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VOLUME 1, ISSUE 3; JANUARY 23, 2004

What’s Happening Out There Everyone is chasing living-room nirvana. son that saw the company hold off specialty chain to tell us which new titles at Microsoft has a strategy for connecting its Nintendo. According to Sony, while PS2 CES excited them the most. Every single one Xbox to computer-based media—all you sales dipped, the company maintained its was a sequel. With game-production costs have to do is install a home network. Sony lead position during the holiday season and through the roof and game-console margins has a strategy for connecting its PS2 to all shipped its 70 millionth PS2. Even the objec- about to be sliced by discounting, everybody sorts of media—all you have to do is buy a tive analysts we’ve talked to can’t agree on wants a sure thing, now more than ever. So PSX. And now the consumer-electronics who’s up and who’s down. This reflects a when a striking new game like Beyond industry is seeing handheld makers offer console cycle that has entered its second Good & Evil appears, publisher Ubisoft devices that pack PDA, phone, and half, a time when the battle for market share won’t put much muscle behind it because BlackBerry functionality in one tiny unit, is fiercer and meaner than ever. Every execu- there are truckloads of Rainbow Sixes to and as one game-console exec tells us, “If tive we asked predicted Xbox and PS2 price move. This can’t go on. Nine of the top 10 you own the single device at the center of cuts this year, most likely in the first half. best-selling PS2 titles in December were everything, you wind up owning everything. “They’d be wise to couple the price cut with sequels, but among the top 10 highest-gross- Sorry if that makes me sound like the guy in the release of a long-awaited new game and ing films in December, only two were The Matrix.” With hopes of ruling this new put out an irresistible package,” one devel- sequels or remakes. An industry that contin- world where one remote delivers Internet, oper CEO says. “As the prices go down, the ues to feed on itself will one day devour television, and games, consumer-electronics whole image thing isn’t a differentiator any- everything and will then somehow have to companies and their gaming compatriots are more. It’s all about what games people want start over from scratch. Hopeful observers rushing to deliver all-in-one devices. They’re to play.” This jockeying for position in the maintain that the new Nintendo DS and interim devices, though, in part because of market is already spilling over into the jock- Sony PSP handheld platorms, due late this the many competing standards—the idea of eying for position that’s taking place inside year, will force more innovation in console resolving all format incompatibilities with console-maker boardrooms. The recent games. Is this the beginning of a new con- one unit resides somewhere between wishful high-profile departure of the Xbox team’s sole cycle or something much, much bigger? thinking and willful ignorance. Early sacri- Vice President of Games Publishing Ed Fries, In our next issue, we’ll explore why we fices in this area are likely to be the a situation our sources at Microsoft and think the latter is far more likely. ■ Phantom (assuming it exists) and elsewhere tell us is the result of a fierce Apextreme, both of which received a good power struggle, is only the beginning. NINTENDO SEES DOUBLE deal of attention at the recent Consumer Indeed, in next month’s issue, we’ll catch up Electronics Show. According to our man at with the members of the original Xbox As this newsletter went to press, Nintendo Sony, which is betting on the success of the team. revealed the first skeletal details of its next PSX, “This space won’t hit the mainstream device, a “Nintendo DS” handheld that will for years,” perhaps not until the next ver- EA, EA, EA. Which mountains are left for include dual 3-inch color screens, giving play- sion of Windows emerges. If even relatively Electronic Arts to climb? In North America ers multiple views of the same game. More entrenched companies like Gateway are hav- this past December, the company sold four details are promised for E3 in May. Apparently ing trouble inching toward convergence of the top 10 PS2 titles. In the United geared for older players than the GameBoy, from the PC side, the executives we’ve Kingdom, according to Chart-Track, it sold the DS will battle the Sony PSP for more talked to insist there’s no room for the five of the top six titles on all platforms. Its upscale players. Don’t compare the two, said upstarts. With console prices continuing to biggest franchises are spawning new sequels one developer CEO: “The PSP is do-every- drop, it’s likely that a large percentage of this year. Activision and THQ have earned thing, a handheld PSX. The DS is for gamers gamers just want a device that lets them competitors’ respect, but as one THQ exec and only gamers.” Added a biz-dev exec: play games. tells us, “EA is the only publisher that actu- “Great. Another platform that only Nintendo ally spawns fear. They’re unstoppable.” will write for.” Those are only the earliest, As a result of convergence mania and However, when you hear executives talk most knee-jerk comments. Is this what tighter margins, the console war is getting about EA—which they do all the time—they Nintendo’s legions want? Sixteen hours after nastier. According to Nintendo, its dramatic rarely talk about nonfranchise titles, which the announcement, enthusiast boards offered GameCube price cut helped the company brings us to… more chatter aboutLinux-based GameCubes take first place this holiday season. than the DS. We’ll have in-depth coverage in According to Microsoft, its outstanding Too many sequels. We asked buyers from our next issue, mailing February 20. At the Xbox Live service led a “great” holiday sea- a consumer-electronics chain and a gaming- very least, E3 just got more interesting. GIN _03 pt 2.qxd 1/23/04 11:18 AM Page 2

All the Wood Behind One EDITOR-IN-CHIEF

Microsoft Gaming Arrow? Jimmy Guterman

Dean Lester has big plans for Windows gaming. First, he’s working to [email protected] make the Xbox team play nice with the Windows one By Mary Jo Foley

Our sister newsletter Microsoft Watch cov- Windows Client Extended Platforms divi- ZIFF DAVIS MEDIA ers the Redmond Giant with unparalleled sion. That unit is composed of the rigor. We’re delighted to have Microsoft Windows eHome division and the 500 UNICORN PARK DRIVE Watch editor Mary Jo Foley share what she Windows Tablet PC and Windows WOBURN, MA 01801 learned at CES. You can find out more Hardware Experiences groups—basically about her publication at www.microsoft- all the Microsoft businesses that are 781-938-2639 watch.com. –Ed. extending the Windows core.

