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Creative Industries Russian profile Elena Zelentsova & Elena Melvil Creative Compass Project Publication 1
Creative Industries
Russian profile
Elena Zelentsova & Elena Melvil
Creative Compass
Project Publication
1

Creative industries. Russian profile.

c Elena Zelentsova, Elena Melvil Creative Industries Agency, Moscow English translation Maria Nikolaeva, Aleksander Panfilo Cover
c
Elena Zelentsova, Elena Melvil
Creative Industries Agency, Moscow
English translation
Maria Nikolaeva, Aleksander Panfilo
Cover & layout
Dmytro Stepanchuk
Creative industries. Russian profile. c Elena Zelentsova, Elena Melvil Creative Industries Agency, Moscow English translation Maria

Creative Compass Project Publication

Helsinki, 2011 ISBN 978-951-707-120-8 (PDF)

Publisher

Institute for Russia and Eastern Europe

Antinkatu 1

FI-00100 Helsinki

www.rusin.fi

Content Creative industries. Russian profile 4 .......................................................... Introduction: goals and objectives of the study 5 ...................................

Content

Creative industries. Russian profile 4 .......................................................... Introduction: goals and objectives of the study 5 ................................... Creative industries in Russia. Current state,

general and specific problems

...............................................................

9

The development of creative industries in Russia

and current state analysis by subsectors

13

............................................. Film and video production, animation 18 ..................................

Music and music production 23 ..................................................

Video games, multimedia, computer games, online

games, entertainment software

25

............................................ Fashion 30 ...................................................................................... Design 34 ....................................................................................... Tourism and cultural tourism 38 ................................................... Art gallery business 41 ...................................................................

Advertising and marketing communications 45 .......................

Creative business-incubators

48 ..................................................

Summary: Current state analysis and investment potential

of creative industries in Russia

...............................................................

49

Endnotes 54 ..................................................................................................

Preface

The Institute for Russia and Eastern Europe in Helsinki has been running the Creative Compass project for 28 month during 2009-2011. The idea of launching a Finnish-Russian neighbouring area cooperation project in 2009 was encouraged by two actual factors of our economy, society and international cooperation. Firstly, it has become clear that culture and creative activity are one of the central forces of economic and social development. The creative industries are a key economic driver and the fastest growing sector of the economy, generating 7 per cent of the world's GDP. In Finland the promotion of the creative industries is an important part of national and local programmes.

Secondly, many Finnish as well as Nordic experts and operators of the creative industries have an overall interest in the cooperation with Russia. They have experience in international project cooperation and they are also looking for opportunities of entrepreneurship abroad. The interest in common creative industry activity is increasing in Russia. Thus it was natural that the Creative Compass project was linked to the de- velopment of the Northern Dimension Partnership on Culture (NDPC).

The decision to establish the Northern Dimension Partnership on Culture (NCPC) was taken at in Stockholm in November 2009. The NDPC will pro- mote the rise of economically viable cultural activity and increase the exchange of information on possibilities for cooperation and finan-cing. The Partnership will strive to assist the networking of people active in the arts and culture and will help make cultural activities economi-cally profitable. Enhancement of the creative economy in the Northern Dimension region is one way to increase growth and well-being. A fun- damental goal is to further international awareness of cultural life in the Northern Dimension region.

IIn the framework of the project Institute for Russia and Eastern Europe maintains the online network for creative industries professionals interes- ted in cooperation and exchange of knowledge. Web-based network

and Finland as well as in any other countries in the field of culture and arts.

The project has published a number of studies dedicated to the field of the creative industries in Russia. New Culture and Art Centres in Moscow and St. Petersburg, 2010 by Katja Ruutu examines the operation and environment of the new creative clusters. The Role of Creative Industries in National Innovation System: the Creative Clusters of Moscow, 2011 by Aleksander Panfilo reveals the impact of creative industries on building the new model of experience economy in Russia.

2

1

Now the project is ending up and our team is glad to introduce the last publication, the actual study Creative Industries. Russian Profile and wishes to thank the Creative Industries Agency in Moscow and especially the authors Elena Zelentsova and Elena Melvil for their valuable contribution to the project.

Anneli Ojala Project Office Manager Creative Compass Project Institute for Russia and Eastern Europe Helsinki

  • 1. http://hsepubl.lib.hse.fi/pdf/wp/w478.pdf

  • 2. http://hsepubl.lib.hse.fi/pdf/wp/Aalto_W_BE_2011_001.pdf

Creative industries. Russian profile

Elena Zelentsova, Elena Melvil

With participation of Elisaveta Kiseleva, Nikolai Gladkih

The authors express gratitude to the experts who kindly agreed to be interviewed for the purposes of this study:

Fashion: Valentina Chebanova (designer), Olga Fedichkina (independent expert), Svetlana Shakhova (VICINI representative office in Russia). Design: Maria Troshina (TOWNS_GORODA architectural festival), Natalia Zaichenko (architect), Artyom Filimonov (Vitamin advertisement group), Ekaterina Larionova (ARHIDEUS ideas workshop), Egor Chizhikov (Antistressdesign agency), Igor Gurovich (ZolotoGroup design bureau). Fim and video production; animation: Marina Kiseleva (All-Russia State Television and Radio Broadcasting Company), Dmitry Kupovykh (ARTkino film company), Alena Bocharova (festival of New documentaries about music and modern culture, Beat Film Festival). Art gallery business: Ekaterina Krupennikova (curator), Sergey Gridchin (collector, Gridchinhall gallery), Larisa Grinberg (online photo gallery Gallery.Photographer.ru). Advertising and marketing communications:

Iosif Dzyaloshinsky (Independent Institute of Communication Science), Vasily Save- liev (Egonomics), Valery Solovey (Moscow State Institute of International Relations, School of Public Relations), Sergey Zverev (public relations development company KROS). Music and music producing: Oleg Magdi (promoter), Boris Barabanov (Music critic, Kommersant newspaper), Georgiy Nikolopulos (music producer), Dmitry Kolygin (promoter, DJ). Video games, multimedia, computer games, online games, entertainment software: Petr Tatishev (launching platform GreenfieldProject), Alex- ander Artamonov (IT expert). Tourism and cultural tourism: Victoria Podolskaya (Barents-Tour agency), Julia Rybakova (TourExpertService NorthWest non- commercial partnership), Ivan Katkov (Russian historical, cultural and natural herit- age expert), Nikolai Pryanishnikov (independent expert)

We also thank all experts who agreed to give anonymous interviews.

© Creative Industries Agency, Moscow, 2011

Introduction: goals and objectives of the study

Creative industries. Russian profile. study was conducted by Creative Industries agency (Moscow, Russia) in cooperation with Institute for Russia and Eastern Europe (Helsinki, Finland) as part of joint Finnish-Russian project Creative Compass 1 .

The study focused on the following sectors of Russian creative industries:

·

Film and video production; animation;

·

Music and music production;

·

Video games, multimedia, computer games, online games,

·

entertainment software; Fashion;

·

Design;

·

Tourism and cultural tourism;

·

Art gallery business;

·

Advertising and marketing communications;

·

Incubators for creative businesses.

The aim of the study is to evaluate the investment potential of creative industries in Russia in the sectors listed above.

Objectives of the study:

·

To acquire up-to-date analytical information on the development of

·

creative industries in Russia To conduct interviews with experts in the creative industries;

·

To gather and interpret statistical data on the development of creative

·

industries in Russia. To propose recommendations on the development of creative industries in Russia.

Methodology and Approach of the Study

The main emphasis of the study was made on statistical data analysis. In particular, data available in UN Creative Economy reports 2008 and 2010 was used. Despite the wide use of expert interviews, authors’ own calculations can be considered as the most significant outcome of the study. A comparative analysis of UN’s data allowed the authors to make a quantitative assessment of growth dynamics for the

sector as a whole, as well as to evaluate sectors’ structure, its problems and limita- tions.

The authors acknowledged the fact that there is an information shortage on crea- tive industries in Russia and specific sectors of this branch of economy in particular. For example, information on such sectors as advertisement and marketing commu- nications is abundant, profound, detailed and available on the Internet, whereas almost nothing is known about the fashion sector and even experts find it difficult to evaluate its capacity.

The creative industry sectors covered in this study are heterogeneous and multi- faceted which is why the logic of their evolution, points of growth and problem areas are very different, especially when it comes to expert assessments.

Nevertheless, the authors tried to identify common problems and formulate general recommendations based on the study results. In spite of differing potentials of the sectors, common trends in the development of creative industries in Russia are obvious, which will be discussed later in the text.

The study builds upon the following materials: UN Creative Economy reports of 2008 2 and 2010 3 , data obtained from ad hoc expert poll, public internet resources includ- ing data available from professional associations and analyst agencies.

Thirty-one experts were interviewed; some of them chose to remain anonymous. The experts were asked to evaluate respective markets and to express their opinion in regard to support for entrepreneurship in specific sectors.

This study is not the first attempt to evaluate the potential of creative industries in Russia. A number of attempts to analyze and evaluate the development of creative industries in Russia have been made during the last few years, including those involving foreign partners. In addition to other works, Cultural Industries in Russia study conducted by the Northern Dimension Partnership on Culture 4 , and Factories of Imagination or Cultural Conversion study conducted by the Creative Industries Agency 5 can be mentioned. In this article, these materials have been taken into account in one way or another.

It has to be noted that making a review of the creative industries in Russia is not an easy task. First and foremost, statistical information on the field is scarce and is rather difficult to find and retrieve. Official statistics in Russia are organized by the standard

industry classification, without breaking it down to sufficient amount of categories 6 , Furthermore the statistics are focused primarily on industrial production, extraction of minerals and processing industries. It is rather difficult to gather information on the creative sectors; for example cultural sector is not singled out as a separate catego- ry in the classification. Therefore, research in the field of creative industries requires placing special inquiries with various agencies and departments and colossal efforts to re-classify statistical data attributed to industrial production, handicrafts and related services. Capacity of the creative industry market is hard to evaluate. First, official statistics do not include information on micro-sized enterprises, which consti- tute the most widespread form of creative businesses. In addition to that, a certain amount of production and consumption of creative industries occurs outside the field of formal economics, which means that it is not shown in official statistic reports.

Challenges are also caused by spatial peculiarities of the country, such as long distances between big cities, unevenly distributed population and varying levels of development of the regions. This is why most experts and analytic reports tend to make a distinction between the situation in Moscow and the situation in regions.

Additional challenge in studying creative industries in Russia can be seen in the lack of consolidation of professional communities in the field of creative industries. Weakness of network structures and professional associations, which will be dis- cussed in more detail later in the text, makes experts of certain fields fail to find common grounds in defining boundaries of their sectors. Furthermore, they are poorly oriented in the situation of the sector as a whole. For this study the authors interviewed both theoreticians and practicing specialists as well as specialists from cities other than Moscow (St. Petersburg, Arkhangelsk, Perm).

Statistical Data Analysis and Authors’ Calculations

The 2010 UN Report includes exports and imports statistics on the following subsec- tors of creative industries: advertisement and related services; film, radio, television and related services; personal services, services in the field of culture and enter- tainment; royalties and licenses. The statistical data covers the period from 2002 through 2008.

