The global digital economy a comparative policy analysis

Government and the Realities of the New Economy Beginning with the dot-com meltdown in the late twentieth century,then the rapid economic rise of China, and continuing through thefinanci

The Global Digital Economy

The Global Digital Economy

A Comparative Policy Analysis

Carin Holroyd and Ken Coates

Copyright 2015 Cambria PressAll rights reservedPrinted in the United States of America

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This book has been registered with the Library of Congress.Includes bibliographical references and index

ISBN 978-1-60497-891-9 (alk paper)

Table of Contents

List of Figures vii

List of Tables ix

Acknowledgements xi

Introduction: Government and the Realities of the New Economy 1

Chapter 1: The Second Wave of the Digital Revolution 17

Chapter 2: The Contours of the Digital-Content Economy 63

Chapter 3: Government, National Innovation Strategies, and the Emergence of the Digital-Content Sector 121

Chapter 4: Major Initiatives in the Content Revolution 153

Chapter 5: Digital Futures 191

Chapter 6: Conclusion and Policy Recommendations 219

Bibliography 241

Index 277

List of Figures

Figure 1: Distribution of Internet users, 2000–2012  47

Figure 2: Broadband prices versus speed, 2012  48

Figure 3: Internet users by language, 2011  49

Figure 4: Internet users around the world  49

Figure 5: Internet users by region  50

Figure 6: Mobile-phone subscriptions around the world, 2004– 2013  50

Figure 7: Internet users around the world, 2004–2013  51

Figure 8: US device ownership over time  52

Figure 9: Mobile share of noncomputer device traffic  55

Figure 10: Noncomputer traffic share by devices  57

Figure 11: App downloads and usage by country  58

Figure 12: Reasons for in-app purchases, 2011  110

Figure 13: Mobile-game spending, 2011  111

Figure 14: Countries’ wireless broadband subscriptions, 2013  144

viii The Global Digital Economy

Figure 15: Percentage of fiber connections in total broadband

subscriptions, 2013  147

List of Tables

Table 1: Mobile Internet services market, worldwide, 2009–

2015  51

Table 2: The top twenty-five: Leading Internet nations  53

Table 3: The bottom twenty-five: Lagging Internet nations  54

Table 4: Countries with the highest rate of mobile share of web traffic  56

Table 5: Mobile share of web traffic worldwide  57

Table 6: Top ICT policies for the economic recovery  59

Table 7: The global games market, 2013  107

Table 8: Market share for MMOGs  108

Table 9: In-app revenue by country  109

Table 10: Features of “freemium” apps and their users  109

Table 11: Features of mobile gaming, 2011  112

Table 12: Mobile movement  113

Table 13: Best-selling singles in Japan, 2013  114

Table 14: Top twenty iTunes singles in Taiwan  115

x The Global Digital Economy

Table 15: Best-selling singles in Germany, 2013  116

Table 16: Country rankings by number of fixed Internet subscriptions, 2009–2013  143

Table 17: Country rankings by percentage of fixed Internet subscriptions  145

Table 18: Country rankings by mobile subscriptions  146

Table 19: The Internet in Africa  186

Table 20: Top ten Internet countries in Africa  187

This book emerged out a longer term series of studies on nationalinnovation and the emergence of the new economy We spent six years

at the University of Waterloo, in Waterloo, Canada, which has been one

of the most important North American hubs for the commercialization

of science and technology We learned a great deal from our academic,commercial, and government partners, particularly those associated withthe development of the University of Waterloo's Stratford campus.Our work on this project was greatly assisted by our graduate assistants,Jacob Hrycak and Natasha Kikot Their cheerful attention to the details

of a very complicated research assignment was truly appreciated We areespecially appreciative of the heroic efforts of Sherilee Diebold-Cooze,whose editorial and technical assistance was a great help with the finaldraft  We are thankful, as well, to our colleagues in the Faculty of Arts,University of Waterloo, Department of Political Science, University ofWaterloo, Department of Political Studies, University of Saskatchewan,and the Johnson-Shoyama Graduate School of Public Policy, University

of Saskatchewan The research was made possible by grants from theSocial Science Research Council of Canada, the Canada Research Chairsprogram, and the International Centre for Northern Governance and

xii The Global Digital Economy

Development Many thanks as well to the many people in variouscountries––Scandinavia, across Europe, in Canada and the United States,Brazil, Malaysia, Japan, Taiwan, China, Turkey, Hong Kong, New Zealand,Vietnam, Qatar, among others––we interviewed in our attempts to learnhow government and industry are approaching the digital content sector.Their willingness to share insights into national policies and programinnovations made this work possible While we have acknowledged some

of their contributions in to the footnotes, we trust that they recognizethe important contributions that all of them made to the book They arenot, of course, responsible for any errors remaining

This is our second book with Toni Tan and her wonderful team atCambria Press We particularly appreciate the efforts made by Toni Tan,David Armstrong, and Michelle Wright to move the book to publication

in a timely fashion

Family remains a source of inspiration During the time that weworked on this book, we welcomed three more grandchildren into thefold, Christopher Coates, Victoria Griffin, and Hazel Coates, adding tothe joy that Katie Coates, Spencer Griffin and William Griffin werealready bringing to our lives We were joined on some of our exploratoryexpeditions by Les Holroyd, Carin’s father His unexpected passing inDecember 2013 was a shock and a great loss, of a father, a father-in-law,and a true friend Through 2011 to 2012, our daughter Hana, travelled with

us as we explored different manifestations of the global digital economy.She inspired us, as well, by her creative (and unrelenting) engagementwith social media It is truly amazing what one can learn from watching

a happy and digitally connected preteen! For her patience in travellingfar and wide in search of digital insights, we dedicate this book to Hana

