This document examines innovation in new media firms located in Cape Town, South Africa. It finds that the new media sector in Cape Town is small but emerging. While new media firms demonstrate technological innovation, their innovation activities tend to be incremental and localized. Various barriers limit their ability to enhance innovation and growth. The document provides policy implications for supporting innovation in creative industries in developing countries and recommendations for developing Cape Town's new media sector.

1. Creative industries and innovation: the case of new media firms in Cape Town
Irma Booyens, Neo Molotja and Madalitso Z. Phiri
(Centre for Science, Technology and Innovation Indicators, Human Science Research Council, Plein Park
Building, 69-83 Plein Street, Cape Town, 8001, South Africa).
Abstract
Creative cities are increasingly attracting the interest of academics and policy makers around the
world, as is the relationship between creativity and innovation. Within creative industries, new
media is considered an innovative, growth sector which holds potential for developing countries.
This paper examines innovation in new media firms situated in Cape Town, South Africa.
Theoretically, the dynamics of creativity, innovation and economic development in contemporary
urban contexts are considered; as are the interactions between creative cities and innovation
systems. This paper draws on purposive interviews with new media firms concerning their innovation
activities. This study found that the new media sector in Cape Town is a small, but an emerging
creative sector and that new media firms are dynamic in terms of technological innovation.
However, for the most part their innovation activities tend to be incremental and localised.
Furthermore, various barriers limit their innovation enhancement and growth prospects. These firms
need to be nurtured and supported in order to grow, create more novel innovations and become
internationally competitive. The paper also provides policy implications for fostering innovation in
creative cities in developing countries, as well as local policy recommendations for the enhancement
of creative industries.
1. Introduction
In post-industrial cities, cultural and media industries have become avenues towards providing
employment and stimulating urban and regional growth (Scott, 2006a; UNCTAD, 2008). Cities are
furthermore regarded as drivers of national systems of innovation. Skills and capabilities for
innovation tend to agglomerate in cities. Cities have also often been described as cradles of
creativity. The concept of creative cities has developed in response to the economic decline of
industrial cities in Europe, the United States and Australia (UNESCO, 2004). Trade in creative goods
and services have grown unprecedentedly in developed countries over the last decade, when
compared to traditional manufacturing and services. Creative industries typically contribute between
two and six per cent of the gross domestic product in such countries (UNCTAD, 2008). Even though
creative industries contribute much less to national economies in developing countries, they seem to
hold potential for development. UNESCO (2004) indicates that developed and developing countries
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2. can harness the unexploited potential of creativity for the benefit or urban populations, as well as
socio-economic development. According to the UNCTAD (United Nations Conference on Trade and
Development), developing countries have rich cultural diversities and an abundance of creative talent
which provide opportunities for gaining unique market niches. They can consequently establish new
sources of economic expansion which are more inclusive and also sustainable. Moreover, ICTs
(information and communication technologies) are increasingly linking countries and cities
worldwide which create further opportunities for developing countries and cities to access global
markets through digital channels.
The classification of the creative industry subsectors vary in the literature, but generally include film,
television and broadcasting; visual arts; performing arts; crafts, publishing and printed media;
advertising; design; new media; music; designer fashion; and also cultural tourism (de Miranda et al.,
2009; Rogerson 2006; UNCTAD, 2008). The activities of creative sectors tend to be crosscutting,
overlapping and multidisciplinary in nature. Creative industries comprise of a cycle of creation,
production and distribution of goods and services which use intellectual capital as their primary input
(UNCTAD, 2008). Multimedia and telecommunications are at the forefront of production in the
creative economy with new media as a new creative sector (UNCTAD, 2008). Internationally, the
new media sector has responded to demand from global markets by increasing exports over the past
few years. New media was born out of the internet and subsequent technologies. It is not so much the
media, but the vehicles of communication that are new. For example web applications; interactive
interfaces; new e-mail technology; cell phone technologies; peer-to-peer networking; online games;
content management systems; etc.
Creative industries have received policy recognition at national level in South Africa, but limited
progress has been made in terms of actual policy initiatives directly supporting creative industries
(Rogerson, 2006). Furthermore, creative industry initiatives are small, seem to have little impact and
lack integration. Cape Town is an example of where some progress has been made at local
government level – the cultural sector is regarded as a vehicle for local economic development and
the city is promoted as a creative city (CCT, 2010; Rogerson, 2006).
