3. The size and structure of Australia's IMM industries


Australian content development industries relevant to emerging interactive multimedia production are currently worth around $8.4 billion in domestic wholesale revenues, plus nearly $700 million in exports and overseas royalties (see Figure 7). This provides the industry base and capital stock upon which to build an interactive multimedia industry. However, there is not a solid record of export success, despite recent progress in some areas such as music. Content industries may be generally characterised as local market-oriented, with significant imported content.


Figure 7: Australian content industry revenues

Notes (a) Print media (b) Turnover represents $1,613m local production; $195m imports (c) 1993 (d) Excludes TV and radio advertising revenues of $2.3 billion in 1992/93; turnover represents $1,211m local production; $596m imports (e) Estimated to be $100m in 1993/94 (f) Turnover represents $204m local production and $890m imports (g) Including collection agencies and publishers (h) This figure may not include post production for overseas films (i) Not including AAP services to mass media, nor on-line transaction services eg. EFT, EDI (at $80 million in 1993/94).

Sources: Cutler & Company analysis; ABS; AFC; ARIA; Price Waterhouse: ABPA; IDC; BIE


The Australian output of interactive multimedia is small, but growing fast. At present it is probably worth around $50 to $60 million in revenue. Much of the current activity is embedded in larger multimedia (linear) content production activities worth around $500 million revenue per annum (Figure 8).


Figure 8: Australian multimedia markets - 1994

                           Local Producers'        Number of                
                           Present Turnover        Firms/Project Teams      
                           (A$million)             Producing Content        
Education and Training     <30(IMM)                <25 (plus est. 20        
(incl. CD-ROM titles)                              groups in tertiary       
                                                   institutions)
Information kiosks <15 (IMM) <5
Corporate communications 150 (all services) 30 (Members of Aust. Presentation Multimedia Association) Product n.a. n.a. advertising/Catalogues Computer software tools 300 (all s/w) 40 (>$2m p.a. revenue) and applications Videogames 15 (IMM) <5 CD-ROM titles est 5 (IMM) <20 * (information, entertainment Merchandising products est 1 (IMM) <5 (screensavers, promotional CD-ROMs) Partial Total est. $500 million ** est. 130 firms/teams

* ca. 20 titles have been completed, ca 100 are in production process

** Software and corporate communications firms all use multimedia techniques, but few are yet producing IMM functions.

Source: Cutler and company interviews, estimates


The core of talent presently creating interactive multimedia products for commercial publication resides in a small number of around 25 firms or project teams. Most of these groups have been formed since 1990, and so far only a few have achieved export success.


Figure 9: Examples of Australian IMM content developers

COMPANY                         LOCATION         FOCUS OF ACTIVITY           
A Couple'A Cowboys/Apache       Sydney          Corporate communications     
                                                video, CD-ROM                
Acumen People and Productivity  Melbourne       CD-ROM/CD-i training         
Animal Logic                    Sydney          Design, animation, special   
                                                effects                      
Beam Software                   Melbourne       Video games, for Nintendo    
                                                and Sega formats             
Big Animated Digital            Sydney          Citibank, Chatswood          
                                                information kiosk            
Bit Magic                       Sydney          Powerhouse Museum,           
                                                contract for Wavelength      
                                                Communications               
Brains                          Sydney          Contracted to Microsoft      
Brigalow Digital Publishing     Canberra        CD-ROM training              
Brilliant Interactive Ideas     Sydney          CD-ROM titles, in            
                                                development, Sega affiliate  
Edge Technologies               Brisbane        CD-ROM Currumbin Bird        
                                                Sanctuary                    
Electric Alchemy/Australian     Melbourne       CD-ROM childrens             
Business Theatre                                                             
Empire Ridge                    Melbourne       Information kiosk and CD-i   
                                                title, in development        
Firm Publishing/Erica Dale      Sydney          CD-ROM childrens             
Garner McLennan                 Sydney          Animation                    
Hyperdyne                       Sydney          Contracted to Microsoft      
Interactive Logic               Perth           CD-ROM training              
Iris Media                      Brisbane        CD-ROM                       
Microforte                      Sydney          Games developer for Sega     
                                                contracted to Microsoft      
Monitor Information Systems     Sydney          Information kiosks           
Pacific Advanced Media Studio   Sydney/Melb,    CD-ROM titles                
                                Singapore                                    
Resolutions                     Perth           Training                     
Tarragon Applied Learning       Sydney          CD-ROM training              

Note: This listing does not attempt to be exhaustive, nor were all of these firms interviewed by Cutler & Company in the course of this study.


