How to Make a City Attractive for Knowledge-Intensive and Creative Firms?
Transcription
How to Make a City Attractive for Knowledge-Intensive and Creative Firms?
How to Make a City Attractive for Knowledge-Intensive and Creative Firms? The Case of Modern Media Industry (MMI) in the City of Halle an der Saale (Germany) Paper to be presented at the 47th Congress of the European Regional Science Association (ERSA), August 29-September 2, 2007, Paris by Martin T.W. Rosenfeld and Christoph Hornych The Halle Institute for Economic Research (IWH) Halle an der Saale (Germany) E-Mail-Address: Martin.Rosenfeld@iwh-halle.de ##Preliminary Draft Version! Please do not Quote this Paper Without the Permission of the Authors!## Abstract: Modern knowledge-intensive businesses are interested in spatially proximity and are usually locating in highly agglomerated urban areas with a good knowledgeproducing infrastructure (e. g. universities). But also policymakers from less attractive regions are trying to stimulate entrepreneurial activities in knowledgeintensive firms (“KIF”). The general question is whether such a strategy could be successful. The paper reports on a study for the region of Halle an der Saale in East Germany, where a strong de-industrialization has taken place after the German reunification. Since the end of the 1990s, policymakers have tried to attract firms from the field of Modern Media Industry (“MMI”). The paper evaluates the location factor in Halle and the policymaker’s strategies and measures for supporting MMI in Halle. Although Halle has some relevant potentials which are necessary for MMI, these potentials are comparatively low (as compared to other cities and regions). The main reason for the success of MMI in Halle has probably been – apart from other political support measures – the special German system of regulations in the field of public broadcast. 1 1. Introduction In many European cities and regions, globalization, international division of labour and interregional competition have resulted in a collapse of old traditional industries. There are also cities and regions, where firms from the modern “knowledge-based economy” or “brain power economy” have successfully replaced the old structures, e. g. in Finland. But as the new industries are dominated by creative, technology- and knowledge-intensive businesses, the location decisions of these industries are quite different from those of the old ones. Firms from the new industries have a strong preference for highly agglomerated urban areas with good knowledge-producing infrastructure and with living conditions for supporting a “creative class”1. Policymakers in cities and regions with economic development problems, which had been the domain of old traditional industries, are trying to imitate the economic “success stories” of other regions by stimulating entrepreneurial activities in knowledge-intensive and creative industries. The general question is whether (and: depending on which factors) this strategy could be successful. This paper reports on a study for the region of Halle an der Saale in East Germany, where a strong de-industrialization has taken place abruptly after the German reunification.2 Halle may be regarded as a prototype of de-industrialized cities in general. One strategy of policymakers in Halle has recently been the attempt to attract firms from Modern Media Industry (“MMI”).3 These efforts had positive effects, so far, although Halle had no tradition in this field and some critics were quite sceptical as to the potentials of Halle for firms in this field. This paper’s section 2 has the task to identify those location factors which are relevant for Knowledge Intensive Firms (“KIF”) in general, while in section 3, it is discussed which of these factors (or: which special categories of these factors) are especially relevant for the growth of MMI. Section 4 has the task to find out which political instruments could be generally used for influencing the relevant location factors (as described in sections 2 and 3). The research work for the sections 2, 3 and 4 is done on the base of existing theoretical and empirical studies. Section 5 gives an empirical overview on MMI in Halle and the relative importance of this industry. Section 6 shows which of the crucial location factors are existing in Halle; this is based on quantitative data and qualitative interviews with MMI-experts. Section 7 is evaluating the political instruments which have been used in Halle, so far, for supporting the growth of MMI and start-up firms in this sector, in order to find out whether the political impacts were able to compensate for shortages in the crucial location factors. Finally, in the concluding section of the paper, it is discussed whether a re-arrangement of political instruments could improve the conditions for MMI in Halle, and some conclusions for the general question (as mentioned above) are drawn. The empirical research is based on secondary data from public sources and on qualitative explorations (about 30 interviews with representatives from MMI-firms and public authorities). 1 For the concept of the “creative class” cf. Florida (2002, 2005). Cf. this paper’s section 5.1 and Kröhnert et al. (2005). 3 Policymakers in Halle are also trying to strengthen the economy of the city in the fields of biotechnology, nanotechnology and IT, which are also important sectors of the knowledge-based economy. Cf. Kafka / Komar / Ragnitz / Rosenfeld 2002. 2 2 2. Theoretical and Empirical Findings on Relevant Location Factors in the Field of Knowledge-Intensive Firms (KIF) in General 2.1 Traditional Industries versus KIF – What makes the Difference? Human beings are always equipped with some kind of knowledge which may be (and perhaps: should be) used for their activities. Therefore, the output of economic activities has necessarily to do with the stock of knowledge which is embodied in the persons who are responsible for these activities. Hence, at each stage of economic development, a certain stock of knowledge (and a certain technology) was used for the production of goods and services. But during the last decades, three things have changed: Firstly, the role of knowledge for economic growth processes has been more fully recognized than before by economic theorists.4 The traditional neo-classical economic theory had no explanations for the creation of knowledge, while more recent theories are trying to find such explanations. Secondly, new industries with products such as computers or electronics have rapidly expanded; these industries are producing goods with a rather complex internal structure which could only be understood (and: constructed) by creative persons with a high stock of technical knowledge. In addition, these products are used in other firms and in private households in order to produce new knowledge and / or to communicate the existing knowledge to other firms or persons. Firms and individuals have to be more creative today than in earlier times, because they are challenged day by day by the activities of their competitors from all over the world. And thirdly, service sectors like education, communications and information have also grown rapidly.5 One possibility to identify (statistically) the knowledge-intensive sectors of an economy or the Knowledge-Intensive Firms (KIF) within an economy is the approach to classify the sectors or the firms according to their relative R&D expenditures (“R&D intensity”).6 But this method may only be applied to manufacturing, because in the field of services, there are no R&D expenditures. From a more theoretical point of view, a KIF may be characterized by a large proportion of knowledge-intensive and creative labour and a small proportion of manual, low-skilled labour and routines. 