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.
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.
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 26Source: 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.
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).
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 = 3,597Total 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.