The content on this page and other DCITA document archive pages is provided to assist research and may contain references to activities or policies that have no current application. See the full archive disclaimer.

 

Creative industries cluster study stage 2 report

 

Creative Industries Cluster Study Stage 2 Report

Summary of Report

Objective of Stage 2 study

Following the scoping and mapping study undertaken in Stage I, the objective of Stage II was to gain a detailed analysis, at the level of the firm, and in the context of industry clustering, of the current production and commercial arrangements related to digital content and applications as they exist in a number of key sub-sectors of the digital content and applications industry. Undertaking a detailed case study analysis of firms in certain selected industry sectors would contribute to a broader and more integrated industry analysis.

Approach of the study

Four key sub-sectors were selected for study:

  • interactive games,
  • interactive multimedia,
  • advertising and
  • educational content.

These sectors were chosen because they promised to identify and highlight the range of factors and issues likely to arise across the whole field of digital content production and also provide conclusions that have some general validity for the creative industries as a whole.

The study is a qualitative survey based on a series of interviews with key industry personnel with observations from these discussions supplemented and tested using a focus group of key industry players. It also provides a detailed value chain and value net analysis of the four sectors selected for study, identifying the kinds of linkages and interrelationships that exist between value chain activities.

The difference of digital

A key approach of the study was to explore how the industrial organisation and market functions of overall content industries change within a digital environment and the role that digital technologies play in transforming the competitive landscape.

The report notes three key ways in which digital production in particular has a transformational impact on the content industries:

  1. In the growing importance of content management systems, since the dynamics associated with content management systems are different from those associated with traditional communications networks.
  2. Through the increasing interactivity which changes the role of the end user, and the end user environment, within content development and delivery systems.
  3. Through the impact of distribution channels and the power of intermediaries between content creator and content consumer, which remain the primary factor in the determination of economic returns throughout the industry value chain.

Digital content production is becoming a major driver of innovation across content industries and potentially in other industry sectors like education, entertainment and advertising more generally. The report makes the point that a number of industry leaders commented on the importance of seeing innovation around digital content as research and development for creative and content industries generally. The interface of creative industries with the cultural and not-for-profit sectors appears to be an important factor in creating economic multipliers.

Sub-sector diversity and segmentation

The report highlights the differing levels of industry maturity and market organisation across the four sectors and that the definition and boundaries of content industries is 'messy and not stable'. The report suggests that focussing on industries such as interactive games, which have more developed markets, technologies, and customers, could potentially be useful in terms of identifying potential policy development options.

Specific findings for the four sub-sectors are detailed at Attachment A. The following are key findings and issues common across all sub-sectors.

Key general findings and issues

  • Lagging statistical indicators mask the economic potential and implications of emerging industries and trends, affecting both inter-firm negotiations and government policy setting. The lack of appropriate and timely information affect a firm's negotiation power and business planning and means emerging firms have a limited ability to track potential technology or market shocks.
  • The report has underlined the critical importance for these industries, especially interactive games, of cost-effective access to broadband networks both within Australia and internationally.
  • Distribution generally and, in particular, access to overseas markets was identified as a major issue affecting the development of these industries.
  • Branding into global markets, which affects both market access and investment attraction, requires inter-firm or sectoral initiatives.
  • Access to equity funding and working capital is an endemic problem in the content industries. Financiers fund projects rather than companies and growth is stunted by the need to self-finance development. Moreover, lack of strong horizontal and related market linkages has limited commercialisation and optimal exploitation of technology and intellectual property arising from research and development and firm operations. The report underlines the important role played by Government support mechanisms, emphasising the strategic value of startup research and development funds and facilitation of export marketing in the development of successful firms.
  • Training is identified as a critical issue, especially since the part played by a talented and experienced workforce is central to the development of these industries and to attracting investment funds.
  • Intellectual property issues are critical, with the growing complexity in cross-territory licensing, increasing transaction costs in rights management and expansion of copyright coverage and controls (affecting third party access to content development components). Crown copyright is also identified as a barrier to growth, particularly in the education sector, because it limits the ability of firm to commercialise contract intellectual property and provide scale to their operations, while entrenching a 'fee for service' business model.
  • There was a notable absence of collaboration between industry sub-sectors.
  • The development of institutional infrastructure appears to play an important role in industry development and competitiveness. This infrastructure includes:
  • universities
  • collaborative research and development
  • the focus and activities of cultural organisations
  • industry associations and their scope of activity.
  • The report found that there was an important linkage between commercial and not-for-profit R&D activity for the sector. In this context, cultural institutions such as the Australian Centre for the Moving Image in Melbourne can initiate and nurture cluster development.