2.2 What is Needed at a Location to Stimulate the Growth of KIF? For the old traditional industries, low-skilled labour and fixed assets were the most important production factors. In general, both factors are mobile, and their availability is not restricted to certain regions or locations. Therefore, traditional industries chose their location mainly in accordance with physical location factors which were necessary for their production, e. g. the availability of mineral resources. The supply with labour had only minor importance for the location decision, industrial workers were always ready to migrate to the place where they were needed. An additional important location factor for traditional 4 Cf. OECD 1996, p. 9. Cf. OECD 1996, p. 9. 6 Cf. OECD 1996, p. 36. 5 3 industries was geographical location. A city which was located near a major (national or even European) traffic network (in the 19th century: especially near to the coast or to a railroad) had e. g. a good opportunity for becoming a centre of the machine engineering industry, because of the local and regional need for machines and their repair. For the location decisions of KIF (and also for the growth of KIF), the traditional factors (as just mentioned) are only of minor importance. The most important location factors are probably human capital, the potential of cooperation within a region, infrastructure for travelling and for communication, the availability of appropriate rooms (offices, laboratories) for the KIF, the availability of venture capital, so-called “weak” location factors and the image of a city or region.7 With regard to human capital, as it is embodied in human beings, theoretically, it could be rather mobile in space. But specialized knowledge of a certain type (ki) is today often concentrated at a place P where either firms are existing which are already producing goods with the help of ki and / or where schools and universities are existing which are “producing” graduates by teaching on ki. Therefore, the existence of schools and universities are rather relevant for securing the supply with human capital within a city or region. Of course, persons with knowledge of ki may migrate from the place P to any other place. But if a firm is in need of ki , it could be the easier way to shift the location to P, where the firm may be sure to find what it needs. This is especially true for start up firms (their re-location is restrained by only small sunk costs). In addition, the existence of a high stock of persons with knowledge of the type ki within a city or region could also stimulate the establishment of new firms which make use of ki , because some of the employees of the existing firms or some of the graduates may wish to become entrepreneurs. The exchange of employees between firms within a city or region may lead to knowledge spillovers from one firm to the other which could be relevant for economic growth. Finally, and more general, it could be suggested that the existing stock of knowledge workers within a city or a region has the capacity to attract other knowledge workers. The most important categories of knowledge for KIF are (1.) knowledge from the fields of technical and natural sciences and (2.) a “creative knowledge” from members of the so-called “creative class”8. Members of the “creative class” have the power and the task to create new technologies and technological new products, to establish new firms and / or to create new products in the field of arts. Members of the “creative class” do often not clearly separate between working activities and leisure activities; from their point of view, work always contains elements of leisure, and leisure activities are necessary to stimulate their work with new ideas. Moreover, especially artists have in general a high propensity to initiate informal meetings and meeting-places for other artists, which may also be joined by creative persons from the fields of technological and economic creativity. Such meetings may lead to the exchange of ideas between the different fields of activity and may stimulate the process of innovation. For empirical studies, it is not easy to operationalize and measure the regional stocks of knowledge from the categories (1.) and (2.) which have just been 7 Cf. Kafka / Komar / Ragnitz / Rosenfeld 2002, pp. 19-31. For the importance of a “creative class” for the economic development of cities in general cf. Florida (2002; 2005). 8 4 mentioned. The most suitable way seems to be to regard all persons with an academic degree in the fields of technical and natural sciences as (potential) technical innovators. Following the studies of RICHARD FLORIDA, the “creative class” consists of three subgroups, the “creative core”, the “creative professsionals” and the “bohemians”. These groups may be statistically identified by certain groups of employees (scientists, academic teachers, engineers = creative core; lawyers, managers = creative professionals; artists, designer, musicians = bohemians9). For estimating the potential of cooperation within a region, at first the relevant categories of cooperation have to be characterized. One category is that of informal contacts of all kinds; it includes the meetings of members of the “creative class” which have just been mentioned before. Formal and informal networks between private firms and between private firms and public research units are a second category of cooperation. A network includes inter-firm cooperation going beyond pure marketed-oriented transactions and has the goal to improve the competitiveness of the network partners.10 Networks between firms and public research units include cooperation in the field of innovation and the transfer of knowledge.11 Networks between private firms may also include cooperation for innovations and the transfer of knowledge; other network activities are joint activities in the fields of education or training. The general assumption is that networks within a city or region have advantages, as compared to networks over longer distances (“distance matters”), because of lower transaction costs. Especially the transfer of “tacit knowledge” is in general only possible over short distances and is affording direct contacts between individuals. Finally, a third category of cooperation are formal linkages between firms in the sense of supply chains (or: “value added chains”) within a city or region. Although it is possible, of course, to cooperate over quite long distances, transaction costs and carrying costs are in general lower if the supplier is located near to the customer. Infrastructure for travelling abroad, for transportation and for communication is available today in all larger cities. In general, the larger the city, the better the connections by train and by plane to various destinations. Workers from the KIF have to be more mobile than workers from the “Old Economy” in the sense that they have to travel to other places in order for importing new ideas from other regions, as well as for negotiating on their products and on input goods. Some authors stress the fact that for modern types of production (and probably for KIF), the minimization of time for the delivery of goods and services becomes more and more important.12 Therefore, the transportation infrastructure of a city has to be in a good condition for supporting the rise of KIF. KIF have in general less need for land than the traditional industry. But of course, also for KIF the availability of appropriate rooms (offices, laboratories) at a competitive prize plays an important role for the location decision, although this factor is probably not the most important one for the location decision of KIF. 9 Cf. Fritsch / Stützer 2006. Rosenfeld / Franz / Heimpold 2007, p. 77. 