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Taken before the Business, Innovation and Skills Committee
on Tuesday 8 February 2011
Adrian Bailey (Chair)
Mr Brian Binley
Examination of Witnesses
Witnesses: Mr John McVay, Chief Executive, PACT, Mr Feargal Sharkey, Chief Executive Officer, UK Music, Mr Paul Redding, International Managing Director, Beggars Group, and Richard Mollett, Chief Executive Officer, The Publishers Association Limited, gave evidence.
Q226 Chair: Good morning and thanks very much for agreeing to speak to us. Feargal, we have had you before us before and so enjoyable was it, we could not resist inviting you again. Just to reiterate what I say to all panels, obviously we will be asking you questions. In the interests of brevity, if someone else makes the point that you wished to, do not feel the need to repeat them, but obviously if you have something to add then we want to hear it. Just for transcription purposes, if we could just go from my left to right, could introduce yourselves to get voice volumes correct and everything.
John McVay: Thank you very much Chair. My name is John McVay. I am the Chief Executive of PACT, which is the trade association representing independent feature film, television, children’s and animation producers.
Feargal Sharkey: I am Feargal Sharkey. I am the Chief Executive of UK Music, which represents the collective interests of the British Music Industry.
Paul Redding: I am Paul Redding. I am Managing Director of Beggars Group, a large independent record company.
Richard Mollett: I am Richard Mollett, the Chief Executive of the Publishers Association, representative body for the book, journal and audio and electronic publishers in the UK.
Q227 Chair: Thanks. Can I just start with a very general question? Having read the speeches and the submissions of various people concerned about promoting economic growth and our manufacturing capacity, it has been put to me that this distinction between the creative industries and the manufacturing industry is an unhelpful and misleading one. What do you feel? Do you think that is correct?
Feargal Sharkey: I think we would probably share that view. Certainly in terms of the music industry, we are as a nation one of only three net exporters of music in the world. Number one is North America, the UK is number two and Sweden is currently number three. So we do possibly look with some envy in many ways at some of the strategies, policies and help and assistance provided to other sectors of British Industry-with some admiration. We would be ambitious to have the same kind of very cohesive, strategic, wellmanaged approach to developing our export base and delivering and developing our businesses overseas.
John McVay: I think in the 21st century, we are looking forward to how we create value for our economy, and at the root of it is intellectual property, whether that is patents or copyrights in the works that my members create. The UK is pretty good at inventing stuff and inventing intellectual property, so we share a lot of similarities with our colleagues in manufacturing industries. Dyson has a licence to make products, which brings money back to the UK. It is the licensing of IP that we are very good at and what we should be looking to protect going forward.
Q228 Mr Binley: Can I ask just a very quick supplementary, Chairman? Is it because most of your businesses are SMEs?
Feargal Sharkey: In is this convoluted world that we live in, and if there is attempted brevity on this occasion, in certain places it is still, to quote one rather senior economist of my acquaintance, "Oh, the creative industries; that’s that fluffy stuff." Well, in the case of the music industry, it is fluffy stuff that actually generates quite a lot of revenue and taxable income for UK plc. So I am sure it is again just some old, rather preconceived notional ideas that are rather outdated and outmoded in the modern world in which we live.
Richard Mollett: Just on the publishing side, for the 115 members of the Publishers’ Association, 11% of them have revenues over £34 million, so you are right. That means, by extension, the rest of them are smaller businesses. It tends to be those ones above £34 million that are doing the exporting, that have the international operations.
Q229 Chair: What you said is very interesting because I feel instinctively that this description of creative industries, as I think Feargal said, gives a vaguely fluffy presentation as opposed to manufacturing, where you think of hard, tangible end products. In terms of measuring the economic growth potential, the profile of our exports, the number of people employed, it effectively downgrades in the public mind the contribution that is made by them. It may well be an area that we come back to. Can I just move on slightly? You are already successful exporting industries. It might be argued that, as you are already doing so well, there is very little capacity for you to improve. What is your feeling about that? Where do you think you could make greater impact if you had more Government support or indeed more support from the financial services sector?
John McVay: It is not necessarily a matter of greater Government support. We run a number of trade missions to help startup SMEs go to various TV markets in the world. What we really need is greater Government clarity and strategy so that we have a clear, longrunning strategy for the creative industries. For instance, we work very closely with UKTI, as indeed my colleagues do, and over the past few years we have been on an annual planning cycle for which markets will or will not be supported and which budget may or may not be available. That mitigates against our ability to work with startup companies, and companies who want to export, to plan to enter markets. It takes about two to three years to go to a new market with a new product, and it is impossible to give any company we work with any guarantee there will be any support for them in the three years from the time that they have planned to go to that market.
We would actually ask for what has become a devolved approach to trade support across England to become more centralised, more strategic and to have a specific view towards the creative industries so that myself and other trade associations who do this at marginal cost can actually plan to get our start-up companies to market. The reality in the creative industries now is that, if you want to make a great creative product for the British public, you have to go and find other people’s money to invest in that product to deliver it in your own domestic market. In the past, you would make it in the UK, and then you would sell it to the rest of the world and that would be cream on the cake. Actually, from the off you have to go and raise money in other markets to deficit finance your product. That brings money and value back in for the British public but also internationalises the British creative industries and that is a good thing, but we need a clearer, longer term strategy to do that.
Feargal Sharkey: In terms of the music industry, it is true: we are internationally quite successful. However, as an industry we published a strategy outline paper for the industry almost 12 months ago and made our ambition very clear in that. We want to be number one: we want to become the number one exporter of music in the world. We are positioned to do that. To give you some specifics, PRS for Music at the minute are currently forecasting potentially 40% growth within their sector over the next five years. So we are incredibly fortunate to be blessed with all of these things. It falls back on the quality of British talent and the records and the music they create, and thank God, we have a long and fine pedigree and history of producing some globally recognised, remarkable talent. As long as we have that base to work from, there is no absolutely no reason on earth that we should not come pretty close if not deliver on that objective and ambition the industry has.
Richard Mollett: From the publishing side, yes the sector is undoubtedly successful. 40% of our revenues come from export. At the moment we are happily the leading exporting country of publishing content in the world and our growth last year was some 2.5%, but I do not think any sector, any company can ever think, "Well, job done." So the changes we would like to see are spoken not from a position of saying, "The system isn’t working; it needs to be greatly reformed," but that there are enhancements that can be made. Like John and Feargal, we work very closely with UKTI and the support they are provide incountry is very strong, but we identify ways where we think it could be stronger. One of them I have written to you about and I am sure you may go on to discuss: the concept of IP attachés to just give that extra kick to British intellectual property to get even more growth.
Q230 Chair: Yes, we will be coming on to that in a moment.
Paul Redding: I will give you a few practical examples of what we have been doing and the way that out company has expanded its international profile. Between 2003 and 2008 we grew our exports by over 80% but in the past we used to license our rights to other companies. In 2003 we decided that that was not the right way forward and we needed to invest in setting up associate offices in most of the major markets around the world. That took a lot of money and a lot of work. We now have a 35-person office in the United States, we have offices in all of the major markets, and we are able to sign American talent through the US office and deliver that across the globe. We are also able to sign UK artists and take them to all of the major markets and they are incredibly successful.
