Eve Bay Studio

Digital content: Economic perspectives

Report to the National Library of New Zealand

March 2006

Sidhe Interactive - New Zealand’s largest computer game studio broke pre-sale records in Australasia with its Rugby League game for PlayStation and Xbox in 2003. Reprinted with permission. www.sidhe.co.nz

Preface NZIER is a specialist consulting firm that uses applied economic research and analysis to provide a wide range of strategic advice to clients in the public and private sectors, throughout New Zealand and Australia, and further afield.

NZIER was established in 1958.

Authorship This report is a collaboration between Clare O’Leary (Eve Bay Studio), and Ian Duncan, John Yeabsley and Karley Drought (NZIER).

8 Halswell St, Thorndon P O Box 3479, Wellington Tel: +64 4 472 1880 Fax: +64 4 472 1211 [email protected] www.nzier.org.nz

NZIER’s standard terms of engagement for contract research can be found at www.nzier.org.nz.

While NZIER will use all reasonable endeavours in undertaking contract research and producing reports to ensure the information is as accurate as practicable, the Institute, its contributors, employees, and Board shall not be liable (whether in contract, tort (including negligence), equity or on any other basis) for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage.

Executive Summary

The National Library of New Zealand commissioned NZIER, with Clare O’Leary (Eve Bay Studio) to address seven aspects of the digital content sector to help establish an economic and policy context for the Digital Content Strategy. These aspects and our research findings are outlined and briefly discussed below.

As with most areas of government policy, the Digital Content Strategy has several distinct objectives, and thus needs to be shaped by various value concepts. We are conscious that there are social and cultural, technical, creative, enterprise, and other equally important aspects of this Strategy. But our role here is to present some of the relevant economic dimensions, based as far as possible on independent and authoritative sources.

Turning to the individual aspects of the brief:

• Identify the makeup of the digital content sector, without defining it. (Section 3) The sector encompasses: the creation, design, management and distribution of digital products and services and the technologies that underpin them. Digital content’s various forms contribute to production on the supply side of the economy, as well as contributing to utility from consumption by consumers on the demand side. In this they can be seen as ‘normal goods’.

But we note that they typically involve a shift in the kind of product exchanged and the way it is exchanged. And they tend to be the part of the production and consumption spectrum most closely associated with the creative and ICT sectors. Identify international trends with respect to the digital content sector, including areas, models and rates of growth. (Section 4) Digital content strategies worldwide have been developed predominantly in response to ICT policy and strategies that emerged from the OECD and UNESCO initiatives around economic development. The first phase of this work was around ICT infrastructure and connectivity, but now it has moved onto to explore specialist aspects of digital content creation and wider access issues across cultural, social and economic areas.

• Identify how different international approaches to digital content, are/will support and foster digital industries in their countries. (Section 5) Most developed countries are investing public resources in digital content research and strategy development. (Examples are set out in Section 5 and Appendix A.) But the scope and objectives of these strategies vary widely across countries.

NZIER & EVE BAY STUDIO – Digital content: Economic perspectives i

The Forfas report on Digital Content which was prepared by the Irish Department of Trade and Industry identified five areas where Ireland could become a world class leader. They are: e-learning, games, wireless e- business and services, digital libraries and non-media applications. They also emphasised the need for research and innovation in digital media and entertainment to fully realise the potential of Digital Content industries.

Amongst other initiatives the UK has set up a Digital Content Forum as a think tank to partner with government to prepare for the future. Each of the principal Australian states has initiatives around digital content, usually in association with a State government ICT strategic plan.

• Identify industry connections between the digital content sector and other sectors. (Section 6) Digital content, ICT, and the creative sectors, are closely interwoven. Examples of natural clusters of specialist industries include computer games, web and internet design and services, museum and libraries online, and digital design and products associated with feature films and television properties.

Roles government could play in facilitating connections between digital content and related activities are:

• Leading collaborative action (e.g. with respect to infrastructure investment, international marketing, research and development, or skill development). • Helping overcome regulatory barriers in New Zealand or overseas. • Acting as an information clearing house. • Government acting as innovator. • Identify potential future approaches to measuring the contribution of digital content and the digital content sector to the New Zealand economy. (Section 7) There are usually long lead times involved in moving from the emergence of a particular areas of economic activity to its formal recognition in the official statistical framework, the subsequent collection of data from industry members, and the publication of robust industry data.

In the meantime, more piecemeal approaches have to be used:

• Establishing clearer understanding of what is specifically digital content; • Compiling lists of New Zealand enterprises for which digital content is a core product (or input); • Setting up an informal industry cluster/association;

ii NZIER – Digital content: Economic perspectives

• Sharing of non-commercially sensitive information e.g. number of employees, sub-contractors; • Monitoring data produced by authoritative agencies e.g. the OECD, for other countries; and • Moving towards the development of a satellite account for the sector. • Identify opportunities for growing the digital contents sector, by considering how NZ digital content companies can capture the global commercial potential of digital content. (Section 8) Based on generic approaches e.g. the Porter model, economic elements that shape and help generate successful enterprises include the availability of inputs such as skilled labour and risk capital, the depth and breadth of related and supporting industries, and demand conditions (as dictated by domestic markets) and, importantly for many New Zealand industries including digital content, international markets.

Government’s proper role is as a catalyst and challenger; it is to encourage companies to raise their aspirations and performance. Government policies that succeed are those that create an environment in which companies can gain competitive advantages, rather than those that involve government directly in the process.

Within the GIF strategy, government has developed various targeted interventions for particular activities and built these around selected industries (creative industries, ICT, biotechnology and so on.) These may provide useful guidance as to what might work best for the New Zealand digital content sector. In addition, the type of taskforce facilitated in screen production and design could suggest action points within a realistic view of potential government intervention.

• Identify obstacles to NZ digital content companies competing in the global marketplace. (Section 9) This section draws heavily on OECD research, on the basis that although New Zealand may have some specific challenges, most of the key issues will be common to other OECD countries, or Asian countries with digital content strategies.

Apart from the input and market factors considered in Section 8, and the possibility of some targeted interventions under the GIF strategy, major challenges may be in developing industry protocols and appropriate regulatory frameworks.

With respect to regulation, an appropriate legal and regulatory framework for intellectual property rights is an important issue; this would give a degree of certainty and provide the potential basis for greater external investment in emerging ideas.

NZIER & EVE BAY STUDIO – Digital content: Economic perspectives iii

There are wider regulatory issues that have to be addressed, a common framework and a plan of action would provide a favourable environment. Challenges for the sector in New Zealand are likely to be common to those in other OECD countries e.g. digital rights management and customer authentication; content standards, and interoperability.

Conclusions and menu of options In Section 10, we set out a menu of options for progressing the Digital Content Strategy. This menu refers to the 5 key strategic elements that were identified in early 2006 by the strategy group led by the National Library.

• Understanding Digital Content: Ensuring more robust information with which to inform strategy and actions around New Zealand digital content creation, access, protection and promotion. • Creating Digital Content: Promoting the creation of content and content spaces which reflects our identities, cultures, values and beliefs which informs, educates and entertains, and which supports the growth of the digital content sector. • Sharing Content: Providing means by which New Zealanders can efficiently and effectively share a broader range of content. • Preserving Digital Content: Identifying and promoting digital content preservation standards and approaches. • Protecting Digital Content: Providing confidence in the creation and sharing of content and ensuring the protection of content of national importance, for economic, cultural or strategic reasons. Our suggestions are put forward as a menu of options, related to each of these 5 elements; selections from which would in practice be coloured by, for example, the extent of the role government intends to play and the resources it wishes to apply.

Further, our suggested menu is based on what we found in our research. This was primarily focused on economic development of the sector, rather than on wider questions. For example, with respect to the digitisation of existing collections, cultural and national identity motivations may outweigh economic considerations.

iv NZIER – Digital content: Economic perspectives

Menu of Options for Government Action

5 key elements of the New Zealand digital content strategy Scale of government role Lower cost Higher cost Understan Continued • Monitor overseas • Commission research ding digital analysis developments • Lead international initiatives content • Adopt OECD approaches • Monitor NZ developments in the sector Measurem • Better statistics • Formal surveys ent • Case studies of sector • Satellite accounts firms Creating National • Stocktake • Programme digital identity content Economic • Encourage • Full NZTE programme developm • Check fit with ICT • Support/subsidies ent strategy Sharing Communic • Promote interactions • Endorse it & become content ation proactive Legal/IP • Review international • Review NZ approaches & issues examples consider institutions Preserving Standards • Review protocols • Commercial regulation digital content Organisati • National Library, • Legislation implemented ons and Archives, Te Papa etc. • Consider targeted framework organisations s Protecting Confidenc • Legal (see above) • Implementation of outcomes digital e • Access review content National • Structure review • Implementation of outcomes identity • Design of mechanism (social, cultural, strategic)

Source: NZIER

NZIER & EVE BAY STUDIO – Digital content: Economic perspectives v

Contents Executive Summary ...... i 1. Introduction...... 1 1.1 New Zealand’s digital strategy...... 1 1.2 Our Terms of Reference...... 1 1.3 Structure of this report...... 2 2. Valuing digital content ...... 3 2.1 Preamble ...... 3 2.2 Overview ...... 3 2.3 Economic aspects of digital content ...... 4 2.3.1 Convergence ...... 6 2.3.2 Incremental changes to traditional products and processes ...... 7 2.3.3 New opportunities: An emerging digital content sector in New Zealand ...... 8 2.3.4 Future opportunities – things to come?...... 8 2.4 Summary ...... 10 3. Make-up of the digital sector ...... 11 3.1 Relevant concepts...... 11 3.1.1 Economic sectors – measurement issues...... 11 3.2 Overview ...... 13 4. International trends in the digital content sector...... 14 4.1 Introduction...... 14 4.2 General trends and ideas – the background...... 14 5. International approaches ...... 16 5.1 Introduction – New Zealand situation ...... 16 5.2 International trends in approaches ...... 16 5.3 Summary ...... 18 6. Industry connections ...... 20 6.1 Structures ...... 20 6.2 Overview of connections ...... 20 6.3 Natural clusters of specialist industries...... 22 6.4 Government role...... 23 7. Future measurement ...... 24

vi NZIER – Digital content: Economic perspectives

7.1 Updating...... 24 7.2 Supply side perspective ...... 24 7.3 Information media and telecommunications...... 25 7.4 Overview ...... 26 8. Opportunities for growing the sector ...... 27 8.1 Economic contributions and determinants ...... 27 8.1.1 Factors ...... 27 8.1.2 Digital content...... 28 8.1.3 Domestic demand conditions ...... 28 8.1.4 Digital content...... 28 8.1.5 Related industries...... 28 8.1.6 Digital content...... 28 8.1.7 Firm strategy, structure and rivalry...... 28 8.1.8 Digital content...... 29 8.1.9 Chance events and government...... 29 8.1.10 Digital content...... 30 8.1.11 Innovation – incentives and risks...... 30 8.2 Government as innovator – an example ...... 31 8.2.1 The Creative Capital Cluster ...... 31 9. Obstacles and opportunities...... 32 9.1 Generic obstacles – the international backdrop ...... 32 9.1.1 Broadband content: Changing value chains and business models...... 32 9.1.2 Early impacts and challenges...... 32 9.1.3 Challenges to players...... 33 9.1.4 Policy issues...... 34 9.2 Sector development ...... 35 10. Conclusions...... 36 10.1 Overview ...... 36 10.2 Government role ...... 36 10.3 The case for the suggested menu...... 38 10.3.1 Understanding digital content...... 38 10.3.2 Creating digital content...... 39 10.3.3 Sharing content ...... 40 10.3.4 Preserving digital content ...... 41

NZIER – Digital content: Economic perspectives vii

10.3.5 Protecting digital content...... 41 11. References ...... 43 12. Electronic Reference list...... 46 12.1 International Digital Content References ...... 46 12.2 Australia ...... 46 12.3 Canada...... 47 12.4 Malaysia ...... 47 12.5 Norway ...... 48 12.6 Taiwan...... 48 12.7 United Kingdom...... 48 12.8 New Zealand Educational Institutes teaching Digital Content Creation ...... 49 12.9 New Zealand Government – Digital Initiatives...... 49 12.10 Digital Opportunities Pilot Projects ...... 50 12.11 Digital Content Research Labs...... 50 12.12 A Selection of Digital Artists from New Zealand ...... 50 12.13 NZ Digital Content Companies & Related Sites (a selection only)...... 51

Appendices Error! No table of contents entries found. Figures Figure 1 Economic aspects of digital content...... 5 Figure 2 UK Digital sector ...... 12 Figure 3 Industry links with digital content...... 21 Figure 4 Convergence of IT, telecommunications, and information sectors...... 21 Figure 5 Map of digital content activity ...... 22 Figure 6 Determinants of industry competitiveness...... 30 Figure 7 Menu of Options for Government Action...... 38

viii NZIER – Digital content: Economic perspectives

1. Introduction

1.1 New Zealand’s digital strategy

On May 16, 2005 the New Zealand Government released its Digital Strategy. To quote from this:

“The Digital Strategy is about how we will create a digital future for all New Zealanders, using the power of information and communications technology (ICT) to enhance all aspects of our lives.”

