Introduction

The purpose of this contribution is to draw attention to a class of innovative activities primarily concerned with changes of an aesthetic¹ nature or in intellectual appeal, that has largely been ignored in the study of innovation prevalent in economics. This is not to downplay the extent and importance of technological innovations, in fact aesthetic and related innovations may rely upon technological innovations, but rather to indicate that the study of technological changes provides an incomplete picture of the totality of innovative activity. The inclusion of aesthetic and similar innovations means that not only is innovation more widespread than previously considered but may also take different forms than previously considered. This is not a completely new argument: Bianchi and Bortolotti (1996) draw attention to what they label “formal innovation.” which is innovation that changes product form without any necessary changes in product function. They consider that the new form “exalts the aesthetic or symbolic content of the product.” Postrel (2004) argues that aesthetics is an increasingly important element of our society and people are concerned not only with function but also with how things look and feel. Marzal and Esparza (2007) argue that there are a number of industries that experience aesthetic innovations when novelty is conferred on a product in terms of visual (broadly, sensory) attributes, while Swan, Kotabe, and Allred (2005) confirm that practitioners realize the importance of visual or aesthetic design in consumer choice.

The chapter will discuss the nature and extent of such activities and within the space available draw attention to related policy issues. A much fuller discussion of the topic can be found in Stoneman (2011),² where the term “soft innovation” has been coined to label the type of innovation considered here and more precisely defined as: “innovation in goods and services that primarily impacts upon sensory perception and aesthetic appeal rather than functional performance” (2011: 22).

The third edition of the Oslo manual (OECD 2005) defines innovation to encompass product, process, organizational, and marketing innovations. For the purposes of this paper we set aside organizational innovations. Product innovation is then further defined as: “the introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses. This includes significant improvements in technical specifications, components and materials, incorporated software, user friendliness or other functional characteristics” (2005: 48).

This definition has two particular limitations that arise because it defines innovations as involving newness or significant improvements in terms of functional characteristics. First, we argue that this inappropriately excludes those new products that reflect changes in aesthetic characteristics, that is, changes in form rather than function encompassing appearance, taste, sound, smell, or intellectual appeal. The only way that such changes are addressed by the current definition is by the inclusion of marketing innovation, defined to be “the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing” (2005: 49), but this only scratches the surface of the issue. Second, the definition of product innovation rules out as innovation all new product launches (involving changes in form or function) that involve horizontal product differentiation (i.e., where the new product is different to existing products rather than better than existing products) and all those new product launches that involve vertical product quality change where the new product is of lesser performance than existing products but is proportionately cheaper. These arguments in a less clear-cut way can also be applied to the OECD definition of process innovation which involves “new or significantly improved production or delivery method” (2005: 49).

It is possible to classify innovations that are more aesthetic than functional, or encompass form rather than function, into two types. The first type are all product innovations in the creative industries³ and the second is those innovations in other industries that are of an aesthetic or intellectual nature rather than of a functional kind (the importance of which is noted for example by WIPO 2012: 19, where it is argued that the look and feel of modern electronic devices drive consumer choice, as they determine the ease of use and influence consumer experience of a product). Examples of the former are:

1. The development and recording of a new CD
2. The development of a new computer game
3. The writing, rehearsing and staging of a new theatre production
4. The writing, production and launching of a new movie film
5. The writing and publishing of a new book
6. The development and launch of a new advertising promotion
7. Architectural activity in the generation of new built form designs

Examples of the latter are

1. The development and introduction of new food products
2. The development and launch of a new clothing line
3. The design and production of a new range of furniture

One may note that many such changes will involve the introduction of products that are different but not all potential buyers will necessarily consider to be “better.” In accepting therefore that such changes are innovations one is thus accepting as well that horizontal product differentiation may be considered to be innovation.⁴

Such innovative products may be one-offs, produced in small numbers, or mass produced. Thus, for example, a new architect-designed building might be a one-off, or an architect-designed hotel room may be reproduced many times; a new film may be an art house product or a mass blockbuster; a new book or CD or DVD may be purchased by many or by very few; and a new food product may sell in large quantities or small quantities.

