For all the hype and publicity multimedia has attracted, as a mass market technology it has not yet been a success. This is one of the worrying conclusions of the new report ‘European CD-ROM Markets’ from Financial Times Telecommunications & Media p ublished last month. Despite this, many entrants to the CD-ROM industry are making business decisions on the premise that multimedia will become a mass market. But an industry cannot operate effectively if it operates along mass market principles b ut does not have the critical mass that the ‘mass market’ brings, the report argues. So if companies are pinning their future profit hopes on the growth of the industry, the prognosis for the CD-ROM needs study. CD-ROM sales look like this. The Sof tware Publishers Association says that in 1994 global CD-ROM title sales were $648m on unit sales of 22.8m. Sales in the first half of 1995 were 14.1m units, with games making up 4.1m and home education 3.6m of that. Home multimedia Infotech estimates that in 1995 50m CD-ROM units were sold worldwide and this is expected to grow to over 200m in 1998 and 400m in 2000. From this it looks as if the mass CD-ROM market is about to happen. The market for titles is initially dependent on the installed base of home multimedia personal computers that can play CD-ROMs. Inteco sees that installed base growing by the end of 1998 to 14.6m, and Kagan World Media forecasts the number of multimedia personal computers rising 10-fold by 2005. But for the CD-ROM market volume to grow, these personal computer owners must buy titles frequently and the price must be right, and 35 – 40 British pounds, about $50 – $60, is a substantial investment on a single title and it is estimated that a typical European consumer buys just over one edutainment title a year on average. So for the market to grow, one option is for CD-ROM publishers to provide them at prices more comparable to the music compact disk that costs just as much to manufacture. Mark Van Weelde, deputy managing director at Dorling Kindersley Multimedia Ltd, admits that at 40 pounds you are not going to buy 12 CD-ROMs a year. But adds if we sell 20,000 of a 40 pound title in one year and it sells the next year as well, we are sat isfied with that. It still works as a business model. Prices have fallen to an extent with some publishers, like SoftKey International Inc producing low-priced titles in the 10 and 20 pound categories. But essentially you get what you pay for. So although the publishers are making money from CD-ROMs, from the consumer’s perspective the high development costs for quality titles mean that prices won’t come down unless a much wider market can be developed.

By Abigail Waraker

For Dorling Kindersley, bundling CD-ROM products with hardware is a key strategy in widening that market. It gets the brand name known, so consumers will recognize it and buy it again. Branding is important for CD-ROM developer Yorkshire Internation al Thomson Multimedia Ltd as well. We aim to promote our educational titles within schools and then market them in the retail sector once they are a success, it said. We establish our brand within schools and that brand recognition helps promote our products in the retail market. However, the report points out that if titles are bundled with multimedia personal computers then purchasers don’t buy more CD-ROMs until those titles have been fully explored and this isn’t expanding the market. Although specialist CD-ROMs exist, strong and distinct market niches haven’t fully developed. This can restrict publishers looking to produce relatively specialized titles because there is no established precedent to follow and limited information a vailable on what customers want. Dorling Kindersley researches the potential worldwide market for each title it develops. We aim to make a profit on every single product and we only work on international titles because of the high development costs . Similarly there are few niche distribution channels. Specialist CD-ROM retailers have appeared in the US, but not in Europe. CD-ROM games title outlets sell other types of CD-ROM, but publishers have complained of the lack of shelf space in stores for information and educational titles. The average development cost per title in the US in 1995 was $400,000 with average sales of 45,000 for each title. The gross revenue per title averaged out at $1.1m. But the figures are skewed towards hit ti tles and those titles outside the top 30 sold an average of only 2,000 units with an average revenue of $47,000 per title. In addition, 60% of titles published in 1995 came from three publishers – Microsoft Corp, Electronic Arts Inc and Interplay Inc. So if consumers aren’t investing in CD-ROMs outside the games market, because they are too expensive and not easily purchased, it seems there are too many titles chasing too few customers. Larger publishers are being forced to increase investment in development to be better than the next, but are reluctant to put up prices because of price resistance on the part of consumers. This has been described as ‘overpublishing.’ One software games publisher, Krisalis Software Ltd, got out of CD-ROM production altogether. We made the decision a year ago just for that reason, said sales manager Tim James, citing the huge resources necessary for marketing a title as a contributory factor. As a result, Van Weelde anticipates a shake-out in the market place this year with small independent players being squeezed out. This has already started to happen with the purchase of games developer Sierra On-Line Inc and US software publisher Davidson Associates Inc by US on-line service provider CUC International Inc for $2,200m and the purchase of The Learning Co by SoftKey in December of last year for $600m. So it seems that the CD-ROM industry will continue to grow and consolidate, and become dominated by large publishers who can not only af ford the high development costs, but who can also put cash into a strong marketing effort to promote both the CD-ROM and the identity of the brand.