(p.4) and

“The Digital Strategy will set New Zealand’s direction for the next five years. It sets out key actions over the next few years where budgets have already been committed. It puts in place a structure against which to evaluate our progress and will ensure we meet our longer-term goals.”

(p.6)

And, on why we need a Digital Strategy it said:

“The government wants all New Zealanders to be able to enjoy the benefits that ICT can bring. These benefits include instant access to our national knowledge resources (whether cultural, scientific, heritage, archival, broadcasting or community); government services that are customised to our individual needs; and the economic benefits that flow from higher productivity. The richer the information that is available digitally, and the more extensive the networks that connect people, the greater the benefits that will accrue.”

(p.5)

The National Library of New Zealand is leading development of the National Content Strategy to be launched by December 2006. This research is designed to contribute to that development.

1.2 Our Terms of Reference

The National Library of New Zealand commissioned NZIER with Clare O’Leary (Eve Bay Studio) to address the following Terms of Reference to help establish an economic and policy context for the Digital Content Strategy.

• Identify the makeup of the digital content sector, without defining it

NZIER – Digital content: Economic perspectives 1

• Identify international trends with respect to the digital content sector, including areas, models and rates of growth • Identify how different international approaches to digital content, are/will support and foster digital industries in their countries • Identify industry connections between the digital content sector and other sectors (i.e. natural clusters) • Identify potential future approaches to measuring the contribution of digital content and the digital content sector to the New Zealand economy (i.e. what do we need in order to understand and provide for this sector?); and • Identify opportunities for growing the digital contents sector, by considering how NZ digital content companies can capture the global commercial potential of digital content; and • Identify obstacles to NZ digital content companies competing in the global marketplace.

1.3 Structure of this report

Section 2, following this introductory section, is a discussion of an approach to identifying and valuing the economic contribution of digital content. Sections 3 to 9 then address each of the seven items in our Terms of Reference in terms of this approach. Our conclusions are set out in Section 10.

2 NZIER – Digital content: Economic perspectives

2. Valuing digital content

2.1 Preamble

As with most areas of government policy, the Digital Content Strategy has several distinct objectives, and thus needs to be shaped by various value concepts. We are conscious that there are social and cultural, technical, creative, enterprise, and other equally important aspects of this Strategy development. But our role here is to present some of the relevant economic dimensions, based as far as possible on independent and authoritative sources.

2.2 Overview “This new area of economic activity has been brought about through the convergence of previously distinct areas such as traditional content, media and entertainment, software and multimedia, and electronic hardware and telecommunications. Broadly, it encompasses the creation, design, management and distribution of digital products and services and the technologies that underpin them.”

(Refer: A strategy for the Digital Content Industry in Ireland.)

While ‘digital content’ may be qualitatively distinct (from other products, services or processes) in some respects, our approach to value here draws on established literature the economics of information and knowledge, to put ‘digital content’ in an appropriate economic value context.

“Effective knowledge management begins with drawing a distinction between information and knowledge, because these terms are often used interchangeably. If information is the raw material - the input - used to make decisions, knowledge is what provides the context for how people think.”

(Lowell Bryan, McKinsey & Company, 2004).

And these simple organising ideas can be applied to the challenge of understanding the scope and implications of digital content, in a sea of information about technological possibilities. While the full extent of the economic effects of digital content are impossible to predict, the application of some established economic principles is helpful in thinking about how this activity might evolve in New Zealand.

The initial challenge is to understand what effects digital content has, and will have, on the range and value of goods and services produced in the economy, and over what time frame. This depends on views about the

NZIER – Digital content: Economic perspectives 3

nature and pervasiveness of digital content technology - relative to a hypothetical world without digital content.

Most technological progress is an extension of pre-existing technologies with incremental effects on the economy. But there are examples of transformational technological change (such as the steam engine, electricity, and computers) sometimes referred to as “general purpose technology”1. These are technologies that are characterised by:

• Being drastic, rather than incremental; • Having potential to be pervasive with many applications; and • Triggering the development of a long process of adjustment, including work reorganisation. A quick check shows that it is probably more accurate to drop the reference to ‘computers’ and now say that information and communications technology (ICT) is now a general purpose technology.

As cited by the OECD (September 2005, p10), in its investigations of digital broadband content in the context of scientific publishing:

“ICT, e-commerce and digital delivery in publishing are both sustaining technologies that improve the performance of established products and business models, and disruptive technologies that bring different performance characteristics, enable the introduction of alternative business models and change the ways that industries function.”

(Christensen 1997).

One of the questions for this research, which we explore later, is where digital content sits in relation to ICT as a whole. This then flows onto the issue of how extensive the economic effects of digital content will be.

2.3 Economic aspects of digital content

The economic contribution of an industry or sector is normally measured in terms of value added, exports, and employment. A lift in value added either results from growing revenue (e.g. through an increased range of products or ‘adding value’ to existing products and thus increasing their desirability and unit prices) or through reductions in the unit costs of production (through convergence, or reduced transaction costs).

In the case of a general purpose technology the story is more complex. The impact of the technology is far more widespread and potentially diverse. In effect the full picture of the economic effects has to cover a range of

1 Refer Helpman, 2004, p.51

4 NZIER – Digital content: Economic perspectives

impacts, from the direct ones indicated with the value added measure above, and a series of more ‘indirect’ influences as well.2

To allow for these effects, the following schematic suggests a simple structure for thinking about and potentially analysing the various possible economic aspects of digital content.

Figure 1 Economic aspects of digital content

Integration or convergence effects

Cost reduction

Incremental changes to traditional products & Economic contribution of Future opportunities processes digital content

Revenue growth

New opportunities

Source: NZIER

Our approach to valuing the economic contribution of digital content requires a clear understanding of ‘digital content’ and the ‘digital content sector’ – what is or is not included, and a consistent approach to allocating the effects of digital content to each of the four categories indicated in the figure.

In the following we discuss examples of each of these four categories and what they entail, focusing on the New Zealand experience.

2 Conceptually the way we might think about this is to consider (as a thought experiment) the value of the innovation as being shown by the difference between the size of the economy “with the innovation” and its size “without it”. In other words looking at an impact well beyond the particular sector of interest.

NZIER – Digital content: Economic perspectives 5

2.3.1 Convergence “Digital content and digital delivery of content and information are becoming increasingly ubiquitous, driven by the expanding technological capabilities and performance of delivery platforms, the rapid uptake of broadband technologies and improved performance of hardware and software. Network convergence and widespread diffusion of high-speed broadband has shifted attention towards broadband content and applications that promise new business opportunities, growth and employment.” (OECD, September 2005, p.3)

Digital content can be seen as one aspect of convergence within several of the Growth and Innovation Framework major sectors (these are Biotechnology, the Creative Industries and Information and Communications Technologies). It is thus affecting growth and value creation, drivers and barriers to growth, changing market structures and emerging issues as technology proceeds through the design and development of new delivery platforms.

For example, New Zealand has attained great global attention through the phenomenal success of digital design in the film industry, not only for the end product but also gained recognition from the Academy Award Scientific Panel for transforming the post-production process. (Finalist in these awards was Stephen Regelous, of Massive Software)

The software and application design behind the scenes during both The Lord of the Rings and King Kong feature film productions created a number of innovative solutions to animation and special effects work processes and productivity issues. These have, in turn, created spin-out companies specialising in artificial intelligence and sound post-production. These films became the background to digital innovation involving the scale of the project itself and because of convergence issues, the speed of computing, artificial intelligence development and demand for completion.

New Zealand supercomputing applications in the entertainment sector are mirrored elsewhere, as digital solutions designed originally for entertainment platforms assist to improve productivity in workflow on new digital platforms (e.g. online games, mobile devices).

Convergent technologies mean new products and services such as content for online games, digital television, mobile devices such as cellphones and the iPOD, and the surrounding services (online trading, file swapping, etc.)

Convergence, then opens up opportunities for emerging sectors specialising in digital design and production but it also offers new challenges for

6 NZIER – Digital content: Economic perspectives

traditional sectors facing global demand for digital communications and technology innovation.

2.3.2 Incremental changes to traditional products and processes “Going digital” forces change within organisations and companies, not only with their design and delivery services; it demands a rethink in the way that business is actually conducted. It opens up a more direct (lower cost and easier to use technology) dialogue with the client base or user, and or, customer and this creates new opportunities for feedback. It also means an increased demand for innovation and services, including new business.

This can change the whole business model and create conflict within the modes of practice within companies and organisations. Early adopters of digital innovation have created new value in businesses that otherwise would be constrained by such ongoing issues as distance from market and time zone difficulties.

The Digital Strategy has identified three areas of engagement: business, community and government. Digital content is created and stored at each of these levels and the preservation of this content as its scale increases will require thought and action. So the archiving of unique digital information and communications will become increasingly important.

The National Library of New Zealand has conducted a feasibility study to address these issues within the New Zealand context.

Surfacing existing content is one of the main purposes of the National Content Strategy and this includes allowing broader access to some of the knowledge that has been ‘behind closed doors’ for instance, within Crown Research Institutes. This raises the need to consider an appropriate balance between preserving and opening access to New Zealand’s cultural, social and historical knowledge, and restricting access in the light of potential commercialisation opportunities.

One of the main challenges for the digital content sector (referred to in Section 9) is the treatment of intellectual property issues in a digital domain.

The New Zealand government has instigated some work through the e-govt initiative, the biz.org advice to small and medium enterprises, funding for innovative research and development through FRST and the Digital Strategy’s Broadband Initiative Fund and Community Contestable Fund. However, none of these specifically target industry or sector development or transformation through digital processes.

NZIER – Digital content: Economic perspectives 7

2.3.3 New opportunities: An emerging digital content sector in New Zealand “The growth of the market is fuelling some opportunities that didn’t exist before. Look at Nesian Mystic’s licensing arrangement and at cases of multi-industry involvement such as fashion brands developing out of a music brand (such as Dawn Raid).”

