Studios build catalogues, grow interactive franchises

When it comes to videogames, Hollywood has clearly hit the reset button.

Studios have spent a couple decades investing hundreds of millions, if not billions, of dollars trying to become a major player in the games biz, only to lose out to more skilled rivals.

But as the videogame industry has collected more coin each year, studios haven’t given up on competing for a piece biz that games are generating — $21 billion in 2008.

That’s especially true as games are proving just as recession-proof as movies.

“We’re taking games very seriously, and looking at it in a big way,” says Warner Bros. Interactive Entertainment prexy Martin Tremblay, who has made Warners one of the more active studios recently in the games space, making everything from high-profile console titles to iPhone apps. “Games are a natural extension to the movies and TV shows that we already make.”

To prove just how seriously, Warners and Disney have gone on shopping sprees, spending hundreds of millions of dollars to buy up well-known game publishers and developers, as well as take over the rights to successful properties, while MTV launched “Rock Band” as a formidable rival to Activision Blizzard’s “Guitar Hero,” and even helped recruit top gamemakers from Microsoft and Ubisoft to form Jerry Bruckheimer’s first foray into the space.

Paramount and Universal have also stepped up efforts, releasing self-produced games.

Hollywood’s lineup of titles will be on full display at this week’s Electronic Entertainment Expo at the Los Angeles Convention Center.

There’s definitely an opportunity for the studios to produce their own interactive franchises.

Last year, software alone generated $11 billion in sales, according to NPD. But game sales so far this year are down 6% — falling for two consecutive months for the first time ever in March and April — driven mostly by the lack of new high-profile titles.

Studios certainly have the properties to play with, with a slate of pics or lineup of TV shows to choose from.

The problem has been a lack of internal talent to produce the games, which has forced studios to go on a shopping spree for publishers and developers to call their own.

“We need to grow our internal studios,” Tremblay says. “We need to build the creation piece of our business. Something we have that others don’t is strong franchises. Most publishers are in business to create them; we start with them. Our big challenge is to make a quality game.”

That wasn’t always the case.

In the past, studios handed off their top tentpoles to outside publishers to produce games.

The strategy paid off, with games becoming a larger part of studios’ licensing programs for pics, especially as the games biz has seen its overall sales numbers grow over the last four years.

But Hollywood was often criticized for pumping out mediocre adaptations of its movies.

Studios are looking to keep that from happening, and want to go beyond just approving product, but having a more creative role in how the titles are developed.

For them, a top game not only can contribute handsomely to a studio’s bottomline, it also can keep consumers interested in a franchise for years to come, as one game can wind up spinning off a series of sequels.

For example, after eight years, Electronic Arts decided to give up the rights to the “Lord of the Rings” franchise. Warner Bros. stepped in to continue the series, launching a family-friendly game, “Aragorn’s Quest,” later this year. Interest in the games will be fueled once “The Hobbit” eventually hits theaters.

Warners is also looking to take one property and create games for various demos. Its “Batman” franchise, for example, has “Lego Batman” for kids, but then “Batman: Arkham Asylum,” a far edgier version bowing for more adult hardcore gamers in September.

“We want to exploit each one of our franchises to different audiences,” Tremblay says.

It’s not just owning game-friendly properties that will prove advantageous for studios, however.

n Through their homevideo arms, studios have an established distribution pipeline through which they can market and release games. Those divisions may well welcome the additional workload, given that it appears DVDs have reached their peak with consumers.

n Studios boast the marketing muscle to push a new game across various media platforms — from movie theaters, to TV networks, magazines, websites and mobile efforts they own — far more than what a traditional videogame publisher can access.

n They have the money to buy their way into the industry: In addition to distribbing games produced by Eidos, behind the “Tomb Raider” franchise, in North America, Warners bought TT Games (behind the Lego games), Monolith Prods. (“F.E.A.R”), Snowblind Studios (“Baldur’s Gate”), and has a $33 million bid in place for Midway Games (“Mortal Kombat,” “Spy Hunter”), the bankrupt publisher once owned by Sumner Redstone, which would add 300 more developers to its talent pool.

Disney has upped its own efforts, acquiring Propaganda (“Turok”), Avalanche Software, Climax Racing, as well as Warren Spector’s Junction Point Studios to produce games. Online, it owns Club Penguin.

n Nobody knows the sequel biz better than the studios, so getting used to the practice of releasing a new installment of a top title each year to keep sales of top titles humming along (a common practice for most gamemakers) won’t be an issue.

n And few tout their successes better than Hollywood.

That’s not to say publishers haven’t had the upper hand lately.

Take-Two Interactive still hypes that “Grand Theft Auto IV” had the biggest bow for any entertainment property when it sold $400 million during its first week late last year. Microsoft’s “Halo 3” brought in $170 million in its first 20 hours of release in 2007.

Because of numbers like that, publishers aren’t surprised Hollywood is more serious about how it plays games.

“It shows you that they view this business as one that’s capturing audience away from other traditional forms of entertainment and now they’re motivated to be legitimate competitors,” says Bobby Kotick, CEO and prexy of Activision Blizzard, behind the “Guitar Hero” and “Call of Duty” game franchises.

Yet Hollywood’s increased interest in games may not be good news for publishers who have built strong businesses off of licensing well-known properties from the studios. Those studios — especially Sony, Warner Bros. and Disney — are now developing their games in-house.

“All of these companies are big competitors and you definitely have to fear them,” Kotick says.

Hollywood is already starting to prove its might.

MTV’s “Rock Band,” a co-production with Harmonix and Electronic Arts, has drummed up more than $1 billion in sales since its release in late 2007. It’s also moved another 40 million songs via digital downloads. It’s looking to boost sales even further with a new version featuring songs from the Beatles.

After several dismal Batman-related games from other publishers, Warner Bros. was able to turn things around with “Lego Batman,” from publisher TT Games, which the studio bought in 2007. The title has gone on to sell more than 5.7 million units. Disney Interactive Studios has sold over 6 million units of its “Pirates of the Caribbean” video game franchise worldwide.

But no studio has yet produced that single blockbuster game. Not one studio title was a top 10 seller last year.

And Hollywood is always reminded of examples of how it’s fumbled badly in the past.

Hollywood is still haunted by Warner Bros’ attempt to make a successful game based on “E.T.: The Extra-Terrestrial” in the early 1980s.

A critical and commercial dud, the game wound up with more than 5 million unsold or returned copies dumped in a New Mexico landfill, and almost killed off Atari, which was owned by Warner Bros., at the time.

More recently, there’s Sumner Redstone’s expensive stumble with Midway Games, which cost him nearly $800 million in lost taxes.

But that’s history.

“We’re still a newbie, but we’re building something strong,” Tremblay says of Warner Bros.’ new videogame plans. “If we do it right, I think we can really build a serious profitable business.”

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