The state of digital media service business

Abstract

1.1 Constantly Evolving Industry: Professionally oriented companies and highly skilled individuals create digital media services. The industry formed by these actors originates from early 1990s' multimedia production agencies. It developed into a full-scale professional business field led by the exponential growth and business need for Internet services. At the turn of the century, the industry was characterised by unrealistic earnings and growth expectations, the socalled hype. Venture capital flooded into service creation, as well as to related areas, e.g. into start-up companies selling their products online. Salaries in the industry were on the constant increase, and aggressive recruiting and rewarding schemes were used. In those times, several European companies, such as Icon Medialab, Framfab, Adcore, Adera, Satama Interactive and Pixelpark, were expanding rapidly into global service business markets. In 2001, the global economic downturn smashed the positive prospects as well as the market value of digital media service-business-related companies. The companies withdrew rapidly from a major part of their international operations and focused on cost savings and on their core customers. In 2004, the situation is about to normalise - digital services are being created and bought just like any other business services, such as consulting or advertising and marketing services. The digital service creation industry has been the subject of several studies. For example, Sandberg (1998) and Sandberg and Augustsson (2002) analysed the development of Swedish digital media companies, and New York New Media Association (1997, 1999, 2001) carried out a series of analyses of the industry development in the New York region. In Finland, the development of the digital service creation industry has been analysed most thoroughly. The research programme jointly led by the Digital Media Knowledge Centre of Uusimaa1 and LTT-Research Ltd2 produced a total of seven separate publications on the industry development in Finland. Though the industry was thoroughly analysed at the peak of the hype in 2000, only few current studies exist Europe-wide with a strong focus on the current status of digital service companies or on the actual service creation process and value-webs in the business area. This report aims at filling this gap at least partially. 1.2 Focus of the Chapter: The key objective of this chapter is to 1) present an analytical framework to help digital media companies to understand their strategic positions within their key business areas both in the domestic markets and in foreign operations. Furthermore, the chapter 2) discusses the current key trends in this challenging service creation industry. The chapter is not a full-scale market analysis. The scope is rather an illustration than a thorough business analysis. The analysis is based on the experience of the author as an industry professional as well as on a longitudinal analysis effort of the development of the digital media industry in Finland (Pelkonen 2003). The report is written from a Northern European perspective of the markets and can therefore have limitations in the depth of its analysis in comparison to other regions of Europe. © Springer Berlin - Heidelberg 2005.