The report covers statistics on such subsectors as music, design (including graphic arts, architecture, fashion, blown art glass articles, interior design, jewelry and toys), new media (including videogames, online audio and video downloads), and visual arts (including fine arts, photography, sculpture and antiques) only in the form of

summarized data on imports and exports of transition economy countries 7 for the period 2002-2008. In addition, the data on audio-visual arts and related services is given in a single block without subsector breakdown (i.e. film industry, radio, televi- sion and related services).

In this study, when making calculations for such sectors as music, new media, visual and audio-visual arts, following assumptions were made:

·

The share of Russia in total volume of exports 8 and imports 9 of transition economy countries was the same in 2008 as in 2005;

 

·

The structure of exports and imports of audio-visual arts in 2008 was the same as in 2005 10 .

Creative industries in Russia. Current state, general and specific problems

Attracting investments to Russian economy is among the most widely discussed issues today. The scope of priority tasks set by the Russian Federation’s government for the regions and the country as a whole includes creation of favorable invest- ment climate, development of new investment projects etc. However, in Russia “investments” are traditionally understood as financing of the traditional industries and businesses, such as mining, production, wholesale and retail trade. Thus, the innovative sectors of economy are getting meager funding, not to mention culture and creative industries.

Creative industries are considered to be a key sector in modern economy. They include such branches as film, music, visual arts, performing arts, art gallery business, fashion, publishing, advertisement, design, architecture, computer technologies, etc. Creative industries combine business skills with cultural practices based on creativity and intellect. From the viewpoint of business organization, the fundament of creative industries are small and medium enterprises producing creative products and services. At the same time, these enterprises are oriented on seeking access to global markets in the modern reality of post-industrial economy.

It has to be noted that Russia has entered the post-industrial era later than most European countries and its pace of development has been slower. Today, only Moscow and St. Petersburg can be classified as post-industrial centers. Other large cities in Russia should rather be linked to the industrial era. Therefore, creative indus- try enterprises are mainly concentrated to Moscow and St. Petersburg and are much rarely found in other regional centers. The problems facing Russia are rooted in the underdeveloped state of consumer market and service sector as well as insufficient demand for cultural products due to the fact that regions in Russia are only beginning to embrace the notion of “experience economy”. Those Russian cities, in which due to various reasons traditional manufacturing is dying out, are only starting to fill the vacuum with other activities. For example, in the city of Ivano- vo, instead of converting the old textile factory into a creative cluster or a multime- dia center (as it would have happened in a European city), it was converted into a shopping mall.

One of the biggest obstacles to the development of creative industries in Russia is neglecting copyright laws in practice, although on paper Russian copyright law is

one of the strictest of its kind in the world. A business which operates in creative industries sector, be it an advertisement agency or an art gallery, deals with creative individuals and intellectual assets. Operations of these businesses are strongly influenced by the lack of civilized market for copyrighted and patented products. Ensuring the compliance with intellectual property rights (licensing, patenting, copyright, etc.) is the most important task of the management of creative enterprises. For example, a widespread piracy is a severe barrier for the development of Russian filmmaking, music and entertainment software markets.

On the other hand, strict copyright law de jure narrows the possibilities of small and medium businesses in dealing with intellectual property because there is a bias towards the owners of copyrights while the interests of consumers are almost completely ignored.

Distinctive fundamental socioeconomic problems of Russia find their reflection in creative industry sector as well. These problems include:

Government interference into private business, domination of state commissions. For example, the strongest players in the film market are government-funded compa- nies.

Lack of fair competition (according to some experts representing several sectors, small companies owned by state officials often enjoy preferential treatment when it comes to distribution of state commissions.

Negative impact of the weak economy (first of all, deficit of investments) and unreasonably high costs (first of all, production costs and costs of renting premises, particularly in Moscow).

Grey economy which implies avoiding taxes. These practices complicate as- sessment of the actual turnovers and incomes in these markets, make businesses non-transparent in order to avoid the attention of fiscal authorities.

Challenges and Slow development of small and medium businesses. Creative industries are mostly represented by small and medium enterprises, market share of which in Russia is estimated at 13-17% compared to 50-60% in USA, 55% in China, 70% in EU and 90% in Canada. The degree of small business development can be eva- luated by its contribution to country's economy. In developed countries, small businesses account for up to 70% of GDP. Small businesses’ contribution to Russia's

economy can be estimated from indirect data only (it is around 15-17% of GDP) due to the fact that official statistics (Federal Service of State Statistics of the Russian Federation, 2009) does not include data on microenterprises (turnover under RUB 60 million and number of employees under 15).

High social payment contributions which translate into unbearable costs for small and medium businesses when hiring new employees. Starting from 2011 The Unified Social Tax rate was increased to 34% which caused many protests and indignation in the business community. In fact, this measure has blocked the development of small and medium business in Russia by increasing its already heavy tax burden. Obviously, these processes were reflected in expert assessments of Russia's creative industries sector. Many respondents in the expert poll pointed out the need for reducing the payroll tax burden instead of possible benefits. This is an important topic for creative businesses in particular, since these businesses are far more de- pendent on human resources than on equipment.

There are also a number of problems distinctive to creative industries in particular:

Undeveloped markets (for example such sectors as advertising have existed in Russia only since 1991). Russian markets are being developed through copying or adapting western models, and in many cases adapting western creative products. Another consequence of underdeveloped markets is poor understanding of crea- tive production demonstrated by customers. This affects customers’ price expecta- tions for the creative work.

Import preference. As authors of the book "Cultural Policy and Economy of Culture" conclude: "A vast majority of creative industries in Russia are buying creative prod- ucts from abroad. For example, television: Most of the ideas for TV game shows or series are bought abroad and adapted for domestic realities. The same thing is with foreign commercials dubbed in Russian. Or consider the enormous popularity of Norman Foster's architectural bureau in Russia 11 ." To some extent these are the consequences of relative youth of creative industries’ markets (the perception that “quality” is a synonym to “imported” goes back to the Soviet era). Apart from that, the preference of imported goods is motivated by its lower cost. For domestic creative market to prosper, considerable investments and benefits granted to support infrastructure, education and promotion are needed. Only then a system capable of producing quality creative products will be built. Such conditions are formed on a state level which doesn’t necessarily mean direct funding. Also tax reliefs, simplified bureaucratic procedures, etc. may prove effective. When it comes

to investments into infrastructure, which require a lot of time and monetary re- sources – import is always cheaper. It is precisely this approach – purchase of cheap imported products – that is taken by almost all creative industry branches in Russia.

The conflict between culture and commerce still remains acute in Russia. Strangely enough, the perception of creative work engrained in the minds of our fellow countryman is based not on the facts and actual practices of today but on the Soviet lopsided and politically promulgated view of 'the tragic life of an artist in capitalist society' and the Soviet era reality when an artist could be financially successful only by serving the authorities within the strictly defined symbolic space. Despite the dramatic changes that have occurred in the society and its economic organization, it is not possible to speak about the existence of cultural markets in the way they ought to be – the heritage of socialism is still felt very strongly in this do- main. 12

Poor education and deficit of human resources. It is virtually impossible to get a good education in the fields of creative industries in Russia, despite the vast educa- tional offer, especially in the field of advertisement. Almost all experts have men- tioned this fact.

Weak network structures in many sectors, absence of professional associations and communities that have common professional features Absence of corporate ethics, inner rules and standards of work. This was emphasized by experts of the design sector in particular.

Deficit of high quality creative products. Despite the fact that Russia has traditionally claimed leading positions in the field of culture, almost all experts noted mediocre quality of the products of creative industries subsectors. It can be concluded that poor education and lack of support for the young talents yields quite predictable results. Since it is easier and cheaper to buy imported products than invest in domes- tic education, human resources and development of production, it is difficult to expect that Russian creative industries will flourish on their own.

The development of creative industries in Russia and current state analysis by subsectors

The UN Creative Economy report is the main source of data available today on the development of creative industries in Russia. Diagram 1 using the data from the UN report, illustrates the growth of creative sector in the world over the period 2002- 2008. During this period, the world exports of creative sector's goods and services were growing at the average annual rate of 14.4% and in 2008 they amounted to $592.08 billion or 2.73% of the total exports worldwide. When analyzing the diagrams it is necessary to take into account that different methodologies were used in the preparation of the 2008 and 2010 UN reports 13 .

Diagram 1. Creative goods and services: world exports

Volume, billion USD Services Servises $700,00 Goods $600,00 $500,00 $185,09 $164,16 $400,00 $147,74 $90,24 $300,00 $86,03
Volume,
billion USD
Services Servises
$700,00
Goods
$600,00
$500,00
$185,09
$164,16
$400,00
$147,74
$90,24
$300,00
$86,03
$72,31
$62,23
$200,00
$100,00
$204,95
$233,40
$269,33
$298,55
$324,41
$370,30
$406,99
$-
2002
2003
2004
2005
2006
2007
2008

According to the available data, the share of services is increasing which is charac- teristic for the growing post-industrial economies. In 2002, services generated by creative industries accounted for 23.29% of the exports total, while in 2008 the corresponding figure was 31.26%. Imports dynamics is illustrated on Diagram 2. In 2002, the volume of imports of goods and services generated by creative sector globally amounted to $72.33 billion or 24.27%, while in 2008 the figure climbed up to $168.67 billion or 28.62%.

The balance between exports and imports of goods and services generated by creative industries worldwide is shown in diagram 3.

Diagram 2. Creative goods and services: world imports

Volume, billion USD Services Servises $700,00 Goods $600,00 $500,00 $168,67 $154,39 $400,00 $122,71 $92,61 $82,77 $300,00
Volume,
billion USD
Services
Servises
$700,00
Goods
$600,00
$500,00
$168,67
$154,39
$400,00
$122,71
$92,61
$82,77
$300,00
$76,07
$72,33
$200,00
$402,45
$420,76
$317,17
$337,51
$284,62
$225,59
$250,16
$100,00
$-
2002
2003
2004
2005
2006
2007
2008

Diagram 3. Creative goods and services: world exports and imports

Volume, billion USD. Imports $1 400,00 $1 200,00 Exports $1 000,00 $589,43 $800,00 $556,84 $460,22 $600,00
Volume,
billion USD.
Imports
$1 400,00
$1 200,00
Exports
$1 000,00
$589,43
$800,00
$556,84
$460,22
$600,00
$409,78
$367,40
$326,23
$400,00
$297,92
$534,46
$592,08
$200,00
$472,14
$388,78
$267,18
$305,71
$355,36
$0,00
2002
2003
2004
2005
2006
2007
2008

In Russia, the ratio between goods and services in the exports of creative industries differs significantly from the world average. While in 2002 export creative services accounted for 64.13% of Russia's creative industry exports amounting to $1.507 billion, in 2008, the figure climbed up to 80.11% ($6.994), which can be seen in Diagram 4. On the one hand, this indicates poor development of the creative goods markets, while on the other hand, this proves that Russian creative industry goods are less competitive on the world market compared to services. Same con- clusions can be made from the growth dynamics of exports of creative industry goods and services. During 2002-2008, the average annual growth of exports of

services generated by Russia's creative industries amounted to 29.45%, while goods exports were growing annually merely by 12.95% per year. The development of creative services in Russia can be evaluated from the perspective of declining share of imports (see Diagram 5). The share of services in Russia's imports of goods and services generated by the creative industries fell from 63.29% in 2002 to 56.34% in 2008. These figures implicate increased competitiveness of domestically produced creative services in Russia.