Interteam rivalries are a way of life at Lester admits Microsoft has done little to ART DIRECTOR: Jason Babler Microsoft. For years—maybe even since extol the virtues of Windows XP as a Microsoft was born—the company brass strong gaming platform. But he says the has pitted one team against another, with company won’t make the same mistake COPY DESK: Tom Edwards, Greg Ford, the intention that the best team’s products when Longhorn ships two years from now. Susie Ochs, Maritza Refuerzo would triumph. In Longhorn, he promises, gaming will be treated as an experience on par with shar- Gaming has been no exception: The ing photos, shopping, and other key groups Xbox team has been no friend of the of tasks. PRODUCTION: Carlos Lugo, Michele Windows team. But Dean Lester, general Manousos, Anne Marie Miguel manager of Microsoft’s Windows Graphics While Longhorn will feature its own pre- and Gaming Technologies, claims the tide sentation/graphics subsystem, code-named is turning on that front. Avalon, DirectX 9—not Avalon or even the CIRCULATION DIRECTOR: Chris Wilkes next version of DirectX—will power We chatted with Lester in his well-hid- Longhorn’s graphics. But don’t think that [email protected] den suite at the Hilton during the DirectX 9 won’t be up to the task, Lester Consumer Electronics Show. Lester has says. “DirectX 9 has two generations of been with Microsoft since 1996 and was graphics support built into it,” he explains. ZIFF DAVIS GAME GROUP responsible for all of Microsoft’s simula- “There’s hardware it can support that peo- SENIOR VICE PRESIDENT: Dale Strang tion titles. Before that, Lester worked at a ple haven’t seen yet.” number of gaming-related companies, PUBLISHER: Lee Uniacke including Disney and Sega. But Lester has- Lester’s team is also working to guaran- EDITORIAL DIRECTOR: John Davison n’t been all about gaming at Microsoft—he tee that existing games will run on also did a stint with the Office team. Longhorn. Just as they did with DOS BUSINESS DIRECTOR: Cathy Bendoff games for Windows 95, the graphics and These days, Lester is touting Windows— gaming developers are building configura- both the current Windows XP release and tion files for each and every Windows XP Copyright © 2004, Ziff Davis Media Inc. the future Longhorn one—as a gaming game so they will run on Longhorn, he platform as palatable as Xbox. “We have says. While Microsoft cannot ensure that All rights reserved. No material in this two gaming platforms, Windows and the every single game will work, its goal is to publication may be reproduced without Xbox, and they are equally important to enable the vast majority to do so from the the company,” Lester claims. “Windows is get-go. written permission. Bulk orders, reprints, an $11 billion a year business for the com- and site licenses are available. pany, and games show off what Windows Watch for Microsoft to tout its Windows can do more than anything else.” XP Extras website, Lester adds, to provide Subscriptions cost $995 per year. Visit gamers with more incentives to upgrade to http://www.gamingindustrynews.com for ONCE A MONTH XP in order to take advantage of new To improve cross-divisional coordination, downloadable features. Parental controls our best subscription offer. Gaming Lester says he meets every month with J for Windows games are in the hopper, Industry News is a trademark of Ziff Allard, the corporate vice president in although it’s not yet clear how the controls charge of Xbox. Lester also touches base will be delivered. And don’t be surprised to Davis Publishing Holdings Inc. every other week with Rick Thompson, the see a new Gaming Update site for patches corporate VP heading up Microsoft’s and fixes in the not-too-distant future. ■

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Everything You Know About Online Gaming Is Wrong A new report is alternately optimistic and provocative Worldwide online-gaming revenues will be more about individual achievement. reach $1.4 billion this year, double what A NEW BUSINESS they were in 2002. Virtual property sales, Q: What has the industry learned from Star MODEL FOR ONLINE the next trend in online gaming, will gener- Wars Galaxies? GAMES? THE NEXT VIRTUAL WORLDS LOOK ate $20 million in genuine money this year. Launching a licensed property is risky. It MORE LIKE EBAY AND LESS LIKE THE And mass-market subscription games are has to include what gamers think are the SIMS making some enormous mistakes. properties of the license. Galaxies opened with a very rich environment, but it didn’t Linden Lab’s Second Life is one of the These are some of the alternately opti- launch with spaceships. Contrast that with most intriguing virtual worlds, but like mistic and provocative findings of a report Final Fantasy Online, which felt more tra- all but a few entries in the category it from The Themis Group, an online- ditional and chose to do only a handful of hasn’t immediately been a massive suc- videogame consulting firm. While some of things very well. It captured the feel and cess. So rather than change the product, the report is silly—the blue-sky projections ambience of the franchise. And they’re the company has just released version of online gaming out to 2014 are uninten- claiming 500,000 players. 1.2, which tweaks Second Life’s business tionally hilarious—the core provides as rig- model more than anything else. orous and surprising an evaluation of the Q: What’s the future of online gaming on business as we’ve seen. We spoke to Alex consoles? The new version offers many payment Macris, a founder and chief executive of Sports. Rotisserie leagues: That’s a big busi- plans. To get in the door, there’s a one- The Themis Group, about the report, ness, with hundreds of millions of dollars time-only charge of $9.95. And that’s all which he edited. being spent. Mix that with a console expe- some players will pay—ever. “We’ve seen rience, and it’s going to be absolutely huge. a lot of different usage patterns,” says Q: How is the North American online- We see a lot of growth in the future of con- Linden Lab founder and CEO Philip game market different from that in Asia? soles. Right now, anyone who has a PC and Rosedale. “Most people don’t know what The Korean market is more mature than wants to be playing online is doing so they’re going to get out of an online the U.S. market. It’s much harder to launch already. New games and licenses drive game. When a recurrent fixed price is a new game there. Already, there are so whatever growth there is. But online gam- required, you miss a lot of customers. many fighting for attention. The U.S. mar- ing is much newer on consoles, where pene- That’s why so many of these games ket is more culturally fragmented because tration is only 3 percent. It’s a much bigger have crushing turnover. Online games the U.S. is so much more diverse than growth area. force a projection mentality. You have to Korea. The games in Korea are all about figure out how much time you will spend hierarchical behavior; U.S. games tend to Q: Where is mass-market subscription gam- in the game to decide whether a month- ing going wrong? ly fee is worth it. We wanted to get THE TOP NEW There has got to be an appropriate bal- around that.” ONLINE GAMES ance between game and chat room. Chat In its report, Themis estimates which is free. Why should anyone pay for that? The $9.95 cover charge gets you in the “new persistent worlds” will be the We need a type of gameplay that appeals door and gives you a small weekly biggest hits a year after they launch. to the mass market. Right now, all these grant. But those who like what they see virtual worlds are catering to people with in the game can pay another $9.95 per ■ World of WarCraft one type of asset: time. That’s a limited month for more goods and services. (Vivendi/Blizzard) market. What about those who want sta- Once inside the game, players can pay tus, recognition, and fun but can’t put in in-game currency or real money for var- ■ EverQuest II the time? These games then would need to ious fees and improvements. Those who (Sony Online Entertainment) differentiate themselves from other games sell items in Second Life, (these are ■ Middle-Earth Online by [focusing on] skill, money, or some some of the virtual world’s heaviest (Vivendi/Turbine) combination of the two. Magic: The players) can take in genuine cash for Gathering is somewhat successful in that their wares, thus encouraging them to ■ The Matrix Online you can use skill, money, or time to move stay longer and contribute more. “This (Ubisoft/Monolith) ahead. But the proper balance of game lets our most aggressive content devel- ■ Ultima X: Odyssey and chat? No one is offering that. There is opers make money,” Rosedale says. It’s (Electronic Arts/Origin) trying, but if you look closely, you’ll see an example that should inspire happy there’s no There there. ■ buyers to become sellers.