Rogerson (2006) indicates that little systematic, published research on the organisation or workings
of creative industries in South Africa exists. Additionally, there is hardly any local research and
literature on innovation in creative industries or on the topic of new media which is identified by the
UNCTAD as a growth sector for developing countries.
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3. This paper firstly considers creativity, innovation and economic development in contemporary urban
contexts. The interactions between creative cities and innovation systems are also considered. This is
followed by a discussion regarding regeneration and creativity in Cape Town. Evidence of
technological innovation in new media firms situated in Cape Town is presented next. Lastly, policy
implications for developing countries and policy recommendations for the development of the new
media sector within the wider creative industries are put forward.
2. Review of literature
2.1 Creativity, innovation and economic development
Knowledge forms the basis of production in new economic growth theories. The creation of new
knowledge, innovation and technological change drive progress in knowledge-based economies
(OECD, 1996). Such knowledge-based economies tend to be more globally integrated, innovative,
entrepreneurial, eclectic, and service orientated. Potts (2009) argues that the growth of creative
industries is indicative of a market-based economic evolution in which all ideas are born into a social
context. Such industries are in turn part of the growth of the knowledge process that drives all
economic progress. In so called new economies, value added is created through the application of
intellectual capital and new knowledge, through the process of innovation. Innovation has become
integral to the success and growth of small enterprises; to sustaining their competitive advantage and
enhancing their ability to trade in a global environment (Longenecker et al., 2006). Creativity is also
central to growth since it can distribute knowledge and enable innovation (de Miranda et al., 2009).
However, creativity and innovation are not synonymous. An idea is generated through creativity, but
an idea only becomes an innovation when it is transformed into something meaningful in the form of
a product or service with market value (de Miranda et al., 2009). The creative class consisting of
scientists, engineers, artists, musicians, designers and knowledge-based professionals drive the
process of innovation in creative economies (Florida, 2002). Their economic function is to create
new ideas, new technology, new creative content and new firms.
Creativity is difficult to define and it does not lend itself to systematic study (Lewis & Donald,
2009). On the other hand, innovation has been measured since the early 1990’s by the OECD
(Organisation of Economic Cooperation and Development) and the field of innovation studies
continues to grow (Fagerberg & Verspagen, 2009). Traditionally, innovation has been associated
with science and technology. Technological innovation leads to change or increase in the
technological variety of products and processes, while non-technological innovation includes
incremental improvements on existing products and processes and changes in product design,
marketing, business practices and workplace organisation (OECD, 2010). Product innovations
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4. include new or significantly improved goods or services with respect to its capabilities, user
friendliness, components or sub-systems (OECD, 2005). To be considered innovations, such
products or services need to be new to the enterprise, but they need not necessarily be new to the
market. Process innovation involves the implementation of a new or significantly improved
production or delivery method, including significant changes in techniques, equipment and/or
software (OECD, 2005). Innovation in service industries tend to be product innovations instead of
process innovations; incremental instead of radical (Hipp & Grupp, 2005). Moreover, innovation in
creative goods are often characterised by small innovations and marginal improvements (Scott,
2006a).
2.2 Creative cities, creative industries and innovation systems
Historical evidence suggests that cities are engines of economic growth, knowledge production and
innovation. Agglomeration effects in larger cities lead to higher levels of productivity and innovation
(Bettencourt et al., 2007). Thus, dynamic and productive cities are essential for innovation and
national economic growth (Johnson, 2008). Knowledge-intensive and service industries, central to
new economies, are almost exclusively city based (Florida, 2002). Cities are also regarded as
breeding places for creativity (Hospers, 2003). In creative city environments cultural, technological
and organisational shifts leads to a ‘marriage of art and technology’ creating new economic activities
and industries (Hall, 2000:647).