Many of the groups are best described as teams of creative and technically talented people that have come together to produce interactive multimedia titles and customised client solutions, but which may not necessarily stabilise into lasting corporate structures.

We have been impressed with the experience and qualifications of the members of several of these teams. Their record of success in previous careers suggests that a core of creative and business capability is in place around which a larger industry can be built.

The established players in the content industries appear to have endorsed this judgement by their readiness to contract interactive multimedia title development to this pioneering cohort of developers.

The established print, software, audio and film producers and distributors are all active in interactive multimedia experiments and trials. Not all the initiatives by established players are for content development: some are for packaging and publishing functions or for building new distribution franchises (Figure 10)


Figure 10: Examples of current activity by major firms

COMPANY                PRINCIPAL BUSINESS         MM ACTIVITY                     
Microsoft Asia         Software                   CD-ROM titles outsourced to     
Pacific                development/publication    Brains,   Hyperdyne; On-line    
                                                  network j.v. with Telstra       
BMG Entertainment      Recorded Music             CD-ROM promotion for pop band   
Group                                                                             
CSC Australia          Software Services          Darling Harbour information     
                                                  kiosk                           
Sega Ozisoft           Video games                CD-ROM publishing - local       
                                                  titles produced by BII          
Roadshow               Sell through video         CD-ROM of Nightmare board game  
Entertainment          rental                                                     
Electronics Arts       Video games                CD-ROM publishing -             
Australia                                         outsourced local titles         
Harper &               Book publishing            CD-ROM - in-house production    
Collins/News Corp                                                                 
ABC Enterprises        Broadcasting               CD-ROM of ABC-owned content     
Film Australia         Documentaries              CD-ROMs of FA material/         
                                                  archives                        
Penguin/Pearson plc    Book publishing            CD-ROMs of Australian           
                                                  author's content (Paul          
                                                  Jennings, Graeme Base)          


The major international corporations that produce, publish and distribute content are key to the present structure of the interactive multimedia industry. They are in a phase of experimenting with the genre on a global basis, funding title development in many locations but principally in their home markets of North America and Western Europe. Their Australian affiliates are participating in this experimentation but in a modest way, amounting to only $1 to 2 million per firm on a few local projects. We estimate this local spending to be between 0.5% and 2.5% of their global investment in content:

This is probably underweight relative to the value of Australia as a proportion of their global sales, which is often in the 4 to 6% range.

The difference between local independent publishers and the international majors is in the latter's ability to manage investment risk. By managing a rigorous global screening and market research validation of creative concepts, these firms (particularly the music and games companies) have the opportunity to cut their losses early in the development process. They are also able to use their global brand position to insert completed titles into multi-country distribution channels.

In parallel with their established delivery media for content, the larger firms are building global distribution channels for CD-ROM titles, the current medium of choice for interactive multimedia content. The international majors are likely to be dominant in the current major North American and European markets, where often they have their corporate origins and much of their capital deployed. Such firms include (by way of example):

for software:           Microsoft; IBM; Applesoft; CSC                
for recorded music:     BMG; Philips/Polygram; Warner Chappell        
                        Music; Sony Music; EMI Music;                 
                        News/Festival/Mushroom                        
for film and TV :       the Hollywood majors                          
for books :             Pearson/Penguin; Pearson/Longman Cheshire;    
                        Reid Heinemann; News/Harper Collins           
for electronic games:   Sega; Electronic Arts; Nintendo;              
                        Pearson/Software Toolworks                    

Some Australian based firms are focusing on building domestic and Asian regional channels for their own product and via agency arrangements for US and European titles, as they see both a need to protect their domestic distribution franchise and an opportunity to expand into the region whilst the international players are focused on their major markets elsewhere. Examples range from larger firms, such as Village Roadshow and Fairfax/AAV, to a number of smaller companies (such as Acumen People and Productivity, Interactive Logic, Pacific Advanced Media Studio, Double Impact Multimedia, and Applied Learning).

Not all of these local firms are developing in-house skills to produce interactive multimedia content. Some prefer to play a brokering, packaging and distribution role and will not risk capital on title development.

The near term drivers of IMM growth

The dominant distribution medium for interactive multimedia content over the next two to three years will be CD-ROM [compact disc-read only memory], an optical storage medium that is displayed to users via computer screens and graphical user interfaces [GUIs] like Microsoft Windows. Such screens exist in corporate networks and in the hands of consumers, as the ubiquitous PC or Apple Mac and their ilk.

