Best Practices Study of Museum
CD-ROM Production

Executive Summary

Objectives
Methodology
The Market
Experience of Canadian Museums
Recommendations

Objectives

Since the early 1990s, Canadian museums have been engaged in the production of CD-ROMs for a wide variety of purposes. The purpose of this study is to provide an overview of the best practices of museums that have produced CD-ROMs. The primary focus of this study is the CD-ROM as a possible revenue generation instrument to museums. Accordingly, this project focuses on the business issues of CD-ROM production by museums. The study also addresses a range of other issues associated with the production, design and museological aspects of CD-ROMs, although these issues were a secondary focus.

The specific objectives of the study are as follows:

• to profile the practices of Canadian museums and CD-ROMs in terms of their markets and sales, price points, distribution and marketing, and development and production
• to provide an overview of the CD-ROM market for museums

Methodology

The study is based on a series of interviews with five Canadian museums and a selection of multimedia partners that have produced CD-ROMs or related products and one museum that is active in technology but has chosen not to produce CD-ROMs for commercial purposes. In addition, one US museum that produced a CD-ROM was interviewed. Other interviews were conducted with people knowledgeable about the US market. A survey of Canadian museums that have produced CD-ROMs supplemented the data on market size.

The Market

While the market for educational software in the US is large, one publisher knowledgeable about this market estimates that the share of CD-ROM sales accounted for by US museums is less than one percent of sales. The market has matured in recent years, but there is little evidence that US museums or their publishers are very profitable in this market segment.

Since the early 1990s, Canadian museums have produced approximately 40 CD-ROM titles. Distribution has been roughly 80 000 units in total, although sales of each title can vary widely.

Assuming an average retail price of approximately $40, there has been approximately $3 million of sales possible since CD-ROMs were first produced. Museums are estimated to have received close to $500 000 in gross revenues from these sales, about 17 percent of retail sales. The majority of these revenues have come from a small number of titles.

Experience of Canadian Museums

Most museums do not recover the costs of CD-ROM production and development. Only a few museums have made modest returns on CD-ROM production. The experiences of these museums have formed the basis for many of the best practices addressed in this study. Generally, these institutions have been able to recover their costs or generate a small return. These particular institutions funded a large part of their development costs through government grants or corporate sponsorship. Corporations have sponsored the projects by placing an order for a specific quantity of the final product. One US museum, which had its costs mainly funded by the multimedia publisher, made a modest return. A wide variety of partnerships and revenue sharing structures have been developed and a few common practices exist. Yet it must be stated that some museums have had difficulty in recovering revenues to which they were entitled from their revenue sharing agreements.

All the museums believe strongly that they have produced a high-quality product that meets their museological objectives.

Recommendations

1. Most museums have not generated significant, if any, net revenues through the production of CD-ROMs. If net revenue was generated, it was likely a result of special circumstances. For example, the institution may have received a grant for production, a corporate sponsorship, or a large one-time purchase of product. Also, in many cases, the museum's overall cost does not account for the staff time contributed to the production. Moreover, when net profits have been realized, the profits tended to be relatively small. Accordingly, museums should be very cautious about developing CD-ROMs primarily to generate revenues. Even when CD-ROMs are developed for other purposes (e.g., for educational or marketing reasons), museums should carefully undertake a cost-benefit analysis of any such initiative (including the imputed costs of staff time).

2. Notwithstanding the above, museums do have artifacts, collections and expertise that can be the basis for very interesting, educational and attractive CD-ROM offerings. As a rule, though, rather than attempting to develop CD-ROMs completely in-house (a strategy that can have a very steep learning curve unless the institution has in-house capability), museums should consider a partnership with established commercial organizations in the development, marketing and distribution of titles. Such an approach will help the museum share financial risk, as well as improve the quality of the final product. Production partners bring to the relationship expertise in the development, production, marketing and distribution of CD-ROMs, whereas the museum brings the content of the production. Both are critical elements of a successful CD-ROM.

3. In the negotiations between the museum and the production house, museums should, where possible, negotiate the following:

• compensation for ¾ or an upper limit to ¾ the amount of time and expertise provided by museum staff
• involvement in decisions regarding the distribution of the CD-ROM
• percentage of sales
• prominent display of the museum branding ¾ its name, image and logo on the packaging

These principles should apply regardless of the scale of production.

4. In the current environment of rapidly changing technology and explosive growth in multimedia, CD-ROMs should not be considered stand-alone initiatives. Rather, they should be thought of as a component in the museum's multimedia strategy. This strategy, in turn, is likely to reinforce other institutional objectives such as marketing, programming, exhibit interpretation, outreach, etc. The costs and benefits of producing a CD-ROM should be viewed relative to using other digital media such as the museum's web site, hybrid CD-ROM products containing, for example, embedded hyperlinks to the museum's web site, or the sites of other museums and relevant organizations. Alternatively, if a CD-ROM is being developed for the first time, it can be undertaken as an initial stage in the development of the museum's web site, or as a component of other multimedia and technological initiatives undertaken by the museum. The relative costs and benefits of each strategy are likely to change with time.

