The role of openness in creative innovation: Evidence from digital crowdfunding

This study analyzes the performance of new creative products by firms that engage in inbound open innovation (IOI). Creative industries have been under-examined in the context of open innovation, which is counterintuitive given emerging practices of borrowing, remix and sharing introduced by digital technologies. A unique aspect of creative production is the importance of copyright as a form of Intellectual Property (IP) used by outward- and inward-licensing firms. Evidence on the role of IOI in product performance for creative industries is so far scarce and ambiguous, with experimental results suggesting that over-estimation of value by licensors may distort the price of licenses and inhibit innovation. This may be due to lack of information about the value of a copyright to both the holder and prospective licensee. We contribute to understanding of creative industries by investigating whether the decision to inwardly license copyright affects new product development. We investigate this empirically using a unique dataset of 2040 creative products (in the creative sectors of publishing, comics, video games, and theatre) launched on a rewards-based crowdfunding platform where product performance was measured using campaign success and total funding raised. We compare the product development costs and performance for four types of producers: those that inwardly license copyright IP, those that make unauthorized use of copyright IP, those that use freely-available inputs from the public domain and those that do not use external inputs. We find that all forms of IOI improve product performance, but that formal copyright license agreements function as a signal that additionally improves performance for authorized producers. The findings yield practical implications for producer firms in terms of crowdfunding and licensing strategy. The findings are relevant for policymaking with respect to the scope of IP protection, the role of licensing and the contribution of IOI to creative sectors.