The territorialization of cultural and creative industries

9 Territorialized industries should be understood as the activities in which location is determined by strong territorial constraints. These location constraints can result from the unequal distribution of natural resources at the world level, as it has been shown in the case of the extractive industries. They can also result from limits imposed by the spatio-functional integration of activity or by the regulatory process in a given institutional configuration. This is the case with the territorial organization of creative and cultural industries, but this is also the case with the functioning of network industries. The institutional configurations may be territorial collectivities, the State, or supranational institutions such as the European Union. These types of activities are determined by the organizational characteristics of territorialized industries. They often have to cope with high fixed costs and highly specialized assets (Shy, 2001). They share common characteristics that distinguish them from other industrial organizations, marked by free choice of location and by redeployable assets.

10 Thus, the cultural and creative industries form a set of territorialized activities, and they must use creativity, culture, talents, as localized assets (Pratt, 2004; Florida, 2005). And these creative assets themselves may result in a kind of absolute advantage. This assertion may seem paradoxical in the sense that culture and creativity appear to be shared values, like a flux that goes from one space to another. Both activities promote a continuous process of “deterritorialization” and “re-territorialization”, of cultural goods, representations and symbols (Bathelt, Malmberg, Maskell, 2004). But the real and symbolic circulation of use values, through the mobility of cultural and creative goods, often comes with the territorial concentration of production. The spatio-functional dynamics of cultural and creative industries tend to resemble the organization of a development pole with its clearly-defined specificities (Grabher, 2002). Here we find the well-known phenomenon of industrial polarization, which has been particularly studied by development theorists in a structural approach (Hirschmann, 1958; Perroux, 1961, 1991).

A territorially differentiated approach

11 The development of cultural and creative industries is largely dependent on the exploitation of a territorial advantage. This specific comparative advantage is the result of the joint influence of creation processes, entrepreneurial visions, proximity dynamics and public policies. It tends to turn the creative activities into specialized assets, with a better capacity to be differentiated from competitive or substitutable activities. This is what appears notably with agglomeration effects which result from cultural clusters and metropolitan projects centered on creative industries (Cooke, Lazzeretti, 2007; Pratt, 2008b). The combinations of factors, the complementarities between private and public investments and the externalities, tend to create a long-term territorial advantage.

12 By exploiting the resources pooled in a spatio-functional model, creative industries enjoy a particular type of property rights on the access to localized assets and on their valorization. These localized assets can be constituted via an expertise linked to a recognized artistic and cultural specialization, or with the help of available competencies, in labor market segments in which the creation process stimulates attractivity. These assets can also be constituted using public policies favorable to cultural industries in terms of finance, infrastructure, and other incentives for the creation and innovation (Grodach, Loukaitou-Sideris, 2007).

13 The valorization of specialized or co-specialized assets – available locally under very favorable conditions – constitutes an important competitive advantage for companies that work inside the industries concerned (Sunley et al., 2008). The distribution of assets which meets a joint use by various companies inside the same creative industry or by companies coming from different creative industries, contributes to the multiplication of open innovation opportunities. Creative industries share a territorial advantage that allows them to increase their pool of knowledge, by exchanging ideas or artistic talents, competence and techniques, either by market or non-market relationships, or through public or public-private policies (Coe, 2001).

Value transfer and differential rent

14 At the economic level, the territorial anchoring of creative industries and the intensification of the effects of innovation sharing that it allows, result in the creation of a differential advantage of location. This advantage can be analyzed as the counterpart of the specific organization of the industries that are dominated by strong location constraints. These industries benefit, for this reason, from property rights entirely or partially conceded to dedicated assets. As a result there is a value transfer in favor of situated activities, a type of differential rent, which allows for the covering of a part of the development cost of the activities. The value transfer depends on the conditions in which the innovation is shared, the quality of the assets, and the attractiveness of the creative projects that make up the territorial advantage. Different reports and studies highlight the links between territorial advantage and innovation in creative industries [2].

