6. Content industries in an on-line era


The essential challenge for the on-line era is to ensure Australia imports overseas consumers for its creative infrastructure, rather than exporting Australian content and electronic services via overseas service providers, who could then exact distribution bottleneck rents from Australian content developers (Figure 24).


Figure 24: Desired outcome for revenue flows to content providers

We are not saying that local consumers should in any way be constrained in sourcing the information, education and entertainment that they require from the best, cheapest and easiest to use sources they can find, wherever in the world such sources may be located. That access is essential to empower our citizens and all persons domiciled in Australia to become knowledge-rich rather than data deprived.

We have seen, through recent work for the ASTEC Working Party on research data networks {6} , how access to the global network of networks - the Internet - has empowered Australia's research and academic community to collaborate with global peer groups. Most academics will say today that the Internet is indispensable to their work, and that fewer than ten percent of the people that they interact with on a daily basis are resident in Australia. This community is moving to adopt interactive multimedia functionality as fast as it is presented with computer-based user interfaces (like Mosaic), with resource discovery tools (like World Wide Web), and with network bandwidth (like ISDN service) that enable the development of interactive multimedia services. Some 500,000 Australian residents are participants in the on-line era now.

From a content developer and publisher's point-of-view, however, this Australian on-line community will only buy if the product or service is relevant. The world's knowledge databases are mostly (probably >98%) resident in electronic repositories that are domiciled overseas. The principal repositories are located in the United States and in Europe. The Australian community of Internet users today is primarily exporting its custom to these overseas custodians of the data. This is not the basis for a successful on-line publishing industry in Australia. As suggested in Figure 24, the aim must be to locate content developers and database repositories in Australia that can attract some (but by no means more than a minority) of the Australian on-line user's custom, but are primarily aiming to import the custom of users resident offshore.

What needs to be in place for this to be achieved? We see several components to the answer:

A group of on-line service providers who are deeply experienced in designing services and interpreting consumer requirements for effective on-line delivery by the time, two or three years hence, when on-line data services start to become more obviously apparent and readily accessible to the community at large. The implication is that early moves to gain this experience must be taken now.

Early moves to gain experience in on-line multimedia service provision can be made now. There are both domestic and international opportunities. Both should be taken now, as first mover advantage will not be available in the Asia-Pacific region beyond mid 1995, when other hubs of on-line activity will be further developed (particularly Singapore in the first instance).

On the domestic front, both private and government-owned enterprises could become critical early adopters of on-line multimedia applications. For examples, we briefly consider here education services, classified advertising and directories, government information, products of cultural significance, and on-line services with potential for audiovisual content (such as electronic catalogues). These are each potentially large segments, which could in aggregate provide a solid domestic business base to local content developers, provided that the content development requirements are effectively contestable. This can be achieved by outsourcing or the "in house bid" approach used by some groups such as the Department of Defence.

Education and training markets are particularly amenable to the use of on-line multimedia technology. Cutler & Company has taken advice from several Australian firms who serve the corporate training marketplace with a professional service offering, which increasingly contains embedded content that is publishable in CD-ROM or on-line formats. These groups say that much of the benefit of interactive multimedia product is as a resource for student-centred or self-directed learning. Whilst segmentation and careful analysis (Figure 25) is required to better understand the industry development opportunity within government-funded and private sector education systems, the major interest could be in information discovery based upon newer technologies of discovery and informal collaboration in the Internet manner.


Figure 25: Multimedia/higher bandwidth services for education sector


Segment                Description of     Segment               Description of       
                       Service                                  Service              

1.  REMOTE CLASSES    *Transmission of   4.  INFORMATION      *Remote library      
(DISTANCE EDUCATION   scheduled          DISCOVERY            catalogue access     
                      classes from       (ELECTRONIC LIBRARY) *Online access to    
                      main campuses to                        digitised            
                      isolated or                             reference            
                      incapacitated                           material--text,      
                      students.                               graphics, sound,     
                      *Scheduled class                        video. *Delivery     
                      delivery across                         and retrieval of     
                      multiple                                electronic           
                      campuses.                               publications and     
                      *Classes                                preprints.           
                      developed by                            *Bulletin board      
                      public and                              services,            
                      private sector                          including            
                      education                               specialised          
                      providers for                           bulletin boards      
                      workplace                               with world           
                      delivery.                               distribution.        
                                                              *Text and database   
                                                              searching. *Menu     
                                                              and hypertext        
                                                              navigation of        
                                                              linked electronic    
                                                              documents.           
                                                              *Automated           
                                                              personal             
                                                              collection of        
                                                              items meeting        
                                                              matching criteria.   
2.  PACKAGED          *Access to         5.  COURSE           *Course              
PROGRAMS (IMM         interactive        ADMINISTRATION       information.         
SOFTWARE)             multimedia                              *Course enrolment.   
                      courseware                              *Course assessment.  
                      packages on                                                  
                      demand. (CD-ROM)                                             
                      *Access to                                                   
                      educational                                                  
                      video and audio                                              
                      programmes on                                                
                      demand (film                                                 
                      libraries, FTA                                               
                      TV)                                                          
3.  INFORMAL          *Electronic                                                  
COLLABORATION         mail, including                                              
(COMPUTER MEDIATED    multimedia                                                   
COMMUNICATION)        extensions.                                                  
                       *Collaborative                                               
                       authoring and                                                
                       multimedia                                                   
                       document                                                     
                       creation.                                                    
                       *Multi-user                                                  
                       domains with                                                 
                       distributed                                                  
                       access and                                                   
                       multimedia                                                   
                       extensions                                                   