Even though the majority of economic, institutional and technological change have occurred in urban
areas, it does not mean that all cities will turn into creative and/ innovative spaces (Hospers 2003,
Johnson, 2008). The question of what makes cities creative and innovative thus arises. Several
scholars provide supply side arguments as answers. Johnson (2008:3) indicates that ‘there has to be a
combination of specific factors at specific times for urban innovation to be strong’. For instance,
conditions for production and factors such as skills; transport; infrastructure; agglomeration benefits;
and access to markets and capital are better in cities than in less urbanised areas. Such urban factors
play a critical role in sustaining commercially successful innovation (Athey et al., 2007). While
technological developments are said to have done away with the importance of proximity,
concentration which provides a critical mass required for human interaction remains an important
factor for creativity and innovation in cities (Hospers, 2003; Wu, 2005). Relatively short distances
and dense communication systems of well-functioning cities thus support face-to-face
communication which in turn fosters interactive learning and innovation (Johnson, 2008). Creative
industries tend to cluster in cities that offer a variety of economic opportunities, an enabling
environment and diversity (Wu, 2005). Thus, creative city environments tend to be open, tolerant
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5. places where people of diverse cultures, beliefs and traditions want to live (Florida, 2002).
Successful creative cities which thrive in today’s economy are havens for music and cauldrons for
artists of all styles and persuasions (Ley, 2003). Instability and the reputation are also considered
ingredients for creative cities. In terms of instability, creative cities tend to be uncomfortable,
unstable and places of great social and intellectual turbulence (Hall, 2000). However, crises,
confrontation and chaos in cities have historical lead to creativity (Hospers, 2003). In terms of
reputation, a positive image as a creative city will enhance a city’s reputation and credibility
(Hospers, 2003). More recently, demand side arguments have been added to the debate. Johnson
(2008:2) indicates that demand side arguments ‘centre on the presence of a diverse population that
includes people with not only different occupations, competencies and social background but also
with the higher wages and tastes that create a high and differentiated consumer demand’. Reasons
why cities fail to develop and sustain innovation include failure to match technology with
institutional arrangements and supply side factors with demand side factors (Johnson, 2008).
Firms drive private sector innovation in urban areas (Athey et al., 2007). However, the external
environment for innovation (or a creative milieu) is at least as important as a focus on firms to
explain what drives innovation in cities (Wu, 2005). The notion of a creative milieu is similar to that
of an innovative milieu (Hall, 2000). Creative processes flourish in places where creativity is
supported and channelled into innovation, new firm formation and ultimately economic growth.
Cities have the facilities, institutions, embedded knowledge and practices to produce creative urban
milieus. Regional innovation systems tend to develop in urban areas with well-established sectors
and clusters (Athey et al., 2007). Clusters are mostly found within related industries where a pool of
talents, skills and knowledge exist. Within large metropolitan cities, discrete creative sectors usually
cluster around specialised products and services (Scott, 2006a). Creative industries tend to function
as clusters, but they are not conventional business clusters. Furthermore, creative industries are
characterised by collaborations; flexible and modular market structures; the prevalence of
entrepreneurial activity and the frequency of small and micro enterprises (Evans, 2009; Scott, 2006a;
Wu, 2005). Creative industries are often concentrated in once declining central city, city fringe or
former industrial areas, occupied by the urban middle class, where gentrification is well-established
(Evans, 2009; Ley, 2003).
The innovation performance of an economy depends not only on individual firms or clusters, but also
how they cope with change and interact with other actors in the financial and public sectors at city,
regional and national levels (Johnson, 2008). Systems of innovation operate at several spatial levels
and can best be understood in a systematic, dynamic and complex network of agents, policies and
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6. institutions which support the process of technological advance across all industries (Johnson, 2008;
Wu, 2005). A traditional sense of national innovation system focuses on the systemic relationships
between firms, research organisations including universities and government. However, scholars
have suggested a broader definition of innovation and a broader sense of innovation systems to
investigate innovation systems in developing world contexts. (Freeman 1987, and Freeman and
Lundvall, 1988 as referenced by Johnson et al., 2003). Innovation should accordingly be seen as a
continuous process which includes both radical and incremental innovation to give draw more
attention to non-technological kinds of innovation as in the case of creative industries. Furthermore,
this approach focuses on capabilities and knowledge to drive development and build well performing
innovations systems.
2.3 Cape Town, regeneration and creativity
A research study conducted in 2009 found that there were approximately 1,000 creative entities in
central Cape Town (CCT, 2009). About half of these entities were design orientated and thus
concerned with architecture, fashion, furniture, advertising and ICT innovations. In addition, the film
and publishing industries also had a strong presence in central Cape Town.
