VOLUME 1, ISSUE 1; NOVEMBER 21, 2003

STATE OF THE INDUSTRY Last holiday season, the videogame it’s extremely unlikely that the holiday sea- part, this is an industry at a crossroads, just industry was filled with hubris. It was as if son will meet high early-in-the-year expec- beginning to confront such enormous chal- the people selling videogames were taking tations, which analysts are now lowering— lenges as generating successful online busi- their cues from characters in the Grand again. Early-year expectations of modest ness models and getting the most out of the Theft Auto series. A year later, the pendu- growth have been replaced by sobering remainder of the current console cycle. lum has swung hard to the other side. sales figures: NPD Funworld reports that, “Everything is fine in the game business despite being the leader in console sales, An industry at a crossroads is an industry except for one thing,” a regional buyer for PS2 sales last month were down 37.6 per- that needs an authoritative source of infor- one of the country’s largest electronics cent from the year before. Total hardware mation and analysis. Ziff Davis Media’s chains said during Columbus Day weekend. sales are down 16 percent from one year Gaming Industry News aims to be that What’s that one thing? “We’re all gonna ago. Software sales are somewhat more source. This monthly newsletter, comple- die,” he said. encouraging, in part because September was mented by weekly e-mail updates, will look packed with new releases. Leading that closely at the crucial issues facing the indus- Then he laughed. “I don’t really mean charge is, of course, EA, which just try and both their long- and short-term that,” he went on, “but this is going to be announced that net revenue is up 17 per- ramifications. Gaming Industry News is tough when you compare it to last year.” cent compared to the same quarter last year. intended to give readers the tools you need Indeed, analysts have come to a consensus to succeed in a business that is full of more that 2002 was the peak of the current hard- The industry is entering a period of con- trash-talking, surprise, and opportunity ware cycle. Buyers and analysts tell us that solidation. Vivendi Universal Games, left every day. Thank you for joining us. ■ PlayStation 2 console sales are down more out of its parent company’s NBC deal, than one-third off 2002’s torrid pace. Xbox needs a new owner if it’s going to thrive TABLE OF CONTENTS sales are also down, though less so, and the even in more modest form. VU’s plight is only reason GameCube sales are looking symptomatic of many software houses: It up, at least in the short term, is because had to cancel a long-promised Tolkien- SELLING VIVENDI Nintendo just cut its price by one-third. estate-licensed Lord of the Rings game in Who’s going to buy the (former) media There isn’t much buzz about holiday games part because it would have been up against giant’s games unit? (with the revitalized Prince of Persia one of a movie-licensed omniplatform Return of PAGE 2 a handful of huge exceptions). Retailers and the King juggernaut to which EA has the analysts predict good things for the usual luxury of devoting more than 100 people. BUNGLING BUNDLING suspects—such as the Grand Theft Auto Competing against EA in videogames is As Nintendo and ATI have learned, they're combo packs for PS2 and Xbox, the latest becoming like competing against Microsoft far from a sure thing anymore. Lord of the Rings game from Electronic in PC software. Arts, and SOCOM II—but some of the sea- PAGE 3 son’s most highly anticipated games, like VU is far from alone. Eidos is abandon- Half-Life 2, have seen their ship dates slip ing development for the moribund LORD OF THE BRANDS to next year. GameCube, but it has problems of its own, Electronic Arts knows how to make its changing in-house development groups in licenses last. It’s bad, analysts agree, but it’s only hopes of saving its sagging Lara Croft fran- PAGE 5 “we’re all gonna die” bad if you compare it chise, a once-great brand smacked down by to last year. Those who appreciated that last lousy games and lousy movies. Nintendo’s SONY’S CONVERGENCE year’s holiday season was a once-in-a-cycle GameCube problems have been offset by its event knew this was coming. As this holi- Game Boy monopoly, but the handheld- PLAY day buying season hits high gear, you don’t gaming business is about to get much more The PSX and the coming war with Microsoft see many gaming executives dressing as competitive thanks to Nokia, Sony, and PAGE 6 Santa Claus. As Electronic Arts CFO others. There are still some sure things in Warren Jenson puts it, “There’s going to be the business—Enter the Matrix shows there TOO SOON TO VERIFY some road kill. There are going to be people are some brands so strong that even ragged The hottest industry tips, unfiltered who are not going to make it.” Hardware gameplay and a host of high-profile bugs PAGE 11 and software sales trends are troubling, and can’t hold them back. But, for the most Who Should Buy Vivendi Games? We look at the possibilities and suggest the best new owner

