Week 1: Business models in the creative industries
Peltoniemi, M. (2015), Cultural industries: Product–market characteristics, management challenges
and industry dynamics. International Journal of Management Reviews, 17(1), 41-68.
Frey, B. S. & Steiner, L. (2010): Pay as you go: A new proposal for museum pricing, CESifo
working paper, Public Choice, No. 3045.
Caves, R.E. (2003). Contracts between art and commerce. Journal of Economic
Perspectives, 17(2), 73-83
Wijnberg, N.M. & Gemser, G (2000). Adding value to innovation: Impressionism and the
transformation of the selection system in visual arts, Organization Science, 11(3), 323-329.
Keywords
Business Models
1. Where to find revenues
2. Where to find the stuff that will make revenues come to us at minimal cost.
3. If we can do 1 and 2, how to make sure it stays that way and my competitors
do not imitate me and destroy my relative advantages.
Sources of revenue in the creative industries (it’s complicated!)
Selling the creative good
Advertising goods of other producers
Subsidies or no subsidies
Other types of support for what we are because we are that (grants from
foundations, mecena (behartiger van kunst, geldschieter), corporate
sponsorship, loyalty programs, etc.).
Revenues for the creative/cultural goods we offer or for other goods we offer
on the side (the shop, the restaurant, etc.).
Peltoniemi, M. (2015), Cultural industries
Cultural industries are those that produce experience goods with considerable
creative elements and aim these at the consumer market via mass distribution.
Mass distribution: storage and delivery where economies of scale play an important
role.
Activities belonging under the cultural industries concept include film, music, book
and magazine publishing, tv and radio, fashion and video games.
Many cultural industries definitions begin from the nature of cultural goods. Such
goods offer:
A low level of utilitarian value (nuttigheid)
A high level of aesthetic, symbolic, social meaning and social display value
,Two features that are specific to cultural industries
1. Persistent oversupply of creative labour (independent of economic cycles), i.e.
there are many more aspiring singers, actors and fashion designers than the
respective markets can support.
2. Extreme uncertainty regarding the success potential of any specific product,
because prior to consumption consumers cannot have complete information
about the product.
These two features result in a system of continuous overproduction, where a variety
of gatekeepers restricts the access of cultural products to audiences.
Product-market characteristics
Taste:
Social class: upper class (highbrow taste) vs. lower class (popular taste)
Omnivorousness: social elites could enjoy many types of cultural products, but
lower classes often only enjoy one specific type of cultural products
It is conceptualized as a cumulative variable that involves through
consumption (it is enquired rather than pre-existent), while inherent variable is
pre-dating consumption and involves in dormant state
Consumers seems to prefer films with younger, opposite-gender leading stars,
older directors and unfamiliar temporal settings
Nationalities have been found to be more susceptible to particular genres and
to social influence and to be more consistent than other in their preferences
Taste evolves subtle rather than radical, which make it unpredictable
Popularity (hits vs. misses):
Key indicator is information sharing between consumers (word-of-mouth)
Signals. e.g. superstars, exotic locations
Balance between novelty and familiarity
Distribution, price, production budget, rating and timing in relation to season
(balanced timing over the year)
Be careful about the unpredictability of demand:
o A lack of correlation between popularity and quality
o Information cascades
o Are more familiar products less sensitive to information cascades?
Gatekeeping:
An oversupply of creative labor requires filtering system is required to reduce
the number of products reaching the market.
Upstream selectors
Downstream selectors
Try to align with customer tastes.
Research directions
, Product level: explain why cultural products reach the consumer market while
others do not
Organization level: explore the organizational interactions taking place in
cultural production, and the effects they have on the end product
Industry level: study the effects that industry structure has on creative
outcomes
Frey, B. S. & Steiner, L. (2010), Pricing schemes
This paper discusses various pricing schemes including entry prices and
free entry (exit donation) with the aim of reaching different goals of
museums. The authors propose an innovative pricing instrument “exit
price” that reflects the time spent in a museum.
Not a voluntary contribution on the basis of subjective perception of
how good the experience was, but a price that varies with an
“objectified” experience.
Museum pricing may be used to attain a variety of different goals
1. Basic museum responsibilities: showing its collection responsibly
o Too many visitors put the collection at risk and diminish the quality
2. Economic aspects: revenue and differentiation
3. Social and political aspects: getting the support of broader groups of
stakeholders, e.g. by involving schools etc. (which can lead to financial
advantages if this contributes towards the museum’s standing in the eyes of
other stakeholders who provide revenue).
Free entry (no charge & voluntary donation)
Advantages of free access to museums:
o Is considered to be social as poor people do not have to pay for it
o Increases the number of visitors
o Helps the museum to attract more donors
o Is sometimes justified with the economic efficiency argument that the
additional cost of admitting one more visitor is zero.
Disadvantages of providing free entry:
o Efficiency is not attained if the respective museums are sometimes
overcrowded and the quality of a visit diminishes.
o Does not necessarily increase the involvement of people distant from
cultural activities, and does not allow any differentiation between local
visitors and tourists.
Almost all museums, even those with free entry, ask for a voluntary donation at the
end of the visit in order to increase revenue.
, A main advantage of donation is that they attempt to capture payments according to
willingness and ability to pay. The more satisfied the visitors where in the museum,
the more they are prepared to spend.
Entry charge
Potential visitors have to be charged a price, marginal utility gain (marginal cost).
Since the utility of a visit to the museum depends on the number of visitors (the more
people, the lower the quality), price differentiation can be applied.
Exit prices - Frey & Steiners proposal
Exit price could be:
Fixed
Completely voluntary & open
Obligatory but variable
Advantages of exit prices:
Visitors take into account how satisfied they were with the museum as the visit
to the museum is an experience good
The opportunity set of visitors is increased. Both aspects raise visitor
satisfaction
The entry barrier is lower than with a fixed price
Potential problems with exit prices:
Might induce people to trust through exhibition as they try to maximize the
cultural intake per minute
Potential pressure under exit prices
Caves, R.E. (2003), Contracts between art and commerce
In cultural industries, suppliers of artistic inputs have to work together with suppliers
of humdrum goods (non-artistic).
This leads to particular types of contracts in which the risk & rewards are
distributed very unevenly or to “motley-crew” type organizations
Bilateral deals (tussen twee partijen) or Artist-Facilitator deals:
Visual artists and gallery
Authors and publisher
Musician and record label
The facilitator is an upstream selector in this case.
