Is the game getting lame?

H'wood-style costs take the fun out of vidgame biz

Hollywood may have heard this one before: Production and marketing costs are skyrocketing, the demands of talent are growing, and the industry is relying more than ever on established franchises.

But now the burgeoning $11 billion-a-year videogame biz is grappling with the same problems.

As the industry gathers in L.A. this week for its annual E3 confab, the hottest games will be on display, but the underlying issues on execs’ minds will be the same as those facing every film studio, TV network and music label.

The games biz has already milked Hollywood creatively, snatching up licenses to franchises like Spider-Man, Harry Potter, James Bond, “The Lord of the Rings” and SpongeBob SquarePants.

Now, it’s starting to replicate Hollywood on the cost side as well.

“This is something that has been bothering game designers for some time,” says CAA agent and Xbox co-creator Seamus Blackley. “Games have become more mainstream and successful, but the financial risk of making a game has also become so great.”

Consider:

  • For publishers like Electronic Arts, Activision and THQ — the vidgame equivalent of Hollywood studios who produce, market and distribute titles — game creation is growing more expensive. Average cost to produce one is now $15 million, though last year’s “Enter the Matrix” came in at a whopping $50 million. Back in 2001, it cost an average of $5 million to produce a game. Costs will only rise further as the next generation of game consoles bow in 2005 and 2006.

  • Developers like Naughty Dog, Bungie and Blizzard — the designers who are the major creative forces behind games — are demanding more recognition and compensation. And the addition of Hollywood talent to voice, write and design games is pushing talent expenses higher.

  • Publishers are saddled with soaring marketing bills, with average launch costs exceeding $10 million, up from $2 million three years ago.

  • After several high-profile flops, publishers have become more risk-averse, resorting to sequels or games based on hit movies rather than original titles.

  • Vidgame developers are, like their Tinseltown counterparts, starting to seek outside financing to fund the creation of games.

Of course there are differences between the two industries as well.

Unlike Hollywood studios with their many ancillaries, the games biz has no opportunities to make up for costly mistakes: Vidgames have just one release window to make money — when they hit store shelves. There’s no DVD, pay-per-view or foreign TV to make up for poor sales.

Publishers are also spending heavily to acquire vidgame development companies in order to control the talent — and the costs. (To do the same thing, Hollywood has mostly opted to tie talent down with first-look deals.)

Perhaps the biggest contrast with Tinseltown is that gamemakers are not part of media congloms. With the exception of Vivendi-owned VU Games, all of the top distribs are publicly traded companies whose stock price depends exclusively on sales of games.

So far, the reliance on sequels and movie titles has worked out well, with game company stocks soaring in the past year. EA is up 61%, while Activision has surged 88%. Pressure to continue the trend is intense.

“This is an industry that has become absolutely driven by the numbers,” says former Capcom North America chief Bill Gardner. “Distributors are all publicly traded, and they need to keep growing and make Wall Street happy.”

So it’s not surprising that the game biz is putting the emphasis on sure bets.

This year, the release slate for EA, the largest vidgame maker, consists of sequels to sports titles and games based on the James Bond franchise, the next “Harry Potter” film and the new “Catwoman” pic.

The story is largely the same at other key publishers from Activision to THQ to Atari.

Hot Hollywood properties like “Spider-Man 2,” “The Polar Express,” “The Incredibles” and “Shrek 2” are the most highly anticipated titles set to bow, along with sequels to long-running game franchises like “Driver,” “Metal Gear,” “Grand Theft Auto,” “Doom,” “Tony Hawk” and “The Sims,” the latter having earned $1 billion worldwide.

Like their Hollywood counterparts, vidgamers profess a desire to create new franchises; recent hits like Activision’s “True Crime: Streets of L.A.” and Midway’s “The Suffering” are notable examples. Launching “Halo” and “Half-Life” proved successful for Microsoft and VU Games, and each has a sequel in the works.

But when execs look at the top 10 sellers of last year — all of which were Hollywood licenses or vidgame franchise sequels — the lesson is clear: Repeats and known brands can mean more profits — though, to be sure, a license to a film property can cost $10 million.

Convincing consumers to part with $50 for a game can be even more of a challenge: The biz is still evolving from packaged-goods companies to purveyors of entertainment who sell an experience, not just a product in a box.

And because they are largely stand-alone companies, publishers can’t take advantage of synergistic arrangements with media outlets its parent company may own to push product.

So vidgamers are earmarking more money to tout their wares, even if the total sum is still small compared with the coin put behind Hollywood movies.

While the games biz is trying new ways to market product — from producing slick trailers to DVD strategy guides — few have figured out how to promote successfully beyond the Web sites and magazines that cater to hardcore gamers.

“The industry has done a lot to bring the level of awareness to where it is, but it’s still in its infancy,” says Charles Hirschorn, prexy of vidgame-focused cabler G4. “They’re still figuring out how to be innovative in nontraditional marketing outside of TV, billboards and online.”

With games employing more Hollywood talent, publishers are trying to take advantage of the cachet of celebrities who voice their characters, but unlike the massive publicity junkets mounted by studios, options in the vidgame world are limited.

As opposed to the massive junkets and interview marathons to which thesps submit to help open a film, celebs at best agree to a half-dozen sit-downs with key press to promote a game. Only exceptions: geeky stars like Vin Diesel, who’s going all out to tout the “Riddick” game.

Given this celeb reluctance, the opportunity to piggyback on the marketing budget of a major movie is too tempting to turn down. Without spending a penny, Activision can be assured that its “Spider-Man 2” game will turn heads.

“The issue is that the cost of game development has gone up significantly and the industry wants to mitigate that risk,” says Jason Hall, who heads Warner Bros.’ new Interactive Entertainment vidgame unit. “Studios spend a tremendous among on brand awareness, and publishers can take advantage of that with a license.”

What’s more, the vidgame biz has an emerging talent problem like that of Hollywood. Top game creators with strong track records are becoming increasingly restless and looking for the clout of well recognized Hollywood creatives.

Jason Rubin, co-prexy of Sony-based Naughty Dog, maker of the “Jak and Daxter” and “Crash Bandicoot” franchises, gave a rabble-rousing speech at the D.I.C.E. vidgame confab in Las Vegas in March, calling on game creators to rise up and demand more respect from publishers.

“The extent to which developers are disrespected is extreme,” Rubin tells Variety. “Talent needs to be more free. As game companies got larger and had other people to answer to and a stock price to worry about, they became businesses. We haven’t become a business yet on our side.”

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