Earlier this month, Vivendi Universal will be in excess of $5 billion next year— announced that its VU Games unit was no even after the transfer of many of its WHY VIVENDI longer for sale. Don’t believe it. The former entertainment assets to General Electric KILLED BILL utility company sold Houghton Mifflin late is complete. last year to a consortium of private invest- The biggest action movie this month, in ment funds after company officials publicly So, who would want VU Games? Here terms of both buzz and box office, is the indicated it was not for sale. And unlike the are the predictions we’re hearing: first installment of Quentin Tarantino’s Vivendi music division, also said to be Kill Bill. Most big-budget action films withdrawn from possible sale, the games ■ It won’t happen right away. Rumors business, although consolidating, is experi- run rampant that large job cuts are coming, nowadays arrive hand in hand with big- encing nothing similar to the free fall and it’s unclear whether those layoffs will budget videogames, but not Kill Bill, afflicting the music business. bring with them a shift in internal struc- despite Black Label Games, a division of ture. If current costs are high, why not wait VU Games, having signed a deal last We spoke to analysts, competitors, and for the current owners to deal with them year to make and market one. Vivendi executives current and departed. first, as is inevitable? Tarantino’s core fans—young adult males All but one agreed that VU Games is still with a love for violent entertainment very much on the market, although the cur- ■ VU Games may follow the lead of rent offers for the division, reportedly rang- VU corporate. Just as Vivendi is selling and junk culture—are exactly the sort of ing from $700 million to $900 million, are sundry assets to different buyers in the people who pay $50 for videogames. less than the $1 billion the French newspa- hope that doing so will generate more cash, Why is there no game for them? per Les Echos reports the current manage- VU Games will look for its strongest prop- ment is asking for. erties to perform best separately. Blizzard, According to two sources at VU Games, home of WarCraft and Diablo, was fre- the decision to build the game was Two executives familiar with the negotia- quently mentioned as a division that tions confirmed that VU Games’ suitors “would be the subject of a bidding war,” as vetoed by a “new corporate green-light have included strategic investors, other was Sierra Entertainment. Both EA and system.” Despite the demographic game companies, and at least one combina- Microsoft are reported to have indicated match, the execs up top “simply did not tion of the two. These potential acquirers their interest, so that bidding war may be believe that a Kill Bill game made sense have been brought in by different Vivendi underway already. Perhaps this is what for the company. It’s just another exam- entities—some by the North American divi- Fourtou means when he hedges that VU ple of the new centralized structure sion, some by its international headquar- Games isn’t for sale, but he is still pursuing making it difficult for the individual stu- ters—and one executive tells us, “North “strategic maneuvers.” America and international are each desper- dios to go about their business without ate to bring in their own team because each ■ If it does go as a unit, don’t getting micromanaged. You want to side thinks that if they bring in the buyer, assume a game company will be the know why there’s no Kill Bill game? It’s they will be in control.” buyer. If Vivendi wants to quickly get out because corporate wants everything at of the videogame business altogether, it will the company to be top-down. They want Those at VU’s corporate office in France sell to an investment group that will sell off control.” If so, they’d better extend that say not to compare VU Games to the bits and pieces itself. The presence of Houghton Mifflin. “We had to sell assets Blizzard and a handful of other key assets control to the vugames.com website, very quickly then,” one source says. “We raises the valuation of the whole unit. where Kill Bill is still listed as a 2Q were struggling for life. There’s no liquidity 2004 release. A company spokesperson crunch now, so we’re in no rush.” ■ One way or another, Electronic was terse on the topic, saying nothing Arts wins. The powerhouse knows how to beyond, “I can confirm that our compa- Nonetheless, it’s a tough season for most maintain franchises (see related story, page ny does not have a game in development game makers, and Vivendi corporate has 5). As one VU Games exec puts it, “We got at this time.” given every indication of wanting to reduce the reputation of releasing a lot of buggy, its remaining debt by shedding the media mediocre games because nothing was properties associated with the era of former allowed to bake.” Although EA looks at and make sense out of Vivendi’s many chief executive Jean-Marie Messier. A sale each quarter as obsessively as any other brands—either one division or a whole, even at a reduced price would put a dent in game company, with a $15 billion market either directly from VU Games or via an the company’s debt, which current chief cap, it has more freedom than any other investment group—and then not let a game executive Jean-Rene Fourtou has estimated major player (except Microsoft) to digest out of the oven until it’s done. ■

2 gaming industry news November 21, 2003 SIX BIG QUESTIONS Not a Sure Thing SIMON JEFFERY, LUCASARTS Bundling games with hardware can help both sides, but choose your Each month in Gaming Industry News, we’ll ask an industry insider six big questions partner carefully By Dean Takahashi about where the business is going. This month, we turn to Simon Jeffery, who just You’d expect THQ Chief Executive Meanwhile, GameCube console sales stag- stepped down as president of LucasArts. Officer Brian Farrell to like bundling. His nated and Nintendo had to call an embar- Q: WHAT IS THE HOTTEST TREND COM- company, after all, has scored deals with rassing halt to GameCube production in ING UP IN GAMES RIGHT NOW? both Sony and Microsoft in which his August. Only when Nintendo cut the price Quality finally being introduced into IP games will be distributed with every of the console to $99 did console sales pick gaming. EA and Activision are rewriting PlayStation 2 (Combo Pack version) and up again—although even that didn’t stop the rules here, and it’s no bad thing. To Xbox sold this holiday season. (Sony is Nintendo from having to reinstitute the really hit mass market, the industry needs every “game of the movie” to be as good bundling ATV Offroad Fury 2, while Zelda bundle. as the movie property itself. Microsoft is distributing Tetris Worlds.) You’d expect consumers to like bundles, Why did Nintendo go forward with a Q: What trend has peaked, but people too: It gives them a free game without bundle that hurt Zelda sales? George don’t really know it yet? increasing the price of the hardware. Harrison, senior vice president of marketing Wireless gaming. at Nintendo of America, says the company Indeed, bundles can be a good deal for needed a promotion to lift console sales, so Q: What will it take for online and wireless games to go mainstream? publishers. James Lin, an analyst at the it introduced the first bundle of a free game A few more games like Star Wars Galaxies Simba Group, says publishers accept any- in February. In May, it added a free Zelda are about to be what takes MMOs to the where from $1 to $5 per bundled unit to game, and in June it added a Game Boy masses. But why people are so excited include their games with consoles. With new Player option. Those promotions, he said, about wireless gaming is simply beyond games, the fee can reach $20 per unit. let Nintendo postpone the foreseeable con- me. Today’s gamer is sophisticated and THQ’s Farrell says that bundles are attrac- sole price cut until the fall. It was a defen- demanding. Wireless gaming is neither. tive to publishers because they generate sive move, intended not to lift console sales Q: How should game companies behave close to the net proceeds that the publisher but to hold off for a season an inevitable differently in the latter part of a console would have received selling the game at price cut for the third-place console. cycle than they did early on and at the retail. After factoring in retailer’s profit, peak? console royalties, cost of manufacturing, When it comes to bundles, hardware They won’t. Just sit back and watch. Many marketing, and shipping, perhaps $5 profit makers can suffer at the hands of software will make the same mistakes, and there will be blood on the walls. We will, however, see remains on a $20 game. Plus, there is no makers. Graphics-chip maker ATI thought it reduced risk: less creativity, more licensed risk of returns, which typically accounts for had scored big when it announced it had product, and near-100-percent reuse of 2 percent of retail product. paid $6 million to bundle Valve’s Half-Life existing engines. 2 with its new DirectX 9.0–compliant Farrell declined to say how much THQ graphics chips. Q: How can companies keep costs down on will receive in the Sony and Microsoft deals, game development without shifting all the although he countered Lin’s assertion that Shortly after ATI announced the deal, work to Belarus? Games are beginning to cost too much to $5 per unit was the top of the usual Valve admitted that the game would be late, build, and one day, the business model will bundling range, saying it was more like $7. and, even worse, hackers had broken into stop making sense for all but a small Valve’s computers and stolen the code for minority. The economics of game develop- For the console makers, the right bundle the game, which soon appeared on the Web. ment and publishing have to be re-evaluat- can open new markets. Mitch Koch, vice (The game still would have been late with- ed at pretty much every level. president of retail sales and marketing for out the theft.) Q: You’ve had the opportunity to shepherd Xbox, says Microsoft wants to expand the one of the great brands of our generation. reach of its Xbox console to casual gamers. ATI said it would offer a coupon in the What would you recommend to game So, for its bundle, it chose titles that box that buyers could use to get the game at developers trying to maintain a strong appealed to broader audiences. a later date. Valve, however, indicated that long-term brand – and what would you tell the game would be delayed as long as seven those starting with a new wanna-be NINTENDO BUNDLE LOSES SALES months. To make the wait easier for con- brand? Focus on quality and the right genre. We Nintendo didn’t benefit when it bundled a sumers, ATI is making a number of other learned a lot at LucasArts over the last free game with its GameCube console dur- Valve games available, including several iter- few years about what does and doesn’t ing the spring and summer. Retailers felt ations of the original Half-Life. The lesson work in IP gaming. We learned that even that including The Legend of Zelda: The of this bundle for ATI: You may think though the industry thought Star Wars Wind Waker in the bundle hurt sales of you’re hitching yourself to a rocket, but you gaming was dead, if you build the right Zelda because the game was a hit that don’t have control over when—or if—your product in the right genre, gamers will buy would have sold well without bundling. product will take off. ■ in huge numbers.