One of the current examples that we have is that we signed a girl called Adele a few of years ago. She is now number one in Germany and number one in France, and she is breaking all of the smaller European markets. The record is about to come out in America, where it will undoubtedly go to number one, and all of that income flows back to the UK and is taxable income. It is a huge benefit to the UK economy. We are in a kind of privileged position; we are not really in a position of need because we have never taken outside investment, but there are hundreds and hundreds of small record companies who just can’t get the investment. We are phoned up on a monthly basis by smaller companies wanting to come under our wing and give them infrastructure and back office support and take them to the international markets, and we just don’t have the capacity to be able to do that.
Q231 Chair: Can I just follow up this question of investment? John McVay raised this earlier, but in effect bringing companies to export market readiness. Obviously the British Banker’s Association has set up this business growth fund and are training mentors to work with SMEs in order that they can overcome this problem. Now again, I think there is the perception that this is appropriate for the manufacturing industry. Can you tell me whether the creative industries have had any connection with the BBA and the scheme or not, and do you feel it is appropriate you should be included in it?
Feargal Sharkey: Certainly to the best of my knowledge the answer to the first part would be no. I am not aware that we have been approached, had any discussions or indeed been asked. In fact, if I have even been aware it was taking part, I think I would have gone out of my way to provide with them with some input and thought, because clearly if there is any form of support network structure being envisaged or put in place, I have a responsibility and feel an obligation back to my industry that we would be engaged in that and delivering whatever help and support we could. In short, the answer is no, but I will clearly pursue that conversation external to this meeting this afternoon with some considerable vigour.
Richard Mollett: I would echo both of those responses, no and yes.
Chair: That is coming across the board is it?
John McVay: Absolutely.
Q232 Chair: Right, the point has been made and we will be progressing it. Just on another issue, looking at that the broader issue of science and innovation-the technology and innovation centres and so on-knowledge transfer partnerships, now again, these are perceived as high valueadded manufacturing issues. Do you think there is any room for your sectors of industry to engage with these?
Richard Mollett: Yes and we do so increasingly. The creative industries knowledge transfer network has a publishing branch to it and in fact we are talking with the operator of that on a project called IC Tomorrow, which is looking at ways of bringing publishers’ content to technology companies and finding ways to partner and to develop new services. It is early days but I am happy to say those conversations are happening.
Q233 Chair: Yes, I am trying to satisfy myself that this is not being missed out, but on the basis of what you said can I take that, in effect, this is being addressed?
Richard Mollett: Certainly for us.
Q234 Mr Binley: Would you allow me another supplementary, Mr Chairman? You will know of the British Ambassadors Scheme. I don’t think you were represented at all are you?
Feargal Sharkey: I think you may be correct in that assumption.
Mr Binley: That seems crazy to me that here we have a very high profile business selling British talent all the time and you haven’t got one British ambassador in the list.
Feargal Sharkey: Looking right across the whole piece and the whole approach, I think it is fair to say that it is something of a irony that the UK has one of the strongest, most creative, most capable, most able, globally most successful creative industries but we have yet to develop what might be identified as a cohesive strategic, wellmanaged approach in how we deal with that. To give you some flavour behind that, Brian, looking through a list of other countries who post-credit crunch/recession are looking at their creative industries to deliver fairly explosive growth and have developed highlevel policies and strategies-and that is outside of the traditional Canada and France-I find it somewhat ironic that a company like Deloitte, based in the UK, is advising the Singapore Government and are delivering on their strategy for the creative industries. South Africa: there is a copy of it, and it is robust, it is clear, it is coherent and it is the process being delivered. We still have yet to get round to having the conversation about what we might possibly do.
Chair: I inadvertently allowed Mr Binley to basically pre-empt my next question-
Mr Binley: Sorry.
Q235 Chair: -which was in effect to make a comparison with what other countries doing in promoting creative industries, so unless there is anything that you wish to add to it-
Richard Mollett: On the point you raise, I would just add, as I am sure the Committee is aware, there is such a thing as the Creative Industries Marketing Strategy Board, which is a load of creative industries-advertising, music, publishing-that sit around and decide what the marketing strategy should be. In a previous job I represented the BPI on that panel and I have to say, apart from preparing show reels for embassies and trade missions, it didn’t do a great deal in terms of the strategy of supporting experts. It is very good on the tactical stuff and very good around the expo last year, but I think it could have done more.
John McVay: Thank you for the question because I think it also adds to my previous comment about a lack of strategy and joined up thinking. The creative industries have long been lauded by various governments about how important we are and we are nearly 8% of GDP. That is all fantastic; we are 8% of GDP primarily because the businesses are getting on with doing business, but we could be a lot more. I suppose the opportunity in the current review and the growth review is: if this country is serious about these industries represented here, then be serious because we are serious businesses. We would like to see some serious policies which we will engage with and help finesse and develop, but I think your comment about whether or not we have an ambassador or are involved with the bankers is to me a sad reflection of the fact there is a good talk the talk but not much walk the walk.
Feargal Sharkey: Just to highlight specifically, clearly we are all asking everyone to be rather sensitive to the notion that that pretty much every other marketled economy in the world is now developing and implementing very competitive, very aggressive support strategies for their domestic creative industries, and the UK is falling somewhat behind on the international stage. By way of example, throughout the whole development of an artist’s career in somewhere like Canada, you can be provided with support, from doing an initial demo, to highlight and develop your songs, through to touring, marketing, promotions and all early stages of the development of an artist’s career. They have some very sophisticated, very robust support networks in place and we are, quite frankly, falling considerably behind.
Q236 Chair: Thank you. Before I bring in Nadim Zahawi, just very briefly, what should we be doing that we are not?
John McVay: Firstly, develop a clear cohesive strategy for the creative industries. Secondly, make sure that there is the right export support over a long period of time to allow businesses to plan. Thirdly, make sure we have the most robust copyright regime in the UK that protects our intellectual property. Without that we can’t raise investment because there will be a diminished return on that investment. Fourthly, get the marketing right; get the actual strategy right to the rest of the market, so I can go out to my members-a small startup company in Dundee that wants to get to Brazil-and actually show them a route map to get to that market. That is very, very difficult at present, and it is very hard to communicate to those markets. On the TV side, we are the second largest exporter of TV programmes and formats in the world. You can go anywhere in the world and you will see a British programme on those channels or a format based on our ingenuity, so we have seen that those markets are wide open to us going in and doing more. For me, that is my key point.
Feargal Sharkey: I think I would share a consensus with John. The only possible thing I would add, and not to distract you because John summed it up fantastically well, is that I am sensitive to the notion that the Government are possibly contemplating developing a crossBritish industry strategy towards emerging markets: China, India, Brazil. I would again just caution everyone that, in terms of the music industry, yes we want to be in those markets but we are starting from zero. It will take a long haul, nigh a five- to ten-year investment, to get the systems in place, both in terms of IP and administration systems, and while we are doing that, we ignore North America, the largest music market in the world, at our peril.
Chair: Right, that is the cue for bringing in Nadhim Zahawi.
Q237 Nadhim Zahawi: Before I get on to my question, one thought I had is that obviously the economic model for you and your members, John, is very different to your members, Feargal, and obviously those of Richard. You look at the television programming industry and America has a massive advantage in the sense that, when they produce new formats, the whole market is so massive. Although, the risk there again is very high. I understand that not a single format worked last year and out of hundreds of pilots not one became a big hit.