Diagram 4. Creative goods and services: Russia's exports

$10,000 Services Services $9,000 Goods $8,000 $7,000 $6,000 $6,994 $5,000 $4,000 $5,191 $4,015 $3,000 $3,384 $2,628
$10,000
Services
Services
$9,000
Goods
$8,000
$7,000
$6,000
$6,994
$5,000
$4,000
$5,191
$4,015
$3,000
$3,384
$2,628
$2,000
$2,183
$1,507
$1,000
$1,481
$1,734
$1,256
$1,380
$0,845
$0,869
$1,080
$-
2002
2003
2004
2005
2006
2007
2008
Diagram 5. Creative goods and services: Russia's imports
$14,000
Services
Servises
$12,000
Goods
$10,000
$6,840
$8,000
$4,908
$6,000
$4,000
$3,296
$2,232
$2,244
$1,752
$5,304
$2,000
$2,057
$3,882
$2,579
$1,560
$1,857
$1,987
$1,190
$-
2002
2003
2004
2005
2006
2007
2008
Volume , billion USD
Volume , billion USD

Diagram 6 illustrates the balance between exports and imports of Russia's creative sector goods and services. It has to be noted that trade balance 14 of creative Sector in Russia has continually been negative. Continuous deficit of trade balance of creative goods and services indicates country's inability to produce products which would generate demand on the markets.

Diagram 6. Creative goods and services: Russia's exports and imports

$25,00 Imports $20,00 Exports $15,00 $12,14 $8,79 $10,00 $5,88 $4,23 $4,09 $5,00 $8,73 $6,67 $4,64 $5,39
$25,00
Imports
$20,00
Exports
$15,00
$12,14
$8,79
$10,00
$5,88
$4,23
$4,09
$5,00
$8,73
$6,67
$4,64
$5,39
$3,71
2004
2005
2006
2007
2008
Volume, bilion USD
$3,31 $3,25 $2,35 $3,05 $- 2002 2003 Diagram 7. Creative goods: Russia's exports and imports $8,000
$3,31
$3,25
$2,35
$3,05
$-
2002
2003
Diagram 7. Creative goods: Russia's exports and imports
$8,000
Imports
$7,000
$6,000
Exports
$5,000
$5,304
$4,000
$3,882
$3,000
$2,579
$1,987
$2,000
$1,857
$1,560
$1,190
$1,000
$1,481
$1,734
$1,380
$0,845
$0,869
$1,080
$1,256
$-
2002
2003
2004
2005
2006
2007
2008
Volume, billion USD

On the other hand, there is a growing demand for creative goods in Russia (see Diagram 7). This is reflected in figures of 2008 according to which imports exceed exports by nearly a third (data of 2008).

The presence of demand means that the market is unsaturated and both state and private investments are welcomed. The situation is different in regard to services (see Diagram 8). Although imports of services exceeded exports throughout the entire

period (2002-2008), the gap was steadily narrowing from 36.5% in 2002 to 2.2% in

2008.

This leads to conclude that investments by the state are first and foremost needed to the field of creative services in order to support their competitiveness.

Russia's exports of creative goods and services constitute 1.86% of Russia's total 15 exports while imports of creative- goods and services constitute 4.5% of Russia's total imports.

Diagram 8. Creative services: Russia's export and import

$16,000 Imports Import $14,000 $12,000 Exports Export $6,840 $10,000 $8,000 $4,908 $6,000 $3,296 $2,244 $4,000 $2,232
$16,000
Imports
Import
$14,000
$12,000
Exports
Export
$6,840
$10,000
$8,000
$4,908
$6,000
$3,296
$2,244
$4,000
$2,232
$6,994
$1,752
$2,057
$5,191
$2,000
$4,015
$3,384
$2,183
$2,628
$1,507
$-
2002
2003
2004
2005
2006
2007
2008
Volume, billion USD

Next, an analysis of specific creative industries’ subsectors is presented. Unfortu- nately, data availability varies by sector. Nevertheless, the analysis of sectors is consistent and coherent. General features of each sector (market) are followed by data on sector’s current state, information on professional associations and informa- tion on human resources.

Film and Video Production, Animation

Film and Video Production, Animation Experts justly note that Russian film industry is based, first and

Experts justly note that Russian film industry is based, first and foremost, on film screenings rather than on film pro- duction which leads to a decreased role of creative element in the sector. Generally, the market has been continuously growing starting from the mid-90s in spite of piracy. The UN 2010 report data supports this conclusion (see Diagram 9). The export has increased by almost 10 times.

Diagram 9. Film industry, radio, TV and related services: Russia’s exports – imports

$1 000 Imports $800 Exports $682,00 $600 $400 $379,00 $200 $261 $148,00 $127 $0 $26 2002
$1 000
Imports
$800
Exports
$682,00
$600
$400
$379,00
$200
$261
$148,00
$127
$0
$26
2002
2005
2008
Volume, million USD

TV still holds the lead in the field of production, mostly thanks to series. The indirect proof of this is the structure of Russian export in the sector (see Diagram 10) 16 .

Despite certain amount of success of Russian film industry in early 2000s, popularity of Russian cinema has been falling continuously in the recent years. A survey made by Movie Research -company indicates that during the first six months of this year the attendance of Russian movies plummeted by 31% while corresponding box- office incomes decreased by 12.5% 17 . At the same time box office incomes of foreign films are growing. Import of international products increased by 4.6 times (2002-2008) and totaled to $682 million (see Diagram 11). The fact that imports exceed exports by 2.6 times indicates low competitiveness of Russian movies do-

mestically. The growth of film imports in 2008 was 400% in comparison to 2005. Imports of radio and TV products increased by 103% during the same time period.

Diagram 10. Film industry, radio, TV and related services: structure of Russia’s exports

$254 Radio and TV $300 $250 Film $200 $126 $150 $100 $24 $7,05 $2,11 $1,41 $50
$254
Radio and TV
$300
$250
Film
$200
$126
$150
$100
$24
$7,05
$2,11
$1,41
$50
$0
2002
2005
2008
Volume, million USD

Diagram 11. Film industry, radio, TV and related services: structure of Russia’s imports

Radio and TV $676,52 $800,00 Film $600,00 $378,35 $400,00 $147,68 $200,00 $5,48 $0,32 $0,65 $0,00 2002
Radio and TV
$676,52
$800,00
Film
$600,00
$378,35
$400,00
$147,68
$200,00
$5,48
$0,32
$0,65
$0,00
2002
2005
2008
Volume, million USD

The key investor (or, rather, the key donor) on the market is the state. The total volume of state financial support (excluding capital expenses and education funding) was 4.9 billion rubles (about USD 163.3 million) in 2010, which is 56% more than in 2009 18 . Of these funds, the share of Russian Ministry of Culture was 1,592 million rubles, and the share of Federal Fund for Support of Cinematography was 2

billion rubles. In this year, 635 film items have been produced (including 54 full-length feature films, 6 movie-magazines, 439 documentaries and 136 animation movies), which is 14.4% more than in 2009. Altogether, the box-office of 17 domestic movies funded by the state are 498 million rubles, which is around 8% of the total box- office. 19

All companies operating in the film market may be divided into several categories depending on their roles: film production companies; film studio multiplexes that own pavilions for shooting; companies, which lease equipment to film crews; and companies offering post-production services.

The main market players on Russian film production market from 2006 to 2009were media holdings (Gazprom-Media, ProfMedia, STS Media, All-Russia State Television and Radio Broadcasting Company, etc.); producing centers (STV, Central Partner- ship, Leopolis, etc.); independent production companies (Real Dakota, Art Pictures Group, Studio TriTe, etc.); state production companies (Center for National Films, St. Petersburg Documentary Films Studio, Sverdlovsk Film Studio, etc.); privately-owned film studios (Russian World Studios, Amedia, Star Media, etc.); TV-channels represented by their functional departments or subsidiaries (Russian Television Novel, NTV-Kino, Film Administration, etc.); Hollywood major studios (Sony Pictures, Walt Disney Company, Universal Pictures, etc.)

Most of Russian film studios are concentrated in Moscow and St. Petersburg. Apart from these cities, film studios that have own production centers (pavilions) are located in Yekaterinburg and Khanty-Mansijsk. The biggest Russian film studio is Mosfilm, which is a state-owned enterprise (essentially considered to be a strategic company for the field) and the only full-cycle studio in the country. In 2010, the production capacity of the Russian film industry is over 100 pavilions and 83,000 sq.m. of total space. 20

Movie theatres remain the main distribution channel for Russian film producers, as profits from the video market remain very low due to rampant levels of piracy. Russian film screening market comprises around 450 players, including 73 movie theatre chains and over 370 independent movie theatres. As of Dec. 31, 2010, there were 2436 cinema halls in 868 movie theatres. 21 The annual growth of the amount of cinema halls was 14, 2% in 2010. The number of digital screens reached 942, and 938 of them are equipped with a 3D-technology. 22

The recent growth of Russian film screening market has been fuelled by the expan- sion of major theatre-chains into the regions and the evolution of shopping centers. Today, over a half of Russia’s cinema halls – about one quarter of the movie thea- tres – are located in shopping centers. At the same time, the majority of markets in big regional centers of the country have reached their saturation point 23 . As for small cities, the representatives of theatre-chains state that the on-going market expansion will not be possible with private investments only.

The current state of development of Russian film production market is characterized by the domination of major players over smaller independent companies. Indepen- dent distributors find it very difficult to get their movies into the theatres. Furthermore, they have settle for lesser amount of screenings, compromise on release timelines and sometimes compromise on their percentage of box-office income.

Sales volume of licensed DVDs is gradually decreasing. Consumption of licensed DVDs Per capita is also going down: in 2009, the annual average was 0.54 DVD per capita, which was a lower figure in comparison to previous years, indicating the growing role of video piracy in Russia. The association of DVD manufacturers esti- mates the share of pirated products in Russian markets to be as high as75-80% of total sales.

There are 29 professional organizations and associations in the film industry of Russia. The largest organization, if measured by the number of registered members, is the Filmmakers' Union. It consists of 13 guilds, including the Guild of Film Directors, Film and Television Scriptwriters Guild, Cameramen Guild, and Film Actors Guild. The total number of members in the Union is around 5000 people, average age - 62. The Union is based on individual membership and self-governance. It is a public organi- zation created to protect common interests and achieve the goals of the asso- ciated professional filmmakers, working in the audiovisual field. Another organiza- tion, noncommercial Partnership Producers Guild of Russia was established in 1996 and has become a key independent association of Russian film producers. In Sep- tember 2010, a regional public organization Union of Filmmakers and professional organizations and associations ((KinoSoyuz) was established. The new organization brought together filmmakers who did not agree with the policy of the Filmmakers Union of Russia. The largest organizations in number of organizational members are the Independent Film Distributors Alliance (IFDA) and the Russian Anti-Piracy Organi- zation. IFDA web-site is one of the most reliable sources of official data on the results of film screenings in theaters.