If an Australian interactive multimedia content development industry is to grow and prosper, then the rate of diffusion of the physical media and the devices to play these discs could be a constraint. In our view, this is highly unlikely. Interactive multimedia technology is being adopted rapidly in both the corporate and consumer marketplace and the pricing of both the player and the disc is quickly driving this process to affordable consumer price points.

The corporate marketplace is rapidly adopting and internalising multimedia technologies. Much as it has done, for example, with desktop publishing. A recent U.S. survey of business and professional CD-ROM markets {3} identified several factors driving this growth:

These observations have been confirmed by surveys of corporate and government organisations that have looked at the rate of adoption of advanced applications (Figure 11). The issue for publishers of CD-ROM titles then becomes one of how to access this corporate market with a mix of generic product and customised services that delivers superior value to the "in-house" solution.


Figure 11: Intended use of advanced applications by Business and Government (expressed as a percentage of organisations)

CATEGORY OF USER APPLICATION         IN USE TODAY     IN USE BY 1996     
Electronic messaging                      55          92                 
Mobile computing                          51          86                 
Executive Information Systems             21          73                 
Groupware                                 22          67                 
Imaging                                   16          61                 
Multimedia                                19          59                 
Workflow management                        5          38                 
Geo-Information systems                   18          34                 
Pen-based systems                          2          27                 
Expert systems                             7          26                 

Source: IDC, 1994

This question is effectively being resolved by the marketplace, as all interactive multimedia segments are now, or are rapidly becoming, consumer - centred. Suppliers who have built their businesses on corporate accounts are recognising the need to build consumer segments. They see that their professional services and customised interactive multimedia products may be under threat from new IMM tools that clients can use and from high volume IMM titles that are unbundled from services

The rapid rollout of CD-ROM players at consumer price points is enabling publication of high volume and low price consumer titles into most market segments. As a consequence of plunging CD-ROM price points in consumer segments, the price points for professional products are also falling. Thus unit volumes to break even are rapidly rising placing pressure on local suppliers, who have built a niche base in Australian professional markets such as corporate training and information kiosks, to expand the scope of their businesses.

This combination of a rapidly increasing installed base of players , low end user prices and low CD duplication costs is driving the interactive multimedia content developers and publishers to seek global distribution. They have little choice, as an Australian "hit" title might ship 10,000 copies but revenues from sale of 100,000 copies may be required for the development budget to be recouped (Figure 12).


Figure 12: Business parameters for CD-ROM developers today

                                 End user     Royalties  Volumes        
                                 prices Q4,   to         needed to      
                                 1994         developer  break even     
Mass consumer titles                                                    
-entertainment )                                                       
-information   ) + combinations                                              
-education     )                                                     
-software applications                                                  
-budgets A$200,000-$1,000,000+   A$19 - 99    A$2 - 10   30 -100,000    
                                                                        
Mass merchandising/promotion                                            
-budgets A$20,000-$200,000                                              
-bundling with a service, a                                             
feature film, a hardware                                                
product, an event                                                       
-can ship worldwide at up to     A$3 - 8      A$0.7 - 2  10 -100,000    
300,000 units/quarter                                                   
                                                                        
Education and training services                                         
- CD-ROM courseware is                                                  
embedded in service offering     A$150-3,000       --          500+                                                        

Source: Industry interviews


The global CD-ROM player installed base is forecast to quadruple to 45 million units over the period 1994-96. This is faster than the VCR rollout experience (Figure 13). Anecdotal evidence suggests the Australian rate of diffusion is consistent with these observations.


Figure 13: Growth of global CD-ROM* and VCR installed base

Australian consumer demand for CD-ROM product is thus unlikely to be constrained by a lack of PC/Mac players: at least one million units should be deployed within three years (see Figure 14).


Figure 14: Forecast installed base of consumer PCs and CD-ROM players-Australia ('000s of units)


Nevertheless, over the next few years the United States will continue to represent the lion's share of the CD-ROM player installed base (Figure 15), and thus continue to drive volume economics and CD-ROM content pricing. It is noteworthy that our forecasts of the Australian in-home installed base in 1996 represents around 30% of the projected installed base outside of the US and EU. As such Australia represents an important consumer population to global CD-ROM publishers.

The importance of consumer demand to the interactive multimedia industry is also reflected in these forecasts, in that more than two thirds of all players will be used at home rather than in the workplace.