John McVay: To give you some comfort, the UK leads the world in selling formats. We account for 53% of all global format sales and British independent producers account for 80% of that. We are really good at it and it is actually what is driving value in all the new emerging markets. We don’t sell them a programme; we sell them the bible called the format, which tells you how to make the programme, the most successful being Who Wants to be a Millionaire?, which sold to 187 territories around the word and was culturally specific to each territory. So we do beat the Americans at that game.
Q238 Nadhim Zahawi: That is very good to hear. Obviously in the emerging markets, the English language is a massive advantage. I think that in the next 10 years there will be more people speaking English in China than there are in all the English speaking countries in the world.
Feargal Sharkey: I think potentially you may find there is a parallel-well, there is-across all of the creative industries. You are right; English is an international language, certainly in terms of pop music. More specifically, however, the unique thing we create that has the real asset value is the copyright. That it is then either exploited as physical media or direct sales of programming or the format or licensing by some other partner to exploit and monetise that asset that is a copyright that has been created and invested in in this country. That same foundation probably runs across all of the creative industries.
Q239 Nadhim Zahawi: Feargal, I am going to ask you to think beyond your industry. You have said that the UK music sector has a culture of international trade. We have also heard in the last few weeks that as a nation, we have generally lost our trading culture. What could other industries learn from your own industry?
Feargal Sharkey: Paul can actually give you more specifics on this. In fact, I will defer to Paul because he is at the coal face, running the company and doing this every day.
Paul Redding : For me it is not just about selling music, physical product or digital files; we are developing a business that is worldwide that is based on the synchronisation of our rights and receiving performance income from radio and TV playing it across the world.
Q240 Nadhim Zahawi: I am just thinking of other industries. The British music brand has helped the industry tremendously. Do you think that could work in other industries? Is there something they could learn from you as to how they can trade on this brand?
Feargal Sharkey: I do have to caveat this, as we touched upon: we do, in terms of music, have two distinct advantages. Firstly English is the international language of pop music; secondly, we do have an extraordinarily rare pool of talent to call upon in this country; and thirdly, and it is a very sweeping generalisation, quite frequently the domestic market is not large enough to sustain the investment needed to develop talent in this country. So as company, from a very early stage you are constantly looking at international markets, driving your income, opening up new revenue streams, purely to underpin the investment you have to make.
Paul Redding: You have to do that on a territorial basis. You have to get into the markets and you have to have your own people to develop those markets in a sufficient way.
Richard Mollett: From the publishing side, I think the two factors in our success that are historical accidents: the English language and the heritage-the literary canon that is still read and loved around the world. But you still have to export on the back of that and for me it is the absolute insistence upon excellence and quality content. That is what continues to sell, particularly in the academic research world where we punch way above our weight in terms of the number of journals produced and the number of research articles that are in them. We are lucky, you might say, to have the research universities of Oxford, Cambridge and others that are able to keep that quality content going out there. The prime lesson I would get from that is a focus on quality and that sells.
Q241 Nadhim Zahawi: Just on that point, because there was a link with the scientific research budgets, what is your view in terms of us ring-fencing that or the Government ring-fencing it?
Richard Mollett: Well we could have another debate, I am sure, about university funding. The university presses that are linked to Oxford and Cambridge are both member companies of the Publishers’ Association. In Oxford’s case, I was up there yesterday and they are a charitable company and they provide millions of pounds back to the university every year in return for curating excellence. Therefore, any money that goes out of that ecosystem is a loss but they have enough heft and enough excellence that they at least are not overly concerned about what is happening in that budget at the moment.
Q242 Nadhim Zahawi: And finally, John, it says in your submission, and you have told us today, the UK television production sector has become a real success story. What creative industries have not done so well in your view and is that reversible in any way?
John McVay : That is hard to answer because my job is to look after mine , so if you want to ask other trade bodies how un - well they are doing -
Nadhim Zahawi: W ell maybe we should open it up to the panel .
John McVay: What I would do is reflect on film, which we also represent. In fact, we have had lots of hits in film; the King’s Speech is up for an Oscar, which is fantastic. A lot of public money has been invested in film through the National Lottery Fund, which is all lovely; we have had more products and better quality products. The big problem for film is it is not delivered IP back to the people who create the film. Most of the IP is extracted through the financing process, and we hope in the forthcoming Government review of film policy and announced by Ed Vaizey before Christmas that we will be able to look at how public funds are used in a more intelligent way to optimise the economic outcome and IP retention for British feature film producers.
So in spite of having a generation of world-renowned feature film producers who can produce Oscarwinning films, the value they retain is virtually zero. That is something that can change. It will take time to change it and I think we need an approach that is more organic because the feature film industries are multinational financing structures. If we get things right in our own domestic structure, then that will give those entrepreneurs an opportunity to retain more value and bring that back into investing in more British films.
Q243 Nadhim Zahawi: That in interesting. So you think there is a way? I was shocked that Film4 has yet to make any money, when actually it has backed both some pretty successful films and directors.
John McVay: I think we have to look at why you get into film, and I said this to Ed Vaizey recently: like all industries, we are in a hits business and even the studios plan for one hit in 10 to recoup their losses. So if Film4 have backed 20 films and they have not yet got a hit, they might get two hits the next time and recoup all their money. It is very hard to say over which period they have made money, because film does not really work like that. In fact, a lot of the creative industries do not work like that because we are high risk, we are prototypical and then we are hits based. I used to be a musician-unlike Feargal, I wasn’t successful-I made records, they weren’t hits so I gave it up and got a job. So I think one of the differences for the creative industries is that we are hits based and recoup on the hits but we have to take risks to get to the hits. Without that, we don’t get anywhere.
Q244 Nadhim Zahawi: That is an interesting point, but do you think that perception of high risk is what creates a disconnect with the likes of the bankers?
John McVay: Well clearly it does, but the bankers could change their view about that and actually engage with industry a bit more and understand it a bit more. I had a conversation recently with someone who was looking to make a programme for a broadcaster. They couldn’t raise deficit in the market and they were looking to go to the bank to get debt finance, and the bank said, "No." This was a commission; it was just some deficit finance to top up the budget, and she was looking to remortgage her house. I said, "Do you really want to remortgage your house for a commercial broadcaster? You may not get that money back. If you don’t make any sales, you won’t get that money back and you’ve just lumbered your family with more debt because the bank just was not interested." It wasn’t a huge amount of money-we are talking about £30,000-and I think there is a real issue there and you are right to bring it up.
Paul Redding: From my sector, there are lots of examples of small, privately owned record companies who have done exactly that and remortgaged their house to fund development into overseas markets and to develop the UK market as well. There are lots of them and they are the type of people who are phoning us up on a monthly basis to try and get support from us.
Feargal Sharkey: In terms of failure-and this is a purely personal observation-I think the games industry, particularly, in this country feels quite let down by Government policy. Particularly again, going back to the more aggressive and competitive nature of other nations, the end result is that asset value, in terms of copyright and intellectual property, invariably ends up transferring out of the UK. Therefore any real monetary value and assets attachéd to it flows to some other nation and the benefit of someone else and not UK plc. I think Government needs to be very careful and very sensitive in what policies it develops from this point out, because clearly we need to ensure that we are benefitting from that real, genuine creativity we have in this country.
Chair: That brings us right on cue to Rebecca Harris’s question on intellectual property.