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Game VC: Alive but Picky Capital Entertainment fails to find funding, but Turbine lands $18 million By Dean Takahashi

In October, Capital Entertainment Group online gamers. The VCs can consider these investment. CEG needed plenty of cash to closed its doors after a fruitless 18-month factors in their due-diligence investigations, spread out its risk among four to six titles. search to raise $20 million to $30 million which give them the confidence to part But because it sought $20 million to $30 in venture capital for its game-production with their money. million, the VCs needed CEG’s exit valua- start-up. In December, role-playing-game tion to hit $200 million or more in order to developer Turbine Entertainment Software Turbine’s deal fits into this category, and justify tying up their funds for a long time. managed to raise $18 million to develop its that’s why it managed to raise such a large Bachus says CEG hoped to improve the Dungeons & Dragons Online game and sum of money, says Bob Davis, a partner at process for developing games and that was buy back its Asheron’s Call massively mul- Highland Capital in Lexington, MA, which where its experienced team could make a tiplayer online game franchise from is one of the venture firms that funded difference, much like Joe Roth’s Revolution Microsoft. Turbine. Studios produces successful movies on a more or less consistent basis. The contrast between the two companies’ “We’re talking about the opportunity in experiences raising money is straightfor- massively multiplayer online games to get “It turned out what we were doing was ward but perhaps hard to fathom for game customers to pay a sustainable subscription just riskier,” Bachus says. executives who don’t peer into the minds of fee,” he says. “That’s far different from the venture capitalists. VCs have been notori- classical developer, who is at the mercy of A STILL-GROWING INDUSTRY ously shy about investing in game-content either a publisher or a hit game at any While CEG’s experience illustrates how companies because doing so is akin to gam- given point in time.” things can go wrong, Turbine’s shows what bling on Hollywood films—it’s too hard to can happen when they go right. VCs realize pick the hits, and no one wants to risk While CEG’s founders were aware of the that investment returns aren’t what they funding the duds. CEG’s failure can be venture-capital community’s leanings, they used to be for many technology companies. attributed at least in part to this shyness. tried to win it over anyway. Founded by With the games industry still growing in game-industry attorney Eugene Mauro, vet- any given year by 10 to 30 percent, they “We pitched about 1,000 visitors and eran production manager J. Mark Hood, wanted to jump into the market. So far, held meetings with 50 or 60 before we shut and Xbox co-creators Seamus Blackley and other companies that have reaped invest- down,” says Kevin Bachus, who was vice Kevin Bachus, CEG wanted to insert itself ments include online-game companies with president of publishing at CEG. “They as a new middleman in game production by a technology focus, such as Butterfly.net, looked at the industry but didn’t know how utilizing seasoned producers who could fos- Ultimate Arena, and Mythic Entertainment. to evaluate the opportunities.” ter risky but original titles. Davis studied the games market for six Sri Jagannathan, vice president at venture Game publishers fund roughly nine out months before making his first investment investor Global Asset Capital in Menlo of 10 games, which still leaves plenty of in Turbine, which has almost a decade of Park, CA, agrees with Bachus. His compa- opportunities for a smaller company to experience in online-game development and ny has invested in wireless-gaming compa- move into the development chain. This is a proprietary graphics engine that generates nies that have created gaming technology, important because relations between small- outstanding graphics for online games. but he has steadfastly avoided investing in er developers and large publishers have content companies. become frosty. Publishers have shied away Still, raising money wasn’t easy. Turbine from original titles and tend to focus on CEO Jeff Anderson says the company THINK TECH, NOT GAMES proven teams and sequels to big hits, while talked to dozens of VCs since January Even though they proceed cautiously when developers want to focus on making games 2003, with most of them saying they looking at game-content companies, VCs rather than negotiating deals and learning weren’t prepared to pick the hits. “It was a are comfortable assessing the risks for tech- the finer points of the production process. challenge to penetrate minds with those nology ventures. Online-game development CEG would essentially outsource produc- three worst words in the wake of the requires technological prowess, including tion, freeing publishers to focus on sales, downturn: online entertainment technolo- expertise in software programming, server marketing, and distribution. gy,” he says. “People saw it as an antiquat- management, customer support, and game ed pitch from a few years earlier.” maintenance. The entry barriers are high In hindsight, Bachus saw the flaws in since development can be so costly, but CEG’s approach—it was a prerevenue com- Anderson argued that the company could companies can distinguish themselves based pany. In the post-dot-com era, VCs are mitigate its risks because it used the sub- on the quality of the technology they use avoiding such investments. In this case, it scription business model that generates for game security, communication, graph- would have been at least two years before recurring monthly payments for its online ics, and technical support for hardcore the VCs saw any kind of return on their games and because it had an experienced

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Into the New Year The industry girds itself for an uncertain 2004