November 21, 2003 gaming industry news 3 Will the U.S. Game Industry Be Fried by the French? In the first of a series on how various governments are helping or hurting their local game industries, we visit Marseille By John Gaudiosi

Traditionally, Paris has been the center of than 250 employees, support one-third of the French gaming business, much as the costs of start-up investment. A training SWEET EXPORT California has been the U.S. gaming head- subsidy covers 50 percent of the training France accounts for only 5 percent of the quarters. But things are changing, thanks in costs for employees for up to three months. world’s videogame consumers, but the large part to the provincial government of Each company is also assigned, at no country’s game publishers (such as Vivendi Marseille. With more than $3.5 billion (3 charge, a project manager, who will help Universal, Ubisoft, Atari, Titus, and LSP) billion euros) invested, redevelopment of with all the necessary arrangements from sell 20 percent of the world’s games. Marseille’s port began five years ago, turn- local networking to moving. ing run-down warehouses into state-of-the- the subsidies, French game companies con- art modern office buildings in a 766-acre Companies are already taking advantage tinue to build studios outside of France. section of town. It’s the biggest economic of these incentives. European videogame Ubisoft recently used a studio in China to development project in France. The Belle de publisher LSP (Light and Shadow do a low-cost porting of Splinter Cell (from Mai Media Center opened this fall, offering Productions), which makes licensed games Xbox to PS2), and we have seen a rise in 300,000 square feet of office space, half of based on Vivendi’s Sitting Ducks and the studios from former Soviet Union coun- which is dedicated to videogame, Internet, animated Mummy series, as well as the PC tries, where costs can be significantly lower and multimedia companies. version of Namco’s Dead to Rights, recent- than France and other western countries.” ly moved its headquarters from Paris to “So many media companies today are using the same technologies for film and A REGIONAL DEVELOPMENT GRANT TV as they use in videogames that it makes OFFERS A COMPANY $12,635 PER JOB strategic sense to bring all of these indus- CREATED. tries under one roof,” said Philippe Stefanini, director of the Euromediterran- ean Project, the entity overseeing the Marseille. The provincial grants and French game makers still face cultural revamping of the port district. investor incentives helped the company hurdles separating them from the U.S. and “Videogames are a good, strong link raise $5 million while lowering its operat- U.K. markets. Aside from Ubisoft’s between TV and film production and multi- ing costs by two-thirds by moving its oper- Rayman franchise, few French-developed media talent.” ation to Marseille. games have succeeded outside of Europe. “What you’ve seen in the U.S. from French The Marseille government is making the COST IS THE ENEMY game developers is a small fraction of the area attractive by offering a variety of tax “Anything that helps publishers lower the games made here, because the gameplay incentives and monetary assistance. A cost of game development through subsidy wasn’t good enough for the U.S. and U.K. regional development grant offers a compa- or use of studios in low-labor-cost regions markets,” said Stephane Baudet, head of ny $12,635 (11,000 euros) per job created. is a good thing for the game industry, not Lyon-based (and Atari-owned) Eden SME Development Fund investment grants, just in the U.S., but worldwide—provided Studios. which apply to any company with fewer that the quality of the games is high enough,” said Simon Price, analyst for France won’t be another Japan quite yet. BLIZZARD TOSSES International Development Group. “The Japanese developers have been successful in CHEATERS key problem in game development for cur- the U.S. and U.K., despite the linguistic rent- and future-generation platforms is the barrier, because they have been able to ■ Number of WarCraft III accounts closed rapidly increasing cost of content creation. prosper in a large domestic market, with for cheating: 12,000 As long as truly talented developers with the most exportable Japanese titles migrat- ■ Number of Diablo II accounts closed for the ability to create games for global mar- ing to the West. France doesn’t have that cheating: 13,000 kets can be encouraged to thrive in built-in market. But the influx of money ■ Number of CD keys banned from Marseille, the game industry will welcome and new talent into Marseille could start to Battle.net for one month: 7,000 the opportunity to take advantage of the bridge the cultural gap that has kept French ■ Number of CD keys banned from talent pool.” developers from breaking into the North Battle.net permanently: 1,000 American marketplace. At the very least, UBS videogame analyst Mike Wallace Marseille’s experiment is a model other Source: Blizzard isn’t so optimistic. He notes, “Even with local governments may wish to consider. ■

4 gaming industry news November 21, 2003 What’s in a License? EA makes licensed franchises last By John Gaudiosi