Q245 Rebecca Harris: Yes, this very key to all your industries. In my very excellent brief here, I am told that UKTI website says, "The UK’s intellectual property regime and regulatory framework give creative businesses the protection they need to grow." I wondered to what extent do you agree with that and how much your industries are hampered by fear of exporting and intellectual property rights.
Richard Mollett: In terms of the UK framework, that is pretty true, up to a point, and I think we would all identify gaps for our various sectors in the UK regime. Without getting into a huge discussion about online infringement and the ability of people to reproduce and distribute content online, there is a big problem there that I do not think the current IP framework is quite up to speed with. We have the Digital Economy Act to hopefully address some of that, but we could probably talk about that for a long time.
Other than that online piece, broadly speaking, in the UK and in Europe, we have a robust framework that allows people to do the deals, make the negotiations and develop the services, but it is also flexible because it can accommodate changes in consumer demand and change in technology. From our own base, we are strong, but it is when you go into other countries that we start to see bigger problems. It is invidious to pick on other territories but one in particular where British publishers are struggling to make headway at the moment is Pakistan, where some 70% of the market for books there is pirate. There are open-air markets selling knockoff copies. We need the help of the enforcement agencies and the Government in that country, and clearly that is difficult for a number of reasons. So when we go abroad and there is a strong IP regime, we can sell our stuff and it sells well. When we identify markets like that, that is when we need help, both from UKTI and the host Government.
John McVay: Feargal’s point about games raises another interesting question. Korea is so mad about games that you can actually be a professional gamer and be like a rock star in Korea because they respect copyright. They are also consolebased games, so the Xbox, the Playstation etc. In China you can play games but you won’t be able to buy them as a disk to put into an Xbox because they would be copied. So games are subscription based and they played on the cloud, so you sign on to the internet and play games through the internet. The reason for that is games publishers want to protect their revenues from piracy.
So I would echo the point here that some territories are fantastic, whilst other territories, because they don’t respect copyright to the extent that we do in North America and Europe, are very difficult to move into. Last year we have two fishing expeditions from two Chinese broadcasters, who wanted to hold a meeting with all my independent TV producers and get them to send tapes of their new shows. You can imagine how popular that was. Of course those meetings never happened because the worry was that we will provide the intellectual property and then it will be copied straight away, and we will see absolutely no return on our investment.
Rebecca Harris: Mind you, I have heard of people applying for jobs in the industry being told, "Give us some ideas before your interview for new shows," and never-
John McVay: That is the sort of baptism-by-fire type of player.
Feargal Sharkey: It was possibly a slightly coded reference I made to Government strategy towards emerging markets; ie China, India and Brazil. As you have probably already gathered, across all of the creative industries represented here, it is emerging markets where we have some difficulties and challenges trying to maintain control of the copyright and the IP and the asset value in terms of monetising it and returning the income back to the UK.
Q246 Rebecca Harris: And that is genuinely deterring people from trying to export then?
Paul Redding: Fear of piracy is a huge issue for us. From the independent music sector, we are very willing to license legitimate services. We are going out there trying to find legitimate services to license, but the fear of piracy is a real issue for us.
Richard Mollett: I would just be slightly wary of tarring all emerging markets with the same brush, however.
Feargal Sharkey: Speaking figuratively.
Richard Mollett: Yes, exactly, but just so we have the right impression, last year publishing grew strongest in Africa and the Middle East and in Asia and South East Asia, where we have grown something like 56% since 2005. Clearly the IP regime is strong in some of the territories, in others it is not. As I say, we can identify where it is weak and we work on it, and where it is strong, we go in there and sell pretty well.
Q247 Mr Binley: Can I just probe Paul and maybe Feargal a little? I don’t quite understand. Is it a lack of will in the countries you are talking about or is it that there are submarkets because the countries are so big? What is the real problem?
Paul Redding: I think the real problem is infrastructure. It is infrastructure within those markets. It is very difficult. These new emerging markets are not physical markets; you do not sell CDs there. It is trying to develop an effective, legitimate digital market, and it is very, very difficult. There is a lot of red tape to get through. It is very difficult to deal direct with services; you often have to have agents to get to those companies. It is problematic and it takes a lot of time and a fair amount of money. We have been trying to get into those markets for a number of years and we are employing consultants to try to steer a path towards the market, but it is still very, very difficult and we have had no financial return for that investment thus far.
Q248 Rebecca Harris: I wanted to ask all of you: what more could the UK do? Specifically, Richard, could you just expand on your proposal for IP attachés?
Richard Mollett: Certainly. The idea of the creation of an IP attaché network is something that the United States Government has pioneered. The idea is that you have a government official in post in your key export territories who is really the point of focus for IP companies, from the UK in this case, to go to when they are in that market. This aims to ensure that they have the right contacts, the right knowledge of what is going on the ground and the ability to bring together different enforcement agencies if that is needed. It is also to be a permanent presence in that country advocating a strong IP regime and to make sure that it is top of the agenda when a visiting Minister might be there or at any trade discussions. There are a whole host of things that obviously go on in those talks, and if you have an IP attaché there, he can ensure that IP is always on that agenda. There has been an American Senate review into how the programme has worked and one of the benefits they found is the point of focus and the ability to energise all of the various agencies that have a role to play in export.
Were the UK to develop that idea-and I am afraid we have not gone into working out the detail on that-I think we would be looking at our key export markets-India, Pakistan, Egypt and perhaps Turkey and Nigeria-where we know there is a problem with IP being respected, and we would have that expert on the ground. None of that is to decry what UKTI are doing. As I said earlier, we have a very strong relationship with them and work well, but this is about enhancing what they do. It is not just about publishing; it is about benefitting all IP companies.
Q249 Rebecca Harris: How much support are you getting in that regard from either the FCO or UKTI at the moment?
Richard Mollett: It is very good. Obviously it varies country to country; it is particularly strong in China. In fact, in March we are hosting, with UKTI, a session in China with Chinese librarians about the importance of IP. That is being done jointly with UKTI and with UKTI funding. I think that all of us on the Panel access the Trade Access Fund, the TAP Programme that UKTI operates; we had something like £120,000 worth of support for our small members through that, which the PA is an accredited coordinator of. We have great relationships. Emma, who is sitting behind me, our Director of Trade and International, goes around the world to places like Russia and Egypt and meets with UKTI offices there and there is very strong support incountry, but it is about taking that to the next level and giving IP a better focus.
Q250 Rebecca Harris: You talked about funding, which was going to be my next question. Money is tight; how would you envisage that we are going to fund this? Would the industry be prepared to support this with their own money?
Richard Mollett: Well the industry does a heck of a lot already and I would be wary of saying that we could do a lot more. What the industry already does, as well as going over there to whatever country, setting up offices, being involved in the enforcement and awareness raising campaigns, is we also support British companies going out to trade fairs. What the British Government does already is strong.
It is doing some things incountry that perhaps it doesn’t need to do, so there is a scheme called the Overseas Introduction Service, which looks a lot like what a lot of UK trade associations do. So in other words, UKTI sit there and say, "We will tee up the meetings for you." Well, actually, the Publishers Association tries to do that for our members too and sometimes we do it in conjunction with UKTI. So you can see bits of the budget where maybe they can take the pedal off doing some of that stuff and leave that to industry to do, because we can do that, but what we cannot do is be in those Government-to-Government meetings.
Q251 Rebecca Harris: And put pressure on foreign governments to tighten up their own regimes?
Richard Mollett: Yes.