(Russell Brown, media commentator, Snapshot: Auckland’s Creative Industries: Understanding Our Cities Report, 2005)

One of the fastest growing New Zealand companies in 2004 was Trade Me, a new online trading company modelled on the successful San Francisco start-up, EBay. Trade Me offered a customised model within a New Zealand environment with an authenticated user base and totally digital communications framework

This was a first for New Zealand – to have a totally digital driven company top the growth statistics. A similarly dedicated digital operation is Sidhe Interactive, (SI) a computer games company which won Gold Business Award and the Supreme Award at the Wellington Business Awards, for the first PlayStation 2 game based on NRL rugby. SI is now the largest games studio in New Zealand.

Looking ahead, Investment NZ (NZTE) has been working on building a partnership with the Taiwan Digital Content Institute – bringing key people over here to look at opportunities to partner with NZ creative digital content companies. And NZTE has assisted collaborative export networks to attend SIGGRAPH (www.siggraph.org) an international conference on leading edge computer graphics. Companies such as Weta, Oktobor, Sidhe Interactive, Flux Media, Right Hemisphere, Massive Software and others have attended to promote creative technology businesses in the US and other major international markets.

2.3.4 Future opportunities – things to come? “The Digital Content Industry, while still at a relatively early stage of development is emerging as an area of significant global opportunity, valued at over $172 billion in 2001 and forecast to grow to more than $434 billion by 2006 – an average annual growth rate of almost 29%.” (A Strategy for the Digital Content Industry in Ireland, Foreword.)

The Growth and Innovation Advisory Board has shifted its emphasis from sector engagement to exploring more generic growth and productivity issues across the economy. This aligns with the opportunity associated with the

8 NZIER – Digital content: Economic perspectives

‘Digital Economy.’ It is not just interested in the use of ICT, but rather its role in unleashing local creative content and design that is responsive to market demand.

Looking ahead, digital content’s success demands a sophisticated level of creativity, connectivity and capability – three of the major strategic outcomes of the digital strategy itself. Globally it is seen as creating new business opportunities driven by user demand.

“Ovum estimates that the UK market for Multi-channel services will be £110. billion in 2006, rising to £146.5billion in 2008, with the £53billion of that attributable to content and services in 2003 growing to £127 billion in 2008. Content is a growing proportion of the income from this space.” (Ovum Value Chain Study, 2005.)

The UK has been a leader in the creative industries globally, but now New Zealand is certainly attracting attention, largely through the feature film industry success.

Looking ahead there are a series of international developments which are responding to the effects of digital content and its evolution. These include the OECD and UNESCO initiatives.

The OECD Workplan on Digital Broadband Content The OECD has developed a relatively new workstream that acknowledges the role that digital technology innovation is having on economies throughout the world.

The first stage is a Work Plan on Digital Broadband Content on the Information Economy (WPIE). Analysis is being done to showcase the ‘always on’ broadband experience. Case studies have already been completed on Scientific publishing, music, on-line computer games and mobile content.

Work focuses on the development of new business models for Digital Content (generation of new revenue streams), the changing value chain of these content industries, drivers and barriers to growth, sectoral transformation and changing market structures, and their impacts on growth and employment. The studies were designed to help identify analytical, policy and measurement issues. See these at www.oecd.org

The United Nations Educational, Scientific & Cultural Organisation (UNESCO) UNESCO states that stimulating the development of, and access to diverse content is crucial for knowledge societies. The UNESCO Programme for

NZIER – Digital content: Economic perspectives 9

Creative Content, launched in 2002 in close collaboration with Major Programme I, especially its Global Alliance for Cultural Diversity, has been instrumental in pursuing these objectives and implementing the relevant principles set forth in the Universal Declaration on Cultural Diversity. See www.unesco.org

The World Summit on Information Systems (WSIS) The World Summit on Information Systems provided a forum for countries to come together to understand the impact of information and communications technologies on societies and economies throughout the world. It began with a technology focus, but has broadened into a number of programmes to develop strategies for action across cultures and communities.

It has developed a “Platform for Action” that participating countries adhere to around education, training and expression of digital art, connecting communities and advanced communications technology infrastructure design.

The World Summit on Information Systems holds a competition for innovative projects and this year, New Zealand’s winning entries are profiled on a dedicated website developed by Jan Bieringa who attended the conference. The eight areas include e-business, e-health, e-entertainment, e- inclusion, e-government, e-science, e-culture and e-learning. See www.wsa-awards.org.nz

2.4 Summary

The Digital Strategy has provided a framework for New Zealand to design a National Content Strategy that acknowledges the effect of digital technology innovation on traditional industries and which nurtures the emerging industries evolving from it. It ensures also that the interests of individuals and communities in the digital future are articulated and responded to.

In a recent OECD conference in Rome, countries around the world are coming to terms with major issues in terms of the impact of broadband content and the digital economy on communities, business and governments.

They identified the need to seek new business models for the digital environment, deal with complex intellectual property issues and research and respond to new user behaviours in the under 25s who have grown up as ‘digital natives’ and who expect their entertainment, news, information, educational transactions to be digital. This generation will definte the new digital economy of the future.

10 NZIER – Digital content: Economic perspectives

3. Make-up of the digital sector

Our brief here is to: identify the makeup of the digital content sector, without defining it.

We take digital content broadly to mean: “any material existing or easily capable of existing in electronic form.”

The brief is interpreted to mean that we should aim to ‘colour in the content’ without worrying too much over the precise boundaries. In this section we aim to do this using a mixture of discussion, examples, and comparing and contrasting the sector with other closely related sectors.

3.1 Relevant concepts

3.1.1 Economic sectors – measurement issues The digital content sector can be broadly divided into two main streams:

• An emerging creative digital content sector (games, animation, post- production, web, 3D design houses, scientific visualisation etc.) • Digital content creation that has a horizontal effect across sectors through the application of digital design processes (digital design and processes in manufacturing, publishing, research institutes etc.) This melange of categories creates a difficult task for carrying out effective ‘measurement’ in terms of any traditional definition of a sector (although the ICT sector also faced these challenges).

To capture the full economic value of the digital content sector therefore, it would be more effective to build (a model of) a satellite account, as is currently being developed for the screen industry, and which has previously worked in attempting to analyse the true value of the ‘tourism industry’, both of which can be seen as ‘compilations’ of established industries.

We can reach an initial picture of the ‘sector’ through descriptions of:

• its core elements, • the activities which it encompasses, • some specific examples. On the first of these three:

NZIER – Digital content: Economic perspectives 11

“A digital good is a payoff-relevant bit string i.e. a sequence of binary digits, that affects the utility of or payoff to some individual in the economy. Easiest is to think of a digital good as a recipe. Encoded in the digital good (and, indeed, identical with it) is a set of economically valuable instructions. The phrasing allows digital goods to be consumed and to be produced; they are not just technologies to improve productivity on the supply side of an economy.” (Quah, 2002, p.6).

On the second, as per the Irish Digital Content Strategy cited earlier, it encompasses: the creation, design, management and distribution of digital products and services and the technologies that underpin them.

Industries covered by the UK Digital Forum are as follows. They fall mainly into what is otherwise referred to as the creative sector, which has broadly the same in configuration in New Zealand.

Figure 2 UK Digital sector

Source: UK Department of Trade and Industry, 2002, page 4

As per Figures 3 & 4 in Section 6, in other jurisdictions digital content is seen as located more at the intersection of creative and ICT sectors, and this broader concept is probably the appropriate perspective for New Zealand at this stage.

12 NZIER – Digital content: Economic perspectives

3.2 Overview

So digital content’s various forms contribute to production on the supply side of the economy, as well as contributing to utility from their consumption by consumers on the demand side. In this they can be seen as ‘normal goods’.

But we note that they involve a transition in the kind of product exchanged and the way it is exchanged. (Dolfsma, 2004, p.1). And they tend to be part of the production and consumption spectrum most closely associated with the creative and ICT sectors.

An initial impression of the possible scale of the digital content sector can be gained by considering it as a sub-component of either the ICT sector or the Creative sector. Indicative information on the economic contribution of each of these is as follows.

• ICT is an integral component of every sector of the New Zealand economy (as an ‘enabler’) and is also a sector in its own right. It currently accounts for approximately 2% of the workforce and generates in the order of 4.3% of New Zealand’s GDP. (ICT Taskforce Report, 2003, p10). • These estimates put the economic contribution of the Creative Sector at about 3.1% of GDP and 3.6% of employment. (NZIER, 2002, p19).

NZIER – Digital content: Economic perspectives 13

4. International trends in the digital content sector

Identify international trends with respect to the digital content sector, including areas, models and rates of growth.

4.1 Introduction

Digital content strategies worldwide (see Appendix A) have been developed predominantly in response to ICT policy and strategies that emerged from the OECD and UNESCO initiatives around economic development. The first phase of this work was around ICT infrastructure and connectivity, but now it has moved on to explore specialist aspects of digital content creation and wider access across cultural, social and economic areas.

4.2 General trends and ideas – the background

There are various influences at work here. We start with the technology environment and then look at the customer demands.

Technologically the clear flow of development is that innovation is creating higher speed, smaller digital devices and platforms. These are also becoming more mobile and customised. In addition, software applications are now being designed from a user’s perspective – building the human interface design sector to determine how people want to use and communicate with digital design tools and technologies.

So what will the users want? There is now a generation of users who have never known life without ubiquitous computing. These are the power users of the future, who will demand ‘always on’ broadband computing with rich media audio visual content at their fingertips. They will not tolerate delays or extremes of pricing – they will look elsewhere or create their own networks and media.

Kevin Kelly, founder of Wired magazine describes the web of the future and its possible effects:

“The web continues to evolve from an entity ruled by mass media and mass audiences to one ruled by messy media and messy participation. How far can this frenzy of creativity go? Encouraged by web-enabled sales, 175,000 books were published and more than 30,000 music albums were released in the US last year. At the same time, 14 million blogs were launched worldwide.

14 NZIER – Digital content: Economic perspectives

All these numbers are escalating. A simple extrapolation suggests that in the near future everyone alive will (on average) write a song, author a book, make a video, craft a weblog, and code a program. This idea is less outrageous than the notion 150 years ago that some day everyone would write a letter or take a photograph. What happens when the data flow is asymmetrical - but in favour of creators? What happens when everyone is uploading far more than they download? If everyone is busy making, altering, mixing and mashing, who will have time to sit back and veg out? Who will be a consumer?

Wired Magazine, Kevin Kelly, Nov 05

From this, if somewhat overstated opinion, we can take the idea that for many participants in the digital society, the process is the product.

This has implications for both demand and supply sides of the content market. Effectively it suggests that the internalisation of production and consumption reduces both the number of potential providers and of potential buyers, thereby reducing the measured economic effect3.

To address the emerging issues of a more digital world, from creation and production to storage and access, many countries have instigated new policy and strategy frameworks, some of which are summarised in Section 5.

3 GDP is a market based concept so “hobby” activities are not covered. Internalising production and consumption is effectively turning it into a hobby for measurement purposes.

NZIER – Digital content: Economic perspectives 15

5. International approaches

Identify how different international approaches to digital content, are/will support and foster digital industries in their countries.

5.1 Introduction – New Zealand situation

New Zealand’s recent policy acknowledgement of this potential paradigm shift has occurred through the establishment of the Growth and Innovation Framework and more recently the publication of the Digital Strategy.

The OECD's latest broadband rankings, issued recently, had New Zealand 22nd out of 30 countries, unchanged from six months ago. The OECD ranks countries by total broadband subscribers per 100 inhabitants. New Zealand's total base of 283,798 translates into 6.9 subscribers per 100. South Korea was again first, with 25.5 subscribers per 100 inhabitants.4

This is one of the major constraints to growth in the impact of a digital content strategy as access to broadband is an important enabler to use.