11 For the different categories of cooperation between public research units and private firms cf. Rosenfeld / Franz / Roth (2005). 12 Cf. e. g. Heng (2000), pp. 13-14. 10 5 More than in the traditional fields of economic activities, the availability of venture capital is important for the support of KIF. KIF are operating in fields with high risks. One general assumption is that the availability of venture capital is higher in regions with agglomerations of bankers and financial institutions, because spatial proximity may reduce transaction costs (information for the bank about a certain firm; monitoring the performance of the firm). Apart from the factors mentioned so far, also the general “climate” for new industries within a city or a region is important for the development of KIF: a given sectoral specialization could lead to “lock-in effects” in the sense, that a new branch will have it difficult to expand.13 The so-called “weak” location factors and the general “ambience” of a place are also important for the KIF. Members of the “creative class” are looking for diversity, a diverse mixture of cultures and individual orientations, night life and other amenities. Finally, the general image of a city or region is important for all industries. But for the traditional industries, only the managers may be asked for their individual “taste” of a location, while the mass of the employees does not matter. As KIF are operated with staff from the “creative class”, probably the importance of a city’s image is much higher for KIF than for the traditional industries. But not only the most “glamorous cities”, also the “dirty image” of a “rusty” and “decadent city” could be attractive for creative individuals who are oriented on individuality. 3. Modern Media Industry (MMI) as a Special Case of KIF 3.1 How to define MMI? The media industry is ‘engaged in the production and dissemination of content targeted toward consumers’14. From a theoretical point of view the MMI can be defined by either referring functional or institutional criteria.15 However, a functional definition, considering characteristics of goods, is not practicable, because of the difficulties to measure the value of information in a product. Thus, an ad hoc selection of relevant goods which included in the definition of the MMI has to be carried out. This selection can be transformed into an institutional definition, including all the businesses producing these goods.16 Such a definition is open for statistical examination. So far, there exists no general accepted statistical definition of media industry in the literature. One reason is the emergence of new technologies while conventional fields are losing importance. For example, the traditional print media have only limited growth potentials and there are comparatively few innovations in this field.17 Because of the entry of computers into communication business, many empirical studies are referring to data which consider the so 13 Cf. Braczyk, / Fuchs / Wolf (1999), p. 404. Albarran / Chan-Olmsted (2006). 15 Legler (2000), S. 7 f. 16 Legler (2000), S. 7 f. 17 PWC (2005), S. 7. 14 6 called Information and Communications (IC) Industry, which combines the electronic media industry with the IT industry. Within the IC Industry, it can be distinguished between the IC-technology, IC-Services and IC-Content. The producers of content are often again called “media industry”.18 This definition is used in this paper, with the exception that the print media are not included (although the existence of print media at a certain place may be another relevant location factor). Therefore, in the following, the term of the MMI is used, which contains the electronic media (film, radio and TV broadcasting) and multimedia products. Multimedia products are characterized by integrating several media, like texts, graphics, photography, animation or moving pictures. Furthermore, additional criteria are mentioned, like interactive usage or use of digital technologies.19 In any case they are statistically hard to measure, as a clear division between producers of content and providers of hard- and software or communication services is not possible.20 Because of the high share of programming on the field of multimedia products, the producers are regarded as a part of computer industry within the European classifications of economic activities (NACE).21 This means that studies which refer to empirical data inevitable includes non-relevant business: To take producers of multimedia products into account, for this paper we had to include software consultancy and supply services (see table 1).22 Table 1: The definition of MMI (Nace). Code 223 722 921 922 Description Reproduction of recorded media Software consultancy and supply Motion pictures and video activities Radio and television activities Source: authors’ description. 3.2 What is Needed at a Location to Stimulate the Growth of MMI? Besides the general location factors which are relevant for KIF there is some special demand from the firms of the MMI. For example in a city with a large culture and entertainment sector the MMI profit from a dense concentration of specialised workers in fields like story writing, visual dramatisation, music composition and scenario production. Furthermore, if there are many firms in these fields, they could act as subcontractors for MMI-firms.23 In addition, a large cultural sector has for the MMI the advantage of a high number of potential employers. Because the employment relations in the media industry are characterised by a high share of part-time, temporary and freelance work, this is an important aspect by choosing the place of work. 18 Seufert / Neckermann (1999), S. 5 f. Hilbert et al. (1999), S. 135. 20 Legler (2000), S. 12-15. 21 Seufert / Neckermann (1999), S. 6 f. 22 Group 72.2 of Nace (rev. 1.1). 23 Searle / de Valence (2005). 19 7 Another aspect is that the employees of the media sector themselves prefer to live and work close to cultural amenities. The media firms reacting by choosing their locations in areas with a wide range of cultural events.24 Altogether, the local cultural economy generates a variety of benefits for the development of MMI. Similar effects as from the cultural economy can be expected from the advertising sector. Because of overlap required skills in the advertising sector and the MMI, many persons may be employed both by advertising agencies and by media firms. Especially in the field of electronic advertising via internet there is a high degree of overlapping between advertising agencies and multimedia producers.25 Moreover, there are input-output linkages between the two sectors. The advertising agencies need services like film and video production, on the other hand, firms from the MMI have demand for advertising services. Another relevant location factor for MMI is probably the level of news-production within a city, in the sense of generating content for the media firms. Regular and outstanding cultural events or institutions with high interest will attract broadcast correspondents. The local concentration of a high number of media-related workers could also provide an opportunity for knowledge spill over. Especially political centres generate a high level of news-production. Therefore