Source: Pica Pty Ltd report to BSEG, July 1994


Suppliers say that only $20 million is spent annually on external provision of courseware to the K-12 {7} and the university and TAFE systems. This means that substantial expenditures are made annually by DEET and State Departments of Schools Education to develop curriculum materials in-house. Massive duplication of effort results (eg. "30 versions of Accounting 101"). It does not seem unreasonable to suggest that ten times the current level of outsourcing (ie. $200 million per year) could be targeted to external procurement of student-centred materials.

In the on-line era, Australia may have an opportunity to "electronically import" students by operating global education servers. This is quite different from the present emphasis on export of the CD-ROM based intellectual property to be used by education providers located in Asia. A strong partnership between multimedia content developers and education providers will be needed, suggesting a strongly proactive role for government agencies.

Classified advertising and consumer directories are obvious candidates for transfer from print medium to multimedia on-line services. For example, Telstra's Directories, a $700 million business, is already available on-line and in CD-ROM format.

Newspaper classified advertisements are worth $1.3 billion a year and will be vulnerable to competition from on-line services as the consumer PC installed base surges. This provides a potential revenue base for considerable domestic content development activity. A variant on this theme is the idea of electronic catalogues of products and services. Several electronic catalogue projects are in development and launch phase now, involving major retailers, telcos and large computer service firms. The initial focus is on the supplier chain to retailers, but the content generation requirements will readily lead to consumer-oriented home shopping services. Such on-line services will have useful text, audio and image quality on today's narrowband copper network and, with ISDN {8} service, could have limited video capability.

Government generates large quantities of information that is of interest to business and consumers, from statistics to directories to profiles of its own purchasing needs. Much of this information is amenable to digitisation and delivery by on-line means. A proactive stance by all government agencies may be justified both by savings in delivery costs (as has been well documented under the National Information Infrastructure in the United States) and by the industry stimulation effects that are the focus of this commentary.

The major investment by government in Australian cultural content creation can also promote the objective of stimulating an IMM content industry if the cultural product is open to further use, for economic gain. "Cultural" product will be an important subset of the global IMM content development opportunity for Australian service providers, both for CD-ROM and on-line formats. Activities susceptible to multimedia treatment include: cultural tourism services, Australian museums, libraries and archives; and children's product, for selected overseas markets (eg. Paul Jenning's books, for the UK, Canada and Japan, and the output of the Children's Television Foundation).

However, much multimedia product will need to be tailored and adapted to the culture of each overseas market. Thus the original cultural context of the data will not always be retained in the final consumer product. Having said this, government has a special responsibility to preserve context as well as content. By digitising the collections of libraries, museums and archives, with careful technical attention to the categorisation process, government agencies can play a leading role in providing multimedia material for local content developers to convert into globally marketable product, and retain in perpetuity digital archives of nationally significant data, texts, images and audiovisual content.

If the on-line channel is not to be dominated by international majors as gatekeepers {9} , then Australian service providers will need to get on-line experience quickly. It is necessary to build consumer brand for on-line publishing before the marketplace matures. Brands will be important as consumers are faced with thousands of on-line service choices. The interactive on-line multimedia world will have its Penguin's, Disney's and Microsoft's, as signposts to consumers for product quality and consistency. In Australia, this urgency for getting started means that publishers cannot afford to wait for a coaxial or fibre roll-out to Australian homes to gain experience in service delivery to the domestic consumer. They will need to learn using today's copper networks, both domestic and international.

First mover requirements suggest a competitive telecommunications carrier regime is crucial to on-line multimedia industry growth. It will be imperative that Telstra and Optus, and other local carriers from mid 1997, offer low cost bearer services that can support IMM traffic, for both domestic and overseas consumers, originated by Australian-domiciled service providers.

