GameSpy Is Playing for Keeps in Live, Online Entertainment


The only people who really know about GameSpy Industries are the young, fickle denizens of the Internet who live and breathe--and shop--online.

But the buzz among these cyber-youth was enough to convince former Hollywood super-agent Michael Ovitz and Yucaipa, the investment company of supermarket mogul Ronald Burkle, to buy into the small Costa Mesa firm earlier this year.

They think that GameSpy, which makes software tools for finding live entertainment on the Net, is poised to become a key player in the age of high-speed Internet access. The $3.4-million investment--more than triple GameSpy's estimated sales last year--bought Yucaipa a minority interest in the company.

More important, it bought Ovitz and Yucaipa credibility among young consumers.

Hundreds of people vie to get into GameSpy's monthly computer game parties, where attendees spend 72 hours together playing games and listening to live music.

Millions of fans each month flock to GameSpy's Web site, which houses a series of "planets," or online communities devoted to particular titles.

And millions more have downloaded and paid for GameSpy's various software tools, which help people find everything from live Internet radio shows to computer game battles.

Yucaipa plans to incorporate GameSpy's technology into, an entertainment Web portal set to launch in August.

Not Their First Internet Play

Richard Wolpert, head of Internet and technology ventures for Yucaipa, won't reveal how much Ovitz and Yucaipa Cos. have committed to, but sources say the figure is in the hundreds of millions of dollars.

Ovitz and Yucaipa have made other Internet plays, investing an undisclosed sum in Coral Springs, Fla.-based Alliance Entertainment, which distributes music, videos, DVDs and games, and taking a multimillion-dollar controlling interest in Scour.Net, a Los Angeles start-up with technology for doing multimedia searches on the Web.

"If we could have bought [GameSpy], or bought a bigger piece of them, we would have," Wolpert said. "They're young, they're taking on some huge competitors, and they still need a lot of internal focus. But the promise is there."

The 3-year-old company's underlying philosophy is that even in today's wired culture, people need each other to have fun on the Net.

"The Internet can be a very impersonal place," said Mark Surfas, 34, founder and chief executive of GameSpy. "I don't care if it's music or movies, radio or games, shopping or EBay . . . anything you have to do by yourself is boring."

The push toward real-time fun has helped propel the tiny start-up from a Net nobody to a promising online player.

GameSpy was started in 1995 with a crew of avid computer game players and a lone software product.

The program, which the company is named after, is a search engine for video game fans seeking one another: It looks for other computers that are hosting live games and ranks these servers by how long it takes to get a signal from one computer to another. The faster the reaction time, the better.

"The technology is simple, easy and flexible," said Todd Northcutt, 26, a graduate student at the University of Rochester who uses the GameSpy program. "Serious game players use it because it's the best way to find a game and the game community on the Internet."

Using games as a foundation, GameSpy has rolled out a series of other products tied to online entertainment, such as music.

Internet radio is grabbing listeners and generating excitement despite the fact that none of the big online stations are making a profit, radio analysts say. The promise of future payoffs is driving companies to spend big now.

In June, America Online spent $400 million in stock to acquire two online music players, including Nullsoft, maker of the streaming music program Shoutcast. The deal created an audio powerhouse, combining AOL's 17-million-plus subscribers with Nullsoft's 15 million registered users of its applications.

The AOL-Nullsoft deal also was a boon to GameSpy, whose MP3Spy software tool acts like an Internet music version of a car radio's scan button. The tool allows computer users to click on a music genre and select from a list of live Shoutcast "stations" that are streaming music data. MP3Spy also lets people mark their favorite servers for future listening, chat online with others on the same "station" and jump to CDNow to buy the track as they listen.

Since Yucaipa made its investment in June, others have started to notice GameSpy. Sources at computer trade press giant Ziff-Davis, which has been streamlining its businesses and focusing on Internet investments, said they plan to grab a multimillion-dollar minority investment in GameSpy.

Surfas, who used the Yucaipa money to nearly triple the staff, to 40 employees, would not confirm whether GameSpy is in talks with Ziff-Davis. He said he is consulting with financial backers other than Yucaipa.

Competition Is Heating Up

Despite GameSpy's promise, the competition already is fierce. On the music side, companies as diverse as Microsoft and online powerhouse are asserting their position in the digital music space.

On the computer game side, the rivals are equally varied. Id Software, maker of the popular shoot-'em-up series "Quake," is incorporating search engine tools that do the same thing GameSpy does.

Industry experts warn that computer game players are most often loyal to technology--not companies.

"Right now, GameSpy has a lock on the enthusiast gamer," said Philippe Erwin, business development and licensing director for software publisher Activision. "What they're trying to become is bigger and broader, like these other companies. And they have a long way to go."

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