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E3: Vidgame Biz to Struggle for Relevance at Annual Tech Meet

Gaming industry as a whole is at an uncomfortable crossroads

For many companies, the next-generation consoles being shown off at E3 beginning June 11 can’t come fast enough.

While the back half of 2013 is expected to boast breakout hits, the first part of the year hasn’t been encouraging for the videogame industry. Retail sales are down 14%, falling nearly $500 million year over year through April.

That’s what makes this year’s edition of the annual industry confab so critical. Last year’s launch of Nintendo’s Wii U did nothing to turn around sales. Now it’s Microsoft and Sony’s turn to try, with their new Xbox One and PS4 consoles that will get plenty of attention at E3.

The gaming industry as a whole is at an uncomfortable crossroads: The current console cycle has extended much longer than others have, and mobile platforms have captured the fancy of mass-market casual players, critical to the industry as consoles mature. Game publishers are waiting in the wings to capitalize on that hype, readying tentpole titles to take advantage of the consoles’ capabilities.

The largest gamemaker, Activision Blizzard, is excited about the next-gen devices’ abilities to offer more realistic graphics, and push the boundaries of gaming, as well.

The new devices will “take the idea of second-screen interactivity and put it on steroids,” says Eric Hirshberg, president and CEO of Activision Publishing. “Multiplayer didn’t exist until this current generation of consoles. People spend a lot of time playing games, and the act of playing a game isn’t terribly social in the way we think about social media today. That will change.”

Then there’s the push to be the central entertainment hub in the home —already Microsoft’s key selling point for the Xbox One. “If anything, (the consoles help) solidify games as the anchor of that hub and as one of the essential experiences of the living room,” Hirshberg says.

With movies, TV and music streaming services playing alongside games, “the experience will become more enjoyable and put games at the center of it all,” Hirshberg says. “The gaming community is perfect to drive this entertainment hub.”

There will be plenty of big games revealed at E3, including Bungie’s “Destiny” and a new franchise from Respawn Entertainment, launched by creators of the “Call of Duty” series. The thing to watch closely is how hardware makers address hardcore gamers.

Microsoft, for instance, found itself at the center of controversy after the Xbox One unveiling in May focused on its non-gaming functionality.

“Microsoft disappointed the core gamer, but I think (it) captured a lot of imagination and attention from other people — specifically, anyone who’s not obsessed with programming remote controls (or) that has way too many remotes in their living room,” says analyst John Taylor of Arcadia Research Corp. “(That said), Microsoft has to put a stake in the ground and show why this console is going to kick ass.”

Sony, meanwhile, needs to secure top-line business partnerships, after Microsoft locked up first rights to “Call of Duty” DLC (downloadable content) and announced a new strategic pact with EA.

But things are bad for Nintendo these days. In its first five months, the Wii U sold 1.1 million units — compared with 2.1 million Wiis when the system debuted.

Putting the number in perspective: In the first three months of 2013, without holiday sales to boost it, the 8-year-old Xbox 360 sold 844,000 units — 75% of the Wii U’s life-to-date numbers.

Nintendo needs to get back on track. Publishing partners seem to be backing away from the system (EA, for instance, is not making a version of “Madden” this year for Nintendo’s console, the first time since 1991.) The company is expected to show several titles from its stable of franchises such as “Mario” and “Zelda.” The largest question is: Which of those will be available this holiday season?

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