“I’m glad that’s over,” a Best Buy manager ENEMY OF THE MONTH says to us during the first shopping day of LAS VEGAS? SAN Christopher Byron, a financial reporter 2004. “That,” of course, is the holiday ANDREAS? BAYONNE, best known for his recent attack biogra- shopping season. “We did OK,” he says. NEW JERSEY? phy of Martha Stewart, recently went “But there were no gotta-have brand-new after Grand Theft Auto in the New York titles to bring people in. Assuming the new CES didn’t offer much manna to game- Post, using hyperbolic language to sug- Halo, Half-Life, and Doom actually come industry attendees. As our Ziff Davis gest that the Rockstar line was worse out when they’re supposed to, we’ll get Media colleague Jim Louderback put it, than child molestation. Nothing like some good traffic. I don’t want to make it “CES is trying to supplant E3 as a gath- absurd exaggeration to undermine an sound like we blew it for Christmas—we ering of computer and console game ven- argument. We wonder what will happen got past expectations, even if we didn’t dors, but there was pitifully little to talk when someone shows him Manhunt. blow ’em away—but we could have done about in this area.” But more information better if the publishers had delivered what on upcoming high-profile games did team and its own graphics engine. Besides, they’d promised.” become available last week—some of it Turbine has been profitable for a couple of contradictory, most of it because CES years due to Asheron’s Call. Anderson also Nonetheless, frequent press reports of a presenters needed something to talk says the move to purchase Asheron’s Call bust this holiday season, blaming every- about. Doom 3 will ship in April; Microsoft was an attempt to transition the company thing from the weather to our current posi- has given up guessing when Halo 2 will into a publisher, which could open more tion in the console cycle, turned out to be appear. And last week’s rumor that the opportunities beyond being acquired as an overblown. The Electronics Boutique chain next Grand Theft Auto, due in November, exit strategy. That is, game publishers are announced that total sales for the nine- will be set in Las Vegas was replaced by far more likely to go public than develop- week holiday period that ended January 3 this week’s rumor that San Andreas will ers. As a result, Turbine stood out and grew 24.4 percent and that same-store sales be the new home of the next game to received several term-sheet offers. were up 2.5 percent, more than the compa- antagonize various self-appointed protec- ny had forecast. tors of our nation’s youth. What didn’t The upshot? Content is risky; infrastruc- come out of CES, though, was enthusiasm ture and technology are good. That leaves Retail didn’t experience as much growth about the many new games without num- many independent developers who want to as online, but it did grow (not counting bers in their titles. get their money from a source other than a KB). This happened, and will continue to publisher with empty pockets. Bachus says happen, in part because the major players interest, having sold barely 3,000 units so CEG could have tried to get money from are desperate for market share, seemingly far. That’s not a good sign for a title that rich individuals, but angels are known for at any cost. Nintendo, it appears, will all has been the subject of two big-budget investing small amounts in seed-stage com- but give away its GameCubes if that’s what films already. panies. They are not likely to pony up tens it takes to expand console market share, of millions of dollars to fund a large num- and Nokia is giving away 70,000 copies of While we’re considering the Hollywood ber of games. the N-Gage version of Tomb Raider to spur angle, let’s note that Atari, currently suffer- ing the ramifications of lousy Matrix and Another money source could be invest- UP/DOWN Terminator games, has signed Ridley Scott ment firms set up to take advantage of Associates to produce a series of commer- German tax shelters. In Germany, rich Up: Videogames cials promoting its upcoming DRIV3R investors have long sought to avoid on TV game, which is due to ship in March. Atari Germany’s 50 percent income taxes by The same licensing frenzy dressed up the press release with terms such investing in sheltered investments in that hit feature films is mov- as “short films” and “vignettes” that are intellectual property, regardless of whether ing to cable and even broad- “inspired by” the game, although this is the companies are in Germany. So far, cast television. Look for UPN’s Game Over just another example of how important movies have fit that bill, and as a result, to make a big noise. Hollywood convergence is to the success of German investors have financed dozens of many big-budget videogames. We’d be films. Those same shelters could be used to Down: Plots of shocked to learn that Atari wasn’t hoping fund game development, and one firm, videogames on TV to expand these short films into a genuine Attaction GmbH in Munich, is trying that The premise of Game Over: feature. Which leads to our best bet for approach. It may be hard for game compa- “Race car drivers and arche- what the major players want most of all in nies to score VC money, but it’s far from ologists come home after a long day’s 2004: IP that’s available in all media all the impossible. ■ work and deal with life in the suburbs.” time. ■

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Gaming on Demand Publishers can use the new model. Will players demand to use it? By John Gaudiosi