The Global Digital Economy

Government and the

Realities of the New Economy

Beginning with the dot-com meltdown in the late twentieth century,then the rapid economic rise of China, and continuing through thefinancial crisis of 2008–2009, the global economy has been in turmoil.The most recent manifestations—staggeringly high levels of global youthunemployment, the debt crisis in southern Europe, the scale of the UnitedStates’ national debt, the continued erosion of traditional manufacturing—illustrate the rapid transitions underway around the world For nationaland regional governments charged with maintaining jobs, creating andsustaining prosperity, and financing needed social programs, responding

to the challenges of the twenty-first-century economy remains one of thehighest priorities In the midst of this uncertainty, one economic sector—information and communications technology (ICT), particularly digitalcontent (the preparation of value-added material for distribution via theInternet or other digital means)—remains a significant bright spot interms of employment growth and business development Governments,however, have been slow to recognize the potential of digital content as

2 The Global Digital Economy

a commercial field and even slower to develop the policies and processesnecessary to capitalize on the emerging opportunities

It is not that the world has ignored the potential of the digital-contentrevolution For over twenty years, public commentators have beenobsessed with the digital generation gap and the “digital divide” betweenthose with access to computers and the Internet and those without Aspersonal computers became ubiquitous, particularly when smartphonesbecame the technology of choice for young people around the world,global conversation focused on the idea of “growing up digital,” in DonTapscott’s words, and on the fundamental differences between members

of the predigital generation and their parents The world embracedthe digital revolution, perhaps too enthusiastically and uncritically,and certainly without much government attention or intervention Therapid and substantial commercial expansion based on the so-called neweconomy focused initially on the dot-com boom, creating billions ofdollars in paper wealth This was quickly followed by a dramatic stockmarket crash that wiped out thousands of companies and hundreds ofthousands of overly enthusiastic investors

The first stage of the digital transformation rested on the development

of the personal computer, symbolized by the global power of Bill Gatesand Microsoft and the cult-like reach of Steve Jobs and Apple Computer.Beginning in the mid-1980s, the spread of personal computers altered theway people did business, changed the entertainment industry throughthe advent of CDs, DVDs, MP3 players, and video-game consoles, andbrought many unanticipated and dramatic changes The second majorshift, tied to the development of the Internet and web browsers, allowedfor the near-instantaneous transmission of huge quantities of data acrossgreat distances The emergence of the Internet-based economy mademultimillionaires out of teenage computer wizards “Geek culture” turnedthe standard approach to wealth creation on its head, building a differentorder that bore little resemblance to the long-standing industrial andnatural-resource economy

Government and the Realities of the New Economy 3

For national and regional governments, the parameters of economicplanning and business forecasting had also changed rapidly While theindustrial order underwent transitions of its own—particularly related tothe rise of China and India, rapid technological change, and the restruc-turing of work and business—the new economy presented governmentswith formidable challenges Even as dot-com millionaires became mediacelebrities, lauded as much for their lifestyles as for their business acumen,governments struggled to find policies and strategies that would culti-vate and retain the companies, jobs, and wealth created by the digitaleconomy Put simply, the digital revolution had changed economic rules,undercutting elements of the old economy and creating unusual andunpredictable models for the new order

Mainframes soon gave way to desktop computers, which becamesmaller, faster, and much more powerful Computer memory expandeddramatically, in accordance with Moore’s law, which anticipated thatmemory capacity would double every eighteen to twenty-four months

A seemingly endless array of new peripherals generated substantialconsumer interest The advent of wireless Internet liberated digital usersfrom their computer desks, transferring speed and computing power tohandheld devices Commercial innovations continued, most recently inthe form of tablet computers and progress in miniaturization, increasedcomputer power and faster Internet speeds Businesses, even as theypushed the technological frontiers, paid greater attention to pricing,brand recognition, and aesthetics, the latter two underpinning Apple’srise to global digital dominance in mobile phones

The computer revolution started in the industrial world, whereconsumers could meet the initial high costs of entry into the sector (adesktop computer followed by an expensive dial-up Internet connection)and where large, prosperous populations in North America, northernEurope, and Japan provided a foundation for the development of a globalindustry With each innovation, particularly those tied to smartphonesand wireless Internet, the reach of the digital revolution expanded Speed

4 The Global Digital Economy

and capacity mattered, giving the leading nations a large advantage interms of connectivity and downloading abilities That dramatic edgestarted to decline in the early twenty-first century, again tied to thespread of wireless Internet Costs plunged, access and affordability spikedupward, and consumers from rural China to Kenya, from the PacificIslands to South Asia came online via portable handheld devices From arather limited launch in North America in the early 1990s, the Internetspread faster than any technological advance in human history, becoming

a prominent foundation of the modern economy

Scholars are now paying greater attention to the broadly transformativepotential of the digital revolution There is a very large literature on thebusiness aspects of digital technologies, much of it hyperbolic and moreakin to commercial self-help books than to serious and sustained analysis

of the social and economic implications of digital content This is now

changing Works like Moises Naim’s The End of Power: From Boardrooms

to Battlefields and Churches to States; Why Being in Charge Isn’t What It Used to Be explore the digital revolution’s implications for politics and

democracy, offering substantial and critical assessments of processeslike the Arab Spring uprisings in the Middle East and the long-termeffects of digital politics.1 Nicco Mele has made a similar point in The