There are many soft innovations produced and it is of interest to separate out those that are “significant” from those that are not. With technological innovations (see above) the OECD definitions regard improvements in functionality as a measure of significance. As the innovations we are discussing do not (necessarily) improve functionality this is of little relevance here. There is a line of argument that would however offer a similar approach to significance by proposing that just as it may be judged that one functional advance is more functionally significant than another, so it may be possible to judge one aesthetic advance as more artistically significant than another. Although several internal metrics, such as, for example, influence upon others, the number of imitators, or the extent of copying have been suggested (see also Marzal and Esparza 2007 and the references therein), at the current time, there seems to be no agreed metric that an external observer would be able to employ. In fact some commentators (e.g., Carey 2005) have argued that there are no absolute criteria of value in the arts. Nor does an index of artistic contribution adequately address advances in the aesthetics of non-artistic products (e.g., is one new amusement park ride of greater aesthetic significance than another?).

Instead of attempting to judge significance by an index of aesthetic contribution therefore, we pursue a much more economic approach and use a market-based measure instead. We suggest that an indicator such as the market share attained by a new product is a useful measure of the significance of that innovation. Such a measure caters well for the horizontally differentiated nature of many aesthetic innovations as well as for those showing vertical quality changes. A market-based measure may either refer to a point in time or involve accumulation over time. Market-based measures of the importance of aesthetic and artistic innovations are not new, for example, Galenson (2005) argues that for major artists there is a correlation between prices and artistic importance and that the most valuable art is made by the greatest artists, and Cowen (2000; see also 2006) examines how economic incentives affect the artist’s choice of audience rather than trying to use aesthetic criteria to order art works on a high/low spectrum. Taking a market-based approach and in particular a market share-based approach to measuring significance also enables us to judge the overall innovativeness of a particular market using changes in the shares over time of newly introduced products. However, market-based measures of significance are not without their critics (see Eltham 2013).

Production of Innovations

We have classified two main types of aesthetic innovations: product innovations in the creative industries and innovations with new aesthetic characteristics in other industries. The means by which these are produced are heterogeneous. In the creative industries we may have the model of the lone artist figuratively working in a garret and then displaying works for sale in a gallery. Similarly there may be authors working at their own expense on producing new novels or other books hoping for publication eventually. Alternatively there may be small software houses producing new computer games, or large record companies generating new music recordings, employing professional singers and orchestras. Theatre companies will invest in commissioning and then developing, rehearsing, and presenting new offerings. There may be large companies producing new films with investments in the hundreds of millions of dollars matching the investments made by drug companies in new chemical entities. Architectural practices may undertake small or large commissions meeting the expressed requirements of clients.

In other industries, although much will be spent on improving functionality, firms will also be addressing aesthetic issues. For example car companies will not only be concerned with comfort, performance, and efficiency but will spend time on appearance, smell, color choice, exhaust note, the sound made by the closing door, the shape of the grille, the angle of the headlights, and the extent of the chrome. For example, Swan et al. (2005) cite evidence that in the automobile industry one of the most important aspects for body design is how light will reflect off the surface of a car and that the aesthetics of luxury automobiles are critical to their consumer appeal. Similarly confectioners will launch new chocolate bars where taste will be a prime issue. Cosmetic firms may launch new perfumes where smell is of utmost importance. In fact appearance, taste, sound, and smell as much as functionality may well be major factors affecting the demand for many consumer products such as mobile phones, laptops, and televisions (see WIPO 2012: 19).

