Australia's potential as a hub for digital investment is threatened by scale, internet infrastructure and – in part – our appetite for illicit downloading, according to a new report.

Consultancy EY this week released its inaugural report tracking the "relative digital earnings potential of key international markets".

The numbers come out of a proprietary tool called DiMAx, which tracks 16 countries' fortunes in the emerging digital landscape.

Australia's overall 'digital attractiveness' ranking is eighth; the top five markets in order are the United States, Japan, Germany, UK and China.

EY's full report finds that "markets like Australia are attractive but lack the scale to be transformative".

"While not essential, these markets are a low-risk option to add incremental return," EY said.

EY's media and entertainment leader for Oceania, David McGregor, said that – while small – Australia's "digitally engaged and active online population represented significant and largely untapped opportunities for media and entertainment companies" to invest here.

However, that engagement did not always throw up obvious ways for digital investors to make money.

Australia has the second-highest incidence of "illegal downloads" among the 16 countries that EY currently tracks in its index, which EY primarily attributed "to the delay in local release of overseas content".

"It's no secret that Australians are avid downloaders – both legal and illegal," McGregor said.
"The real challenge lies in moving young, digitally savvy emerging market consumers to legitimate digital platforms. That remains a significant opportunity for media and entertainment companies".

McGregor said companies wishing to capitalise on Australia's digital appetite would need to understand "the value drivers that will promote legitimate content consumption".

"This starts with analysing piracy consumption and encouraging greater collaboration on release windows [for digital content]," he said.

Positive contributors to Australia's eighth ranking come from its political stability and regulatory risk rating (both number one of any country) and fifth ranking for 'cost attractiveness'.

"Media and entertainment companies should be asking themselves ... could they use markets like Australia's strong, stable, advanced position to springboard into one of the emerging economies?" McGregor said.

The report lists China and India as emerging digital economies but notes that entry into those markets comes with "inherent challenges and risks".

Digital lag evidence grows

That Australia ranks behind other countries in terms of digital attractiveness has been flagged in earlier EY research.

The company's 2014 State of the Nation report found only 14 percent of consumers believe Australia's digital economy "is more advanced than other leading countries". Of the rest, 30 percent said it was on par and 40 percent said it was less advanced.

The numbers were even starker when "digital opinion leaders" were surveyed. Almost 60 percent believed Australia was less advanced than other countries when it came to digital innovation.

EY's findings are supported by earlier research by fellow consultancy PwC.

"Australia needs to lift its game," PwC said in a digital economy report last year. "We are lagging behind our peers globally and are not considered a leader of innovation."

The Australian Computer Society (ACS) has been a driving force for increased political and policy recognition for the contribution made by the digital economy in Australia.

"Federal and state governments must pay attention to the impact of this burgeoning area of the economy, which employs more than 550,000 Australians in digital careers and contributes more to GDP than mining," former chairman of the ACS in Victoria, Michelle Beveridge, said last year.

Modelling by PwC suggested that a focus on innovation and digital technologies could "increase Australia's productivity and raise GDP by $37 billion in 2024.

"Longer term, the contribution to GDP could be as high as 3.5 percent, or $136 billion in 2034," PwC added.