Cluster life after death: How the death of creative companies renews their ecosystems

Screenshot from The Movies, a Lionhead video game.

Unlike people, organisations reproduce by dying. This is how they generate spin-outs, small, modified versions of themselves that expand into new areas.

Industrial clusters like Silicon Valley, Hollywood or the City of London are basins of economic activity that capture the benefits of company death. And company deaths are one of the things that rejuvenates these clusters, keeping them alive.

This has implications for policy I’ll discuss at the end. But before that, let’s look at a recent (and visible) death in the UK video games industry.

Game over

Last week, Microsoft announced that it was closing down Lionhead, a respected Guildford developer responsible for well-loved games such as “god-game” Black & White, or Fable, a jaunty fantasy adventure (incidentally, Lionhead gave DeepMind’s Demmis Hassabis his first AI-design job after he graduated from Cambridge university).

Websites and forums filled up with memorials. Some people voiced concerns about the future of the UK games industry. Others bemoaned those evil multinationals who buy small independents, crush their creativity and then shut them down.

This is all understandable. Nobody likes it when a creative company dies. Careers are upended, projects cancelled, jobs lost.

However, if this article’s thesis is right, there is a silver lining. Lionhead’s demise will probably benefit Guildford’s games industry in the future.

How does this work?

Relocation, diffusion, resurrection

One thing to remember is that when a creative company dies, it frees-up its most important resource: its people.

Another is that the company probably died because it suffered from the innovator’s dilemma — it was tied to an old business model or product, and failed to innovate in response to changes in the market. This doesn’t mean that it didn’t have any good ideas. It probably had many, but they didn’t come to fruition.

And now the company is dead. We have a bunch of creative workers looking for something to do. What are their options? They can relocate somewhere else, get a job in a business close-by, or start-up a new company. Let’s take these in turn.

1. If many workers move away, then the local talent pool may get depleted — the dreaded “brain drain”. However, relocating will not be the preferred option for many workers. It means selling your house, changing kids’ schools etc. It is very disruptive. Most people will try to avoid it.
2. Getting a job in a business close-by is better, and can benefit not only the company that gets to hire experienced workers, but the whole industrial ecosystem. The reason for this is that when people change jobs, they take with them useful knowledge as well as connections which strengthen local networks. One could even say that a death in a cluster brings it closer together.
3. The third option is to start-up a new business, using redundancy payments as seed capital and turning long-simmering ideas that were never realised in the old business into the foundation for something new. Life goes on, and the dead company survives, in a way, in its spin-outs.

Black pebbles, failed hybridisation and cosmic spin-offs

Can we find real-world examples of this cycle of organisational death and cluster renewal playing out?

There are many. The Black Pebbles story is closest to Lionhead’s situation: In 2006, renowned Brighton racing studio Black Rock was acquired by Disney Interactive. It didn’t pan out.

After the release of two critically acclaimed games that didn’t sell well enough to its liking, Disney shut Black Rock down. It was 2011, and the House of Mouse was moving away from console games, and towards social games and apps. Black Rock didn’t seem to fit with this strategy, and 144 developers lost their jobs.

Fortunately, the games industry is full of second acts. In this case, this involved the avalanche of entrepreneurial “Black Pebbles” which spun out of Black Rock. Among these 15 businesses (as of 2013) we find Boss Alien, the developer of best-selling racing app CSR Racing, Origami Blue, creating games for kids with learning difficulties, or Second Impact, which makes browser games.

With some exceptions, these start-ups transferred Black Rock’s high-end development skills to new platforms and business models. This was hard to do in Black Rock, geared as it was towards “AAA” (big, expensive game) console development. However, when the company died, its castaways were able to start from scratch, and Brighton’s game-making cluster was renewed.

Hybritech is another example of company death and cluster renewal: this biotech start-up from San Diego was acquired by Eli Lilly, a big pharmaceutical company, in 1985. The merger was a cultural disaster (“Animal House meets the Waltons” in the words of a witness), and two year laters all Hybritech employees had left the business…to start-up 40 biotech ventures in San Diego, eventually turning it into one of the biggest clusters of Biotech activity in the world (PDF).

My last example — Alejandro Jodorowsky’s “failed” attempt to film Dune — is definitely the one furthest out there (literally). Fresh from filming The Holy Mountain, Jodorowsky had an epiphany and decided to adapt Frank Herbert’s legendary sci-fi novel about ecology, religion and giant sand-worms. He assembled an incredible creative team to do this, with artists H.R. Giger, Jean Giraud (Mœbius) and Chris Foss doing the concept art and sets, special effects by Dan O’Bannon, a soundtrack by Pink Floyd, and a cast including Mike Jagger, Orson Welles and Salvador Dalí (among others).

Alas, movie studios got cold feet and the film never was made. The ideas behind it did however influence Alien and Star Wars, arguably altering the history of cinema. Perhaps ironically, Hollywood — the cluster that killed the project — was the biggest beneficiary of Dune’s death. Who said that evolutionary economic geography or cultural evolution were fair?

It takes resilience

All the stories above share one thing: a local backdrop of industrial resilience. The clusters we are talking about didn’t depend on a single business or project for their survival. There was a local ecosystem of skills, knowledge and money — even a cluster brand — that meant it was a no-brainer for spin-outs to start-up there, instead of some other place.

This resilience is what turned Black Rock’s death, Hybritech’s botched acquisition, or Dune’s failure into boons for their clusters, instead of an economic disaster. The situation would have been very different if these businesses had been the only show in town.

What are the implications for local economic policy-makers and cluster care-takers? Three things come to mind:

1. Nurture diversity: Clusters that are diverse in their company types, sectors and sizes will be able to withstand an economic shock more effectively than those which are industrial mono-cultures.
2. Strengthen networks: Strong networks inside a cluster can help speed up the process through which resources — ideas and people — are reallocated from a failing (or failed) company to those still standing.
3. Don’t prop up failing businesses — support their spin-outs instead: This is self-explanatory. Local economic policymakers should keep some contingency funds to seed the spin-outs from existing company failures, because those are guaranteed to happen sooner or later. Reacting fast to them minimises the risk of an exodus of talent.

Epilogue: Guildford after Lionhead

But what about Guildford? Does it have the resilience to recover from Lionhead’s demise?

I’m pretty confident this is the case. In previous research mapping the UK games industry with web data, me and colleagues at Nesta showed that Guildford is one of the strongest games clusters in the UK, with a powerful mix of small start-ups and established businesses. It spawned Lionhead (out of the ashes of Bullfrog Productions), and provided a fertile ground for its spin-outs, including Media Molecule or 22Cans.

I think Lionhead’s demise will be the beginning of another cycle of creativity and innovation. Lionhead may be gone, but its cubs will give us a lot to talk about (and play) in days to come.