Geographically innovations may be generated, produced, and sold in the same country or region. More generally however they may be invented in one country, developed in another, and launched, produced, and sold in another or several different countries. Some soft innovations may be restricted to local markets because, for example, of cultural or language factors whereas others may be sold in world markets either as is, or via adaptation such as local remaking, or as with film, via dubbing or adding subtitles.

It should be noted that investments in the soft innovation production process are not generally defined as Research and Development (R&D). International standards for the measurement of R&D were first put forward 40 years ago in the Frascati manual. The latest edition of that manual states that: “The basic criterion for distinguishing R&D from related activities is the presence in R&D of an appreciable element of novelty and the resolution of scientific and/or technological uncertainty” (OECD 2002: 34). Clearly expenditure on those activities that have an aesthetic rather than a technological or scientific component, and which we have called aesthetic innovation, will to a large extent not be defined as R&D and thus not be reflected in the measures of R&D expenditure as usually collected and published. Thus R&D indicators cannot be used to measure the extent of soft innovation and as a result R&D figures will give an incomplete picture of overall innovative activity.

Intellectual Property Rights (IPR)

One means by which inventors or innovators may facilitate obtaining a return from innovative investments is to protect their intellectual property rights. One such protection mechanism is the use of patents. In many countries only advances of an industrial nature can be patented, causing them to be labeled utility patents. These cannot be granted for aesthetic improvements. This means that one cannot use (utility) patent data to measure soft innovation.

In other countries, such as the United States, there is also a form of patents called design patents. These patents correspond to various design rights mechanisms available for the protection of IPR in other countries. Such design rights apply to intellectual property in the physical appearance of a product and are not concerned with the function or operation of that product. In different countries there are several different types of design protection available. For example, in the United Kingdom, registered designs (RD) offer protection throughout the United Kingdom. Application must be made for this IP right, a fee has to be paid and it is not an automatic right. Registered Community design (RCD) offers like protection in all EU member states. UK design right is an automatic right which does not need to be applied for, and prevents others from copying a design, but it covers only the 3D aspects of the item and does not protect the surface decoration of the product or any 2D pattern such as a wallpaper or carpet design. Unregistered Community design right is also an automatic right for which one does not need to apply and offers protection from copying of the design of any item. To qualify for any of these rights, the design must be new and individual in character – which means that the overall impression the design gives the informed user must be different from any previous designs. Given their purpose, counts of design rights granted would appear to be a useful indicator of the extent of soft innovation.

Copyright is a third IP mechanism. It relates to the expression of an idea, not the idea itself, nor any process by which that idea is embodied in a physical artifact. Copyright protects sound recordings, films, broadcasts, and original artistic, musical, dramatic, and literary works, including, for example, photographs, sculptures, websites, computer programs, plays, books, videos, databases, maps, and logos. But it does not protect the names, designs, or functions of the items themselves. It is not necessary to formally apply or pay for copyright in the United Kingdom (although this is not the case in all countries). It is an automatic right. The copyright arises as soon as the work is “fixed” (e.g., written down, recorded, or stored in a computer memory) and in the United Kingdom is established once the © symbol is attached to the work with the creator’s name and the date created. The owner of the copyright has the right to license or sell or otherwise transfer the copyright to someone else. One may note that the periods of copyright protection are considerably longer than the terms of even extended patent rights (see below). In Europe (and beyond) there have been attempts to harmonize copyright law dating back to the Berne Convention for the Protection of Literary and Artistic Works in 1886. However, the direction of relevant directives has been inconsistent and copyright laws still vary considerably between member states, particularly between common law jurisdictions (e.g., Cyprus, Ireland, Malta, and the United Kingdom) and civil law countries. There is still however no general requirement for registration of copyright. In the United States copyright may be registered but this is not a requirement.

Whereas patents do not cover soft innovations, copyright is particularly applicable to new products in the creative industry and also soft innovation in the non-creative sector. Thus a count of copyrights claimed might be a useful further indicator of soft innovative activity. However, as copyrights are generally not legally registered, it is particularly difficult to obtain numbers of copyrights claimed.