the capital cities are often also the leading media cities of a country.26 Other newsproduction events may have their roots in the fields of entertainment, sport, culture, science or economy. Similar effects like a high level of news-production can be expected if the city has premium sceneries which could be used as a film location. Suitable location can occur as historical buildings, a modern townscape or other sights.27 The German system of public broadcast has a high influence on the geography of the MMI. After the admission of private broadcast, the new television stations often establish at the some locations like the existing public broadcast stations. The media firms are seeking agglomeration advantages, especially for a skilled labour force and the existing of TV-related local suppliers.28 With a budget with about 8 billion € annually,29 the German public broadcast is also a potent customer of media products. Hence many MMI firms settle nearby public broadcast stations and try to receive production contracts. This is one reason why the leading German centres in the MMI sector are also locations of one of the German public broadcast services. Cologne is the headquarter of the ‘Westdeutscher Rundfunk’ (WDR), Munich of the ‘Bayrischer Rundfunk’ BR, Berlin of the ‘Rundfunk Berlin Brandenburg’ (RBB) and Hamburg of the ‘Nordeutscher Runfunk’ (NDR). 24 Searle / de Valence (2005). Sträter (1999), S. 167. 26 Krätke (2003). 27 Rosenfeld et al (2007). 28 Hanke (1996). 29 Institut für Medienpolitik (2007). 25 8 4. How Policy May Influence the Relevant Location Factors 4.1 Possible Policy Impacts on Location Factors in the Field of KIF In general, policy may influence the location of private firms with two categories of instruments, regulations and fiscal instruments; both categories contain various separate instruments.30 Not all of them could be used for stimulating the growth of KIF within a region or city. In the following, it is discussed which of the instruments of regional policy may have influence on those location factors which are relevant for KIF (and had been described in section 2.2). As a city’s politicians could be strongly influenced by the traditional local industries, it is possible that they will sometimes not act in order to stimulate the growth of a new industry at all (and will not make use of the instruments which are discussed in this section). - A city’s stock of KIF-relevant human capital may be, of course, increased by more and better schools and universities. - As a city’s stock of members of the “creative class” is a result, to some extent, of a region’s existing private firms, policy may directly increase the “creative class” in a certain city only by the provision of more and better schools and universities (see above) or by better conditions for other KIFrelevant factors (these conditions will be discussed later on). The same is true for measures to increase a city’s potential for informal contacts of all kinds. - Formal and informal networks between private firms and between private firms and public research units could be supported with the help of (1.) subsidies and / or organzational assistance for private network activities, (2.) the organization of publicly financed business incubators (where networking between the members is supported by the staff of the incubator), (3.) restructuring the public research units and their range of specialization in order to come to a better correspondence between the specialization of the private firms within a region and the specialization of the public research units, (4.) changing the incentive system within the public research units in the sense that cooperation with private firms is rewarded. - Formal linkages between firms in the sense of supply chains (or: “value added chains”) within a city or region may (and: should!) in general not be influenced by the public sector. But the local authorities could try to stimulate supply chains within their city or region by improving the information about the production program of the existing firms. - Infrastructure for travelling between cities and regions, for transportation and for communication is the result of the public provision of highways, railways, airports and communication systems. In Germany, the responsibilities for these fields of public policy are allocated to the federal level of government (and to some extent to the state (“Länder”) level of government. Therefore, at the local level, it is not possible to improve the infrastructure in the fields of transportation and communication. Moreover, even the politicians at the state and federal level may not administer the frequency of traffic at a certain 30 For a general overview on the instruments of regional policy cf. Rosenfeld (2005). 9 airport or at certain railway station; the frequency of traffic is in general following the demand of private firms and households. - KIF have in general less need for ground than the traditional industry. But of course, also for KIF the availability of appropriate rooms (offices, laboratories) at a competitive prize plays an important role for the location decision. Local policy may take care for a sufficient stock of building sites and publicly subsidized rooms for innovative firms31. - The availability of venture capital could be replaced by public subsidies to KIF which are in need of capital.32 - The general “climate” for new industries within a city or a region may be influenced to some extent by public information campaigns on the potentials of a new sector of businesses. - The so-called “weak” location factors, the general “ambience” of a place, a diverse mixture of cultures and individual orientations, night life and other amenities are, firstly, depending on the inhabitants of a city; the more KIF and / or public research units a city has, the better are the conditions for the “weak” location factors. But, secondly, these factors depend also on activities by the local policymakers, especially on urban spatial planning (care for monuments; green areas and parks; streets for shopping, bars and leisure activities). - The general image of a city or region may not easily be changed by political instruments. Appropriate measures to come to a better image are to change at first the attitudes of a city’s inhabitants toward their own location. This could e. g. be done by the public schools which could have the task to inform their pupils about the potentials of the city in question. - Finally, the conditions for KIF could be improved by either abolishing existing regulations (e. g. legal restrictions in the field of biotechnological research) or by introducing new regulations (e. g. on patent applications) which could support the growth of a certain industry. 4.2 Special Instruments for Supporting MMI Are there special instruments which could be used to stimulate the growth of MMI (and may have influence on the special location factors for MMI, as described in section 3.2)? The majority of these special location factors may not be influenced directly by policy instruments; a large advertising sector, e. g., is only the result of supply and demand in the local private sector. - 31 32 Of course, all the instruments which have been discussed in section 4.1 could have a special focus on MMI. E. g. specialized public business incubators could be operated exclusively for MMI. Such a strategy leads, of course, to all negative results which are connected to subsidies in general. Such a strategy leads, of course, to all negative results which are connected to subsidies in general. 