5.2 International trends in approaches

Most developed countries seem to be investing significant public resources in digital content research and strategy development. Each country has its own particular emphasis, but there is also considerable common ground in the assumptions shaping these strategies including that:

• There is an important role for government in creating the appropriate environment for the digital content industry, and • There is considerable economic upside in getting these strategies right, but also significant risk of missing out on potential opportunities. The following extracts summarise the approaches taken in three countries – Ireland, the UK, and Australia.

Appendix A list equivalent information for a selection of other OECD and Asian countries.

Ireland The Irish Digital Content Strategy acknowledges the importance of the digital revolution primarily to the economy, but that it also has a cultural imperative. The IT industry has driven Ireland into one of the top performing countries in the OECD and it is the extension of this success that shows their adoption of new knowledge and creative content to stay competitive.

4 See www.oecd.org

16 NZIER – Digital content: Economic perspectives

The Forfas report on Digital Content which was prepared by the Department of Trade and Industry identified five areas where Ireland could become a world class leader. They are: e-learning, games, wireless e-business and services, digital libraries and non-media applications. They also emphasised the need for research and innovation in the area of digital media and entertainment to fully realise the potential of the Digital Content industries. See www.forfas.ie and http://www.forfas.ie/publications/digicontent02/021105_digital_content_rep ort_s.pdf

United Kingdom The U.K. has established a strong definition of how Digital Content is perceived from an economic development perspective. This has been developed in consultation with a Digital Content Forum that was established by the Department of Trade and Industry. Digital Content is defined in the UK Digital Content Strategy paper as follows:

Digital Content is a diverse and wide-reaching sector, which includes hi-tech computer engineering, print publishing, software, web development, graphic design, computer games developers and publishers and film and TV production. It encompasses the broad range of companies utilising the tools and functions of interactive media to bring new Digital Content products and services to market. Convergence of delivery platforms and the introduction of broadband technologies mean that there are many issues on the horizon for Digital Content producers to consider.

Source: www.dti.gov.uk

The BBC also recently launched an innovative trial program called BBC Backstage that allows developers to use some BBC content free of charge for non-commercial purposes. The BBC hopes the program encourages creativity and produces interesting ways to use its content in the same spirit in which Google and Amazon (and others) have opened up their application program interfaces (APIs) to developers. See www.bbc.co.uk

Connecting the UK:

The Digital Strategy, from the Prime Minister’s office, sets out the crucial role that information and communication technology will have for the United Kingdom’s future prosperity, and addresses the digital divide which currently excludes some groups in the United Kingdom from benefiting from access to the internet.

See http://www.strategy.gov.uk/work_areas/digital_strategy/index.asp

NZIER – Digital content: Economic perspectives 17

The Digital Content Forum was established as a think tank to partner with government to prepare for the future. It has also instigated a number of reports and initiatives to address digital innovation in the 21st century. See www.dcf.org.uk

Australia Australia’s approach has been to study a Digital Content cluster through the work being done by the Department of Communications and Information Technology and the Arts (DCITA) in ICT and the creative industries. A cluster study map was produced in specialised areas to come up with a definition that suited the Australian economy. They describe their rationale as:

In 2001, the Australian Government moved towards a comprehensive Digital Content Strategy, with the objective of accelerating the production, distribution and marketing of Digital Content and applications domestically and internationally. This commitment arose from the recognition that Digital Content and applications will become increasingly important, both in economic terms and as a means of expressing Australia's unique cultural identity. www.cultureandrecreation.gov.au

Each state also has initiatives around Digital Content, usually in association with a State government ICT strategic plan. In Melbourne in particular an innovative digital media strategy was integrated into their ICT strategy, Multimedia Victoria. It encompassed many of the new digital industries and brought together regional partnerships across academia, industry and local and state governments to initiate programmes that embraced new digital and technology arts and industries. See www.mmv.govt.com.au

Queensland has established itself as a centre for biotechnology and creative technology research and development recognising the importance of the convergence of the creative industries and digital innovation. A new research centre of the creative industries, CIRAC, has been established within the Queensland University of Technology and this includes an additional centre of excellence in interaction design, ACID, which recognises that it is not just creative content and connectivity that is important but the interface between humans and new technology interfaces that needs further exploration. New Zealand’s Human Interface Technology Lab is a partner in ACID and Professor Mark Billinghurst heads up one of their research portfolios. See www.interactiondesign.qut.edu.au/

5.3 Summary

Driven by various mixes of social, cultural and economic considerations, digital content strategies have emerged in many developed countries over

18 NZIER – Digital content: Economic perspectives

recent years. These reflect the importance of digital content as an emerging sector in itself, but also as an enabler for other sectors.

The economic role of New Zealand’s digital content strategy is to reflect the various impacts within the domestic market while scoping the potential for creative and technological innovation in international markets.

NZIER – Digital content: Economic perspectives 19

6. Industry connections

Identify industry connections between the digital content sector and other sectors (i.e. natural clusters).

6.1 Structures

We would see natural clusters as being industries or sectors which are strongly interlinked either in terms of their roles in value chains. If we refer back to the elements of creation, design, management, and distribution of digital products and services (as per the Irish Digital Content Strategy) then there may be distinct natural clusters at each of these stages.

Thus at the creation stage, digital content may link closely to other creative disciplines. By contrast, at the distribution end, digital content may be closely linked to the screen production sector.

Further discussion and diagrammatic approaches are set out in Section 6.2.

6.2 Overview of connections

Figure 3 is an attempt to clarify these industry connections. For simplicity the three main ‘sectors’ – ICT, creative, and digital content - are represented as separate. In reality, the relationships are much more complex, and interwoven. For example, the creation of digital content can be seen as part of the creative industries listed, while some components of the creative sector e.g. publishing can be seen as providing inputs into the digital content sector.

Likewise, digital content (the software component) is part of the broader ICT sector, but ICT provides the infrastructure which allows the distribution, management, and storage of digital content.

Both Figure 3, and Figure 4, which illustrates ICT convergence, show the multi-layered industry links, which vary both according to the nature of the digital content product and the process component (creation, distribution etc.) being referred to.

20 NZIER – Digital content: Economic perspectives

Figure 3 Industry links with digital content

Creative activities

Performing, composing, designing, writing, drawing, painting etc.

Creative industries Digital content Creation, design, management, and Interactive leisure software distribution of digital products Software & computer services Film & video e.g. electronic games, digital films and videos, Television & radio e-books, digital libraries Music Design Designer fashion Advertising Architecture Crafts Performing arts Publishing ICT sector Computer hardware, software, and services Telecommunications hardware, software, and services

UK mapping study Source: Adapted from Pattinson Consulting (2003, p26) and UK DTI (2002, p.4)

Figure 4 Convergence of IT, telecommunications, and information sectors

Source: Pattinson Consulting, 2003, p.9

NZIER – Digital content: Economic perspectives 21

Figure 5 provides another perspective on ‘natural clusters’ but this time with a wider breakdown of overlapping industries.

“digital content activity is shown to exist in many standard parts of the Australian and New Zealand Standard Industrial Classification – listed in column headings - but not in all. Thus digital content activity can be expected to be found in some parts of the Manufacturing industry but more significantly so in other industries such as the Telecommunication industry, the Computer services industry, Business services, such as Architecture, Culture etc. Digital content activity is unlikely to be found in some other industries such as Agriculture and Mining. The industries shown in the diagram are illustrative only – there are no official statistics that show the distribution of digital content activity across industries.” (Pattinson Consulting Group, 2003, p.20)

Figure 5 Map of digital content activity

Source: Pattinson Consulting Group, 2003, p.20

6.3 Natural clusters of specialist industries

Some natural clusters of specialist industries are:

• Computer games industry • Web and internet design and services • Museums, libraries, archives online and virtual content creation (online culture and heritage) • Creative industries – a pool of contract talent for all of the above sub- sectors may include: writers, illustrators, artists, producers, directors, digital interface designers, programmers, editors, investors, online marketing and distribution experts, broadcasters (digital television etc.) • Digital design and products associated with feature film and television properties e.g. websites and games for original IP such as Brotown, King Kong, QTV.

22 NZIER – Digital content: Economic perspectives

• Scientific publishing (i.e. journals) but also advancement of animation and visualisation technologies to communicate scientific principles and theories. • Digital design in manufacturing, 2D /3D design, simulation and virtual reality design (real estate, architecture, building, plumbing, car and aero design etc.). See www.righthemisphere.com • Health IT clusters where patient records are being digitised and made accessible to users and medical staff (subject to privacy, ethical protocols). • Online education creators. The Ministry of Education has had an innovative ICT strategy around connectivity and they are now revisiting this in regards to the creation and repurposing of curriculum based resources through their online portal Te Kete Ipurangi. www.tki.co.nz

6.4 Government role

A question at this point is what role could or should government play in facilitating connections between digital content and related activities?

As for any proposed intervention we need to consider what government could add, or obstacles it could remove, to improve economic outcomes relative to a ‘no intervention’ scenario. The range of intervention types in which government could play a role in relation to industry could include, for example:

Leading collective action (e.g. with respect to infrastructure investment, international marketing, research and development, or skill development).

Helping overcome regulatory barriers in New Zealand or overseas.

Acting as an information clearing house.

Government acting as innovator (see Section 8.2).

In activities such as digital content creation , and related industries, which at this stage in New Zealand are sparse, fragmented, and specialised, it is difficult to judge the most cost-effective role for government. But some ideas about what would work best could be gleaned from observations of recent government roles in relation to other creative industries such as screen production or design.

These include the establishment of industry task forces and generation of strategies, contributions to infrastructure, and funding (by central and local government) of marketing/promotional bodies.

NZIER – Digital content: Economic perspectives 23

7. Future measurement

Identify potential future approaches to measuring the contribution of digital content and the digital content sector to the New Zealand economy i.e. what do we need in order to understand and provide for this sector?

The ultimate authority for the measurement of economic contribution by industry is usually the official statistical agency which has the mandate and expertise to design the structure of the industry classification system used, and to collect from business and other sources the data on which published economic statistics are based.

Statistics New Zealand (SNZ) has been working with the Australian Bureau of Statistics (ABS) on a review of the harmonised industry classification, the Australian and New Zealand Standards Industrial Classification System (ANZSIC). This has resulted in the development of a 2006 edition to replace the existing 1993 edition.

The following extracts from report on this process (Galbraith, 2005) set out some concepts, principles, and objectives that may in future be relevant to measurement of the digital content sector.

As noted in Section 3.1, design of a satellite account (e.g. as for the tourism sector) may be a helpful intermediate step in moving towards a statistical framework for the sector.

7.1 Updating

“All statistical classifications require periodic review to ensure their relevance to the real-world variables they are designed to measure. With industry, this is particularly important, given modern rates of economic change. While industry classifications are usually designed to incorporate future economic change, the degree to which they are able to achieve this is not always adequate. Industry classifications are also generally designed to be statistically balanced – this means that industries of similar economic size are given similar space within the classification. Growth in certain industries over time upsets this balance and is therefore, a key factor in updating classifications.”

(Galbraith, 1995, p.3).

7.2 Supply side perspective

“All statistical classifications require the application of a general set of development principles in their production. These principles include that the classification categories are mutually exclusive, that the classifications are exhaustive in their coverage and that they reflect the real-world

24 NZIER – Digital content: Economic perspectives

phenomena they measure. In addition to these, each classification follows specific principles related to its purpose.

The development of an industry classification requires the use of a sound and consistently applied conceptual framework. In response to criticism of ANZSIC 1993's mix of supply and demand-side concepts, the application of a consistent conceptual framework was emphasised for 2006.

