IJAM Volume 16 Number 3 (PDF)

A NOTE FROM THE GUEST EDITORS

Financing Creativity: New Issues and New Approaches

Patrick Cohendet, Laurent Simon (MosaiC, HEC Montréal)

The securing of financing is one of the major obstacles encountered in the pursuit of creative activities. It is more difficult to finance creative projects than industrial ones, first because of the lack of clear financial criteria, and second because creative projects are seen, by both public and private investors, as carrying more risks.

Until very recently, academics and practitioners were used to considering the financing of creativity through the lens of the two traditional mechanisms – government subsidies and private patronage – to stimulate the production of artistic or cultural output. The emergence of what is called the “creative economy” has dramatically broadened the financing of creativity as a central concern of the economic system, calling for innovative solutions from the banking and public sectors or from new stakeholders in diverse communities, or the “crowd.”

As expressed in a United Nations report, “the creative economy cuts across the arts, business and connectivity, driving innovation and new business models. The digital era unlocked marketing and distribution channels for music, digital animation, films, news, advertising, etc., thereby expanding the economic benefits of the creative economy” (United Nations Conference on Trade and Development [UNCTAD], 2010, p. xxiv). One of the phenomena in the emergence of the creative economy is the growing role played by the creative industries. This has broadened the scope of the cultural industries beyond the arts and marks a shift in approach to include commercial activities that until recently were seen predominantly in non-economic terms. The term “creative industries” refers to a range of economic activities concerned with the generation or exploitation of knowledge and information (symbolic goods).1 This expansion parallels the widening of the scope of the creative economy beyond the traditional cultural industries.

The need to rethink the motives, principles, methods, and practices of creativity financing is all the more urgent as creative activities face capital rationing at all stages. As underlined in the UNCTAD (2010) report, startup financing is often difficult to access because of uncertainty in the markets for creative products; forecasting demand for creative goods such as films is generally more difficult than for standardized products, so public and private investors often view projects in these areas as high-risk. Occasionally, firms have access to public investment assistance programs, business incubators or private sources of venture capital. Nevertheless, difficulty obtaining financing continues into the operational (production) stages of creative businesses, when working capital is needed and funds for business expansion are also typically in short supply. Whereas the cultural sector relies mainly on public funds, the creative industries are more market-driven. Therefore, creative entrepreneurs have to be proactive in dealing with banks and private investors instead of relying heavily on government subsidies. They also have to cope with emerging modes of creativity financing (microcredit, collaborative or hybrid financing, crowdfunding, etc.). Among the new financing instruments used in creative economy circles are collaborative co-financing via networks and alternative currencies via the solidarity-based economy. Both are new business models functioning through networks, used particularly by the new generation of creative entrepreneurs.

Myriad platforms that enable funders to connect with creators have emerged since the 2000s, the most popular being Kickstarter, RocketHub and Indiegogo. These platforms cover a broad range of fields and domains, both in the arts and in science, each having its own specificities. Generally, these platforms follow a simple scheme. Creators submit a project for which they wish to be funded. If the project is accepted, the creator chooses a deadline and a target minimum to be raised. Potential funders can then begin to bid on the project. If the target minimum is reached by the deadline, the funds are collected. Otherwise, the funds are either blocked (the All or Nothing model) or liberated with an extra charge (Keep It All), depending on the platform.

Some platforms enable the creators to raise money without having to offer anything to the funders in return. The act of funding, in such cases, is usually based on philanthropic behaviour, but not always, as any type of reward might serve as an incentive for the funder to invest in the creator’s project. On other platforms, the creator raises money that is not directly repaid to the funders but the funders do receive some type of compensation. The creator is expected to offer the funders a specific good or service (or some type of hybrid compensation) in exchange for their contributions. These hybrid compensation schemes may include a free sample of the product or a privileged service that might be of value to potential funders (such as time with the artist, music lessons, an autographed CD, DVD or book, studio participation or acknowledgement in the credits). Still other platforms enable the creators to solicit and receive funds in exchange of some type of financial return to the funders (profit-sharing, equity, etc.).

Inspired by the open-source movement and online communities, these collaborative approaches to funding rely on voluntary contributions and different forms of prosocial behaviour, which have proved, in many cases, to be more effective than the rational approach derived from homo economicus (see, e.g., Von Hippel, 1988, 2005). What matters most with these new funding systems is that people pay for the production and promotion of an idea rather than buying it in its final form. In other words, these models rest on the idea that the intrinsic value of an artwork or a scientific project does not come from its actual consumption but instead lies in the creative process and/or the creative experience. By inviting fans to witness and take part in the creative process, these models prove to be a mix of entrepreneurship and social network participation, whereby the core value of creative activity is displaced from the output to the inputs.

Five contributions were selected for this special issue of the Journal.

Pierre-Jean Benghozi and Inna Lyubareva, in “When Organizations in the Cultural Industries Seek New Business Models: A Case Study of the French Online Press,” discuss the renewed importance of a free economy in the periodic press and emphasize the importance of original mechanisms for gratis content funding.
In “Financing Creativity: Crowdfunding as a New Approach for Theatre Projects,” Benjamin Bœuf, Jessica Darveau and Renaud Legoux aim to develop a better understanding of crowdfunding in the performing arts and discuss its relevance for the cultural and creative industries.

In his article, “How Do Investors Communicate With Innovators Such as “Geeks”? A Case Study of HackFwd,” Frédéric Buisson focuses on how actors in the world of commerce develop and adapt their own discourse to better communicate with the “world of inspiration.” Buisson analyzes the transcript of a HackFwd video presentation using the Constitutive Communication of Organization theoretical framework.

In “The Role of Open Licences and Free Music in Value Co-creation: The Case of Misteur Valaire,” Thierry Gateau develops an in-depth analysis of an experiment by an alternative party-pop music band. The band, Misteur Valaire, has built a flexible and resilient business model based on gratuity (music for free/pay what you want), the use of a Creative Commons licence, and the development of a community of fans through a digital platform.

In “Roger Parent and Réalisations Inc. Montréal: A Flair for Creativity,” Carine Cyr describes how a talented entrepreneur and highly skilled manager with a keen artistic sensibility is driven by a passion for discovering and connecting with people and by a profound respect for others. The author explains how this creative entrepreneur copes with the new ways of financing.

NOTES
1. According to Howkins (2001), the creative industries comprise advertising, architecture, art, crafts, design, fashion, film, music, performing arts, publishing, R&D, software, toys and games, TV and radio, and video games.

REFERENCES
Howkins, J. 2001. The Creative Economy: How People Make Money From Ideas. London: Penguin.
United Nations Conference on Trade and Development. 2010. Creative Economy Report 2010: Creative Economy – A Feasible Option. Geneva: Author.
von Hippel, E. 1988. The Sources of Innovation. New York: Oxford University Press.
von Hippel, E. 2005. Democratizing Innovation. Cambridge, MA: MIT Press.

ACKNOWLEDGEMENTS
We would like to thank Richard Lupien, Vice-President of National Bank, for his support. Most of the articles included herein are based on presentations and discussions during a two-day colloquium on the financing of creativity organized by the MosaiC research group at HEC Montréal in partnership with National Bank and held at HEC Montréal in October 2011. The focus for this issue of the Journal grew out of that colloquium and a call for submissions was issued in 2012. We are grateful to David Grandadam of MosaiC for his general support for this initiative.