Creative Industries

Richard E. Caves

• Publisher: Harvard University Press
• Year: 2002
• ISBN:
  9780674253384
• Topic: Economics
• Subtopic: Economic Theory

This book explores the organization of creative industries, including the visual and performing arts, movies, theater, sound recordings, and book publishing. In each, artistic inputs are combined with other, "humdrum" inputs. But the deals that bring these inputs together are inherently problematic: artists have strong views; the muse whispers erratically; and consumer approval remains highly uncertain until all costs have been incurred.To assemble, distribute, and store creative products, business firms are organized, some employing creative personnel on long-term contracts, others dealing with them as outside contractors; agents emerge as intermediaries, negotiating contracts and matching creative talents with employers. Firms in creative industries are either small-scale pickers that concentrate on the selection and development of new creative talents or large-scale promoters that undertake the packaging and widespread distribution of established creative goods. In some activities, such as the performing arts, creative ventures facing high fixed costs turn to nonprofit firms.To explain the logic of these arrangements, the author draws on the analytical resources of industrial economics and the theory of contracts. He addresses the winner-take-all character of many creative activities that brings wealth and renown to some artists while dooming others to frustration; why the "option" form of contract is so prevalent; and why even savvy producers get sucked into making "ten-ton turkeys, " such as Heaven's Gate. However different their superficial organization and aesthetic properties, whether high or low in cultural ranking, creative industries share the same underlying organizational logic.

Notes

The following abbreviations are used for the titles of frequently cited newspapers and periodicals:

BG	Boston Globe
BW	Business Week
JCE	Journal of Cultural Economics
NYT	New York Times
NYTNE	New York Times New England Edition
PW	Publishers Weekly
WSJ	Wall Street Journal

Introduction

1. William D. Grampp, Pricing the Priceless: Art, Artists, and Economics (New York: Basic Books, 1989).

2. When the CBS network was approached with the idea of a puppet show with various animal characters, the network responded that its research division had established that there was no demand for a program hosted by a frog. Kermit thus sprang directly into independent syndication. See David F. Prindle, Risky Business: The Political Economy of Hollywood (Boulder, Colo.: Westview Press, 1993), p. 34.

3. I give it this name in honor of William Goldman’s much-quoted observation about the motion picture industry: “Nobody Knows Anything.” See William Goldman, Adventures in the Screen Trade: A Personal View of Hollywood and Screenwriting (New York: Warner Books, 1984), p. 39. That is, producers and executives know a great deal about what has succeeded commercially in the past and constantly seek to extrapolate that knowledge to new projects. But their ability to predict at an early stage the commercial success of a new film project is almost nonexistent.

4. William T. Bielby and Denise D. Bielby, “‘All Hits Are Flukes’: Institutionalized Decision Making and the Rhetoric of Network Prime Time Program Development,” American Journal of Sociology 99 (March 1994): 1287–1313.

5. For a theoretical demonstration of the efficiency of option contracts, see Georg Nöldeke and Klaus M. Schmidt, “Sequential Investments and Options to Own,” RAND Journal of Economics 29 (Winter 1998): 633–653.

6. See Albert Guérard, Art for Art’s Sake (Boston: Lothrop, Lee, and Shephard, 1936), especially pp. 34–35; Raymond Williams, Culture and Society, 1780–1950 (New York: Columbia University Press, 1958), ch. 2.

7. Howard S. Becker, Art Worlds (Berkeley: University of California Press, 1982), pp. 199–200.

8. This theory was so named in reference to the ill-fated Challenger space shuttle. See Michael Kremer, “The O-Rings Theory of Economic Development,” Quarterly Journal of Economics 108 (August 1993): 551–575.

9. The concepts of fixed and sunk costs surface repeatedly in this book, so their definitions must be clear. A fixed cost of producing some article is one that does not vary with the number of units produced. A sunk cost is one that cannot be recovered if production ceases. Fixed costs are frequently sunk and vice versa—the specialized chemical plant that has no other use, if the market for its product disappears—but they may diverge. The “first-copy cost” of producing a newspaper is fixed, regardless of how many copies are printed, but avoidable when the newspaper ceases publication. The visual artist’s costs increase in proportion to the number of canvases she paints (are not fixed), but they are sunk and cannot be recovered if nobody likes her paintings.