This framework was based around a supply-side perspective, which is consistent with the conceptual basis of macroeconomic statistical collections such as the System of National Accounts. The supply side concept was put into operation through the concept of 'production function' which, for ANZSIC means that industrial activities that use similar inputs and production processes to produce similar outputs are grouped together. This contrasts with a demand-side perspective, which would for example, look at similarities in the customer base of an industry.”

(Galbraith, 1995, p.4)

7.3 Information media and telecommunications

A major development under ANZSIC 2006 has been the creation of the ‘Information Media and Telecommunications’ division. “This division is important in recognising significant growth and technological advancement in this industry since the original ANZSIC. While ANZSIC 1993 included a 'Communication Services' industry, ANZSIC has pulled together information-related services from a number of divisions to create a much more complete and up-to-date view of this industry. An important inclusion in this revised division was publishing, which was aligned with printing in the 'Manufacturing' division under ANZSIC 1993. Another important development is the far more complete treatment of Internet-related activities in this division.”

(Galbraith, 2005, p.7)

The subdivisions of this new industry division are as follows:

• Publishing (except Internet and Music Publishing) • Motion Picture and Sound Recording Activities • Broadcasting (except Internet) • Internet Publishing and Broadcasting • Telecommunications Services • Internet Service Providers, Web Search Portals and Data Processing Services • Library and Other Information Services

NZIER – Digital content: Economic perspectives 25

7.4 Overview

As indicated above, there are usually long lead times involved in moving from the recognition of a particular areas of activity to its formal recognition in the official statistical framework, the subsequent collection of data from industry members, and publication of robust industry data.

In the meantime, more piecemeal approaches have to be used e.g.

• Establishing clearer understanding of what is specifically digital content • Compiling lists of New Zealand enterprises for which digital content is a core product (or input) • Setting up an informal industry cluster/association • Sharing of non-commercially sensitive information e.g. number of employees, sub-contractors. • Monitoring data produced by authoritative agencies e.g. the OECD, for other countries. • Moving towards the development of a satellite account for the sector.

26 NZIER – Digital content: Economic perspectives

8. Opportunities for growing the sector

Identify opportunities for growing the digital contents sector, by considering how NZ digital content companies can capture the global commercial potential of digital content.

8.1 Economic contributions and determinants

In evaluating digital content in economic terms we need to think about the prospects for the digital content industry, i.e. the collection of enterprises, small or large, operating in this field.

The primary objectives of these and other businesses, must include the generation of profits through production and sale of goods and services. In other words the combination of prices paid and the volume of the products sold, needs to be sufficient in total to cover costs. The larger this operating surplus or ‘value added’ the greater the potential returns to owners and employees, or the funds available for investment in the business.

Whatever the skills, financial resources, or other capabilities in individual businesses, prospects for the industry as a whole will be influenced by a range of contextual factors.

Porter et al (1991, pp.28, 29) discuss four determinants of ‘national competitive advantage’ that shape the industrial environment to the benefit or hindrance of firms. In this framework:

• Factors (labour, fixed and financial capital) conditions • Demand conditions • Related and supporting industries • Firm strategy, structure and domestic rivalry, are the set of forces that provide firms (and individuals) with the pressures, incentives, and capabilities to innovate and grow.

The following are generic industry perspectives from Porter, but we have added some comments referring specifically to the New Zealand digital content industry.

8.1.1 Factors Factors can be basic and advanced. Basic factors are inherited or created through moderate investment. Advanced factors are those developed through sustained investment in both physical and human capital.

NZIER – Digital content: Economic perspectives 27

Factors can be generalised and specialised. Generalised factors can be used in a range of industries. Specialised factors are those that are relevant to a limited range or a single industry.

The factors most important to modern industrial competition are not inherited but created. A nation’s stock of factors at any particular time is less important than the rate at which they are created, upgraded, and made more specialised for particular industries.

8.1.2 Digital content For digital content, the major specialised factor may be the skills and experience of staff, but these are likely to be complemented by bespoke computer software.

8.1.3 Domestic demand conditions Domestic demand conditions play an important role in the creation of a nation’s competitive industries. Even in a rapidly globalising world economy, the nature of home demand has a disproportionate effect on how companies perceive and respond to buyers’ needs. The most important features of domestic demand are its composition (e.g. by sector), its size and pattern of growth, and internationalisation.

8.1.4 Digital content Even in a very small country like New Zealand, domestic demand conditions are important. But in the context of digital content, the ability to compete internationally is likely to be the dominant influence on the success of the local industry

8.1.5 Related industries These are those that share common technologies, inputs, distribution channels, customers or activities, or provide productions that are complementary. Competitive advantage may be enhanced through clusters of related and supporting industries.

8.1.6 Digital content Figures 3 and 4 (Section 6) and others earlier in this report, suggests some key industries closely related to digital content.

8.1.7 Firm strategy, structure and rivalry These can influence the development of an industry. Domestic rivalry provides the essential motivation for firms to make the investments and take the risks to create new competitive advantages. These factors vary considerably by industry and by country.

28 NZIER – Digital content: Economic perspectives

8.1.8 Digital content In New Zealand the digital content sector seems to be characterised by a limited number of relatively small firms which may be more likely to be developing products in collaboration than competitively. This means that the pressure from competitors is going to be coming from overseas.

As discussed in Section 2.3.1, New Zealand has attracted international attention for digital content creation in animation and special effects (e.g. The Lord of the Rings, King Kong) and this has assisted the creation of a number of spin off companies specialising in innovative digital design.

However, the majority of web and digital design companies are struggling with issues of scale, investment attraction, talent and skills shortages and R & D. The challenge is to link into global value chains through investment attraction and scaling up some of our smaller companies - or to encourage collaboration through clustering or co-production models as in the screen production industry.

8.1.9 Chance events and government Seeming uncontrollable and unpredictable happenings can influence the economic environment. Chance events (e.g. pure inventions, technological breakthroughs) are important because they create discontinuities that allow shifts in competitive position.

Government’s proper role is as a catalyst and challenger; it is to encourage companies to raise their aspirations and performance. Government policies that succeed are those that create an environment in which companies can gain competitive advantages, rather than those that involve government directly in the process.

But, as in the case of the GIF Strategy, government may choose to pay particular attention to certain sectors, and offer assistance to them of a nature and scale which is not necessarily available to all industries. This focus is based on judgement about the economic responsiveness of these industries (compared to industries in general) to targeted interventions. But these judgement are difficult to make, so unless there is an unusual degree of certainty about the economic potential of New Zealand’s digital content sector, the type and scale of interventions should probably reflect precedents in other industries e.g. the screen industry, as discussed in section 6.4.

NZIER – Digital content: Economic perspectives 29

Figure 6 Determinants of industry competitiveness

Firm Strategy, Govt. Structure and Rivalry

Factor Demand Conditions Conditions

Related and Supporting Chance Industries

Source: Porter et al (1991, p.32)

8.1.10 Digital content In New Zealand we can see that the various forces are not very strong unless the international nature of the business can be brought into play. This is because the sheer small scale of the local market and of the number of firms in the industry are not especially favourable. The edge that New Zealand requires for this to be more than ‘just another sector’ may come through the importance of innovation to the sector.

8.1.11 Innovation – incentives and risks Innovation involves substantial costs. An important element of the costs, in an industry such as digital content, is the opportunity cost (value in alternative uses) of the people involved in the process. These will often be the most skilled and experienced members of the team, who need to be paid.

Thus for innovation to be pursued pre-supposes an earnings stream and possibly a balance sheet that will support the effort. It also presupposes individuals and businesses who judge that there will be a payoff from the innovation that will more than cover the costs involved.

In the digital content industry, as for most industries, very little certainty can be attached to returns on innovation. This is partly because of the complexities and costs of establishing and holding property rights for innovation. Given the inherent volatility of the basic market for digital content, narrowness of margins, and the difficulty in appropriating the

30 NZIER – Digital content: Economic perspectives

returns from innovation, it is not surprising that the majority of the people in the industry are constrained in the amount of innovation, and entrepreneurship in general, that they can sustain.

Hence, there may be an environmental role for government in assisting with the establishment of institutional settings appropriate to the development of industry capability.

And given the formative nature of the industry, the approach to the establishment of these settings would best be designed in collaboration with industry members e.g. possibly through some informal cluster.

There is some history of previous engagement.

8.2 Government as innovator – an example

8.2.1 The Creative Capital Cluster A large part of firms’ engagement in digital design locally has been through work for government agencies. Te Papa Tongarewa, the new national museum led when it chose a number of interactive experiences.

This meant a government agency was commissioning work and led to a cluster of small companies emerging as specialists in interactive exhibition design and installation. These companies worked together on projects in Te Papa and then regrouped to form a Wellington Creative Cluster supported by the local economic development agency. This was part of an ICT strategy built around the innovative City Link dark fibre network in the CBD.

The strategy was to be export focused, creative and design-led using digital technology and innovation. The group worked together using a ‘co-chair process’ so that many of the companies engaged in collaborative projects for international clients. Support came to a degree from government agencies (Industry New Zealand and TradeNZ), as well as the local economic development agency.

Sustaining collaboration had its difficulty, especially with travel demands, resources for the cluster, and individual company demands conflicted with the collaborative project demands.

Growth in this sector must overcome small company problems. In addition staff are typically a mix of full-time and part-time or contract workers. Building scale is difficult and investment is hard to attract.

NZIER – Digital content: Economic perspectives 31

9. Obstacles and opportunities

Identify obstacles to NZ digital content companies competing in the global marketplace.

9.1 Generic obstacles – the international backdrop

In June 2004, the OECD Working Party on the Information Economy reported the outcome of the Panel and Government Session on Digital Broadband Content. This included the impact of broadband content on value chains and business models, and some of the consequent challenges.

Selected extracts from the Summary and Conclusions are as follows:

9.1.1 Broadband content: Changing value chains and business models The generic themes of the panel were:

• Network convergence and rapid diffusion of high-speed broadband has shifted attention towards broadband content and applications (new demand for the digital economy) that promise new business opportunities, growth and employment. The potential for digital content growth is very high and growth is only just beginning. Technologies to assure the diffusion of content and content products are increasingly R&D-intensive (faster networks, new platforms, software-intensive products, virtual reality applications, data-base management, etc.). • Demand for content from consumers and intermediaries exploiting the potential of multiple content delivery channels is extending and supplanting infrastructure push as a major driver. • Disruptive technologies, and broadband in particular, are challenging established business models while creating important development opportunities in all three sectors. Mobile content and applications received particular attention and are potentially major drivers of mobile telecommunication service and content industry revenues in OECD countries. • The relationships between content originators and final users are changing, intermediaries are being created or replaced, and attitudes to content ownership and acquisition are changing. However complete disintermediation and direct contact between content creators and content users has not so far developed to a significant extent in the three sectors.