End of Big: How the Internet Makes David the New Goliath, which offers

provocative commentary on the likely impact of digital technologies onjournalism, political organizations, recreation, government, the armedforces, corporations, and postsecondary education.2 Perhaps the most

important of these studies is The Second Machine Age: Work, Progress,

and Prosperity in a Time of Brilliant Technologies, by Erik Brynjolfsson

and Andrew McAffee.3 In this highly original work, the authors havemoved beyond the standard business models to consider ways that thisnew technological order—one based on digital communications—is likely

to disrupt the very foundations of contemporary society Their studydrove them to three conclusions:

Government and the Realities of the New Economy 5

The first is that we’re living in a time of astonishing progresswith digital technologies—those that have computer hardware,software and networks at their core.…

Our second conclusion is that the transformations brought about

by digital technology will be profoundly beneficial ones…Our third conclusion is less optimistic: digitalization is going tobring with it some thorny challenges.… Rapid and acceleratingdigitization is likely to bring economic rather than environmentaldisruption, stemming from the fact that as computers get morepowerful, companies have less need for some kinds of workers.Technological progress is going to leave behind some people,perhaps even a lot of people, as it races ahead.4

Futurists from Alvin Toffler on have written about the worrisome andpromising prospects of technological transformation for years Whatseparates these works from previous commentaries is that they look moresystematically at the achievements, problems, and consequences of massdigitalization on contemporary society To summarize these three booksand the others that are starting to challenge normative assumptionsabout technological change owing to digitalization, Brynjolfsson andMcAffee have asserted that governments should be profoundly attuned

to the disruptive capabilities of new technologies They have also allmade the point that, to date, governments have been passive in the face

of digital transformations

Beginning with the dot-com boom of the 1990s, politicians understood,

at the highest level, the economic importance of the new economyand certainly appreciated the widespread enthusiasm for the latesttechnologies They soon learned to speak the language of the digitalrevolution—with many famous fumbles, such as former Japanese primeminister Yoshirō Mori’s laughable effort in the early 2000s to claim digitalchops before admitting he had never sent an e-mail message, Americanvice president Al Gore’s alleged claims to have sparked the development

6 The Global Digital Economy

of the Internet, and a humorous 2013 contretemps involving Twitter, agrammatical error by Aurelie Filippetti (the French minister of culture andofficial guardian of the French language), and the response from Frenchlinguistic purists along the way.5 Politicians spoke enthusiastically aboutdigital infrastructure, promised support for digital training programs,and embraced digital entrepreneurs although they continued to favorthe hardware manufacturers and major service providers who lookedmore familiar to them than animation studios and website designers did

New terms—new economy, knowledge economy, digital natives, digital

innovation, and many others—flowed from their lips, demonstrating to the

electorate that political leaders and senior civil servants alike appreciatedthe power and the potential of the digital revolution

Time has shown that few national political leaders—Toomas HendrikIlves, president of Estonia, standing as a key exception—truly understoodthe transformative potential of the three key elements of the digital age:computer technologies, Internet connectivity systems, and the designand production of digital content The production of digital devicesand the technological backbone of the Internet looked most familiar topolicy makers, who were comfortable with advanced manufacturing andappreciated the opportunity to host or stimulate commercial development

in a field that seemed destined to replace a great deal of old-stylemanufacturing The Internet was not all that different, either, for itreplicated many of the same procedures and requirements of the earlierdevelopment of radio and television There was bandwidth to be regulatedand a wireless spectrum to be auctioned Governments also had tomaintain traditional national efforts to control content delivery andpromote national culture through digital-content activities, and they usednational telecommunications regulators to manage Internet services Itwas content—from the largely invisible mobile-phone app producers

to the more prominent animation studios and website designers, commerce and e-government service providers, e-health initiatives, ande-education content producers—that perplexed most governments

e-Government and the Realities of the New Economy 7

Governments are not uniformly excited about the Internet and itssociopolitical possibilities China monitors Internet usage carefully andhas intervened with both individuals and companies to control content.Dictatorships like Myanmar and theocracies like Iran are similarlyconcerned about the libertarian nature of the Internet In September 2014,Russian president Vladimir Putin mused openly about the need for Russia

to assume control over the Internet, giving the country the capacity

to disengage in times of crisis and to regulate the flow of Western orAmerican content into the country.6 Though the idea was ridiculed byother government leaders and analysts, that the president would speak

so openly about government concerns regarding global connectivity andthe free flow of ideas and services over the Internet highlights both itsstrength and vulnerabilities

