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1. Experience Industries

The Experience Economy

According to Pine and Gilmore, the experience economy is a fourth economic field different from commodities, goods and services.¹ Experiences are an economic value added to a product or identical with the product. When you buy an experience, you pay to spend time enjoying a series of memorable events that a company stages to engage the customer in a personal way. Entertainment is based on such experiences. But entertainment is just one aspect of an experience. Experienced values arise whenever companies engage customers in a personal, memorable way. So, experiences are staged, just as in theaters. Companies offer experiences to customers when they use services as the stage and goods as props to engage an individual. “While commodities are fungible, goods tangible, and services intangible, experiences are memorable”.

The value creation of commodities, goods, services, and experiences may be viewed as historical steps of modern capitalism. While the former three values are connected with the functional dimensions that alternately dominated during the 20^th century as societies changed from industrial to knowledge societies, the experience dimension has moved into a predominant place since the 1990s.² In developed countries people get richer, and having fulfilled all basic materiel needs, they focus increasingly on personal development and self realization. Demand for experience-based products increases, such as tourism and sports as well as film, music and other contents of media and modern interactive technologies. Furthermore, the demand for experience values is extended to include any product and dimension of modern societies, such as design and advertising. Love, sex, belief, family and the meaning of life may be considered universal experience values that have always been vital to human beings. What is new is the fact that capitalism is invading more and more fields of experiences connected with feelings and emotions and the extension of life proportions. It is in this sense we will use the term experience economy, meaning a series of industries that strive to supply the market with experience oriented goods and consumers who spend money on buying experience goods.

There is no internationally recognized definition of the experience economy. Some focus on the so-called ‘creative industries’, including music, film, television, radio, publishing, games, amusement, architecture, advertising, art and cultural institutions.³ Even intellectual properties may be included in creative industries.⁴ Other definitions include sports and tourism as well.⁵ In some cases, sports are excluded.⁶

In this book, the experience economy will include all industries that do business by creating primarily experience-based values on the one hand and, on the other hand, the experience creating dimension of any other industries. It is the intention to picture the business world driven by an expanding demand for experience-based values.

The Experience Industries

Accurate estimates of the global business of experience economy are hard to get at. In general, you have the problem of defining the content and limits of the experience economy and each of its inherent sub-sectors. It is also difficult to define the reach of the individual industries. Cultural like products of the experience economy are not only content, but also dependent on physical devices and materials to carry out and enjoy this content. Do we include the physical products in the experience economy or is it restricted to content only? The position taken here is that you have to include the physical products when the two aspects cannot be separated in a meaningful way. Otherwise physical merchandises are excluded and experience considered a value adding dimension, such as for example is the case with design. No clear line can be drawn, however.⁷

The demarcation of experience industries from other sectors of the economy also includes the problem of the value chain and value system enforced to create physical and intangible products. Every company is adding value to the processing of a final good within a long line of a value creating system. While it is mostly clear that consumer products are included in the definition of the experience economy, it is much harder to draw the line backwards in the value system. Many manufacturing and service industries are needed to reach the final product. The criterion chosen is that unlike the proper experience industries the sub-supplying industries of the experience producing companies are mostly considered part of the wider experience economy. Providers of tangible and intangible supporting products are considered related industries of the primary experience sector. Together they form the wider experience economy, including the core experience industries and the multiplying effects of these industries throughout the general economy.

The relationship between content and its physical device carrier is a tricky one. Tourism would be worth nothing without transportation and hospitality; sports have to include sporting equipment; media must include physical books, newspapers, magazines, television and radio sets; films, music and performing arts include their physical formats and stages; whilst games also include their physical formats. Design, including architecture, industrial and graphic design, and fashion, are probably the only subsectors that may be separated in a meaningful way from their physical dimension. If, for example, industrial design included the physical output of designs it would cover virtually all kinds of manufacturing industries, just as fashion would embrace the large textile and clothing industries. Here a divide is made between what are mostly experience based industries and industries where experience is an added value.