Clusters in industrial districts, adjacent to city centres, typically specialise in activities such as
advertising, graphic design, audiovisual services, publishing or fashion (Scott, 2006b). This trend is
evident in Cape Town (CCT, 2010). The city centre and post-industrial fringe areas such as the
Waterfront, Green Point, Woodstock and Observatory have experienced urban renewal over the past
few years. Business parks, hotels and new accommodation complexes have risen in these areas, as
well as numerous film and photographic studios. In the Waterfront area, several publishing houses;
advertising agencies and design studios have gone up in old warehouses and shipping facilities. In
Woodstock, traditionally a meatpacking and textile district, there are various examples of industrial
sites converted into creative spaces. Examples of these include the Old Biscuit Mill, the Old Castle
Brewery, Buchanan Square and several art galleries. The area is furthermore evolving into the media
hub of Cape Town (Miller, 2010).
Annually, Cape Town hosts a plethora of festivals, events and exhibitions related to the creative
industries. Annually, Cape Town hosts a plethora of festivals and events. Those that are related to the
creative industries include the Cape Town International Jazz Festival, North Sea Jazz Festival, Cape
Town International Opera Festival, Cape Town International Comedy Festival, Cape Town Book
Fair, Design Indaba, and Cape Town Fashion Week to name a few, as well as numerous film
festivals, carnivals and art exhibitions. The Cape Town International Jazz Festival, just one of these
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7. festivals, contributes significantly to the economy of the Western Cape. In 2009, this event generated
approximately R158 million in visitor and organiser spending, as well as 1,059 jobs (Saayman &
Rossouw, 2010). A new addition to the Cape Town events calendar is Creative Week Cape Town
modelled after the New York Creative Week; this event was initiated as a legacy event for Cape
Town’s bid for World Design Capital in 2014.
Recent local economic development initiatives in Cape Town vis-à-vis creative industries include the
Central City Development Strategy which aims to expand creative hubs in the central city and city
fringe areas; and repositioning the city as a leading centre for knowledge, innovation, creativity and
culture in Africa (CTP, 2009). The Fringe is a specific initiative (funded by the provincial
government) to develop an innovation hub for design, media and ICT firms in the inner city (CCT,
2010). The recent Creative Industry Study for Cape Town recommends a focus on design, media and
technology, cultural tourism and community cultural development industries (CoCT, 2010).
3. Methodology
3.1 Definition of new media
The new media creative product is expressed in a digital form and used as a tool for the distribution
of other creative products (UNCTAD, 2008). For the purposes of this study new media includes all
forms of digital enhancement of conventional media, as well as a wide range of creative digitalised
products and services. Examples include software; interactive products such as electronic games;
interactive interfaces; animation and special effects used in digital media; online publishing and
educational materials; online business aids; online advertising; web-related services and
computerised approaches to graphic design (Scott, 1998; UNCTAD, 2008).
3.2 Questionnaire design
A semi-structured questionnaire was used to determine if there was evidence of product or process
innovation in new media firms and to examine barriers to innovation. The OECD definitions for
product and process innovation were used. The National Innovation Survey uses Standard Industrial
Classification codes, provided by Statistics South Africa, for measuring innovation activities in
firms. However, there are no SIC codes for new media activities and the National Innovation Survey
was therefore not suitable for measuring innovation in new media firms. The research team adapted
some of the European Community Innovation Survey questions for inclusion in the questionnaire,
along with the team’s own questions.
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8. 3.3 Sampling and data collection
This study employed a non-probability sampling approach. Firm information was sourced from
online business directories and other web searches. Firms situated in the broader Cape Town area,
with an internet presence and which fit the new media definition was purposefully selected from
such sources. All identified firms were included in the initial sample.1 The sample was refined by
contacting identified firms telephonically, before the commencement of the fieldwork, to confirm
whether they considered new media as their core business or whether they had a dedicated new
media division. Snowball sampling was also used to expand the sample i.e. respondents were asked
for referrals. All firms in the final sample were contacted for interviews. The persons responsible for
new media operations at firms were targeted as respondents. Twenty-two semi-structured, face-to-
face or telephone interviews were conducted with firms willing to participate, in addition to two
qualitative interviews with identified role players. The fieldwork was conducted during November
2010 and February 2011.
