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«Jonathan Haskel Imperial College Business School, CEPR, Ceriba, IZA and UK-IRC Keywords: copyright, IP, innovation, knowledge, investment, ...»

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The independent TV production sector is basically split into two parts, with the industry structure similar to the film production sector. The first includes the large independent production companies, sometimes termed ‘super-indies’, who generate most of the value of the independent sector, although not necessarily the majority of commissioned hours broadcast. The second part is made up of smaller, more niche, companies that tend to specialise according to production genre (factual, drama, children’s etc.). For commissioned programmes, funding is usually provided by the broadcaster(s) in exchange for broadcasting rights in the short to medium-term. Long-term asset rights often remain with the production company, as in the film industry, although arrangements and the split of rights vary for each agreement/production. 37 Figure 18 contains estimates of costs incurred by the UK PSBs in the creation of stock programmes, whether they originate in-house or are commissioned to the UK independent sector, based on OFCOM 38 PSB or CMR reports. The data are based on programming spend by genre and extend back to 1998. In line with recommendations by OECD/Eurostat we limit GFCF to include only spend on stock programmes, which we define to include ‘Arts and Classical Music’, ‘Religion’, ‘Education’, ‘Factual’, ‘Drama/soap’, ‘Entertainment’ and ‘Children’s’, thereby excluding ‘News, current affairs and weather’ and ‘Sport’. Since we count ‘Film’ as a separate asset, we exclude data for that genre too Since the data only refer to the television output of the main PSBs, that is BBC, ITV, Channel 4 and Channel 5, we make additional adjustments to account for BBC radio stock programmes and S4C. For BBC radio, we use OFCOM estimates of BBC radio spend back to 2000 and data on the share of BBC broadcast hours in 2009/10 by genre. Multiplying spend by the share of broadcast hours that are of stock programmes, gives us an estimate of BBC expenditure on the creation radio stock originals of around £153m in 2009. Since our We are grateful to Shaun Day of the BBC for the above information.

We are grateful to Steve Gettings of OFCOM for his assistance and provision of data radio estimates only go back as 2000 we extend them to 1998 using the growth rate of BBC TV expenditure. Note that if the composition of BBC radio broadcast hours by genre has changed significantly over time, there will be some inaccuracy in the back-series. There will be further inaccuracy if the production costs for radio vary widely by genre. For S4C we have estimates of spend on Welsh language output, back to 2004. We extend these back to 1998 using the mean growth rate of expenditure in 2004-9.

Figure 18 shows our estimates based on data from OFCOM to be similar to those produced by the ONS, especially for years prior to 2004.

Figure 12: UK investment in TV & Radio Originals (ΣPxX), CP £mns 3,500 3,000

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Source: Solid lack line is the ONS estimate as recorded in the National Accounts (for details see section 1.1). Dotted black line is an implied ONS estimate after removing the monopolists mark-up, μ.

Solid red line is our estimate, based on data published by OFCOM.

Source: ONS and OFCOM We consider our estimates to be potentially more accurate representation of investment in broadcasting originals than those recorded in the National Accounts, but recognise our data still include a number of imperfections. First, estimates for Radio are based on BBC broadcast hours by genre in 2009/10. If the genre split for previous years was not similar, or if production costs vary considerably by genre, there will be some bias in the final estimates.

Second, the coverage of multi-channel platforms is inadequate. Whilst the data do include the costs of BBC Digital, we have been unable to include any data for Sky or other such providers. Third, some proportion of rights for commissioned programmes remain with the production company. Therefore there is some incentive for the production company to invest additional resources in creation, alongside that provided by the funder. Our data makes no allowance for this. Fourth, one of the inputs to upstream production is conventional physical capital such as sets, studios, cameras and the like. Estimates should be adjusted for capital compensation and depreciation to account for this, but we have been unable to acquire any such data. Fifth, some sports broadcasts are clearly long-lived. In practice it is virtually impossible to allow for this using a cost-based approach. It may be that it is possible to account for sports using a revenues based approach, that is based on payments of P(R)R, from say DVD sales. This will be given consideration in any future work undertaken.

9.1.1. Alternative method of estimating ΣPxX, based on ASHE Although our preferred estimates are those based on the OFCOM data, an alternative estimate can be produced using the data on gross pay by both occupation and industry, available in the ASHE microdata, adjusted for overheads using information from the ABI. In the case of Television & Radio, we use the following list of occupations.

–  –  –

The methodology used is the same as that used for Film, and the same data issues apply. To avoid double-counting we ensure that we only include those workers in the TV & Radio industry, thereby excluding all workers already counted.

Using data from the ABI our estimate of the average ratio of non-employment costs to employment costs from 1999-2007 is 2.78, giving a final estimate for γ of 3.78. Again we have no information on industry or occupational time-use, and so expect the resulting estimates to be an over-estimate of GFCF. Indeed as Figure 19 shows, estimated GFCF of £4.2bn in 2008 is much greater than the £2.8bn recorded in the National Accounts and our estimate of £2.2bn based on data from OFCOM, for the same year. However, note that this estimate does not include any adjustment to allow for the removal of flow programmes (timeuse), meaning it is consistent with around 50% of expenditure being on the creation of stock programmes, with the remaining 50% spent on flow programmes.

Figure 13: TV & Radio Originals (PxX using data on labour input from ASHE and the ABI), CP £mns 5,000 4,500 4,000

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1,500 1,000 Source: Our estimates based on ASHE

9.2. P(R)R, Downstream Rental Payments. TV & Radio, B.2 Conceptually these data would include royalties and licence fees that accrue to those who hold ownership rights for TV & Radio stock originals. Note it does not include the rental payments made by TV and Radio broadcasters for say the broadcast of music originals, which are distributed to musicians and recording companies.

