CD-ROMs may be selling like hot cakes, but these are still lean times for many of the companies that create them.
Nearly 23 million CD-ROMs were sold last year, but only 4% of multimedia developers and publishers are turning a profit, according to analysts who track such sales.
“Starting a CD-ROM company is a risky proposition right now,” says Jeannine Parker, an interactive-media consultant in Los Angeles and president of the 5,000-member International Interactive Communications Society.
The way in which one small Van Nuys company avoided the pitfalls of the CD-ROM business illustrates that knowing your medium and staying one step ahead of the game are essential for survival in the high-technology business.
All 40 of Jasmine Multimedia’s CD-ROM titles have sold well, President Jay Alan Samit says. And in an industry in which breaking even usually means selling at least 25,000 discs, Jasmine’s “Vid Grid” puzzle game is a hit, with sales of more than 100,000 units. Samit places the company’s value at more than $50 million.
How does he manage to survive in this volatile industry?
“I only publish a product that I would want to buy,” says Samit, 34, who jokingly calls CD-ROMs his “toys.”
Samit, who sports Marvel Comics ties and a Mickey Mouse/Donald Duck watch, says he has prospered because he is “Joe Average.” The son of a Philadelphia mathematics teacher who spent summers doing research at Arizona State University, he first learned about computers by playing games on the university’s mainframe.
Samit’s aggressively playful style reflects his view that CD-ROM products must be fun to be marketable. Too many merely mimic books, requiring only a click of the mouse to view the next image. Or the subjects are dull, Samit says, recalling one sleeper about 68 species of ducks and another detailing the intricacies of a coral reef.
Such software is called “shovelware” by those in the industry--and can be found in bargain bins at $40 per pack of 10 CD-ROM flops.
Samit has also kept afloat by staying ahead of the competition.
When he was starting the company 15 years ago, he approached movie studios that were tossing out old newsreels and movie background music. Samit says he got the CD-ROM legal rights at bargain prices because studio executives had no idea what he was talking about at the time.
With 2 million still photographs, more than 40,000 hours of filmed images and a big chunk of the world’s movie music, Samit says, he has the raw material to make CD-ROMs or sell to other makers.
Samit also recognized early on what media lawyer Robert Steinberg calls the “marque value,” or star power, needed to market videos. Samit cut deals with Sony, MCA, Warner Bros., Hanna-Barbera and others to produce game videos with images and songs using cartoon characters and country and rock musicians.
Such deals are now hard to negotiate and pricey, says consultant Parker, but invaluable in marketing new CD-ROMs.
Finally, Samit avoided the distribution pitfalls that plague other CD-ROM publishers by selling his products outside the small space available at retail software stores.
Samit has marketed some of his products in record, video, book and music stores, is negotiating with toy stores and expects to sell his newest product, a CD-ROM greeting card that will make its debut in September, in card and gift stores.
“It’s a pretty simple equation,” says Peter Black, owner of Xiphias, a West Los Angeles CD-ROM developing and publishing company who says his Mighty Morphin Power Rangers disc has sold more than 120,000 copies. “You’ve got 3,000 to 4,000 CD-ROM units chasing about 150 shelf spaces at retail.”
Samit says consolidation is the future in CD-ROM developing and publishing. With 445 publishing labels currently, the commercial CD-ROM business resembles the early recording industry, when records came out on 600 different small labels.
With the demand for large-volume retail sales and mass marketing, small companies can’t make it alone anymore, Black says. Successful developers, including Samit and Black, are turning to major studios and broadcasting companies to form partnerships and deals involving CD-ROMs and other technologies.
“The early phase of the CD-ROM wildcatters is pretty much over,” Black says. “It’s now a big-boys’ business.”
Some CD-ROM publishers and developers are taking consulting jobs with corporations, Parker says. Others have turned to newer media such as the Internet, World Wide Web and digital video discs. DVDs are a new generation of discs able to carry more information, including movies.
Says Black: “When you run a high-technology business, you’ve got to reinvent the business every 18 months.”
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Digitizing for Dollars
A look at where the money goes from the sale of a CD-ROM, whether the retail price is $20 or $45. The economic model follows that of the recording and publishing industries.
National distributor: 15%
Affiliated label: 10%
Publisher (manufacturer): 15%
Returned disks: 5%
Cost of producing disks: 6%
Developer (designer): 3%
Note: Percentages may vary based on business arrangements or market factors.
Source: “The Joy of Licensing: The Multimedia Lawyer’s Cookbook” by Robert Steinberg and Alan Sege