Monday, 18 July 2011

Artistic originals: we invest more than we think ...

The economist's favourite
piece of artwork ...?
The UK's Intellectual Property Office's Economics, Research and Evidence team has recently published Film, Television & Radio, Books, Music and Art: UK Investment in Artistic Originals (16 pages, hereexecutive summary here).  This document reviews the definition of artistic originals and official estimates of investment in originals as recorded in the UK National Accounts. According to the review, new data on the value of the UK stock of artistic originals shows that approximately £1.1bn more was invested in original artistic work in the UK in 2008 than had previously been estimated. Combining these data with new depreciation rates suggests an upward revision of £3.5bn to the UK stock of artistic originals in 2008.

According to the executive summary,
"This report contributes to the measurement of the economic value of the UK creative sector. Our focus is on “the creation of long-lived artistic original assets protected by copyright.”, as defined by the System of National Accounts (SNA) [an internationally agreed standard, which appears to be under the aegis of the United Nations]. This includes new broadcast programmes, books, art, music and films. In particular, the report offers revised estimates of UK investment from 1990-2008 and a new calculation of the total stock of artistic originals. We also contribute to the measurement of depreciation and prices. The most significant artistic originals, in order of magnitude in UK spending, are: TV & Radio, Books, Miscellaneous Art, Music and Film. 
As a result of our work, we show that the total value of new artistic asset creation in the UK is even more significant than previously assumed, and is likely to be worth £3bn more in Gross Value Added (GVA) than national statistics currently suggest. 
The report includes:
i. a description and explanation of the appropriate conceptual framework for estimating investment in artistic assets;
ii. a description of official Office for National Statistics (ONS) methods in the context of that framework;
iii. new estimates of investment for the UK, using new data and methods;
iv. triangulation of estimates using other methods suggested by the conceptual framework;
v. a comparison of those estimates with data from the US;
vi. estimates of depreciation rates based on work in the US;
vii. a discussion of appropriate price indices, required to deflate data on investment and construct real capital stocks;
viii. estimates of the newly measured UK capital stock.

This work is an important step forward in the measurement of UK artistic asset creation and the contribution of the ‘creative industries.’ [For some assets, our estimates should be regarded as preliminary, and further work is required. In the case of Music, Books and Miscellaneous Art, accurate estimation requires a longitudinal analysis of the income earned by assets over their lifetime. We had hoped to include such estimates in this report, but legal and administrative complications have prevented us from doing so.]

We intend to collaborate with ONS in the near future, resulting in new estimates for Artistic Originals incorporated in the National Accounts, and so we anticipate an update to our estimates sometime in the near future. Here is a brief summary of the contents: 
1. First, we take a general overview and compare official UK with developmental US data. We discover that UK estimates are considerably lower on both an absolute and relative basis. In
particular, the UK seems to invest much less in Film than the US as a share of GDP
2. Second, we set out a framework for analysing artistic sector output and investment in artistic originals. Since little data on market transactions exist, our preferred methods - for conceptual and practical reasons - are based on input costs or royalty payments. 
3. Third, we evaluate ONS measurement practice, highlighting some ways to build on official data. We plan to collaborate with ONS in the near future to investigate incorporating new estimates into the National Accounts (Blue Book 2012).

4. Looking at assets in more detail: 
(i) for Film we show UK investment to be higher than currently measured using data on a broader range of UK productions; 
(ii) similarly for TV & Radio we use data for a broader range of productions, but our final estimate is lower because we don’t assume a mark-up for the monopoly power exerted by the owner in the commercialisation of their own assets; 
(iii) for Books we generate a higher figure estimating the cost of producing original works;
(iv) for Music we generate a slightly larger figure by estimating the cost of asset creation, but our data on royalties indicate a larger figure still; 
(v) official data do not include GFCF in any other types of long-lived artistic assets, though we estimate these as substantial. 
5. We use our framework to produce estimates of GFCF in Artistic Originals according to a variety of methods and triangulate those data to check the quality of the results. A summary of these results is presented in the table below [omitted from this post]".
If any kind reader would like to explain what this all means to the creators of original artistic works in the United Kingdom in practical terms, we'll be delighted to hear from them.

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