Investing in European Digital Content

On May 1st, 10 countries joined the European Union's existing 15 members, increasing the EU's GDP by 5% to 9.6 trillion Euros, its population by 20% to 454 million, and its official languages by 82% from 11 to 20. While taxpayers in existing member states may have mixed feelings about the growth, the added fragmentation and complexity does present opportunities for multicultural and multilingual digital content providers and associated software developers.

To sweeten the opportunity in content segments that rarely attract private funding due to their public nature or complexity, on February 13, the European Commission proposed a 163 million Euro budget for the eContentplus program (2005-2008) to the European Parliament. eContentplus will fund projects in four content segments: public sector information, spatial data (combining geographic with other information), elearning, and cultural content. Projects funded are intended to facilitate the accessibility of the content, improve its quality by establishing best practices, and reinforce cooperation between stakeholders, preferably based in different EU member states.

eContentplus will succeed the 100 million Euro eContent program operating between 2001 and 2005. The original eContent program is one of a bewildering array of information society-related programs under the eEurope strategy, which was launched in 2000 "to make Europe the world's most dynamic and most competitive knowledge-based economy and society by 2010." In addition to programs funded by member states, the EU Commission alone will have spent close to 6 billion Euros on this eEuropean vision by 2005.

But who is at the receiving end of all these euros? A look at projects funded under the eContent program suggests some possibilities: 41% of participants are small to medium enterprises (SMEs), 40% public sector organizations such as patent offices or spatial planning agencies, and the remainder research institutes and universities. Of the total funds, 29% were granted to companies employing less than 50 people. The average project was financed with W 800K and involved six organizations, usually from different member states—which certainly increases complexity but supports the program's implicit objective of fostering cross border networks in the "ever closer union."

A few of the projects funded help illustrate the pattern and complexity of eContent initiatives and spending: The idea for Scalex, a system that adapts the user experience during museum visits to the visitor's interests, originated at C3, a program of the Soros Foundation in Budapest. Scalex's development consortium is comprised of 12 partners, which include media research institutes and museums in three countries, an Austrian media design company, and a Dutch new media firm responsible for marketing. Another project, ePatent, which received W 1.2 million funding under eContent (50% of its total cost) was designed to provide a cross-lingual repository of European patent information. Anyone who ever dealt with the myriad of European patent offices will appreciate this joint effort by Jouve, a French publishing and IT house; Lingway, a translation software developer; and the U.K., French, and Spanish patent offices.

So how does eContentplus bode for the new member states? According to Agnieszka Chrzaszcz, national contact for the eContent program at AGH - University of Science and Technology in Krakow, Poland, two Polish organizations already participate in eContent projects and 12 of 50 project applications with Polish partners are currently in advanced negotiations with the Commission. Potential applicants to eContentplus include the film and animation industries in the Czech Republic, which have excellent skill pools but often lack the funds for technology to access wider markets.

eContentplus may provide an attractive alternative to private seed or venture capital for start-up companies. The approval rate of applications in eContent was 1 to 10, while many European VCs currently fund as few as 1 out of 80 proposals. Public funding also better suits early-stage projects. Says Alexander Wiedmer, investment manager at Iris Capital, a Paris-based venture capital firm that focuses on media including content provision and platform companies, "Government programs such as eContent complement VCs rather than replace them because they usually get in earlier." However, government funding doesn't put projects in the pole position for follow-up financing, which may be needed for full commercialization. According to Wiedmer, "We scan the portfolio of government programs to support our deal flow, our selection criteria are stricter and our investment decisions are not influenced by the presence of government program financing. We don't take government funding as a seal of approval."