RETHINKING BUSINESS MODELS IN THE CREATIVE INDUSTRIES

Version 1.0 of February 28th, 2007

1. Introduction
The recent wave of technical advance has, in principle, made possible new products, services and
business models in the creative industries (liquid music, digital cinema, ebook, mobile TV etc.)
However, it is difficult to be successful on the market. Many high-value added services just “never
happened” (MMS, WebTV, online music by subscription etc.); this suggests that, in today's highly
volatile environment, systematic investigation of new and emergent business models for the
creative industries (henceforth CIs) might be a good idea. Consistently with recent developments
in innovation economics, which in their turn draw on cognitive sciences, we recommend that this
that such an investigation (1) integrates CIs- and ICTs- tacit competences; (2) integrates best
online and offline practices; (3) integrates field tests, assessment and model building activities.

2. The objective: explaining failures

What makes it so difficult to market products and services embodying new technology? The
following “folk” explanations are often offered.
“Old economy corporations don't understand technology”. Old economy corporate decision makers
have been known to use misleading metaphors for new media. For example, record industry
majors are thought to have failed to build an effective online retail music service because of their
failure to conceive the internet as a social network, rather than an electronic version of a
supermarket shelf. Such conservative behaviour resulted in Apple, a cross entrant from an
altogether different industry, evolving into the market leader. Similarly, attempts to transfer
“broadcasting” (e.g. “one to many” communication) to the web (which makes “many to many”
communication possible) typically result in disappointing bottom line results.
“Engineers don't understand consumers”. A lot of products and services launched on the market
assume an unrealistically high degree of confidence with ITCs in their target consumers. They are
often turned down by Joe User, who could not be bothered to learn how to program his VCR in the
80s and cannot be bothered to learn how to customize the welcome message in his voicemail
today. Killer apps are typically bonehead simple, like SMS text messages1.

1
An excellent example, since the SMS protocol was incorporated in the GSM code by some obscure engineer
because “there was some space we did not know how to use”. [Giussani 2001]

www.thehubweb.net
 Business models for the creative industries.odt
“The ontology of marketing is changing fast”. The mutation in patterns of social interaction and
their interference with purchase decisions (web 2.0, viral marketing, peer recommendation etc.) is
redesigning the world of marketing. Advertising and broadcast communication is losing
effectiveness2; the age of passive consumers driven by mass media through hidden persuasion
techniques may be over. Indeed, the whole ontology of marketing is being reshaped: words like
“consumer” “product” or “advertising” are increasingly viewed with suspicion by practitioners – and
buyers – and are replaced by concepts like “professional amateur”, “community”, “buzz”.
While folk explanations may have some merit, they do not answer the real question at stake which
is: how do you build business models around ICT intensive for the CIs? While new business
models have been known to emerge as a result of a breakthrough technical innovation (though
this happens less often than we would like it to), they are rarely the subject itself of self-aware
innovation processes. In fact, we would argue that marketability is under-represented in the CIs
debate on innovation3.

3. Innovating for market success: a proposed methodology

We make a case for thinking about business model building in a systematic way, trying to
understand - and if possible to stimulate - the cognitive processes through which successfully
marketable innovation – as opposed to technical innovation per se - is produced. This could be
achieved by designing interaction environments that are conducive to innovative thinking.
According to a reasonably well established strand of literature, the latter tends to happen not so
much in the mind of a stand-alone inventor, as within the context of relationships called generative.
These relationships have several characteristics, but the main one is that the agents involved it
must be similar enough to communicate well but different enough to induce cognitive disturbances
in each other. These disturbances “make the agents see things in a different way”; and a new map
allows for new patterns of agent behaviour4.
In practice, a good way to do this seems to be to
1. Build a team of people coming from different backgrounds, for heterogeneity.
2. Give them a real-market field experiment to carry out. The “real market” constraint
forces the group to build in their thinking the need to identify and develop a community
of early adopters right from the start; allows for exploiting the full range of market
signals (including “weak” signals such as event attendance, page views, blog
comments etc.) as inputs to the innovation process; and gives them a common sense
of purpose, which should mitigate the incentive to “opt out” of the team notwithstanding
the difference in individual approaches.
3. Adopt a time horizon of a couple of years, long enough for cognitive disturbances to
sink in.

2
TV advertising has been losing its impact for years: McKinsey projects that by 2010 it will be barely one-third as
effective as it was in 1990, thanks to rising costs, falling viewership, ever-proliferating ad clutter, and viewers'
TiVofueled power to zip through commercials. http://www.wired.com/wired/archive/14.12/tahoe.html
3
Bob Garfield on Wired magazine seems to support our view when he notes “It turns out that success is 1%
inspiration, 99% monetization.

http://www.wired.com/wired/archive/14.12/youtube.html?pg=3&topic=youtube&topic_set=
4
For an example concerning ITCs see Lane, D., and R. Maxfield, “Foresight, Complexity, and Strategy”, in A. Durlauf
e D. Lane (eds), The Economy as a Complex System II, SFI Studies in the Sciences of Complexity, vol. XXVII,
Addison-Wesley 1997. Scott's work on the location pattern of the recorded music industry, while using a different
framework, is highly consistent with a generative relationships approach. Scott, A.J., 1999, “The US recorded music
industry: on the relations between organization, location and creativity in the cultural economy”, Environment and
planning

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 Business models for the creative industries.odt
We recommend that such a team:
1. Integrates competences – including people with a CI background and an in-depth
knowledge of their market as well as others with ICT expertise.
2. Integrates seamlessly online and offline practices – the focus of the experiment should
not be on ICTs per se, but rather on patterns of interaction between the different
agents. The aim is sustaining communities related to creative businesses (eg. book
communities, music communities) by supplying and managing both online and offline
interaction loci.
3. Integrates field test and model building activities – the team should include members
implementing state-of-the-art monitoring and assessment routines from within the
team itself. The line separating “practitioners” from “strategists” should be so thin as to
be invisible. For this reason, we choose to adopt ethnographic research methods.

4. A case study from the publishing industry

The Hub is in the preliminary stage of applying this methodology to the Italian book publishing
industry. A very mixed group has coalesced from preliminary exploration of the issue, including:
➢ an “old style” publisher, led by a 65 year old entrepreneur, a major player in the Italian
market
➢ a smaller publisher, a young company trying to innovate on formats, operating at the
border between the publishing and the music businesses
➢ Italy's largest bookstore chain, who has a 10 year old history in making bookstores
“experiential”
➢ Italy's largest literature-based event
➢ a top blogger specializing in social web (2.0) issues
➢ a small hi-tech company with a strong competence
➢ an assessment team with a background in innovation economics and ethnographic
research
Preliminary results are expected to emerge later in the year.

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