The authors acknowledge that the sampling approach had its limitations. The research team relied on
easily identifiable and traceable firms identified through web searches and referrals by industry
professionals. The exact number of new media firms in Cape Town is not known since there are no
official lists or industry representative bodies for new media. Some firms will have been excluded by
the approach and by design. The sample was relatively small, because it was a focused study aimed
at specifically measuring the extent of product and process innovation within a specific definition of
new media. Nevertheless, the team is confident that they were as rigorous as possible in identifying
new media firms as allowed by the resources available. The authors also argue that one can assume
that most new media firms will have a web presence due to the nature of their work.
1. Multimedia firms were excluded if the majority of their business was not related to new media. Firms with the
following services were excluded since it did not fit the definition: online sales, e-commerce, business portals,
webhosting, IT programming, film production, above and below the line advertising.
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9. 4. Findings
4.1 Characteristic of new media firms
The new media sector in Cape Town appears to be quite small in relative terms. This is not unusual;
Evans (2009) indicates that design and creative firms often show much faster growth than other
sectors of the economy even though these sectors remain very small in absolute terms. The study
found that new media firms were mainly clustered in the the inner city and the city fringe areas with
smaller concentrations in outlying areas. The establishment of creative industries in areas such as
Woodstock and Observatory have been a growing trend since 2004 which emerged organically in
line with international trends, as determined from the qualitative interviews. For the majority of
firms, centrality and strategic clustering were the most important considerations in choosing their
locations. Thus, closeness to the business centre of Cape Town and to similar firms or competitors
were essential.
The vast majority of new media firms surveyed could be classified as small firms with less than a
hundred employees. Only one firm could be classified as a medium firm with over a hundred
employees.2 The main income of the vast majority of new media firms surveyed was derived from
online digital solutions. Other income activities included software development, the development of
social media and mobile applications, the use of animation for media distribution and the
development of interactive devices and technologies. The largest portion of firms had been in
operation for 6-10 years, followed by firms in operation for 11-15 years. Thus, the new media firms
surveyed were generally well-established. The creative industry, most supported by the products and
services provided by the new media firm, was the film and television industry; followed by the
tourism and publishing industries; and then the media; marketing; advertising and music industries.
4.2 Innovation activities
Of all the new media firms surveyed, 82% introduced new or significantly improved products and/
processes over the last three years (Table 1). Of these innovative firms, 68% indicated that they
introduced new products and/ processes, while 73% produced significantly improved products and/
processes. Of the firms that innovated, 72% introduced innovations that were new to the market. On
the other hand, 28% of firms that innovated introduced innovations that were new to their firms only.
2. The classifications of small business by the number of full-time employees are as per the National Small Business
Amendment Act 29 of 2004 (South Africa, 2004).
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10. Table 1: Innovation by new media firms
Innovation propensity % New to market or firm innovations %
New products and/ processes 68 New to market 72
Significantly improved products and/ processes 73 New to firm only 28
Total innovative 82 Total 100
An interesting finding of the study was that a clear distinction could not be made between product
and process innovations of new media firms. Product and process innovation seemed to go hand-in-
hand, and the one are often dependent on the other. For instance, new software developed to design
new channels for distribution can be regarded as process innovation. However, such software can
also be sold as a product. Also, the development of certain new products or services is preceded by
the development of new enabling processes. An analysis based on qualitative descriptions by
respondents as to the nature of their innovations is presented in Figure 1. The figure illustrates the
overlapping nature of product and process innovation as found in the case of new media firms in
Cape Town. A recent United States Business Research, Development and Innovation survey also
found that product and process innovation overlap to some extent when all industry groupings are
taken together (BRDIS, 2010). However, for traditional industries such as manufacturing a clearer
distinction exists between product and process innovations.
Mobile applications
User experience improvement
Operating Systems Online Reputation Management
Platforms to communicate digital technology
3D/ interactive websites Animation/ Flash technologies/ interactivity
Geo-spatial document tracking
Virtual tourism websites
Digital Asset Management
Search Engine Optimisation
Social media applications/ campaigns/ packages
Integration of different products into one
Content Management Systems
Online page-flip magazine
Online career guidance system
Cloud Sourcing/ Computing
Interactive display devices
Figure 1: Nature of innovation by new media firms in Cape Town
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11. The new media firms surveyed innovated on a regular basis; about a third introduced more than two
innovations per year; while half had one to two innovations per year. Of innovating firms, about a
third indicated that they cooperated with other firms or institutions during the last three years when
creating innovations (Figure 2). Innovative new media firms mostly cooperated with clients (61% of
new media firms cooperated with such partners in South Africa, while 78% of firms cooperated with
foreign partners). This was followed by cooperation with firms in their own enterprise group and
with suppliers of equipment, materials, components or software. Many of the firms interviewed
belonged to larger enterprise groups with offices in Johannesburg and also abroad, especially in
Europe. This explains why new media firms rated their own enterprise group as important
collaborative partners for innovation. Cooperation with higher education institutes and government
were relatively low as is case with small and medium enterprises in general (Booyens, 2011).