The fourth basic IPR mechanism is trademarks. A trademark is a sign which can distinguish a firm’s goods and services from those of other traders. A sign includes, for example, words, logos, pictures, or a combination of these. Whereas patents require novelty and copyright requires originality, the counterpart for trademark is distinctiveness. Whereas patents are not available for aesthetic innovations, such innovations may be trademarked. Non-aesthetic innovations may also be trademarked. For example a rock group can trademark its name, a product with a particular aesthetic can be trademarked (e.g., the iPod), and particular products may also be trademarked (e.g., Mars bars). Registered and unregistered marks are available.

An unregistered trademark provides certain rights under common law and the owner can use the TM symbol. However, it is easier to enforce rights if the mark is registered and the owner may use the ® symbol to indicate that it is registered. A registered mark confers the right of use of that mark on the goods and services in the classes for which it is registered, and the legal right to take action against anyone who uses the mark or a similar mark on the same, or similar goods and services to those that are set out in the registration. To be registrable, the trademark must be distinctive for the goods and services (for which application is made); and not the same as (or similar to) any earlier marks on the register for the same (or similar) goods or services. In the United Kingdom application for registration is made to the Trade Marks Registry of the Patent Office. There is a need to pay a renewal fee every 10 years. European Union protection via a Community Trade Mark application is made via the Office for Harmonization in the Internal Market (OHIM). As with other IPR instruments it is necessary for the owner to police his/her rights via the courts.

Overall therefore whereas an innovative aesthetic product may not be patented, it may be copyrighted, trademarked, and even employ a design right protection as well.

Macroeconomic Indicators of Soft Innovation

In the next two sections of this chapter we consider the nature and extent of soft innovation activity using various indicators of such activity. We first consider macroeconomic indicators before moving on to consider microeconomic (i.e., industry level) indicators.

In most traditional studies of innovation, measurement relies extensively upon measures relating to R&D and/or patenting. As we have made clear above, however, neither of these indicators is particularly valid when it is soft innovation that is being discussed. There are some alternatives that might be explored, for example, a useful indicator might be numbers employed in the creative and other industries on creative tasks (such as design). Such data however, although available for some countries, is not sufficiently widely available to provide a world view. In the circumstances useful indicators to employ are measures of the extent to which non-patent IP protection measures have been used. In Table 4.1 we present some data on the worldwide use of design rights registrations and trademarks as well as, for comparative purposes, some data upon patenting and R&D activity. Unfortunately comparable copyright data is not available.

Of the three IP indicators measured, patents, trademarks, and industrial design applications, we note that patents will not cover soft innovations while trademarks will encompass soft innovations, but they may also be used to protect the more traditional technological product and process innovations. On the other hand (see WIPO 2012) design rights should primarily (and perhaps exclusively) encompass industrial designs, being legally defined thus: “an industrial design is the ornamental or aesthetic aspect of an article. The design may consist of three-dimensional features, such as the shape or surface of an article, or of two dimensional features, such as patterns, lines or color.” Counts of design rights will therefore be a useful indicator of protected aesthetic innovations. The data in Table 4.1 indicates that the use of design rights (as well as patents and trademarks) around the world is extensive.

Direct comparisons of numbers across type of IP would mean little. However, although counts of design right applications may reflect changing behavior with respect to registration rather than increased levels of design activity (a problem we are unable to overcome), the growth rates presented in Table 4.1 indicate that design rights applications have grown faster than the use of the other IP mechanisms, which is consistent with the view that soft innovation is growing faster than technological product and process innovation. This view might be reinforced by the indication that, in addition, trademark applications, which include soft innovations, grew faster than patent applications which do not. One may also observe that design right applications have been growing faster than total R&D spend, suggesting again perhaps that soft innovation is growing faster than other innovation.