5. The following checklist of critical success factors should be considered by any museum planning to develop a CD-ROM in partnership with another organization.

Critical Success Factors in Working with Partners

• Take time to research potential partners prior to selecting one.
• Conduct reference checks with regard to all partners' technical and business successes in similar ventures.
• Be prepared to take the lead in managing your relationship with partners.
• Start with clearly defined goals and objectives for each party.
• Make sure you understand the risks and rewards inherent in different types of revenue sharing arrangements.
• Take your revenues from gross rather than net sales if possible.
• Design a system using a share of gross revenue model to ensure you obtain the revenue to which your institution is entitled if the partner does not recovered its costs.
• Ensure you have a proper auditing mechanism to obtain agreement on revenue sharing calculations.
• Obtain qualified legal advice in developing a contract with partners.
• Review the Canadian Heritage Information Network publication entitled Sample CD-ROM Licensing Agreement for Museums: Canadian Common Law Edition, 1997 (or Quebec Civil Law Edition) as a possible model for your agreement.
• Assign a value to the artifacts and their digitized images.
• Consider the associated rights in your collections when negotiating with private sector partners.
• Ensure that ownership of the multimedia product, related products and the rights are clarified and incorporated into the agreement, including the rights to use digitized images.
• Clarify which party holds the rights to use any spin-off technologies, products or intellectual property.
• If partners are in a subcontractor role, ensure deliverables are specified to your satisfaction.
• Retain control over the content and the use of museum branding at all stages.
• Ensure that you communicate regularly with your partners at all stages.
• Ensure that senior management in the management company is committed to your venture.
• Develop a project management system to which you and partners adhere.

Critical Success Factors for Project Conception, Development and Production

• Be as clear as possible in defining the objectives of the project at the outset.
• Be aware that the level of complexity and the costs increase considerably with the addition of multimedia elements such as video and sound clips.
• Develop a clear business case and convert it to a brief (6- to 12-page) business plan.
• Share your business plan with the other partners and revise it as necessary.
• Design a mechanism to retain the rights to any new material developed.
• Review the literature on the current costs of developing interactive multimedia (see Bibliography).
• Ensure that the product is appropriate to the technology platform most commonly used in the market.
• Consider purchasing high quality production equipment if resources allow it, since the equipment can reduce the development time significantly.
• Develop a project management plan that includes a Gantt chart and use it to monitor your progress over time and against your budget.
• Consider the use of a more detailed project plan on longer projects. This type of plan includes:
  • a statement of project requirements
  • a work breakdown structure (WBS)
  • a schedule of key milestones and activity duration for each work element
  • time-phased resource-loaded cost estimates for each element
  • descriptions of all outputs and deliverables

Critical Success Factors for Marketing, Distribution and Sales

• Develop a marketing plan as part of your business plan.
• Be as clear as possible in defining the target market and in positioning your product in that market.
• Develop a clear statement of the opportunity, outlining why your CD-ROM is necessary in the marketplace, or what needs you will fulfill with it.
• Describe the unique features and benefits of your product.
• Determine whether there may be opportunities to develop new types of products by working with other museums or other types of partners.
• Consider how you might extend the product life by the addition of follow-up version, product enhancements, or hybrid linkages to the Internet.
• Visualize your collection as an asset that can be managed and leveraged through the CD-ROM.
• Define the target market and key market segments for your products.
• Consider using brainstorming or focus groups of potential consumers at key points in the development process to test the concept or prototype, particularly when targeting the educational market.
• Research curricula when marketing to the educational market and design your product to enhance curriculum content.
• Include teaching guides such as lesson plans and tests in the CD-ROM product developed for the education market to determine absorption rates, etc.
• Consider using a hyperlink to an Internet site to keep the content and the teaching guides current and to provide a mechanism to obtain consumer feedback.
• Consider working with various educational publishers to penetrate the education market if appropriate.
• Conduct reference checks on possible marketing partners to determine their ability to conduct similar work.
• If the project has an Internet component, determine who will manage it and how it will be financed.
• Define the normal marketing channels and the possible untapped channels.
• Determine whether the use of the Internet or catalogue sales can help you market your product.
• Consider adding game features to your product to give it more appeal to the home segment.
• Leverage the resources of the other partners in your communications and marketing programs.
• Conduct a break-even or return on investment (ROI) analysis for different price points and volumes, and incorporate it into your business plan.
• Conduct a sensitivity analysis by changing the critical variables by 10% and determine the impacts on your bottom line to isolate the critical variables.
• Clarify and define how after-sales support, customer service and replacements will be handled.