Figure 2: Partners with which innovative new media firms cooperated
A lack of funding was of one of the most important barriers to the innovation activities of firms,
followed by cost and the speed of technology (Table 2). Firms typically lacked capital for investment
in technology. Respondents indicated that the cost of hardware and software is very high. This is
because firms have to import most of the technology. Moreover, firms indicated that cost of internet
connectivity i.e. broadband is not only very high in South Africa, but also very slow for the purposes
of new media firms. For instance, firms often need to upload large digital files for overseas clients
and slow broadband is a barrier in this regard. Respondents also felt that existing government
funding mechanisms for innovation are not suited to the needs of new media firms.
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12. This was attributed to a lack of understanding of what digital technological and communication
innovation entails. Respondents also indicated that tax relief for small businesses and tax incentives
for firms that innovate will help them grow their businesses.
Another major barrier to innovation was a lack of skilled human resources. Since firms struggle to
secure adequate funding for innovation, they also struggle to employ the appropriately experienced
and qualified staff to drive innovation. Firms typically lacked staff with adequate technical skills,
specifically IT (information technology) programming skills. Sourcing staff from the small existing
pool of skilled persons in South Africa comes at a high cost.
Respondents also indicated that time constraints and a perceived lack of readiness to accept
innovations (by clients and the general public) were factors hampering innovation. For instance,
when developing new customised products or services for clients, clients often resist taking risks and
embracing innovations. They usually do not understand new technologies and that their budgets
allow limited, if any, funds for innovations. The majority of budgets are allocated for traditional
above-the-line development.
Respondents also considered the regulatory environment to be a barrier to their innovation activities.
Concerns in the regard included high income tax and technology import tax; challenges in registering
trademarks and protecting intellectual property, as well as difficulties in exporting new innovations.
Table 2: Main barriers to innovation
Main factors hampering innovation activities %
Lack of funding 27
Cost and speed of technology i.e. internet connectivity 18
Human resource and skills shortages 18
Time constraints 14
Lack of readiness for innovation 14
Regulatory environment 9
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13. 5. Discussion
5.1 Innovation in creative cities: policy implications for developing countries
The notion of innovation systems is useful in terms of understanding city dynamics and promoting
the sustainable development of cities by designing policies to strengthen the relationships between
firms, research organisations and government (Johnson, 2008). Cities thus need to build institutional
and political mechanisms to nurture creativity and channel innovation. The appropriate policy
responses can greatly improve the performance of creative industries (Scott, 2006a). Such policies
can be city based, but linkages between cities and national role players should also be fostered since
cities often lack political power to inform the required policies.
Policy makers can promote creative cities by creating framework conditions for creativity and
innovation (Hospers, 2003). Such conditions include well develop transport and communication
infrastructure (Athey et al., 2007). Wu (2005) also indicate that the provision of basic government
service such as planning, permitting and public service will impact on whether a city is attractive to
creative firms. This is particularly important for developing countries. In South Africa like in many
other developing countries, the delivery of government services is a notorious problem in urban
areas. This is specifically the case in impoverished areas. Creative industries thrive in post-industrial
and urban-fringe areas as confirmed by this research. Urban degeneration, poor services and poor
infrastructure are prevailing in such areas. Urban policy makers and planners can make a difference
and enhance creative industries in such areas by ensuring services, improving the infrastructure and
the built environment to improve the quality and sense of place.
In order for enterprises to be innovative and competitive at a global level, a high degree of human
capital and a skilled labour force are required (Audretsch, 2003). Many developing economies,
African economies in particular, are still largely characterised by low-wage; low-skill patterns of
production; low levels of technological readiness and trade in non-value added natural resources
(Wolf, 2006). To build knowledge and creative economies in such countries the technological
capacities of firms need to be enhanced; technological collaboration with developed countries need
to be fostered; and investment both in human resources and infrastructure are required (Archibugi &
Pietrobelli, 2002; Wu, 2005). The multimedia sector appears to flourish where an existing and well-
developed traditional skills base is in place (Wu, 2005). Cities with strong contemporary art, fashion,
craft, music and design schools are most likely to flourish (UNESCO, 2004). City policy makers can
nurse interactive learning opportunities to enhance creativity and innovation (Johnson, 2008).
