Harrison: Transition to digital could dethrone market leaders

The transition of the games industry from traditional packaged goods to digital online products and services could destroy some of the current market leading companies, setting an entirely new landscape for the games business in the coming years.

That's according to Phil Harrison, former Sony Worldwide Studios president and now co-founder of London Venture Partners, a company looking to source funding for innovative online and mobile gaming start-ups.

"This is a fantastic time to start a company. This is a market going through exponential growth, it's predicted to double in size over the next five years," Harrison told the sold-out Games Invest 2010 event in London today - part of the Eurogamer Expo.

"It's also a market going through some challenges, going through reinvention as it changes from packaged goods to an online digital market. And that transition is going to be painful, it's going to destroy value in some companies and create value in others.

"That value creation will come out of the ashes of some of the current incumbent market leaders in the business. I believe that the new leaders of the new economy may actually not yet have been started. The older leaders of the old economy may not make the transition," he warned.

He also noted that as bigger companies struggle to move to digital, the talent in those businesses will be released to work elsewhere, making the new games economy stronger.

"That's a very interesting opportunity if you're looking for talent. These old economy companies are going to shed a lot of talent as they fail to make the transition smoothly from one business model to the other. And this talent release is going to be a great benefit to all of us all around the world," offered Harrison.

The market for boxed product peaked in 2008, said Harrison, and could be declining quicker than previously thought. And as retailers shift to digital services, this will have a snowballing effect on those that commission product.

"This is the consensus from a lot of industry analysts from around the world about the growth of the games industry - if you go back to the market it was a steady growth driven by packaged goods, but in 2008 peak oil had been achieved in packaged goods and this market is now declining. Retailers are looking to replace that lost revenue with new business models and new ways for engaging with their consumers. But all of the growth is going to come form the network-centric business.

"What this will do is accelerate the transition. Once people who make product development decisions start making their own bets about the future of where the industry is going to go, they'll ask, 'why should I invest in a packaged product when I can make a cheaper, more profitable investment in an online product?' That will have a snowballing effect."

New start-ups have many challenges ahead of them, said Harrison, but they can also take advantage of market disruption and he urged new companies to focus on their unique selling points to stand out on the new digital stage.

"There are some really interesting problems to solve in the games industry for a start-up. There's some fascinating formats and platforms, strategic decisions to make, there's some really interesting challenges about how to reach new markets and how to obtain and retain audiences.

"There's also some fascinating issues around competitive positioning and future technology. Do you invest in your technology for today or do you make bets for the future, and how far into the future should you go?

He added: "Every business has something about them that is unique and defendable and has incredible value, and focusing on that is what we believe will unlock the value or your business and make you attractive to an investor."