The digital-content industry did not follow traditional industrial lines

It looked more like the cultural sector, with its emphasis on creativityrather than standard manufacturing Even as some websites signed uphundreds of millions of users, the size of the content companies interms of employees and physical presence was tiny compared to theirgeographic reach and market valuation Many of the entrepreneurs,sporting more tattoos and piercings than typical industrial businessleaders, seemed out of step with normal government-business networks.Compared to even the most competitive industrial and commercialsectors, the digital economy seemed anarchistic Indeed, many of themost successful digital innovations, particularly those associated withdownloading music and the sharing of digital torrents (tiny portions ofmovies, television programs, and music designed to reassemble at thepoint of downloading) were clearly illegal As entire sectors emergedaround digital sharing—and as regulatory and policing efforts targeted theInternet sites facilitating the transactions and not at the end-point devices(computers and the phones) that made downloading possible—it was notsurprising that most governments viewed the digital entrepreneurs with

a mix of suspicion, disbelief, and misunderstanding

8 The Global Digital Economy

Digital media has emerged in recent decades as an economic force at atime when governments have been struggling with national and regionaleconomic policy The guarantees of the past have faded Confidence hasdeclined in government economic leadership and state ownership, save

in China and in the energy sector The public has also questioned theability of nation-states to insulate themselves from the vagaries of globalmarkets and transnational economic forces The combined effects of thefinancial crises of 2008–2009 that forced governments into emergencymeasures to stabilize slumping economies left the global economic systemvulnerable and undercut the resilience of the European Union and theUnited States, in particular Even the major petro-states, long able to rely

on steady demand for oil and gas, have been challenged by the rapidgrowth of shale gas development and by the consequent downwardpressure on oil prices and demand With the world relying more heavily

on economic growth from the BRICSAM nations (Brazil, Russia, India,China, South Africa, and Mexico), and with activity in these countrieswaning in the past few years, political leaders are genuinely perplexedabout the best means of expanding and sustaining their economies

In this complex and fluid global economic order, digital-content opment represents one of the few areas ripe for continued expansion.While traditional media companies—radio, television, movie production,newspapers, and magazines—have suffered through competition with thelatest technologies, firms like Facebook, YouTube, China’s Alibaba, andJapan’s Rakuten and Softbank have been experiencing significant, albeitunpredictable, growth As traditional industries from heavy manufac-turing to retailing suffer from intense global competition, digital mediaremains open, flexible, and creative Digital firms regularly pop up in themost unusual places, responding to local market conditions and consumerneeds and occasionally—like Skype, which was started in Estonia (by aDane, a Swede, and three Estonians) and is still substantially based there

devel-—developing a global base within a few short years

Government and the Realities of the New Economy 9

Governments have learned that digital connectivity—expanding andpromoting faster and cheaper Internet service—could quickly become anelectorate-pleasing staple with the potential to stimulate new digitallybased businesses Nonetheless, governments have moved with widelyvarying speeds in responding to the need for increased bandwidth, broadercoverage, and faster connections The government of Japan, for example,actively interfered with the early development of the Internet, whichwas quickly bogged down in a morass of civic and national regulations,before discovering the potential of the digital age immediately after the

1995 Kobe earthquake and moving quickly to put the country among theworld’s leading nations in terms of access, speed, and low cost Canada,conversely, was an early leader in widespread Internet connectivity, butthe promising start languished amid government regulation, the power ofthe national telecommunications oligopoly, and the costs and complexities

of delivering high-quality, high-speed Internet services across the largest country in the world South Korea, at the opposite extreme fromCanada, emerged in the last decade as the most aggressive Internetnation in the world, expanding fiber-optic connectivity and producingsome of the world’s fastest consumer Internet speeds and services at lowprices Sub-Saharan African nations, without the government resources

second-to mount digital-media strategies of their own, have liberalized privatesector systems to permit companies to expand aggressively, particularly

in the wireless space

Overall, governments responded surprisingly slowly to what wasobviously a promising opportunity This did not hold for the entire digitalsector, however National governments had been, from the late 1990s,somewhat star-struck by the rise to prominence of California’s SiliconValley and sought to replicate its success Silicon Valley emerged through

a unique combination of entrepreneurship (best represented by HewlettPackard), a world-class university (Stanford), military investments, andaccess to large amounts of venture capital The valley became synony-mous with both the dot-com revolution and the dot-com crash Later,

it reemerged with both hardware and software or digital-content firms

10 The Global Digital Economy

Governments around the world—from Singapore and Taipei (Taiwan),Seoul (South Korea), and Shanghai (China) to Lyon (France), Waterloo(Canada), and Tallinn (Estonia)—spent literally billions of dollars trying

to reproduce the Silicon Valley experience, in some instances withrespectable success

Digital media and digital content, it is fair to say, have not fit easily intonational economic strategies and government policy Indeed, strategiesthat respond to the potential of the digital revolution while also buildingjobs, companies, and general prosperity remain elusive There havebeen successful companies in the digital-media space; indeed, the sectorcontinues to grow quickly There are also significant problems withcorporate concentration, as the larger firms—Google, Microsoft, Face-book, Yahoo, Rakuten, and Alibaba—buy emerging companies, patents,and licenses and enhance their prominent places in the digital economy.Softbank, led by the charismatic Masayoshi Son, exemplifies this pattern.Softbank’s companies have the ambitious goal of attracting one billionwireless subscribers globally, having purchased Sprint and making anabortive attempt to purchase T-Mobile Still, stories routinely surface

of independent programmers who create a “killer” app for the iPhone(Kik Messenger and Snapchat), develop a new digital service (Insta-gram, purchased by Facebook in 2012), or push the frontiers of digitalsharing (Pirate Bay) The core statistics—Internet usage, the number ofonline consumers, the growth of the wireless Internet and smartphonemarkets, continued hardware innovation, Internet advertising revenue, e-commerce sales, and the like—all point to continued growth and sustainedconsumer demand

The challenge for national governments—and the central theme ofthis book—is to identify the policies and economic strategies that alignwith the trajectory and imperatives of digital media and digital content.Some countries and regions are doing appreciably better than others.East Asia has been more creative and intensively interested in digitalmedia as an economic sector The European Union sees digital content

