View from City Road: Video games leap out of the toy department

Video games have come out of the toy cupboard. This sector has grown into a significant industry; witness Sega, the Japanese company which with the giant Nintendo dominates the business. Its profits leapt from 33bn yen to 55bn yen (pounds 320m) last year. Not bad for an industry that barely existed five years ago.

That growth has partly stemmed from the fact that the two companies have had the field to themselves - they were able to take almost half the pounds 1.2bn British toy market last year because computer games were seen as a high-risk, short-term phenomenon with which few big groups wanted to become involved.

The latter are now realising their mistake, not least because the relentless march of technology is blurring the lines between different media. Sega's new CD machine, currently the subject of a long, expensive and baffling television advertising campaign, will play music CDs as well as game CDs. And the company will soon be supplying its games by satellite thanks to a deal with Time Warner and TCI of the US.

Music, video, 'interactive' computer products are all increasingly becoming 'entertainment software', and it is only a matter of time before Sega and Nintendo join the mainstream entertainment industry - or, rather, it joins them.

But while the video-game market seems to have matured into an established sector, the pace of growth is slackening. And selecting the right new products will be a risky business. Hence the huge amounts set to be invested - Sega expects to boost its capital spending to 44.5bn yen this year.

There are other headaches too. The Office of Fair Trading has already said it believes the record industry exploits copyright law to minimise competition. How long before it applies the same logic to video games? After all, it already has an inquiry into video-game prices underway. Winning that battle certainly won't be child's play.