Exploring design rights further, Table 4.2 indicates the split of design right applications across groups of countries with different income levels. The most obvious indicator in this data is the growing importance of China in the design statistics, accounting in 2011 for 68.1% of all applications, having grown from 33.4% in 2004. This data also makes clear that design rights are largely the prerogative of high and upper middle income countries. Only around 3% of design rights applications relate to lower middle and lower income countries. Although it is possible that this reflects propensities to register, it is more likely that the importance of industrial design may be much less when income levels are very low. That residents account for between two thirds and three quarters of applications in these low income countries also implies that non-residents in wealthier countries do not attempt to protect their designs in the lower income countries.

There is limited data on the sectoral breakdown of applications. However, in Table 4.3 we present data on the top 10 companies applying for design registrations in the EU in 2011 (which is similar to patterns found in other countries).

WIPO (2012) conclude that such data show that the electronics and ICT, automotive, clothing and fashion, interior design and decoration industries, and – to a lesser extent – firms in the consumer product industries use the industrial design system most intensively. This reflects our initial view that soft innovation is not restricted to the creative industries but is much more widespread.

Microeconomic Indicators of Soft Innovation

Exploring soft innovation at a lower level of aggregation provides a number of insights beyond those found at the macro level. In this section we initially explore innovation in the film industry before discussing whether the patterns displayed are also to be found in other industries.

The film industry operates in an international marketplace, characterized by a cross-border flow of products and skills. Currently, major technological changes are altering patterns of both production and consumption such that, today, most films are seen away from traditional cinemas and increasingly involve formats other than celluloid for shooting, editing, and production. The production of films can require large investments with estimates of the cost of the two most expensive films (en.wikipedia.org) in 2013 prices being $332m for Pirates of the Caribbean and $286m for Titanic. These sums match those for a number of new pharmaceutical entities and as such illustrate that some soft innovations require levels of innovative investment matching those of the technological innovations more often studied.

Cinema admissions are an indicator of the demand for film. India had the largest number of admissions in 2009, with 2917 million, more than double the US admissions (1415 million), which were more than five times those of the next country, China (264 million). In 2009, the frequency of admission in the United States was 5.2 films per year, in India 2.7. Nigeria does not show up in the statistics although as we shall see it is a major film producer. There, consumption typically does not take place in theatres but instead the norm is what are conventionally called “alternative screening venues,” like video theatres or semi-private communal television sets (UNESCO Institute for Statistics 2012). However in most countries participation in cinema-going culture is in fact quite limited. A select few make up the bulk of the activity.

In the absence of full data upon expenditures for all films we use data upon the number of films produced as a measure of the extent of innovation in the movie production industry. The pattern of world film production 2005–2009 is displayed in Table 4.4.

Although there is no obvious criterion by which one may judge whether the number of films produced is large or small, the growth rate, which averages 6.5% per annum, represents an increasing rate of innovation over time. We may also observe that the leading producers of new films, India and Nigeria, are not the usual candidates for heading tables of innovativeness, although the movement of China up the league table from fifth to fourth is in line with its growing activity as an innovator in many other fields.

Further data on language (although some was missing for key countries) shows that in 2009, English was by far the dominant language for film production, used in one-quarter of all films, Yoruba (11%), used in Nigerian productions, was the second most common language, followed by Spanish (8%), French (6%), Russian (5%), and Hindi (5%). These six languages together represent the majority (60%) of all films made in 2009.

In the definitions above we have placed some emphasis upon when innovation is to be considered significant. We have argued that market impact is a useful indicator of significance. That films may be of some financial importance is shown by estimates that the top two grossing films of all time, adjusted for inflation (en.wikipedia.org) were Gone with the Wind, grossing $3.3bn at 2010 prices and Avatar, grossing $2.7bn, although these are extreme. In a useful exercise the UNESCO Institute for Statistics (2012) requested countries to identify the 10 most popular feature films over three years, 2007–2009. Most countries measured this popularity by cinema admissions, though a few used gross box office revenue. Scoring a first-ranked film as 10 and a tenth-ranked film as 1, lists of the world’s most popular films can be made. The data indicates that popularity declines rapidly. In 2009, whereas the most popular film merited a score of 450 the tenth ranked film scored only 57 and the twentieth only 18. It is also apparent that the top 10 most popular films in each of 2007 and 2008 were no longer in the most popular rankings for the following year. The new products that dominate the market in one year are thus superseded by later new products in the following year.