Experts assess the current performance of professional organizations as unsatis- factory. This is primarily due to insufficient activity of public organizations in develop- ing mechanisms for industry’s self-regulation. There are mixed views on the quality of interrelation with public authorities and the development of the legal framework in filmmaking In 2009-2011, a conflict within the most recognized professional organiza- tion - the Filmmakers Union, led to the formation of the above mentioned alternative KinoSoyuz. Despite the existence of the oldest specialized institution of higher edu- cation - the All-Russian State Institute of Cinematography (VGIC), which educates specialists for film and television, the experts noted a deficit of professionals capable of creating films and television product competitive in the global market, as well as shortage of skilled professionals among editors, technical specialists, etc.

As it was mentioned before, the film market is built, first and foremost, on film screen- ing, rather than film production, which reduces the creative component of the sector. Films are mainly imported from abroad. Television market is no exception. It should be noted that TV has also the biggest share in domestic production although this share is formed mostly of production of TV series. Therefore, the most acute problem in the field of media is creation of a high-quality original content.

Music and music production

Music and music production Experts note that the music market in Russia is undeveloped. Nevertheless, UN

Experts note that the music market in Russia is undeveloped. Nevertheless, UN statistics show the development of the market, as it can be seen from the growing import and ex- port of musical production (see Diagram 12). The exports of Russian music increased by 4.4 times during the period of 2005-2008 and in 2008 it accounted for $139.4 million. At the same time period the imports increased 2.9 times and in 2008 it accounted for $101.1 million. These numbers did not take into account the volume of pirated market.

Diagram 12. Music: Russia’s exports and imports

$139,4 $150,0 Export $101,1 Import $100,0 $34,9 $31,5 $21,4 $13,5 $50,0 $0,0 2002 2005 2008 Volume,
$139,4
$150,0
Export
$101,1
Import
$100,0
$34,9
$31,5
$21,4
$13,5
$50,0
$0,0
2002
2005
2008
Volume, million USD

Along with the problem of piracy and lack of civilized forms of doing business (”grey” payments to avoid taxation), the experts note the existence of a relatively large market of so-called "corporate" concerts which cannot usually be seen in statistical figures. Many foreign music stars come to Russia on private invitations. The same applies to local artists.

Most music groups have not established legal entities and, therefore, they don’t have staff apart from the musicians. On the other hand, those groups who work as legal entities, usually employ only an accountant and an administrator. Groups and artists receive substantial profits from sales of souvenirs during concerts and at music stores.

Experts suggested dividing music sector into subsectors, which are: pop-music for youth (in MUZ-TV format), popular music for the older generation (veterans of the

music industry), classical music and traditional folk music (this subsector includes state philharmonic orchestras and music bands along with independent organiza- tions and producers). The smallest subsector is conceptual music in a variety of forms - from electronic to contemporary “folk”, which receives no support and has a very poor infrastructure.

The distinctive feature of music market in Russia is that the main income sources are concerts and tours. Due to overwhelming piracy, recording industry does not gen- erate such profits, as in western countries.

Experts point out that there are no problems with the infrastructure for creating music in Moscow (spaces for practicing and recording studios), and the level of available technology allows one to have a home studio at relatively little expense. Recording an album is not a difficult task, but it is a much harder task to produce it. Unlike the major studios, the distribution capacity of small companies is quite scarce, and therefore their products does not find its way to the regions. An increasing number of musicians use their own resources to produce a small number of copies of their recordings, which are sold exclusively at concerts. The recorded material is mainly illegally distributed over the Internet.

There is a minimal legal regulation of the sphere. One of the experts noted that during his seven-year experience of organizing concerts there were only three cases when concert hall administrators filled out all the necessary documents required by the law. More typical way is for musicians to agree about the space directly with the administration, and get their “fee envelope" afterwards.

Musicians who play so-called "non-commercial" music have to work on the side, dividing their time between art and work.

The experts also point out the conservatism of Russian mass media, which are competing for higher ratings and are reluctant to cover new, informal musical events. However, advertising through social networks Vkontakte, Facebook and Livejournal, has proved to be a good way in gathering full houses.

Experts note that music criticism and reviewing is virtually non-existent as such in the field. There has been established a pool of respected musicians over the past ten or fifteen years, whose opinion is highly valued. However, the situation is not compara- ble to that in Western countries. Associations and unions do not exist and the field is run by mainly informal but established networks.

Video games, multimedia, computer games, online games, entertainment software

Video games, multimedia, computer games, online games, entertainment software Despite it is rather new, the sectores segment, which should grow from $245 million in 2009 to $723 million in 2014. Total annual growth rates will be at the rate of 24.2%. It is expected that Russia will become the third largest EMEA (Europe, Middle East, Asia) market for online games in 2010. Specialist forecast that the total volume of video games market in Russia will expand from $760 million in 2009 to $1.3 billion in 2014, and aggregate annual growth rates will be 11.1%. In line with the data provided by the UN report in 2010 27 , the New Media market includes 8 codes of digital online content 28 , of which 6 codes are for online audiovi- sual downloads and 2 codes are for videogames. Diagram 13 illustrates the trends of sector’s development and export-import of related products and services. As it was already mentioned, the sector includes two big sub-groups: online audiovi- sual downloads (recorded media for sound and image) and video games. Export- import for these two categories is shown on Diagrams 14 and 15. In regards to online audiovisual downloads, the sharp decline of both export and import after 2005 suggests the increasing of piracy. 25 " id="pdf-obj-26-4" src="pdf-obj-26-4.jpg">

Despite it is rather new, the sector of video games, multi- media, computer games, online games and entertainment software is quite developed. This is mainly due to the rapid increase of popularity of Internet in Russia. According to one of the experts interviewed, the reason for such a rapid increase in popularity of Internet is that it “compensates Russians for all poorly functioning services, institutions and even markets”. In 2010, 64% of Moscow and St. Petersburg citizens were Internet users, and in other big cities the share of Internet users is close to 50%. For cities with a population between 100 and 500 thousand people this share was 43% and for towns with less than 100 thousand inhabitants – 36%. In villages 22% of the population is using Internet 24 . According to a research conducted by Public Opinion Foundation in 2010, the most active category of Internet users (62%) is young people aged 18-24. According to data of the Foundation for Internet Devel- opment 25 , which was founded from the initiative of companies Relkom and Demos- Internet, the most active bloggers are 14-17 years old.

According to the Global Entertainment and Media Outlook: 2010–2014 -report 26 , which was made by international auditing company PricewaterhouseCoopers, Russian market will show a maximum growth of online games segment, which should grow from $245 million in 2009 to $723 million in 2014. Total annual growth rates will be at the rate of 24.2%. It is expected that Russia will become the third largest EMEA (Europe, Middle East, Asia) market for online games in 2010. Specialist forecast that the total volume of video games market in Russia will expand from $760 million in 2009 to $1.3 billion in 2014, and aggregate annual growth rates will be 11.1%.

In line with the data provided by the UN report in 2010 27 , the New Media market includes 8 codes of digital online content 28 , of which 6 codes are for online audiovi- sual downloads and 2 codes are for videogames. Diagram 13 illustrates the trends of sector’s development and export-import of related products and services.

As it was already mentioned, the sector includes two big sub-groups: online audiovi- sual downloads (recorded media for sound and image) and video games. Export- import for these two categories is shown on Diagrams 14 and 15. In regards to online audiovisual downloads, the sharp decline of both export and import after 2005 suggests the increasing of piracy.

Diagram 13. New media: Russia’s exports and imports

$176,2 $200,0 Exports Imports $150,0 $85,7 $100,0 $45,4 $40,4 $29,1 $27,0 $50,0 $0,0 2002 2005 2008
$176,2
$200,0
Exports
Imports
$150,0
$85,7
$100,0
$45,4
$40,4
$29,1
$27,0
$50,0
$0,0
2002
2005
2008
Volume, million USD

Diagram 14. Recorded media for sound and image: Russia’s exports and imports

$60,00 Imports $50,00 Exports $20,5 $7,6 $40,00 $30,00 $27,25 $28,10 $20,00 $10,00 $9,8 $1,19 $0,00 2002
$60,00
Imports
$50,00
Exports
$20,5
$7,6
$40,00
$30,00
$27,25
$28,10
$20,00
$10,00
$9,8
$1,19
$0,00
2002
2005
2008
Volume, million USD

When it comes to the development of market for video games, the demand in this sector has grown considerably. Import has grown 2.5 times from 2005 to 2008 and amounted to $166.4 million in 2008. On the other hand, the total import exceeds export by 6.5 times which indicates low market saturation and poor competitiveness of corresponding Russian products in the sector.

Diagram 15. Video and computer games: Russia’s exports and imports

$166,4 Exports $200,00 $180,00 Imports $160,00 $140,00 $120,00 $65,2 $100,00 $80,00 $37,8 $60,00 $25,80 $40,00 $13,19
$166,4
Exports
$200,00
$180,00
Imports
$160,00
$140,00
$120,00
$65,2
$100,00
$80,00
$37,8
$60,00
$25,80
$40,00
$13,19
$0,97
$20,00
$0,00
2002
2005
2008
Volume, million USD

Diagram 16 shows the development of royalties and fees for licenses 29 fees export- import dynamics. Here import figures are 10 times higher than figures for export.

Diagram 16. Royalties and license fees: exports and imports in Russia

$6 000 $4 595 $5 000 Imports $4 000 Exports $2 806 $3 000 $2 002
$6 000
$4 595
$5 000
Imports
$4 000
Exports
$2 806
$3 000
$2 002
$1 593
$2 000
$1 094
$711
$374
$1 000
$396
$453
$260
$299
$227
$174
$159
$0
2002
2003
2004
2005
2006
2007
2008
Volume, million USD

While interviewing the experts, it became clear that this sector is heterogeneous and consists of several subsectors. The experts proposed the following classification:

Multimedia publications on CD, DVD and Blu-Ray discs containing reference books, dictionaries and encyclopedias. The peak development of the market for this subsector was in the era of low-speed Internet (1995-2001). Problems such as illegal copying and selling copies at dump prices can be compared to the legal product price, inconvenient updating.

Computer and online games. This segment includes two large groups of games. The first group includes games rich in multimedia effects, "heavy" and demanding for the hardware (especially for video cards). The second group is "light" games, using the browser supported by Macromedia Flash technology and / or Java. In case of the second group, games are often distributed free of charge, and are paid off through advertising on the web-site of the game. The other option is that the game can be purchased by sending an SMS to short numbers of cell-phone operators. In both cases, there are groups of games designed for children, teen and adult au- diences. These can be divided into simulators (imitating movements of automobiles, aircraft or railway transport - both realistic games for training and those simply for playing around), strategies, combat simulators (shooters), constructor of virtual (realistic and fantasy) worlds, sports simulators, etc.