10 - As a city’s culture and entertainment sector is to some extent a part of the public sector, the size of culture and entertainment may be directly defined by the local politicians (how much public money should be used for these amenities?). - The level of news-generation within a city depends primarily on the political functions of a city. These functions (e. g. as a state capital or a federal capital) may be changed by politicians, but this will happen very rarely. More easily is the way to stimulate public events (which are, of course, expensive) or to attract research institutes for subjects which are news-generating (e. g. an institute for economic research). - A city’s supply with premium sceneries which could be used as film locations is in general the result of the historical development of the city in question. But urban spatial planning may influence this factor, e. g. by caring for a conservation of old factory buildings. - Finally, the existence of public broadcast within a city is – in Germany – depending on decisions at the state (Länder) level of government; the states may decide in which city which public broadcast facilities should be located. 5. A Miracle to be Explained: The Rise of MMI in Halle since the 1990s 5.1 The Collapse of Old Traditional Industries in Halle Halle is a medium-sized city in East Germany; before World War II, the region of Halle and its neighbouring city Leipzig were geographically located in the centre of the old “German Reich”. Following this, it is still today quite common to refer to the region of Leipzig/Halle as “Central Germany” (“Mitteldeutschland”). The city of Leipzig is about 35 kilometres away from Halle; Leipzig has about twice as much inhabitants as Halle. Neither the city Halle nor the overall state Saxony-Anhalt are traditional locations for the media industry. The radio, television and film industry of the GDR was concentrated in Berlin-Potsdam33, merely one television studio was located in Halle. Therefore, less than 10% of the currently existing media firms in Halle were established before 1990.34 Until the German reunification the region of Halle was a domain of old traditional industries. The leading industrial sectors were machine engineering industry, chemicals and mining (1960: 10% of world lignite extraction).35 The former GDRdistrict Halle accounted for the highest gross production of the GDR. Since the beginning of the 1990s, the region was confronted with a far-reaching structural transformation, invalidating established structures of the formerly centrally planned economy. The dimension of the structural change is comparable to that one in the Ruhr area – although the development in Halle was much more 33 Bathelt (2003), S. 112. Wiener / Lukanow (2005), S. 13. 35 Kröhnert et al. (2005) 34 11 abrupt.36 A consequence of the development was a high unemployment rate which is still significantly above the German average. The population of Halle declined from more than 300,000 inhabitants in 1990 to approximately 240,000 today.37 5.2 The Present Relative Importance of MMI in Halle The rise of Halle as a Media city has emerged with the establishment of the sound broadcasting division of the Mitteldeutscher Rundfunk (MDR) in 1998. Since then, five regional radio stations of the public broadcast service of the states Saxony, Saxony-Anhalt and Thuringia are located in the sound broadcasting headquarter in Halle, which has about 250 employees and numerous freelancers. By attracting some film production companies and service providers from other areas, especially Berlin and Leipzig, Halle also becomes involved in TV-related business. For example, one of only few German animation film studios has settled in the city. Furthermore, there was a lot of start-up activities in Halle. There is a significant rise in number of start ups in the media sector (13 set ups annually in the period 1990-1998; 31 set ups annually in the period 1999-2004).38 More than 50% of existing media firms were set up after the year 1999. Several of these firms have specialised in post-production for motion pictures and TV-broadcast, which became a main focus of the local MMI. Among others the world largest producer of classical music DVD is busy in this field. Because of the high level of demand caused by these companies, recently a modern THX sound studio was built in the city.39 Furthermore a start up firm for developing a new sound systems technology has settled down in Halle. With `TVHalle’, also a local TV-station was established. Besides the public broadcast, two commercial radio stations and one public radio association are transmitting from Halle. With eight radio stations all in all, Halle became a considerable centre of radio broadcast.40 The radio business is the only media segment where scale effects could be empirically proved by Kolo/Vogt (2003); this aspect could be relevant for Halle, too. Despite these positive developments, the effects of the rise of MMI on the local labour market have remained limited. The MMI employs only 0.8% of the local labour force, which is clearly below the German average.41 In 2005 about 50 companies of the MMI were located in Halle, employing around 780 persons.42 The regional specialisation for MMI, measured with the location coefficient43, 36 Kröhnert et al. (2005) Rosenfeld et al. (2007). 38 Wiener / Lukanow (2005), S. 12. 39 THX is certification awarded by the THX Ldt, requiring numerous quality standards. 40 Rosenfeld et al. (2007). 41 The values for other cities are: Cologne 4.2%; Leipzig 2.8%. 42 Including the employees of the sound broadcasting headquarter in Halle, which are not take into consideration in the statistics of the ‘Bundesagentur für Arbeit’. 43 The location coefficient of MMI in a German region is calculated as follow: employees of the MMI in a region all employees in a region location coefficien t = employees of the MMI in Germany all employees in Germany 37 12 amounts 0.6 in 2006 (see figure 1).44 About 84% of the media companies in Halle generate turnovers less than one million euros. Only 4% of the firms reach overall sales higher than five million euros.45 Three of four of the firms employ less than 10 persons, only nine companies have more than 20 employees. A recently published survey has shown, that especially the firms of the film sector in Halle judge their developing perspective as more restricted than firms from other fields of the media industry.46 The relative slight importance of Halle in the field MMI becomes visible by comparing the city with the leading media centres. In Germany, the distribution of media activities is regional highly concentrated in four major cities. Munich is the centre of the German film industry, TV broadcasting is concentrated in Cologne, while Berlin and Hamburg are the centres of print media.47 The comparison of the development of the regional specialisation on MMI shows that Halle was not able to reduce the distance to the most important media cities in recent years (see figure 1). 4,0 3,5 3,0 Cologne 3,0 M unich 2,7 2,5 Leipzig 2,0 Hamburg 2,0 Berlin 1,8 2,0 1,5 1,0 Halle 0,6 0,5 0,0 2002 2003 Hamburg 2004 Cologne M unich 2005 Berlin 2006 Leipzig Halle Figure 1: Regional specialisation on MMI; 2002-2006. Source: Bundesagentur für Arbeit; authors’ calculations. 44 A former study based on a distinct wider definition and a different data source counts 150 firms with 3,100 employees in the broadcast, film and New media industry of Halle. Vgl. Wiener / Lukanow (2005), S. 8, 33. 45 Cf. Wiener / Lukanow (2005), S. 47. 46 Cf. Wiener/Lukanov (2005), S. 27 47 Cf. Cornford et al. (2000), S. 85. 