Application of this method is less suitable in the case of TV & Radio originals since so much activity is both created and used in-house, meaning the majority of rental payments are implied internal transfers for the use of in-house artistic stock.

9.3. P(N)N, Upstream Output. TV & Radio We have no accurate data on the revenues of the upstream producers of television and radio originals. The only data available are those for the entire television and radio industry, as shown in Figure 20. That is the output of the upstream but also much of the downstream. A breakdown of industry revenues is not available from the ONS. Using data for the entire industry would result in significant double-counting. For instance, if we consider production commissioned to the independent sector, counting both the revenues received by the independent production company, on top of those received by the funder (broadcasting company) is inappropriate.

Figure 14: Output of the TV & Radio industry, ABI, (CP £mns) Source: ABI published aggregates.

Note to figure: The component split (television and radio) for 1995-6 are disclosive, and so not presented here.

Conceptually, just as for Film, it is necessary to identify the residency of the owner of the final original, although it is our perception that in the case of TV & Radio, production is more likely to be performed in the country that funds/owns the final asset.

Figure 21 presents data on international trade in television, sourced from the FTV survey.

Although the FTV release does not publish separate data on royalties or production fees for television, the Pink Book (Balance of Payments) does publish a total for the film, television and radio industries, allowing us to derive a separate figure for TV & Radio Figure 15: International Trade in the UK TV & Radio Industry (£mns)


-1000 Source: ONS FTV release, published.

Since we are unable to split data for Television and Radio activities into data for the upstream and downstream, we are unable to distinguish between output and intermediate consumption in the producing and using sectors respectively. There is also no distinction between stock and flow programmes in the output data. As with Film, the definitions and composition of data on exports and imports are inappropriate to use in a derivation of GFCF.

9.4. P(Y)Y, Downstream Output. TV & Radio

As discussed in the context of other assets, estimating such a series would require information on the revenues of the downstream users of assets, that is, those that rent from the capital stock of final originals, such as the television and radio stations/networks. In practice, they may be genuinely renting capital services from the stock of originals and paying royalties for those services, or they may be renting from their own in-house stock.

With no breakdown of revenues and with industry data being closer to P(G)G, we are unable to derive a measure of P(Y)Y. To do so accurately would also require detailed data on DVD revenues, merchandise, advertising etc., but only for UK productions that meet SNA capitalisation criteria (stock programmes with a life of over one year). Even with such data, we would also need to know more about the relationship between P(R)R and P(Y)Y for this particular asset.

10. Literary Originals: Books

10.1 ΣP(X)X, Upstream Input Costs (ASHE). Books In the case of Books or Literary Originals the only data on input costs that we are aware of are those from the ASHE and ABI. Therefore we use the same method as that described

previously, using data for the following list of occupations:

–  –  –

Note to table: we ensure that no occupations already used in the calculation of investment in other intangible assets are used, including managers. Workers recorded in industries dominated by the public sector (Public Admin & Defence (L), Education (M) and Health (N)) are also excluded so our final estimates are reflective of the market sector.

To avoid double-counting we only keep those support staff (printers etc.) recorded in the book publishing industry, thereby excluding those in textiles and other non-relevant industries.

Similarly we only include draughtspersons (including cartographers) recorded in the book publishing industry.

ABI data for the Book Publishing Industry (SIC 22.11) implies an estimate for γ of 2.46.

With no information on industry or occupational time-use, and therefore the proportion of workers output that is investment and consumption goods respectively, the resulting estimates may be an over-estimate of GFCF in literary originals. On the other hand, if authors are inadequately sampled in ASHE, the result may be an under-estimate of GFCF. It is because of these limitations that our preferred approach for literary originals would be estimates based on the royalties distributed by Collecting Societies adjusted to account for returns to artistic capital for publishers. Unfortunately these data did not become available to use and so our final estimates are instead based on ASHE.

Figure 16: Literary Originals i.e. Books (PxX using data on labour input from ASHE and the ABI) 1,200 1,000

–  –  –

Source: Our estimates based on ASHE

10.2. P(R)R, Downstream Rental Payments. Books Royalty payments that accrue to the owners of literary originals are collected by numerous Collecting Societies. We agree with the recommendations of both Eurostat and the OECD and feel that such data is the most appropriate source for estimating investment in literary originals. The main reason is that we do not seek to measure all expenditure on creating copyrighted material, much of which has little value, does not have a long service life and will often never be published or commercialised. Rather we wish to measure investment in assets that meet the SNA capitalisation criteria and generate a stream of income to the owner(s) of the asset. Data from the Collecting Societies is preferable as it allows measurement of precisely those revenues we are interested in, and restricts the sample to only those authors that have commercialised their IP, by definition. We would also need to supplement that data with estimates of the profits earned from artistic capital by publishers, including those earned from the publication of long-lived periodicals including academic journals.

It is worth saying a little more about the industry and its arrangements for the distribution of royalties. Publishers typically reach individual agreements with authors, for the right to commercialise the underlying asset. In some cases the author may retain the copyright, but importantly, they will have signed over the rights to publish to the publishing company. The payment (advance) made by the publishing company is some portion of P(N)N in our framework. That is, they have purchased some component of asset rights. Therefore, in the context of the book industry, although it would appear that the author is the creator, there is actually joint ownership of the final asset in the upstream sector.

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