Of the top ten films in 2007, 2008, and 2009 all were in English and either sole US production or joint productions employing US producers. It is however argued by UNESCO Institute for Statistics (2013) that these highly visible, big budget, English language, franchise feature films represent only one strata or tier of popular global film culture. This top tier, produced and promoted by the largest multinational corporations, represents an international standard for the exclusive and selective environment of the movie theatre. However although these may be the most visible and most widely shared there is also an active sphere that is more localized, nationally specific, in diverse languages, and likely enjoyed in venues other than the traditional cinema house. Locally made films may well be significant locally, but are not globally significant.

Overall however we may observe certain characteristics in the film industry that we shall see to be common to soft innovations in a number of sectors. The first is the large number of new products that are launched each year. This indicates a very innovative sector. However of these launches only a very few achieve large sales and may thus be considered significant, although what is significant in one culture or country may not be significant in another and some products may be locally significant but not globally significant. The market leading products turn over very quickly and thus significant soft innovations generally have short lives, being quickly replaced by new market leading products. Soft innovations in this industry may also yield large returns although, on the other hand, they may also, but not necessarily, be expensive to produce.

In book publishing we also observe many new products being launched each year. Data upon new books published (sourced from Wikipedia, “Books published per country per year”) based upon data originally collected by UNESCO, makes clear that there is evidence of innovation in even smaller countries. This data suggests that approximately 2,200,000 new books were published in total across the main 116 publishing countries in the sample in 2010/11. In Europe (Federation of European Publishers 2012) slightly more than 500,000 new books are published each year, with an active catalogue in 2011 of 8.5m titles). China is the single most highly ranked country (a recent phenomenon) publishing 369,523 new titles, closely followed by the United States with 328,259. Even Thailand, ranked thirtieth, published 13,607 titles. As with film we might expect of course that the books being published in any country will reflect the culture of that country, although the large number of new publications in the United Kingdom and the United States implies that the most common language in use for new publications will be English.

As with film, many of the new titles are irrelevant as innovations of economic significance. Using data from the New York Times on fiction book sales, Sorensen (2007) observes that the 205 books that entered the New York Times bestseller lists accounted for 84% of annual sales in his sample (the top 12 (1%) accounted for 25% of total six-monthly sales and the top 43 (3.5%) accounted for 50% of sales). Thus, like film, only a small number of the soft innovations launched actually succeed. Using weekly data from the New York Times bestseller lists for fiction titles from 1970 until 2004, grouped into seven five-year periods (1970–1974, 1975–1979, 1980–1984, 1985–1989, 1990–1994, 1995–1999, 2000–2004), and calculating for each period, the number of titles that appeared in the top 10 and for how many weeks these titles remained there, Stoneman (2011) shows that the number of titles that enter the top 10 per period has increased significantly since 1970–1974; that the number of weeks that a book spends in the top 10 has fallen considerably; and that on average 19% of sales derive from titles new to the top 10 each week. Such data suggests that in publishing the rate of innovation as indicated by the number of significant new products launched is not only high but appears to have increased three times over the 35-year sample period.

