Making Innovation Flourish

On Evidence-Based Policymaking

We take it for granted that a solid evidence base is a key requirement for government interventions. The Department for Business Enterprise & Regulatory Reform’s (BERR) five principles of good regulation state that any regulation should be “transparent, accountable, proportionate, consistent and targeted”.

Yet the European Commission – in its proposed Term Extension Directive – is calling for an extension of the European copyright term for sound recordings from 50 to 95 years, which all the independent evidence suggests would be bad news for emerging talent and for consumers.

The theoretical trade-offs are well-known: an extended term of protection, it is argued, provides incentives for musicians to create new recordings, but it also prevents artists from innovating on the back of published music and diminishes the choice of music available on the market. Which effect dominates, and the case for term extension – should rest on a careful consideration of the empirical analysis.

Happily, an international group of 50 leading academics has done just that in the Bournemouth University statement submitted last month to the European Commission.  The academics have carefully reviewed the available independent evidence and have shown overwhelmingly that the proposed term extension would be bad for Europe’s creativity (though good for a relatively small number of long-living performers and their estates).

The academics wrote to The Times earlier this week to call on policymakers to examine the case in light of the evidence.  Three cheers for the academics!

Missing the point: net radio's last stand

In the same week that NMA announced that online (download) sales now acount for 90% of British single sales (yes, ninety!), the UK Copyright Tribunal did exactly what I was hoping they wouldn't: they followed the US CRB in effecting royalty charges that could kill internet radio in the UK entirely. What's more, the UK fees will be up to 9 times the amount their US counterparts will pay. Pandora, one of the most respected US services that had only recently started broadcasting in the UK, is preparing to shut down their UK operation as early as this week.

What stations like Pandora do is provide an excellent way of selling more records. Here's how: you type in the name of a song or musician you like, and Pandora plays you music that is similar. You may never have heard of the artist or song that Pandora plays to you, but if you like it, you can buy it from iTunes or Amazon at a single click. I have no doubt that this has led to an increase in sales, especially for lesser-known artists.

The whole purpose of royalty fees is to protect composers and performers (and of course record companies) by compensating them each time their song is played in public, thus generating income for them. But actions like the new net radio fees will only end up hurting music sales, which generate more income than royalties. The UK Copyright Tribunal and the US CRB have effectively killed off one of music's cheapest and most effective marketing tools.

Until regulatory bodies like this recognise that the world has changed around them and learn to adapt their ways of working to account for the digital age, it's a lose-lose situation. Regulation needs to evolve to support innovative business models like internet radio, or nobody wins.

Internet radio: how regulation could impact online innovation

Today internet radio stations in the US are observing a day of silence to protest the Copyright Royalty Board (CRB)'s decision to hike royalty fees for internet radio stations - a hike of 3-12 times the fees currently being paid by stations. Small stations have complained that the fees would be more than their annual revenue, and many pundits argue that this could effectively 'kill' streaming internet radio in America. Even non-profit radio, such as NPR (National Public Radio) would be severely hit by the hike.

Roughly 1 in 5 Americans listened to internet radio regularly in 2006, so the potential impact shouldn't be underestimated. For reference, on this side of the pond, the picture is much the same: BBC's internet radio doubled its listenership in 5 months, and a year ago reported over 32million hours of net radio consumption (I'm sure it's doubled again by now).

To me, the tragic irony in this story is the fact that the proposed royalty fee model could never have existed without the online medium itself. The fees are per song, per listener - something which could never be accurately measured in the old broadcast model, but suddenly is possible for online stations due to the trackable nature of streaming media. Net radio campaigners say this is an unfair model, as it penalises online radio unjustly compared to satellite or standard broadcast radio fees.

Internet radio is the epitome of The Long Tail at work: thousands of small, non-commercial niche stations sprang up as an alternative to mainstream commercial stations littered with ads, churning out the same playlist over and over. A thriving new business model emerged based on broadband penetration, streaming media technology and consumer demand; a perfect example of innovation at work.

Looking at the bigger picture, this is a case in point of how something like regulation could seriously impact the growth of an innovative business model. What nascent markets like these need is not overbearing regulation, but forward-thinking. Of course I'm not saying they shouldn't pay (fair) fees, but this was a missed opportunity for the CRB to demonstrate leadership in the way intellectual property should be managed in the digital age. Instead, they opted for an approach that exploits the nature of the new medium to line the pockets of the record companies: none of the proposed fees would go to the recording artists.

How do we build policy to support user-led innovation?

Last week, NESTA hosted Eric von Hippel, Karim Lakhani and a number of their associates for a series of events exploring user-led innovation. Two major points stayed with me:

Firstly, building specific policies to support user-led innovation is challenging.  That, however, is not the same as making sure that other policies do not harm it.  If Eric’s work is correct (and its methodology is excellent) then users are the real source of much innovation.  We must therefore be careful not to enact new IP laws or give free rein to new technologies (like DRM) that might restrict this freedom to innovate.