9.1.2 Early impacts and challenges These developments are being felt by the digital content industry in five ways:

32 NZIER – Digital content: Economic perspectives

• Users are challenging established ownership and distribution arrangements, whether through P2P networks or open access/open archive publishing conventions, or through new mass distribution and inter-community trading. Network availability and broadband applications create possibilities for new forms of expression by users (“users as content creators”). Each of the sectors is restructuring value chains and developing different business models to meet these challenges. Responses differ in the different sectors, with digitisation and digital delivery very high in scientific and technical publishing and business models developing in the brand new on-line games sector which satisfactorily deals with intellectual property and copying issues. • New pricing models and segmentation of value chains has put pressure on the digital content industry, but the currently successful models continue to be new versions of subscription, pay per view and access charges. Positive revenue feedback cycles are generated when growing numbers of paying users foster the development and distribution of online content and services, which in turn draw more paying users. • Challenges for the digital content industries include: development of innovative content adapted to broadband; co-operation and changing roles among value chain players (in particular between content owners, network operators, Internet service providers, hardware and consumer electronics suppliers); extending broadband access; digital piracy and the role of file-sharing; digital rights management and customer authentication; and efficient payment methods (especially for micro- payments); content standards (e.g. digital object identifier and metadata standards in scientific publishing) and interoperability. • Major concerns are the role of intellectual property in protecting ownership in both products and services, the future development of copyright in a digital world, enforcing these rights, defining fair use and the boundaries of legitimate use, and the interaction between competition law and copyright. There are important issues in providing content for new platforms; licensing negotiations can be lengthy and complicated due to differing legal regimes across platforms and countries. • Compatibility and interoperability issues, oligopolistic content markets with a strong role of publishers, exclusive access to content or networks (network access gatekeepers) that could slow deployment of broadband applications and content, are all issues meriting further attention.

9.1.3 Challenges to players In each of the sectors it was clear that existing and new commercial players can overcome perceived difficulties and migrate to being network content providers. Some sectors have successfully launched new business models (online games) while others are still experimenting with new approaches. In all cases the required levels of innovation are high. In particular, participants noted that:

• Access points, mobility, portability and delivery media are all changing.

NZIER – Digital content: Economic perspectives 33

• There are no readily established business models to simply pick up and use. Old business models do not automatically apply to emerging markets. On the other hand, investment in digital content and digital delivery has to be sustained by margins derived from traditional market models until successful new models emerge, are tested by commercial operators and accepted by users. • Productivity gains reduce user prices, but typically require structural change in content creation and delivery industries. On the supply side the new generations of ICT are changing the market for telecommunications, information services and content firms. All players must reinvent themselves. • Network operators need revenue to support investment in new networks and replace loss of traditional business. For intermediaries, existing players are reinventing themselves, some are superseded and new ones emerge. • New content value chains are creating new activities for different or new players in the value chain: content production, publishing offers marketing, rights acquisition, packaging and distributing content, content protection, management of emerging publishing services, sale of advertising space, profiling users, bill management, payment management, customer relation management, security/control, access management and other activities. • Single suppliers or providers manage few of these multiple roles; they are often joint or separate activities of content providers, network operators, intermediaries. There are new roles for content providers and content aggregators, network operators and intermediaries (including revenue sharing), which involve co-ordination as well as competition along value chains; all of which have impacts on market structures.

9.1.4 Policy issues The digital content industry is set in a rapidly changing environment and the final outcome of many of these technology and other key changes is far from clear. This means that there are risks that government action to adjust the regulatory and institutional structure could be precipitate, or otherwise inappropriate. Several high level institutional areas, however, do stand out as probably offering a reasonable return to an appropriate early intervention strategy.

The obvious one, as discussed above by the OECD, is removing regulatory obstacles to the diffusion of widespread broadband access. This would provide the potential to accelerate digital content developments and aid the ability of locals to capitalise on new market opportunities.

Another is the questions associated with intellectual property rights. As was underlined by the OECD analysis, such property rights are an important and influential determinant in the way digital content proceeds.

34 NZIER – Digital content: Economic perspectives

“It is important to stress again the difference between physical and digital information goods in terms of the property rights governance here. While our property rights system is designed for physical goods — correctly and with a lot of success — digital goods require a more nuanced property rights environment to encourage a socially efficient allocation. This system change appears particularly difficult to understand for physical information goods that have been flourishing under ordinary property rights, but metamorphosed into digital information goods in the New Economy.”

(Regner, 2004, pp.4, 5).

Other possible government roles deserving consideration include the following.

Public policy needs to broadly acknowledge the widespread nature of the impact of the digital changes and look to adjust both general policy and the regulatory environment to dovetail with them (adapting existing frameworks to take account of digital content development and new digital transactions).

The public stance should be based on a reasoned and founded appreciation of the way these changes are working and having effects. This suggests a strong need for the authorities to establish sound measurement frameworks. Some work on economic consequences could also be valuable.

9.2 Sector development

Various initiatives could build a richer knowledge base for future innovation and growth in the digital content sector, for example:

• A taskforce of digital content leaders • Cluster facilitation around specialist areas • Case study development articulating issues for emerging sector players, and • Research into how digital content is transforming mature industries e.g. publishing, manufacturing, tourism, farming systems etc.

NZIER – Digital content: Economic perspectives 35

10. Conclusions

Based on this overview of the New Zealand digital content sector from an economic perspective, we can draw the following broad findings, focused especially on the possible role of government.

These are suggestions rather than recommendations at this stage, reflecting the formative nature of the sector here and internationally, and the limited information available about the New Zealand scene.

10.1 Overview

New Zealand has something to build on in the existing digital content industry - there are emerging New Zealand success stories and no reason to believe these could not be multiplied.

The sector, though is typical of the rest of the New Zealand commercial context – lots of relatively small firms with their classical scale related difficulties. As in the screen production industry much of the real innovation may be taking place in a “hobbyist,” or non-commercial way.

New Zealand markets for digital content are likely to be small, fragmented, and unpredictable. Better local and international connections are thus important; because these would overcome some of the disadvantages of the small home market and mean that the ‘benchmarking’ forces (as in the Porter model) will be the world standard. In digital content, where there are minimal barriers to trade, prospects for the sector as a whole will depend on the ability of creative entrepreneurs here to build internationally competitive businesses.

10.2 Government role

In this section we outline what we see as current priorities for actions in government to advance the digital content strategy, and in particular the development of a New Zealand digital content sector.

By early 2006, the intention of the strategy group led by the National Library was to organize the Digital Content Strategy using five key elements, each aimed at dealing with different aspects of the goal of unlocking content and providing easy access to content. These 5 elements were:

Understanding Digital Content: Ensuring more robust information with which to inform strategy and actions around New Zealand digital content creation, access, protection and promotion.

36 NZIER – Digital content: Economic perspectives

Creating Digital Content: Promoting the creation of content and content spaces which reflects our identities, cultures, values and beliefs which informs, educates and entertains, and which supports the growth of the digital content sector.

Sharing Content: Providing means by which New Zealanders can efficiently and effectively share a broader range of content.

Preserving Digital Content: Identifying and promoting digital content preservation standards and approaches.

Protecting Digital Content: Providing confidence in the creation and sharing of content and ensuring the protection of content of national importance, for economic, cultural or strategic reasons.

Our suggestions are put forward as a menu of options, related to each of these 5 elements, selections from which would in practice be coloured by:

• The extent of the role government intends to play and the resources it wishes to apply. • The specific opportunities, obstacles, threats – it wishes to address as priorities. • The information it needs to design these interventions and evaluate their effectiveness. • Key action points (depending whether the intervention is intended to be broadly facilitative or targeted e.g. on specific activities such as interactive games) • Appropriate roles and governance structures. • Experience and ideas regarding digital content in other jurisdictions e.g. Ireland, Australian States, Canada. • Relevant experience from other New Zealand sectors e.g. ICT, the creative sector. Further, our suggested menu is based on what we found in our research which was primarily focused on economic development of the sector, rather than on wider questions. For example, with respect to the digitisation of existing collections, cultural and national identity motivations may outweigh economic considerations.

NZIER – Digital content: Economic perspectives 37

Figure 7 Menu of Options for Government Action

5 key elements of the New Zealand digital content strategy Scale of government role Lower cost Higher cost Understanding Continued • Monitor overseas • Commission research digital content analysis developments • Lead international initiatives • Adopt OECD approaches • Monitor NZ developments in the sector Measurement • Better statistics • Formal surveys • Case studies of sector firms • Satellite accounts Creating digital National • Stocktake • Programme content identity Economic • Encourage • Full NZTE programme development • Check fit with ICT strategy • Support/subsidies Sharing Communicatio • Promote interactions • Endorse it & become proactive content n Legal/IP • Review international examples • Review NZ approaches & consider issues institutions Preserving Standards • Review protocols • Commercial regulation digital content Organisations • National Library, Archives, Te • Legislation implemented and Papa etc. • Consider targeted organisations frameworks Protecting Confidence • Legal (see above) • Implementation of outcomes digital content • Access review National • Structure review • Implementation of outcomes identity • Design of mechanism (social, cultural, strategic)

Source: NZIER

10.3 The case for the suggested menu

In the following we provide brief supporting discussion for the proposals in the above table. For each of the 5 key elements we provide a brief overview of the main objectives; a summary of relevant findings from our research, and a discussion of the rationale for the options proposed.

10.3.1 Understanding digital content

a) Overview This first element of the strategy to support the digital content sector should ideally be based on an understanding of the generic challenges facing participants in the sector, and the effects of these on sector growth e.g. in the number of enterprises, turnover, and employment.

b) Our research findings In Section 2 of this report we discuss four potential components of the economic contribution of digital content. In Section 3, we review the

38 NZIER – Digital content: Economic perspectives

activities encompassed by the sector in the context of the overall government economic development strategy – the Growth and Innovation Framework. We note overlaps between the digital content sector and, ICT, creative industries, and other activities such as 3D design and CAD/CAM innovation in manufacturing c) Rationale for options In Section 7 we discuss future measurement options from the standpoint of Statistics New Zealand’s role in designing and developing our statistical framework, and in collecting the base data. At any given point in time there may be several new or emerging activities, such as digital content production, which may be on SNZ’s radar but are not big enough to be separately identified and measured.

Logically, the resources will only be committed if one or other of these “new” areas is targeted by being made an explicit priority.

So the options proposed in the above table allow for a phased approach, commencing with ongoing work on understanding the digital content sector in New Zealand, from both domestic and international perspectives, and initially ad-hoc or informal approaches to measurement. This will evolve into more formal statistical treatment and data collection, but mainly according to SNZ’s timetable and resources, in the context of government priorities.

10.3.2 Creating digital content a) Overview This strategic element has two main components, one concerned mainly with national identity, and the other with economic development. Both conflate consumer perspectives and imperatives for producers in the sector. b) Our research findings Our discussion of the sector e.g. in Sections 2, 3, and 4 emphasises that in most respects digital content is a normal good, in which the economic imperative for enterprises in the sector is to identify and try to satisfy the evolving needs of consumers. As in the case of the screen industry, products that satisfying the market in this sense, may or may not reflect other broader drivers such as questions of national identity. And this is one reason why government has a role in facilitating these broader perspectives.

Also relevant to the economic development component are Section 6 on industry connections and Section 8 on opportunities for growing the sector.

NZIER – Digital content: Economic perspectives 39

c) Rationale for options The low cost and high cost options suggested in the table can be seen as either alternative strategies (depending on the resources government wishes to commit) or a staging of assistance pending improved information and a clearer picture of the most effective role for government.

With respect to national identity our suggested low cost option is a stocktake (e.g. a survey of key stakeholders to establish their situation) which might be undertaken annually for a few years, and then develop into a more formal monitoring programme focused on a set of indicators.

With respect to economic development, the low cost options proposed include encouragement and recognition in existing publications or fora, and investigating the fit of digital content with ongoing government programmes e.g. the ICT strategy. The higher cost option is a more extensive and ongoing programme of support.

10.3.3 Sharing content a) Overview We would see this primarily as about access to both New Zealand and internationally generated digital content. Subject to (we assume) diminishing hardware constraints, we see this mainly about the incentives to generate digital content and evolving standards for accessing this. Key issues here are IP protection and commercial and technical protocols. b) Our research findings In Section 9, on obstacles and opportunities, we summarise some of the findings of OECD working parties on digital broadband content. Challenges identified by these working parties include the role of intellectual property protection, digital piracy and the role of file sharing, digital rights management and customer authentication, efficient payment methods, content standards and interoperability. c) Rationale for options Providing low cost, high certainty ‘means’ for sharing content also involves awareness of digital content repositories (other than in areas which are already common knowledge) and this may evolve towards government endorsement of particular repositories of digital content.