13 6. Explanation Area I: How is Halle Equipped with Crucial Location Factors? In the following section, Halle’s equipment with the crucial location factors for MMI (as discussed in sections 2 and 3) will be discussed. Local Demand The potential of local customers in the region of Halle is comparatively small. With a population of about 2.5 million in the state Saxony-Anhalt, the number of end users is smaller than in the leading German media regions. Thus Halle is less attractive for media firms, which profit from the proximity to a large number of end users. The state North Rhine-Westphalia e.g. has profited from his high number of TV-viewers in the process of competition for broadcast companies, like RTL.48 With a look at the demand from private firms, one has to take into account that due to the structural transformation after the reunification, there are only few headquarters of firms from the field of industry in the Halle region today. Thus there is only a limited regional demand for productions of promotion and advertising videos.49 Nevertheless the existing local firms in Halle are relevant for the MMI in Halle. The firms from the film and TV sector have stated that the nearness of customers was the most important reason for the location decision.50 The turnovers of Halle’s MMI are mainly generated within the region of Halle. About one third of the media firms generate their overall sales even entirely within the region.51 Thus the situation of the MMI has similar problems like the media industry of Leipzig, as described by Bathelt (2005). However, at least the film production firms of Halle have a stronger national focus than in Leipzig, and a lower share of TV-productions for the regional broadcast. Human capital The relevant human capital for the development of MMI in a region can be found both within employees and trainees. The share of academics among the employees is an indicator of the endowment with human capital.52 With a look at the academic degree of the employees within the whole economy, Halle is better off than the German average (see table 2).53 Nevertheless, the leading centres of media industry have a still better endowment with human capital (the exception is Hamburg). Looking at the human capital in the MMI, Halle corresponds to the German average. After all, Halle is better off than Cologne or Hamburg. As expected, the share of graduated employees among all employees in the MMI (as 48 Hilbert et al.(1999), S. 143. Bathelt (2005), S. 114. 50 Wiener / Lukanow (2005), S. 17. 51 Wiener / Lukanow (2005), S. 47. 52 The statistic of employees takes only employees paying social insurance, but no freelancers into consideration. In Halle for example 24% of all workers in the media industry are freelancers. (vgl. Wiener/Lukanow (2005), S.31). 49 53 Considering academic degrees both from ‚Universitäten’ and ‚Fachhochschulen’. 14 a knowledge-intensive industry) is 39.3%, which is clearly above the share of other sectors. Table 2: Human capital endowment in Germany and selected cities; 2005. Share of graduated employees of all employees In the whole economy In the MMI Berlin Cologne Halle Hamburg Leipzig Munich Germany 17.6 16.7 15.5 15.4 19.9 23.9 11.1 45.6 36.4 39.9 34.5 46.7 40.3 39.3 Source: Bundesagentur für Arbeit; authors’ calculations. Numerous media related education facilities were established in Halle during the 1990th. The Halle University (“Martin-Luther-University”) has introduced a Master in media and communication science and a Master in online-journalism, with together around 60 graduates annually. In a suburb of Halle, the town of Merseburg, where about 90 students have acquired a degree in media and culture since then, a strong orientation towards electronic media has been established. A media school was founded in Halle, providing vocational training in media technology with 125 graduates per year. The University of Art and Design in Halle, “Burg Giebichenstein”, has introduced the study fields multimedia and virtual reality. Besides these public institutions, local companies have begun to become involved in media education. The ‘International Academy of Media and Arts e.V.’ is a public-private partnership which organises training for animationfilms and media executives. An association for media and arts, the ‘Werkleitz Gesellschaft’, gives support and technical advise to young media and cinematic artists. The ‘Open channel’ of the city organises courses on modern media, with over 2,000 participants annually.54 The media education facilities in Halle have a strong focus on MMI and have reached a substantial size. Nevertheless, the established media cities possess wider training facilities. For example, in Munich, there are thirty schools and further education facilities.55 Several media relevant fields like acting, journalism, theatre, music or literature are missing in Halle. However, these subjects are available in nearby Leipzig, thus, media industry in Halle may take advantage from a wide educational spectrum. Because the number of graduates is above the regional demand of labour, many young professionals leave Halle in order to find employment in the leading media centres.56 54 Rosenfeld et al. (2007). Sträter (1999), S. 174. 56 Rosenfeld et al. (2007). 55 15 Creative class Table 5 shows the share of employees who may be regarded, according to their occupation, as members of the creative class, following the definition of Fritsch / Stützer (2006). About 14.2 % of the employees in Halle belong to this category. The relative size of the creative class is smaller then in the other considered cities. Halle has especially only a small share for employees from the creative core. Although Halle’s share of members of the creative class at all employees is significant higher than the German average, it is with 14.2 p. c. lower than the share of creatives in Leipzig (15.1 p. c.). Especially the share of bohemiens is higher in Leipzig than in Halle (2.1 p. c. in Leipzig; 1.2 p. c. in Halle). Table 3: The creative class in Halle and selected cities; 2005 (per cent). Share of employees of the creative class and subgroups of all employees Creative core Creative professionals Bohemians Creative class Berlin Cologne Halle 2.3 11.8 1.9 16.8 2.9 11.3 2.4 16.5 Hamburg Leipzig Munich 1.3 11.7 1.2 14.2 3.3 16.7 1.9 21.9 1.7 11.3 2.1 15.1 4.4 12.1 2.0 18.5 Source: Bundesagentur für Arbeit; authors’ calculations. Advertising The advertising business is characterised by various connections to MMI. A serious disadvantage for Halle is the small number and size of advertising firms. The sector in Halle has less than half of the size as in the German average (see table 3). With 85 agencies57 and only 200 employees the city faces disadvantages, as compared to the leading media cities. The advertising industry of Berlin for example employs more then 15,000 persons. Table 4: Regional specialisation: advertising; 2005.58 Berlin Cologne Halle Regional specialisation on advertising 1.56 2.2 Hamburg Leipzig Munich 0.46 3.48 1.54 2.0 Source: Bundesagentur für Arbeit; authors’ calculations. 