Multimedia in Europe

A couple of years behind the curve

by Joey Tamer

Recently in Europe, I chaired a panel on European distribution channels for multimedia and found that the market in Europe shows both similarities and sharp differences from ours in the States. In general, the market is about two years behind ours. One researcher told me that, as a general rule of thumb, America represents 50 percent of the multimedia market, Japan 35 percent and Europe 15 percent. That 15 percent is the number for the combined market across all European countries.

A software model only
At this point, multimedia distribution in Europe appears to be following a distinct software model. Multimedia products -- hardware, upgrade kits, titles and applications -- are distributed only in computer stores and consumer electronic stores. These stores sell a mix of computer-related products; there are virtually no software-only stores in Europe. A couple of years ago, high-technology distributors completed a frenzy of mergers and acquisitions creating rapid expansion of major companies. Europe then suffered a severe recession that has not lessened for more than two years. This recession has hit both the buying public and the corporations, and has slowed the growth of the high-technology industry. Most multimedia titles are copyrighted as software and treated as such. The few exceptions are those entertainment titles brought in from the United States, which have avoided the software copyright. There is no notion in Europe of rental through video stores at this time. This means that there is virtually no preview mechanism available for the market. Furthermore, continuing the software model, distributors take title to the stock they buy, and cannot return it to the publisher. This means that the risk for creating the market is shared between the publisher and the distributor. The distributor therefore is more careful in his stocking of items, orders more often, and tends not to overload the channel. Although this may decrease the publisher's access to advances on purchase orders (often available in the States), this shared risk and careful planning can be advantageous to both publisher and distributor.

No cross fertilization
While preparing for the panel, I discovered the element missing among the European community of multimedia distributors and retailers and publishers: no cross fertilization of ideas, market opportunities or models among the participants. I asked if they spoke to one another very often. They all shook their heads. When I explained that our informal networks communicate with each other every day, they were astonished. But only for a moment. Then one panelist said, "Of course, you speak every day, when Texas is just like Connecticut." Well, yes, in that they speak the same language, use the same currency, share the same national school system, and are standardized on only two major (computer) platforms. What a wealth of opportunity we have here! So the "European" market is not growing as a community, but as fragmented markets segmented by territories, language (very few titles are localized into more than one language), and distribution models (France's market is centralized in Paris, for example, while Germany's is dispersed across three distinct regions).

Other obstacles
Several market factors beyond these cultural forces will hinder the immediate expansion of the multimedia market throughout Europe.

• Fewer computers are in the home, as it is not common for workers to bring their technology home with them.
• There are four significant platforms throughout Europe: PC, Mac, Amiga and Atari.
• There is not enough localization of titles to provide adequate coverage across the many markets. Edutainment in the home is not welcome when it represents a foreign culture and language.
• There are very few software-only retailers, because Europe lacks a mass market, consumer-oriented business model for moving titles and upgrade kits through a store.
• There is less disposable income in families throughout Europe, and a continuing recession.

Still, there are positive factors to counterbalance these obstacles.

• It is likely the installed base of drives, while very low, will double by the end of this year's holiday buying season, mimicking the growth rates we have seen in the U.S.
• Multimedia has good press coverage, and manufacturers and publishers can get exposure for free.
• Major market players in hardware, software and distribution are beginning to stake out their worldwide market share, which should bring prices down and thereby expand the market. These players' subsidiaries are in place worldwide, so the expansion can proceed without building an operational infrastructure for the marketing and distribution of multimedia products.
• Distributors agree that multimedia products will be sold over the same multiple channels as in the U.S.: software, consumer electronics, video, audio and bookstores. This broad distribution will grow the market.
• The smartest titles producers distribute their titles internationally now in English, and are beginning to localize their best-selling products. This will bring more titles into the market suitable for purchase in each country, and these products will be the best, most successful products from the U.S. product lines.

I spoke with Diane Heppting, chairman of Aris Entertainment, and asked why she has localized World View for the German market. "Because we have a strategy that builds product lines using a single software engine, it is cost effective to localize our products. We can localize two or three of the products to create brand name recognition, and then as the market develops, we can localize the balance of our product line." Jessee Allread of Ebook said, "Ebook invested early in relationships with CD-ROM distributors and our investment from an exposure and contact representative is reaping great returns. The market growth and its related monetary benefit is not far behind the U.S. We are receiving products for U.S. distribution as an additional benefit from the development of these relationships." These publishers, and other aggressive entrepreneurs like them, know how to open up emerging markets.

More optimism
I believe there are a few additional compelling reasons to believe the European market will arrive sooner than we might think.

• The U.S. publishers are cranking out titles at a precipitous rate. The far-thinking ones will soon know it is time to expand their markets overseas. So the titles market, here and in Europe, will jump in multiples. Europe will have a much larger base of titles from which to grow their initial market. They do not have to wait, as we did, for a substantial titles market to arrive to drive the hardware sales. They will have ours, in English and localized. This broad availability of titles will begin to lead the customer to buy the hardware, and then more software.
• Publishers will begin to design their engines and templates in anticipation of localization, by pulling out the "software strings" during development, to ease translation and localization of the product.
• The channel knowledge resolved in the U.S. during recent years will be adapted for the international channels, and will be applied and adopted there earlier in the channels' developmental stages.
• Once the film and music industries become serious players (by 1995), they will automatically drive their product into worldwide markets. The entertainment industry is now controlled by multinational companies. Their business planning is always based on worldwide markets, sales and distribution.

So, even though the European market seems two years behind the U.S. market now, it is likely to be no more than six months behind us in the next two (or three) years. This window of opportunity should compel the market participants to add one more task to their already overburdened list: prepare for international distribution now since it will take a year for the learning curve, and a year for the market penetration that will let them take early market share worldwide.

Joey Tamer refines the vision, strategy and success of companies -- 
Fortune 1000, capitalized start-ups and investment fund.

www.joeytamer.com    (310) 245 5310   joey @ joeytamer.com