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