Although Stoneman (2011) also provides some evidence relating to the video games industry we look at recorded music as a final example of a creative industry. There are now a number of formats in which recorded music is sold (or pirated). While vinyl and cassettes are now almost defunct, CDs are still widespread although electronic downloads are now supreme. Global recorded music industry revenues were US$16.5 billion in 2012 with the United States as the largest market (with sales totalling $4.48 billion) and Japan being the world’s number two market remains (figures sourced from www.billboard.com). The data indicates that in 2013, 11,625 new five-inch CD albums were released on to the Japanese market while the back catalogue of such CDs stood at 118,215 (Recording Industry Association of Japan 2013). This indicates an industry where large numbers of new products are launched on the market each year, similar to publishing. In addition Stoneman (2011) shows using UK data that only 0.7–0.8% of albums released enter the top 40 sales charts at any time, and that sales of any album, as a proportion of sales of the highest-selling album, decline sharply as one moves down the rank of sales. It is obvious that sales soon die away as one moves down the bestseller lists. Stoneman also shows that there will be complete churn of the top 40 on average every two months. The overall picture of soft innovation in the music industry is thus similar to that seen with books and films. There is very extensive soft innovation as indicated by the data on launch patterns, but many titles fail and only a few are significant in terms of sales. There is also a high rate of churn in the top titles.

As argued in WIPO (2012), innovation in terms of non-functional characteristics may well be widespread in industries other than the creative industries. In contrast to the creative industry examples it is thus informative to look at soft innovation in an industry outside the creative sector. Stoneman (2011) explores innovation in three such industries: food, pharmaceuticals, and credit cards. Here we look at just the food industry.

A food industry is found in all economies and is probably one of the oldest if not the oldest industry in the world. Food has both functional and aesthetic characteristics. In developed economies such as the United Kingdom, food is no longer considered to be just a means to avoid dying or to stave off hunger pangs; it is a product that is to be enjoyed via its taste, appearance, smell, and so on. New food products thus to a large degree will reflect changes in form rather than function. Following this argument we may thus again use indicators of the extent of product innovation in order to indicate the extent to which soft innovation is occurring.

Literature on new products in the food industry is informative. According to McNamara, Weiss, and Wittkopp (2003), thousands of new products (variants) are launched every year. In Germany, for example, 32,478 new products were introduced into the food market in the year 2000 (Madakom 2001, cited in McNamara et al. 2003). Winger and Wall (2006) cite that in the United States about 18,000 “new” products are offered to the supermarkets each year (typically in Australia/New Zealand there are between 5,000 and 10,000) and about 10% are chosen to be displayed on the shelves. New introductions to the shelves are almost always linked to the discontinuation of another product. The literature also suggests that most product innovations are failures. For example, McNamara et al. (2003) state that of the many new products introduced into the German food market in 2000 a large share did not survive beyond the first year. Winger and Wall (2006) quote findings from the literature that shows failure rates ranging from 48% to 99%. Feigl and Menrad (2008) using survey data are a bit more optimistic although they find some significant differences across countries. The picture that emerges is similar to that found with books and films. Large numbers of new products are being offered to the market each year. Although there is some dispute, many of these innovations do not succeed and/or they quickly disappear from the market.

Some further information may be gained by exploring trademark data. As argued above, trademarks may be counted to measure jointly both soft innovations and TPP innovations. WIPO (2013) estimates that trademark applications in the food and drink industries (NICE Classes 29–33 inclusive) encompass 9.2% of all applications made under the Madrid system. Also, of the total number of trademarks across all industrial sectors registered in 2005, those in the food industry represented 10%, 3%, 17%, and 8% respectively for the United Kingdom, the United States, Germany, and Korea. This suggests that the food industry is relatively very innovative. However as R&D in the Food, Drink, and Tobacco industry in Europe, for example, represented less than 2% of all Business Enterprise R&D in 2009 (OECD STAN database) it would seem that most of this considerable innovation in the food industry is beyond the (technological) innovation normally measured using R&D data. WIPO counts (http://ipstats.wipo.org) of new trademarks applications in NICE sector 29 further indicate that in terms of overall registrations Europe and China lead, with China showing massive growth between 2008 and 2011 whereas Europe shows a decline. One may also observe that there is trademark registration by non-residents, again suggesting that soft innovation is an international activity.