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14. However, improving learning and innovation capabilities in developing countries is not only a
question of more resources for education. Institutional and social reform is also required to support
interactive learning and innovation broadly in many parts of society (Johnson et al., 2003)
In order for cities to promote innovation, strong local links are required (Athey et al., 2007; Wu,
2005). Strong links are required to ensure dense networks (needed to get innovations to the market),
diverse supply chains and cooperation with institutions like universities and other developmental
agents. These links are required to strengthen innovation hubs and clusters which consist of
individual firms. Regional policies should be responsive to small firm needs (Cooke, 2001). Such
policies can support the establishment of urban hubs where firms and markets are brought together
(Athey et al., 2007). Public policy can also play an important role in protecting and supporting
clusters. An example would be London’s Soho film and media district (Evans et al., 2005). Typical
public policy support in this regard included specialised business support; infrastructure development
for cultural consumption; finance to small and micro creative enterprises; investment in education
and training; and regulation. Policy makers can also help young entrepreneurs to develop business
plans, seek finance and start up businesses (Wu, 2005).
The sustainability of creative industries for local economic development is questioned by some
authors. Thriving creative industries can contribute further to existing inequalities in cities since
creative industries are usually associated with highly qualified individuals (Scott, 2006a). Creative
industries which thrive in inner city or post-industrial areas could lead to the marginalisation of poor
inhabitants. Also, creative city policies generally do not directly benefit the less-affluent
communities in urban environments (Ponzini and Rossi, 2010). Policymakers need to be aware of
these issues when designing local economic development and urban regeneration strategies.
Strategies to enhance knowledge-based economies are long term approaches and developing
countries cannot grow their creative economies unless the required determinants are in place, despite
overt enthusiasm regarding the potential of creative industries as expressed by the UNCTAD and
UNESCO. Broader policy responses are required to enhance the economy, create jobs and alleviate
poverty in developing countries. Specific public support is required to ensure the survival of
industries and the realisation of social benefits (Evans, 2009).
An important area of future research, within developing world contexts, is to understand how the
promotion of creative industries can be integrated with wider social development. This is required to
ensure that development through the enhancement of creative industries is equitable and sustainable.
Also, the authors acknowledge that not all creative firms are technological innovators, but this does
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15. not mean that they are not innovative. Thus, the nature of innovation in creative industries needs to
be explored further to better understand what innovation comprises of in creative industries.
5.2 Creative industries in Cape Town
The authors suggest that creative industries hold potential for local economic development in a city
like Cape Town. The core ingredients for the growth of creative industries seem to be in place. There
are various established creative industries (such as film and television, publishing, media and design
and performing arts); creative industries have played an important role in urban regeneration; and
local government recognises the potential of creative industries. There is also evidence of creative
clustering and innovation as found in the case of the new media sector. Potts (2009) hypothesises
that the existence of creative industries may in fact be a precondition for economic development.
However, broader support factors also need to be in place to grow creative industries. The promotion
of creative industries should be part of broader local economic development strategies and be
integrated with wider city planning, regeneration and quality of life objectives (LDA, 2005).
Furthermore, within an increasingly knowledge-intensive and innovation-driven economy, regional
economic is not only dependent on the concentration of creative occupations, but also on the
development of a highly networked regional innovation system (Kratke, 2010). In Cape Town,
however the innovation capacity of firms is generally quite low and disconnected from the regional
key value chains (OECD, 2008). Technology transfer; industry, university and government linkages;
and access to venture capital also remain weak as indicated in the qualitative interviews. Weak
industry-university linkages contribute to skills shortages experienced by the industry. Concerted
attempts to foster coordination between the main stakeholders are required in order to promote
innovation in the region (OECD, 2008). Furthermore, local creative industries need representation at
international markets to showcase talent and to create awareness regarding the quality of their work.