15 We can deduce that open innovation in cultural and creative industries can be seen as a component of territorial advantage, combining agglomeration effects and spillovers. The prospect of public and private institutions is to create a long-term competitive advantage that turns into a differentiation advantage (Pecqueur, 2006). Territorial collectivities less seek to have a greater competitive advantage in the same cultural or creative activities than to mobilize relevant activities to be differentiated from the other territories. With highly differentiated cultural goods, they aim to attract and retain investments, and so to foster job creation.

16 To create a differentiation advantage, cities need to transform the generic assets that all territories can possess into specialized assets. As the attractiveness of cities or regions partly depends on the development of non-redeployable resources, the sharing of cultural and creative assets emerges as a driving force in industrial and territorial differentiation. Open innovation indeed leads to a specific territorial design of cultural and creative industries by influencing the nature of agglomeration effects and externalities.

The development of cooperative models

18 First of all, it is necessary to highlight the proximity and the density of activities of the same nature. These activities are the combined result of technical, cultural and artistic competence. They also meet the cultural needs observed in many cities. And they must cope with complex organizations (Scott, 2000). The economy of contribution and public policies can have an influence on these organizations. The non-market relationships are likely to override market relations. This means that the development of open innovation networks converges with the development of cooperative models. These models make it possible to share creative resources and create new ones, as it has been suggested by empirical analysis for different cultural industries (Bassett, Griffiths, 2002; Nachum, Keeble, 2003; Turok, 2003).

19 If such local cooperative models seem to be favorable to open innovation in the cultural and creative industries, it is because they are more efficient than the process of organizational design mainly based on horizontal or vertical professional relations (Drake, 2003). These cooperative models are allocated between partners from different territories and based on the articulation of different phases of the same activity. The agglomeration effects linked to the metropolization of the cultural and creative industries result in innovation flows which combine creative processes implemented inside and outside the territory. And they use a diffusion process benefiting largely to localized activities.

The protection of intellectual property

20 Secondly, it is important to underline that agglomeration effects related to the location of creative industries can help to overcome the potential contradictions between open innovation and the protection of intellectual property. Some creative industries, especially computer industry applications, multimedia, and electronic games, benefit from patent protection. But several surveys, among them the Yale Survey, have already shown that for the different industries, the patents were an insufficient protection to preserve profits made through innovation, except for a few activities (Levin et al., 1987; Cohen et al., 2000; Arundel, 2001). The porosity and the extension of the boundaries of the firm, as a consequence of open innovation, contribute to making more sensitive the issue of profit-sharing (West, 2006). And in the case of cultural industries in general, this protection can turn out to be ineffective and irrelevant. Artistic works, performed art and dematerialized activities and, more generally, all cultural goods, are by nature exposed to a challenge about exercising their copyright and property rights in general (Landes, Levin, 2006; Ginsburgh, Throsby, 2006).

21 But territorial advantage can compensate, to a certain extent, for the difficulties of individual protection through rights, by reinforcing or by substituting that protection, or by offering a kind of collective guarantee with regard to intellectual property (Santagata, 2002). Thus, the results of innovation sharing are in a certain manner protected by the conditions in which the territorial integration of creative activities takes place. Three main phenomena may be underlined, that can appear as a protection against the predatory behavior of other actors, coming from outside the territorial organization.

22 First, in a collective metropolitan context that has all the basic capacities, such as the infrastructure, workforce, financial resources, and accompaniment structures, it is possible to mutualize an important part of the intellectual property protection costs, including through specific public policies. Then, the specialization of localized activities tends to unite the actors and produce a club effect that comes with an implicit recognition, a reputation effect, made to ensure trust between the members. Besides this, there is a third phenomenon: the progressive transformation of generic assets into specialized assets in the context of the location of creative industries. This phenomenon tends to internalize a part of the open innovation process between the situated actors, and thus to complexify the access to knowledge and skills for the actors from outside the territory. Proximity dynamics tend to reinforce this effect by favoring for the situated actors, the tacit knowledge production and circulation in the context of shared innovation processes (Storper, Venables, 2004). Consequently, non-situated actors will face ever-growing difficulties to translate tacit knowledge into codified knowledge, and they therefore bear higher and higher costs of codification (Torre, Rallet, 2005).