Government and the Realities of the New Economy 11

as playing a very specific role in the future North America, particularlythe United States, sees the digital-content field as a new version of theWild West Poorer parts of the world—South Asia, South America, andAfrica—have used the wireless Internet, in particular, as part of efforts atpoverty reduction and economic revitalization The policies, investments,strategies, and initiatives range widely, responding to local strengths,perceived opportunities, and government priorities

This study examines the surprising disconnect in government policiesbetween the evident potential of the Internet-based digital revolution andthe current reality of national and regional strategies The commercialcultures of the digital sector, particularly on the content side, do notfit well with government priorities, planning processes, and politicalimperatives Equally, the digital-media field does not respond logically

to the standard strategies of state engagement with emerging economicsectors Digital-content production and delivery do not lend themselves

to typical regulatory or state investment strategies (although some ofboth have been attempted), but they do require substantial investments

in infrastructure, education and development, and market cultivation

In the end, digital content or digital media has become a symbol ofthe challenges associated with adapting government economic planning

to the realities of twenty-first-century technology-based change Therapidity of technological development—with 3-D printing and other suchpotentially transformative technologies standing in the wings—presentspolicy makers and politicians with formidable difficulties Governmentsstruggling to cope with intense contemporary issues, such as the rise ofChina, economic globalization generally, and the combination of globalfinancial integration and the American-led fiscal crises in 2008–2009 havedevoted comparatively little of their economic development efforts tofiguring out the imperatives of the “next economy.” They have followed

a standard strategy of investing heavily in postsecondary education andtraining, basic research through universities and research institutes, andcommercialization initiatives designed to transform laboratory discoveries

12 The Global Digital Economy

into commercially viable companies To date, this approach has produceduneven and disappointing results

Economically and technologically, the twenty-first century is proving

to be a confusing and complex economic time While some sectors,such as digital media, are clearly on the rise, others (alternative energy,quantum computing, biotechnology, and nanotechnology) hold consid-erable commercial potential but have not yet matched their promoters’promises Natural-resource development, manufacturing, and services(including tourism and travel) remain cornerstones of vibrant twenty-first-century economies, but the reality is that the forward trajectory

of the global economy remains as unknown as at any time in history.What is known is that the Internet is a key element in the moderneconomy, that digital media is global in scope and impact, that the world

of work appears to be shifting from human-generated manufacturing tomachine-managed production, that producing jobs for workers displaced

by technological change is a global challenge, and that governmentsmust develop new approaches to managing work, business development,and general economic performance

Perhaps the best example of the digital confusion—an area that requiresfar greater government and international attention than it has received

to date—is represented by illegal downloads and digital piracy Theprominence of websites such as the Sweden-based Pirate Bay file-sharingplatform, the arrest in New Zealand of the cartoonish Kim Dotcom(born Kim Schmitz, he officially changed his name) on charges of digitalpiracy through his website Megaupload.com, the global attention given

to WikiLeaks and its founder, Julian Assange, and Edward Snowden’srelease of information about US and British mass-surveillance systemsall underscore the seamier and riskier side of the Internet-based society.The theft and redistribution of digital content, Internet surveillance,invasions of privacy, and other such activities speak to the fundamentalvulnerabilities of online society and the serious challenges it poses

to national and international intellectual property regimes Different

Government and the Realities of the New Economy 13

governments have approached this very differently There are tarian countries that spy routinely on their citizens, governments thatignore mass copying of copyrighted material, and smaller and poorernations that offer themselves as digital safe havens for all manner ofonline gaming, pornography, and file-sharing operations In the middleare a large number of “rule-of-law” nations that officially recognizeintellectual property rights and copyright provisions but do virtuallynothing to police or regulate illegal digital activities This is but oneexample of an area where government policy and regulation are essential

authori-if the full commercial and employment potential of the digital-contenteconomy is to be realized

The digital revolution has transformed the modern world in waysthat are only now becoming clear Although the economic costs havebeen considerable, there have been off-setting benefits, one of which

is the emergence of the digital-content and digital-media sector Thishigh-profile economic area, fully embraced by contemporary youth andincreasingly important to older consumers, emerged from garages, dormrooms, and basement computer labs to produce some of the most dynamicand fastest-growing companies in the world It remains unclear precisely

to what degree digital media will rewrite the economic fundamentals

of the world, but that a transformation is underway is undeniable Fornational and regional governments, wrestling with the present and future

of digital media and digital content has been like struggling with acloud—it is easy to see, hard to comprehend, and impossible to grasp.Thus, the digital-media and digital-content sector is an apt symbol forthe challenges facing governments attempting to create sustainable,prosperous, and growing economies in the face of global forces foreconomic reinvention and dislocation

This volume describes and explains the depth and breadth of the media sector around the world Though there is a general understanding

digital-of digital technologies from computers to smartphones, awareness digital-of theemergence of digital content as a force for economic and social change is

14 The Global Digital Economy

just developing Video games, online music, books, newspapers, and videostreaming have dismantled entire economic sectors and built up newones The economic impact of the digital-content sector (there are over1.9 billion mobile-phone subscribers worldwide) is enormous, yet somecountries and companies benefit much more than others do Governmentsstruggle to make sense of the digital-content sector and to determinehow best to support its development within their own countries