The problems of measuring the business of family, religion, sex and drugs are of a different kind. Family is a non-market activity, although it is based on household income and investment in housing, etc. So what is the economic added value of caring, love, household and other family values? This is probably the most difficult value to measure. But you have to include it in the experience economy, if you want to measure all the cultural values of a society. That is the case with religion, too. What is the value of belief? You can measure the activities of religions to a certain degree, but measuring the life value added by way of belief is a hard nut to break. More measurable are sex and drugs, each having markets of their own, although mostly illegal, except for tobacco. And what is included in the term drugs? Does it also include for example alcohol? Alcoholic drinks are left out, however, because they are considered natural parts of the daily products of the beverage industries. Of course, this is arguable, especially when compared to tobacco. Unlike tobacco alcohol is not necessarily addictive, which is admittedly no strong argument, however.

Finally, there is the problem of illegal economic activities in relationship to subsectors of entertainment (films, music, etc.) and sex and drugs, in addition to the informal economic activities not included in the world Gross Domestic Product (GDP). I have chosen to include all these illicit economic activities, because they are a real part of the experience economy, and some of them may eventually be made legitimate.

Sources of the Experience Industries

Academic research on the experience industries is hard to come by. Although you have specialized academic disciplines in virtually all fields such as tourism, sport, media and design in most advanced countries of the world and many aspects are dealt with, little is done in researching their business activities. As a consequence, you often have to rely on market research produced by trade organizations, for example the World Travel and Tourism Council (WTTC), and commercial market research companies, for example PricewaterhouseCoopers (PWC) in media. Having identified the leading companies of various industries, their Internet sites contain much valuable information, including annual reports and historical outlines. In addition to ‘official’ encyclopedias on social sciences, media, etc., the updated articles of Wikipedia are other useful sources on subjects and firms.⁸ Widespread illicit trade in experience goods does not make life easier for an analyst, however. In most cases, trade organizations and world agencies of, for instance, the United Nations, report on the extent and value of such illegal activities, including films, music, sex, and drugs. The informal and non-market economy of family households constitute another analytical problem to be dealt with.

In this publication, a variety of sources dealing with the many industries of the experience economy are structured on the basis of a holistic view of global developments. Accordingly, the analysis of the experience industries is a matter of encircling and stating the trends and facts of rather complex economic activities and putting them in a wider perspective, based on the global megatrends.

1 B. Joseph Pine II & James H. Gilmore (1999). The Experience Economy. Boston, Mass.: Harvard Business School Press.

2 A similar well known approach as that of Pine & Gilmore is taken by Rolf Jensen in his book (1999). The Dream Society. New York: MacGraw-Hill. According to Rolf Jensen, consumers are increasingly guided by emotions such as identity, care, peace, convictions, and togetherness, rather than functional needs.

3 Creative London: www.creative.london.uk.org. Hartley, John (Ed.)(2005). Creative Industries. MA, USA: Blackwell Publishing.

4 Howkins, John (2001). The Creative Economy. London: Penguin Books. See also: Markusen, Ann, Wassall, Gregory H., deNatale, Douglas, and Cohen, Randy (2008). ‘Defining the Creative Economy: Industry and Occupational Approaches’. Economic Development Quarterly, vol. 22, 24-45.

5 For example in PricewaterhouseCoopers (2006). Global Media and Entertainment Outlook 2006-2010. New York: PriceWaterhouseCoopers.

6 KK-Stiftelsen (2003). Upplevelsesindustrien (The Experience Industry)(Sweden).

7 The problem of separating content from its physical device is discussed in: UNESCO (2005). International Flows of Selected Cultural Goods and Services, 1994-2003. The problem is more stated than solved, however.

8 www.wikipedia.org. Schement, Jorge Reina (Ed.)(2002). Encyclopedia of Communication and Information, vol. 1-3. New York: Macmillan. Johnston, Donald H. (Ed.)(2003). Encyclopedia of International Media and Communications, vol. 1-4. San Diego, CA.: Academic Press. Smelser, Neil J. and Baltes, Paul B. (Eds.) (2001). International Encyclopedia of the Social & Behavioral Sciences, vol. 1-26. Amsterdam: Elesevier. Khosrowpour, Mehdi (Ed.)(2005). Encyclopedia of Information Science and Technology, vol. 1-5. Hershey, PA: Idea Group Reference.