By Dr Yang Zhao, Aston University
The creation of economic, social, and cultural value is often inter-related in the creative industries. Although the Covid-19 pandemic has hit the creative industries particularly hard, with a total of 10 million jobs lost in the sectors worldwide in 2020 according to UNESCO, there has been positive trend in the economic recovery of UK creative industries since 2021. According to the data published by the Department for Digital, Culture, Media & Sport, the monthly totals of GVA of the creative industries was £104.1 billion in 2021, compared to £95 billion in 2020. Across the sectors, GVA is estimated to have grown by 1.4% from Quarter 4 2021 to Quarter 1 2022 in real terms. By comparison, the whole UK economy grew by 0.7% from Quarter 4 2021 to Quarter 1 2022. In addition to the financial performance, the creative industries have made significant social and cultural impact that generates important spillovers to the wider economy, from supporting health and well-being, enabling sustainable local development, promoting social inclusion, to regenerating the power of community development. Such impact is particularly valuable in the post-Covid recovery.
As the creative industries are bouncing back, and we have witnessed an increasing demand for creative products, services, and experiences, it is crucial for creative businesses to understand how and why the economic, social, and cultural impact can be intertwined in their development, which enables them to exploit and capture the full commercial and societal values in the post-Covid economy. We argue that a company’s business model, a system of interdependent activities that describes how a company creates, delivers, and captures value (Zott and Amit, 2010), provides a useful conceptual lens to answer this question.
Undertaken for the Creative Research and Innovation Centre (CRAIC) to help understand innovation in business models in creative industries, this research is supported by the JOINT fund of Loughborough University London. The project aims to build a contextualised understanding of creative industries business models, specifically in the post-Covid creative economy and to contribute to existing studies on creative immersive business models, such as the Digital Catapult’s report The UK Creative Immersive Landscape 2020: Business Models in Transition. The research is being conducted through structured interviews and focus groups with creative businesses who have been supported by the Creative Industries Industrial Strategy Challenge Fund programme – Audience of the Future.
Business model definitions
Over the last two decades, the business model has proliferated in both theory and practice as a concept central to firms’ survival and growth (Foss and Saebi, 2018; Snihur and Wiklund, 2019). As an essay by Professor Feng Li for CRAIC pointed out, the success of creative businesses depends critically on the underpinning business models to take them to market, without which the economic and social impacts of these ventures cannot be realized.
A business model elucidates how a firm creates and captures value in concert with transaction partners such as customers and suppliers. On the one hand, the business model identifies transaction partners, establishes the value proposition(s) for each partner, and describes how a focal firm connects to them. On the other hand, the business model defines how value is delivered, monetized and shared among transaction partners. The business model, therefore, refers to the overall gestalt of interlinked boundary-spanning activities that enable value creation and capture (Zott and Amit, 2008).
An activity in a firm’s business model refers to the engagement of resources (human, physical, capital, etc.) of the focal firm or of any transaction partner to fulfil customers’ needs and create customer benefits while delivering value to the focal firm and its partners (Zott and Amit, 2010). The business model can then be defined as the content, structure, and governance of activities between the focal firm and its transaction partners (Amit and Zott, 2001). Activity content refers to those activities that need to be performed to enable value creation and appropriation; activity structure captures the order or sequencing in which transactions take place, but also the choice of market mechanism; and activity governance refers to who performs certain activities, thus reflecting what partners make a business model work (Zott and Amit, 2010).
To illustrate, we may consider the example of Spotify, a music streaming platform that matches the supply and demand of music. When creating its business model, Spotify needs to make choices of what activities need to be performed to satisfy artists’ and users’ needs (eg. build collections of music and podcasts, manage artist profiles, enable artists to pitch music to the playlist editors, create artists groups, encourage users to find, follow, and share music with their friends, and connect the Spotify app in multiple devices), how to match demand and supply of music (eg. make audience stats available to artists and personalize the recommendations based on user taste), and who undertakes activities (eg. artists, songwriters, podcasters, advertisers, developers, vendors, and music communities, as discussed by Dr Nicola Searle’s in the CRAIC podcast on Spotify’s business model and copyright issues).