Risk reduction

23 Thirdly, besides the influence of cooperative models and the protection of intellectual property, the territorial integration of creative industries contributes to reducing the risks linked to the nature of the activity and to the degree of openness of innovative trajectories. In activities where taking a risk is by nature very important, agglomeration effects tend to make information processing and data transmission converge, in favoring local actors and privileging proximity factors (Eisingerich, Bell, Tracey, 2010). Here, open innovation plays a role of mediation and translation, by easing information and knowledge diffusion from one actor to another. Shared innovation flows are coupled with the distribution of information be it tacit or codified. This information is determined by sectoral dynamics, financing conditions and the promotion of cultural activities, etc. All different types of risks can be concerned, just like for any other industry. But risk reduction also takes into account other factors related to the specific nature of creative and cultural activities: higher costs for an artistic risk; uncertainty owing to public tastes which dictate demand; the institutional or regulatory framework modifications that can have significant consequences on the organization of creative activities; or the effects induced by the evolution of technology on the conditions of supply and demand for cultural goods (Baumol, Bowen, 1965; Throsby, 2001).

24 The territorial advantage helps to promote capital development in creative industries. The location of assets tends to compensate for risk factors. In this respect, the sharing of innovation is similar to information sharing (Demsetz, 1991). But the positive effects induced by the flow of information are not the only ones in question. Some economic factors can also be analyzed in reference to the specific characteristics of creative industries.

25 Therefore, the economic influence of open innovation, combined with the agglomeration effect, tends to decrease the fixed and sunk costs. These costs are often very high in creative activities, notably because of the considerable fixed costs for production of cultural goods and the expense of research projects, such as experimental work in the artistic field, and the production of prototypes in the digital arts, software, games, multimedia or design (Bomsel, Geffroy, Le Blanc, 2006). As Caves stressed it: “The sunkenness of many costs of creative activities has been emphasized so far, accounting for the option contract’s central place. Fixed costs’ implications are different but no less central to creative activitie organization (…) Fixed costs are pervasive in creative activities” (Caves, 2000, p. 223).

26 These costs can be reduced by enlarging the sources of the creation processes and by spreading expenditure over a broader number of actors. Thus the territorial advantage and open innovation contribute to absorbing the rise of capital-intensive investments, by modifying cost structure, and ceteris paribus, to improving competitiveness of localized cultural and creative activities. Both phenomena are at the root of an equalization that partly allows creative industries to compensate for the risks they are exposed to using joint progression of internal economies of scale, through productivity gains, and external economies of scale, through market share gains.

The influence of public policies

27 Fourthly, the interactions between open innovation, cultural and creative industries and public policies must be stressed. The territorial dynamics of open innovation indeed often seem to be guided by cooperative models linked to proximity dynamics. But the expectations, assessments and private decisions of situated actors are not the only driving forces of the devising and production processes of cultural and creative goods. State intervention, through centralized and decentralized public policies, or through public-private partnerships, also appears to be a determining leverage effect (Throsby, 2010).

28 Public policies in the cultural field tend to favor the collective appropriation of resources, by contributing to put at the actors’ disposal the necessary basic environment: dedicated infrastructures, accompaniment structures, complementary competence, business resources (including subventions and other financial possibilities) and if necessary, for the creative industries concerned, technological resources through university laboratories or public research institutions (Dang, Duxbury, 2007). These institutional resources make it possible to reduce the risks specific to creative and cultural industries. At the same time, they ensure the conditions favorable to the multiplication of effects of scale and to the endogeneisation of positive external effects.