Unlike Hollywood movies, which are able to recoup poor theatrical performances According to Infinium Labs CFO Tom Right now, Steam only works for PCs. with DVD sales and pay-per-view win- Wong, 400,000 Phantoms will be sold in The technology is said to be non-operating- dows, most videogames have just one the U.S. during its first 12 months of system-specific, which means it conceivably shot—often as little as eight weeks at release. By 2008, he forecasts annual could work with consoles, but Lombardi retail—to make it or break it. While some sales of 1.3 million. And within the first acknowledges that there would be many franchises, including Electronic Arts’ five years of business, he expects more obstacles to overcome for that to happen. Madden and Rockstar’s Grand Theft Auto than 2 million subscribers will be paying titles, sell throughout the year, most games the monthly subscription fees. We’ll see. INFINIUM: IFFY PRODUCT, face a short retail life. The sheer number of INTRIGUING MODEL games—more than 1,200 shipped in will be available on the service on March Another company, startup Infinium Labs, is 2003—leads to the problem of a lack of 25. Doug Lombardi, Valve’s director of jumping into the PC-game digital distribu- retail shelf space. It’s no wonder that the marketing, says no prices have been estab- tion channel with Phantom, which is cur- top games during the past few years have lished yet, but he expects some of the costs rently slated to launch this summer. The been big Hollywood licenses such as saved by bypassing retail (packaging, iffy nature of Phantom demos (no working Spider-Man and The Lord of the Rings and inventory, distribution, etc.) will be passed unit to demonstrate a mere six months established franchises such as Metal Gear on to the consumer. ahead of release, except in a private suite) Solid and Final Fantasy. The familiar games at CES this month is a good example of get the shelf space—for everything else, a “We began creating Steam two years ago why Infinium attracts skepticism like lint. new distribution method is needed. Some when we discovered that there was a huge Nonetheless, its model is worth evaluating. Phantom is a new customizable videogame WE NEEDED DIGITAL DISTRIBUTION. WE console that will have several configura- FOUND NO ONE HAD ANYTHING IN DEVEL- tions available for less than $500, bypass- OPMENT, SO WE DID IT OURSELVES. ing retail and discs completely. The box won’t even have a DVD tray—instead, it are betting that digital distribution of gap for game developers interested in using will serve as a digital download device for games on demand is the answer. the Internet for business,” Lombardi notes. videogames on demand. Consumers will be “After speaking to the companies we able to play free game demos, rent games, “Games on demand are a win-win situ- thought would be working on something or buy titles outright through the Phantom ation: Publishers get an additional chan- that would allow digital distribution of Game Network, which will charge gamers nel to extend product life cycles, game games, we found none had anything in between $7.95 and $9.95 per month for portals get additional revenue, and development, so we created our own.” access to the network. gamers get the chance to try, rent, or buy games at a bargain,” says Billy Pidgeon, Steam is available for any developer, Infinium Labs says it has secured licens- analyst for the Zelos Group. “In the long publisher, or retailer to use. The service ing agreements with about 3,000 PC titles run, the only losers may be traditional comes free to anyone who purchases the publishers and retailers who resist digital Half-Life 2 engine, and Valve is offering WHAT, NO distribution of games.” the engine at a discount to any developer GTA: TWIN PEAKS? interested in self-publishing a title through Valve Software, maker of the best-selling Steam’s digital distribution. The business Last month, we reported on how the Half-Life videogame franchise, has its pro- model: Valve takes a 5 percent licensing fee games industry might not be making full prietary digital distribution network, on revenue. use of patents. It is, however, using trade- Steam, up and running. The developer will marks, as evidenced by a story that broke expand Steam dramatically this year, releas- “We’re the Independent Film Channel of on the computerandvideogames.com web- ing its two next games, Counter-Strike: gaming,” Lombardi says. “We’re giving site. On December 17, Take-Two Condition Zero and Half-Life 2, as online game developers and mod makers the Interactive, which owns Rockstar Games, downloads, in addition to the traditional opportunity to take their risky and creative listed three Grand Theft Auto trademarks: retail model. Gamers will also be able to ideas and sell them to a huge gaming audi- GTA: San Andreas, GTA5, and GTA6. It buy monthly subscription packages. The ence. I expect a lot of developers to work appears that this is one franchise that service currently provides gamers the abili- on big Hollywood games or franchise titles will be running over pedestrians and mis- ty to download patches and updates for by day and moonlight at night for more treating lowlifes of all creeds and colors existing Valve games, and Condition Zero risky, self-funded fare for Steam.” for some time.

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Microsoft Moves FUD to a New Platform Game execs are learning what tech execs know too well WHAT’S WRONG WITH THE GAMING BUSINESS? The Consumer Electronics Show, held UP/DOWN earlier this month in Las Vegas, is different “Most gamers cite lack of time second from many other technology conferences. Halo 2 anticipation only to social pressure as their reason for For one thing, it’s one of the few such Demand for the sequel leaving gaming. Yet we make games that events that Microsoft doesn’t dominate (at appears to be enormous. require 10, 20, 30, or more hours for the least not yet). Macworld, held in San gamer to fully enjoy.” Francisco at roughly the same time, is usu- —Seamus Blackley, formerly of Microsoft ally an opportunity for True Believers to Halo 2 release date and Capital Entertainment Group demonize the Redmond Giant and all it Now Microsoft says: “We’re allegedly stands for, but for business cus- going to ship it when it’s for launch, many of which came through tomers, some of the biggest news out of ready. It might be the first sublicensing agreements with Trimedia. that event was Microsoft’s updates to the half of 2004. It might not.” Activision, Encore, and River Deep have Macintosh version of Office. Bill Gates and agreed to distribute their PC titles co. loom large, even at conclaves where What’s astonishing is not that the through the service. The machine will they serve as official villains. Reuters reporter sent along these claims ship with 30 games installed on the hard without checking them or challenging Bach drive, and gamers can purchase and store Microsoft made a plethora of announce- (the outselling-GameCube assertion is par- additional games either on the drive or on ments at CES, but many of them were ticularly dubious, if you ask around)— a Phantom server. overshadowed by news from its competi- wire-service reporters have to file quickly tors. Who cares about incremental and often deliver incomplete copy. This While Phantom accounts for a minute blip in the overall videogame market THIS IS AN INDUSTRY WHERE HUBRIS AND space, it does give PC game publishers, as OBFUSCATION ARE ESSENTIAL PARTS OF well as developers of all sizes, an oppor- ALMOST ALL PUBLIC STATEMENTS. tunity to reach a new audience. Phantom will plug into living-room TV sets, which improvements in the “media” versions of happens all the time, even if it doesn’t yield will extend the reach of these games Windows and Xbox when Apple is hyping optimal journalism. beyond the PC. PC shelf space has been new mini-iPods and Hewlett-Packard, per- especially quashed by big franchises and haps Microsoft’s most important hardware What is astonishing is Microsoft’s a glut of console titles that command partner, announces a deal to sell private- apparent decision to take the “fear, uncer- prime placement at retail due to higher label iPods (even if early rumors about HP tainty, and doubt” marketing method it sales volumes. sneaking Microsoft’s music format onto employs in the areas it dominates (you Apple devices were too delicious to be should hear what it says about the com- Valve’s Lombardi adds that there will true)? Bill Gates’ CES keynote address was peting Linux operating system) to a mar- always be people who want to buy games low on detail, even for CES keynotes. All ket in which it just went through a holiday at retail, especially gift buyers and collec- he acknowledged about the next Xbox was season most likely in third place—far tors who want to own the physical pack- that Microsoft was developing it. behind the leader, Sony, in the United age. He believes that over the next three to States and even further behind in Asian six years, we’ll see slow but steady growth Thanks for the breaking news, Bill. nations such as Japan and Korea. of digital distribution. But those looking for what Microsoft is We should carefully parse the words of Moving forward, PlayStation 3 and trying to do in the game arena need look all videogame-industry executives: This is Xbox Next are likely to employ some type no further than a widely circulated Reuters an industry where hubris and obfuscation of games on demand, at least on a rental piece that hit the wires on January 14. In are essential parts of almost all public basis. Microsoft is already getting console it, Microsoft Chief Xbox Officer Robbie statements. But when Microsoft executives users accustomed to downloading extra Bach boasts that holiday Xbox console feel they can make big, unverifiable boasts content through Xbox Live. Five years sales were “very good” and “solid,” and without any demand for evidence, you ago, Amazon.com showed shoppers the then goes on to claim that Xbox outsold know the gaming industry is being visited ease of online purchasing. Valve and Nintendo’s heavily discounted GameCube by a FUD machine that makes John Infinium are betting they can do the same in the last two weeks of December. Romero look modest. ■ with digital distribution. ■