The Global Digital Economy: A Comparative Policy Analysis begins by

placing government policies in context Chapter 1 provides an overview

of the evolution of the digital-content field around the world, looking

at such issues as connectivity, Internet speeds, and other structuralissues Chapter 2 examines all of the various sectors—video games, e-government, online multiplayer games, e-education, e-commerce, and thelike—that make up the digital-content sector In chapter 3, we consider theefforts (often minimal) of governments to situate digital content withinnational innovation strategies, which are the primary means by whichstates have been promoting science- and technology-based economicactivity Chapter 4 looks in more detail at a variety of specific governmentinitiatives and investments in digital media, providing regional profiles ofthe different ways in which Europe, North America, East Asia, and otherparts of the world have approached the digital-content sector Followingthe examination of the growth of the digital-content economy to date,Chapter 5 explores forecasts about the world’s digital-content future,suggesting ways in which continued change in work and employment,manufacturing, and other areas will be driven by the imperatives ofinformation and communications technologies The final part of the bookmakes a series of recommendations related to government policy anddigital content, building upon our analysis of the current limitations ofnational policy and the prognosis for continued, even more rapid change

in the digital-content economy

The analysis in this book is organized around three major themes: (1)

that national governments have underestimated the economic potential

Government and the Realities of the New Economy 15

of the digital-content sector, in large measure because existing policyframeworks and mindsets are built around the traditional industrialeconomy; (2) that there are important regional and cultural patterns

in digital-content policy, and government initiatives reflect both thesignificant variations in the manner the digital economy has developed

in specific countries and regions and the differential abilities of nationalgovernments to see the possibilities of digital content; and (3) thatthe fast-changing nature of the digital-content field means that theneed for continued innovation in policy, regulation, and governmentinvestments will continue to grow, requiring greater government andpolitical understanding of the real nature and potential of the digital-content economy

Digital content has emerged as a powerful global economic force, asdemonstrated through business development, the expansion in employ-ment, and the growing level of digital activity in many sectors Althoughbusiness has learned—more slowly than is generally believed—to move

at the speed of the Internet, governments continue to lag well behind, inlarge measure because the digital-content field is comparatively youngand focuses on youth culture These governments, politicians, and civilservants are in for a surprise People who were young teenagers whenthe Internet first emerged as a major social phenomenon in the mid-1990sare now in their early thirties They are already voters, they work inbusiness and government, and within a decade they will be movinginto positions of decision-making authority Young people who havegrown up digital will expect society, government, business, and the workforce to be digitally rich and digitally enabled They are already theprimary consumers of paid digital content and are a veritable generation

of digital kleptomaniacs (although not so much in East Asia), raised in aworld of illegal digital downloads Digital content will, in all likelihood,become even more influential in the years ahead; it remains to be seen

when, where, and how digital-content policy catches up The Global

Digital Economy shows that the policy transformation is underway, if

only haphazardly

16 The Global Digital Economy

Notes

1 Moises Naim, The End of Power: From Boardrooms to Battlefields and

Churches to States; Why Being in Charge Isn’t What It Used to Be (New

York: Basic Books, 2013)

2 Nicco Mele, The End of Big: How the Internet Makes David the New Goliath

(New York: Basic Books, 2013)

3 Erik Brynjolfsson and Andrew McAffee, The Second Machine Age: Work,

Progress, and Prosperity in a Time of Brilliant Technologies (New York:

Chapter 1

The Second Wave of

the Digital Revolution

What are digital content and digital media? Any effort to understanddigital-content policy development must begin with an appreciation ofthe complexity and reach of the digital-content sector The technologicaladvances behind the digital revolution from the personal computer tohandheld devices and now tablets are well known There is ample discus-sion of the next wave of digital technologies from the Sony SmartWatch(a wearable computer, in this case a digital watch) to Google Glass (aneyeglass-type Internet interface) and there are many forecasts aboutcontinued improvements in speed, storage, processing power, and generalfunctionality But to what end? Digital technologies are platforms; theyare not, in any real sense, the final consumer product A smartphone orany digital device, as Blackberry discovered after largely ignoring therapid growth of the app market, is only as good as the things users can dowith it An iPad is a fascinating piece of technology, but without iTunes,e-readers, and hundreds of thousands of other applications, it is usefulonly as a paperweight Digital content and media represent, therefore,

18 The Global Digital Economy

the place where technology and users meet, where the potential of theInternet is unlocked for the benefit of consumers

There is a growing understanding of the extent and nature of the digitaleconomy and the potential for long-term growth However, there is muchless appreciation of the precise nature of the commercial innovations, thevariation by nation and region in the digital economy, and the differentand often aggressive steps that national governments are taking to engagethis expanding commercial field On the transactional side, there is theemergence of micropayments, digital wallets, virtual money (Lindendollars in Second Life and QQ coins in China’s QQ.com ), virtual coupons,payment gateways, content downloads, touch-and-pay systems, mobilebanking, digital top-ups for payments, smart cards, and B2B (business tobusiness), C2C (consumer to consumer), and P2P (peer to peer) paymentarrangements, to cite examples from the burgeoning digital financialsector alone One such innovation promoted by ING allows consumers

to deposit a check by taking a picture of the document and e-mailing it

to the bank The technology has been functioning for at least three years

On the content side, the development of mass-digitization efforts, thesurprisingly large market for mobile video in unexpected places like thePhilippines and Indonesia, data-mining applications, and the explosion

in demand for video games and multiplayer games have created growing digital economies.1 This economy is more than a trend or a fad;

fast-it is, instead, a global force for change and commercial expansion.Digital media defies ready definition It is the place where technologymeets commerce and consumers, where applications stand betweendigital delivery systems and users, and where content is shared, made,transmitted, and transformed through digital processes It is, in sum,the social, commercial, and technological space where people (and,increasingly, machines) interact and share data, moving vast quantities

of information, images, data, and other digital creations across largedistances at extremely fast speeds Digital media also involves thedevelopment, transmission, sale, and use of information and content by