Figure 15: Global growth in CD-ROM player installed base

           In home installed base (000's   Total Installed base (000's of      
                     of units)             units                               

       USA      Europe   RoW     World    USA       Europe    RoW      World     
1991   62       4        9       75       1,250     185       430      1,865     
1992   801      54       126     981      2,670     360       840      3,870     
1993   4,512    283      522     5,317    7,520     810       1,490    9,820     
1994   9,230    676      980     10,886   14,200    1,690     2,450    18,340    
1995   15,680   1,633    1,787   19,100   22,400    3,360     3,970    30,000    
1996   23,625   3,500    3,100   30,225   31,500    7,000     6,200    44,700
                                                                                    

Source: Screen Digest, INTECO

Is the PC/CD-ROM installed base the appropriate target for interactive multimedia content developers and publishers? We believe it is the critical industry driver for the next three years or so, and especially for those communities that do not have existing infrastructure for digital cable TV. Infotech's OPIA '93 report says that penetration of CD-ROM drives into the US installed base in 1994 will be more than 10% for desktop computers and more than 5% of pay TV set-top machines.

Although commentators argue about whether the PC or the TV will be the dominant device for accessing interactive multimedia services, there is little doubt that the PC environment is already important and is rapidly becoming totally converted to a multimedia-capable installed base. This is not to say that TV set top boxes will not play a part in hybrid customer solutions, but we do not believe that set top boxes look set to become the dominant driver for interactive multimedia {4}.

An interview with the chief executive of Kaleida Labs Inc. yielded several observations which underline the dynamic rollout of interactive multimedia capability:

Thus CD-ROM platform rollout is highly unlikely to be a barrier to significant growth in demand for quality CD-ROM based content. The question then arises as to how big the demand for consumer CD-ROM titles might become over the next two to three years, and therefore how significant the industry opportunity could become for content developers and publishers that are domiciled in Australia.

If 100 or so titles are being developed each year in Australia now, for a total development cost of around $25 million, what are the prospects for this output quickly rising ten or twenty-fold? We need to examine global trends in CD-ROM publishing to gain some perspective on this question.

In mid 1994, a census conducted by TFPL Publishing identified 1,320 CD-ROM publishers located in 34 countries, producing product in 40 languages (Figure 16). Over 90 percent were located in North American and Europe. Many titles are modified to present content in multiple languages and cultural settings, to maximise global distribution opportunities.


Figure 16: Location of CD-ROM publishers

Region            Country             No of          
                                      publishers     
                                      1994           
Asia-Pacific      Australia           29             
                  China               1              
                  Hong Kong           6              
                  India               1              
                  Japan               55             
                  Korea               2              
                  Taiwan              3              
                  Thailand            1              
                                      98 (7.4%)      
North America     USA                 554            
                  Canada              44             
                  Mexico              9              
                                      607 (46.0%)    
South America     Argentina           1              
                  Brazil              1              
                  Chile               1              
                                      3              
Africa            Zimbabwe            1              

Europe            Austria             10             
                  Belgium             24             
                  Czech Republic      2              
                  Denmark             8              
                  Finland             7              
                  France              80             
                  Germany             102            
                  Greece              3              
                  Hungary             1              
                  Ireland             3              
                  Israel              7              
                  Italy               44             
                  Luxembourg          3              
                  Netherlands         53             
                  Portugal            3              
                  Spain               19             
                  Sweden              18             
                  Switzerland         16             
                  United Kingdom      208            
                                      611 (46.3%)    

Source: TFPL Publishing, Facts and Figures 1994 , London 1994

The CD-ROM inventory is now very diverse in its subject categories and most categories are growing rapidly. Thus this is not a medium that is specialised and constrained to only a few topic areas. Indeed the growth is particularly notable in the broadly-based categories of entertainment, leisure, business information and education (Figure 17).


Figure 17: CD-ROM title category growth

                                         1993           1994      1993/94   


                                      No.      %      No.     %    Increase  
                                                                   %         
General interest, leisure and        800     16.7    1043    19.0  73.8      
recreation                                                                   
Arts and humanities                  467     12.4    724     13.2  61.9      
Education, training and careers      424     11.8    631     11.6  48.8      
Computers and computer programs      345     8.6     510     9.3   47.8      
Advertising, design and marketing    280     7.8     429     7.8   53.2      
Business and company information     285     7.4     428     7.7   80.7      
Language and linguistics             258     7.2     417     7.6   81.6      
Crime, law and legislation           297     8.3     399     7.3   34.3      
Science and technology               280     7.5     386     7.0   37.8      
Maps, map data and geography         282     7.3     332     6.0   26.7      
Government information and census    266     7.4     320     5.8   20.3      
data                                                                         
Banking, finance and economics       249     6.9     302     6.6   21.3      
Biomedicine, health and nursing      252     7.0     289     6.3   14.7      
Earth Sciences                       188     6.2     270     4.9   43.6      
Libraries and information sciences   194     5.4     240     4.4   23.7      
News, media and publishing           171     4.8     237     4.3   38.6      
Life sciences                        146     4.1     202     3.7   38.3      
Chemicals, drugs and                 165     4.7     201     3.7   21.8      
pharmaceuticals                                                              
Transport and Transportation         166     4.7     191     3.5   13.7      
systems                                                                      
Social and political sciences        157     4.6     189     3.4   20.4      
Directories                          106     2.9     131     2.4   23.6      
Agriculture, horticulture and        96      2.7     101     1.8   5.2       
fisheries                                                                    
Agriculture, construction and        86      2.4     61      1.6   5.8       
housing                                                                      
Military information and weapons     71      2.0     78      1.4   9.8       
Intellectual property.               46      1.3     60      0.9   8.7       
                                                                             