January 23, 2004 gaming industry news 7 GIN _03 pt 2.qxd 1/23/04 11:18 AM Page 8

More Than Just Catchphrases Star actors provide yet another sign that Hollywood and the videogame industry are getting more comfortable together By John Gaudiosi

As videogame publishers have increased their likeness in most cases that we’re their presence in Hollywood, professional using. For some games, such as The Lord HEADLINE OF voice acting has undergone quite a change. of the Rings, we’ve used motion-capture THE MONTH Fueled by the success of franchises such as data as well to capture the unique walks Square-Enix’s Kingdom Hearts and and actions of actors or stuntmen just as “Miami Vice Game Signals the End of Rockstar Games’ Grand Theft Auto, which we would in a sports game. Going forward, Original Content” employed well-known actors Haley Joel we’ll see an increase in graphical realism -GameSpy, January 13, 2004 Osment and Dennis Hopper, respectively, and special effects, but more importantly, more big Hollywood voices are being heard an increase in the emotional depth and to $100,000 for voice acting in a game, in videogames. impact of gameplay.” depending on the role and the current popu- larity of the star,” he says. In addition to deals that incorporate “Actors are getting embedded more actors into the game versions of their films deeply into games,” says Steve Allison, for- Lev Chapelsky, president of Los (you can hear Arnold Schwarzenegger in mer vice president of marketing at Atari, Angeles–based Blindlight Media, which the latest Terminator game), more which pulled in Michael Madsen, Michelle matches game companies with Hollywood Hollywood voice talent is being used Rodriguez, Mickey Rourke, and Ving talent, says that big actors don’t make any- beyond the scope of licensed movie and TV Rhames for DRIV3R (Driver 3). “Gamers where near as much in games as they properties these days. Videogames are being expect certain production values,” he says, would in television or movies, simply cast like Hollywood features. Activision “including licensed music and Hollywood because of the technology cost of games. attracted a noteworthy cast for its entry in voice talent.” Plus, it’s the gameplay that drives sales, not the Grand Theft Auto–clone sweepstakes, known actors, which is the opposite of star- driven Hollywood productions. But games “WITH CELEBRITY TALENT, WE’RE NOW can increase awareness of an actor within DEALING WITH SIX-FIGURE PAYDAYS AND the lucrative 18-to-34 year-old male demo- graphic, and any type of back-end deal on POINTS ON THE BACK END.” a huge game franchise could result in a nice return for a celebrity. True Crime: Streets of L.A.—Christopher Higher production values do have a Walken, Gary Oldman, Michael Madsen, drawback: bigger salaries. IT’S THE GAME, NOT THE NAMES Russell Wong, Michelle Rodriguez, Ron Not everyone is going for big-name stars Perlman, CCH Pounder, James Hong, “Until recently, there was not much these days. Majesco’s new trilogy of games, Mako, and Keone Young voice the game. negotiation for videogame voice acting Advent Rising, built around the work of because game companies would hire voice sci-fi writer Orson Scott Card, held an CYBERSCANNING THE ACTORS actors and pay them scale (roughly $500 open casting call for its characters. More Electronic Arts began incorporating for four hours of work), but with celebrity than 500 actors showed up. Hollywood talent into videogames 10 years talent, we’re now dealing with six-figure ago and is now at the point at which next paydays and points on the back end. It’s “I had an idea in my head of what each month’s James Bond 007: Everything or similar to a movie deal,” says Larry Nothing will feature the voices and like- Hummel, co-head of the animation UP/DOWN nesses of film stars Pierce Brosnan, Judi voiceover department at talent agency Dench, John Cleese, Shannon Elizabeth, International Creative Management. Yahoo Willem Dafoe, and Heidi Klum. Rounding Its online parlor games gar- out the Hollywood experience, EA hired Tommy Tallarico, president of Tommy ner a large audience of most- Bond movie scribe Bruce Feirstein to write Tallarico Studios, has watched the audio ly older players who want to the story and dialogue and 24 composer budgets of videogames double from an aver- play sedate Web-based Sean Callery to score the game. age of $75,000 to an average of $150,000 games at work without getting caught. over the past three years. He’s been working “We ‘cyberscan’ our actors,” says Nick with voiceover talent and game audio for KB Toys Earl, vice president and general manager of 13 years and says that nowadays, a Four hundred of its 1,300 Electronic Arts’ Redwood Shores studio. videogame budgeted at $10 million could stores won’t sell videogames “It’s a process that scans their faces and have an audio budget of $500,000 or more. anymore, evidence of tough bodies so that it’s not just their voice but “A star could make anywhere from $5,000 times for the bankrupt chain.

