Harrison: Transition to digital could dethrone market leaders

Companies unable to shift to digital will release talent, making the new games economy stronger

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."

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Latest comments (18)

Couldn't agree more. Just look how Apple and Steam are already drastically changing the whay how entertainment is distributed and consumed. Look at Unity, InstantAction etc. to see where the market is going.
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Sandy Lobban Founder, Noise Me Up9 years ago
I think the music industry is a good indicator of the course that the games industry will take. Its essentially the same thing. An entertainment product. The digital economy simply levels the playing field, cuts out/ changes the role of the middle man and opens up the revenue streams for the content creators and people with the good ideas and skills. Lots of game developers will do well out of it, as many musicians have through online exposure on sites like myspace, itunes etc etc, but when it comes to times like christmas, as with the music industry, there will always be a market for hard copies. There's just no fun in waking up on christmas day to a gift voucher.

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Paul Ripley Founder, Phasic Labs Ltd.9 years ago
Hopefully some lessons will have been learnt from the music industry's initial (and to some extent, ongoing) resistance to all things digital!
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Show all comments (18)
Ben Furneaux Principal Designer 9 years ago
Phil's pretty sure, there's going to be some serious disruption in the next few years.
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James Ingrams Writer 9 years ago
When the whole market goes online
practically the whole market will disappear. Music has been around since the start of man and is part of human nature. Gaming isn't. Take away the retail store and you take away the visibility for the next generation of gamers.

Selling 500 million games at $10-20 games will not match a games market selling 300 million games at $60 a pop, because trust me, over the medium term people are not going to pay the same for digital code as thy would for hard copy.
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Sam Cobley Director, Undrawn Reality9 years ago
Everything I have read and seen in the last 5 or so years all points towards this future. Digital distribution is the way forward, power to the developer rather than bloated publishers who take all the hard earned profits.
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Daniel Forslund CEO/Producer, Trino Creative9 years ago
I fully agree with Sandy that the games industry will take a similar path to that of the music industry. This includes a massive influx of developers and games through accessible tools such as Unity. The ever increasing challenge will therefor be to gain the attention needed to make a profit. Compare to the music business of today: a few acts (Lady Gaga etc.) make massive amounts of money due to heavy backing and marketing, but there is a big middle-class of musicians struggling to break even.
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John Kauderer Associate Creative Director, Atari9 years ago
He's right about the move to digital and sorry to be so blunt, but isn't that kind of obvious? What I'm not so sure about the great shift in super powers. Take a look at some of the top publishers and how quickly some of them have adapted already to digital platforms. Iphone, Ipad, Droid etc... At the same time the evolving landscape of the digital space has opened up the door for bedroom coders and games like Minecraft to make massive waves. Demand for big blockbusters should keep the big publishers in biz even if portions of the new market are gobbled up by clever small studios or individuals.
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Lisa Ohanian9 years ago
Some of the big publishers will stay, obviously, but I don't think it's odd to think that the market will be a lot more turbulent through this chance, and that SOME of them won't make it. My understanding of the article was that unprecedented change would happen -- not necessarily a complete overhaul.

Also, I respectfully disagree with you, James. PC and console gaming may not have been around 'since the start of man', but entertainment has, and games of some variety have certainly been around for a very long time. This is the latest incarnation, and while it may not last forever, I see no reason why it would peter out before gaming is already prepared to transition into some other form.
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Tim Carter Designer - Writer - Producer 9 years ago
Replace one idol with another - replace "packaged goods" with "online". It's just a different idol. Still thinking of idols instead of underlying value creation.

What would be significant is when they say they are going to start focussing on the creative and conceptual vision instead of just on the delivery medium.

A bad game on online is still a bad game. A good game delivered through retail is still a good game.

Edited 1 times. Last edit by Tim Carter on 1st October 2010 9:04pm

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Martyn Brown Managing Director, Insight For Hire9 years ago
We got stares when we said all this stuff 2-3 years ago. Change and momentum takes time, the big boys just aren't agile enough.
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Hendrik Van Iterson Chief Technology Officer, Micromedia9 years ago
- Don’t cut but think first –

funny when people talk about digital distribution that 'the-man-in-the-middle cutout' always pops up.

