‘You know, it’s just like sex in high school – all talk and no action.’

Noah Segal, vp and gm of Malofilm Distribution, attributes this piece of conventional wisdom to an associate pondering the hype surrounding multimedia in general and cd-rom in particular.

‘And to a great degree,’ agrees Segal, ‘that’s what it is.’

You’d be hard pressed to find a producer or broadcaster who doesn’t, at least to some extent, see a kernel of truth in the hype. There’s a widespread consensus that cd-roms will eventually become an important component of the broadcasting landscape – whether in tandem with Internet technology or standing alone – but one question looms large in the meantime. Can you turn a buck at it?

Malofilm, having purchased the Quebec City-based multimedia development company Megatoons last year, is entering the business at ‘pretty full throttle,’ according to Segal.

Desclez, another Malofilm acquisition, is already exploring ways to max out the value of its kids’ titles like Little Star and Iris The Happy Professor through edutainment cd-rom, and Malofilm is still riding on the ‘phenomenal success’ of its recent Montreal Canadiens archival cd-rom product.

A product based on the children’s program Mighty Machines, which aired on Family Channel in Canada and was recently released on video in the u.s. by Disney, is being explored as well.

‘That would be the first example of a situation where we’re fully synergized; taking a property that we released on tv, released on video, sold internationally, and now released in cd-rom format,’ says Segal. ‘It’s a matter of maxing out the value of existing properties that we own.’

But even in his enthusiasm for a medium he expects to be big, Segal admits that the distribution infrastructure is still shaking out and that it’s not yet a consumer-driven market. And it’s this level of uncertainty that’s keeping other producers dipping their toes from the pier rather than taking the plunge.

Cinar, with its animation capabilities and sound studios, has been taking a curious but cautious look at the market, slowed by the fact that consumer buying patterns are yet to be established.

Louis Fournier, vp, distribution and marketing, puts it simply: ‘It was not obvious how you make money with this.

‘Normally, when we finance production, we try to minimize our risk by having partners contribute to the financing or through distribution advances. The distribution partners that you usually find in the cd-rom world typically don’t pay a cent. They take your project, finished and financed, and put it on the market.’

On the other hand, Cinar wasn’t convinced that there wouldn’t be profit opportunities down the line and it didn’t want to be shut out. The solution it set upon was the development of a licensing program. To date, the company has licensed the rights to Are You Afraid of the Dark? to Viacom New Media, and the product has sold over 350,000 units.

‘We’re going to see some revenue stream showing on our balance sheet this year from that licence,’ says Fournier, ‘which is quite spectacular when you consider that Viacom spent close to $1 million on the game. We had guarantees that this was a serious organization and they had the distribution means to get their numbers back.’

On the horizon, Cinar is in discussions with a major company to license Space Cases for cd-rom, and the licensing strategy is something the company will be sticking with for the time being. The key, Fournier says, is to pick the best licensing partner. ‘It’s one thing to have somebody taking a risk on your licence, but you also want them to make money on it so you’ll see a royalty coming back to you.’

Fournier says the typical budget for acquisition of rights is 8% to 12% of the total cost of development, with companies usually trying to keep it lower than that. Development costs, he estimates, could range from $200,000 to $1 million.

Timothy Gamble, president of The Vidatron Group, says 60% of his company is wrapped up in new media (including cd-rom), while the remaining 40% deals with production and distribution of film and video. TheVancouver-based company, which comprises Northern Lights, Aviator Pictures, Vidatron Communications and Image Media Services, holds a library of over 500 cd-rom titles and is a Canadian distributor for u.s. big boys like Broderbund and Microsoft.

Blame it on its youth

Having started in video production, then launching into film, Gamble saw digital products as the next logical step for his company. He thinks the youth of the market is to blame for the rocky consumer outlook right now.

‘As with the video market, there’s been a glut of product. I think you have to look at the industry in terms of a cycle. First it was really hot and everyone wanted to have it. Then the reality of having it in their homes set in, and it wasn’t up to consumer expectations. Couple that with a glut of product, much of which isn’t even conducive to cd-rom anyway, and the consumer market dipped. As the technology improves, the demand will improve.’

The hot spot for Vidatron has been educational titles, and the company wants to focus on converting its video titles into cd-rom versions. Gamble is particularly excited about a title called HeartSafe, a video program on heart disease featuring Martin Sheen.

While consumer opportunities are still up in the air, and the distribution mechanism to reach consumers is even more so, Vidatron is primarily focusing on schools, reaching them through catalogs.

‘That’s a huge market,’ says Gamble. ‘Every school is getting computerized and they all need software and cd-roms. That’s where you’ll find the big growth in this industry right now.’

tvontario and tfo are also eyeing educational products, both in terms of meeting their educational mandates within Ontario and their mandates to generate more revenue. Although still in the pilot testing stages, educational cd-rom applications built on existing tvo and tfo programming could be distributed – perhaps eventually even via the Internet – to Ontario schools while generating revenue in outside markets.

Judith Tobin, tvo’s director of strategic issues, hopes cd-roms will become an integral part of the broadcaster’s educational packages. ‘In the short term we’ll be reformatting from our inventory, but in the long term we hope to be developing standalone products.’

As for the distribution channels into the retail market, Tobin is also hesitant to predict how it’s going to shake out. ‘Initially our program sales and licensing department would handle the product, but long term we’d have to look at the best way to get into the retail market. It’s hard to see right now.’

With the array of possibilities and scenarios, not to mention the neverending hype driven by trades with vested interests in making the business lucrative, even producers who really feel they should at least be near the cutting edge are left scratching their heads. After all, will cd-rom stick around or will it be a blip on the path to something else?

Owl Communications is one such company. ‘This generation of children, our market, is going to grow up on this stuff,’ says Diane Davy, executive vp of Owl and publisher of Owl and Chickadee magazines. ‘We cannot afford to be left behind our audience, but we’re not in a position to be absolute forerunners or jump in with both feet.’

Having forged a partnership with Toronto-based developer Mackerel, Owl is exploring projects shooting off from programming content and the magazines, but Davy admits she can’t see it being a profit opportunity right away. ‘Early on, it looks like it would be a case of more investment in than dollars out.’

Distribution woes

The eventual distribution of the product is also a source for concern. ‘We’d definitely make use of the existing relationship we have with about 200,000 families in Canada, but the retail market is a mixed situation and it’s looking rather difficult.’

Turning the tables on the whole situation, Vancouver’s Forefront Productions and Toronto’s Blue Dog Pictures have attempted to make the technology work for them in a less direct way.

Multimedia funds from the Ontario Film Development Corporation and British Columbia Film have paid for the phase-one development of a cd-rom called Jupiter Cafe. Packaged with a corresponding comic book and aimed at girls aged six to nine, the product introduces Penelope Pithers, an earth girl who heads to Jupiter to work at a greasy spoon. The game allows her to collect space points in order to get back home.

While the producers have wrangled some interest from a number of multimedia companies, particularly because it’s a product created by women for girls, the original intent of the product was to fortify the pitching package for a 13-part animated series.

According to Bernice Vanderlaan of Blue Dog, the visuals of the comic book combined with the character relationships established in the cd-rom make reading the script that much easier.

‘It’s a whole new market, a new medium,’ says Vanderlaann. ‘We wanted to harness it and make it work for us.’