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Industry Update

The restyled PSP arriving this September now comes in three colors.

JULY 23, 2007 • Considering it is summer, late June and July were awfully busy months for conferences. Of course, the big story was the unveiling of the new, streamlined E3. However, in many ways, the rather sedate 2007 E3 was just another in a series of events that will continue through this fall. Be prepared to rack up those frequent flyer miles.

The second annual Hollywood and Games Summit was held June 26-27th in, of course, Hollywood. This was a true joint collaboration as it was presented by CMP’s Game Group and trade magazine Hollywood Reporter. In many ways it was a flashback to the 1994 to 1997 timeframe when DFC Intelligence attended many such events when the buzzwords were “CD-ROM,” Information Superhighway” and “multimedia.” In fact many of the themes had a sense of déjà vu: Hollywood and the game industry need to do a better job educating themselves about each other, games should be developed with quality in mind and not just have a license thrown on them, games could benefit from Hollywood storytelling techniques, the game industry and film business have more in common than you may think, and so on. Our big question remains: can large media companies ever find a solid strategy to make a large scale, successful, long -term investment in the game industry?

On the eve of E3, Digital Media Wire hosted the Mobile Games Insider at a private beach club in Santa Monica. Mobile games were pretty much locked out of the new E3 format so the clear response was to offer a separate posh affair at a location known only to the select attendees. The venue was so exclusive that they didn’t allow the use of cell phones. From DFC’s perspective it was a perfect summary of the strategy for the mobile games business: Host a mobile event in a place where you can’t actually play the mobile games. It’s like having features on the phone but no way in which consumers know how to access them or understand how much or even if he/she has to pay for them. That is the mobile phone game business in a nutshell.

The E3 Media & Business Summit successfully made the transition from massive trade show to intimate confab July 10-13 in Santa Monica, Calif. What perhaps stood out most with the new format was how it highlighted the extent the industry revolves around the Big Three platform providers: Microsoft, Nintendo and Sony Computer Entertainment. This show was really about the platforms and the handful of companies whose business depends almost solely on those platforms. With no Kentia Hall and no main show floor, the industry was presented as surprisingly small and barren. We heard more than one investor type express concern over large publishers whose multi-billion dollar valuations depend on something they can’t control: the execution of the Big Three.

Of course, it was news from the Big Three that took center stage. Breaking tradition, Sony Computer Entertainment released its biggest news two days before the start of the event: a $100 price cut on the currently available PS3 model to $499, and the arrival this August in the U.S. of the 80GB South Korean model at $599. Sony is giving its handheld system a boost with a redesign that makes the unit just over 30% lighter and 20% slimmer than the original. A price has not yet been specified for the black standalone unit. But in September Sony will ship a $200 PSP Entertainment Pack featuring a silver PSP, the game Daxter, a memory stick and a Family Guy Freakin’ Sweet UMD from Fox. Arriving in October is a $200 limited edition Star Wars package featuring a white PSP sporting a Darth Vader silhouette, bundled with LucasArts’ upcoming Star Wars Battlefront: Renegade Squadron. The restyled PSP comes with new features, including the option to output PSP films and games onto TVs – potentially shoring up the fortunes of the UMD format.

Based on the hit role-playing franchise, Fallout 3 turned heads at E3.

With the next installment of its huge video game franchise Halo 3 due on Sept. 25 Microsoft Game Studios declined to be baited into lowering the Xbox 360 price, and instead announced an agreement with Disney-ABC Domestic Television making Walt Disney Studios films available for download via the Xbox Live online service. Thirty-five titles – including Bridge to Terabithia, The Queen and Déjà vu – become immediately available for download in high-definition and standard formats. As part of the deal, future Disney releases will become available day-and-date with their home video counterparts. Microsoft did unveil an olive drab Halo 3 special edition Xbox 360. No suggested retail price or feature set was announced for the unit.

After 33 sold-out weeks since launching its Wii system, Nintendo of America had little incentive to tinker with a winning formula, and concentrated on expanding that formula with new Wii accessories and software. Introduced were three “Wiimote” peripherals: the Zapper for shooting games, the Wii Wheel for racing games and the Wii Balance Board for fitness titles. The Zapper and Wheel are housings for the Wii’s remote, but the Balance Board is a separate wireless input device. Nintendo will package the gun-like Zapper with a yet-to-be-announced game this year for $19.99. The Wii Wheel will be packaged with Mario Kart during the first quarter of 2008. The Balance Board foot pad is an integral part of upcoming exercise game Wii Fit, which features 40 activity games, including aerobics, yoga and sports. Major Wii titles expected later in the year include Metroid Prime III: Corruption, due this fall, and Super Smash Bros.: Brawl on Dec. 3.

Legendary: The Box is one of the lead titles from a new publisher, Gamecock

Notable third-party titles on display included Fallout 3 (PC and Xbox 360 from Bethesda Softworks), Call of Duty 4: Modern Warfare (PC, PS3 and Xbox 360 from Activision Inc.), Legendary: The Box (PC, PS3 and Xbox 360 from Gamecock Media Group), Assassin’s Creed (PC, PS3 and Xbox 360 from Ubisoft), and Unreal Tournament III (PC and PS3 exclusive in 2007 from Midway Games).

The CGA Casual Connect Seattle event was held the week after E3 for almost the entire week of July 16th. Attendance was surprisingly strong considering the potential for E3 hangover. Casual games are clearly hot with a capital H. Originally, casual games were seen as a huge opportunity for online advertising. In the past few years the buzz around casual games had been on the potential for digital distribution, as advertising growth had slowed. Now it appears the tables have turned once again and an advertising business model is back in vogue. Of course, this raises concern for game developers that are generally left out of the advertising revenue stream. Perhaps the biggest positive note was that some of the casual game industry seems to be aware that there is substantial growth opportunity on the console and portable systems. DFC has always been concerned with the tendency for the casual game business to think that it operates in vacuum. This seems to finally be changing. One surprise was the comparative lack of attendance at one of the most interesting practical sessions, a talk by NHN USA CEO Whon Namkoong on the challenges of building a free-to-play, virtual item model in the U.S. DFC forecasts this to be one of the biggest digital distribution growth areas and it would be a shame for casual game companies to miss that boat.


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