Northern Powerhouse: switch on the power

To complete the Northern Powerhouse we need to invest in creativity.

Alex Connock
22 September 2015

Flickr/ Stacey MacNaught. Some rights reserved.So far at national level the Northern Powerhouse has been about fractious national debate around how to pull the North closer to the capital.  It has been about the great railway-building of HS2, like this was the mid-19th century all over again. But in the globally competitive digital 21st century, the reverse challenge is the one we should actually be talking about: not how to pull England’s North closer to the capital, but how to pull the capital closer to the North. 

I mean pulling capital as in money, investment, up to Manchester.  The Northern Powerhouse needs actual hard cash to power it up. And it needs that cash for the right uses. Manchester has been in a five-year frenzy of building studios, office buildings and media centres - the safe assets that accountants and bankers can easily value on a balance sheet.  The buildings to make stuff in.What’s really needed now is serious money for the creatives and the imaginers to make stuff with. That’s where the Netflix’s global TV drama hits and the breakout computer games, will come from. That’s how the real 21st Century growth will be turned on.

The North’s market opportunity

A share is at stake here - of the £76 billion that the creative economy is worth to Britain according to a DCMS report out this year, or the £180 billion that the internet is worth to the UK economy, growing by 6% a year to 2018, according to the Boston Consulting Group.

The North’s market experience?  Exemplary.  Manchester is the second biggest TV production centre not just in Britain but also in Europe. The BBC alone has some 3000 people at Media City. ITV are there too - in force from Coronation Street to Jeremy Kyle,  Media City has indies too, like my own, and a good few start-ups.  Each of the three main global advertising groups (WPP, Omnicom and Publicis) has few short of 1000 staff in Manchester, which has a total of 56,000 digital jobs. Creative and digital are one of the key sectors for the Northern Powerhouse, and they need the same visibility as the high-vis-jacket post-industrial warehouse sector that politicians so love to visit. 

Offices - or ideas?

But I would put this idea on the table about the state of creativity in Manchester: we have enough buildings. We have Media city, Sharp project, Space, Home, Spinningfields, new university campuses, and endless new ultra-cheap start up-friendly office spaces.  

In early September, we had the news that the Littlewoods building in nearby Liverpool is to go through a £25m conversion to create another studio complex in the region. It’s a trend that manages to be laudable and worrying at the same time.It's like the North's investors think the solution to building a media industry lies in property development alone - it’s as if you can create creative value by building offices.

One Northern venture capitalist said to me that he preferred businesses with 'real assets' like buildings, technology and equipment.  ‘We don't think there is a business model in TV format creation,’ he said. But that’s not the right approach if you want globally scalable businesses: you can scale a TV format, or computer game, but you can’t globally scale a studio or an edit suite.

In fact, what really makes Hollywood into Hollywood, or Silicon Valley into Silicon Valley, isn't studio buildings and sound stages at all - it's capital, in play to risk on scripts and big creative ideas.  Its money investors can afford to lose, given to people who are willing to take big risks, in the hope that every so often, everyone will win really, really big. To complete our Northern Powerhouse ambition we need to find our own source of that money here - to invest not in trains or buildings, or creative quarters and edit suites-, but in creativity itself. 

Devolution diversion

Another dynamic that has defined the northern powerhouse is the political momentum of devolving power to local councils.  And I am sure it makes sense for the bus timetables.But local council changes – even in favour of such obviously well run bodies as Manchester City Council – can risk irrelevance to industries like creative and digital.  Not because they don't affect the spending side of the equation - but because they don't affect the revenue side.  It’s like expecting Man United to play better on the pitch because you change who’s in charge of the car parks. 

Consider this question: how much do you know about the local political administration and county management structures in San Jose California?  Do you know whether the education system is administered by a unitary regional council, or local bodies? The answer is that you don't know, and like me, you don't care.  

But if I said to you: how much of a difference do you think it makes to that the broad Silicon Valley region hosts the principal offices of Google, Facebook, eBay, Uber and Apple ?  Then you'd take an interest.  Then it would really make a difference.  In other words, how you allocate up the public spending in a region is mere detail, as compared to the real issue of what's in the economic drivers of the region to start with. 

Just like the Northern Californian powerhouse, our own Northern powerhouse will be defined by the creative businesses we have, not the buildings they’re in or the council meetings to decide the tram routes.  (Though to be fair, the trams in Manchester are getting way better.)

Infrastructure - or ideas?

I went to Amazon Studios the other day - in Santa Monica, a short ride from the beach. It’s the production arm of the Amazon prime service, which is a serious rival to Netflix, backed as it is by the global online retailer Amazon.

Amazon Studios has no fewer than 32 high end TV drama series in current production.  It has just bought the Top Gear team for a reported quarter of a billion dollars.  It’s not just a distribution platform – it’s a major producer.

Yet to visit, it’s not a studio at all.  There are none of the sound stages or edit suites that we are building in Manchester.  It’s just an office in an ordinary building of the kind that are ten a penny to hire in LA or (even more so) central Manchester.   Even the guys who work there would not describe the offices as high-end.

Do you know the address of Netflix?  I actually don’t even know what city they’re in. Do you think that the future success of Netflix, one of the fastest growing and most creative digital media businesses on the planet, is determined by how many square feet of office space it has?  Server space, maybe. Office space, no. The reality is that hard assets, like buildings, do not drive the development of soft assets like digital content and distribution. 

So have we got the right amount of investment?

The 2015 Tech Nation report identified Media and Entertainment as one of the three principal sector clusters of Manchester. Interestingly, it was the only UK town where that was the case. 

But only 35% of the companies surveyed said that in Manchester a key benefit of being in the city was access to finance, public or private.  That’s compared to 60% in Cardiff.  That’s not good enough.

Claire Braithwaite gave an inspiring speech introducing Tech North this month, and I’m 100 per cent signed up. But citing the examples of Apple and Google, both started in garages, she also said that we live in an economy that is ‘less about financial capital and more and more about human, social and intellectual capital.’

That’s where I board a different tram. In fact, it was the ready availability of financial capital in Silicon Valley that did drive Google from a garage start up into a global company.  Here’s a press release from the archive:

Palo Alto, Calif. – June 7, 1999 – Google, a start-up dedicated to providing the best search experience on the web, today announced it has completed a $25 million round of equity funding led by Sequoia Capital and Kleiner Perkins Caufield & Byers.   Google’s technology highlights include PageRank, a patent-pending, objective measure of the importance of web pages. 

Sequoia Capital put $25m in - and look what happened.  They made billions.  A brilliant business was enabled.  Money going into ideas does matter.   I would really struggle to tell you the name of any Manchester digital or creative start-up that has had a $25m capital infusion.

Clare Braithwaite mentioned in her speech that Jonny Ive -the guy who designed the iPhone- studied in the North East of England.  That’s great.  But he had to move to California to work for Apple.  Apple got its original backing in California too.  Multimillionaire Mike Markkula provided funding of $250,000 during the incorporation of the company. We need a piece of that action to start and stay right here. Once again - more capital for the Northern Powerhouse.

So invest in ideas

We need to find more people willing to come to the North and invest in creativity. We need to stop thinking that building media factories is the same thing as building creative media businesses.We need to galvanise the finance communities to study the returns available in content creation and develop investment expertise to fit that model in the way California has.

We need to use our brilliant and newly-empowered council leaders to hold a conference at Manchester Town Hall for the really big and visionary investors who are making the really big global plays in creative businesses that are reshaping the way humanity functions.  Call in the firms that backed Amazon, Facebook and Netflix in the early stages. Show them what we can do in the North. Switch on the power.

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