Q252 Rebecca Harris: Could we not be joining up with American IP attachés or a proposed new one? Why do we need our own?
Richard Mollett: We can but only up to a point.
Q253 Rebecca Harris: Don’t call me a cheapskate.
Richard Mollett: Well, there is a certain ignobility to that. We are fiercely competitive with America in a lot of markets and ultimately they are going to pursue their interests. Now, there are a number of publishers who have American parents; Pearson is able to go under the American wing, but of course they are rather an exception. We rub along with them very well where they are in countries where we are operating, but you know in the final analysis, that when it is the British publisher versus an American publisher, we are going to lose out, I’m afraid.
Feargal Sharkey: Indeed, and I have to say that I think the whole notion the IP attaché is actually quite a fantastic one. It is a really, really good idea and I would certainly suspect it would receive quite a lot of support from the music industry. Potentially, as Paul just described, if there were also an opportunity there to provide local expertise in terms of signposting the routes of entry into the market and that kind of networking and support that would go along with that kind of role and function, I think it would be welcomed, certainly by the music industry in support of the book industry.
John McVay: We would welcome it as well. I think what you see before you, and indeed other people in the creative industries, is we work with the businesses every day, so we know what they want, how they want it and when they want it. Connecting that with something like an IP attaché or market knowledge is a really powerful connection, and I feel we are not as connected as we could be
Q254 Chair: Could I just follow up on this? It is interesting because in effect you said that the IP infrastructure in some countries is weak. In Britain it is generally acknowledged to be strong. Is there potential for us to develop a service industry to export a robust model to countries where hitherto it is weak, or do you think it actually suits these countries to have a weak regime?
Feargal Sharkey: I am trying to think of a diplomatic way to say this and I am not sure if I am able to. There may be an impression in some countries that a weakened IP system is advantageous to them in the short term, because clearly in some circumstances it might provide a driver to their economy as they have not had to invest in, develop and nurture the creation of that IP. However, I gather that one country has taken quite a different shift in the last six months from being quite lackadaisical over the last 10 years to now suddenly deciding that IP and copyright are really fantastic. It tends to be swings and merrygorounds but I would suspect there could well be some foundation to the notion that, for some nations, a weakened IP system is potentially a driver to their local economy.
Richard Mollett: It is also probably very hard to export that sort of service. The British road infrastructure is very good and in some countries it is very bad, but you can’t go to one of those countries and say, "Here’s how to have good roads." There are lots of things going on there, and it is the same with IP regimes. Why is Pakistan, in particular, a tricky market for us? Well it comes down to the enforcement agencies, public attitudes towards IP, of course pricing must come in there somewhere, the general attitudes towards infringement, and I do not think one could go over and say, "Please do it this way." It needs a far longer term answer.
Q255 Chair: In effect, do you feel that an IP attaché could have that in his or her job spec?
Richard Mollett: I think so. They would be the focal point for galvanising all of those agencies incountry, so that when you have those trade bilaterals at an EU level or from the UK, it is, "Don’t forget to press them on IP," and that can start to change attitudes.
Q256 Chair: Yes, okay. Can I just move on to a slightly different issue? This is to John McVay. In your submission you said, "A competitive market for IP exports is the key to whether the UK content sector becomes a leading global player for the digital age or is left behind." Can you explain what you mean?
John McVay: I was trying to reflect what we have been saying: if we can export into markets where we know we can get value, then we can do better. I would echo Feargal’s point about North America and the core markets that we are very competitive in, but we want more growth. That growth is not going to come from the UK, which is going to be limited in the short term. It will come from new markets. My ability to have confidence to invest and take a product to some of those territories we have just been discussing will stop us being globally competitive. On the other hand, they are exactly the same markets that our biggest competitor, America, is looking to secure as well, and if we are not able to get to those markets then the Americans will.
One of the other things is that, as we see those economies develop, they will leapfrog a lot of the technology we currently have in the UK. Where we have legacy technology like analog television, they will go straight to digital and the technology will be a lot cheaper because it has been developed and IP has been paid for in other territories. The goods are then sold into those markets, and as soon as you get to a point where you have large parts of Africa covered by digital television or mobile television, you will need to fill the screens and you will need to fill the screens with content. That is a huge opportunity. Provided I am sure I can get return on that, then I know companies that will want to sell their products into those markets.
Q257 Chair: Moving on to the discussion on the Communications Act, what would you like to see in it?
John McVay: For my sector, one of the most significant interventions, which has doubled exports in five years, was the regulations that require the four main public sector broadcasters-the BBC, Channel4, ITV and Five-to ensure that producers, when they make a programme for those broadcasters, retain the intellectual property rights for those programmes. I would like to see the next Communications Act having similar regulation to ensure that our independent TV sector remains one of the best in the world.
Chair: Yes, anything to add?
Richard Mollett: I suspect it is a long way off but, as the Committee will know, Ofcom are currently reviewing Section 17 of the Digital Economy Act, which is the clause that deals with the ability to block web services or online locations that have infringing content. If in its review Ofcom finds that that clause isn’t going to work for whatever reason, I strongly hope it comes up with something that it thinks will work and I suppose the Communications Bill might then be the vehicle for taking that forward. Hopefully it won’t be needed but I would like to see that in it.
Feargal Sharkey: Personally, the extension I would like to see is a commitment and a focus from Government, as was the first stage of it back in 2003, to deliver a converged, competitive, open telecommunications system in the UK. We would like to see a shift towards developing a competitive, functional, valuable, profitable and sustainable online business. That is right across all of the UK services and clearly content, and it is no disrespect to our cousins in the pipes business, but ultimately the piece that everybody wants is the content. We are going to have to work on that together, jointly, supportive and collaboratively. For me personally, that would be a very ambitious but worthwhile achievement in there.
Q258 Chair: Can we just move on to the role of UKTI? It has created a creative industries marketing toolkit website. First of all were you aware of this, and do you know if any of your members actually use it?
John McVay: We are aware of it and we participate in that. I am not sure any of my main distribution members use it.
Richard Mollett: Ditto.
Feargal Sharkey: I think I will just rubber stamp the previous two comments.
Q259 Chair: Obviously it is well intentioned. What needs to be done to make it more effective?
Feargal Sharkey: If I were to suggest, Chair, I think there may be an opportunity, where we are just in the cycle of politics and the economy and global markets, to review all of that kind of support. Clearly it was ambitious, it is well intended, but I think we all agree that it may not be delivering on all of its potential and promise, and that perhaps we all need to sit down and have a very joinedup adult conversation and make sure that it is delivering on the aims and on objectives.
Richard Mollett: I would seriously like to ask my international board that question, Chair. We meet fairly regularly, and I think we should sit down and look at it and find out why they are not using it. As far as I know, most of them are not. We should be glad it is there; it is an example of where the British Government is trying to step in and help creative companies with their exporting. If it is not fit for purpose, it is quite easy for us just to say, "Oh well, let’s ignore that and get on with what we are doing," but actually, why don’t we try and make it work? I would like to undertake to get a detailed answer to that.
John McVay: It goes back to my other comment, if it is part of a complete, joined-up strategy, it might be more effective. All credit to the people at UKTI, with whom we work closely; they have put a lot of effort in, they do engage with industry, but sometimes we feel that it is not as joined up across government as it could be. We would like to see more effort from us and UKTI going forward, but it has to be part of joinedup approach.