Entertainment software: a) non-games, which help the user to kill time in front of the computer screen (so-called “time killers”); b) software for children and teenagers (coloring books, puzzles, riddles, etc., live books) and a specific software segment for adults - video chats, online roulettes, video collections, etc.

Gaming consoles for playing video games on TV screen. In low-budget segment, these are analogues of Sega and Nintendo with game cartridges, 8 and 16 bit processors. In high budget segment, these are Sony Playstation, Microsoft Xbox 360, Nintendo VII, Games on special DVD and Blu-Ray discs. When it comes to distribu- tion, low-cost segment uses temporary market places, shops in small towns and tents at computer markets while high-budget segment focus on large retail chains (Eldo- rado, Mediamarkt, M-Video, Technosila). Problems of gaming consoles is a constant competition from the side of computer games, on the one hand, and games for smart phones and tablet computers, on the other. Factors fuelling the success of the high-budget video games are distribution as well as lower prices (which are con- stantly reduced) for LCD and LED-based TVs with large screens.

One of the risks brought up by the experts is overflowing the market with low quality products. The growth of industry sometimes forces companies to increase produc- tion rates, which has a negative effect on quality. Another significant risk lies in the

expensiveness of game development. At least couple million USD and a time period of couple of years are needed in order to develop one game. Not that many investors are willing to invest such amounts in such risky business. It is for this reason the number of domestic projects in Russia are decreasing while Russian program- mers are forced to either turn to western companies, or look for another profession.

Torrents, file sharing, local networks and other platforms for illegal distribution of entertainment content are the main reason for low sales figures of physical game packages. While users go online, the sales of physical products fall. By far not all the gamers who stop buying game disks start to buy products that are distributed digitally.

The most notable publishers and distributors in Russia are 1C, Buka, Russobit, Novy Disc. A major retailer is GameZone, which owns 50 shops in 35 Russian cities.

As for the demand of Russian multimedia products outside Russia, it would be more appropriate to speak about the demand for Russian programmers and designers who are quite wanted in western markets.

There are no networking organizations in this sector. However, the activities of the sector are discussed in specialized magazines, online media such as computerra.ru

as well as on other portals about games etc. Many magazines concerning comput- ers, video games and multimedia exist in Russia. The biggest of them are: BYTE Russia, CHIP, ComputerBild, Digital Media, Dr. Dobb's Journal, F1CD, Full Circle, HARD'n'SOFT, HARDWARE ZONE, PC Magazine, Game.EXE (published from 1997 to 2006), PC Games, PC Gamer, PSM (PlayStation Magazine), Veliky Drakon, Shpil, PRO Games, Home PC, Zhelezo, Igromania, Computer, Computer Games, Moy drug computer, Best PC Games, Magi PC, Mak.ru, Mir PC, Moy Computer, Navigator Igrovogo Mira, PROgrammist, Seti, Strana Igr, Hacker.

Experts note that the sector faces shortage of specialists having both technical and humanitarian skills (planning engineers, writers, designers, educational designers, programmers, copywriters, psychologists). The demand is highest for planning engineers, writers and designers.

Fashion

Fashion Fashion sector is not always taken into account by creative industries professionals worldwide. According to

Fashion sector is not always taken into account by creative industries professionals worldwide. According to Mapping the Creative Industries: a Toolkit – a brochure published by the British Council, Great Britain is the only country out of four European countries - Great Britain, France, Germany and Spain - where fashion is defined as one of the creative industries.

In Russia, the fashion sector is quite underdeveloped and it has no properly function- ing infrastructure. There is a significant gap between a few dozens of well-known brands and hundreds of small private dressmakers that often produce products of low quality and poor design for the middle class clients with little money. This is true especially for province. Even these small dressmakers experience enormous difficul- ties related to the development of small business. Their high manufacturing costs don’t allow them to compete with cheap imported products. When speaking about design in Russia, one does not mean mass production or prominent brands, but rather small showrooms, designers presenting single-piece custom-made clothes, and stylists making fashion clothes for a certain category of exclusive clients. There have also been more or less successful attempts to develop Russian “mass consumption” brand-names, such as Kira Plastinina, Vassa&Co, Zimaletto, and Sultana Frantsuzova.

More expensive and “intellectual” brands, such as Max Chernitsov, Tegin and others, are accessible not only in showrooms but also in big stores. Next group to be discussed is expensive brands that can afford stores of their own. These are such brands as Chapurin, Simachev, Alenaakhmadullina. These brands have fairly suc- cessful marketing strategies. For example, Chapurin has cooperated with the Bolshoi Theater and has also taken part in other projects. However, products of these brands, as well as products of such top men of Russian fashion industry as Slava Zaitsev and Valentin Yudaskin, are made mostly for Russian show-business celebri- ties, and cannot really compete with international brands of the same price cate- gory. Naturally, if the customers seek quality and status, they prefer buying clothes and accessories from well-known foreign brands.

However, there are a few creative and unconventional enthusiasts in the field. Some of the young designers don’t even have their own space for collections and

they sell their products online. One of such examples is, Basik Skin, the manufacturer of leather accessories. These are positive trends; however, it is worth mentioning that the Russian fashion industry still resides in the backyard of Russian markets with no competitive advantages in comparison to its foreign competitors.

Current state of the fashion sector is reflected in Creative Economy United Nations Report 2010. While exports and imports differ insignificantly on the global market and the sector is growing as a whole (see Diagram 17) in Russia imports ($252.2 billion) exceed exports ($75.6 billion) by more than three times (see Diagram 18). In addition, the growth rate of imports to Russia exceeds the growth of exports by more than 1.5 times. Among other issues, this is due to more expensive labor force in Russia in comparison to South-East Asian countries. Many designers prefer to place their manufacturing orders in other countries, mostly in China.

Diagram 17. Fashion: world exports and imports

$65 328 Exports $62 984 $70 000 Imports $49 342 $60 000 $47 642 $50 000
$65 328
Exports
$62 984
$70 000
Imports
$49 342
$60 000
$47 642
$50 000
$35 691
$30 785
$40 000
$30 000
$20 000
$10 000
$0
2002
2005
2008
Volume, million USD

Assessment made by fashion industry experts is considerably focused on the state of consumer market. Experts argue that consumption of fashion goods in Russia is different from other countries. Experts divide fashion industry consumers into three groups. First, there are consumers of luxury-class goods, who are fairly rich and purchase famous western brands with long histories. The second group consists of consumers who choose clothes by their affordable prices. And the third group of consumers value unconventional and creative design. The latter group of consumer chooses niche brands which are in line with their personalities. Mainly, it is the third

group of consumers who are the target group for young designers (including Russian designers) who are just starting to get recognition.

Diagram 18. Fashion: Russia’s exports and imports

$253,22 $300,00 Exports $250,00 Imports $200,00 $150,00 $71,21 $75,60 $51,66 $100,00 $41,00 $28,14 $50,00 $0,00 2002
$253,22
$300,00
Exports
$250,00
Imports
$200,00
$150,00
$71,21
$75,60
$51,66
$100,00
$41,00
$28,14
$50,00
$0,00
2002
2005
2008
Volume, million USD

In western countries the interest towards Russian fashion industry is minimal. Experts explain this by lack of investments which are essential in order to get access to the global market. In Russia, investors are either family members (as in the case of Kira Plastinina, the brand which is sponsored by designer’s father, a successful Russian businessman) or there is a business-tandem combining a designer and a sponsor (as in the case of Russian designer of female outfits TEREXOV and the owner of the brand Oksana Laventyeva).

There are no professional associations or unions in the fashion industry. At this stage of development, fashion designers see no reasons uniting. Fashion designers are mostly connected through networking events and organizations which arrange specific happenings that bring designers together. For instance, Sunday-up Market, a middleman organization, arranges improvised market for Russian designers of clothes, fashion accessories and other fashion goods. The market is arranged once or twice a month. With the help of Sunday-up Market, designers do not need to buy or rent equipment for the store, spend money on marketing, nor search and invite customers. This market offers young and unknown designers an opportunity for presenting their products and evaluating their commercial potential. Although, according to the experts’ opinion, the range of products in these events is not wide enough and the ideas are fairly the same.

In some cases, big retailer companies choose to represent some Russian fashion designers. For example, in TSUM, one of the most modern department stores in Moscow, a leading company in sales and distribution of luxury items arranges specialized events in specially designated areas. However, in this case, the design- ers who get involved have already established themselves in the fashion industry - Igor Chapurin, Vardoui Nazarian, Vika Gazinskaya, Konstantin Gaidai, and others. In the past few years, glossy magazines have increasingly been used as a tool for promoting Russian designers. For example, Igor Chapurin is a columnist for ELLE’s website.

Fashion weeks are the most powerful and essential promotion tool for fashion de- signers and designer groups in Russian fashion market. There are several alternative week-long events in Moscow: Volvo Fashion Week Moscow, Mercedes-Benz Fashion Week (former Russian Fashion Week), and Cycles&Seasons by MasterCard.

When discussing the problems of the industry, it is worth mentioning that in Russia, there are no special platforms (such as business incubators) which would offer reduced rental prices for designers’ business start-ups. Moscow is among top five most expensive cities in Europe when measured by rental rates for the stores. This is why there has to be a considerable initial capital in order to start a fashion business. In Moscow, rent premises on the most vivid shopping streets (Tverskaya st., New Arbat, Stoleshnikov Lane, Garden Ring) 30 would cost between $7000 and $10000 per sq.m. per year.

Design

Design Unfortunately, in Russia there is no proper understanding of design as a concept. While in

Unfortunately, in Russia there is no proper understanding of design as a concept. While in developed countries this sec- tor is fairly established, it is still rather new for Russia. It would be fair to say that the consistent distrust to designer’s work and lack of understanding of the reasons why to pay more for design products are rooted in the Soviet era. , when the value of any object was determined by its functionality regardless what I looked like. In the Soviet Union special political campaigns were made, such as against philistinism in 1930s, when aspira- tions for simple interior decor and diverse clothing were considered as ideologically damaging, or the fight against ornamentalism in architecture in early 1950s. The perception of the world of objects as scanty, plain but sound has led to an immense attraction to kitsch, on one side, and complete lack of understanding of the reasons why so called design products cost more than the plain ones. This is also a reason for domination of imported products on Russian design market. Domestic designers are struggling to break through these barriers.

Globally, the design sector is one of the strongest creative industries. 31 The dynamics of the sector’s development and its role in world trade is shown in the United Nations Report 2010 (see Diagram 19).

Diagram 19. Design: world exports and imports

Exports $248,36 Imports $241,97 $300,00 $190,99 $175,02 $129,23 $200,00 $114,69 $100,00 $0,00 2002 2005 2008 Volume,
Exports
$248,36
Imports
$241,97
$300,00
$190,99
$175,02
$129,23
$200,00
$114,69
$100,00
$0,00
2002
2005
2008
Volume, billion USD

In Russia, the export share of design products is 25% of the total export of creative products (see Diagram 20). As well as in other sectors, the share of import exceeds the share of export significantly.