Across both the creative and other industry examples explored, our first observation is that many new products reflecting changes in form or intellectual content rather than function are being launched each year, indicating high rates of soft innovation. Such innovations are being introduced particularly in the United States, United Kingdom, and Western Europe although China is an increasingly important source and some locally specific important innovations are being introduced in most countries. However of the new products launched very few succeed (in terms of sales). The most successful products sell in very large quantities but sales quickly decline as the success rank falls. It may also be that product life cycles are becoming shorter and such markets are exhibiting greater and greater churn with more and more “bestsellers” each year. These findings may be interpreted as indicative of extensive and increasing rates of significant soft innovation.

Policy Issues

Conclusions and Implications

In this chapter it has been argued that there is a type of innovation, here labeled soft innovation, that is more concerned with changes in form and intellectual appeal rather than changes in function. This type of innovation has largely been ignored in the main definitions of innovation used in the literature. Such innovation tends not to be the result of R&D activity although it can involve extensive levels of investment, nor can it be patented, although there are a number of appropriability issues relating to such innovation that are addressed by other IPR mechanisms. These characteristics mean that the standard indicators of the extent of innovation, such as R&D spending or the numbers of patent applications, do not reflect such activity.

Here, by using alternative indicators such as counts of new product innovations and applications for design rights and trademarks, we have been able to show that such innovation is not only widespread in the creative industries but can also be observed in other industries as well. It may even be the case that it is growing faster than traditional technological innovation. It can also generate large returns to successful innovators. We have shown that such innovation is not restricted to the advanced economies. In film, for example, we found that Nigeria is second in the league table of the greatest number of films made annually. The innovations produced may well differ according to the cultural environment in which they are generated. The main innovative activity is however occurring in the upper and upper middle income countries. In addition, but not surprisingly, the data also show the growing influence of China as a source and user of soft innovation – a pattern that reflects its growing importance in technological innovation.

If utilized indicators of innovation exclude soft innovation activity, not only do we get a biased picture of overall activity, but our analysis of issues such as the returns to innovation, the incentives to innovation, and the economic impact of innovation will be unsatisfactory. In addition if we ignore changes in form and concentrate only upon changes in function then the policy recommendations that are produced will be misguided and incomplete.

Our analysis of the nature of soft innovation has indicated that in a number of cases (e.g., books, film, music, food) large numbers of new products are launched onto the market each year. Nearly all of these fail. However a small number go on to have very extensive sales and generate large revenues. It is such innovations we consider to be significant. In most cases however even these most successful innovations have short lives at the top and as such the apparent rate of innovation in many of the relevant industries is very fast. We have not here been able to explain why such “letting a thousand flowers bloom” strategies are pursued so widely.

There are a number of implications of these findings:

1. There is now a need to reconsider the OECD definitions of innovation to take fuller account of soft innovation activity beyond the current inclusion of marketing innovations. These definitions also need to be reconsidered to fully account for innovation that encompasses new horizontally differentiated products in addition to new products showing vertical quality improvement (change) as currently included.
2. The reliance upon R&D as an indicator of investment in innovation-producing activity needs to be revised with investment in such activities as, for example, design, filmmaking, games development, or book writing being considered as well.
3. The widespread reliance upon the analysis of patents as an IPR mechanism needs revisiting. More attention should be paid to design rights, copyrights, and trademarks.
4. Theoretical analysis of market failures needs to place greater emphasis upon incentives to variety than is currently the case. This may well be built upon a more satisfactory approach to explaining the widespread pursuit of innovation strategies such as letting a thousand flowers bloom.
5. Policy initiatives built on the basis of market failures and the correction thereof, need to consider soft innovation as well as the more traditional technological innovations. In addition soft innovation may merit more consideration purely in terms of cultural issues.

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