One of the things we do at the key TV markets is we have a pavilion for small startup companies. We wondered what to call it and we ended up calling it UK Indies. Of course the most powerful brand is not the word Indies, it is UK, because we are mobbed by buyers from around the world who come to that stand because the UK is recognised as the most creative country on the planet. I have had delegations from Korea, Singapore, France, all coming to say, "Why are you so good at doing TV? What is it that you have that we do not?" So we are more than happy there; it is going the next bit to take advantage of it and I think that is true of all the content people represented here today. UK is a really powerful brand.
Feargal Sharkey: I would share that and I do have to caveat this in that, in terms of the music industry, some of my colleagues and peer group have invested a huge amount of time and effort in working in collaboration with UKTI over the last 10 years. In many ways, it is working reasonably well at the moment, but clearly there are things we can do to make it better, make it more robust, make it more effective and there is an opportunity for a conversation, as John indicated. I have heard similar comments about this annual planning cycle, which should perhaps become bi- if not triannual so that people can plan and coordinate better. They have been fantastically supportive of things like the British *inaudible* [53:27] and the British at South by Southwest, but if we are clearly expressing the ambitions to do more and to be bigger and better, then there may now be an opportunity to review it and make sure we are all delivering.
Q260 Mr Binley: Let me give me my overview of what I have learnt of UKTI from visiting it in a number of countries and from a business perspective, which is where my background is. First, I think it is a bureaucratic vision and not a business vision, and I think there is a really serious problem at the very core in that respect. Secondly, I believe it bases its whole assessment of its performance on process and not outcomes. Thirdly, I think the variability is totally dependent upon personnel when an organisation of that kind should not be so dependent upon personnel. Can I ask if you think that we ought to push for much more business involvement in the whole direction of UKTI?
Feargal Sharkey: Personally, I think that is always a good thing. In fact I spend quite a lot of my working day trying to ensure that commercial people from my industry are deeply involved in discussions and involved in process. Hence, for example, Paul being here today at your very kind invitation, so the short answer to that one Brian is, absolutely yes, without any question. Ultimately if we are not delivering the support needed for the entrepreneurs that are out there delivering commercial businesses, then what is it we are trying to achieve?
Richard Mollett: I would go along with that. UKTI is not there to promote the British Government; it is there to promote British business, and of course we need to be closely involved in any directions it takes. However, I would say again that perhaps we are better served in the publishing sector, I don’t know, but some of the relationships we have with officials, particularly here in London, are good, are strong, and we are pleased with the work we do with the Trade Access Programme. That is not to say it could not be better and I agree that the focus on process not on outcomes is something I would recognise. But yes, if there is a way for us as a sector to get more involved, then we would support that.
Q261 Mr Binley: Richard if I may push you a little further, you did not mention UKTI once in your submission.
Richard Mollett: Well no. I suppose I did allude to it though when I talked about working with various agencies. I did not pick them out.
Q262 Mr Binley: I’m not criticising you.
Richard Mollett: Not it is a good point. It wasn’t intended to be a dismissive omission but we do work with them, as I have said.
Feargal Sharkey: I think it is a daily occurrence, particularly for the commercial sector, that clearly we are under quite tight pressures, quite clear objectives and turnaround times and it is a daily frictional pressure point, with the world of Whitehall against the world of commerce. I think we would all recognise, in any number of other circumstances, the focus on outputs as opposed to outcomes, and clearly we are representing industries that are quite focused on outcomes: did it make money? Was it successful? Can we reinvest back into next year’s products? In which case, that’s good, otherwise the conversation-
Q263 Mr Binley: Thank you for that. Can I move on to John? You mentioned in your submission the disparate nature of export funding from the regional development agencies. Now of course, they cease to figure on your horizon for obvious reasons. Now that they have been scrapped, who do members go to for grants and support for exporting?
John McVay: Well now that you come to ask, we go to UKTI to get TAP funds or to get some small amounts of core funding to help us take stands at the key markets. Prior to the creation of RDAs, we basically got a three-year allocation of targets by UKTI or whatever it was called before, and then we went and delivered that. It was a central application for any company across Britain; there was no postcode lottery. Basically if you wanted to go to market, you applied for support through us as a private-sector trade body, and then we would go a deliver it; it was very easy and clear and cost efficient.
During the era of the RDAs we had a postcode lottery where no company ever knew whether they would get support or not. You had local applications and local bureaucracy, and then eventually you might then get TAP support, but it was all devolved down to local trade officers, some of whom didn’t like television, for instance, and would scorn TV companies.
But we are the second best in the world at exporting television, and the markets don’t care whether you come from Norfolk, Dundee or Glasgow. They only care about whether or not you have a great product and that is all we should be thinking about. We should be focusing on getting great creative entrepreneurs to the market quickly and easily and with the least bureaucracy, because that interrupts the business process.
Q264 Mr Binley: Thank you for that. Can I go on to ask how UKTI have received your suggestion of a single creative industry export grants body, and do you fear this is something that could come out in the White Paper or are not quite so hopeful?
John McVay: We would hope so and we will be making our views known to the review that Stephen Green is overseeing. We do think this is an opportunity, and going back to my opening statement, centralised export support for the creative industries as part of a coherent strategy would be a fantastic development. If there is a certain amount of money and it is clear what you have to work with over this period, then we know we have it and we can go off and do it. I can raise more support through my private-sector companies to help deliver that if I know it is going to be there three years from now.
Q265 Mr Binley: Okay. Richard you were nodding, I assume that you agree with that?
Richard Mollett: I agree with everything that John said and we have also submitted the IP attaché both Lord Green and also to Baroness Wilcox, the Minister for IP.
Q266 Mr Binley: That is important for the record and I am grateful for that. Are any of your members getting involved in the LEPs? Do any of your members take a leadership role in that respect?
Feargal Sharkey: If I might, I can possibly just slip into another possible hat on this in that I sit on one of the regional councils for the CBI. We have in fact been having some discussion about this, and I am not by any means speaking on behalf of the CBI here, but there seemed to be a general impression that it was intended that industry be engaged from a very early stage in this process. That is not the impression I am getting. In fact it is leaving a question mark, putting on my Chief Executive head again. There was some inconsistency across the RDAs. Some were absolutely fantastic and very engaged and very supportive. That was not necessarily the case in all circumstances and I gather we are already looking at something in the region of 54 expressions of interest into setting up the LEP schemes. I have to admit it causes some anxiety knowing that we were finding it quite challenging dealing with nine regional bodies, and now potentially we are looking at anything up to 54. Again, the steer that I am getting is that business has not been involved or particularly actively engaged in that early part of the process.
Q267 Paul Blomfield: I am interested, Feargal, in exploring that particular issue because I recognise the regional variations that there were with RDAs. But I am also aware in my area, up in Sheffield, when talking to managers of local banks, how Yorkshire Forward was actually quite sensitive in being able to nuance support to individual bands to break into the American market and so on. A concern, talking to those same managers, is that those areas of support simply are not going to be available under the new regime. I just wondered if you were at all aware, from any of the initial submissions that are coming in from the first wave of LEPs or any of the discussions any of you have been having, whether their bids for support from the Regional Growth Fund are capturing any aspirations for the creative industry?
Feargal Sharkey: The direct answer to that is "no". In fact, in terms of the Regional Growth Fund, we have been partnering up with existing bodies, partners we have had in the past, and making those applications directly. So in terms of the LEPs themselves, to the best of my knowledge none have any of them had any discussion with my industry or engagement or involvement with them. Clearly, again, we would very much like to.
