Setting a new videogame plan

Less reliance on licensed properties urged

Even as movie-based vidgames dominate sales charts, the head of the game industry trade group warned that the sector should rely less on licensed properties to fuel its long-term growth.

Such licensed games generate perhaps a billion dollars a year in fees and royalties for studios and networks, putting games among Hollywood’s biggest sources of licensing income. Electronic Arts, for instance, last year sold more than 18 million units of games based on the “Harry Potter,” James Bond and “Lord of the Rings” franchises.

Licensed titles should top sales charts this year too, with games based on “The Matrix,” “Terminator 3,” “The Hulk” and others expected to be massive sellers.

But Doug Lowenstein, prexy of the Interactive Digital Software Assn., said an overreliance on such pre-sold brands could become a “straitjacket,” hobbling innovation and preventing the game business from developing lucrative properties and genres.

Cautiously optimistic

Lowenstein, making his annual state-of-the-industry opening speech at the IDSA’s Electronic Entertainment Expo in Los Angeles, was cautiously optimistic about another healthy year for the biz.

Despite a weak economy and a year-end glut of product in 2002, the business grew by double digits last year to $10.3 billion in North American sales of hardware, software and accessories.

This year’s software sales should grow by 10%, Lowenstein said, to $8 billion. Price cuts in vidgame consoles, such as the $20 decrease to $179 that Microsoft announced for its Xbox almost simultaneously to Lowenstein’s speech, should fuel software sales even more.

But long-term, he cautioned, too many Hollywood licenses will hurt the industry’s efforts to create franchises on its own.

Avoiding dependence

“To the extent our industry depends on continuing to create innovative products, we should be wary about relying on licensed product,” Lowenstein said. “Don’t you think it would be ironic, after years of aspiring to become recognized as a major entertainment medium, that we would be forced to rely on Hollywood for our biggest-selling properties?”

Lowenstein also noted several changes in the evolving game business, including what he called “the graying of the game audience.”

While children remain big fans of games, audiences have expanded, and far more adults than children now play, Lowenstein said, especially when free, downloadable online games are included.

“Even my 83-year-old father-in-law plays these kinds of casual games online,” Lowenstein said. But he noted that attempts to wring more dollars out of online play will be a challenge. The IDSA annual survey found only 5% of players willing to pay for online games of any kind.

Awaiting mass appeal online

“We’re still awaiting the innovative titles and services that will appeal to mass markets,” Lowenstein said.

The only strong growth area in online play is in mobile games, a still tiny slice of the market but one that provides game companies with a potentially lucrative downstream opportunity for its properties much like the multiple release windows of the film business.

He dismissed political efforts to restrict sales of Mature-rated vidgames to children, saying such laws are probably unconstitutional and also beside the point. Parents should be better taught how to use the ESRB ratings system and other tools they already have available.

“While there are some politicians conjuring up fears about the impact of videogames, it seems those in the best position to know — parents — don’t share that opinion,” Lowenstein said.

He brushed off concerns about the rise of M-rated games, which comprised 13% of 2002 titles, up from 9% the year before. Lowenstein said he expects that share of the business to rise to as much as 20% in coming years.

No reason to apologize

“I don’t understand why people are surprised or troubled by this,” Lowenstein said. “We have no reason to apologize for creating games targeted at the population where demand is highest and buying power is strongest.”

Nonetheless, he said, games rated for Everyone or Teens continued to overwhelmingly dominate bestseller lists.

The IDSA also will fight several proposed amendments to the Digital Millennium Copyright Act that Lowenstein said would “open the floodgates to widespread piracy” and choke the game business.

One proposal would legalize the sale of computer chips that modify vidgame consoles and other devices to circumvent DVD region codes and other anti-piracy protections.

“There’s not a shred of evidence that consumers are unhappy with access to our product,” as opposed to complaints about music offerings, Lowenstein said. “We’re very concerned the videogame industry could become collateral damage.”

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