This is required for firms to be incorporated into global value chains; and to access international
development, funding and collaboration opportunities. Local creative industries thus need to be
marketed better. This is critical for their growth and to enhance the image of Cape Town as a
creative city internationally. It should also be realised that creative industry development can
normally only be sustained where there is a growing economy and market, as well as affluence and
demand for creative products (LDA, 2005). The socio-economic conditions in the Cape Town city
region have become more favourable over the last 15 years with dynamic, emerging and growing
clusters in the creative and knowledge-intensive industries (OECD, 2008). Furthermore, there
appears to be a strong and growing market for the design and advertising sectors in Cape Town, as
indicated in the qualitative interviews.
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16. 5.3 Promoting innovation in new media firms
The study found that new media firms had a strong tendency for technological innovation. In other
words, there was evidence of product, as well as process innovation in new media firms. Such firms
introduced innovations on a regular basis. Also, a large proportion of firms were first to introduce
innovations to their market. However, this does not mean that firms necessarily introduced
innovations to international markets and were therefore not a measure of international
competitiveness. It is more likely, that firms were simply introducing new products or services to
markets in South Africa. It should also be pointed out that significantly improved products and/
processes are also regarded as innovation. Of innovative new media firms in Cape Town most
introduced significantly improved products and/ processes rather than new products and/ processes
as found by this study. Such firms would typically adapt existing technologies or make marginal
improvements for their purposes rather than actually developing new technologies. As indicated by
the firms interviewed, the technologies they need were mainly imported. The authors suggest that
such firms need to be nurtured and supported in order to grow, create more novel innovations and
become internationally competitive.
Despite the tendency of new media firms to innovate, various barriers to innovation exist. The
respondents cited access to funding, costs of technology and a lack of technical skills as the main
barriers to innovation and business growth. The authors argue that even though the new media sector
in Cape Town appears to be small in absolute terms, it is emerging creative industry with seemingly
a large scope for innovation. However, if new media firms are to be sustainable they need to build
competitive advantage based on niche market product offerings. The sector needs to be nurtured and
supported in order for it to grow, create more novel innovation and become internationally
competitive instead of largely adapting technologies from abroad. The authors recognise that
innovation is largely private sector driven. However, government can play a supporting role in terms
of creating an environment which supports creativity, innovation and growth. Government also needs
to promote the development of sustainable creative industries. Currently, there is no national or local
policy focus to expand new media specifically in South Africa. Specific policy recommendations to
promote innovation in the new media sector are provided below.
New media firms need improved access to new business development funding and government
programmes supporting innovation in small and medium enterprises. Existing government funding
programmes that support innovation such as the Support Program for Industrial Innovation,
Technology and Human Resources for Industry Programme, and Innovation Fund should be
improved and expanded to meet the needs of innovative, high-technology small and medium
16

17. enterprises (Booyens, 2011). Based on the findings of this study, new media firms can be regarded as
innovative, high-technology small and medium enterprises. Concerted efforts should thus be made
by the policy-makers and the designers of such programmes to understand the needs of new media
firms. This required to ensure that such firms have access to existing public innovation funding.
Alternatively, new funding instruments need to be created if necessary.
This study identified a need for improved design education with greater focus on technical skills to
support digital technological innovation. Respondents felt that Higher Education Institutes do not
understand the nature of their work and skills required by new media firms. Therefore, there needs to
be closer cooperation between industry and Higher Education Institutions. Government can further
play a role in promoting the sector in schools and Higher Education Institutions. Some respondents
suggested that the instatement of internships and scholarships for the new media and design sectors
will be advantageous.
This study also identified a need for a dedicated a digital media forum for networking purposes. Just
over half of the new media firms surveyed (56%), indicated that their firm was part of a network
consisting of other firms or public institutions. Forums for networking are essential for stronger
collaboration, knowledge sharing, accessing funding opportunities and creating an environment
which encourage innovation and entrepreneurship. A digital media forum can function both at a local
and national level. Government support of such an initiative can help grow the new media sector and
foster innovation in the sector.
Acknowledgements
The authors would like to thank the Human Science Research Council (HSRC) for the baseline
funding allocation that made this study possible. They would like to acknowledge Demetre
Labadarios, Moses Sithole, Nazeem Mustapha and Derek Davids at the HSRC for their respective
inputs. Aeysha Semaar are also thanked for her assistance with the fieldwork, as are all the
respondents who were willing to participate in this study. A special word of thanks to Zayd Minty
from Creative Cape Town for the information he provided, as well as for his insights regarding
creative industries in Cape Town.
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