Diagram 20. Design: world exports and imports

$2 390,3 $3 000,0 Exports $2 000,0 Imports $927,4 $366,8 $440,2 $293,2 $1 000,0 $95,4 $0,0
$2 390,3
$3 000,0
Exports
$2 000,0
Imports
$927,4
$366,8
$440,2
$293,2
$1 000,0
$95,4
$0,0
2002
2005
2008
Volume, million USD

Diagrams 21 and 22 show the dynamics of growth as well as the structure of exports and imports of Russian design products. As it can be seen, the interior design sub- sector 32 showed the biggest growth from 2002 to 2008.

In the design sector (as well as in architecture, cinema, literature, music and arts) there used to be branch unions founded already in the Soviet times. However, nowadays the Designer Union plays a less significant role compared to the Soviet period, and there is no alternative union that could lobby special interest of the design sector. According to the experts, the state is the most important buyer of Russian design products. For this reason, attempts are made to obtain support from the state for the design sector.

Indeed, authorities of certain regions show interest in the development of the design sector. Perm Design Development Center is one of the best examples. It was founded in the end of 2009 at the initiative of the Department of Economic Devel- opment of the Perm region. The mission of the Center is to present design as an essential element in creating new environments (urban, business, and social).

Diagram 21.Design: Russia’s exports by subsectors

$500,0 $16,8 $450,0 Toys Jewellery Juwellery $400,0 $53,1 Interior Glassware $350,0 Fashion $6,5 $300,0 Architecture $250,0
$500,0
$16,8
$450,0
Toys
Jewellery
Juwellery
$400,0
$53,1
Interior
Glassware
$350,0
Fashion
$6,5
$300,0
Architecture
$250,0
$108,6
$280,8
$200,0
$150,0
$3,6
$117,1
$100,0
$5,5
$5,4
$8,4
$51,4
$50,0
$75,6
$3,4
$51,7
$28,1
$3,4
$4,0
$5,5
$0,0
2002
2005
2008
Volume, million USD

The goal of the Center is to establish conditions for efficient application of design in the process of socio-economic development. This regional Center is first of its kind and Perm’s experience in updating and promoting design is of special value not only for the region but for the country as a whole. A project on establishing similar center the Republic of Karelia has already begun.

Diagram 22. Design: structure of Russia’s Imports, by subsectors

$2 500,0 $565,2 Toys $2 000,0 Jewellery Juwellery $32,7 Interior $1 500,0 Glassware Fashion $1 499,7
$2 500,0
$565,2
Toys
$2 000,0
Jewellery
Juwellery
$32,7
Interior
$1 500,0
Glassware
Fashion
$1 499,7
$1 000,0
Architecture
$223,8
$23,0
$500,0
$586,7
$77,6
$0,9
$26,8
$235,6
$253,2
$6,4
$11,7
$5,3
$71,2
$12,7
$0,0
$41,0
$11,0
2002
2005
2008
Volume, million USD

Tourism and cultural tourism

Tourism and cultural tourism It is hard to single out a specific subsector connected to the

It is hard to single out a specific subsector connected to the cultural tourism in the huge sector of tourism business. But even speaking about tourism in general, one should admit that this sector still remains as terra incognita in Russia. One of the most respected Russian experts in this field, the chief of the Russian Union of Travel Industry Sergey Shpilko, com- mented on the situation in Moscow as follows: “Today, we have no reliable statistics not only about the tourist numbers in Moscow, but even about how much money they spend, and how much the city gains on tourism. Developing necessary methodology to make the needed calcula- tions is a difficult task per se, and even more difficult it is to collect information and to estimate the multiplied effect on the whole economy from the development of tourism. This means not only the improvement of statistical calculations on tourist flows and money involved, but also the data about investments, employment and the movement of the main funds. Up till now the income from the tourism business has been generally estimated on the basis of tax proceeds from hotels, which mostly go into the federal budget” 33 .

The tourism sector, as well as the subsector of cultural tourism, is not singled out in the UN report. But its potential is reflected in the level of cultural offers and can be seen in Diagram 23, which shows the development of exports and imports of cultural services.

Diagram 23. Cultural and recreational services 34 : Russia’s exports and imports

Exports $160 $140 $156 Imports $120 $129 $128 $100 $80 $94 $60 $83 $78 $71 $40
Exports
$160
$140
$156
Imports
$120
$129
$128
$100
$80
$94
$60
$83
$78
$71
$40
$66
$58
$61
$61
$20
$44
$33
$17
$0
2002
2003
2004
2005
2006
2007
2008
Volume, million USD

Currently, the draft of the program Development of tourism and recreational busi- ness in the city of Moscow for the years 2012-2016 has been subjected for public discussion. The statistics given in the report demonstrate that Moscow has not been able to attract that many tourists from abroad nor from Russia. Today a little more than 4 million people visit the capital of Russia as tourists, and the city is as low as 19 th in the rating of best tourist destinations. Apart from St. Petersburg, the situation is even worse in the regions.

Despite many problems, the experts argue that there is a market for cultural tourism. The distinctive features of this market are: the absence of product diversification, a small number of specialized agencies, and difficulties in the cooperation between culture and tourism business (because of their different logics of existence). It is hard to speak about the size of the market, since there is no accurate statistical data and the terminology is vague. The total income of top-50 tourist agencies in Russia in 2009, was 184058,68 million rubles. According to expert estimations, up to 90% of all incoming (foreign) tours are linked to cultural tourism.

The experts note that touristic trips made inside Russia are quite expensive. There is one joke, very popular among Russian tour operators, which describes the situation well: “I didn’t have enough money for a vacation in the Moscow region so I went to the Maldives”. According to the experts, some of the key problems for the Russian tourism sector are complicated Russian visa procedures, disparity between price and quality, poorly developed infrastructure, etc.

Unlike other sectors, the tourism sector has a well-developed network structure and specialized exhibitions (For example “Tourism and recreation”, “Inturmarket”, etc. ).

The biggest branch organization in the Russian tourism sector is the Russian Union of Travel Industry (RST), established in 1993. This organization includes tour operators, agencies, hotels, health resorts, insurance companies, transporting companies, consulting- and IT-companies, educational institutions, mass media, public and other organizations, that deal with tourism. Today, there are over 650 organizations from Russia, neighboring countries as well as from other countries which are part of the organization. If taking into account also tourism and hotel associations, which are members of RST, the number of members of the Union is over 1300. RST has 11 regional divisions – North-Western, Primorskoe, Krasnoyarskoe, Khabarovskoe, Tvers- koe, Nizhegorodskoe, Buryatskoe, Udmurtskoe, Rostovskoe, Privolzhskoe and in Mineralnie Vodi in the Caucasus. The main goal of the Union is establishing a civi- lized tourism market in Russia and increasing competitiveness of Russian services in

this field. The RST protects the collective interests of its members and the rights of its customers, takes part in preparing laws as well as implements marketing, educa- tional and informational projects. The RST is also a member of the World Tourism Organization (UNWTO), the Chamber of Commerce and Industry of the Russian Federation, the Russian Union of Manufacturers and Entrepreneurs, and Opora Rossii, which is a state-level public organization for small and medium entrepreneur- ship.

There are no professional associations or unions in the sector of cultural tourism. There have been some attempts to establish networks on the basis of interregional tourist brands, such as the Golden Ring, the Silver Ring, the Great Volga, the Golden Road of Russia, the Sayan Ring, the Great Tea Road, etc. Some non-commercial organizations, such as the Union of Russian Historical Cities and the Russian Estate Preservation Society, were trying to implement programs in the field of cultural tourism, but they didn’t have functioning logistic system.

The most crucial problem of the sector is lack of knowledge in business and man- agement. The sector lacks competency in product development and launching these products to the market. There is also a lack of specialists in excursion, instruct- ing and hospitality segments. Tourist agencies also face high staff turnover. In order to make the tourism sector to function properly, there must be a critical mass of specialists - about 3 million people, and today there is less than 300 000, who are often poorly trained. Currently, about 50 tourism specialist graduate annually from each of Russia’s 300 tourism-related universities. This makes 15 000 graduates annual- ly while 300000 are needed. These people work in places where others come on holidays and they require a thorough training including psychological training. There is practically no competition in this sector and there are very few places where specialists can use their skils. It seems that there is no demand for such skills from the side of the market.

Art gallery business

Art gallery business According to experts’ opinions, the Russian art gallery busi- ness is very underdeveloped.

According to experts’ opinions, the Russian art gallery busi- ness is very underdeveloped. In the early 90s, Russia expe- rienced a so-called "gallery-boom," when demand for Rus- sian art (of all styles, shapes and types) was very high. A big number of galleries emerged, most of which had to be closed later on. The decrease of demand for Russian art can be estimated when looking at the dynamics of exports – imports of goods in the sector of visual arts (see Diagram 24) 35 . Since 2005 exports decreased 1.78 times, from $54.2 million to $30.4 million, mainly due to lower exports of sculptures caused by closing down of many Russian factories in this field due to their low profitability.

Diagram 24. Visual Arts: Russia’s exports and imports

$146,5 $160,0 Exports $140,0 Imports $120,0 $100,0 $60,2 $54,2 $80,0 $30,4 $60,0 $23,2 $40,0 $11,2 $20,0
$146,5
$160,0
Exports
$140,0
Imports
$120,0
$100,0
$60,2
$54,2
$80,0
$30,4
$60,0
$23,2
$40,0
$11,2
$20,0
$0,0
2002
2005
2008
Volume, million USD

While exports of sculptures have the biggest share in exports of visual arts, the share of photography comes second. Export volume of paintings and antiques is at marginal level (see Diagram 25).

As can be seen from the Diagram 26, imports of visual arts goods in Russia exceed exports many times. Especially, in such subsectors as sculpture, photography and antiques.

Diagram 25. Visual arts: Structure of Russia’s exports

$160,0 $140,0 $120,0 $81,2 $100,0 $80,0 $60,0 $28,3 $31,7 $40,0 $7,4 $20,0 $3,1 $18,4 $14,5 $29,6
$160,0
$140,0
$120,0
$81,2
$100,0
$80,0
$60,0
$28,3
$31,7
$40,0
$7,4
$20,0
$3,1
$18,4
$14,5
$29,6
$4,8
$0,8
$9,3
$0,8
$0,0
2002
2005
2008
Sculpture
$14,5
$31,7
$81,2
Photography
$4,8
$18,4
$28,3
Painting
$3,1
$9,3
$7,4
Antiques
$0,8
$0,8
$29,6
Diagram 26. Visual arts: structure of Russia’s imports
$60,00
$50,00
$40,00
$30,00
$46,31
$20,00
$26,21
$10,00
$7,86
$3,29
$7,89
$4,16
$0,00
2002
2005
2008
Sculpture
$7,86
$46,31
$26,21
Photography
$3,29
$7,89
$4,16
Painting
$0,03
$0,02
$0,04
Antiques
$0,00
$0,00
$0,00
Volume, million USD
Volume, million USD

Today, Russian galleries are concentrated mostly in Moscow and partly in St. Peters- burg. There are almost no galleries in the regions, financially successful ones in particular.