8 gaming industry news January 23, 2004 GIN _03 pt 2.qxd 1/23/04 11:18 AM Page 9

Executive Pulse What are you thinking? Let us tell you

character’s personality and voice would Our goal is for Gaming Industry News Q: Which company are you most bullish be in the game, and that’s what I based to be a must-read among senior gaming about for the next console cycle? my decisions on,” says the game’s lead executives, and one way to live up to that Sony: 29 designer and director, Donald Mustard, promise is to fill this newsletter with the Microsoft: 22 who did end up hiring actors Malcolm voices of those executives. This month, we Nintendo: 1 Jamal Warner and Dwight Schultz for present our first poll of senior executives. Sony advocates maintained, “Their lead is parts. The script for the first game alone We’ll conduct these surveys at least quar- unbeatable any time soon,” while one spans 400 pages. terly so that we can be sure of what the top Microsoft fan said, “The Xbox 2 will be at pros are thinking—and make sure you’re least a year ahead of the PS3. Can you The sheer volume of videogames in aware, too. imagine what Bill and Robbie can do with development, and the large number of a lead like that?” game companies in the Los Angeles area, has been a boon for union-scale WE HEARD VARIATIONS ON “SONY IS and double-scale voice actors. The work UNSTOPPABLE.” WE WERE ALSO TOLD, is steady and the money good. Schultz “EVERY DAY, MICROSOFT KNOWS MORE (you may remember him as Murdoch AND MORE ABOUT THE INDUSTRY. NO ONE from The A-Team), who has been very IS SMARTER.” active in videogames, including recent titles such as Battlestar Galactica and This month, we sent our questionnaires Riddick, says that interactive entertain- to 75 executives at the VP level or higher, Q: Is gaming on mobile phones here to ment is really the only place left for a divided more or less equally among pub- stay or just a fad? character actor like himself these days. lishers, hardware makers, and developers. Here to stay: 28 Of those 75, 52 answered all of our ques- Fad: 24 The influx of Hollywood talent may tions. (Four respondents returned partial This was one of our tightest results, and it be resulting in deeper stories. Tallarico questionnaires, so we didn’t include them.) might have been even tighter if three of the says 400-page scripts with as many as Here’s what we learned, along with some respondents weren’t from companies that 20,000 lines of dialogue are common- relevant quotes. As promised, we are not have made big bets on mobile gaming. place today. That’s a far cry from the revealing who said what. early days of videogame voice acting, Q: Is the Phantom real? which allowed a few catchphrases to be Q: Has the current console cycle peaked? Yes: 32 squeezed on to a cartridge. Yes: 41 No: 20 No: 11 “Well, I hope it is. It was announced last According to Tallarico, it’s been only Some of the “yes” comments included April 1, though, so you never know.” in the past few years, following GTA’s “Sure it has. Let’s get the discounts out of lead, that publishers and developers the way, make this whole thing mass mar- Q: Did the holiday season meet your have allotted more time and money for ket, and move on to the next one” and expectations? the audio aspect of games. Game makers “Yes, but more for the console makers than Yes: 25 now actively seek professional writers to the software guys.” The most vocal “no” No: 27 spruce up a game’s dialogue, giving voter said, “This is a classic double-peak Let’s let a VP for a large publisher have additional depth to the professionally cycle. Just wait.” the last word: “Depends on what you read lines. So the increased attention on mean by expectations. For instance, expec- voices is helping the scripters, too. Q: Which company are you most tations from when? Our November 1, bullish about for the remainder of the November 15, December 1, and December Gamers remain a fickle but devoted current cycle? 15 expectations were all over the place. audience. Solid games will be rewarded Sony: 37 So, yes, we did somewhat better than I with millions of units of sales. Microsoft: 14 was afraid we’d be doing around Increasingly, Hollywood voice talent is Nintendo: 1 Thanksgiving. But back around Labor seen as a necessary component of such a We heard variations on “Sony is unstop- Day, I thought we’d kill this Christmas.” hit. Every blockbuster game needs to pable.” We were also told, “Every day, keep up with the EAs and Take-Twos of Microsoft knows more and more about the If you would like to be considered for par- the world. ■ industry. No one is smarter.” ticipation in a future survey, please write to [email protected]. ■

January 23, 2004 gaming industry news 9 GIN _03 pt 2.qxd 1/23/04 11:18 AM Page 10

Four Big Questions Ultimate Arena top dog Mike Cassidy submits to the ultimate test

Ultimate Arena’s chief executive officer, spoke to Cassidy about what he sees ahead. Mike Cassidy, comes to the online gaming UP/DOWN business with an interesting pedigree. He Q: What’s the biggest difference between Take-Two stock was, most recently, CEO of Direct Hit, an the Internet business and the gaming busi- On January 8, Southwest Internet search engine he helped found in ness? Securities raised the compa- 1995 and sold in 2000 to Ask Jeeves. In one crucial way, they’re the same: ny’s rating from neutral to Success comes down to deal making with strong buy. Must have been For years, there have been sites (like the powerhouses. In the Internet space, a good holiday season. EA’s Pogo) that let people play social they were Microsoft, AOL, and Lycos. We games for money. Now these sites have did deals with all three. In the game space, Take-Two stock expanded their businesses and begun offer- for us, the powerhouses are Valve, EA, Only weeks earlier, ing brokerage services for multiplayer and Epic. From day one, we’ve been Southwest had downgraded games. Ultimate Arena, which hosts com- working on deals with those guys. There’s Take-Two from strong to neu- petitions for America’s Army, Counter- a great similarity in how concentrated the tral, anticipating a lousy hol- Strike, and Unreal Tournament, boasts power is and how key it is to get deals iday season. tens of thousands of active players. with those players. Ultimate Arena knows the mind of the competitive gamer well: Its chief gaming The big difference is pace. Direct Hit did your results on the Web. Xbox Live has a officer is Dennis Fong, who in his free time a deal with Microsoft in 10 days and one system for seeing where your buddies are, has been known to be a world-champion with AOL in four weeks. We recently had communicating in real time. It has a unified Doom and Quake player. our one-year anniversary at Ultimate interface for playing all games. Arena, and there are deals we’ve been Ultimate Arena charges entry fees and working on for 10 months that haven’t Q: What’s the future of massive multiplayer takes 15 percent of the pool for its games. closed yet. Some of our biggest deals have on handhelds? The company also shares with the makers taken five or six months to close. My board of advisors and board of direc- tors keep saying that handheld is going to be huge and that we need to get in there. CONSOLE MULTIPLAYER GAMING WILL For me, I’m just perplexed. People are play- EVENTUALLY OVERTAKE PC-BASED ing graphically rich games online and play- ONLINE GAMING. ing them quickly. Anything with more than a 40ms ping time is unacceptable. of the games. “We share revenue based on Handheld could be a cool platform for the amount of support and integration a Q: What’s the future of massive multiplayer other kinds of games—social interaction company gives us,” Cassidy says. “If some- on consoles? games, social network games—that are not one just gives us permission to do it and Console is a bigger gaming market overall, latency dependent or graphics intensive. wishes us good luck, they get a relatively but right now, the PC is bigger for multi- small share. If they build Ultimate Arena player. Console multiplayer will grow very Q: You’ve said what you offer is not gam- into the game, what they get is substantial- rapidly because the installed base is larger bling because you host games of skill and ly higher.” and will eventually overtake PC-based not chance. And you’ve built in some pro- online gaming. We’ve seen some interesting tections, like limiting players to adding only As part of our ongoing series of inter- console/PC integration stuff lately, where $50 at a time to their accounts. But what views with gaming industry CEOs, we you can play a game on a console and see about the line between videogaming and gambling? Isn’t it getting more blurred? MOBILE GAMING REVENUES: If it is, I haven’t seen it. Most of the com- PICK YOUR FAVORITE ESTIMATE panies in the skill-games space are very careful. They don’t even want to take ads 2001 2002 2003 2006 2007 2008 from something that might blur the line, such as online casinos and the like. Most of Frost & Sullivan (July 2002) $0.44 — — — — $9.34 the CEOs I know in the skill-games space Informa Media Group (Aug 2003) $0.24 $0.59 — — $3.78 — want to maintain a clear distinction The Research Room (July 2003) — $0.60 $1.50 $2.19 $4.13 — between skill games and gambling. Our Wireless World Forum (2003) — — $0.54 $.54 — — business success is dependent on that. ■ Source: www.emarketer.com

