The Government was unhappy with the structure of the MediaLab deal, writes Jamie Smyth
The demise of MediaLab Europe is not entirely unexpected given the scale of the research institute's financial crisis but it is a blow to the Republic's reputation as a technology leader.
The MediaLab brand is well established on a global scale and the Dublin-based institute has attracted the attention of firms as diverse as the BBC, the mobile firm Orange and Intel. The founders of Google, Larry Page and Sergey Brin, recently paid a visit to its headquarters in the Liberties and there is little doubt that its free thinking style complemented the more commercially focused Irish university sector.
However, in the aftermath of the bursting of the technology bubble in 2000 there was simply no way the original business model, which relied purely on corporate sponsorship to meet running costs, would work.
And with few concrete "research world firsts" created in its first five years of operation, finding new sources of finance was always going to be extremely difficult.
Last year The Irish Times revealed that MediaLab Europe had asked the State for €9 million to keep it afloat.
There was also a realisation by Government that the institute would probably have to make future cash calls on the State.
Having already invested €35 million in the MediaLab, which is also the anchor tenant of the much larger "Digital Hub" project, the Government faced an awkward decision on the flagship project's future.
This decision may have also been complicated by the pioneering role the Taoiseach, Mr Ahern, played in bringing the MediaLab project to Dublin.
Documents released under the Freedom of Information Act show the Government supported the project despite being warned that "there would be an expectation that the State would fund the ongoing operation of MediaLab Europe should corporate sponsorship fail to materialise on the scale projected".
This memo, which was written by the then assistant secretary of the Taoiseach's department, Mr Dermot McCarthy, was stamped as "seen by the Taoiseach". Despite the warnings, the funding was allocated on the basis that no Irish institution could provide the expertise or international brand name of Massachusetts Institute of Technology (MIT) - at least not in the short term.
But if it was just a question of providing extra finance MediaLab Europe may well have survived.
However, the Government was also unhappy with the structure of the 10-year deal it signed with MIT back in 2000.
A secret Government report on MediaLab Europe drawn up by consultant Mr Tom Higgins is understood to have criticised strongly governance at the research institute, which had three chief executives in its first four years of operation.
It also pinpointed the board structure, whereby MIT and the State appoint an equal numbers of directors, as an issue that would have to be renegotiated with the US college authorities.
Negotiations over these "governance issues" between the MediaLab's other stakeholder, the MIT, dragged on for almost two months between the Minister for Communications, Mr Dempsey, and MIT chancellor, Prof Phil Clay. But with no final agreement coming yesterday, the MediaLab Europe board made the decision to wind down the operation.
The Minister for Communications pledged yesterday to create a new "more commercially focused" digital research institute with an annual budget of €3-4 million. This is unlikely to ever command the international prestige of the MediaLab Europe project but it would give the "Digital Hub" project a boost.
About 40 technology companies have relocated to the Liberties under a State project that has cost €120 million so far. However, negotiations to appoint a private firm to redevelop land in the Liberties to move this project forward have dragged on for almost a year without any Government decision.