10. Becker, Art Worlds, pp. 352–353, 362.

11. Rent is an economic concept that recurs throughout this book. For the artist it is the difference between earnings in a successful creative role and in the next-best occupation: Arnold Schwarznegger in Terminator films versus, say, running a gym. What revenue is available for capture as rent depends on the revenue that the successful artist’s film brings in minus the cost of other inputs. The artist’s pay (including the rent) is often negotiated before that revenue is known, which means simply that the entrepreneur making the film has to guess the expected revenue while bidding for the artist’s services.

12. Rent here takes on a slightly different sense from that explained in note 11. Once the fixed costs of a successful creative product (a book, say) are incurred, the publisher can supply it to many consumers, each willing to pay more than the incremental cost of another copy. That net revenue is a rent to the owner of the copyright, one that the author tried to capture (in anticipation) under the original contract. For the publisher the rent in part recoups the humdrum component of his fixed cost; what goes to the author is a rent to talent, once it exceeds the humdrum wages forgone while she wrote the book.

13. Herbert J. Gans, Popular Culture and High Culture: An Analysis and Evaluation of Taste (New York: Basic Books, 1974).

14. Clement Greenberg, Art and Culture: Critical Essays (Boston: Beacon Press, 1961), especially pp. 4–12.

15. For a good, simple account see Paul Milgrom and John Roberts, Economics, Organization and Management (Englewood Cliffs, N.J.: Prentice Hall, 1992), chs. 5–7.

16. Theoretically, parties can write a contract so that their expected profit shares add up to more than 100 percent, by injecting cash contributions at the start that allow more than the whole profit “pie” to be divided at the end.

17. It is important that performance under contracts can be observed by persons not party to that contract. Otherwise, “he said, she said” problems arise, and additional hold-up possibilities appear in the form of false charges that a contract partner has misbehaved and incurred a penalty.

1. Artists as Apprentices

1. Jacob W. Getzels and Mihaly Csikszentmihalyi, The Creative Vision: A Longitudinal Study of Problem Finding in Art (New York: Wiley Interscience, 1976). Also see Anselm Strauss, “The Art School and Its Students,” in Milton C. Albrecht, James H. Barnett, and Mason Griff, eds., The Sociology of Art and Literature (New York: Praeger, 1970), pp. 159–177.

2. Getzels and Csikszentmihalyi, Creative Vision, p. 19; also Bernard Rosenberg and Norris Fliegel, The Vanguard Artist: Portrait and Self-Portrait (Chicago: Quadrangle Books, 1965), p. 238.

3. Getzels and Csikszentmihalyi, Creative Vision, pp. 38, 50, 69–72, 77; Charles R. Simpson, SoHo: The Artist in the City (Chicago: University of Chicago Press, 1981), pp. 53–57. Rosenberg and Fliegel, Vanguard Artist, p. 70, summarized other research that supports these patterns.

4. Getzels and Csikszentmihalyi, Creative Vision, pp. 112–113.

5. Ibid., pp. 167–168, 177–178.

6. Henry Kingsbury, Music, Talent, and Performance: A Conservatory Cultural System (Philadelphia: Temple University Press, 1988). Towse’s study of the singing profession in Great Britain reached many similar conclusions. Music college teachers tend to be oriented toward the solo voice and develop the student in ways that are dysfunctional for choral singing: their voices may not blend, and they may lack sight-singing ability. See Ruth Towse, Singers in the Marketplace: The Economics of the Singing Profession (Oxford: Clarendon Press, 1993), p. 39. For recent trends in conservatory education see James R. Oestreich, “Julliard Tries to Nurture Well-Tempered Artists,” NYTNE, May 23, 1999, sec. 2, pp. 1, 27.

7. Towse, Singers, p. 41, noted that training institutions for British singers are numerous, and most operate at small scales. Thus the ranking that could occur early in a more concentrated setting to distinguish the talented from the richly talented does not take place, and the hopeful, doomed mostly to frustration, are encouraged to make further large career investments. For an argument that people generally overestimate small probabilities of very large prizes, see Robert H. Frank and Philip J. Cooke, The Winner-Take-All Society (New York: Free Press, 1995), ch. 6.

8. Towse, Singers, pp. 177–178.

9. Howard S. Becker, “Arts and Crafts,” American Journal of Sociology 83 (January 1978): 862–889; Barbara Rosenblum, “Style as Social Process,” American Sociological Review 43 (June 1978): 422–438.

10. Getzels and Csikszentmihalyi, Creative Vision, p. 191; Rosenberg and Fliegel, Vanguard Artist, pp. 16–17; Simpson, SoHo, chs. 4–6; Sally Ridgeway, “Artist Groups: Patrons and Gatekeepers,” in Arnold W. Foster and Judith R. Blau, eds., Art and Society: Read...