Total titles in 1993 = 3,597

Total titles in 1994 = 5,379

NB Total number of titles is greater than 5379 and more than 100% since titles cover more than one subject area

Source TFPL Publishing 1994


The analogues for this industry seem to be in book publishing and in recorded music. The price points are becoming comparable, and each involve packaged goods that require physical distribution through wholesale and retail distribution channels to reach consumers. Based on these comparisons it seems feasible that global CD-ROM title output could reach 100,000 new titles per year within the next four years.

The global English language book industry publishes 160,000 new titles each year now (100,000 in the US, 50,000 in the UK, 5,000 in Canada and 4,000 in Australia) Retail prices are $10 to $50, the same as expected CD-ROM street prices by Christmas 1995 ($15 to $100 this year). The dominant issue for authors and publishers is the fight for shelf space in the retail channel.

Audio CDs are now published at around 10,000 titles per month, and again the constraints are in distribution. The global music publishing business is dominated by five major firms for pop and classics. These groups average 1,000 titles per month, leaving 9,000 titles as the output of hundreds of independent record labels. However even the major firms face distribution constraints. Perhaps only 150 of the 1,000 titles will make it to the shelf in the ordinary audio retail stores (but more will in superstores). Very few of the independents will get much of their product into the stores at all, so there is a high degree of attrition between creative output and consumer purchase.

Interviews with international IMM publishers (such as Microsoft, Electronic Arts, and BMG Entertainment) suggest to us that around twenty major firms may release up to 250 CD-ROM based titles each next year from their worldwide content sourcing activities. This will be the result of the global screening and market research process noted earlier, and these firms will have consumer brand recognition to help them to secure shelf space. However, like the book and recorded music segments, there will be many thousands of independent CD-ROM publishers attempting unsuccessfully to reach the retail shelves.

The implication to be drawn from these observations is that a local content developer needs to target being one of the 5,000 projects backed by these twenty or so international firms if there is to be much prospect of a commercial return. Otherwise the project may be funded but still be just one among all the other 95,000 attempts to reach consumers that have poor prospects of recovering their costs.

What will be the value of the global output of CD-ROM titles published by the major firms in terms of development budgets? For the 5,000 or so titles distributed by this group, budgets per title are rapidly increasing. Kaleida Labs says over US$1 million, with up to two years in development. Electronic Arts says the same: US$1 to 3 million, with far fewer titles trying for the "top-end" of games and entertainment interactivity. Australian developers expect that the advent of full motion video to CD-ROM will drive budgets over A$1 million in this country, a substantial increase over today's budgets of A$200,000 to 300,000.

On the other hand, production costs are falling as developers gain experience and move from "bespoke" projects to a more cost effective industrial process based on sophisticated "applications shells" and new object-oriented authoring tools.

It seems reasonable to think of global investment in interactive multimedia titles building to around A$15 billion per year: 50,000 to 100,000 titles per year at A$150,000 to 300,000 each. Cheaper, more sophisticated authoring tools could reduce this budget cost by reducing development times, but channel congestion could drastically curtail the numbers of commercially successful titles.

On balance, if Australian output served 5% of the global budget of the major firms, then 250 high end titles might be commissioned each year. This would provide $250 million in professional services income to local developers. This is likely to be a more achievable objective in the next two to three years than to rely upon the bolder approach of independent publishing.

Perhaps total Australian output could exceed 2,500 titles per year, or 5% of global production. On average, budgets for most of these projects will be more modest than the majors might offer for contract work, but developers will be pursuing their ideas for a hit and thus the independent publisher's desire for royalty streams and super profits from success. Australian output might reach A$500 million per year on this basis, but unless distribution constraints are addressed it is unlikely such a scale of project investment could be sustained on return on investment grounds.