The Second Wave of the Digital Revolution 19

way of digital technologies The economy is shifting from one led bytoolmakers, or those who produce digital technologies, to one led by toolusers, or those who produce digital content

The digital economy, which is the focal point for government ment with this sector, contains several key subsectors: digital infrastruc-ture, management systems, production, and creation It is the last that is

engage-of primary interest here Digital creation is the production engage-of content bywhich people share, exchange, buy, and produce material for the explicitpurpose of distributing it, for free or for money, across the Internet Thisfield has emerged as one of the fastest-growing sectors of the moderneconomy, producing new companies, jobs, and economic opportunities

at a rapid pace around the world The digital-media sector builds onstrengths and characteristics different from those of traditional industrialactivity, instead relying heavily on artistic, design, and creative workersand expanding the cultural and entertainment industries Digital content

—much more than manufactured items—capitalizes on language andcultural understanding and often requires considerable localization inorder to be effective The key challenges in the commercialization ofdigital content are not technological but cultural and linguistic A bloggerwriting about national politics in New Zealand is unlikely to find much

of a market in Cambodia A digital artist expressing dismay about rapidindustrialization in the Shanghai region can find thousands of potentialconsumers within the region but smaller numbers in the rest of the world.Literary content written in Croatian might cause a national sensationand attract enormous attention in Croatia and neighboring states but isnot likely to draw an audience in India or Nigeria

One of the profound ironies of digital content, then, is that it capitalizes

on a truly global distribution system to produce and share materialthat, more often than not, is of largely regional or national interest.There are significant exceptions, particularly in the fast-growing online-gaming field, but the reality is that digital content primarily servesregional and national markets Some items—digital music downloads,

20 The Global Digital Economy

YouTube videos, funny photographs, and the like—“go viral” and spread

to millions of users in a few hours Content is an easily transmitted andshared commodity Digitized content can be moved instantly aroundthe globe but often operates under the tight control of national cultural,copyright, commercial, and legal regulations Amazon.com, therefore,has many outlets (Austria, Germany, Canada, the United States, China,the UK, Japan, France), each adhering to national laws and commercialrestrictions, particularly those related to intellectual property rightsand book-distribution agreements Digital content is, as noted, oftenculture or language specific Sites selling Chinese-, Japanese-, Punjabi-,

or Hebrew-language material will not be of much interest to those who

do not speak or read that particular language Video games, movies,television programs, and other digital content available online often targetdomestic audiences (plus ex-pat markets and the growing internationalfan base for certain cultural materials, such as Japanese anime) Thereare platforms, such as the peer-to-peer digital-sharing site Pirate Bay,based in Sweden but used around the world, that give users anywhereaccess to pirated digital content

In reality, however, most users operate within the parameters ofnational cultures and linguistic abilities New technologies allow anyonewith access to the Internet to download the Australian television series

Underbelly (about the Australian crime world), but one assumes that the

primary market remains Down Under Similarly, scan through iTunes

or Netflix, two highly popular, North America–based content-deliverysystems, and look for foreign-made content Beyond British televisionshows and movies and a rather small number of foreign films, thematerial is overwhelmingly American (and much of it low-brow, at that).There are websites (Internetradio.com, Live365.com, Shoutcast.com, andPandora.com) that provide instant and live access (assuming a strongand reliable Internet connection) to over fifteen thousand radio stationsaround the world.2 While usage patterns remain little known, it is likelythat most people use the system to connect to regional radio stations

or to a handful of highly regarded international feeds, like the BBC

The Second Wave of the Digital Revolution 21

World Service The system is a boon to expats eager to stay connected totheir home community or country of birth, ironically serving to reduceconnectivity to the new country of residence and strengthening ties withdiaspora communities The Chinese and Middle Eastern diasporas intheir continued vitality are the two best examples of widely distributedpopulations that remain well connected to their home regions and culturesthrough Internet content

Digital media is, at root, the ultimate technology and commercialagent of globalization, much more than the telephone (still expensivefor international calls, except through Internet-enabled systems) or theairplane (too slow and too expensive for the vast majority of people) Ascrowdsourcing experiences during the Arab Spring of 2012 demonstrated,the world could follow in real time rapidly unfolding political develop-ments halfway around the world Consulting firms in India competewith North American accountants for business thanks to the instanttransferability of digital records Animation projects conceived in theUnited States are completed in China and South Korea ICT researchinitiatives, once centered in North America, have increasingly shifted

to Asia Whereas Western nations once produced much of the world’sleading ICT manufactured goods, the business and employment havenow shifted to East and South Asia, which sell finished products aroundthe planet Countries leapfrog up and down the comparative rankings

as major investments in infrastructure permit nations to overcome standing liabilities and, with new wireless technologies, allow developingnations to move quickly to capitalize on emerging business models andopportunities

long-The viability of the digital-content sector hinges on access to a reliableand inexpensive system Despite unevenness in terms of Internet access(see fig 1), cost (see fig 2), speed, and reliability, usage is growingaround the world Europe has engaged enthusiastically in the Internet-based economy; over 22 percent of the world’s users and more than 60percent of the continent’s population have access to the Internet The