The challenging nature of building policies to support user-led innovation does not, however, let policymakers off the hook. There are several quick wins that could be achieved simply by making sure that user-led innovation is taken into account in existing initiatives.  If users are so innovative, why should they not feature prominently in Foresight-type programmes, Innovation Platforms and Knowledge Transfer Networks?

Secondly, Eric is often mischaracterised as being ‘anti-IP’ – placed alongside the West coast crusaders and their acolytes in campaigning for the overturning of the international IP system.  This isn’t the case.  Eric argues that user-led innovation needs IP but it needs more intelligent IP that allows more sharing of information and different types of rights. Broadly-speaking, however, any new extensions of existing rights would hurt user-innovators.  But Eric doesn’t make this case like a deranged zealot.  He simply points out that if users are often innovators, it’s good for all of us if the state doesn’t prevent them from doing more of this in the future.

From lightbulbs to 3D TV

Please note : This post has moved

Last week I was fortunate to spend a day at the High Tech Campus in Eindhoven in the Netherlands. The site itself is very impressive and hosts around 5000 engineers working on new technologies with ‘Open Innovation’ as their motto. And yet as recently as 2003, the site used to host just one big company, Philips.

Philips made a very deliberate decision to open up the way they operate, and the way they innovate. A clear indication of how things hare changed in a short space of time is the fact that there are now hosts over 40 businesses academic research institute and network called MiPlaza where companies share equipment and services such as cleanrooms. As a symbolic move, in 2005 they even removed the Philips sign at the entrance to the site, despite the major historical connections with the site.

We were fortunate to hear their Chief Technology Officer talk about their approach to open innovation. They now realise that it is much easier to sell successful businesses than it is to sell new technologies, and so they active spin out companies or technologies in the same was as many Universities.

I always find it fascinated to see how organisations re-invent themselves but this was made blatantly clear when we saw how Philips has moved on from starting out in lighting, progressing into Consumer Electronics, and now with a major focus is on Healthcare. The best ‘I want one of those’ moments came when they showcased a pretty spectacular 3D TV – like 3D cinema but without the cardboard red and green specs.

I am struck by the desire and ambition of companies like Philips to engage with ‘the outside world’ in a proactive way, and the opportunities for smaller companies, universities or individuals are significant, though it’s not always easy. Therefore, the theme of corporate open innovation is one of the three core themes that we will investigate through NESTA Connect launching in 2 weeks tomorrow and we’ll post again on this subject over the coming months.

IP in practice

Just a few notes from this evening's panel discussion, Intellectual Property in Practice...

The panel of Andrew Gowers, Lynne Brindley, Stephen Bates and John Howkins represented a broad spectrum of IP perspectives:

• Gowers of course covered off the key points of his recent recommendations, focusing on the keywords "balance and flexibility"
• Brindley highlighted the difference between patent & copyright, and the need for change due to our increasingly digital world
• Howkins urged IP issues should be moved from law into the regulatory sphere
• and Bates pointed to a wastage of IP due to lack of focus on the commercial value of ideas

But one of the recurrent themes was how much the UK should look to the US system, or whether the US system was worth its salt.

I thought it would be a great idea to invite an IP expert to pick things up and carry on the discussion, so I've talked Andrew Erskine into posting his thoughts here tomorrow to keep the conversation going. Andrew is not only a leading consultant on the Creative Industries, playing a key role in the DCMS Creative Economy Programme, he's also doing business development work with Own It, the Intellectual Property advice service, so very well placed to comment on tonight's debate.

Reaching out from the creative silo

Our latest policy briefing (Reaching out from the creative silo: the arts, creativity and innovation) calls for an updated policy debate on the creative industries. As a mature sector, these industries must face up to the challenges of their low productivity growth and of ensuring that the benefits reach out from the creative silo and influence wider creative contributions in the UK's economy and society.

Research in this area must treat the arts and creative industries with the same degree of rigour as traditional industries. By applying existing models of innovation that are known to work in more traditional sectors, policymakers can develop a richer set of interventions than public funding alone. In our view, supporting creative enterprises as they identify and adopt new technologies, helping them think through the IP implications and supporting collaborative networks are high priorities.

We'd welcome your thoughts...

• NESTA Policy Briefings
• NESTA Creative Pioneer Programme

Patents are not innovation

The report from the World Intellectual Property Organisation (Times, 21 February) stating that the UK is falling behind its global competitors, with regard to innovation, certainly makes for an alarming headline. But it doesn’t tell the full story: patents are not innovation.

Measuring innovation solely by traditional metrics, like patents or R&D spend, leads to a strong bias on scientific and technological invention. It completely fails to recognise innovation that is occurring in other areas of the economy like financial services, software, construction or oil and gas exploration.

NESTA’s recent report, ‘The Innovation Gap’, shows that when traditional innovation metrics are adjusted to reflect the make-up of our economy, the gap between the UK and other leading countries closes by as much as 80%. Worryingly, where innovation is not measured, little effort is put into encouraging it.

This is particularly concerning in service industries which make up around 74% of the UK’s economy and hold the key to our economic future in the face of increasing global competition.

We need to build on the Government’s commitment to innovation in science and technology and develop a tailor-made national policy to support innovation across the whole economy and wider society.