At least two segments can be singled out in the art gallery business:

The first segment is antiques market, which is based mainly on imports, as the data from the 2008 and 2010 UN reports show (see Diagram 25). This segment is a closed one, because the transactions are made mostly without paying taxes (according to some experts, turnover in the grey market of antiques is more than $300 million annually), and clients are wealthy antique collectors who want to remain anonym- ous. Since 2000 licensing is not necessary in this field of activity in Russia. Today, Russia has about 500 antique shops, licensed in the late 90s - early 2000s. At the same time, Moscow with its population of 12 million has only about 200 registered organizations related to antiques (including both large stores as well as art galleries and small shops), and just one auction house Gelos with a well-developed infra- structure and regular trading activities. For comparison, in London, with a population of about 14 million people, there are about two thousand antique shops and 40 auction houses.

According to the experts, turnover of the Russian market of antiques reaches $1.5 billion, while turnover of the world antique market is $25 billion. Pricing in the Russian market depends on prices in western markets, although it is slightly lagging back. At the present time, according to the International Confederation of Antique and Art Dealers, profitability of the Russian antiques market is 12.5%, which is slightly higher than, for example, the profitability in the stock market.

There are two major organizations in this subsector: the Union of Antique dealers of Russia and the Russian Union of Antique Dealers. These associations are competing, and their activities are not very transparent. In Moscow, there are some events that bring antique galleries together. The most famous one of them is the Antique Show in the Central House of Artists, organized by the Expo-Park company.

The second segment is the market for fine arts, which is heterogeneous as well. There are versatile players in this market - from art galleries, dealing in the art of the past (for example, Proun gallery), to the Vernissage fair in Izmailovo. An active player in this segment is an organization, known as the International Confederation of Unions of Artists, which was founded in 1992, after the Union of Artists of the USSR was

closed down. Members of the Confederation are former artist unions from different regions.

The market for contemporary art holds a special place in the sector. An important event for its development was the Moscow Biennale of Contemporary Art, which was held for the first time in 2004-2005.

Experts in the art gallery business note low profitability and lack of access to funding. Today, only few investors are ready to invest in opening new galleries. Experts estimate that a proper gallery has to spend about $200-300 thousand a year on its basic needs only. But one year is not enough to enter the market – a minimum of 2-3 years is necessary. Thus, launching of a new viable project will cost $500 thousand. A most common obstacle for those who want to start the gallery business in Moscow is high rent rates.

Experts also make an emphasis on poor professional ethics, which also hinders development of the gallery business and its integration into the international art market. According to the experts, the main risk in the Russian art market is the human factor. You can be easily cheated when it comes to price (and sometimes also the authenticity) of the product. Many customers don’t want to take risks as far as authenticity of paintings is concerned, and prefer to buy art works in foreign galleries.

There are several publications covering events of the sector - ArtChronika, Khudoz- hestvennaya Zhizn, Iskusstvo, Art-Gid. Some entertainment magazines also place announcements about artistic events. One can find occasional information on the issue in glossy magazines as well.

In the last few years a considerable number of art departments in Russian universities were established, as well as a variety of courses for art curators and courses about the art market. However, educational programs focus primarily on the history of art and do not provide any competence to understand the world of art markets. In this regard, experts note the lack of marketing, sales, finance, and business planning professionals specializing in culture.

Advertising and marketing communications

Advertising and marketing communications The advertising market exists in Russia since 1991 and can be considered

The advertising market exists in Russia since 1991 and can be considered as rather well established. The rates of its development are reflected in the dynamics of exports - imports of advertising services and related sectors (see Diagram 27).

Diagram 27. Advertising and related services: Russia’s exports and imports

$8 847 $10 000 $8 000 Exports Imports $6 000 $2 336 $4 000 $1 795
$8 847
$10 000
$8 000
Exports
Imports
$6 000
$2 336
$4 000
$1 795
$1 249
$1 567
$1 655
$1 220
$1
008
$800
$856
$796
$2 000
$638
$591
$653
$0
2002
2003
2004
2005
2006
2007
2008
Volume, million USD

Almost all of the attributes of the market are functioning - from well-established economic connections and state regulation principles to market research tools.

The main problems of the market’s development are: insufficient efficiency of market regulation (both government regulation and self-regulation – the lack of transparent and efficient legislative basis, the lack of self-regulatory organizations and generally accepted industry standards); protracted recession in the economy and slow recovery of advertising activities and budgets of advertisers; decreasing growth rate of population’s income and retail trade; rapid changes in preferences and behavioral stereotypes of target groups; radical changes in channels, methods and tools of communication under the influence of digital media. There is also a

growing lack of investments, lack of skilled specialists and new ideas. The experts point out that the lag of the Russian advertising market from the Western one is around 2-3 years in terms of implementation of new technologies in the advertising business.

Unfortunately, Russian companies working in the field of advertising and marketing communications do not reach out beyond the CIS. Experts note that the Russian media market is considerably distorted by the interference of governing authorities in the distribution of advertising budgets, especially in the regions.

In 2010, the volume of marketing communications market was estimated at around 300-320 billion rubles. The estimation was made by the Russian Communication Agencies Association (AKAR). Basically the marketing communications market encompasses television, printed media, outdoor advertising and internet. In 2010, the market demonstrated notable growth (5-10%) against 2009, the crisis year, but it still hasn’t reached the pre-crisis volumes.

According to the estimates of the AKAR and ATsVI (Video International analytic center) experts, in the first quarter of 2011, the cumulative advertising volume in various means of distribution was around 63 billion rubles, which is 28% more than in the first quarter of 2010. 36 The main reason for such intense market dynamics is that the comparative base (the advertising media market volume in the first quarter of 2010) increased only 7% against the previous level during the crisis in 2009. Though, the pre-crisis numbers are almost reached; the sector lacked only 3% (2 billion rubles) compared to the first quarter of 2008. The only exception is two segments, television and internet. Fast growth rate of television and internet against other segments has led to a change in the distribution of shares in the advertising media market. The share of regional advertising is decreasing on television, increasing on radio, and is relatively stable in printed press. In most media segments there is a trend to cut down on the shares of major advertisers. The most dynamic sectors of the media market are still internet and cable and satellite television.

Associations in the advertising field tend to be very active. The most well known association is the Russian Communication Agencies Association (AKAR), founded in 1993 to coordinate business activities of the Association’s members and to protect common interests in the advertising field development. The Association studies terms and conditions for the realization of advertising activities and commercial commu- nications, develops legislation improvement proposals, creates professional stan-

dards, provides expert services, takes part in personnel training and professional development, and renders support in the protection of intellectual property rights.

About 150 Russian colleges and universities train specialists in advertising. Almost all higher education institutions, except perhaps Moscow Institute of Physics and Technology, offer a career of an adman, a marketing manager or a PR expert. Graduates of these universities are rather professional. Another side of the coin is that their knowledge and skills are rarely needed because customers do not seek original advertising. The most asked-for specialist are those who can work with new information media, those who can apply techniques and tools and have practical skills for promotion of goods in the internet and social networks. There is a need for good professionals to work with Web 2.0. Generally, there is a strong demand for trained personnel in the business sphere. However, unfortunately, Russian colleges and universities are unable to train professionals ready to get down to work in this business right away; their graduates have to complete their education (or even retrain) while working. Unfortunately, Russian education in marketing and advertising lags behind the best state-of-the-art foreign practices, and, meanwhile, doesn’t respond to many aspects of the realities of Russian market.

Nowadays, difficulties with personnel employment are typical for the entire commu- nications sector (advertising, marketing, public relations, consulting, etc.). The reason could be both in insufficient inflow of competent professionals (in spite of the abundance of “popular” departments in most Russian universities) as well as in noticeable “overheating” of the workforce market (overrated salary expectations).

Creative business-incubators

Creative business-incubators There are no creative business-incubators in Russia at the moment. We could partly consider

There are no creative business-incubators in Russia at the moment. We could partly consider creative business- incubators such new creative platforms (clusters) as Art Play Design Center, Vinzavod Contemporary Art Center, etc. Researchers have repeatedly shown interest to the work of such creative platforms 37 . Recently, some new similar initiatives have emerged in a number of regions. But in spite of all the interest for the Russian creative clusters’ activities it is important to understand that none of them is a business-incubator in the literal sense of the word, because all of them are fruits of private initiatives and have nothing to do with small and medium business support programs that are being put into practice in Russia at national and municipal levels.

Thus, in early 2008, when Art Play Design Center was developing the spaces of the former Manometer factory, it was supposed that creative companies, as well as independent artists, would get the opportunity to rent very small premises with the floor area of 18 sq.m. only to use them for offices and workshops. Unfortunately, the rent cost of these premises is quite high, which is especially true for fledgling com- panies. And since Art Play’s owners and managers have to think about the center’s profitability they cannot afford special discounted rates for the “beginners”.

As far as Moscow and regional authorities are concerned, they have found it diffi- cult to understand the meaning and economic importance of the creative busi- nesses.

Summary:

Current state analysis and investment potential of the Russian creative industries

The UN report presents data on personal services imports and exports in the culture and entertainment field. This category includes films, radio and TV programs produc- tion fees, the fees of actors, directors and producers, etc. The reported data enables us to draw a conclusion not only about the demand for creative products, but also about the size of creative class, as well as information about countries providing the most favorable conditions of work for the creative class. As we can see from Diagram 28, the absolute leader nowadays is the USA. Even if the error margin is taken into account due to population size, the leadership of the USA will be obvious. It is no coincidence that many of the EU official documents name the outflow of creative young people to the USA as one of the main problems in this successful, as compared with Russia, world’s region. Therefore, statistics show us graphically the growing competition between countries for smart, educated and talented people who are able to create, promote and implement original creative products. This notion is at the core of all creative industries support programs in- itiated recently all over the world.

This data supports the conclusion that could earlier be made only on the basis of expert (that is to say somewhat subjective) assessments. Judging by the dynamics of culture and entertainment personal services exports and imports (see Diagram 29), there is a considerable lack of “creative class” in Russia, and therefore these servic- es are being imported. Import numbers exceed exports by more than twice. In the very beginning of this study it was mentioned that Russia prefers purchasing low-cost imported product instead of investing in its own creative product development. The diagram below allows us to draw a conclusion about the necessity of supporting the

“national creative manufacturer”. In particular, it is important to mention that investments into generation of national creative product of high quality, as a rule, are not within the interests of foreign investors. It is the prerogative of the state or private initiatives of local businessmen.

Nowadays we can mainly witness private investments into the creative industries and clusters. This sector, related to an important for the state “production of ideas”, is a universal engine of innovative economy. It will be insufficient to rely only on private investments or look for foreign investors. In today’s world it is becoming profitable to train local programmers, actors, designers – that is to develop national

creative potential. But to make it competitive and attractive for investors, starting inputs by the state, regional and city authorities, municipalities are indispensable, as well as incentives for development, first of all, financial incentives and tax reliefs. Foreign companies are interested in investing into already existing, vigorous re- sources, not their creative potential. And if such potential is not to be created, the only way to make money is, like it has been done before, selling natural resources and exploiting cheap labor force.

