Industry facing growing pains

Times Staff Writer

Swinging from circus romp to buttoned-down boring, the annual video game confab known as E3 kicks off today in downtown Los Angeles like an overgrown teenager grappling with an identity crisis and longing for the world to take it seriously.

Now in its 14th year, an undercurrent of factionalism has cast a shadow over what should be the $40-billion industry’s biggest event, a chance to showcase hundreds of games -- some of which have the potential to make more money than many Hollywood movies.

This year, Activision Blizzard Inc. pulled out of both the show and the trade group that runs it, the Entertainment Software Assn., saying it wanted to review its strategy. Two other companies, George Lucas’ game studio, LucasArts, and Id Software also dropped out of the association, though they are still participating in the E3 event.

The defections came at an awkward time for the industry, which continues to face a number of policy challenges, including questions about the sale of violent content to minors, efforts by some states to levy special taxes on games and a lingering impression among some that games are a frivolous, even harmful distraction.


But the departure of these companies has threatened to dilute the collective influence of the entire industry, its members said. And that has other gaming leaders worried.

“It’s more important than ever for the industry to be able to speak with a clear voice on those issues,” said Graham Hopper, chairman of the Entertainment Software Assn., which puts on the E3 Media & Business Summit.

Over the years, more negative attention at state and local levels has surrounded online and console games, leading to a “smorgasbord of legislation and regulations” that make it more difficult for the industry to operate, said Hopper, who also is senior vice president at Disney Interactive Studios, Walt Disney Co.'s game business.

“The game industry is emerging as an important cultural voice in the entertainment world,” he said.

E3 has become the industry’s best shot at impressing the world with its size and scope. Like the industry itself, the convention grew quickly -- each year becoming louder and glitzier. Television crews worldwide came to gawk at the orcs, elves and busty models in elaborate fantasy costumes. In 2006, the event reached 60,000 attendees.

Last year, members of the Entertainment Software Assn. voted to change the format, turning E3 into a quiet, invite-only event for 5,000 media, analysts and retailers.

“E3 used to be such a spectacle,” said Geoff Keighley, co-chairman of the Best of E3 Game Critics Awards. “As much as everyone groaned about it, everyone still saw it as a national stage for the industry.”

Some believed the reformatted E3 held in Santa Monica swung too far the other way.


“If you think of the industry in high school terms, it’s junior year for everyone,” said Ricardo Torres, editor of GameSpot, a site for game news and reviews. “They haven’t quite found a balance between mature and youthful. If they’re too buttoned down, it just looks like an insurance convention. Before, it was too much of a circus. The sweet spot is somewhere in between.”

This year, organizers have promised a more visually enticing event, but the guest list continues to be strictly controlled. That grew out of the association’s decision two years ago to rein in the cost to its members of putting on a show at E3.

As a result, the event went from generating as much as 75% of the organization’s operating budget to becoming revenue neutral. To make up for the loss, the group’s members voted to increase dues, roughly based on a member’s annual revenue. For some companies, the jump was significant.

When the three companies dropped their membership earlier this year, the organization’s budget took a big hit, particularly because Santa Monica-based Activision Blizzard is one of the world’s two largest video game developers, the other being Electronic Arts Inc in Redwood City, Calif. Its annual dues would have amounted to millions of dollars, according to sources within the group.


“Clearly this decision had a financial impact on the organization,” said Hopper, who declined to specify the loss.

Neither LucasArts nor Id Software would comment on why they dropped out.

The chief executive of Activision Blizzard, formed recently by the merger of Activision Inc. and Vivendi Games, said his company was simply reevaluating its policy strategy in the wake of the combination.

“The profile of our company is different than the membership of the ESA because of the nature of our business,” CEO Bobby Kotick said. “When we looked at the amount of money we would have to provide, we decided to take a step back and think about our strategy. We haven’t ruled out returning to the ESA. It is certainly something we can consider.”


Some members accuse Activision Blizzard of freeloading off of E3 -- the company is holding its own media event Tuesday night in downtown Los Angeles.

“There are direct benefits accruing to Activision Blizzard as a result of E3 for which they are not paying,” Hopper said. “And that is unfortunate.”

The group lobbied unsuccessfully to disqualify Activision Blizzard’s games from consideration in the Best of E3 Game Critics Awards, according to Keighley.

“To be the Best of E3, you have to be at E3,” said Mike Gallagher, president of the trade group.


Some have questioned the effectiveness of the group and its ability to demonstrate value to its members and retain cohesiveness.

“I don’t think people are convinced the ESA is doing as good of a job as it can be,” said Keighley, who appeared on Fox News in January to defend a game that show hosts had accused of being overly violent. “This was the perfect opportunity for the ESA to step up, and they were nowhere to be found.”

Gallagher defended his group’s track record, pointing out that the number of federal and state bills seeking to regulate the game industry fell from 33 in 2007 to 12 so far this year.

“ESA’s mission now is to protect the rights of game developers and consumers,” said Jeff Brown, a spokesman for Electronic Arts. “Hopefully, the publishers will recognize the value of a strong association and pay their dues to the ESA.”