Having said that, I think that when I was here just before Christmas there was a discussion around this notion of the Creative Industries Council, etc, and for me it just reinforces the argument for why perhaps that sort of structure should exist. Where something like that becomes a fruition, should it then be able to act on behalf in coordinating and ensuring that kind of groundup engagement so that any area of support, whether it was local, national, regional or otherwise, is delivering on everybody’s expectations?
Q268 Paul Blomfield: I wonder if I could follow through on whether that is John and Richard’s experience as well in terms of engagement with LEPs?
John McVay: Absolutely.
Q269 Paul Blomfield: But also a further question, following up on Feargal’s point, which is when we were talking before Christmas, we were talking about sector councils and the potential for a creative industries sector council. I wonder if that ties into a number of comments that you have been making-going back to your point John about the need for some sort of strategic approach-and whether you all feel that that would be a useful step forward.
John McVay: I would reflect a bit about the LEPs and contrast that with what is happening in Wales, Northern Ireland and Scotland, where there are effectively single agencies for the creative industries. I can go to Creative Scotland and ask them what they are doing for the entirety of the creative industries Scotland. There is one point of contact, one place for business to go and one place for me to go and try and work with them.
I have not had any contact with anyone who is bidding for any of the Local Enterprise Funding. Too often in the past two years, private-sector bodies like mine tend to get bypassed in those conversations. We did a survey of all the screen agencies at the beginning of last year and it was not pretty reading to be quite honest. Most of our companies in England had chosen not to work with the screen agencies because they were bureaucratic, very difficult to engage with and they basically just walked away and decided they would just go and do the day job and try and win a commission from ITV.
So I think there are two parts to the question about a sector council-I think yes, provided it right has the right muscle and the right powers to make a difference. We are always in danger of setting up committees, excusing this Committee obviously, where we set up a lot of people who will talk about how important we are in the creative industries but it won’t result in action. I am actually more interested in action because I have spent a lot of my years working at PACT, talking about the creative industries and I would like to get to a point where we recognise this is a really important part of the British economy, we can do better and looking at the growth strategy, it is our golden opportunity to actually get this right.
Richard Mollett: I am afraid I have nothing to contribute on the discussion on LEPs. It hasn’t crossed my radar and I don’t know if any of our member companies are involved-I suspect not. But on the idea of a council for creative industries or a cabinet committee, we would absolutely be fully supportive of that because it is not just the economic aspects, as we have been talking about here, that need to be coordinated. There is also skills piece, the argument about visas and whether you can bring in the right skills and touring musicians, for instance, into the country. There is a schools piece as well-the role of literacy in schools. We are seeing funding programmes such as Bookstart being cut and there is a coordination point there. Also even around things like accessibility-a big issue for publishing-so visually impaired people and their ability to read, and that requires input from all different bits of Government. So somewhere in Whitehall-as John says, it must not be a talking shop-that looked at actual policy changes that need to be made, either to the benefit of the industries or for the people who use our various products, I think it would be a very useful development.
Q270 Chair: UKTI: do you think any potential spending cuts could affect you?
Feargal Sharkey: On the basis of the music industry, if any decision was be to made about the UKTI, funnily enough it would be exactly the opposite. Certainly in the relationship with the music industry, they are very supportive but within very constrained, very limited circumstances. Again, if we are to fulfil this ambition of developing our overseas markets and pushing and expanding, that is going to take more time, more effort, more in the way of resource and more investment. So quite clearly, if anything was going to scale back or put further pressure on that, it is quite clearly going to have an impact and my instinct would be that it would be a negative one.
Richard Mollett: Yes, and as I said earlier, we accessed £130,000 worth of trade show access funding last year. That is money that the PA coordinates but goes out to our SME members. If that figure goes down, that is fewer British publishers and trade shows in Beijing, in Sharjah, in Frankfurt that are exhibiting their wares to the rest of the world and that is not money that the rest of industry can stump up. It is not the job of big publishers to help the smaller ones along; that is not how the market economy should operate. But where the government is giving that money, we need those levels to be sustained or exporters will suffer.
Q271 Chair: Interestingly your observations are pretty consistent with those that we have had from other sectors-manufacturing industries as well. I think I know the answer to this but I will still get it on the record. Basically, is the research and statistics they do on behalf of the creative industries robust and useful in terms of what you do?
Feargal Sharkey: We may have previously touched upon the whole notion of the SIC and SOC codes and certainly in terms of the music industry, they are somewhat flawed. I can give you a perfect illustration of that. Not two weeks ago, as part of some other work, we asked the Intellectual Property Office to provide us with an assessment of what they felt the contribution of music copyright to GDP was. The number I got back was £154 million. It took me about 30 seconds on the back of a short envelope to figure out that that simple fact alone should probably look something more like £1.7 billion as opposed to £154 million. So as it happens, since our last conversation, there is a very bright young economist within our industry working very closely with the Treasury right now, checking the methodology, and hopefully we are independently going to put some numbers together that are more reflective. At the moment it is gearing up to look something like the music industry contributes £6.6 billion to GDP and to the economy in the UK.
Q272 Chair: So how have you responded to UKTI to point this out?
Feargal Sharkey: I was as gentle as I possibly could be. There has been a long and historical conversation going on regarding coding-SIC codes and SOC codes and industry standardisation codes. I suspect that everybody has known for possibly getting on for the best part of a decade that there are some flaws, inconsistencies and inadequacies there. However, it is again just one of those conversations that never seems to resolve itself, hence my rationale for simply just going directly to the Treasury and saying, "Let’s come up with a system and make this work and deliver some monies."
Q273 Chair: Just before I bring in John McVay, early you effectively said you wanted more investment in UKTI. What is the benefit of the Government putting more money into UKTI if, at the end of it, all they are doing is producing inaccurate statistics anyway?
Feargal Sharkey: It is not specifically because UKTI has to call back on the industry standardisation codes like everybody else, and it is those that are at basis of where there are inconsistencies and flaws. So it is certainly all of Government calling back on the original data that is collated and the data is flawed. By way of example, from what I gather the music industry is in the same categorisation as performing arts and arts and crafts. There is no way of separating or breaking out the data, so in a year’s time, we will not be able to make an assessment of the impact of the Adele album, overseas sales and the benefit to the UK economy from someone providing needlepoint in a cottage in Yorkshire-not that I am being disrespectful to people doing needlepoint in cottages in Yorkshire.
Richard Mollett: It is the Office of National Statistics, to be fair to UKTI, isn’t it? You should not lay all of that at their door. As you say, they are working on what they are given by the ONS.
Q274 Chair: It is useful for us to tease out these factors because, at the end of the day, if we are to invest more money in a service is using a flawed methodology for statistics and basic future plans then something needs to be done-
Feargal Sharkey: Just to be clear, it is purely the mechanisms sitting behind that that all Government departments have to call upon that we clearly feel has some considerable inaccuracies to it.
Richard Mollett: Exactly, if UKTI was there purely to produce export and trade stats and it was doing it wrong, I would agree, why invest in it? But that is not its primary function; it is there doing a pretty good job in foreign territories helping us export and working off the back of what have historically been pretty shoddy figures.
Chair: Okay, you have made your case and analysed the problem.