When the latest installment in a game “There’s more art than science in mixing ate Lord of the Rings and EA with quality, franchise moves 2 million units and grosses the right blend of gameplay, game design, and that’s the way to keep the game fran- $100 million during the first three weeks and a Hollywood license,” says John chise alive even after the movies are over.” of its release, you know the company Taylor, an analyst at Arcadia Research. behind it knows how to sustain a brand. “But when you find the right combination Young maintains, “You have to think of Electronic Arts did just that with Madden of license, audience, and gameplay, you every game as a potential franchise. The NFL 2004. A look at what EA is doing can create an upside boost.” only reason to move on after one game is with Hollywood licenses for Harry Potter if it wasn’t successful enough to want to and The Lord of the Rings shows that the A strong Hollywood license, like The make a sequel.” ■ company makes franchises last by develop- Matrix, can propel even a roundly ing each one in a unique manner. slammed game, like Enter the Matrix, into the stratosphere. Despite nasty reviews, the EDITOR-IN-CHIEF “Electronic Arts looks at every movie game has sold more than 1.5 million units Jimmy Guterman deal they make as a multi-title license that in the United States and another million [email protected] it can exploit as a game franchise,” says copies worldwide. By the end of the year, P.J. McNealy, an analyst at the American analysts expect Atari to sell all of the 4 Technology Research. “This November’s million units it has shipped. Although, ZIFF DAVIS MEDIA Harry Potter: Quidditch World Cup is an some predict it will take discounting to get 500 UNICORN PARK DRIVE interesting example of how to use an ele- there, and one can argue that a Matrix- WOBURN, MA 01801 ment of a movie license to grow the fran- licensed game should sell far better—and it 781-938-2639 chise in a year when no movie is hitting would have, had it been a better game. By theaters.” the time Madden NFL 2005 hits stores ART DIRECTOR: Jason Babler next August, EA is likely to have sold 4 By signing the multiyear licensing million units of this year’s installment at agreement for both the Harry Potter $50 a game. Once a licensed game proves COPY DESK: Tom Edwards, Greg Ford, books and movies, EA has been able to it has staying power, it’s hard to knock it Maritza Refuerzo develop games without relying on the from its perch—unless, as with Lara Croft, films’ actors or assets. The company has it has been subjected to a series of increas- PRODUCTION: Carlos Lugo, Michele sold nearly 5 million units of Harry ingly lame sequels. Ask Sega, whose ESPN- Manousos, Anne Marie Miguel Potter and the Sorcerer’s Stone and Harry branded football game has scored more Potter and the Chamber of Secrets in the enthusiastic reviews than EA’s Madden but United States alone since fall 2001, has sold far less. Perhaps only Madden’s CIRCULATION DIRECTOR: Chris Wilkes according to the NPD Group. This death could hurt this franchise—and one [email protected] approach is particularly appropriate, since suspects EA is working on a plan to deal the child actors in the films are getting with that, too. ZIFF DAVIS GAME GROUP older and will be replaced midseries. SENIOR VICE PRESIDENT: Dale Strang EA REVEALS ITS SECRETS PUBLISHER: Lee Uniacke WHEN TO USE THE ACTORS How can EA do all this? “With a huge Taking a different approach with The Lord team,” says Neil Young, vice president and EDITORIAL DIRECTOR: John Davison of the Rings movie license, EA utilized the executive in charge of production at EA, BUSINESS DIRECTOR: Cathy Bendoff actors’ likenesses and voices, as well as the whose main responsibility over the past soundtrack and digital assets from the few years has been managing the Lord of Copyright © 2003, Ziff Davis Media, Inc. films to completely obliterate Vivendi the Rings business. “The team I managed All rights reserved. No material in this Universal’s The Lord of the Rings games, for Return of the King was 30 to 40 per- publication may be reproduced without which were based on J.R.R. Tolkien’s liter- cent larger than the Two Towers team, written permission. Bulk orders, reprints, ary works. EA’s The Two Towers outsold which was itself twice as large as any other Vivendi’s The Fellowship of the Ring 1.8 project team I worked with. Once we and site licenses are available. million to 750,000 across all platforms in understand the center of a game, we Subscriptions cost $995 per year. Visit the United States. (This may have played a deploy resources to maintain quality and http://www.gamingindustrynews.com for role in Vivendi’s recent decision to remove hit a release window. Other companies our best subscription offer. Gaming one of its Tolkien titles from its fall line- think license is all that matters and then Industry News is published monthly by up.) And EA is readying a movie-related underinvest on development. We overin- Ziff Davis Media Inc., 28 East 28 St., title for release next year, even though vest. In the long term, deploying all those there’s no new movie coming out. resources will mean customers will associ- New York, NY 10016.

November 21, 2003 gaming industry news 5 Does PSX Matter? It’s not a gaming device, but it does pit the two leading console makers against one another in another arena All Sony wants to do next year is kill in consumer electronics. In time, Sony will CHEAPER IN ONE BOX Microsoft. make sure consumers learn what it does. As a northeastern Best Buy buyer put it, PSX may seem pricey, but compared Last month’s unveiling of Sony’s PSX “Right now, it’s the same old stuff on our with components purchased separately, prototype—a digital video recorder plus shelves: last year’s components at a lower it’s a bargain. gaming machine—shows that the company price. The PSX has a shot at opening new is running hard against Microsoft, which in lines for us. Anything that creates excite- ■ TiVo: A unit costs $199 to $299, September released another version of its ment is really welcome. And if you follow plus a $12.95 monthly subscription fee. media PC. Neither device is primarily a Sony’s history of hardware introductions, I The company is currently offering a gaming box, but PSX in particular gives the doubt the PSX will stay a high-end-only $50 rebate on both models. gaming industry a hint of what the next item for more than a season or two.” But a generation of converged devices, if not the buyer for a rival chain warned, “The PSX ■ PS2: $179 next generation of consoles, will look like. looks like it might be another TiVo. The people who have it say it’s the best compo- For the gaming business, PSX is a curi- nent they own. But not that many people ■ DVD player/recorder: Prices vary. ous piece of hardware. It’s too expensive to own it. I wonder whether the PSX, which is Sony’s RDR-GX7 DVD recorder costs be marketed as a game console, but if you sort of a TiVo on steroids, might be like a $649 on Amazon.com; other brands, add up the value of its various components TiVo. It’s unbelievably useful for those who like Panasonic, are as much as $200 (recordable DVD, television tuner, large need it, but it doesn’t look like that many less. internal hard disk, PS2, and TiVo function- people really need it.” ality), it’s quite a bargain for those high- ■ end consumers who would have bought the PSX isn’t party to the next generation of 250GB hard drive: A popular model, components separately (see accompanying console wars since it plays only current- the Maxtor S01J250, is available for box). generation games, but it does provide some $299 on Amazon.com. tantalizing hints regarding what sort of That’s a relatively small market, though, functionality consumers may expect from TOTAL COST OF COMPONENTS SOLD and analysts fell over themselves the day of the next-generation of game consoles, SEPARATELY = $1,076 the PSX announcement to say it’s too whenever that may be. Where will a gam- (assuming purchase of a less-expen- expensive for the masses. There was also a ing device end and a broader entertainment chorus stating PSX would create confusion device begin? sive-than-Sony recordable DVD and a because it does not fall into any existing low-end TiVo, including $50 TiVo rebate home-entertainment category. If Sony indeed wants to edge Microsoft and not counting monthly TiVo fee) out of the living room, the best way is to All this would be problematic if Sony ensure that convergence in the living room The high-end Japanese PSX, the DESR- were intent on world domination through comes with consumer electronics, not com- 700, will retail for the equivalent of the first-generation PSX. puters running Windows, as the center. The $907. A lower-end device, with a last thing a consumer wants to see when 160GB hard drive rather than a 250GB But this Swiss Army knife of a home- turning on the television is a Windows entertainment device is clearly intended to error box. Microsoft will have to work one, will sell for the equivalent of educate those looking for the next big thing hard to match Sony’s legendary usability. ■ $750.

THE MATRIX RELICENSED It was widely reported that behind the Matrix franchise, get all of that, though. multiplayer online Matrix Atari needed to sell 4 million were well paid. Thanks to According to the court docu- game, still under development, copies of Enter the Matrix to court documents passed on to ment, which is associated with they are due to receive anoth- break even. www.thesmokinggun.com, we Larry’s divorce agreement, er $2.5 million guaranteed There were huge development know how well: $2.75 million more than 25 percent of those against royalties. It’s more and marketing costs, of guaranteed, against 50 per- fees will go to agents, part- proof of one of the oldest course, and it’s been assumed cent of the advances and roy- ners, and so on.) axioms in entertainment: that Andy and Larry alties paid to Warner Bros. And that’s just for one game. Make sure you get paid before Wachowski, the brothers under the license. (They won’t For their involvement in the the reviews come in.

6 gaming industry news November 21, 2003 Grand Theft Auto Crashes Onto Xbox This may look like a big win for Microsoft in the short run, but the surprise beneficiary of the move may be…Sony? Last month, Take-Two released Grand lous: A knowledgeable colleague jokes that UP/DOWN Theft Auto Double Pack, a twofer package only hypnosis could have led to such a deal. for Sony PlayStation 2 that includes the two While no one at Sony, Take-Two, or RPGs on Xbox PS2 smashes Grand Theft Auto III and Microsoft would talk on the record, both BioWare’s Knights of the Old Grand Theft Auto: Vice City. If Sony is Our Man at Sony and a slew of observers Republic and upcoming Jade looking to sell more consoles this tough holi- maintain that the deal had to be a good one Empire revitalize the form. day season, bundling the two most popular for Sony, both in terms of short-term finan- Expect an onslaught of such PS2 games of the past two years (with more cial incentives for letting this happen (they games next year. than 25 million units served) at half-price were speedy ports to accomplish, since the isn’t a bad idea. hard work of moving the games to Windows Star Wars Galaxies had been done already) and continued Sure, it’s a huge hit out of But it’s what happened earlier this month lengthy exclusivity periods for forthcoming the box, and it’ll find a place that’s more important. On November 4, the GTA games. Sony, after all, was the only under many Christmas trees. same bundle was released for Xbox. Take- console maker that had a chance to sell each But we’ll see how long play- Two CEO Jeffrey Lapin says that the com- of the two now-bundled game separately at ers stick around after finding out about pany’s exclusivity deal with Sony had been premium price. That’s the crucial deal point the six months it takes to become a Jedi. amended to allow the porting to the and nothing has changed there. No one wants to bus tables at Mos Eisley. Microsoft console platform. Conventional wisdom maintains that this ond now, but two years ago, the Redmond- Now, wait a minute. Why would Sony port is a huge gain for Microsoft at Sony’s based company had a zero-percent share of allow this? Grand Theft Auto has been one expense. With Nintendo’s GameCube fading the console market. Imagine what can hap- of the most popular brands in the (the recent price drop will only get the plat- pen in two more years. Those who have seen videogame industry over the past two form through the holiday season), the rea- the new GTA pack on Xbox report signifi- years—and it has been available exclusively soning goes, Xbox is the only challenger to cant graphical improvements over the Sony on the PS2 console. There have been ports Sony’s console hegemony. As companies as version, which will please hardcore gamers. of the games to PC, but permitting them to diverse as Lotus, Netscape, and Stacker show up on Xbox, PS2’s most competitive know all too well, Microsoft has a long his- But conventional wisdom is wrong. The console rival, is a bold move. tory of moving from distant competitor to only loser here is Nintendo, which is left out unchallenged leader in new markets with of the GTA race entirely. Microsoft will con- It’s so bold, in fact, that some are incredu- great speed. Microsoft may be a remote sec- tinue to be a more and more formidable competitor, especially in the next console TOMB RAIDER U.S. SALES cycle, but Sony isn’t losing much here. It sold many millions of copies of GTA for its 1.8 million platform at full price before the PC version TOMB RAIDER (NOV '96) came out, let alone the Xbox release. There 1.7 million is a huge conceptual upside for Sony as a TOMB RAIDER 2 (NOV '97) result of the series’ move to Xbox. Most of all, this is good for Sony because the very 1.3 million existence of a highly promoted GTA pack TOMB RAIDER 3 (NOV '98) for Xbox extends the current generation of games and platforms. Take-Two didn’t develop new games for Microsoft or even 900,000 exclusive new games in existing franchises. TOMB RAIDER: THE LAST REVELATION (NOV Take-Two merely ported two popular games to another console, albeit with more impres- sive screens and effects. The new GTAs give Microsoft delayed parity in another area, TOMB RAIDER CHRONICLES (NOV ’00) 300,000 not a lead. More than anything else, it Note: Eidos expects to put 2 makes the status quo of the current console million copies of Angel of Darkness into circulation and cycle last longer. The longer the current con- has lowered the retail price TOMB RAIDER: ANGEL OF DARKNESS (JUNE ’03) 235,000 from $50 to $40 to support sole cycle lasts—a cycle it dominates—the that goal. happier Sony will be. ■ Source: The NPD Group

November 21, 2003 gaming industry news 7 UP/DOWN The Coming Console Licensed games All but the most savvy game Price War buyers are attracted to There can’t be one until all the players join in. We won’t have to wait familiar brands. much longer Quality in All the signs that we’re in the latter like Mario and Zelda, which are pub- licensed games stages of a console cycle are upon us. lished by Nintendo, not outside develop- Enter the Matrix shows some Hardware sales are down, software ers. Even in the unlikely scenario that franchises are so strong that prices are down (the Grand Theft Auto the short-term sales gains caused by the even buggy, ragged games bundle cuts the price of the two smash- price cut remain, the vast majority of the under a banner can sell millions. hit games in half), and—most tellingly— development community has already console prices are dropping. moved on to other platforms. Eidos was only the most high-profile third party to Bringing old brands Nintendo has made the most noise drop out of the GameCube market this back to life with its $50 cut in the retail price of its year. It’s 2003, and the game GameCube, and Microsoft is bundling everybody is talking about two games with its Xbox console in the Even with its large price drop, is…Prince of Persia? United States without raising the unit’s Nintendo only pulls closer to Microsoft. price. But where’s Sony? PlayStation 2, According to NPD Funworld, in Cranking out new the sales leader among the three con- September there were still 5,000 fewer versions of familiar soles, costs the same in the United States GameCubes sold than Xboxes. As word brands because you as it did last year. gets out that GameCube is much less have to meet your expensive and the holiday season heats numbers In Japan, though, the price war has up, it’s reasonable to believe that Something tells us Lara Croft is going to begun. (Note: I’m using rough U.S. dol- GameCubes will pass Xboxes in sales, at take a long vacation. lar equivalents here, rather than yen.) least in the short term. But neither con- This month, Sony reduced the price of sole is within shouting distance of Moral outrage over its PS2 in Japan from $230 to $182, PlayStation 2. First place in the current Manhunt which led Microsoft to cut Xbox’s price console cycle remains sewn up, with At least one could argue that from $230 to $154. Xbox trails PS2 in Sony selling nearly as many consoles last Grand Theft Auto was art. Japan by a far greater margin than it month as Nintendo and Microsoft com- Rockstar’s new Manhunt does in other territories (a mere half- bined. The battle for second place may makes GTA feel like Mr. Rogers’ million consoles shipped versus Sony’s get hotter, but there’s no all-out price Neighborhood. 14 million), so it needs a more dramatic war unless Number One becomes part price drop to cut into Sony’s market of it. Moral outrage over share. Doom That will come, and although conven- What Activision has to con- FIGHT FOR SECOND PLACE, tional wisdom might state that it’s get- tend with now isn’t the fan THEN FOR FIRST ting late in the U.S. holiday season for outrage over Doom 3’s vio- The price war, starting in Japan and no Sony to make a move, Sony has to do lence, but its recent delay. doubt coming to a country near you something. Since its consumer electronics soon, suggests that the first battle is not brands are fading (Trinitron is over) and Major League between Microsoft and the dominant replacement brands such as PSP and PSX Gaming Sony, but between Microsoft and aren’t coming until next year (at the ear- So many good gamers with Nintendo. What we’re seeing in the con- liest), the company can ill afford to have too much leisure time want sole marketplace is a fierce battle for sec- a game business that isn’t minting to turn pro; now there’s an ond place that Microsoft will win, in money. PS2 is still the leading platform, agency dedicated to skimming off the large part because Xbox’s third-party but it’s in an industry that has seen a 16 lucrative cream. developer market is healthier than percent decrease in hardware sales so far GameCube’s. The price cut may be this year. A price drop won’t help mar- Capital intended to lure third-party developers to gins, but, as Our Man at Sony tells us, Entertainment the platform, but it’s too late in the cycle “We have to do something to get con- Group to kick-start such development (although soles out the door. Now that they’ve The new game agency, THQ must be pleased). Kids (by which I done it in Japan, I expect we’ll get the founded by the guys who mean parents) buy GameCubes for titles green light. I hope we get it soon.” ■ came up with Xbox, folds when funding fails to materialize. 8 gaming industry news November 21, 2003 The Government Game Intervention, legislation, and litigation you can’t ignore By Jennifer Buckendorff

GOVERNMENT GRANTS FOR GAMES HOUSE OF REPRESENTATIVES BILL H.R. 669

WHERE IT’S HAPPENING: France WHERE IT’S HAPPENING: United States TWO-SECOND SUMMARY: In late July, France’s Minister of TWO-SECOND SUMMARY: Introduced in March by Rep. Joe Culture announced a ¤4 million (about $4.3 million) program to Baca of California, H.R. 669—“Protect Children from Video reward well-designed games from French developers. (See relat- Game Sex and Violence Act of 2003”—is founded on statements ed story, page 4.) made by six public health organizations indicating that “viewing entertainment violence can lead to increases in aggressive atti- WHERE IT STANDS: The French government wants to see its tudes, behaviors, and values, particularly in children.” The bill game corporations enjoy the success of their American coun- seeks to restrict both the sale and use of videogames. It would terparts. Who’s most likely to benefit? Infogrames, for one, the hold individual retail outlets accountable for imposing those French game outfit that’s also Atari’s parent company. The BBC restrictions, primarily by levying fines against the retailers. reports the French government is also hoping for increased interest in gaming in France. Perhaps Paris could subsidize WHERE IT STANDS: Still in subcommittee, the bill’s 42 co- arcades, too? sponsors boast a wide range of partisan affiliations. Liberals and conservatives alike are on board. WHY THE OUTCOME MATTERS FOR THE GAME INDUSTRY: More European countries may follow France’s lead, WHY THE OUTCOME MATTERS FOR THE GAME spurring on a trend of state-subsidized games. French game INDUSTRY: According to H.R. 669’s current phrasing, it will producers had until this week to submit proposals to the affect the sale of any game that violates “prevailing standards Minister of Culture. Perhaps the game industry will find itself in in the adult community as a whole with respect to what is suit- the same trans-Atlantic mess as the agriculture business. able material for minors, and lacks serious literary, artistic, polit- ical, or scientific value for minors.” Call it the Grand Theft Auto effect—and expect First Amendment backers to take it seriously if it gains ground.

SENATE BILL S. 161 VIDEO VIOLENCE LAW WHERE IT’S HAPPENING: United States WHERE IT’S HAPPENING: Washington state TWO-SECOND SUMMARY: A bill to amend a 1934 communica- TWO-SECOND SUMMARY: A federal judge temporarily halted tions act, S. 161 would require “violent video programming” not a Washington state law that would prohibit the sale or rental of be broadcast until after kids are likely in bed unless it can be videogames depicting cop-killing. blocked electronically by parents. Primarily geared toward curb- ing television programming, S. 161 would make it “unlawful for WHERE IT STANDS: In the case of State Representative Mary any person to distribute to the public any violent video pro- Lou Dickerson v. Video Software Dealers Association, the VSDA gramming not blockable by electronic means specifically on the currently has the upper hand. A federal judge temporarily halt- basis of its violent content.” The FCC is the regulator. ed a law that would slap a $500 fine on anyone who sells or rents to a minor any game that shows violence against police WHERE IT STANDS: Introduced in January 2003 by South officers. A full trial will determine the law’s constitutionality. Carolina Senator Ernest Hollings, S. 161 is still in debate in the Said Representative Dickerson to the Seattle Times, “I strongly Senate Commerce, Science, and Transportation subcommittee. believe the courts will decide the sickening level of violence, brutality, and racism being peddled for profit to children cannot WHY THE OUTCOME MATTERS FOR THE GAME be wrapped in our precious First Amendment.” INDUSTRY: The bill specifically mentions the game industry, stating it would require the FCC “to study and report to speci- WHY THE OUTCOME MATTERS FOR THE GAME fied committees on the marketing to children of violent content INDUSTRY: The VSDA issued a prepared statement that said, by the motion picture, music recording, and computer and video “We are pleased that the court agrees that the solution devised game industries.” Senator Hollings isn’t seeking re-election in by the state of Washington is arbitrary and too broad and likely 2004, but even if this specific measure isn’t passed during his infringes the constitutional rights of video retailers and the cus- remaining time in office, the issue is likely to remain a topic of tomers.” But the injunction is only temporary. debate in the Senate.

November 21, 2003 gaming industry news 9 OK, It’s a Bomb. Now What? The gaping yawn that has met the release of the N-Gage won’t matter. Nokia has good reason to be in the mobile-game market for the long haul It seems like everyone in the game busi- Advance than a mobile phone or PDA— The second version of N-Gage is said to ness is enjoying N-Gage. They’re not hav- makes it awkward for older consumers be in development. Anyone who’s followed ing fun playing with Nokia’s new combo who are used to maneuvering around con- the progression of Nokia’s phone designs, mobile phone/game device, though: They’re ventional mobile phones. increasingly functional and clever with each having fun making fun of N-Gage’s anemic generation, has precedent for believing that introduction. Despite a high-profile market- “Nokia has not made a firm decision five years down the road, N-Gage 1 may be ing campaign designed to amuse teenage [about] who N-Gage’s competitor is,” says little more than a self-effacing joke Nokia boys of all ages, initial sales figures suggest, Eric Goldberg, president of developer executives make during presentations. Over at the very least, that there is no pent-up Unplugged Games. “Nokia has to define time, it may go the way of Microsoft demand for a $299 mobile smartphone that who this competitor is. The competitor Windows version 1: a forgotten misstep plays games. Arcadia Research reports the can’t be Game Boy, because N-Gage is not early in the life of an industry juggernaut. It N-Gage’s first week on shelves resulted in for kids. You have to pay hundreds of dol- wasn’t until Windows version 3 that fewer than 5,000 sales. Chart-Track says lars for this phone, and phones are not Microsoft was able to secure an acceptable that 6,000 game stores in the U.K. were able to move fewer than 500 units during ONE EUROPEAN CARRIER IS SELLING THE the same time period, or less than one sale per 12 specialty shops. Unofficial price cuts DEVICE FOR A PENNY TO GET THE SERVICE are happening already. At least two U.S. CONTRACT. chains are selling N-Gages for $199. One European carrier is selling the device for a bought for 8-year-olds to play games on. level of third-party developer support and penny to get the service contract. The lead You can’t say the competitor is [Sony’s sweep away any serious competition. The headline on the enthusiast website upcoming] PSP, because that’s a Game Boy critics are chortling now, but look for www.allaboutngage.com is “What a killer, not a phone. Currently, there isn’t a Nokia to have the last laugh over competi- Disaster.” competitor.” And a lack of competition tors current and future: None of the makes it difficult to show the N-Gage is sources for this article mentioned Tapwave Reviewers have been quick to skewer the superior to anything. Zodiac without being prodded. This mar- device for its shortcomings as a game ket is still very young. machine (few strong games at launch, bat- NO RUSH FOR NOKIA tery removal for game switching, etc.). Two Goldberg maintains that Nokia has time to Nokia is not focused on the games busi- sources close to Nokia told us that the get N-Gage right before competitors show ness, but committing to a gaming-phone company loaded the N-Gage design team up. “Nokia can afford to do a new N-Gage platform does contribute to Nokia’s long- with telecom designers, not experienced every couple of years, put a $100 million term goal of disintermediating the carriers. game designers. A recent weekend after- marketing budget behind it, and it’s barely As Goldberg notes, “Games contribute less noon spent at a GameStop in downtown a material event in its annual report,” he than one-tenth of 1 percent of all telecoms’ Boston revealed a lack of interest in N- says. That’s an overstatement for a compa- revenue last year, so the carriers and Nokia Gage, despite two demo units being placed ny that has just gone through another are paying an extraordinary amount of in a prominent position next to the front uneven quarter—net sales down from the attention to games relative to the immedi- door, where they could clearly be seen year before, mobile phone sales flat—but at ate revenue prospects—and this from an through the front window. Not a single one the same time, Nokia is seeing its dominant industry not noted for its willingness to of the dozens of adults who entered the market share grow. More than other phone take on long-term risky projects.” ■ store during a 90-minute period more than companies, it has the time and resources to glanced at the display, and the handful of get phone games right. preteens who tried out the test devices moved on to the Game Boys and other With N-Gage, Nokia finds itself in WANT BETTER ONLINE demo areas within five minutes. murky water, trying to define a new type of GAMES? HIRE MORE consumer electronics product that offers GEEKS! At whom is N-Gage aimed? The sugges- elegance and value, compared to multiple “The game industry doesn’t have enough tive marketing campaign (sample text: “Are single-use devices. (Look for Sony to face a network engineers or database engineers, you ready to have a threesome in the back similar challenge when it releases its PSX; people who know how to build a massively of a cab?”) seems directed at a younger see related story, page 6.) Unlike Nintendo, connected secure environment. Hey, we crowd, but the $299 price rules them out. Nokia has other businesses that support its know how to do that.” And N-Gage’s design—more like the gaming ambitions. —Chris Melissinos, chief gaming officer, Sidekick and the original Game Boy Sun Microsystems