What is needed from the carriers is the competitive delivery of adequate bandwidth priced for the consumer pocket, offering near universal access, and dimensioned to ensure no congestion. The price competitiveness of the service will need to be assured by making every element of the carrier service fully contestable, so that the consumer will not face tariffs that are based essentially on oligopoly rents and justified on the grounds of channel scarcity.

There are two candidates for a domestic bearer service that could reach most of the nine million present telephone accounts: narrowband basic rate access ISDN and the new technologies known as DMT-ADSL (Discrete Multi-Tone Asymmetrical Digital Subscriber Line). Another possibility is to deploy an "enhanced POTS" using proprietary systems designed around analogue telephony to support collaborative multimedia services {10} .

In our view, ISDN is the only mature technology that could deliver multimedia content to consumers over the telephone customer access network during the critical period 1994-97. ADSL may possibly be economic in cost and technically mature by 1997 and by that time coaxial cable and fibre optic infrastructure will start to have worthwhile market penetration in Australia. But 128 kbps consumer ISDN access is key to building first mover advantage with domestic on-line services during the next three years.

Telstra and Optus may need to be actively encouraged to emulate recent actions by North American regional carriers in launching consumer ISDN services which interconnect fully with data networks, both commercial and academic, both Internet connected and specialist. There are plenty of signs of rapid development in this area, such as Pacific Bell's US$23 per month 64 kbps service and Singapore Telecom's Teleview consumer information service (Figure 26)


Figure 26: Singapore's Intelligent Island programme

Connect Consumers: Teleview service     Build Industry                         
:SingNet access to Internet (from 7/94)                                          

Startup kits:                             Singapore Digital Media Consortium:    
14.4kbps modem and               S$99     R&D alliance with MIT Media Lab, and   
Teleview consumer information service     3 local institutes funded by the      
software                                  Singapore National Science and
Monthly subscription, including   S$35    Technology Board 4 local companies   
S$50 traffic and 2Mbytes mass             will gain technology transfer 
storage             
Call charges: 8p.m.-6p.m. M-F 20c S/min   Singnet expansion mid 95 when         
              6p.m.-8a.m.w/ends 8.3cS/min SEA-ME-WE 2 optical fibre cable to    
Leased 64 kbps access S$4,000 p/mth       Europe is commissioned (2Gpbs         
                                          capacity): expect to hub Internet     
                                          servers out of Singapore at >T-1   
                                          rates for low tariffs(<US150.000 per   
                                          year                                   


Singapore's strategy is clear: empower consumers with global connectivity to on-line services, at ISDN bandwidths, and build the nation's credentials as a hub for on-line service providers who will want to service regional and global markets from such a hub. One can then expect service providers over time to start creating content locally at that hub location.

Assuming domestic bearer services at adequate capacity are available from the carriers, what are the pricing parameters for Australia to be a competitive location for international distribution by on-line multimedia service providers? Our view is that the community of commercial service providers that is now growing rapidly off an Internet communications platform is a good guide to pricing requirements.

A brief commentary on Internet (from ASTEC's paper) is appropriate to make the argument. The Internet is the fastest growing telecommunications network in the world, and may be the most cost effective resource upon which to build early Australian-on-line multimedia services for global customers. It is an international network of networks, including research and education networks, as well as a growing number of commercial and other networks. It is made up of local area networks, metropolitan area networks and wide area networks, all connected through "gateways" using the TCP/IP protocols.

In March 1994 there were 2.2 million computers on the Internet, and the system linked 27,000 networks in some 70 countries--around 120,000 of these computers were located in Australia. It is estimated that more than seven million users regularly access the Internet. Another 13 million use the Net for e-mail services only. The network's load is doubling every six months.

More than half the registered networks are associated with business users, so its academic origins are now rapidly being subsumed in a wider commercial environment.

Today's use of Internet by Australian-resident academic and research users demonstrates the propensity for the home consumer base to import content. It is based on a barter trade in information and global collaboration between knowledge workers (academics, teachers and R&D teams). Australia's 500,000 Internet users are high consumers of offshore information, as 90% to 98% of academic and R&D peer groups are resident overseas. This traffic is particularly oriented to the United States. At least half the 27,000 or so global bulletin boards, news groups and special interest network operators are resident in North America.

AARNet effectively serves this user community as a toll-free gateway to the Internet. AARNet's institutional members (the universities and CSIRO) have been the core clientele and financiers of Internet access for Australia's education and research communities for the last four years. AARNet provides relatively low cost sale of global Internet access to commercial service providers on a bandwidth-only, non-timed, non-volume basis (A$25,000 per year for a 64 kbps channel). As such they have aggregated traffic and have become the purchasers of the largest leased link across the Pacific (3 Mbps by late 1994, 6 Mbps by mid 1995, and this could be double again by early 1996) The capacity of this link is currently driven by the mid afternoon traffic peak which is Australian outgoing requests for information, file transfers and e-mail. Overnight, US and other overseas users access Australian data bases/servers. The net effect is the substantial importing of information to Australia, which equates to the export of Australian users to overseas service providers.