 

Appendix A

Findings for specific sub-sectors

1. Interactive games,

  • A central role is played by a few key firms and individuals, R&D and investment in technology is a key discriminator and there is no simple funding model, with contract services and private equity models both important.
  • The industry value chain has parallels with traditional publishing, such as books, film and TV, console vendors and broadband service providers dictate market structure and multinational corporation publishers play the key role as market organisers.
  • Barriers to growth include difficulty of access to equity funding and working capital, distribution bottlenecks (and access to markets), lack of broadband penetration for online markets, restricted return on investment on R&D spends, asymmetries in market power and information and vulnerability to market and technology shocks.
  • Industry collaboration has been significant, facilitated by a total focus on export markets. Government funding support for R&D and industry institutional development has been crucial. There are significant intra-segment people flows.
  • Business networks are primarily focused around vertical segment market and there is a relatively weak cross-segment, even where there would be benefit.
  • There are common labour pools and industry agreements limit poaching of staff. There is an increasing labour pool from educational institutions.
  • There are common distribution channels via overseas distributors and platform vendors.
  • Key supplier relationships are with platform and system vendors but network service providers will become increasingly important with the growth of online games.

2. Interactive multimedia

  • The study found no clear segment definition and no single business model operating across three identified but distinctive but overlapping areas of activity - content channel and portal service organisers; interactive TV and multi-channel content providers; web developers and support services providers
  • The report placed operators in the industry value chain as intermediate producers with strong cross-segment linkages and as having a current focus on the internalisation of cluster linkages.
  • Similarly to the interactive games sub-sector, the interactive multimedia sub-sector exhibited the following barriers and impediments to growth - difficulty of access to equity funding and working capital; distribution bottlenecks (and access to markets), and lack of broadband penetration for online markets.
  • Additional barriers to growth for this sub-sector were asymmetries in market power and information across operators and the costs of intellectual property regimes, with complex content and territory licensing issues.
  • The export focus for this overall group was found to be weak with the main orientation being to local markets.
  • Due to the diversity of the firms surveyed in this sub-sector, the study could define no firm supplier relationships but did identify a cross-segment labour pool, growing horizontal linkages around technology platforms, growing cross segment interaction and strong competition for privileged channel relationships.

3. Advertising

  • The study noted that players in this sub-sector were largely based in a traditional market dominated by a small cadre of publicly listed multinationals with a client base comprising large corporations.
  • The study noted the emergence of new revenue models; targeted micro markets (partcularly youth) and opportunities provided by direct marketing; insourcing and outsourcing, and viral marketing by end-users.
  • Within the overall industry, the study noted this sub-sector as having a volatile structure with the possibility of disruptive elements and scope for disintermediation as provided by new technologies and the clash of business models due to direct marketing.
  • Resistance to change from within the industry was noted as being a barrier to growth. As with the interactive multimedia sub-sector, asymmetries in market power and information were also noted as a barrier to growth.
  • The export focus for this group was found to be weak with the main orientation being to domestic markets.
  • This sub-sector was noted as exhibiting people networks (not firm networks), diverse supply-side value nets, strong cross-segment technology linkages (distribution systems) and labour pool.
  • In relation to business networks, growing cross-segment crossovers may reflect category confusion.
  • The requirement for greater understanding of client business process knowledge has not yet been highly developed.

4. Educational content.

  • The report noted no clear business model for this sub-sector.
  • Firms control few of their business drivers as the Government sector sets the parameters and the content developers are constrained by wider ICT plays (eg hardware distribution).
  • Regarding Intellectual Property issues, the report noted that for this sub-sector, these issues revolve around re-use and rights management with consequential increasing transaction costs and business model complexity. Crown copyright policies that can limit commercialisation were noted as an impediment to growth in this sub-sector.
  • Asymmetries in market power and information (resulting from unintended consequences of government dominance as market organiser) were noted as other impediments to growth.
  • Other impediments to growth were noted as being a focus on sector specific as opposed to generic industry standards and the purchasing powers of the government sector as main market organiser.
  • The export focus is strong for those players who want to scale and there is scope for further scalability for producers who choose to do so.
  • For this sub-sector the report also noted the centrality of the government education sector; some developed business relationships between this sector and hardware vendors and network service providers providing packaged solutions, and strong cross-segment technology linkages especially content management and distribution systems.

Contact details

Ralph Curnow
Policy Analyst, Forward Strategy
National Office for the Information Economy
Ph. [+61] 03 9667 8006 
Fax: [+61] 03 9667 8004

 
Document ID: 17417 | Last modified: 6 February 2008, 10:13am