29 State intervention in creative and cultural industries can be found at different levels: public procurement, investments, accompaniment processes, public-private partnerships, regulations, or sectoral policies. It appears at the same time as a type of economic governance, and also as an important source of stable resources that allow creative industries to cope with the constraints linked to the specific nature of these activities (Garnham, 2005). In particular, the covering of all or part of the sunk costs, the improvement of the conditions of valorizing cultural and creative goods, fiscal policy and financial policies, constitute strong incentives for the situated actors who benefit from those measures, to share and spread innovation within the framework of cooperative models.

30 Public intervention favors open innovation and agglomeration effects, and thus it contributes, in a determining manner, to the development of differentiation advantage in creative and cultural industries. From this point of view, the distinction exposed originally by Veltz (1993) between two spatial agglomeration models, the mutualistic model marked by metropolization and public regulation, and the free market/insurance model founded on market mechanisms and the capture of external economies, does not seem relevant in the case of these industries. Three arguments can be invoked. A first explanation is that the territorial advantage is reliant to the specialized assets linked to creative and cultural projects, but also to the mutualization of some costs, notably favored by the sharing of the cost of innovation between the different actors, through local infrastructure policies and economic development agencies (O’Connor, Gu, 2010). Secondly, open innovation flows must cope with the market mechanisms that are limited only partially by State intervention, even if the regulation in cultural industries tends to turn some production and distribution activities into semi-public goods. A third reason is that the external effects jointly-generated by private investment and public investment can proceed alternatively or simultaneously by harnessing external economies from public origins, targeted incentive measures or a more directive public policy. Examples of metropolitan cultural projects in the United States or in Europe clearly reveal this diversity of situations, where the two agglomeration models appear in different proportions (Evans, 2005; Currid, Williams, 2010; Grodach, 2010).

Open innovation and spillover effects

31 Fifthly, the diffusion of innovation in the context of the territorial integration of creative industries coincides with the development and appropriation of external economies. The location of assets and innovation flows result in the positive development of externalities which enhance competitiveness in activities and contribute to the development of territories.

32 Creative industries are based on the dynamics of proximity to guarantee the sharing of knowledge, thus generating knowledge spillovers. These spillovers happen when situated actors benefit from new ideas, discoveries, artistic and cultural innovation from other activities (Markusen, Schrock, 2006). The diffusion of innovation turns out to be all the faster and more pervasive as the spatial concentration of actors working in the same activity or in complementary activities contributes to the multiplication of the effects of network spillovers (Grodach, 2011). Likewise, training spillovers are the result of a collective process of skill enhancement benefiting from asset location taking on the form of specialized segments of the labor market, of a training and research system, and of other public accompaniment policies. This phenomenon will be profitable for all the actors linked to a profession or a group of professions, thanks to mobility inside the same creative industry, but also from one creative industry to another (Banks, Hesmondhalgh, 2009).

33 As for the artistic spillovers, they constitute a very important element of the open innovation process in creative industries. They contribute to an improvement in the overall standard, in each cultural activity, thus having an indirect influence on the professional practice of the other participants in the profession (Bryant, Throsby, 2006). The influence of the interactions between different cultural and creative activities on shared innovation must also be underlined. Product spillovers can be generated by these interactions, when the consumption of a given product is the result of the consumption of another. The relations between software and hardware in quite a lot of creative industries (computers, games, multimedia) could illustrate this type of interaction.

34 Those spillovers are evidence of innovation sharing based on the dynamics of proximity, characterizing the spatial integration of creative industries. By valorising interdependence relations inside the same activity and between different but hinged activities, by reinforcing fluidity and the pervasiveness of the circulation of ideas, of skills, of talents, and of cultural goods, proximity and open innovation contribute to multiplying spillovers and thus to ensuring the pollination of creative milieus, once more to use the same image as Meade (1952). Private initiative, the dynamism and reactivity of innovation networks, the creativity of actors, obviously constitute dominating factors in innovation diffusion. But the valorisation of localized assets also highlights the determining role of public policies and the ability of the latter to favour positive externalities. Public investment and proximity dynamics result in the creation of innovation milieus that are linked to metropolitan cultural projects.

