Hi-Tech: Multimedia guessing game: High costs and a slow market put CD-ROM investment in question

WILL THE much-hyped multimedia publishing industry see its market grow fast enough to be able to recoup the increasingly high investments being made?

The question is focusing minds - especially among companies producing CD- ROM software at the top end of the market, such as Dorling Kindersley, the former stock- market darling, and Andromeda Interactive. Last month Dorling Kindersley (in which Microsoft has a 25 per cent stake) reported a 17 per cent decline in pre-tax profits, caused by distribution problems, and at the same time Andromeda, based in Oxfordshire, announced that Mercury, the telecommunications company, was taking a 36.8 per cent stake.

Multimedia publishing is based on CD-ROMs, similar to ordinary audio CDs, which are fed into suitably-equipped personal computers to produce a mixture of text, sound, photographs and video footage. The medium is ideal for encyclopaedias and educational material, although a growing number of games and pornographic titles are being produced.

Low end titles, comprising mainly photographs, may cost as little as pounds 10,000 to produce - but multimedia-rich titles, especially those containing copyright material, cost up to pounds 500,000. Both Andromeda and Dorling Kindersley, which is based in Covent Garden, operate at this end of the market. Dorling Kindersley has invested heavily in multimedia publishing: expenditure amounts to around pounds 3.5m, equivalent to a third of last year's pre-tax profits for the entire group.

More than 100 people are engaged in producing multimedia titles, yet sales of the one title released so far, called Musical Instruments, and retailing at pounds 30, have still only reached 45,000 copies. No more titles will be launched until the autumn, said Alan Buckingham, the managing director of the company's multimedia division last week. Then, five will be launched - including multimedia versions of the company's enormously successful children's books, How Things Work and The Human Body.

Musical Instruments is widely acknowledged to be technically superb, drawing on the high-quality illustrative material for which Dorling Kindersley is renowned. Microsoft has acknowledged that it has used Musical Instruments to benchmark its own offerings and has incorporated Dorling Kindersley-produced material into its own titles.

Critics acknowledge that the new version of Microsoft's Encarta encyclopaedia title is a vast improvement on its predecessor. Previews in Seattle in the United States last month of the latest two titles to emerge from the company - Dangerous Creatures and Ancient Lands - confirm the move to more multimedia-rich material. In conjunction with Dorling- Kindersley, it seems likely that the company is raising the stakes for the entire multimedia industry.

British multimedia producers are already forced to operate in a different market from that in the US. Already battling to compete with a flood of US- produced (and US-centric) titles, British producers are being hampered by the slow penetration of multimedia personal computers into British homes. In the US the multimedia-capable computer is fast becoming the entry-level machine for ordinary consumers. It is estimated that 4 million have been sold to US consumers - and street corner stores are responding with shelves of CD-ROM software. In Britain there are under 200,000 machines - and the titles to run on them are mainly mail order. Jonathan Taylor, the chief executive of Andromeda, explained that because CD-ROMs look exactly like audio CDs, people expect to pay the same price for them.

Andromeda's strategy is threefold. First, the company has elected to create a buffer to protect it from the consumer market with specialist business titles - one for doctors, which sells for dollars 4,000 ( pounds 2,700) and another aimed at publishers and fellow multimedia producers. The medical title offers up-to- date diagnostic information, while the publishing title, called Resource Bank, contains several million royalty-free photographs, video clips, sound effects and pieces of artwork - as well as 6 million words of text.

The second plank of the strategy relies on a diverse range of cheaper-to-produce titles aimed at children. The third plank is to follow Microsoft and Dorling Kindersley up-market - only to do it more cheaply.

The company's Interactive Space Encyclopaedia, due for release in the next few weeks, will show if it has succeeded. On budget at a cost of pounds 250,000, it has taken 18 months to produce.

(Photograph omitted)