57 58 In Halle and suburbs (Wiener / Lukanow (2005), S.7). Advertising sector includes • 74.13 Market research and public opinion polling services. • 74.40.1 Advertising service. • 74.40.2 Sale of advertising space or time. 16 Networks between private firms and between private firms and public research units Although the general assumption is that the greater the city, the more efficient the network activities, many of the interviewed representatives from MMI-firms have stated the opposite opinion: In their view, a medium-sized city like Halle has the great advantage that “everybody knows everybody” in the relevant firms and administrative units. The contact between firms and the administration is more direct and easier than in larger cities. As we have not interviewed representatives from larger cities, the relevance of this argument is not clear, so far. But it could be some element for explaining the location decision of MMI in favour of Halle. Potential of local firms as suppliers / contractors for MMI More or less all of the interviewed representatives from MMI-firms have stated that the cooperation between the firms in the Halle region are excellent. E. g. if a MMI-firm is in need of some equipment, other firms are always ready to assist. One could expect that this good climate of cooperation is also – like the existence of informal networks – due to the relative small size of the city. In addition, there is a potential of freelancers for MMI in Halle, persons who could be employed by MMI-firms whenever they need more human capital. Culture sector In contrast to the limited activities in the advertising segments, Halle offers a wide range of cultural events. Although it is only a medium-size city, several theatres, an opera, a variety of considerable museums and distinguished cultural events, like the annual Händel music festival, are located in Halle. This high level of cultural activities is reflected by regional specialisation (see table 4): Halle has more than tree time more employees in the cultural sector than the German average. The regional specialisation on the cultural sector is higher than in the established media centres. Nevertheless, a comparison of total number of employees in the cultural sector leads to an opposite ranking: With around 2,000 employees Halle has a smaller cultural sector than the other cities. Table 5: Regional specialisation: culture sector; 2005.59 Berlin Cologne Regional specialisation on culture 2.35 1.43 Halle Hamburg 3.51 1.65 Leipzig Munich 2.58 1.85 Source: Bundesagentur für Arbeit; authors’ calculations. 59 Advertising sector includes • 92.3 Other entertainment services • 92.5 Library, archives, museums and other cultural services • 92.6 Sporting services 17 News-Producing and locations Halle is neither a political centre nor a location of institutions or events of high interest. An indicator for the intensity of news-producing is the number of mentions of a city by news services. For example the city of Halle occured in only one announcement of the news service Reuters during the last year, while a few hundred news can be found mentioned Cologne, Hamburg or Munich and even more than thousands with linkage to Berlin.60 Consequently Halle has a disadvantages, as compared to these cities. Despite the attractive historical parts of the town and glorious monuments from the industrial age the city Halle is not frequently used as scenery for film productions. Only one of the interviewees’ emphases the endowment of Halle with suitability locations, while several others describe the city Halle as less attractive for film productions. Infrastructure for travelling between transportation and for communication cities and regions, for The Infrastructure for travelling between cities and regions, for transportation and for communication in Halle is rather good, if we look at the “hardware”. Halle has linkages with IC- and ICE-trains to all parts of Germany; the airport LeipzigHalle is just 10 minutes (by train) away from Halle central station. But the frequency of interregional trains and planes at Halle central station and at Leipzig-Halle airport, respectively, is comparative low. On the other hand, Halle is not only located near to Leipzig, but also near to Berlin (and on the way from Berlin to Munich). And more or less all interviewees were rather satisfied with the existing infrastructure. The general “climate” for new industries within a city or a region On the one hand, as described above, the old industries have stopped to exist in Halle, so the way should be open for complete new orientations. On the other hand, the old structures are still “internalized” by the inhabitants and some political decision makers. Traditional industry has for many persons still a higher value than KIF. The general image of a city or region According to many sources, Halle has either no image at all (this is especially true for people from West Germany) or a negative image which was built up during the GDR era: the air in Halle (the centre of the chemistry industry) was extremely polluted, the houses were covered with dirt; persons (especially academics working at public research units) with a non-conformistic view were often removed from Berlin (the capital of the GDR) to Halle. Today, the air in Halle is clear; the dirt from the houses has been removed; but the old image is still relevant for people from the East. 60 Cf. http://www.reuters.com. 20.03.2007. 18 Finally, it has to be noted that firms and private households from Halle could also try to make use of the economic potentials of the city of Leipzig; the distance between the two cities is only about 35 kilometres. The following table is summing up how the city of Halle is equipped with relevant location factors for MMI: Table 6: Synopsis of the location factors for MMI in the city of Halle. Location factors Is the equipment with the factor in Halle equal (0), lower (-) or higher (+) than in other cities which are locations for MMI? Stock of KIF-relevant human capital 0 Stock of members of the “creative class” - Equipment with schools and universities 0 Networks + Supply chains 0 Advertising sector - Potential of private customers of MMI-products - Infrastructure for travelling / transportation 0 Spatially location of the city + General “climate” for new branches 0 “Weak” location factors 0 Culture and entertainment sector 0 Level of news-generation - General image of a city / region - premium sceneries which could be used as film locations 19 Although all the relevant location factors for MMI are in general available in Halle, the city’s equipment with them is comparative small. There are only some exceptions: (1.) A medium sized town like Halle allows to ease the contacts between firms and between the firms and the public sector. (2.) The spatial localisation of Halle at the way from Berlin to Munich and the small distance to Berlin may have advantages for some MMI firms. Much more near to Halle than Berlin is Leipzig. As it had been mentioned before, firms and private households from Halle could also try to make use of the economic potentials of the city of Leipzig; the distance between the two cities is only about 35 kilometres. With regard to this, one could ask why MMI businesses do not look from the very start for a location in Leipzig. Is the decision of MMI firms for locating in Halle the result of regional and local policy? And does this mean that policy is really able to influence the location of firms from the field of KIF? These questions will be discussed in the following section. 