35 The above interpretations concerning the construction of a cooperative model, intellectual property protection, risk reduction, influence of public policies and conditions of developing and capturing externalities highlight the privileged role of shared and situated innovation. By contributing to the development of dedicated assets in cultural and creative industries, open innovation reinforces the sources of differentiation advantage. Besides, innovation processes also benefit from the results of the prospective policy regarding the city and regional development, which is at the root of long-term planning strategies. These strategies can stimulate the development of creative and cultural industries, in the broader perspective of a territorial design linked to creative city needs (Mommaas, 2004; Amin, Thrift, 2007; Pratt, 2008a; Comunian, 2011).

36 In addition to the effects induced by proximity dynamics, open innovation is stimulated by the economy of contribution, the specificities of which mark the territorial development of cultural and creative industries with regard to a participative approach.

The contribution, from the digital economy and clusters to the social economy

39 How do relations between the economy of contribution, open innovation and the cultural and creative industries appear to function? The economy of contribution makes it possible in particular to identify the sectoral trajectories of the digital economy, the social economy and from local systems of innovation (Figure 3). Thus, digital art, open sources, electronic games, multimedia applications, or innovations linked to 2.0 web platforms, came about thanks to the digital economy. Likewise, the organization of an important number of artistic and cultural activities is handled in the context of the third sector in relation with non-profit organizations or institutions of the public sector. And the territorial advantage in creative and cultural industries is evidence of open innovation within local networks. Cultural and creative industries are indeed truly concerned by these three sectoral dynamics.

Figure 3

The economy of contribution and the pervasiveness of open innovation

The economy of contribution and the pervasiveness of open innovation

40 With regard to the first sectoral dynamics, the innovation shared in creative industries benefits from the technological and industrial transformations of the digital age. The development of information processing and transmission has resulted in the emergence of a large group of applications and services the users’ appropriation of which has become a massive phenomenon (Lakhani, von Hippel, 2003; Baldwin, von Hippel, 2010). Communities of users highlight the pre-eminence of new types of behavior: that of the contributor who devotes himself to sharing and appropriating knowledge, that of the pro-am who offers his or her expertise or seeks to acquire it. The economy of contribution here refers to a group of specific practices that concern the freely-involved contributors’ participation in the activity. They accept to cooperate and to share their knowledge without expecting monetary compensation. This phenomenon has a deep influence on the way innovations permeate through various creative and cultural activities. The digital economy, by fostering the participation of pro-ams, contributes to intensifying open innovation practices in the industries concerned (Leadbeater, Powell, 2008).

41 The second trajectory of the economy of contribution applies directly to open innovation since it concerns the influence of external effects in the context of relations between economic agents, and in particular localized agents in spatio-functional structures such as industrial districts or local systems of innovation (Becattini, 2004; Wu, 2005). The typology of externalities shows various situations in which the action of an economic agent has a positive effect on another agent without one or the other wanting to lead this action for such a purpose. An example of this practice is the concept of pollination which makes it possible to illustrate the phenomenon that results from spillovers and open innovation. This phenomenon occurs when localized companies benefit from the new ideas, the discoveries, and the product and process innovations from other companies’ R&D activities or research laboratories (Lorenzen, Frederiksen, 2007). Regarding creative and cultural industries, the external effects can concern purely artistic activities (fine arts, performing arts, etc.) as well as activities linked to digital products (software, games, digital applications).

42 The third sectoral dynamics that influence the diffusion of innovation among cultural and creative industries refer to atypical organizations inside the capitalistic economy. The co-operative and mutualist models go back to the 19^th century, and are considered to be at the roots of the contemporary model of the social economy. The activities of the third sector tend to function in such a way they become, by nature, contributive models (Evers, Laville, 2004; Amin, 2009). Furthermore, strong interactions between actors create important external effects. There are numerous effects that have implications on open innovation in cultural and creative industries: network spillovers, skills enhancement, societal spillovers, with the additional idea that the organization of production, investment and the exchanges must make it possible to trigger and orientate these effects willfully (Lipietz, 2001).