One needs to recognise, however, that AARNet only provides access. Many overseas service providers charge high prices for information retrieval and supply (eg. Dialog Information Services charges for database search are timed, at US50cents to $5.00 per minute). Low cost bearer services are necessary but not sufficient for low cost access to information. The packagers and service providers can also stand between content developers and content users.

Substantial claims are now being made for the Internet to be the preferred international access for commercial as well as academic and educational traffic. Some recent comments are illustrative:

The commercial Internet-based interactive multimedia service provider phenomenon is in take off mode now, but new players will have plenty of opportunity during 1995. Commercial World Wide Web servers represented only five percent of WWW servers registered at CERN earlier this year (Figure 27).


Figure 27: Numbers of publicly accessible World Wide Web servers

The Internet is fast becoming accepted as the global distributed computing network upon which electronic commerce will be based. This poses a pricing (and regulatory) challenge to Australia's telephony-oriented carriers who have invested in cable capacity, as Internet traffic already is their largest single value-added network customer (Figure 28).


Figure 28: Tasman 2/PacRimEast cable leased circuit customers for Australia - US traffic (mid 1994)

CIRCUIT CATEGORY            Number of Customers     Names of users               

T-3  (45 Mbps)              Nil                     Nil                          

n xT-1  (nx 1.5Mbps)        Two                     AARNet  (n = 2 at 9/94 *     
                                                    n = 4 at 6/95)  Quantek (n   
                                                    = 1)                         
half T-1  (768 kbps)        <Ten                    eg.  IBM  Swift  Digital     
                                                    SITA                         

* 6Mbps represents nearly 6% of capacity not yet allocated on PacRimEast's operational fibre pair.


Competing private networks may not be able to stay cost competitive. The growth of the electronic data interchange (EDI) market place may not generate revenues sufficient to sustain IVANs in the context of an aggressively priced Internet infrastructure (Figure 29) which enjoys the scale economies of interconnecting many data networks.


Figure 29: International value-added network (IVAN) services

Australasian Electronic Data Interchange Activity and Forecast

                                    1993           est 1998                
Service Provider Revenues          US$14m          US$24m                  
EDI Messages                        25m            50m                     
Business                            900m           n.a.                    
EDI Message equivalent             2,000m                                  
EDI Sofrware sales                US$1.3m          US$1.4m                 
Local access charges              US$0.7m          US$1.2m                 
Corporate gateway fees            US$1.8m          US$2.8m                 
EDI hardware sales                US$0.7m          US$1.3m                 
Number of EDI users                4,500           12,000                  

Major IVAN Firms

IBM Advantis

Infonet

SITA

AT&T

GEIS

British Telecom (Tymnet

Sterling Software (Ordernet)

Source: "EDI in Asia Pacific countries 1993-1998". Paul Kimberley & Associates,1993


Therefore we see Internet access to consumer PCs worldwide as being highly likely to be the least cost way to on-line markets for the next three years or so. This reduces the carrier pricing question to what is the competitive price that an Australian-based service provider must meet to serve Internet-connected consumers today? This means North American consumers, given the installed base pattern discussed earlier in this report.

As business volumes build, at 128 kbps ISDN bandwidth and higher for customer access, Australian-domiciled Internet service providers will need abundant bandwidth to Europe, Asia and North America. Undersea cable capacity will need to be in place that can serve all forecast telephony traffic and have spare bulk capacity that can be priced at variable cost to systems operators in 1.5 to 45 Mbps chunks. We are unsure (Figure 30) as to whether this will be in place across the Pacific to the US West Coast, as IMM audiovisual traffic builds beyond 1996. It is encouraging to learn of Telstra and Optus's recent decision to lay 5 Gbps of capacity to join the new 9 nation APCN system in East Asia. Our concern is mostly about the Pacific network, particularly if the second 560 Mpbs backup fibre pair is not able to be made available for low price, high bandwidth multimedia traffic. There are regulatory issues for government attention here as well as business considerations for the carriers.


Figure 30: International fibre optic cable capacity accessible from Australia

As North American and European telcos roll out home and consumer ISDN services (providing at least 128 kbps access), great pressure will come to bear for trans-Pacific and other international links to be tariffed on a distance independent basis, probably by access bandwidth only. Local carriers will need to respond or on-line users will be exported, not imported.

Several notes of caution need to be sounded, for those who seek to rapidly expand on-line delivery of content from Australia to overseas consumer markets: