists to be satisfied with
less other types of income
- People like to make art, enjoy their work à they get a psychological income;
therefore, they are easily exploited by not being paid properly
- Willing exploitation of the provider of the artistic value is essential to keeping costs
low in the creative industries
3
, WIJNBERG & GEMSER: Adding value to innovation
- The selection system framework = you want to know what makes you competitively
successful; who’s decisions actually determine the value of what you offer
- Competition can be understood as a selection system with particular types of selector
- Radical innovation, such as impressionism, often means a change in the selection
system
o The selected
o The selectors
o The selection system
à market = consumers are selectors
à peer = other producers are selectors
à expert = experts (consumers not producers) are selectors (celebrity
recommendation)
1. Market selection
- Based on consumers
- You can still have a monopoly
- The default notion
2. Peer selection
- Opinions of other producers are the most important determinant of
competitive success
- The more popular you are among your peers, the more successful
3. Expert selection
- Similar to the pharmaceutical industry
- If you want to be successful, your business model needs to be
suited for the type of selection system
Selectors and gatekeepers
- PELTONIEMI distinguishes between two types of gatekeepers
1. Upstream = firms that select artists or creative projects to bring to the market, e.g.
publishers, movie producers, etc.)
2. Downstream = individuals or organizations who select artists or creative goods
that have relatively high value e.g. reviewers, award juries, etc.
- Facilitators in CAVES are upstream selectors
- Selectors in WIJNBERG & GEMSER are mainly downstream selectors, who evaluate
producers & products
- Ppl who make music and try to bypass record labels (e.g. YouTube) à the consumers
then become both upstream and downstream selectors
à if you reshare/like/watch a video, you are increasing the market entry of the artist =
you are acting like an upstream selector
à a lot of positive reactions from consumers may result in a record contract à the
consumer works as a manager for the record label, by finding the talent
Art before impressionism
- Value determined by other artists in salon juries (peers and other producers)
4