My experience the last 10 years in music, video and today in digital game distribution is that when there is a big shift – like what is happening the last year - in an important industry, companies with real expertise and trustworthiness are needed big time.

What I mean by that is when new opportunities arise and traditional companies are looking for guidance and solutions to enter this new digital era also cowboy Wild West companies jump in the playfield and promise the world and don’t deliver up to their promises. Or in the case of the music industry stole from the publishers by massively not reporting sales and not paying their margin.

A trustworthy man in the middle - which offers services as an a la carte menu where companies can choose from and during the course of their partnership can add and remove services - can be a very valuable partner in the eco system, value chain or whatever the lingo is in your company.

Have a great weekend and feel more than welcome to email me or follow me on


Edited 2 times. Last edit by Hendrik Van Iterson on 2nd October 2010 2:54pm

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Max Priddy9 years ago
I'm split on this, especially as if everything goes digital and publishers start getting completely removed from the picture then the retailers start to disappear no doubt. I mean yes I love digital downloads, not having to leave my house, paying less etc. but sometimes none of that beats a physical copy of a game that you can hold in your hand, especially if it's a swanky collector's edition box with -physical- bonus content, and not withheld game content for example.

I don't want to see retailers like Gamestation etc. to disappear, but with the competition coming from not only digital retailers like D2D and Steam as well as supermarkets like Tesco undercutting them to like £25 per title, there really needs to be more of an incentive to purchase new from a shop than the fact you get a physical copy of the game, maybe a complete manual you don't have to print out the rest of if you're lucky (yes, I take the time to read through them! :o).

Edited 1 times. Last edit by Max Priddy on 4th October 2010 12:40am

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Ben Furneaux Principal Designer 9 years ago

"none of that beats a physical copy of a game that you can hold in your hand, especially if it's a swanky collector's edition box with -physical- bonus content"

That's quite subjective, many people do not want physical media at all, especially collectors editions filled with junk. You also have to remember that there's also a generation growing up now that will never use physical media. It's antiquated and adds a needless layer of inaccessibility for many.

You could argue that broadband penetration is not deep enough (lol deep penetration etc) but with companies like BT announcing that 90% of Cornwall will have 50MB fiber in the next few years it becomes more conceivable that a digital future isn't that far away.

EDIT: It's also up to us to ensure that consumers who do like the 'tangible experience' are satisfied with digital offerings with virtual shelves displaying your purchased content in a cool and rewarding way. If done properly (something I am personally working hard on achieving) then I think as UX designers we can transcend the ownership of physical media :)

Edited 1 times. Last edit by Ben Furneaux on 4th October 2010 10:13am

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Harrison is obviously right when speaking about a move from packaged goods to online distribution, we all heared about this for the last decade...

But here I'm mostly seeing a man who is taking the opportunity to promote his very own new business : "London Venture Partners, a company looking to source funding for innovative online and mobile gaming start-ups" ! :)

Well done Mr Harrison !
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Andrea D'Orta9 years ago
Cant agree more with you Stephane. I didnt persoanlly attend the conference but what I read here it sounds like a nicely crafted piece of corporate marketing.
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Callum Brighting Programmer, Headstrong Games9 years ago
@ Ben, a digital shelf would be really cool. No lists like Steam or my windows Start button, a fully 3D shelf that I can customise and move stuff about in. Similar to the I-tunes album layout, only much more realistic. I'd like to be able to have it in a mess, and then spend an hour organising it :-)
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Well. most of these lectures to a large extent are self serving whilst offering some grains of truth from their market experience.

Overall I suspect whilst retail pre packaged goods will be diminished, it wont be annihilated as implied. Sure, digital distribution will increase and grow and much like the Console vs PC sales, there is still some time to wriggle and navigate the uncertain tumultuous game industry.

As the 1C boss Nikolay Baryshnikov mentioned: "my honest belief is that, in the games industry, nobody has a clue, why that product is successful and that product is a failure. You can do everything right, you can have a proven IP, you can have a great marketing budget, a great game – but nobody buys it. Or you can have a game which the press say is worst game ever, has 10 per cent rating and sells like hundreds of thousands of units, day one. "
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