Our research (e.g. Section 9.1.4) highlights the potentially influential role of intellectual property rights in the way the development of digital content proceeds, and on the need for modifications, in a digital content environment, to traditional approaches to intellectual property rights.

40 NZIER – Digital content: Economic perspectives

Hence, the initial/low cost option we propose is aimed at monitoring and reviewing international experience. This might lead to a tightly specified, ‘future-proofed’ review of IP rights legislation in New Zealand, reshaped to allow for specific complexities of the digital content sector and other such products.

10.3.4 Preserving digital content a) Overview This report concentrates mainly on the factors influencing the production and consumptions of digital content, rather than on preservation. But to a degree, there can be a continuum between the protocols surrounding production and consumption, and those pertinent to preservation. b) Our research findings Our review of international trends in the digital content sector (Section 5 and Appendix A) revealed that most strategies include cultural and content preservation components, as well as economic development components. However, the relative emphasis varies widely, with the US in particular focusing almost solely on ‘collecting, archiving, and preserving’ digital content. c) Rationale for options Our suggested options are divided into ‘standards’ and ‘organisation and frameworks.’ Just as there are sound reasons for prescribing standards for collecting, archiving, and providing access to written information (e.g. to lower costs and ensure interconnectedness) there are similar drivers for the digital content sector. These include efficiency gains for all those in the production chain, to the benefit of consumers and taxpayers.

Under ‘organisations and frameworks’ we refer to the need for particular organisations such as the National Library to have a leading role in ‘collecting, archiving, and preserving’ but also in developing supporting and complementary standards and protocols for this. Eventually, there may be a need for roles and protocols to be captured in legislation.

10.3.5 Protecting digital content a) Overview We see a considerable overlap between this strategic element and the second (i.e. creating digital content) because ‘protection’ is one of the key elements promoting the creation of digital content. However, the emphasis here is on protection of what we might describe as New Zealand’s public ‘intellectual property’. These may be cultural icons which were not originally created with commercial objectives, but may be seen as part of New Zealand’s

NZIER – Digital content: Economic perspectives 41

cultural identity, which are valued in that respect, and may also have important economic and strategic value in the future. b) Our research findings This was not an area we researched in depth, but we did note in Appendix A ‘Global Digital Content Initiatives’ the emphasis on cultural heritage in both the Canadian and US approaches. The issues that arise here are particularly complex and typically entail resolving a series of ‘balance’ decisions between competing social/national objectives. c) Rationale for options The options here are really open frameworks, which would allow some progress to be made. The basic requirement of ‘confidence’ is to underpin investment by providing the market with related assurances into the future.

42 NZIER – Digital content: Economic perspectives

11. References

Bryan, Lowell L. (2004) Making a market in knowledge. 2004 Number 3 in a McKinsey & Company series on Strategic Organisation. www.mckinseyquarterly.com/article.

Carr, Gisella (2005) Snapshot: Auckland’s Creative Industries: Understanding Our Cities Report, 2005.

Christensen, CM (1997) The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business School Press, Boston, MA.

Cunliffe, David (2005) The Digital Strategy: Creating our digital future. Hon. David Cunliffe, Minister for Information Technology, Minister for Communications, New Zealand Government. May 16, 2005. www.digitalstrategy.govt.nz.

Dolfsma, Wilfred (2004) Some economics of digital content. ERS-2004- 036-ORG. Erasmus Research Institute of Management, Rotterdam.

Galbraith, Christian (2005)’ANZSIC 2006: Redefining industry for the 21st Century’ Statistics New Zealand, Christchurch, New Zealand.

Handshake Media Pty (2003) The State of Digital Content: Towards a digital content strategy for NSW. A report for the Digital Content Strategy Group, NSW Office of Information Technology.

Helpman, Elhanan (2004) The Mystery of Economic Growth. The Belknap Press of Harvard University Press.

Howkins, John (2001) The Creative Economy: How People Make Money From Ideas. Penguin. London. www.tornadoproductions.com

ICT TaskForce (2003) Final Report. June. www.nzte.govt.nz

Irish Ministry of Enterprise, Trade and Employment (Undated) A strategy for the Digital Content Industry in Ireland.

Kelly, Kevin (2005) in Wired Magazine. November. www.wired.com

Lynch, Clifford as quoted in Institutional Repositories Report by John Rankin. 2006. http://www.cni.org/staff/clifford_index.html

Mahoney, Mary and Michela Vecchi (2005) Quantifying the impact of ICT capital on output growth: A heterogeneous dynamic panel approach. Economica, volume 72, November 2005, pp 615 -634..

NZIER – Digital content: Economic perspectives 43

NZIER (2002) Creative Industries in New Zealand: Economic Contribution. Report for Industry New Zealand.

NZIER (2004) Evaluation: Economic and social impacts of ICT consolidation in the government sector. Report to SSC – E-Government Unit, May, 2004

OECD (2004) OECD Information Technology Outlook. Organisation for Economic Cooperation and Development.

OECD (2004) The Economic Impact of ICT. Measurement, evidence, and implications. Organisation for Economic Cooperation and Development.

OECD (2005) Digital Broadband Content: Scientific Publishing. Working Party on the Information Economy, September 2005.

O’Leary, Clare (2005) What is digital content? A discussion paper on defining digital content in New Zealand in the 21st Century. Eve Bay Studio, Wellington. September.

Ovum (2005) Value Chain Study: Content Industries & Services. A report for the DTI. August. www.ovum.com

Parker, Geoffrey G. and Marshall W. Van Alstyne (2000) Information Complements, Substitutes, and Strategic Product Design.

Pattinson Consulting (2003) The Measurement of Creative Digital Content. A Study to Assess User Requirements for Creative Digital Content Statistics and a Possible Collection Strategy to Address Them. A Report for the Department of Communications, Information Technology and the Arts, June 2003

Porter, Michael, Graham Crocombe, Michael Enright (1991) Upgrading New Zealand’s Competitive Advantage. Oxford University Press, Auckland.

Quah, Danny (2002) Digital goods and the new economy. LSE Economics Department, December 2002.

Quah, Danny (2003) History matters: Trading technologies and the marketplace for ideas. LSE Economics Department, April 2003.

Regner, Tobias (2004) Efficient Contracts for Digital Content. University of Bristol and CMPO [email protected]. July 2004

Shapiro, Carl and Hal R. Varian (1999) Information Rules: A strategic guide to the network economy. Harvard Business School Press, Boston, Massachusetts.

44 NZIER – Digital content: Economic perspectives

UK Department of Trade and Industry (2002) UK Digital Content: Exploiting the Opportunity. September 2002, Department of Trade and Industry.

VDI/VDE-IT (2000) Access to capital for content industries. Final report submitted to European Commission. With INBIS and PricewaterhouseCoopers.

Wired Magazine – interview with founding editor, Kevin Kelly online at www.wired.com

On the Edge, Leading Edge Forum www.csc.com

NZIER – Digital content: Economic perspectives 45

12. Electronic Reference list

• Wired Magazine - • www.wired.com • On the Edge, Leading Edge Forum • www.csc.com

12.1 International Digital Content References

• World Summit on Information Systems (NZ website) www.wsa- awards.org.nz/ • The OECD Digital Content Strategy www.oecd.govt.nz (enter digital content in search) • European Commission Cultural & Heritage Strategy www.eu.com • Unesco – United Nations Educational Scientific Community Organisation www.unesco.org • European Union www.eu.org • The World Wide Web Virtual Library (including indigenous resources) http://www.cwis.org/wwwvl/indig-vl.html • Internet Archives Project − The Internet Archive is building a digital library of Internet sites and other cultural artefacts in digital form. Like a paper library, we provide free access to researchers, historians, scholars, and the general public.www.archives.org

• The Electronic Entertainment Software Association www.theesa.com • The Digital Curation Centre www.dcc.ac.uk/index • Creative Commons www.creativecommons.org • Hard News: www.publicaddress.net

12.2 Australia

• Department of Communications and Information Technology www.docita.com • The Australian Government Information Management Organisation (replaces NOIE) www.agimo.gov.au/ commissioned a Digital Content Cluster Study (Australia) • www.cultureandrecreation.gov.au/cics • Queensland Creative Industries Research and Applications Centre (CIRAC) www.creativeindustries.qut.com • ACID – Australasian CRC for Interaction Design www.interactiondesign.qut.edu.au/

46 NZIER – Digital content: Economic perspectives

• Central Australian Aboriginal Media Association (CAAMA) http://www.caama.com.au/caama/ • Film Industry Broadband Resources Enterprise (FIBRE) www.fibre.org.au • Centre for Networking Technologies for the Information Economy (CeNTIE) http://ict.csiro.au/page.php?cid=22 • Digital Content Industry Action Agenda (DCIAA) • http://www.dcita.gov.au/arts/film_digital/digital_content_industry_action _agenda • Multimedia Victoria (ICT strategy for Victoria) • www.mmv.govt.com.au • Australian Game Developers Association • www.gdaa.com.au

12.3 Canada

• Banff New Media Institute • www.banffcentre.ca/bnmi • Digital Culture & Heritage Online • www.canadianheritage.gc.ca/progs/pcce-ccop/about_e.cfm

Hong Kong • Hong Kong Digital 21 Strategy • www.info.gov.hk/digital21/eng/strategy2004/strategy_main.html

Ireland • Forfas is the national policy advisory board for enterprise, trade, science, technology and innovation. It operates under the auspices of the Department of Enterprise, Trade & Employment. • www.forfas.ie • Irish Digital Content Strategy (Northern Ireland) • http://www.forfas.ie/publications/digicontent02/021105_digital_content_ report_s.pdf • Finland Digital Content Strategy • www.minedu.fi/opm/hankeet/sisu/DigitalContentStrategy1.doc

12.4 Malaysia

• The Multimedia Super Corridor www.msc.com.my/msc/msc.asp • Cyberjaya – the Intelligent City www.cyberjaya-msc.com

NZIER – Digital content: Economic perspectives 47

12.5 Norway

• Cultivate Interactive – Local History www.cultivate- int.org/issue3/history/

12.6 Taiwan

• Taiwan Digital Content Industry Promotion Office http://www.digitalcontent.org.tw/ • Digital Content Institute − Promotes the promotion of talent in the digital content sector www.dci.org.tw/english/index.html

12.7 United Kingdom

• Department of Trade & Industries www.dti.gov.uk/industries/digital_content • Digital Content Forum www.dcf.org.uk

48 NZIER – Digital content: Economic perspectives

12.8 New Zealand Educational Institutes teaching Digital Content Creation

• Media Design School, Auckland www.mediadesign.school.nz • National College of Design & Multimedia www.natcoll.ac.nz • Whanganui Design School, www.whanganui.ac.nz • University of Waikato www.waikato.ac.nz • Otago University Computer Graphics Department www.otago.ac.nz • Unitec, Auckland www.unitec.ac.nz • Mediascape, Christchurch Polytechnic Institute of Technology (CPIT), Christchurch, New Zealand. www.mediascape.co.nz • Note that most polytechnics and universities now have a digital media course or diploma in development. The above schools/universities have been early adopters of the digital media environment.

