GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 1

VOLUME 1, ISSUE 2; DECEMBER 21, 2003

Happy Holidays? The bipolar pendulum seems to be swing- licensed properties, is finding that it’s possi- prices early in the year (definitely before ing back and forth so quickly that you’d ble to abuse franchises: Without a new book ). THQ also said that it has PSP emula- think everyone in the videogame industry or film with which to cross-promote, Harry tors on hand and has begun development were wearing neck braces. Several months Potter: Quidditch World Cup is not perform- for that promising platform. ago, industry wags maintained that ing as expected. It will be interesting to see ’s third-place standing in the what EA learns about a movie tie-in game— In 2004, videogames will become even console race was permanent enough for without a movie to tie in with it—as it pre- more mainstream purchases. In a recent pre- the company to get out of the hardware pares a big Lord of the Rings game for next sentation, CFO Warren business. Now, a huge price cut later, year, a year with no Lord of the Rings film. Jensen reminded an audience of institutional Nintendo will come out of the holiday investors that during the previous cycle, shopping season with a strong second- “I’m not sure how thankful I am,” an more than 90 percent of PlayStation 1 sales place showing. East Coast electronics-chain buyer told us in came after the price dipped below $149. mid-December. “We could have done with- “That brings mass penetration,” he said. In early November, chains like Electronics out the blizzard. I don’t think it was disas- “That hasn’t started yet in this cycle.” These Boutique were lowering earning expecta- trous, but it did slow down the momentum are optimistic words from an executive who tions, but by late November, resellers were it looked like we were building right after also mentioned that EA enjoyed 22 million- more optimistic, pointing to a report by Thanksgiving. Things are going OK. We selling titles this fiscal year, up from 16 the Harris Nesbitt Gerard that PlayStation 2 didn’t think it was going to be that much year before. ■ game sales were up 7 percent for the year better, but we were seriously afraid that it so far. Shortly after the early December was going to be much, much worse.” TABLE OF CONTENTS Northeastern blizzard, buyers seemed to be returning to Chicken Little mode, a state As the buyer uttered these words, he COMPATIBILITY reinforced by some unhappy post- picked up a Terminator 3 box. “I know this CONUNDRUM Thanksgiving news from Best Buy, which sounds crazy because so much of our busi- Will the next play the current Xbox’s reported a double-digit drop in game sales ness comes in December, but some of the games? since the year-ago quarter. stores are telling me that, when it comes to PAGE 3 games, they want to get the holiday season As this issue goes to press, enough Tony out of the way and get the big games for Hawks and WWE Smackdowns are mov- next year—like the new Halo and Half-Life MOVIE MADNESS ing past cash registers to keep the lithium and Doom—out already. Those will bring How to make sure your game-based movie capsules at bay (plus, Saddam’s capture is in incremental traffic. For electronics stores, isn’t the next Street Fighter said to be helping retail sales). There’s no we have plenty of other things in December PAGE 4 apparent breakout game this season to bring in traffic. After Christmas is over, (another Grand Theft Auto soon, please!), we’re going to need some hot games with SHANGHAI SURPRISE but there are enough solid performers and titles that people have heard of to bring pleasant surprises (like Need for Speed people in.” PlayStation 2 comes to China. The pirates Underground; leave it to industry giant are waiting Electronic Arts to score the unexpected hit) Expect news to heat up on the develop- PAGE 8 to keep the nail biting to rational levels. If ment side, as well as the retail side, after the last year was a once-in-a-cycle year, the dip holiday season is safely behind us. Those PRODUCT OF THE YEAR this year is still surprising. who listened in on THQ’s most recent quar- terly conference call were privy to some What had the biggest impact? Not everyone is happy this holiday season. clear hints as to what the first part of next PAGE 9 Atari’s Terminator 3: War of the Machines is year will look like. an expensive nonevent, and we see the com- TOO SOON TO VERIFY pany is discounting Enter the Matrix because To counter the big GameCube price drop The hottest industry tips, unfiltered poor word of mouth has begun to over- (it’s listed at $99, but we’re seeing it pro- whelm its heavy marketing. Even Electronic moted at $79), company executives expect PAGE 11 Arts, the unchallenged leader in sustaining both and Microsoft to cut console GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 2

Who’s Got the Patents? EDITOR-IN-CHIEF Jimmy Guterman Total Utility Game Patents Registered [email protected]

1200 ZIFF DAVIS MEDIA 1,017 500 UNICORN PARK DRIVE 1000 WOBURN, MA 01801 781-938-2639

800 ART DIRECTOR: Jason Babler

600 516 COPY DESK: Tom Edwards, Greg Ford,

Susie Ochs, Maritza Refuerzo 400

PRODUCTION: Carlos Lugo, Michele 217 200 175 Manousos, Anne Marie Miguel 107 114 8 0 CIRCULATION DIRECTOR: Chris Wilkes 0 [email protected]

EA ega claim S Sony apcom Ac C ZIFF DAVIS GAME GROUP ctivision Nintendo Take-Two A Microsoft Infogrames SENIOR VICE PRESIDENT: Dale Strang

PUBLISHER: Lee Uniacke Patents Issued by Company, 2000-2002 EDITORIAL DIRECTOR: John Davison 450 BUSINESS DIRECTOR: Cathy Bendoff TOTAL 400 350 Copyright © 2003, Ziff Davis Media, Inc. MICROSOFT All rights reserved. No material in this 300 publication may be reproduced without

250 written permission. Bulk orders, reprints, 200 and site licenses are available. Subscriptions cost $995 per year. Visit 150 http://www.gamingindustrynews.com for SONY 100 our best subscription offer. Gaming NINTENDO 50 Industry News is published monthly by Ziff Davis Media Inc., 28 East 28 St., 0 2000 2001 2002 New York, NY 10016. Source: United States Patent and Trademark Office — compiled for Gaming Industry News by Mark Terry 2 gaming industry news December 21, 2003 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 3

The Price of Compatibility The next Xbox will play current Xbox games. But Microsoft might have to jump through some fiery hoops just to make sure By Dean Takahashi

Microsoft is keeping many (most?) details possibility to make a compatible Xbox.” Microsoft, but each carries some risk: about its next-generation Xbox console He didn’t discuss specific products his under wraps, but at least one of the choices company is making for Microsoft, but he • It could achieve partial compatibility that Redmond has made public is stirring a says that if you just consider the timing through software that doesn’t exploit some spirited debate. Will Xbox Next, as it’s now (about five years) between the consoles, of Nvidia’s technology, but that may mean being called, play games designed for the then Moore’s Law dictates that the new older games won’t look as good on the next original Xbox? Your answer depends on machine will be eight times as fast as the Xbox. Microsoft can license either intellec- who you ask. old one. With such an increase in raw pro- tual property or reuse Nvidia chips and

Microsoft has kept mum about the next Xbox, except in two major areas. The com- MOVING FORWARD, MICROSOFT WILL DO pany has announced that ATI Technologies WHAT IT MUST TO PLEASE ITS CURRENT- will provide graphics technology for Xbox GENERATION XBOX CUSTOMERS. Next, while IBM will provide PowerPC microprocessors and Silicon Integrated cessing speed, Xbox Next should have incur additional costs above and beyond Systems will supply a chipset. In choosing plenty of horsepower to emulate the old what it will pay for the IBM and ATI chips. these companies, Microsoft appears to have games via software. That is, the new hard- Considering Microsoft lost more than $100 broken its ties to previous vendors Nvidia ware will be fast enough to execute the old per unit on much of its original Xbox hard- (graphics) and Intel (microprocessor), which games even if they have to run through ware, that doesn’t seem likely if the compa- weren’t as eager as their rivals to retain software translation. ny wants to make money the next time Xbox business by being the lowest bidder. around. A software solution eschews most On the processor side, Microsoft might outside licensing expenditures. Jen-Hsun Huang, CEO of Nvidia, says have to employ its Connectix software to his guess is that the next Xbox won’t be get the Intel code to run on the IBM • It could risk broadly interpreting its compatible with the old one. “It’s virtually PowerPC. That problem raises the prospect prior deal with Nvidia by using Nvidia’s impossible on many levels,” he adds. “On of additional costs and engineering efforts. technology and not paying for it. That an intellectual-property level. On practical “It’s not a trivial amount of work,” says would risk a lawsuit. levels, too.” Dean McCarron, an analyst at PC-chip market researcher Mercury Research in • It could choose to simplify matters, for- When asked to explain (might this be Scottsdale, AZ. “It will be a massive task get about compatibility, and endure the sour grapes talking?), Huang says for cost of integrating different technologies.” wrath of consumers. This would be a big reasons, Microsoft isn’t likely to be willing mistake, considering that Sony—its main to put additional chips in the box to ensure ARE THEY BOTH RIGHT? competitor—benefited enormously by mak- hardware compatibility. Moreover, he sug- McCarron maintains that both Nvidia ing PlayStation 2 compatible with the origi- gests that current Xbox games make use of and ATI are right to some degree in their nal PlayStation. Even if fans played original Nvidia’s proprietary graphics shaders and interpretations. He thinks Nvidia won’t PS1 games on their PS2s for only a couple that Microsoft might have to license them be able to stop Microsoft from running of months, the compatibility gave them a to use them again. old Xbox games in software on the new solid reason to stick with Sony. The last machine. And even if Nvidia does hold thing Microsoft wants to do is give existing Jon Peddie, analyst at Jon Peddie intellectual-property rights, it will not Xbox enthusiasts a reason not to upgrade. Research, supports Huang’s position. He enforce them against Microsoft. After all, notes that Nvidia may likely have propri- most Xbox game developers write their For Microsoft, these hard choices are the etary technology in its secondary Xbox software to run on Microsoft’s own price of not working with the same part- chip, the media and communications con- DirectX application programming inter- ners. Any sane observer knows that troller, which handles functions like sound face, not specifically on Nvidia hardware. Microsoft will do what it must to please its processing. That chip, perhaps more than McCarron also says ATI should be able current Xbox customers. In doing so, the the graphics chip, is likely to contain tech- to closely approximate the way an origi- company may learn that a low price can nology that Microsoft will have to license, nal Xbox game looks with its own ren- come at a high cost. ■ Peddie says. dering hardware. Dean Takahashi is the author of Opening By contrast, Dave Orton, president of On a business level, original Xbox emu- the Xbox: Microsoft’s Plan to Unleash an ATI, says, “It’s not outside the realm of lation on the next edition raises options for Entertainment Revolution (Prima).

December 21, 2003 gaming industry news 3 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 4

Think Small You don’t need a titanic budget to turn your hit game into a hit movie By John Gaudiosi

Hollywood has dubbed videogames “the to the big screen—at least not yet. With cin- optioned the film rights for Majesco’s new comics,” and there continues to be a ematic stories built in, these seem like no- BloodRayne and has slated spring 2004 for feeding frenzy by movie producers acquiring brainers, but often, agents and producers principal photography to commence on the the rights to videogame franchises both big rush into the next big thing without any $20 million feature. Boll has sequels (Silent Hill, SpyHunter) and small knowledge of the subject. Films such as planned for all of his game films. Based on (BloodRayne, 3). But for every Mortal Kombat and Resident Evil worked the returns of House of the Dead, which big-budget feature in development, there are because Paul Anderson, the writer and opened with $6 million during a crowded a handful of moderate- to low-budget films director of those films, knows games. holiday weekend, Boll’s investors splurged in the works. A small group of producers, with $50 million for a fantasy epic based on many of whom grew up playing “I see a lot of game companies giving Gas Powered Games’ Dungeon Siege, which videogames, are taking a more cost-effective rights to Hollywood producers they trust he likens to a smaller-scale Lord of the approach to launching a game franchise on because of previous films, but these pro- Rings. A second House of the Dead has the big screen, which could result in better ducers have no idea what a videogame is,” been greenlit with an $11 million budget returns at both the box office and in future says director . “That’s why and will begin production next fall for a videogame sales. movies like Doom haven’t been made [yet], March 2005 release. because it’s the wrong people getting the These days, you don’t need $100 million rights to these properties.” Thanks to cost-cutting efforts such as to get your videogame on the silver screen. filming in Canada, working with a smaller With the right producer and enough invest- On the low end of the spectrum, Boll KG crew, and creating a unique coinvestor part- ment dollars, a solid movie can help expand and Mindfire Entertainment created a $12 nership with post-production house Toy the life of a successful game franchise or million horror film based on ’s House Box, which is doing the effects for Alone in take a new IP and turn it into a franchise. of the Dead, which has made back its cost the Dark, Boll has been able to make his The key to success in Hollywood isn’t nec- in its domestic run. The film’s German movies look bigger onscreen. The goal for essarily attaching the biggest-name producer director has also filmed Atari’s Alone in the both Boll KG and Mindfire Entertainment is or star to a game-inspired movie—it’s ensur- Dark starring Christian Slater, Tara Reid, to get videogame-based films into theaters ing that the movie gets made in the first and Stephen Dorff. Boll was able to secure for affordable budgets and then gradually place. There’s a reason why games such as $20 million and a recognizable cast by tackle larger projects down the line once a Doom, Half-Life, and Halo haven’t made it building on the Sega film. He has also track record has been established.

HOLLYWOOD 101 last year, into a feature film that could Michael Brandt and Derek Haas (2 Fast 2 HOW TO MAKE SURE YOUR GAME- cause the franchise to explode. Furious), the film has star power with BASED MOVIE DOESN’T BOMB The blockbuster success of the original Dwayne “The Rock” Johnson. , which grossed over $300 “Making a movie based on a videogame If there were a formula for turning an IP million worldwide, as well as the decent is no different than making a movie based into a guaranteed hit, we wouldn’t have to return on the sequel (roughly half of that) on a novel or a comic book,” says Adrian sit through all those crappy movies that can be tracked directly to Angelina Jolie. Askarieh, who’s producing the summer Hollywood churns out. But there is a way Unfortunately, the films failed to create 2005 tent-pole film with Chuck Gordon. to reduce the risk of a videogame becom- the kind of event feel that lured the origi- “You have to see what makes that game ing the next Double Dragon. nal viewers, but the franchise is still alive special—what made you want to adapt it It all starts with a cool concept that can because of Jolie. into a movie in the first place. SpyHunter translate to the big screen. A large num- doesn’t work unless it’s made as a global ber of games heading to Hollywood have CARS, GADGETS, AND A ROCK adventure with incredible vehicles and one thing in common—a sexy protagonist Another factor in formulating a hit movie stunts. You also need a major movie star in some type of skintight leather outfit. is cool toys. James Bond has been able to like The Rock to carry this type of movie.” With an endless supply of young evolve over the decades because of a There are pitfalls to a big star, especially Hollywood actresses, especially in the TV never-ending supply of souped-up exotic for smaller-budget affairs. Film producer business, mixing an up-and-coming starlet cars and I-wish-I-had-one-of-those gad- Jeremy Bolt notes that the bigger the with a cool character should translate to gets. Universal Pictures’ $100 million star, the more studio involvement. Certain box-office success. Just look at what Alias SpyHunter movie, based on Midway’s clas- stars can also add input that could detract star Jennifer Garner did for DareDevil. sic car game, follows this prescription. In from the spirit of the game character. This equation let a small publisher like addition to transforming vehicles, spy gad- The recent worldwide success of the Majesco turn BloodRayne, a modest hit gets, and chase sequences from scribes three Matrix films proves that everyone

4 gaming industry news December 21, 2003 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 5

realize that games have that potential,” says Higher price tags and big stars tend to CROSSING OVER Bolt, who has produced the Resident Evil lessen a producer’s, or even a director’s, “The plus side for Atari, which will release movies and has a $50 million Driver and a ability to helm the ship without interfer- the new Alone in the Dark game in fall $25 million Dead or Alive feature in devel- ence. Bolt also believes it’s important to put 2004 in conjunction with the film, is that opment. “It doesn’t mean you spend $100 a lot of money into marketing the movie, they have access to everything we filmed, as million on a budget for a game movie. But which helps both the theatrical and later well as our CGI,” says Boll. “In addition, if you’re sensible like we were with the first DVD release of the property, as well as help Christian Slater, who plays Edward Carnby Resident Evil and you spend around $30 the game get mass-market publicity. in the movie, will provide the voice and million, that movie’s going to open. likeness for that character in the game.” Whether it lasts after the opening depends KNOW YOUR PROPERTY, on if the movie’s any good. But Hollywood LIMIT YOUR RISK It’s these kinds of crossovers that open up today is all about the opening.” “There are a number of studios around the additional marketing potential for game world looking at similar smaller-scale companies. When Slater promotes the According to Bolt, research shows that movie models where the risk isn’t great,” movie, he’ll also be able to speak on behalf about 80 percent of weekly filmgoers, explains Bolt. “The only ones who can take of his experience with the game. One of the mostly teens and twenty-somethings, are massive movie flops are the five studios. reasons more mainstream media are cover- videogame players to begin with. That Our approach means that if the movie ing videogames, besides the $30 billion gives any videogame-based movie a decent doesn’t work, it’s not going to be the end of worldwide gross, is the increasing involve- shot at finding a nice opening weekend. the company.” ment of Hollywood talent. It’s also the reason that so many videogame ads now play before the com- “I’m a big believer that there are a num- According to producer Jeremy Bolt, who ing attractions at your local multiplex. It’s ber of different versions of any game for the heads Impact Pictures along with the same target audience. big screen, including a low-budget, moder- writer/director/producer partner Anderson, ate-budget, and grand-budget take on the game companies today are primarily con- The first Resident Evil grossed $100 mil- franchise,” says Scott Faye, producer for cerned with getting the movie made, which lion worldwide, including $40 million Collision Entertainment, who’s developing takes precedence over how many millions domestically, which allowed Impact Pictures Alice, Clock Tower 3, and Max Payne for they can get for the film rights. to get a budget of around $40 million for about $40 million each. the sequel from Constantin Films and “Hollywood has become younger. People Screen Gems. By splitting the costs of these The millions of dollars spent to market are looking for a guaranteed built-in audi- films, Bolt and other producers are able to the theatrical, pay-per-view, and DVD ence for opening weekend. Studios now garner more creative control over a project. releases of the film will generate impressions on a larger audience than any single target- ed videogame ad campaign could buy. The likes a big sci-fi adventure (and fans will released a few years back. That game is burgeoning DVD category, in which a hit keep going to some franchises no matter how being turned into a $40 million movie by movie like The Hulk can sell more than 2.5 bad the word of mouth). There’s no shortage film producer Scott Faye. Again, everyone is million units in its first few days, also opens of epic sci-fi videogames that have sold mil- familiar with Alice from Wonderland. up bundling opportunities for games and lions of copies around the globe. Laura A game doesn’t have to be three sequels the ability to put playable game demos on Ziskin, who turned Spider-Man into a global into its franchise to go to the big screen like the movie DVD. Next year will see the sensation, is now producing Deus Ex for the original Tomb Raider, although by that largest number of videogame-based movies Columbia Pictures. The film will follow the time, a movie could give the IP a jolt of new ever in production in Hollywood. exploits of counterterrorist JC Denton and life (Alone in the Dark should provide such a include elements from both Eidos games. jump start next year). New game properties While there will be more misses, The right producer is also crucial to a (BloodRayne, Dungeon Siege, Oz), as well as Hollywood producers seem to be learning game’s transition to celluloid. These days, it classic games (Shinobi, SpyHunter, Area 51), from their mistakes. Today’s writers, seems like Jerry Bruckheimer can do little can translate to film if done properly. directors, and producers—at least some of wrong on the big or small screen (although “There are nice cinematics in many them—realize that not every good game we suspect Fox TV will be smarting from videogames, but that doesn’t mean the makes a good movie. “There has to be Skin for some time). The fact that he’s game will work as a movie,” says Paul something inherent within a game that going to turn American McGee’s Oz game, Anderson, who directed Mortal Kombat and would work as a film. It has to go beyond which hasn’t been released yet, into a trilo- Resident Evil. “I’ve seen a lot of games a game that looks cool on the small gy of $100 million blockbusters, bodes well snatched up and read the scripts, only to screen,” says Anderson. With more than for the company that publishes the game. realize they wouldn’t work as a film.” Not 1,200 games shipping this year, there will The game’s story, a retelling of The Wizard every virtual hero, it seems, can make the be plenty of choices for Hollywood to of Oz, has built-in familiarity, as does jump and go linear. make going forward. ■ McGee’s Alice, which Electronic Arts -J.G.

December 21, 2003 gaming industry news 5 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 6

Is Your Game a Movie? A film can expand a brand, but it’s the core game that keeps customers coming back By John Gaudiosi

There’s no set formula for making bringing out a movie based on the game? It videogames into movies, according to won’t necessarily sell more Xboxes. UP/DOWN agents from Creative Artists Agency Gamers, both hardcore and casual, will Prince of Persia (CAA), International Creative buy an Xbox for Halo 2 and Halo 3 if they Reviews Management (ICM), William Morris don’t already own one. Many enthusiast publica- Agency, and Endeavor. That explains why tions and sites are calling some games, including nonblockbuster Another key factor is finding the element the revived title the Game of titles such as BloodRayne and Clock within a game that would work on the big the Year. Tower 3, have big-screen adaptations in screen. While its gameplay was revolution- the works, while big franchises such as ary in terms of story and action, Halo as a Prince of Persia Metal Gear Solid, Halo, and Half-Life potential movie is basically a rip-off of Sales remain in the interactive realm. Aliens and a number of other sci-fi films. It’s a great game. It’s a Movie audiences have already seen some- familiar brand. Why isn’t it Both Halo and Half-Life are represented thing very much like it on the big screen. a hit? by CAA, which handles all of Microsoft When you pile a bunch of past movies Games Studios’ properties, as well as devel- together into a new story, you get a box- control over its IP. trusts Impact oper Valve’s. Larry Shapiro, the CAA agent office bomb on the level of Soldier. That Pictures with its Resident Evil movies, and who handles videogame deals, says that wouldn’t be good for the game franchise. that relationship has worked. One source both Valve and Bungie are currently focus- says that Konami wanted director ing on the game franchises, but they want The same holds true, for the most part, approval—something many Hollywood to take them to another medium when the for Half-Life. Valve has been preoccupied producers don’t even get with a studio pic- time is right. of late with getting Half-Life 2 out and ture—as well as a part in the marketing budget, script, and cast selection. WHEN YOU PILE A BUNCH OF PAST MOVIES TOGETHER INTO A NEW STORY, .One needs only to watch Final Fantasy: YOU GET A BOX-OFFICE BOMB. The Spirits Within to see what happens when a game maker tries to make a You might think that time is now, but dealing with the theft of the bulk of the Hollywood movie. Square is still hurting other Hollywood insiders say that shopping new game’s code. But even before then, the from the reported $200 million it lost on Halo isn’t so easy. Microsoft has a lot studio had to live up to the gaming com- the Final Fantasy movie. invested in the game, which is the top fran- munity’s amazingly high expectations. chise for Xbox. What benefit is there in Gamers expect perfection with sequels. One reason many games aren’t optioned Fans are far kinder with movie sequels than for movies these days, according to ICM GAMECUBE CAN’T game sequels, and getting a big-screen agent Keith Boesky, is that most game pub- CATCH PS2 adaptation made is a secondary priority to lishers are reactive to Hollywood, rather Last month, Nintendo began hyping the these companies. than proactive. Boesky brokered the Tomb fact that its dramatic GameCube price Raider movie deal back in fall 1997 when cut has dramatically boosted console Konami is a completely different story. he ran Eidos, and it was part of his compa- sales. But don’t think the low price—list- The Japanese developer has a history of ny’s plan to grow the franchise from games ing at $99, and we’ve seen many retailers being difficult to work with, according to to films. Since then, Eidos has optioned discounting GameCube to as low as $79— producers and others directly involved only one other game for the big screen: means Sony’s dominance in the current with the company over the past few Deus Ex. And other game publishers focus cycle is in any danger. The same day years. A-list producers have been salivat- on where the money is—developing hit Nintendo sent out a press release harping ing over Metal Gear Solid for years, and game franchises. on its successes, the Software the game has only increased its fan base Dealers Association released its list of with recent sequels and a video of the After years of development hell, Doom 3 the top 10 games by rental revenue for series’ next game. is finally on a fast track at Warner Bros. for the previous week. All 10 slots were for a feature film. And deals will eventually be PlayStation 2 games. Selling more con- While game publishers like Capcom— made to bring Halo, Metal Gear Solid, and soles is, of course, a good thing in the which took a bath with its only foray into Half-Life to Hollywood. A successful movie short run for Nintendo, but it’s too late movies, Street Fighter: The Movie—may can boost even the most popular game’s for the company to convince outside have learned from their mistakes, Konami awareness—and that draw will always keep developers that it can catch Sony. wants to hold an unprecedented amount of games in play in Hollywood. ■

6 gaming industry news December 21, 2003 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 7

Four Big Questions Hank Howie, Blue Fang Games

Each month in Gaming Industry News, we Conversely, the biggest difficulty in main- PS-LESS SONY DELIVERS LESS PSX THAN IT ask an industry insider some big questions. taining a gaming brand is keeping it fresh. PROMISED This month we turn to Hank Howie, presi- It’s challenging from a creative standpoint, dent of Blue Fang Games, maker of the sure, but most developers would like that In the inaugural issue we looked at PSX, Zoo Tycoon line of PC games distributed problem. the “convergence” device with TiVo fea- by Microsoft. tures and an integrated PlayStation 2, Q: How important is the console cycle to a Sony is readying for market. Since then, Q: Which is harder, starting a new gaming company that sells PC games? Sony announced a release date for the brand or maintaining it? It definitely has an impact, and one of the unit: December 13, only in Japan, with a Starting a new brand. Especially in the cur- biggest impacts is shelf space at retail. move into the European and North rent risk-averse climate where licenses and Console products and sales have been American markets at an unspecified date established gaming brands are greatly pre- steadily encroaching on PC game sales, and next year. But in order to get the PSX out ferred by publishers, trying to develop a this phenomenon is only exacerbated in in time for Christmas, a number of fea- new property, let alone establish a new new platform launch years. tures Sony officials promised back in gaming brand, is exceedingly difficult. October are now gone. CD-R and DVD-RW Q: What would it take for Blue Fang to discs won’t work, nor will CDs encoded UP/DOWN consider developing for new platforms? with MP3 tracks or TIFF or GIF images. A compelling business model. Wireless The promised 24x DVD recorder (DVD-RW Terminating games are like the Wild West. There’s format only) is now a 12x recorder, but Questionable Games opportunity, but you could get killed. As there are assurances this will be updated Deciding to abandon a for online, particularly of the massively with a downloadable upgrade. Sony offi- doomed title prior to release multiplayer sort, there are just too many cials are talking about upgrades next may result in a short-term players with too many products targeted at year, but there are no firm dates or speci- public relations debacle, but doing so is a a limited customer base. In both arenas, fications attached to these enhance- sign to the industry that there’ll be a lot of tears and bloodshed ments. someone in a company can before things settle into some semblance Much of what Sony will do with the PSX sense reality. of sanity. is educating the market about a new type of device. Since there are no long lines Terminator 3: War Q: Will you extend your current brands or expected when the PSX hits store of the Machines attempt something brand-new next? shelves, it would have made more sense Thirty-two people can play the PC version That’s a great—and nearly prescient—ques- for Sony to have a complete unit ready simultaneously, the box promises. It’s tion, because it’s one we’re wrestling with upon initial release. This trickle-out unclear whether Atari has sold that many right now. We’ve been very lucky with Zoo launch—in which an inferior debut unit is copies of this dead-on-arrival tie-in, Tycoon and it makes all the sense in the quickly overtaken by an improved unit released nearly half a year after people world for us to continue to build on that. that’s much closer to what the original have forgotten the wobbly sequel film. Of course, from a creative standpoint there was supposed to be—will only add confu- This is bad news for a company whose are always other things we’re thinking sion at a time when the Japanese elec- revenue last quarter was down 40 percent about. But we pride ourselves on the com- tronics giant must convince analysts, from the same quarter last year. pany we’ve built. ■ investors, and consumers that it has a clear vision for the future. PS2 Comes to China But will consumers pay for the games? In a major step forward for the Chinese and Sony will release about three games per encourages people to fight against piracy game-development community, Sony month. The console arrives with third-party because they’d be protecting their interests debuted its PlayStation 2 in Beijing, support from publishers such as Konami, in intellectual properties. Shanghai, Guangzhou, Shenzhen, and Sega, Taito, and Namco, but it’s the “We have to realize the reality that pira- Chengdu this week at a price of $240. With Chinese developers that will likely decide cy cannot be controlled 100 percent not a potential market of 40 million people in whether PS2 thrives here. At a press confer- only in China, but also in other parts of the those five areas, Sony expects to expand to ence in Beijing, Hiroshi Shoda, chairman of world,” said Shoda. “We have to be coura- additional cities next year. Sony China, said that putting development geous in order to face the reality.” ■ Games will retail for about $20 each, in the hands of Chinese game makers - John Gaudiosi

December 21, 2003 gaming industry news 7 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 8

China: The Next Gaming Frontier? The upside is mind-boggling—but so is the piracy problem By John Gaudiosi

A new study from consultancies play games for $1 for an average of four FIGHTING PIRACY International Development Group and hours. This has opened up a healthy mas- Niko Partners paints a rosy outlook for sively multiplayer online gaming business In 2002, Nintendo conducted 125 raids game development and sales in China. model for the publishers that develop the on Chinese factories manufacturing Although plagued by piracy (95 percent of 110 online games available in the country. illegal copies of its product, resulting in console videogames and 96 percent of PC More than 7.4 million people played MMO the seizure of more than 1 million pirate games in the country sell for a mere $1 games in China in 2002, which generated products and videogame components. each), China is increasing its installed base revenue of $96 million. Unlike standalone In the first half of 2003, the number of of gamers, with over 2.6 million videogame console and PC games, which are easily illegal Nintendo products seized was up consoles and over 18 million PCs expected pirated, MMO game publishers charge to nearly 900,000 units. to be in homes by the end of 2003. Gaming monthly subscriptions to consumers and is expected to become more prevalent in Internet cafés. Consumers can also use pre- with U.S. and Japanese games, as Hong China in the coming years, due to the coun- paid cards to purchase virtual items within Kong is a very international city and piracy try’s 34 million males ages 14 to 24—the the online games. This business model lets knows no cultural bounds for content.” ideal demographic. publishers make money even if they give away the initial game for free—a common Yu says that the roadblock to game “China’s entry into the WTO at the end practice in China. development in China to date has been get- of 2001 triggered new rules and regulations ting console manufacturers to send devel- for trade and commerce, which should aid ATTRACTING DEVELOPERS opment kits. Piracy fears, which are legiti- in improvement of illegal business prac- China already has 60 game development mate, have kept these kits out of most tices,” says Anton Bruehl, president of studios, including ones owned by Konami, Chinese studios. Yu believes that develop- International Development Group. “Local Sega, and Ubisoft (the Ubisoft operation is ment kits for the next wave of consoles, and international industry players such as currently producing a new Splinter Cell which rely more on online gaming, will be Vivendi Universal Games, Electronic Arts, title). A growing number of Chinese pub- more widespread. and Ubisoft continue to learn about the lishers and developers are also gaining evolving Chinese game-playing community, exposure. “Foreign-owned studios in China are improving their understanding of which already developing high-quality games for products and services to offer.” “Beijing has long been the primary city their home markets, such as Korea, for PC-game software development and is Taiwan, and Japan,” says Lisa Cosmas, The Digital Entertainment Expo and now an active center for MMO game managing partner for Niko Partners, co- Conference in Beijing, which will be held development,” says International sponsor of the report. “If the games are January 16-18, should give China a heads- Development Group's Bruehl. “Shanghai successful in those markets, especially up on additional potential game investment has attracted more developers for console Japan, there is a higher likelihood of suc- possibilities. This Chinese equivalent of E3 games. These companies have developed cess in the West. This is also true for the is being sponsored by the government agen- games only for export, but they will soon Chinese-owned studios whose games gain cies responsible for videogames, and is develop for domestic use as well.” success in other Asian countries. The man- expected to become an annual event. agement and talent pools available in Paul Meegan, studio director of the U.S. Chinese-owned and -operated studios need China now boasts 200,000 Internet branch of Japanese videogame company to improve in order to develop games that cafés. Surveys say more than 64 percent of Jaleco, has traveled to many Chinese devel- will be in demand outside of China. And it customers use the cafés’ high-end PCs to opment studios, and he believes an infusion is key to appreciate that the culture in dif- of Westerners will contribute to game- ferent countries will dictate what type of MOVING DEVELOPMENT development growth. “Many Chinese game game is popular there.” NEAR CHINA, TOO developers are about five years behind North America—not only in technology, The sheer number of gamers in China Japanese game publisher Koei will open but also in experience,” he says. makes it an intriguing new market for its first full-fledged development studio game publishers. Navigating the piracy outside of Japan in Singapore in late “There is tremendous potential for the problems will require time and effort, 2004. Koei’s chairman and chief execu- local industry,” says Gino Yu, head of the whether through raids or through new tive Keiko Erikawa says Singapore was Multimedia Innovation Centre at Hong business models, like the MMO games. chosen because most natives are bilin- Kong Polytechnic University. “Most every- Piracy has helped the installed base of PCs gual in Mandarin and English and pro- one here has grown up with games because and game consoles flourish. Now it’s up to grammers understand creativity in of piracy, which makes games very afford- the game industry to find ways to build a interactive entertainment. able. Furthermore, local youth are familiar big, honest market. ■

8 gaming industry news December 21, 2003 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 9

Product of the Year It’s small, it might end up saving a company, and it’s about to get some strong competition Since this newsletter launched last month, wrongheaded bundling pack, a humiliating UP/DOWN many people have asked us to name the stop in production, and a desperate price product we think made the biggest impact drop, but the company still owns the hand- IBM on the gaming business in 2003. held business. It’s easy to imagine Nintendo The computing giant will pro- executives sending thank-you notes to vide the microprocessor We’re not going to do full-fledged for its stumbling N-Gage launch. for two of the three next- awards—our sister consumer magazines The Advance SP, released in generation consoles. and website 1UP.com do that expertly—but March, is an engineering marvel (elegant we do think it would be worthwhile to flip-top design), provides a clear solution to Intel consider what single item shaped the indus- its predecessor’s biggest problems Microsoft’s move to an IBM try the most this past year. And our criteria (rechargeable batteries and—more impor- PowerPC chip will hurt this were different from those of our siblings: tantly—a backlit screen), and is a primer chip behemoth’s bottom line. Here, we’re not focused on the coolest on how the hardware and software divi- The 10 million Xboxes sold product as much as the most influential sions of a company can work together. with Intel inside generated one. nearly half a billion dollars in Intel rev- Handhelds are a lucrative business that is enue. And if Microsoft can switch chips There have been many games that have about to get more crowded. Niche devices for its gaming platform, can Intel consider had an unexpectedly large impact (the revi- like the may nibble at the its Windows-processing dominance safe? talized Prince of Persia is a huge critical high end of the Game Boy demographic, hit), and some whose very existence but the latest crop of mobile-phone games remains a mystery (Sony must have been still don’t come within shouting distance of How dominant is Nintendo’s device? In awarded some sort of amazing package to the Game Boy’s capabilities. However, the the upcoming Got Game? How Computer permit the Grand Theft Auto two-pack to forthcoming PlayStation Portable from Games Are Transforming Business, an out- come out on Xbox). There have been Sony is likely to be a more formidable con- standing book we will cover in a future impressive new hardware items, too, like tender. The SP may be issue, the authors consider the best ways to the Eye Toy add-on for PS2. But there is a near-ideal handheld gaming device for get a company’s board to understand one piece of hardware we feel had the 2003, but it will have to take on new capa- gamers. One of their suggestions is to buy most impact this year: the Game Boy bilities to continue its domination. Game Boys for board members. This may Advance SP. Nintendo is rumored to be working with be the most mainstream game device avail- phone-handset makers, so it’s likely the able at the very moment, and game devices It hasn’t been a great year for Nintendo. company is on the case. are barging into the entertainment main- Its GameCube console suffered through a stream. ■ Vivendi Inches Toward a Sale Take-Two emerges as the leading contender; “restructuring” may speed the way

In last month’s issue, we speculated on who recent Simpsons game (Hit & Run) and the the shortfalls. might be the best fit to buy Vivendi imminent arrival of some highly touted Universal Games if (as our sources tell us) titles (like Sierra’s Counter Strike: “VUG’s operating performance is expect- the division is still for sale, despite corpo- Condition Zero), the division released lousy ed to remain depressed in the fourth quar- rate comments to the contrary. Our sources earnings for the quarter, down 54 percent ter of this year,” said the release accompa- tell us that Take-Two Interactive is the lat- from the same quarter last year (although nying the results. What is the company’s est front-runner to buy the division, it’s only a 39 percent drop if you factor in response? “A restructuring plan is currently although the parent company of Grand currency fluctuations). being implemented.” Restructuring is a Theft Auto’s developer still does not want euphemism for layoffs, which have been to pay the $1 billion Vivendi now hopes to The games division of Vivendi Universal reported on FuckedCompany.com and get. (Earlier in the year, Vivendi was asking has lost 110 million euros so far this year, other unverifiable bulletin boards across for more.) which is over 100 million more than it had the Net. (A Vivendi spokesman declined to lost after three quarters last year. In official comment.) If a sale is close, Vivendi seems The price might be a bit less than it was documents, the company blamed price pro- to be doing exactly what a tough buyer last month. Despite the success of its most tection discounts and increased returns for would demand of it. ■

December 21, 2003 gaming industry news 9 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 10

Editor’s Note As online game use increases, what do players want?

The big news about the massively multi- teams of players (sometimes official teams, player online game Star Wars Galaxies is sometimes loose affiliations) who keep to UP/DOWN that someone has become a full-fledged themselves and comment on the larger Jedi. Nearly all of the hundreds of thou- action without feeling they have to be Despite the umpteenth Doom sands of players have more menial roles heroic. 3 postponement, the success (such as busing tables at Mos Eisley), but of True Crime and the latest at least one person now has a lightsaber But how big is the audience of people Tony Hawks helps the com- and the Force. who don’t play online games because they pany raise guidance for the fiscal year. want to be stars? Wedbush Morgan analyst Online discussion groups are full of play- Michael Pachter says, “It’s a limited mar- Ubisoft ers who are unhappy that there are so few ket. For 90 percent of the potential gaming Despite a strong set of high achievers for such a highly populated audience, game are like movies. Sports games new (Beyond Good game (hundreds of thousands of players, games are the one true exception, but and Evil) and revitalized one Jedi). Unless it becomes easier to there’s a limit: 3-on-3 teams, maybe 4-on-4. (Prince of Persia), only achieve Jedi status, their reasoning goes, It’s analogous to guys getting together on Rainbow Six seems to be players will disappear. Players don’t want the weekend to play football. When it gets making a big noise at retail. to serve Luke Skywalker or Han Solo; they too big, it’s not that fun anymore. And want to be Luke or Han. who has time to play any of these games? Parents don’t have time to play EverQuest 28.8Kbps connection.) It’s a challenge, too. This isn’t necessarily so. Those who or Ultima. Only social misfits have time to As broadband becomes the default method of home Internet connectivity—a reason- NOT EVERYONE INDULGING FANTASIES able assumption in the long run—online ABOUT BEING LORD OF THE VIRTUAL games will no longer be value-add exten- sions, as they are in current console offer- REALM IS A MISFIT IN THE REAL WORLD. ings from Microsoft and Sony. Indeed, an online component will become a necessary remember the mid-’90s heyday of celebrity play 36 hours a week.” part of a game. chats on AOL know that the snide side comments between audience members were “Social misfits” is a bit strong—there are Ken Goldstein, executive vice president often more entertaining and lively than the many players indulging fantasies about and managing director of Disney Online, official question-and-answer part. Similarly, being lord of the virtual realm who still says, “Playing with other people online will MMORPGs are famous for generating have adequate power in the real world— become one of the costs of entry when but it does emphasize that in the current you’re launching [a game]. It’s a bonus fea- WORLDWIDE GAMERS crop of online games, players can’t get far ture now, but eventually, we’ll have to ONLINE IN 2008 unless they devote lots of time to the game, build it into the cost of the product.” So in PC VS CONSOLE even if they only want to be part of some the end, it might not be the revenue aspect barbed virtual Greek chorus. of online games that matters so much as the cost. In other words, it won’t be that 80% PC gamers Online games may represent a circling an online game is something special. It’ll be back from videogames to pre-computer- that a game without an online component technology gaming. Historically, people feels like it’s missing something. And the 20% Console gamers have played games with other people. very term “online game” may disappear. ■ Solitaire is a rare but significant exception. DIVISION OF GAME But solitaire has been the model for PC CHAIN SHOPPING HOURS SPENT ONLINE gaming: solitary play. (After all, what’s the IN 2008 PC VS CONSOLE first PC game most people play?) With Tech-savvy gamers go to Best Buy and online gaming, PCs may be embarking on a Toys “R” Us, while bargain shoppers turn long-delayed return to more traditional to Target and Wal-Mart, according to a 62% PC hours forms of gaming. report this month from Forrester Research. The most telling finding for Increased broadband penetration is good game marketers: Wal-Mart regulars spend 38% Console hours news for the gaming industry. (Imagine the least each month on videogames, but From the DFC Intelligence report The Online Game Market 2003 cleaning up after Jabba the Hut on a they’re the most loyal of the bunch.

10 gaming industry news December 21, 2003 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 11

Too Soon to Verify The hottest industry tips, unfiltered

Editor’s note: Throughout Gaming Industry straight,” he says. “Do you know anyone News, we endeavor to stick close to the who does anything online with a UP/DOWN facts and make assertions based only on the GameCube? Didn’t think so.” New Hardware Add- evidence. But not here. Every month in this Ons space, we’ll report the juiciest of stories— Microsoft has been revealing information Everything from the Eye Toy those we’re pretty sure won’t get us about the next Xbox to important clients for PS2 to the Xbox DVD kit sued…or you fired. and partners behind closed doors, although is reported to be doing well. those who remember the original Xbox Since most everyone agrees that the fat unveiling back at GDC in 2000 know that New Platforms years of the current console cycle will soon what Redmond reveals a year and a half Everyone who uses the be behind us—U.S. Bancorp Piper Jaffray before release bears little resemblance to PDA/gaming combo unit has pinpointed spring 2003 as the midpoint the final product. (We’re still waiting for Tapwave Zodiac comes away of this cycle—everyone wants to know the promised Xbox version of Ready 2 impressed. Its early devel- when the next one will begin. If you believe Rumble!) Two people have told us that oper support is promising, Jaffray’s timeline, the new devices will Microsoft is aiming for a Christmas 2004 too. But even the stillborn N-Gage is get- arrive in the fall of 2006, a long way off. release, which longtime Windows watchers ting more attention. And don’t get us know is code for a Christmas 2005 release started on the Phantom or the DISCover Rumors of much earlier introductions are at the very earliest. We’ve also heard that console or…. heading our direction. Our sources tell us development kits for this are much further that this coming May will be the big along than those for the next-generation a lot about Sony having something to show month. Nintendo has said publicly that it PlayStation. behind closed doors by GDC or E3, but we will unveil an “unconventional” gaming hear so many fewer details about PS3 than device at E3. Its competitors are planning Regarding first-generation Xbox compati- we do about the next Xbox that we’re con- some sort of behind-the-curtain demonstra- bility on the new machines, which we’ve cluding it’s not as far down the road. What tions at both E3 and the Game Developers covered elsewhere in this issue, the consen- little we’re hearing trickling out—PSP con- Conference in March. sus is that it’s a priority and Microsoft will nectivity, Eye Toy integration, all-around work it out, most likely via software emu- better integration with a variety of Sony WHAT ARE THE BIG THREE UP TO? lation. However, there are mixed reports hardware—is promising, but either our HERE’S WHAT WE’RE HEARING. about how the new device will handle stor- Sony sources aren’t as good as our age: One correspondent says there will be Microsoft ones or Sony is further behind in Nintendo officials have emphasized that its no hard disk, another says it will be avail- development. As one tipster put it, “Some new unit is neither a next-generation able only as an add-on, and everyone says say the PS3 will be ready in 2005, some say GameCube nor a new Game Boy. Two peo- low-price memory cards will be deployed a year later. If you were the pace car at the ple have told us that Nintendo of America’s “throughout.” There’s also consensus that speedway, wouldn’t you want to drive as top execs have only recently been told what some sort of wireless will be built- slowly as possible and enjoy being in front it is. Of our four reasonably well-placed in and there will be deeper integration of for as long as possible?” Nintendo sources, three told us they think Xbox Live. That won’t matter much unless it’s some sort of powerful portable to hold Microsoft cuts a deal with Electronic Arts But really, how quickly will any of this off the challenge of Sony’s PSP. “Powerful” for EA games to run on the system. Both appear? Are any delivery promises believ- means new features, and we’re hearing Microsoft and EA sources tell us the two able? Let’s look at Sony, which announced noise about Nintendo executives meeting companies are talking, but no one would in May 2001 that it was working with with handset makers about either licensing tell us whether Microsoft is willing to America Online to bring its AOL service to the Game Boy OS to phone manufacturers change terms to EA’s liking. PS2s. According to a press release earlier or developing next-generation Nintendo- this month, the two companies are just branded handhelds with phone capabilities And what about Sony, the company that now releasing it—31 long months later. built in—as if BlackBerries weren’t addic- owns this console cycle? (Although it’s According to Jaffray, that’s nearly half a ■ tive enough already. worth pointing out that its dominance is console cycle. being challenged this holiday season by One correspondent, from a publisher that GameCube, which retails for less than half Do you have specs of a new device you’d used to develop heavily for GameCube, the price of a PlayStation 2.) It doesn’t like to share? Make like your colleagues says he’s heard the device is an add-on to seem to be in as much of a rush, in large and sign up for an anonymous e-mail the existing console, not something new. part because it’s focusing on its big 2004 account and write to me at “Maybe they’ll finally get their online story introduction: PlayStation Portable. We hear [email protected].

December 21, 2003 gaming industry news 11 GIN _02.tesogfmr.qxd 12/17/03 11:12 AM Page 12

GAMING INDUSTRY NEWS SUBSCRIPTION FORM

Complete this form to join the community of executives and investors who want analysis and insights about the game industry that are unavailable anywhere else. You may also subscribe via our website, www.gamingindustrynews.com.

Subscribe now and you can receive Gaming Industry News for the charter rate of only $695 per year, a 30 percent discount off our standard $995 price. Your subscription includes both the monthly print newsletter and exclusive weekly e-mail commentary.

Your subscription also entitles you to a free electronic copy of Ziff Davis Media Game Group’s “Digital Gaming in America 2003,” our sixth annual U.S. population study. If you subscribe online, you can download the document immediately. If you subscribe via fax or postal mail, we’ll e-mail you instructions on how to download it.

NAME TITLE COMPANY ADDRESS CITY STATE ZIP COUNTRY TELEPHONE FAX E-MAIL (required to receive weekly e-mail report) URL

Please contact me regarding a site license so my colleagues can read Gaming Industry News. Check enclosed.

Charge my credit card. American Express Discover MasterCard Visa CARD NUMBER: EXPIRATION DATE: NAME ON CARD: BILLING ADDRESS: (if different from mailing address)

SIGNATURE:

Please fax this form to 847-291-4816. Payment must be included with this form. If you wish to pay by check, please mail this form with payment to Gaming Industry News, P.O. Box 3515, Northbrook, IL 60065-3515. For faster action, you may also subscribe via our website, www.gamingindustrynews.com.

12 gaming industry news December 21, 2003