I started working as a business adviser for creative industries businesses in 2009. Impeccable timing – back then, the world was enduring the GFC. Now the creative industries, and all the other industries, face an even greater economic decline.
The 2020 downturn, exacerbated by the coronavirus (covid19) outbreak, is different in a couple of crucial ways. Firstly, it’s more sudden than in the GFC and very few people saw this one coming. Secondly, the GFC started in the financial sector and spread gradually to the creative industries. In 2020, efforts to contain coronavirus have had an instant and damaging effect on certain sectors within the creative industries.
I’m fortunate to work with clients from across the breadth of those industries and I want to offer some observations on how these businesses/organisations are being impacted by this downturn. Keep in mind this is just what I’m seeing in the creative industries at the moment, based on my work with clients and my conversations with people in these industries. Not rigorously researched data, just my ideas.
Some scene setting to start. Sometimes the term “creative industries” is used as shorthand term for the arts or other subsectors. I use the term more broadly and for this post, I am using the definitions used by federal government’s Creative Industries Innovation Centre (which closed in 2015), as they describe a range of activities with creativity at their core. It’s useful because not all of these subsectors are impacted in the same way or to the same extent. And for the sake of brevity, I will use the word “business” to describe both for-profit businesses and not-for profit organisations. Forgive me – I know the two are very different participants in the creative industries.
Three types of impact
I think there are three broad ways in which the creative industries are or will be impacted by the downturn:
- The “instant hit” – an almost immediate negation of a business’s means of generating revenue. Their fundamental way of making money has been taken from them.
- The “sudden slowdown”. Their means of production/supply of their service remains intact, but the fall in confidence among their clients means that business has slowed down. Everything’s suddenly harder.
- The “discretionary income squeeze”. This one may still be some way off, but businesses which provide products and services direct to consumers are particularly exposed to it. Creative industries products and services are nearly all discretionary spends. People can’t buy them if their household income has declined or disappeared altogether.
These three types of impact demand different strategies to combat them. The last two are easier to react constructively to, as businesses impacted by them have one thing the instant hit businesses don’t: time. Time to reorganise, plan and implement strategies for mitigation. I fear that one distinguishing factor of the 2020 downturn on the creative industries will be the lack of options available to businesses which have suffered the instant hit.
Music and performing arts
Businesses in this sector have copped the instant hit and they are suffering. Their business model here – to invest heavily in the development, production and promotion of gigs/shows and then generate revenue from ticket sales – has been almost completely disrupted by the ban on public gatherings of more than 100 people. If we extend this subsector to include everyone in the events industry – corporate events, conferences, wedding planners etc – we can see how a large chunk of the wider economy has been stymied almost instantly. When you think about the flow-on impacts to people in the supply chain – caterers, logistics, transport, hospitality staff, etc – the picture gets even worse.
The options for these businesses are limited. Those who can rapidly reformat their events for digital delivery and generate sales from their consumption may recoup some of their investment. Those with fanbases that can be galvanised and convinced to purchase other products (not just merch, but online content too) could also salvage something from their plans. In both cases, we’re talking about fast re-invention of products for consumers, and those with time and resources available are best placed to do this.
Film, television and radio
In the screen sector, there’s a mix of businesses suffering the instant hit and those facing the sudden slowdown. Large scale productions like Neighbours and Baz Luhrmann’s Elvis biopic have shut down, leaving all the cast and crew involved in limbo. There will be a flow-on impact to planned productions – shoots delayed or abandoned, production schedules everywhere in disarray. How do you organise a large-scale shoot when you can’t gather groups of people together or if the studio has shut down? And again, the flow-on effects on the supply chain are real and happening now – including to post production companies and facilities finding bookings suddenly cancelled or delayed for months. Cinema chains are dealing with the instant hit by scaling back capacity.
Smaller scale production businesses – TV commercials, online content and so on – are better placed to continue production. Thinking creatively about their slates – which projects can be repurposed, scaled back, brought forward etc – is possible in a way that is harder for larger productions. Purely digital companies – animators, VFX etc – should have less disruption to production schedules. The threat here is the slowdown – cancelling or delaying of jobs by jittery clients and/or the shrinking of budgets. The challenge will be to maintain momentum with existing clients or rapidly find clients with new emerging needs presented by coronavirus – government public information campaigns spring to mind.
Streaming services will probably do well in 2020 as more of us stay home, so Australian producers with content on those SVOD platforms may find additional revenue there. The threat here is people have to stay employed for them to be able to afford their subscription fees, so the discretionary income squeeze will eventually kick in. For commercial TV and radio, production headaches are emerging (empty studios, skyping in guests) but the real threat is the reduction in advertising revenue. Leading us neatly to…
Advertising and marketing
During the GFC, advertising, marketing, PR and communications businesses proved to be the canaries in the coalmine. They felt the downturn before the rest of the economy as client spending on campaigns started to dry up. Marcomms businesses were starting to see this in the months before coronavirus hit; the slowdown for these businesses was already on.