12.9 New Zealand Government – Digital Initiatives

• The Digital Strategy : Creating our Digital Future www.digitalstrategy.govt.nz • Matapihi (National Library of New Zealand) www.matapihi.org.nz • National Digital Forum http://ndf.natlib.govt.nz • New Zealand On Air Public Broadcasting in the Digital Age: Issues of New Zealand A report by Paul Norris & Brian Pauling, May 2005 www.nzonair.govt.nz • Te Ara, the encyclopedia of New Zealand was successfully launched in February 2005 at Te Papa with a technological link up with six schools around the country. www.teara.govt.nz • Te Papa Tongarewa, National Museum of New Zealand www.tepapa.govt.nz • The Dictionary of New Zealand Biography www.dnzb.govt.nz/dnzb • National Register of Archives and Manuscripts (NRAM) www.nram.org.nz/ • Creative NZ www.creativenz.govt.nz • New Zealand Trade & Enterprise www.nzte.govt.nz • Ministry of Economic Development www.med.govt.nz • Tourism New Zealand www.newzealand.com • Te Kete Ipurangi www.tki.govt.nz

NZIER – Digital content: Economic perspectives 49

12.10 Digital Opportunities Pilot Projects

• Seek the Horizons, ICT strategy for early childhood www.minedu.govt.nz • Tech Angels (students teaching digital media skills to teachers) www.techangels.co.nz • Greenstone Project, Waikato University www.greenstone.org • Public Health Information http://www.phionline.moh.govt.nz • ESR's web site http://www.surv.esr.cri.nz/ • The Health Information Strategy http://www.moh.govt.nz/moh.nsf/c43c7844c94e08cd4c2566d300838b43 /1912064eefec8ebccc2570430003dad1?OpenDocument

12.11 Digital Content Research Labs

• The HIT Lab NZ – The Human Interface Technology Lab, Christchurch www.hitlabnz.org • The Media Lab, mobile communications technology research & development, Wellington www.medialab.co.nz • The Moving Image Centre, Auckland Digital Media, Arts & Culture www.mic.org.nz • Spatial Information Architecture Laboratory : Dr Mark Burry, Innovation Professor at RMIT, Melbourne www.sial.rmit.edu.au/ • MIT Media Lab www.media.mit.edu • Cofounder of MIT Media Lab: Dr Barry Vercoe, (originally from Paeroa!) http://web.media.mit.edu/~bv/

12.12 A Selection of Digital Artists from New Zealand

• Aotearoa Digital Arts – network of artists in the digital space in New Zealand http://ada.waikato.ac.nz./ • The Physics Room http://physicsroom.org.nz/webwork • Cybertribe is an online Gallery that promotes the work of Indigenous Artists Internationally. Pacific Arts Forum www.fineartforum.org/Gallery/cybertribe/pacifique • Jordan Reyne, innovative music and software developer www.jordanreyne.com • Helen Varley-Jamieson – cyberperformer www.creative-catalyst.com • Danny Butt, Kiwi in Residence at Banff New Media Centre for the Arts, Canada http://www.intranation.net • Moving Image Centre, Auckland www.mic.org.nz

50 NZIER – Digital content: Economic perspectives

• Russell Brown, Media commentator and Blog, Hard News www.publicaddress.net • New Zealand Game Developers Association www.nzgda.com • Digital Artist Residency, Waikato University http://www.waikato.ac.nz/film/research/digital_artist.html • Lisa Reihana Digital Marae Project www.lisareihana.com • Techno Maori – Maori art in the digital age, a CD-Rom catalogue from an exhibition at City Gallery. www.maoriart.org.nz/noticeboard/te_atinga/techmaori • Interactive Media Awards www.tuanz.org.nz

12.13 NZ Digital Content Companies & Related Sites (a selection only) • Animation Research Ltd www.arl.co.nz • Audio Foundation www.audiofoundation.org.nz • ArcImages (3D and virtual architecture and heritage design company) www.arcimages.com.nz • ARL Animation Research Ltd (Ian tailors animation company, specialising in simulation software and design) www.arl.co.nz • BroTown (Pacific Island satire, first animated series on television – comedy) www.brotown.co.nz • Clicksuite (lead edge innovator in interactive media) www.clicksuite.co.nz • Copeland Wilson & Associates (specialists in interactive education design) www.cwa.co.nz • Chrometoaster (interactive media design company) www.chrometoaster.co.nz • Creative Capital A group of predominantly Wellington companies who started working on Te Papa Tongarewa interactive installations and intranet projects – who then went on to work collaboratively in export markets. The group has disbanded now but name has been taken over by Positively Wellington Business. www.creativecapital.org.nz • Dawn Raid (South Auckland hip-hop culture, music, merchandise) www.dawnraid.co.nz • Karactaz innovative animation company, Wellington www.karactaz.com • Kog Transmissions (interactive music and digital developers) www.kog.co.nz • Huhu Studios animation company in Northland www.huhustudios.com

NZIER – Digital content: Economic perspectives 51

• TRANSMIT (Pacific culture and music interactive experience) www.transmit.co.nz • Sidhe Interactive, New Zealand’s largest computer games studio www.sidheinteractive.com • SHIFT (innovative internet company) www.shift.co.nz • Story Inc. (concept developers, interactive storytelling) www.storyinc.co.nz • Film & TV Producers (NZ) www.spada.org.nz • Film NZ www.filmnz.com • Maori Television, innovative indigenous television network offering bilingual content www.maoritv.com • Massive Software (Academy Award Nominee for transforming the post- production process in artificial intelligence design, CEO Stephen Regelous) www.massivesoftware.com • New Zealand Film Commission www.nzfilm.com • New Zealand ON Air www.nzoa.govt.nz • Right Hemisphere (global leader in 3D software development company based in Auckland, CEO Mark Thomas) www.righthemisphere.com • Television New Zealand Archives www.tvnzarchives.govt.nz • NZ Film Archive www.nzfa.co.nz • Natural History New Zealand www.nhnz.com • OKTOBOR (innovative interactive media company) www.oktoborinteractive.com • Weta Digital (Award Winning digital effects company owned by directors, Peter Jackson, Jamie Selkirk and Richard Taylor for projects ) www.wetafx.co.nz • Global Digital Content Initiatives: A survey

International Digital Initiatives and Strategies Some countries have been driven by economic imperatives, others by cultural imperatives. All have recognised the importance and power of building capability, connectivity and content for future generations.

Canada Canada’s Digital Content Strategy encompasses a strong cultural heritage position and also acknowledges the power of Digital Content industry development.

Canada has developed a Digital Culture Online Branch within the Cultural Affairs Sector of the Department of Canadian Heritage. They have also

52 NZIER – Digital content: Economic perspectives

developed an E-Content Institute and Digital Heritage site. Its purpose is to develop policies and programs related to the Internet and digital technology to bring our country's cultural content to Canadians.

For many years it has also developed the Banff New Media Institute, a world leader in research and development into new media and Digital Content innovation. Research has been a major concern to this institute and an international collaborative environment has grown with the centre’s reputation.

Fundamental to BNMI is the belief that the creative sector – art and cultural industries – in collaboration with scientists, social scientists, and humanists have a critical role to play in developing technologies and content that work for human betterment. We draw on over fifteen years of new media efforts at The Banff Centre. Working with key partners, BNMI leverages the capacities of networked knowledge and technology. BNMI focuses on the culture of use and participation, enabling the creation of technologies and content. www.banffcentre.ca/bnmi

Canada has a bi-cultural policy and strategy embedded within all of government, not from its relationship with First Nations peoples but across the English/French intercultural communities. It recognises both cultures in all aspects of policy and strategy development. Intercultural communication has been an integral part of its Digital Content strategy also.

Finland

Digital Content Strategy It defines Digital Content as;

In this context, content creation is mainly understood to be production of cultural, documentary, educational, research, entertainment and marketing content for the electronic media and related services and business. This mainly means digital, audiovisual information and knowledge and the "commercialisation" of cultural creativity.

A committee coordinated by the Finnish Ministry of Education and representing different ministries, institutions and the information industry, has looked into the strengths and opportunities of Finnish content creation, as well as obstacles and problems in it. They also recognise the importance of building capability in Digital Content technologies within the school system which then informs the workforce of the future.

NZIER – Digital content: Economic perspectives 53

Based on numerous surveys, reviews and debates, the committee formulated a Digital Content Creation Strategy, including recommendations up to the year 2007. http://www.minedu.fi/opm/hankkeet/sisu/ www.minedu.fi

Hong Kong The Hong Kong Digital 21 Strategy was developed to be an advocate and champion to promote Hong Kong's international image as a dynamic digital city, and facilitate the development of innovative applications, e-commerce and creative industries by providing the right opportunities and programmes. This includes programmes to address the digital divide, build capability in the community, across government and in industry. www.info.gov.hk/digital21/eng/strategy2004/strategy_main.html

Malaysia Malaysia was one of the first Asia Pacific governments to recognise the power of digital innovation. It created a ‘Digital City’; Cyberjaya, and created what is now know as the Multimedia Supercorridor (MSC). A special technology innovation centre with start up incubators and resources for research and development attracted much attention and investment. However, what was missing to some degree was the understanding of the ‘creative class’ and their need to be in the middle of urban centres, not isolated in a ‘satellite city’, even if it was leading edge and high tech.

The Malaysian government has equipped core areas in the MSC with high- capacity global telecommunications and logistics networks. Emphasis has been placed on eco-friendly, urban structures for businesses, homes, education and recreation. The MSC is also supported by secure cyber laws, strategic policies; and a range of financial and non-financial incentives for investors.

The Multimedia Super Corridor http://www.mdc.com.my/

Taiwan The Economic Development agency of Taiwan has instigated a new Digital Content agency within government and developed a Digital Content strategy that is driven by emerging Digital Content industries. They have visited New Zealand a number of times and met with government agencies as well as creative and Digital Content industry companies across the country.

The Taiwanese strategy recognises content as a driver of economic development. They come from a strong technology driven economy and are positioning themselves as the gateway to China. Taiwan has widespread

54 NZIER – Digital content: Economic perspectives

use of broadband and wireless communication systems where the transmission of Digital Content is faster and more stable than ever.

“As one of the leading providers of Chinese-language content, Taiwan has the potential to emerge as a leading player in the field. Recognizing this opportunity for explosive growth, the Taiwan government is focusing on maximizing the country’s strong advantage of technological innovation to address the needs of this emerging industrial powerhouse and transform itself into a centre of Digital Content design, development and production in the Asia-Pacific region.”

Taiwan has established a new Digital Content Institute, created by the Industrial Development Bureau of the Ministry of Economic Affairs, as part of the government’s program to promote the cultivation of talents in key industries. www.digitalcontent.org.tw

The Digital Content Institute promotes the cultivation of talent in the digital content industry.

http://www.dci.org.tw/english/index.html

USA The Library of Congress National Digital Information Infrastructure and Preservation Program (NDIIPP) is a national strategy to collect, archive and preserve the burgeoning amounts of digital content, especially materials that are created only in digital formats, for current and future generations.

Its mission is to:

Develop a national strategy to collect, archive and preserve the burgeoning amounts of Digital Content, especially materials that are created only in digital formats, for current and future generations. www.digitalpreservation.gov

The Library of Congress has been a world leader in developing digital archive projects. The Library has the largest collection in the world and its mission is to make its resources available and useful to Congress and the American people and to sustain and preserve a universal collection of knowledge and creativity for future generations.

The Library has an extensive Digital Library Strategy and is working collaboratively with many libraries on future issues for digital libraries and preservation of culture, including New Zealand.

NZIER – Digital content: Economic perspectives 55

The Internet Archive is a project generated by veterans of the internet, based in San Francisco who have designed an open archival process to accept and generate content via the web. www.archive.org

56 NZIER – Digital content: Economic perspectives