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How The Shift To Digital Could Dethrone Market Leaders

As the gaming industry transfers to the digital economy how will market leaders adapt as smaller studios seek publishing independence?

In a recent article on, GI took a look at the current digital marketplace and how the change 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.

Or at least that’s how Phil Harrison, former Sony Worldwide Studios President sees things playing out. Harrison is now founder of London Venture Partners, a company looking to take advantage of the digital market by sourcing funds 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 – 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 forewarned.

Harrison also believes that if bigger companies struggle to move to digital, that talent in those businesses will likely seek greener pastures and work elsewhere, making the new digital games economy all the more robust.

“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.

Harrison went on to add that the boxed product peaked in 2008, 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, said Harrison.

“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.

Challenges and opportunities lay ahead

New start-ups face numerous challenges head of them as the industry makes the transition into digital. But as Harrison points out, they can also take advantage of market disruption by focusing on their unique selling points to help differentiate them and stand out in a new digital stage. As the digital games marketplace continues to evolve and grow, it will be interesting to see how new start-ups and established businesses take advantage of formats and platforms to retain audiences and reach out to consumers as they all jockey for market share in the new digital economy.

“a lot of time and energy goes into the publication process, and that energy should be going to the creative process.”

Much of what Harrison alludes to is already transpiring today. One example would the Worms developer Team 17, who at the end of August, decided to ditch the third parties that published their games at retail, and moved to an entirely digital means of distribution – with absolutely no ambition to return to retail publishing. Not surprisingly, Team 17 is not the only studio to take this step. Telltale Games, the developers behind Tales of Monkey Island as well as the upcoming Jurassic Park and Back to the Future games, is one of many other studios that are turning to digital distribution seeking publishing independence.

Keep in mind; these indie studios aren’t producing the AAA titles that require heavy retail distribution and $60+ price tags.

In Telltale Games’ case, this new business plan caters nicely to their distribution schedule, which takes place primarily through the release of “episodes”-games that are released gradually in smaller installments. In his interview with ShackNews, Telltale Games’ CEO Dan Connors remarked that the nice thing about self-publishing and the digital marketplace, is that it affords himself and his team to actually work on the games instead of  “sitting around creating a document to pitch to your upper management so they’ll green light some money” for an episodic distribution.

This struggle is nothing new; creative’s and publishers have engaged in a tug-of-war battle against each other since the distribution of creative content first began. One has a vision to realize, and the other must determine if people will care enough about that vision to pay money for it and earn them a profit.

The Brave New Economy

Perhaps this is what Harrison was referring to when he spoke about an entirely new landscape where market leaders are dethroned.  No doubt the greatest blessing the new digital market provides is that it affords smaller studios publishing independence and gives power to those who were previously forced to engage in the uphill battle of the traditional packaged goods retail against industry behemoths. In the digital market, the playing field is leveled and studios no longer have to deal with constricting middlemen publishers. Connors proclaims, a lot of time and energy goes into the publication process, and that energy should be going to the creative process.

As Game Theory points out: the games industry is only just gaining wider access to self-publication, and studios are going through the same learning process as an author. In some instances, self-publication is the way to go. But for wider distribution and marketing, other developers are going to want to stick with the behemoths. Either way, options are good.

One place we can look to for an indication of future course that the games industry will take as it shifts to digital, is the music industry.  Both industries provide entertainment products. As mentioned before, the digital economy simply levels the playing field by cutting out or changing the role of the middleman and opening up revenue streams for the content creators. Case in point – The Humble Indie Bundle.

Regardless of how the shift to the digital economy effects studios and publishers; when it comes to events like Christmas–as we’ve seen in the music industry–there will always be a market for hard copies, as there are those people who don’t see the fun in waking up on Christmas day to a gift card or redemption code.

For more DLC news and info you can follow me on Twitter @The_GeekJock

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