22 The Global Digital Economy

Scandinavian nations have 90 percent or higher Internet usage, toppedonly by other prosperous nations like Iceland and Luxembourg AcrossEurope, Internet service is strong and in global terms comparativelyinexpensive, and excellent mobile-phone systems support a strong mobileInternet sector From the consumer side, then, Europe has embraced theInternet and, less dramatically, the Internet economy, governments andcommunity leaders alike being convinced of the need to stay engagedwith the growing digital economy Even Africa, where only 11 percent ofthe population had Internet access as of 2010, has seen its market growfrom slightly more than 4.5 million users in 2000 to over 24 million in 2013,along with rapid development in the sub-Saharan region Asia’s Internetpenetration, representing only 21.5 percent of the total online population,has jumped more than 600 percent in ten years, reaching near-totalcoverage in Japan, South Korea, and Taiwan and seeing rapid growth

in China and slower expansion in Southeast Asia In North America,where close to three-quarters of the population have Internet access,growth in the last decade nonetheless exceeded 140 percent Almost 3billion of the 7.1 million people worldwide had Internet access as of

2013, a number that continues to expand rapidly and that is aided by theavailability of Internet-enabled mobile phones in the developing world.The demographic and infrastructure foundation of the digital economy,therefore, has been broadening rapidly, providing a more substantialbase for commercial operations and increasing economic opportunity

At the same time, the global reach of the digital world has placed anincreased emphasis on culture and language, chipping away at the initialdominance of English-language and North American systems and contentand giving rise to culturally based opportunities in countries around theglobe Some scholars of contemporary culture have discussed the ways

in which digital media and digital content can increase national culturalintegration and make some nations more resistant to foreign influences

or more effective at extending their own cultural influences.3 East Asia

is particularly committed to digitizing national artifacts and heritage

The Second Wave of the Digital Revolution 23

materials, producing some extremely innovative digital museums andart galleries

Although European languages remain prominent on the Internet, therapid digital growth of Chinese-language materials threatens to displacecombined European-language usage within the decade As of 2011, over

565 million English speakers—representing 43.4 percent of all Englishspeakers and 27 percent of all Internet users—were connected to theInternet (fig 3) Slightly more than 500 million Chinese speakers, or 37percent of all Chinese speakers and 24 percent of all Internet users, werelikewise connected Japanese (78 percent of all Japanese speakers) andGerman (80 percent of all German speakers) topped the global charts

in terms of Internet usage by language group Of the top ten languagegroups, which collectively represent 82 percent of Internet users, French(17 percent of all French speakers) and Arabic (19 percent of all Arabicspeakers) had the lowest connectivity rates For the smaller languagegroups—representing 2.4 billion people and over 350 million Internetusers—the Internet-penetration rate was less than 15 percent Overall,more than 39 percent of the world’s 7 billion people were, as of 2013,connected to the Internet

The geographic distribution of Internet users is not at all consistent withpopular-culture imaginings of the digital universe For all the discussionabout the Facebooks, Amazons, and eBays of the world, the Internetenvironment is far more complex and much more nation centered Of the2.4 billion Internet users in the world as of June 2012, more than 1 billionwere in Asia, and almost 540 million were in China alone Latin Americaaccounted for another 250 million, and Africa a full 167 million (48million in Nigeria alone and another 30 million in Egypt) Iran, a countrythat imposes considerable constraints on freedom of expression, had 42million Internet users, close to half of all those in the Middle East NorthAmerica had 273 million Internet users, and Europe provided another 519million.4 Though English-language ability is becoming ubiquitous—andmany Asian Internet users do surf English-language sites—the reality is

24 The Global Digital Economy

that most Internet usage takes place in one’s mother tongue Given thatAsia is already dominant in terms of the total number of users and thatthe region’s growth rate is still quite dramatic, it is likely that Asian andother non-English-language content will come to dominate the Internet.There are several reasons for the wide variation in Internet usagearound the world: the availability and cost of Internet service, governmentcontrols on the Internet, individual and regional poverty, and the lack oftechnological sophistication among the population The result has beenthe emergence of substantial digital divides; people in wealthy nationshave cheap and fast access to huge amounts of digital content, while those

in poor and poorly served areas have little if any connectivity The advent

of wireless Internet and a variety of innovative delivery systems (such asefforts in rural India to provide sporadic connectivity through regularlyscheduled wireless-data-transferring buses that drive around picking upand sending messages) is expanding the reach of the Internet, bringingmillions more users into the fold each year As digital services and digitalcontent expand globally, the economic and social consequences of beingleft behind digitally are likely to grow, adding to the urgency behindgovernment efforts in the developing world to expand connectivity and

in the developed world to expand digital inclusion

Many of the Arab states have relatively low usage rates, and the vastmajority of those using the Internet there are young In North Africa,Internet cafés are popular, whereas in the Arab states in the MiddleEast public spaces with mobile hot spots are common.5 Not surprisingly,Internet growth is fastest in the areas with the lowest historical rates,but the expansion continues to be uneven and sporadic in many parts

of the world (see figs 4 and 5)

It is worth noting that some countries have almost no Internet tration, largely because of political instability, poverty, internal conflict,and dictatorships In Afghanistan and Bangladesh only five people inone hundred had an Internet connection as of 2012 Only 3.8 percent ofpeople have connectivity in Benin, and a minuscule 1.2 percent are online