First, of course, are authors. Those who create books, who write books, those who have this creative input to put on the market. Creators.

Then, secondly, we would have editors. Editors, who would check the script, check that book, help the author move from just text of their creativity into something that can be... is publishable, which is cross-checked, proofread, etc.

Then we move to the third link in the value chain: these are publishers, publishing houses. What are they doing? They, of course, turn this manuscript into an actual book, meaning that they are dealing with illustrations, meaning they are dealing with the small print that we are usually... that we might not even notice it. Then they deal with printing houses to actually produce the book in printed format, in paper format, or they engage IT companies in order to produce electronic versions, e-books of the same edition.

But then, that’s not it. Then we have wholesalers. So, wholesalers might be those who are stocking on the book from this publisher and other publishers, let’s say, for the regional market. Or it can be Amazons.com of this world—those who have large storage, large facilities and logistic chains and operations in order to deliver these books to customers.

But then we might have also another player, another link. These are bookstores. Individual bookstores—yes, they, indeed, still exist, and they are very important for publishing houses and for authors. We do still like to buy paper books as customers and this market is still growing, no matter how electronic formats are replacing the traditional paper format.

And then ultimately we have the sixth value chain link. [These] are, finally, customers. So us, readers who get this book. So, we have these six links in this value chain for publishing industry.

So, let’s take another example, music industry. In the music industry, we would have the first link in the value chain as, of course, artist, composer, person or persons who create creative input, those who write music.

But for the music to reach the customer, the second link in the value chain would be producer or agent. It’s a company or a person that arranges the music, that makes sure that the artist actually puts his music on the market, representative of an artist.

And the producer and agent actually makes arrangements to the third link, studio. Studio where the magic is happening, where the music gets actually put into the files or into the recording.

Then we would have the distributor or broadcaster, the fourth link in the value chain because the music in the file or in other format, in the video format, it has to be distributed, broadcasted if it’s radio, online radio or traditional FM-station radios. Or it can reach cinemas even. There are different novelty formats how music can reach audiences, including streaming online, etc., and there are platforms for doing that—they are distributors.

And then, finally, we have the customers, the fifth link in the ultimate destination and the value chain. Us as listeners or as buyers of music or those... or us as people who watch and go for a concert to watch the music live.

So, we have, again, a value chain in the music industry. We can look at various different examples of value chains across creative economy. But according to Kurt Salmon’s study (it’s a consultancy, they’ve done a great research on the value chain in 2013), they identified four general links in the value chain.

The first one is an artist. So, someone has to be a creator, someone who produces a creative input. Then, the second would be the industrialist. Industrialist is an organisation or a company or even a freelancer, the one that takes care of converting creative input that artist produces into a certain format, format that can later be put into the third general type or the link in the value chain—it’s an operator. Operator is the one that distributes and puts the product that is produced by the industrialist and created by artist on the market. And then the fourth and the final general link in the value chain is actually the consumer. So, it’s the customers, those who consume the cultural products.

So, this is a general way of looking at value chain, and it’s important for cultural organisations to understand this concept. Why? Because when we understand where our organisation operates, on which markets it operates (what we’ve talked in the previous lecture), and then we understand how value chain in our segment, in our market looks like, we might understand that we are actually either spread too thin, so we are trying to get into as many links in the value chain as possible without having enough recourses, or, in fact, that our value chain is deficient.

What do I mean? For instance, just recently we’ve had a training session for Culture and Creativity Programme and we’ve discussed the value chain for book industry in Ukraine. And the participants of the group identified two gaps in the value chain for book industry in Ukraine. First, and a very clear one, is a distributor. So, there are not enough bookstores, and our online-stores are not yet that known and not reaching too many customers, and therefore our publishing houses face the problems of how to outreach, how to reach their customers with the products, no matter how great these products are, how to reach the customer. So, there is a gap in distribution link of the value chain.

And another gap is… In Ukraine, [they are] pretty non-existent literally, agents. Agents who represent new, up-and-coming authors who may be hiding somewhere with their great creative manuscripts. And so it means that in Ukrainian market we have marker failure; it means that many great authors might not be found, they might not become bestsellers just because there aren’t agents who can help them to bring their books, their creations into the market.

And so, when you look with your team, you sit and you deconstruct the value chain, and then discuss what are the market gaps, maybe you will decide that you need to move and close this market gap. Or maybe you need to change your business model in order to adapt to the value chain deficiencies. So, it’s quite a helpful exercise for cultural organisations and creative enterprises alike to analyse the value chains on the market you are operating on in order to adjust your strategy, adjust your business model and to understand actually how your market is operating right now.

And again, I’ve already mentioned Kurt Salmon’s survey from 2013. In the same file, there is great statistics for the book industry and some other segments, industries of creative economy in France in 2012. What they’ve done, they’ve deconstructed and put the numbers on the value chains for these segments, these markets for France. And it makes an interesting reading. Let’s say, a book. An average price for a book that was published in France in 2012, the paper one, it was €10.90. Out of that, of that amount, this price, €10.90… so how was it deconstructed along the value chain? Who got what from that price? So, the numbers are quite interesting. Out of this price artists would get 10%. Then further 30% would go to the producers. In this sense… in this case, these are the publishing houses. And then we have 60% that would go to intermediaries and distributors. In fact, 50% would be the Amazon.com cart, and it would include the commission that their side takes plus logistics and delivery that Amazon.com arranges.

So, you see that even though that we might think that value chain… like the price of the book is, let’s say, big, yeah, but then the author, the creator gets only 10% and the rest goes to all those companies and organisations engaged along the value chain who add their value to what customer gets.