7. Explanation Area II: The Impact of Public Policy Instruments From the discussion in section 6 one could have doubts whether the existing location factors may be able to explain the rise of MMI in Halle. Of course, Halle has all the location factors which are important for MMI; but other cities and regions are probably better equipped with the majority of these factors. Therefore, the rise of MMI is probably to a large extent the result of public policy. According to the qualitative interviews in the Halle region the following instruments (from the set of instruments which had been discussed in section 4) were used for stimulating the location of MMI in Halle: - Schools and universities, especially for teaching in fields which are relevant for MMI, are located in Halle. But although the public research units in Halle have great potentials for MMI, there are some deficiencies in the networks between public research units and private businesses, especially with regard to the university “Burg Giebichenstein”. And so far, in the state of SaxonyAnhalt, there had been no restructuring of the public research units and their range of specialization in order to come to a better correspondence between the specialization of the private firms within a region and the specialization of the public research units. - Organizational support for private network activities has been given by the state of Saxony-Anhalt and the city of Halle, especially in combination with organizing and financing events for the MMI sector (with participants from all over Germany). But according to the interviewees, the impact of this support on networking has only been small, so far. - A publicly financed, specialized business incubator for MMI (“Mitteldeutsches Multimedia-Zentrum”) has recently been opened; up to now, it would be too early to assess the effects of this incubator. - The stock of building sites and rooms for innovative firms at low prices in Halle is sufficient; because of the suburbanization process, in the centre of Halle, flats could be rented at low prices; sites from the industrial age have 20 been restructured by the city government and are ready to be used for new activities. - Public subsidies are in Halle – as in all other parts of East Germany – paid to more or less all firms for their investments into fixed assets. In addition, the states Saxony-Anhalt, Saxony and Thuringia have established a joint support agency for MMI in 1998, the “Mitteldeutsche Medienförderung” (“MDM”). The total spending is about approximately 12.5 million euros annually. These subsidies have attracted MMI-firms from other regions to Halle, particular from Berlin, taking advantage of the slight competition (as compared to Berlin, where there are also subsidies for MMI), resulting from the small numbers of media companies in Saxony-Anhalt. Because only the MDM61 also supports multimedia projects, apart from film and TV production companies some multimedia and games businesses also settled down in Halle.62 - The general “climate” for new industries within the city of Halle had been turned, in recent years, more in favour of the new industries; one relevant measure had been that the city has given herself the title of an “university city” (e. g. at Halle main railway station, the name “Halle” is always announced in combination with the city’s university, as “Universitätsstadt Halle”). - The existence of public broadcast within a city is – in Germany – depending on public regulations and decisions at the state (Länder) level of government; the states may decide in which city which public broadcast facilities should be located. Therefore, one could assume that the institutional setting of the German system of public broadcast has been one main driving force for media firms to locate in Halle. Since the reestablishment of the “Mitteldeutscher Rundfunk” (“Central German Broadcasting Service”, “MDR”) in 1991 till 1998 the regional public broadcast was mainly located in the state Saxony. In 1998 the sound broadcasting division of the MDR has been moved from Leipzig to Halle. The reason was the claim of the state Saxony-Anhalt to participate on the expenditure of the public broadcast, which is financed by fees in SaxonyAnhalt, Saxony and Thuringia. However, because of a high share of in-houseproductions the value of production contracts of the sound broadcasting division in Halle stayed limited.63 A fundamentally higher importance was reached by the television division of the MDR, which is located in nearby Leipzig. Nevertheless, also the MMI-firms in Halle are profiting from the expansion of local activities of the MDR. This regionally-orientated policy of the MDR leads to an increasing share of production contracts with local suppliers, stimulating the development of the regional media industry.64 The MDR tries to establish a local supply and support sector for his TV-activities.65 Some of these firms have settled in Halle. The companies continue to have strong relations to the MDR television, which remains their most important customer. The high importance of the public broadcast is not without risk for the development of MMI in Halle. The MDR, as the most important client in the 61 Apart from the support agencies in a few other German states. Rosenfeld et al. (2007). 63 Rosenfeld et al. (2007). 64 Bathelt (2005), S.113. 65 Bathelt (2005), S.113. 62 21 region, gives 70% of the value of his production orders within the region.66 But this share did not increase in recent years. Furthermore, no additional subsidiaries were establishment. This development of the regional public broadcast is probably one reason for the stagnation of the growth process in the field of MMI in Halle. 8. Conclusions As compared to other de-industrialized cities and regions, Halle has comparative high potentials for KIF and for MMI. The public research units in Halle, especially the two universities, have a long and glorious history. Also the cultural sector in Halle is outstanding. But if we compare Halle to the leading MMI regions in Germany, it becomes obvious that – from a national perspective – there are just two main location factors which could attract MMI firms to locate in Halle: (1.) A medium sized town like Halle leads to good contacts between the firms and between the firms and the public sector. (2.) The spatial localization of Halle at the way from Berlin to Munich and the small distance to Berlin may be advantages for some MMI firms. The main explanation for the rise of MMI in Halle is probably the impact of policy on the location of public broadcast facilities. If there was no public broadcast in Germany, there would be no public impact on the location of broadcasting headquarters and stations; the private broadcast companies would probably never have located a headquarter or a station in Halle. But as, in Germany, the regulation of the public broadcast belongs to the competencies of the state level of government; therefore, each state wants to participate in the positive effects of broadcasting headquarters and stations. This institutional setting leads to a tendency of spatial equalization in the field of public broadcast. Nevertheless, in the state of Saxony-Anhalt, according to the state government, Halle is the only place where public broadcast and MMI should be developed with public money. As long as the institutions of public broadcast and the state of Saxony-Anhalt will exist, probably at least the public broadcast in Halle will remain steady. Of course, these institutions may be questioned from the viewpoint of economic theory. But as other cities and regions have profited from those institutions for years and decades, it is justified if also states like Saxony-Anhalt want to profit from them. In the long run, as the general location factors are not bad in Halle, it is possible that more firms from MMI will shift their location to Halle and / or that the existing firms will expand. Perhaps it would be better if the MMI-sector in Halle would come to a specialization in some field of MMI; today, the sound-sector is regarded as one possible specialization. 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