10 gaming industry news January 23, 2004 GIN _03 pt 2.qxd 1/23/04 11:18 AM Page 11

Too Soon to Verify The hottest industry tips, unfiltered

Editor’s note: Throughout Gaming We’ve heard that Blizzard has signed a deal UP/DOWN Industry News, we endeavor to stick close with a major manga publisher to develop to the facts and make assertions based only comic books based on the game. Games Sony’s PSP on the evidence. But not here. Every month and comics have a long shared history, but It’s the better part of a year in this space, we’ll report the juiciest of sto- according to our source, “This is different. away (expect a November ries—those we’re pretty sure won’t get us Most of the time, it’s been comics that have launch), but everyone’s sued...or you fired. been turned into games. Now that manga is talking about the so huge among teens, we’re going to see a upcoming handheld. Are massively multiplayer online social trend going in the other direction. Turning games—i.e., those that don’t involve shoot- games into comics is going to be a very suc- Tapwave’s Zodiac ing or pretending you’re Lord of the cessful business.” It’s out now and it’s great, Realm—heading for a shakeout? The fail- but no one’s talking about it. ure of The Sims Online to capture a Sims- WarCraft is quite successful, but the At least it’s not being made size audience (despite front-page coverage online games dominating the U.S. market fun of, like Nokia’s N-Gage. everywhere from Wired to The New York might want to eschew too much success. A Times) seems to be having a ripple effect. If Korean mental-health professional tells us Life 3 as the two big launch titles, unless you believe the rumors, the virtual environ- he and his colleagues are “fighting an epi- the EA/Xbox Live deal goes through. This ment There has laid off between one-third demic” of online-game addiction that “tech console will blow your mind!” It went on and one-half of its staff. companies here are trying to keep quiet.” like that for three more paragraphs. We Americans may joke that EverQuest is were intrigued and about to contact Eager to put the online mess behind it, “Evercrack,” but when you move a popu- Microsoft to get a confirmation or (more EA is pushing The Sims 2 “harder than any lar online game to a country that has much likely) a denial when we looked at the love- new game in their history,” according to a higher broadband penetration, it’s not so ly forged e-mail address: edfriesno- buyer for a large electronics-store chain. funny anymore. [email protected]. “My guy there told me they have more rid- ing on this than anything else in 2004, and Also not funny is the trend in American Speaking of Ed, the departed Xbox exec- they’re going to be ruthless about getting universities of women shying away from utive has been the subject of some hilarious shelf space, even if it means some of their computer-science classes and, hence, com- rumors and conspiracy theories since his other games get short shrift.” We’re sure the product manager for the new Def Jam IS ELECTRONIC ARTS “PUSHING THE SIMS Vendetta won’t want to hear that. 2 HARDER THAN ANY NEW GAME IN THEIR HISTORY”? When it comes to The Sims Online, aside from the financial disaster associated with puter-science careers. We’ve heard from abrupt departure from the Redmond Giant. it, EA execs would probably most like to two professors at two well-known univer- Although the more sedate buzz has him forget player Peter Ludlow, whose sities—one in California, one in going to Nintendo or starting up something Alphaville Herald online newspaper, a Massachusetts—that are developing pro- new, our favorite piece of gossip came in an tabloid about the world of The Sims grams in game development. Says one e-mail (with an unforged microsoft.com Online, got him kicked off the game and professor, “It’s a mix of art and science, address) that claimed, “This is just a nego- has led to a PR mess. But we’ve heard some and it’s the only way we can think of to tiating tactic. He doesn’t want to go. He more about what’s really happening inside get more women back into computer-sci- wants Robbie Bach’s job. He’ll be back the virtual world (from a CEO who should ence departments.” shortly. Just wait and see.” Robbie Bach? really spend his time in other pursuits): As Why stop there? Maybe Ed is angling for any Sims player knows, if you don’t let Finally, what’s a rumor column without a Steve Ballmer’s job. No, not high enough. your Sim relieve himself in an appropriate reference to Microsoft? Bill Gates’ job? Yeah, that must be it. place, at some point he will do so in an inappropriate one. In the online game, One correspondent writes: “Man, you Do you have specs for the new there are at least two groups of players should have been at Microsoft’s secret suite Nintendo device that you’d like to share? who “save it up,” go as a group to an at CES. The Xbox 2 rocks! It has a 3.2GHz Are you the real Ed Fries? Do what your unsuspecting player’s property, and—boom! processor, 160GB hard drive, writable colleagues are doing: Sign up for an DVD, broadband accelerator, full Nvidia anonymous e-mail account and write to One multiplayer online game enjoying a emulation, awesome design. We’re looking me at [email protected]. different kind of explosion is WarCraft. at Knights of the Old Republic 3 and Half- We can’t do it without you. ■

January 23, 2004 gaming industry news 11 GIN _03 pt 2.qxd 1/23/04 11:18 AM Page 12

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