43 Thus, the pervasiveness of open innovation and the diffusion of spillovers among creative industries rely on the economy of contribution, in the framework of the digital economy, local systems of innovation and the third sector (Figure 3). The economy of contribution results from the relations between contributors and from the spillover effects. The influence of the contribution on agglomeration economies must be stressed, with the combined effects of localization and urbanization economies resulting from the organizational and spatial dynamics of creative industries.

The economy of contribution, between new business models and collective creation

44 The skills of contributors constitute freely-available resources in cultural and creative industries. These resources are not limited by economic scarcity and the opportunity cost, but by societal scarcity and the capabilities of contributors. Thus, the economy of contribution represents the way these resources mutually combine and increase in the context of the innovation process. The interaction between contributors is based on relational technology, favored by the digital economy, and on the availability and alertness of the communities associated with creative and cultural practices. Despite the relationship with the market economy, the presence of non-profitable activities within creative and cultural industries (combined to situations induced by public policies or by the gift economy) makes it impossible to reduce contribution and the ensuing innovations to a straightforward monetary evaluation.

45 Two trends can be confronted regarding the use of contribution: on the one hand, the attempts led by large creative-industry firms to use the economy of contribution to enhance their own innovation process; and on the other hand, open innovation, synonymous with societal innovation, making economy of contribution inside the cultural and creative industries one of the foundations of collective creation, in the way François Perroux understands it (1964, 1970).

46 Therefore, the economy of contribution can be subject to appropriation by large firms in order to take part in the definition of usage and the evolution of products and services (Cook, 2008). Some authors argue that open innovation becomes an embedded innovation, “by introducing organization into communities to ensure knowledge absorption instead of just managing inside-out and outside-in processes” (Hafkesbrink, Schroll, 2011, p. 69). This orientation concerns, firstly, firms born during the Internet wave or the 2.0 web, such as Google, Amazon, e-Bay, etc. or even older ones in the computer sector, like IBM, Apple or Microsoft. These firms favor participative processes in order to benefit from information exchanges and to enhance their products’ reliability and their commercial attractiveness: collaborative communities for software development at Microsoft and Google; customer participation to measure the adequacy of the services offered with the user-clients’ profiles at Amazon (Boudreau, Lakhani, 2009).

47 These applications result from the adoption of value co-creation practices. Value co-creation could be described as a new business paradigm, “based on the design and development of customer participation platforms providing firms with the technological and human resources, tools and mechanisms to benefit from the engagement experiences of individuals and communities as a new basis of value creation” (Tanev et al., 2011). The growing adoption of value co-creation practices in technological firms shows, once again, the systemic integration capacity of capitalism [4]. However this trend, by privileging proprietary products and processes, tends to be contradictory with the very nature of open innovation, in cultural and creative industries, and with the capacity of these industries to build a learning process that is not willfully oriented by the market.

48 Contrary to this management orientation, the economy of contribution can make innovation in creative and cultural industries one of the leverages of social change. In terms of expression of contribution in the process of creating capabilities, in Sen’s meaning of the term (Sen, 1999), open innovation in creative and cultural activities constitutes a societal innovation that questions economic determinism and lies within the demands of durability. It appears as a major source of collective creation with its ability to conceive works that make it possible to reinforce communication and the deliberation process in the public sphere (Figure 4). From this point of view, societal innovation brought about by the production and diffusion of creative and cultural goods does indeed lead to what Simondon (1989) called a psychic and a collective individuation, and what Perroux qualified as mental changes. This new lexicon of innovation finds a visionary echo in the developments of "Industry and collective creation": “As for innovation, it is no longer only the process or the technology that lowers the costs of an object or that gives rise to a new product; it employs itself to transforming the subject, the psychological being to give it a vital equilibrium and to locate it in a good social equilibrium” (Perroux, 1964, p. 187).

Figure 4

The driving forces of cultural and creative industries

The driving forces of cultural and creative industries