John McVay: Just to make another point, if it is about being efficient with public money and public investment, I remember when Chris Smith was the Secretary of State for Culture, Media and Sport and one of the first things he did was a mapping document about the creative industries because no one knew what they were. He went to the Treasury and he went to Government and said, "Right, this is really important. What are they worth?" Because of the problems with ONS coding, they couldn’t find out. They then had to commission a separate report, funded by the public, to find out what that was. It was a very useful report but I fear unless we get the central statistics right, then we will be repeating that cycle going forward because you will want to know if the public investment has delivered any value, and we have to answer that question.
Richard Mollett: If I may, Chairman, that reads strongly across into the Hargreaves review of IP, which is looking at that link between intellectual property and growth. You cannot answer that question really unless you know about growth, and you cannot answer that question unless you have an accurate picture of the economy. So it is not just important for the export picture but whatever Hargreaves might suggest on IP as well.
Chair: Yes, okay. I think we have broadly covered the issue of IP and the emerging markets. Paul, is there anything you want to add to them before we move on to trade finance?
Q275 Paul Blomfield: Just to talk a little more about the emerging markets. We focused very much on the problems in relation to IP and the understandable apprehension that that creates. Nevertheless, I think it was either Brian or Nadhim earlier who pointed out the growth in English language speakers in China. The Chinese middle class is now estimated at about 300 million. We have fairly special access to building relations through the huge number of Chinese students in our universities coming to the UK and going back, so there seem to be great opportunities there. So moving away perhaps from the IP problems, I just wondered how you thought we could begin to approach the development of those opportunities in emerging markets?
Paul Redding: For me it is about infrastructure there. The infrastructure doesn’t exist at the moment. It is very difficult to get into those markets and we have tried for the last four or five years, as I said, with no financial returns at all and quite heavy investment. So we need some more robust infrastructure.
Richard Mollett: China is a very special case in that, as a foreign company, you are not allowed to publish a book in China. You will not be issued with the ISBN, so you have to partner with a Chinese publisher and effectively do a licensing deal, which may have a royalty feature to it. Now that is a problem that I am sure that will be with us for some time. British, American and other publishers are there for the long haul. We do not think it will always be that way but we are making sure we have the partnerships on the ground So China is a slightly difficult one. But around the world, where they can British publishers are working to provide international students with highquality material in English. They are also producing cutprice or lowprice editions for those markets where there is not a lot of income amongst the nonmiddle class bit of the population and making sure that they can still access English language literature.
John McVay: We are doing positive things with China, notably with the statefunded Chinese broadcasters, because we can actually get a bit more traction with them on issues around copyright. Indeed, we will be doing a session with them and a number of our companies in a number or months or so. So we are very keen to do more. Once you go outside of that, and clearly where the British Government may have some influence, there are not trading standards officers or people who look at any of that in the Chinese economy as far as we can make out, and you will find your programmes happily pirated on day one. So it is not a lack of willingness to engage; it is just where you engage and how far you can go with that.
Q276 Chair: Can we just move on to trade finance. I suppose first of all, in your industries, it there actually a need for Government support in trade finance for export?
Paul Redding: We are sort of in a slightly different position because we don’t need it, but there is a whole layer of companies that exist that do need help getting into those markets. So yes, I think they do.
Q277 Chair: Which layer of companies?
Paul Redding: Well, the smaller companies below us. We turn over £35 million plus; it is not those types of companies that need that assistance. It is the smaller companies who employ 10 or 12 people that are trying to get into these overseas markets that need assistance, and how that assistance comes is obviously up for discussion.
Q278 Chair: How is that affecting your other industries?
John McVay: Well without the TAP scheme, a lot of my small companies and startup companies would not be able go into market; they could not afford to do it. I agree with Paul. We have very large British independent producers who distribute globally and don’t get any support. They don’t really need it; they are making enough money from the titles they are selling into the markets. But for the smaller companies who might not be distributors, it is very important for them to develop networks of buyers for the future and that takes time. It takes at least two years to develop those relationships so that you know the next time you are making a documentary about *inaudible* [1:17:42] Williams for instance, the French or Russian buyer might be the two people who would coinvest in that to make the product. You have to build those relationships up over time and you need to do that at the beginning.
Q279 Chair: Having built those relationships, is there a need to actually have export trade credit to take out the risk? That is what I am getting at.
John McVay: No we will go and finance it from buyers. That is straight commercial deals under commercial conditions. What companies need is to get to the environments to meet those buyers.
Q280 Mr Binley: I am simply nodding my head because I know that it impacts upon you actually. I think it is relevant.
Feargal Sharkey: To be honest, I think if you were to throw the concept of a holding tax up into air, you might get a much more vigorous response than export trade finance and everything else. It seems to be a much bigger concern, a much bigger issue, particularly in *exporting* [1:18:42] and developing markets, which is, again, just another borrowing obstacle.
Q281 Chair: Would it be fair to say that in effect, the problems that you have is that in access finance to develop your domestic businesses, that is one issue. But, having developed the business, made the foreign contacts and got the contracts, the inability to access money to take the risk out of default of those contracts is not really a problem in your industry?
Richard Mollett: It has certainly not been brought to my attention by our smaller company members.
Q282 Chair: It is a huge problem in other areas of manufacturing but we are trying to bottom out whether it is the same experience-
Feargal Sharkey: It is potentially a gross oversimplification to illustrate how the relationship would work. Clearly if I have created a record, a licence or a potential commercial partner in another territory will be exercising their own professional judgment as to the quality of that work and what they feel it will do in their domestic market. Clearly as part of that negotiation of that licence, we would be looking for advanced payments on royalty income etc, etc. So in effect, they will become as exposed because of the investment they are making in that licence in obtaining that work and that copyright. So it is not something I have really come across as an issue within my industry.
John McVay: I have seen it in TV markets where a buyer has defaulted on agreements but then they tend not to get many other products brought their way, so that is how the business works. People know who they trust and want to deal with and then you also know people who you would have to be very careful with.
Paul Redding: In terms of income flowing back to the UK, as I mentioned earlier, we started off by licensing our rights on shortterm licences, which gave us a very small margin on the small amounts of royalties that came back to the UK, but we changed our model to straight distribution deals with local representation. That took a lot of investment. We were able to do it because we have been in business for more than 30 years and so we had a huge catalogue of rights that we were about to exploit. But it was that single fact that increased our exports by 80% over six or seven years.
Q283 Chair: To your knowledge, have any of your members tried to use the Export Credits Guarantee Department?
Richard Mollett: No.
John McVay: Not to my knowledge.
Feargal Sharkey: No.
Q284 Mr Binley: Are we really talking about unit cost here? Your stuff is low unit cost in the main, isn’t it? There are television programmes that are slightly more but it is still relatively low unit cost and is an export finance credit really about big money items?
Richard Mollett: I suspect that is right, yes.
Mr Binley: I think that is the case in truth.
Chair: Right, I think that just about concludes our questioning. As ever, if there are issues that you feel that we haven’t covered that you think are relevant to our inquiry, please feel free to submit supplementary evidence to us. Of course, on reflection we may think that there are one or two questions that we should have asked but didn’t, and we may well approach you to seek clarification. That is incredibly helpful and I think it is fair to say that in the previous session I had with Feargal and in the session here, I have learnt an awful lot about the contribution that the industry makes and hopefully we can make recommendations that will enable you to do even better in the future. Thank you very much. We will be pursuing this and you will see the outcome of our deliberations in due course.
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