The boundary-spanning activity system
The boundary-spanning nature of a business model is key to understanding the value creation logic in the creative industries because creative businesses often engage or build ecosystems where multiple participants work in an intertwined way. At the heart of the boundary-spanning activity system, a creative business creates value for and co-creates value with the stakeholders. For example, Spotify establishes a value proposition not only for its users (free/affordable access to unlimited amounts of music), but also for artists (exposure to listeners and support to monetize more fans) and advertisers (easy access to a large targeting user base). Moreover, Spotify has collaborated with more than 2,000 partner companies, ranging from wearable devices to kitchen appliances, which has created a two-way flow of traffic exchange between the platform and those partners – 28% of its new registrations come from the partners.
Furthermore, the activity system emphasises the interdependencies between the value creation activities, which promote a holistic thinking in the business model design (Zhao et al. 2020). For instance, Spotify needs to think beyond the single design parameters that give artists a good reason to join, eg. the creation of new features, in which, it needs to build the underlying mechanisms that lead to the creation of such design elements and the interdependence between them. This leads Spotify to introduce the complex and interconnected activities that enable artists to create music, promote their works, connect with fans, learn about the music business, and discover monetizing opportunities. Thus, the development of a creative business model requires attention to the entire architectural recipe that can bring the value creation activities together.
Beyond the economic value
Current business model research has focused predominantly on how firms can be profitable, since the origins of the business model concept lies in describing how firms do business and make money. For example, Magretta (2002) explained that a business model “answers the fundamental questions every manager must ask: how do we make money in the business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?” However, scholars have begun to call for studies that “go beyond the narrow question of economic profitability and value creation for the target customers to study the broader impact of business model innovation on business ecosystems, society, and planet.” (Snihur and Bocken, 2022).
Socio-cultural value has been extensively discussed in the literature. For example, Sinkovics et al. (2014) explored how enterprises can contribute to the creation of three core social values, which includes improving and enhancing individuals’ sustenance (the ability to meet basic needs such as food and healthcare), self-esteem (to have dignity and legitimacy), and freedom from servitude (the ability to choose from a wide range of options in a wide range of areas in one’s life such as education). Auerswald (2009) proposed the dimensions of social value creation, including financial, reputational, ethical value, consumer surplus, positive externalities, and the enhancement of human capabilities. While consumer surplus and the enhancement of human capabilities are more direct forms of social value creation, the reputational and ethical values achieved through the interaction of the enterprise with its wider ecosystem can be leveraged to benefit individuals not directly involved in the original transactions.
Taking Spotify as an example again, its social impact team works closely with artists and fans to create social change through music and through Spotify’s platform. In an interview with Forbes, Kerry Steib, the director of social impact at Spotify, explained that “the programs we create start with the idea that music is often a way into exploring something new – a new perspective, idea, culture, or perception of yourself. These explorations can result in increased knowledge, empathy, and action.” For instance, a Spotify programme worked with Kealing Middle School in Austin to develop a music production space where kids from diverse backgrounds could meet and collaborate. In this way, the value creation activities are scaled up to benefit not only the direct transaction partners but also the non-direct audiences.
The CRAIC project
Business model research can assist in tackling growing social issues and help companies to respond to pressing societal needs, through developing more responsive and competitive business models. Linking business models and multi-faced value creation is particularly vital to UK creative industries because many creative businesses consider social and cultural value creation as a conscious objective and an organic part of business formation. In many cases, business models in the creative industries can redefine the ways in which companies create value for customers, but this can also spur value extension and integration, including the building and rebuilding of the social environment.
Responding to the call for research from both academia and industry, we aim to explore how creative businesses design their business models and how the business models create value for the customers, users, stakeholders, communities, and the society (for instance, HAPPIE – an Audience of the Future supported project that designs new touch-based robotic tools for blind/visual impaired and sighted disadvantaged groups – described in the podcast with Lisa Bowers and Maddalena Crosti.)
Taken together, business model studies are well-positioned to examine not only the economic outcome of innovations, but also their broader influence on business ecosystems and society. The importance of impact beyond the focal firm has been embedded in the definition of business models as boundary-spanning activity systems because these activity systems expand boundaries with customers and stakeholders in the pursuit of value creation and capture. Understanding how content, structure, and governance might, intentionally or unintentionally, result in significant and multi-faced value creation can reveal the underlying system to create positive societal impact.