Margins in this sector are variable and businesses with sound balance sheets and low salary to revenue ratios will be best placed as the full extent of clients’ reticence to spend reveals itself But the need for effective campaigns hasn’t gone away – for many clients it will be more important than ever. So reminding clients of the importance of continuing to invest in marketing and communications will be critical to retaining work.
Software and games
Software development is the largest contributor to the Australian creative industries’ economic output. Businesses in this sector – particularly SaaS businesses – may not be too disrupted, if they can maintain continuity of operations. It depends on how exposed they are to changes in discretionary spending, and this may take months to see develop. Retention strategies for existing subscribers will be critical and we’ll see a lot of value propositions for software products be tested – if they have proven to be indispensable to users, customer loyalty should be high. Reliable analysis of which features customers truly value will be important for short term decision making. And careful timing of the R&D tax incentive may be able to provide useful cashflow.
As with streamed content, games should maintain their popularity in 2020, as we play more while self-isolating. In Australia, flow on work from major international games publishers is critical, so this will be a major driver for whether games developers can continue business as usual. Businesses with good cash reserves may be able to continue development on their own games and this year may well be a good time to bring them to market and capitalise on increased demand. Esports may well grow in popularity as attendance at sporting events is prevented. (In an interesting pivot, gaming hardware company Razer has taken to making facemasks).
Writing, publishing and print media
We can divide publishing into titles which generate advertising revenue and those which don’t. Magazine publishing has been in decline since the GFC, as readers cut their discretionary spending and advertisers found other opportunities on digital platforms. Generalist titles are going to have to redouble their efforts to provide value to their advertisers to retain them over this tricky period. Those with digital editions and active online presences will have more to offer. Niche titles should concentrate on locking in their subscribers for as long terms as possible.
Book selling and publishing are not reliant on ad revenue but are more exposed to downturns in consumer spending. However they have proven more resilient than many expected a decade ago, and e-books have proven to be a complement, not a substitute to hard copy titles. As book buyers self-isolate at home, we could see the market for published work actually increase during 2020.
Architecture
Architectural business’s long-time frames for work will provide some initial insulation from a coronavirus downturn, as they spend the next few months completing work already in progress. The challenge will come in the second half of 2020, as new work has to be sought and confirmed in an uncertain economic environment. There will be a need to calm clients’ nerves and encourage them to continue with major projects. The same goes for interior designers, but they are more likely to have suffered the instant hit, as short-term projects get delayed or abandoned. They will need to move fast to reassure clients of the value of their work.
Record low interest rates and availability of capital provides a good basis for property developers, though it’s the extent of their confidence in pursuing new builds which will indicate how tough a time architects will have in 2020. Smaller firms and sole practices are not as well placed as medium to large firms who should have projects of scale already locked in for the coming 12 months. It’s time for these businesses to reconnect with their existing client base, and where possible, explore possibilities for projects in the second half of 2020 and beyond.
Design and visual arts
There’s a bit to break down here. Web and graphic designers should have no disruption to their means of creating work, but for many the sudden slowdown is upon them already, as clients delay or cancel planned jobs. They will need to scramble to remind their existing clients of the role they can play in reinvigorating business. Similarly, industrial designers will need to build confidence in their clients to continue with the product design and development they are investing in now for future growth. Clients’ needs for design services haven’t gone away; they just may need to be reminded of this.
Fashion design and production has had such a turbulent time of it in Australia in recent years that a new crisis seems a little like adding fuel to an existing fire. Those with healthy online sales channels, fed by active social media campaigns, are best placed here. Mobilising their online followers will be a priority. This is one sector of the creative industries where supply chains are likely to be disrupted, as supply from manufacturing bases overseas is likely to be unreliable. For once, manufacturing in Australia may prove to be a competitive advantage.
Visual arts is another mixed bag. Public galleries are abandoning their public programming and associated events, but they are not as exposed to loss of ticketing income as performing arts organisations. Switching to digital delivery, and again, mobilising membership bases and keeping them engaged will be crucial. Nothing less than a complete U-turn in how they engage with their visitors and donors is needed here.
Commercial art galleries will struggle to attract buyers in store as buyers stick close to home but can still communicate effectively online and the increased facility for businesses to write off asset purchases could aid with sales to corporate clients. Individual artists will also need to engage more with their online followings and, as many of them support their creative practice with teaching, finding online formats will help maintain tutoring income. Artisans who rely on markets to sell their wares will need to rely instead on Etsy stores and other online selling channels. Aboriginal and Torres Strait Island artists in remote communities are potentially impacted by the closing of state/territory borders.
Where does this leave us all?
In short, the creative industries are not all impacted by the coronavirus downturn in the same way. For some, there are opportunities and upsides. For those hurting, different mitigation strategies are needed for the different impacts felt:
- The “instant hit” – rapid reinvention of format and delivery, and effective mobilisation of customers base.
- The “sudden slowdown” – reengage with your clients now and reinforce the value of your work.
- The “discretionary income squeeze” – lock in your loyal customers now and focus on the features of your products which they truly value.
Over the next few weeks, I’ll be posting on various topics related to the downturn. Check back for updates and email me any topics, suggestions or additions to these ideas.