Diagram 28. Exports of personal, cultural and recreational services

$16 000 USA; $14 422 USA; USA; $13 598 $14 000 $12 923 USA $12 000
$16 000
USA;
$14 422
USA;
USA;
$13 598
$14 000
$12 923
USA
$12 000
United
Kindom
$10 000
Germany
USA;
USA;
USA;
$7 549
USA;
$8 000
$7 137
Spain
$6 958
$6 534
Finland
$6 000
Malasia
$4 000
$2 000
$0
2002
2003
2004
2005
2006
2007
2008
Volume, million USD
Russia; $72
Russia; $125
Russia; $164
Russia; $187
Russia; $232
Russia; $291
Russia; $389

Diagram 29. Exports-Imports of personal services and services in the culture and

entertainment field

$1 000 Exports $838 $753 $800 Imports $542 $600 $440 $389 $309 $400 $291 $188 $232
$1 000
Exports
$838
$753
$800
Imports
$542
$600
$440
$389
$309
$400
$291
$188
$232
$187
$166
$164
$125
$200
$72
$0
2002
2003
2004
2005
2006
2007
2008
Volume, million USD

What should this support be like? What kinds of investments are the most needed? What projects will be the most crucial and capable of initiating necessary growth points? We tried to identify some directions, which resonate in all studied sectors and in the Russian creative industries in general.

Political and legislative solutions to support the creative industries. The development of the creative industries is, firstly, a political decision, a significant priority of cultural policy and state policy as a whole. Acknowledgment of the leading role of the creative sector and creative class indicates political will to advance towards post- industrial development as opposed to the “energy power” concept, which is based on the export of natural resources. Today, a large number of developed countries have taken such a decision internationally; it’s enough to mention the programs like Creative State in Australia, or Creative Britain, in Great Britain. Besides the general state approach, a number of smaller but nevertheless quite meaningful decisions need to be made. For instance, a visa abolishment agreement would breed devel- opment opportunities for the tourism and, particularly, culture tourism sector. This measure would also be important for extending contacts and cooperation of creative people in all of the sectors. It is no surprise that the experts speak about the problem of the Russian market isolation from other international cultural markets.

Also, the creative production development is impossible without the authorities’ attention. First of all, there should be different kinds of legislative initiatives, a favora-

ble taxation system and simplification of bureaucratic procedures. China has dem- onstrated positive examples of local authorities involvement, e.g. Shanghai munici- pality started to rent out spaces to creative clusters on favorable terms. This initiative, which didn’t require a penny of the state money, has generated dozens of creative platforms in no time.

It should be noted specifically that state-of-the-art statistical report system in the creative industries and satellite statistical record keeping should be introduced across all levels. In addition, it would make it possible to make adequate interna- tional comparisons.

Modernization of education in the field of creative industries. Investments in educa- tion are needed, first of all in the modernization of the educational process. The most essential is education in the field of creative industries: creative enterprises management, culture economy, as well as specialized education in design, adver- tising, fashion, film and so on, which makes it possible to solve the problem of man- aging as well as deficit of specialized staff in these sectors. The fundamental prin- ciples of modernization should be modern educational standards, a high level of teaching, including attraction of foreign experts, and a direct link between educa- tion and creative industries practices.

Small business support programs and creation of business-incubators in the field of

creative industries. It is obvious that the development of creative industries in Russia is hampered by unfavorable conditions for small and medium business sector. Opportunities for starting and running one’s own business project are a key factor for the growth of creative economy. It is also important to create business- incubators for creative entrepreneurs, as it is precisely this concept that doesn’t exist in Russia at all (as it was mentioned above).

It is worth mentioning separately that Russia’s entry into the World Trade Organi- zation (much discussed in governmental circles) will not only affect the statistics of car industry, but also make the statistics of culture and creative industries much more oppressive. So far, high customs duties have partially protected local produc- ers against the import pressure. But while there have been many attempts to breathe life into the national car industry, the sector of creative industries is beyond the sphere of interests of the state.

Support of infrastructural and network projects in the field of creative industries. In today’s Russia, such projects are mainly run by independent or international com-

panies. However, regular forums, meetings, development of specialized online resources and resource centers for young businessmen as well as an ongoing re- search program would be important practical steps in the development of the creative industries in Russia.

Development of international projects and research. A special emphasis must be made on the necessity of comparative studies of creative industries support pro- grams in different countries, i.e. political and legislative initiatives in the field. The authors’ experience in the Russian regions shows that there is a considerable deficit of creative initiatives in Russian cities. It is appropriate to note here the experience of China where the absence of local creative companies was solved by inviting foreign businessmen to work in the country. Not only did it “fill in the void”, but it gave an opportunity for local businessmen to learn new methods of work and to improve the quality of their work. Thereby, international projects should build upon three pillars - educational initiatives, international joint creative projects and interna- tional research work.

This is how new reality in the modern global world can be created, and it can be stated that the creative industries are not only an important part of this reality, but a zone of development that gives birth to a future shape of the society and economy.

Endnotes

  • 1 Creative Compass Project: http://www.creativecompass.fi

2 The Challenge of Assessing the Creative Economy. Toward Informed Policy-making:

http://www.unctad.org/en/docs/ditc20082cer_en.pdf

3 Creative Economy: a feasible development option:

http://www.unctad.org/en/docs/ditctab20103_en.pdf

  • 4 Ruutu K., Panfilo A., Karhunen P. Cultural Industries in Russia. Northern Dimension Partnership on Culture. Helsinki School of Economics, Center for Markets in Transition. Terma Nord, 2009.

  • 5 E. Zelentsova and N. Gladkikh with support from Ks. Pushkina. Factories of Imagination or Cultural Conversion. M., 2008. http://www.creativeindustries.ru/rus/publications/factories_of_imagination_and_cultural_conversion

  • 6 Agriculture, hunting and forestry; fishing and fisheries; mineral extraction; processing industries; production and distribution of electricity, natural gas and water; construction; wholesale and retail trade; state management and military security; hotels and restaurants; transport and communica- tions; finance; real estate deals; education; health care and social services; other utility, social and personalized services.

  • 7 Albania, Azerbaijan, Belarus, Bulgaria, Croatia, Georgia, Kazakhstan, Kyrgyzstan, Macedonia, Moldova, Romania, Russia, Tajikistan and Ukraine.

  • 8 In 2005, Russia held the following shares in creative product exports Out of total creative product exports of transition economies: music (50.86%), filmmaking (70.49%); design: graphic arts and archi- tecture (38.2%), fashion (25.94%), blown art glass articles (28.16%), interior design (21.6%), jewelry (61.01%), toys (18.03%); new media: videogames (33.45%), online audio and video downloads (85.16%); visual arts: fine arts (0.62%), photography (21.91%), sculpture (87.38%) and antiques (0.0%).

  • 9 In 2005, Russia held the following shares in creative product imports Out of total creative product imports of transition economies: music (22.08%), filmmaking (16.13%), design: graphic arts and archi- tecture (33.40%), fashion (49.86%), blown art glass articles (58.33%), interior design (45.13%), jewelry (12.42%), toys (63.58%); new media: videogames (47.72%), online audio and video downloads (14.5%); visual arts: fine arts (61.78%), photography (34.14%), sculpture (53.75%) and antiques

(82.16%).

10 Proportion of film products in the total volumes of audio and visual art product exports and imports equals 1.11% and 1.17%, respectively.

  • 11 E. Zelentsova and E. Melvil: "Cultural Policy and Economy of Culture: Points for Formulating Re- gional Strategies," M.: Art-transit, 2010, 71 p.

  • 12 Detailed analysis of cultural policy and economic realities is given in the book by E. Zelentsova and E. Melvil a quote from which was given earlier in the text.

  • 13 The UN 2008 report was based on the 1996 version of Harmonized System (HS 1996) to describe and code goods since most countries provided their statistical data in line with that system. The total of 236 codes was selected. The UN 2010 report was based on the 2002 version of Harmonized System (HS 2002) and 211 codes were selected representing creative industries sectors. The use of different HS versions in the preparation of the two reports resulted in data discrepancy between them. E.g. the 2008 report shows the volume of 2005 creative industries exports as $335.494 billion (Creative

Economy Report 2008. P. 238) while the 2010 report shows that volume as $298.549 billion (Creative Economy Report 2010. P. 302).

  • 14 Negative balance or deficit is a situation where expenditures are higher than profits.

  • 15 According to the Federal Service of State Statistics of the Russian Federation (data for 2011), in 2008, Russia's exports totaled $467.6 billion, while imports totaled $267.1 billion:

http://www.gks.ru/bgd/regl/b10_13/IssWWW.exe/Stg/d6/26-47.htm

  • 16 Presuming that the breakdown of export and import in Russian audiovisual sector has not changed compared to 2005.

  • 17 According to Kommersant newspaper. URL: http://www.kommersant.ru/doc-y/1752635

  • 18 According to Nevafilm research. URL: http://research.nevafilm.ru/research

  • 19 ibid.

  • 20 ibid.

  • 21 ibid.

  • 22 ibid.

  • 23 In terms of the amount of cinema screens per 100 thousand inhabitants, many of the big cities in Russia have achieved the same level or even surpassed the, level of most economically developed cities – Moscow and St. Petersburg.

24 Internet in Russia: development trends and types. 2010. URL:

http://wciom.ru/index.php?id=268&uid=13386

  • 25 URL: http://www.fid.su

  • 26 URL: http://gtmarket.ru/news/media-advertising-marketing/2010/06/15/2577

  • 27 Only 3 New Media codes were included into 2005 statistics (UN report 2008). After recalculation in UN report 2010 (in accordance with HS 2002 classification) there are significant differences in num- bers: $12.035 billion export and $13.402 billion import (UN report 2008) compared to $20.919 billion export and $21.622 billion import (UN report 2010).

  • 28 Online books, newspapers and periodicals, musical audio downloads, stream audio content, film and other video downloads, stream video content, online games, online software.

  • 29 Licenses for video films and discs rental; licenses for software and databases rights; licenses for entertainment content (literary and artistic works); licenses for research and development results; other licenses for other types of intellectual property

  • 30 Higher than rental prices on via Montenapoleone and via Spiga in Milan.

  • 31 In 2008, export share of the design products accounted for 40,87% of the total exports of creative goods, and 1,62% of the world trade (according to the United Nations Report 2010).

  • 32 Interior design sector includes furniture design and production.

  • 33 Sergey Shpilko: «There is nothing to prevent our capital from being one of the main touristic desti- nations of the world» // The Russian Union of Travel Industry. URL:

http://www.rostourunion.ru/pages/rus/ob_rst/interv_yu/shpil_ko/index.html

  • 34 Services, associated with museums, libraries, archives, and other cultural, sporting, and recrea- tional activities.

  • 35 According to the 2010 UN report

  • 36 Konstantinova Е. Russian media market in the 1st quarter of 2011 // Media-Atlas. 24.05.2011. URL:

http://www.media-atlas.ru/news/?id=30004&cat=media_in

  • 37 For more details about the work of Moscow and regional new artistic platforms see: Zelentsova Е., Gladkikh N., with the participation of Ks. Pushkina. Factories of Imagination, or Cultural Conversion. Мoscow, 2008. URL:

http://www.creativeindustries.ru/rus/publications/factories_of_imagination_and_cultural_conversion