10 gaming industry news November 21, 2003 Editor’s Note Even those who say story in games isn’t important rely on it

“Story in a game,” says John Carmack stories are linear things—with a beginning, millions on Doom and Quake. He’d tell of Id Software, “is like story in a porn middle, and end—while games only work you they’re just shooting games, enor- movie. It’s expected to be there, but it’s not with looser narratives. If people want sto- mously successful due to their great tech- that important.” ries, they watch a movie or read a book. nology and design. But talk to those who Games are about escape, release, imagining play these games in their homes and at There are many arguments consuming you’re someone else. You don’t need a high-profile public events like QuakeCon, the business: How bad will the downturn story to enjoy a racing game, sports game, and they’ll talk with equal enthusiasm be? Where are we in the console cycle? or shoot-em-up. All you need to know is about the story underlying those games Will EA ever slip up? But those are squab- which button to push to make your car go and the extra charge they get from destroy- bles of the moment that will be replaced, faster, sneak past a defender, or extermi- ing a wraith because they know where it in time, by other squabbles of the moment. nate an opponent. came from and how that character got into Carmack’s provocative volley strikes at the the game. They care about the story lurk- heart of the videogame industry, recalling A look at today’s most popular games ing behind the shooting. Quake and Doom some seminal issues. What’s the point of a blows that particular case to smithereens. players imagine themselves as characters in story in a game? While the genius writers The Sims and EverQuest are all about the a story that Carmack and his inspired col- at Infocom were roundly praised for their story created by the people who play the leagues created—even if the creators think devious, hilarious story lines in games such open-ended games, and games such as it’s cool to say that the weapons and the as Zork and Deadline a generation ago, Battlefield 1942 and Castle Wolfenstein kills are all that matter. He’s working in an the most popular games of that era were succeed in large part because players want industry with an audience that pays close those that were all play and no story, such to reenact historical tales—or make up attention to a game’s story, even if the as Pong and Space Invaders. some new story that changes history to game maker pretends there is no story. their liking. When Carmack says story doesn’t matter, The case against weighing down games he’s just doing what he does in his games: with stories has centered on the idea that And what of Carmack? He made his telling a story. ■ Too Soon to Verify The hottest industry tips, unfiltered Editor’s note: Throughout Gaming Look for Disney to announce a new year, when Good & Evil would have had the Industry News, we endeavor to stick close to phase of Toontown, its kiddie MMORPG. field to itself. Can’t the people in the field the facts and make assertions based only on It’s called Cog Headquarters, and the folks decide when something will sell best?” the evidence. But not here. Every month in working for The Mouse promise us it will this space, we’ll report the juiciest of sto- be “much edgier” than the current environ- That field doesn’t extend far beyond ries—those we’re pretty sure won’t get us ment. Ubisoft, though, with so many highly antici- sued…or you fired. pated games coming next year, such as Half- Some executives inside Ubisoft think the Life 2 and Gran Turismo 4. Microsoft will Do you remember Sony’s bullish PS2 fore- company’s stockings this holiday season are a debut Halo 2 next year, and the company is casts early this year, the ones that saw sales bit too full, thanks to French headquarters banking on it to kick-start its Xbox Live ser- increasing? We hope you’ve committed them overruling U.S. recommendations. Beyond vice. “We recognize that most of our current to memory, because they’re no longer on the Good & Evil has been a good performer, but Xbox Live subscriptions aren’t real,” admits company’s website. it’s fighting for shelf space and sales attention a source deep within the Redmond giant. with two other hotter, better-known Ubisoft “Halo is our first shot at an Xbox Live ver- Speaking of Sony, a few weeks ago, the titles: the latest Rainbow Six and the revital- sion of a game that people really do want an company released the first concept model of ized Prince of Persia, the latter of which is Xbox Live version of.” its upcoming PSP handheld gaming device. It generating deafening buzz. “Michael Ancel is doesn’t seem to include a phone, although a god here,” says our source regarding the Do you have a tip worth sharing? Have Sony’s Ken Kutaragi has toyed publicly with creator of Beyond Good & Evil (and the you actually seen a working Phantom con- a phone upgrade. “Forget an upgrade,” says Rayman franchise). “The top dogs in Paris sole? If so, do what your colleagues have a source in Sony’s New York office. “We’ll wanted it out for Christmas because it’s done: Sign up for an anonymous e-mail have a phone in it. That way, we can kill great, but everyone in the U.S. thinks we account and write to me at Nintendo and Nokia at the same time.” should have waited until after the first of the [email protected]. ■

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