After E3

One does not attend E3. One enters the maw of the beast and prays to the nearest god that he is not too roughly chewed upon.

The video game industry is well aware of its status. It is not the basement community many once chided. It has mainstream tastes and a mainstream audience. It's an interactive Hollywood, and while the stars and starlets crowd Cannes, pixel people hit E3.

IDC Research forecasts sales of computer and video games in 2003 will reach $16.9 billion ($6 billion in 2000 sales). With the industry's annual growth rate at 15 percent for the last few years (double that of the U.S. economy and triple that of motion pictures), Douglas Lowenstein, president of the Interactive Digital Software Association, predicts interactive games and hardware "will once and for all leave the motion picture industry behind." He expects the penetration rate of next generation consoles to reach 70 percent. (VCRs are at 90 percent.)

The coming year, Lowenstein stressed, will see an increase in both casual and female gamers (the latter of which already comprise 43 percent of the gaming audience according to Peter D. Hart Research Associates). Already, an IDSA poll shows, consumers list video gaming as the most fun entertainment activity by an almost two to one margin over their second choice, watching television. Lowenstein added that 36 percent of those polled watch less television because of video games.

With an increase in the number of casual gamers, publishers have to strike a balance between difficulty and game play, Tricia Bertero, Activision's vice president of global brand management, told PLAYTHINGS . "We like to say our games are easy to learn but challenging to master." She cites the company's extreme sports line as an example. Activision uses an "easy to learn" control system across each title.

Licensing is another method companies use to quickly acclimate the player to the game environment. It's especially important for kids' titles, explained THQ's group marketing manager, John Ardell. "Almost everything we have for the 12 and under market is licensed." THQ recently snagged key licenses such as Nickelodeon's SpongeBob SquarePants and Mattel's Hot Wheels. Nick licenses are also helpful in cross-generational appeal. "A lot of the Nick properties appeal 50/50 to boys and girls," said Ardell.

In the console arena, Nintendo's GameCube will hit U.S. stores on November 5, three days before Microsoft's Xbox (several days after the show, Nintendo revealed the GameCube's $199 suggested retail price, $100 less than its two competitors). Console makers must avoid treating hardware as a commodity like TV sets, said head of Nintendo planning worldwide and member of Nintendo's board of directors, Satoru Iwata. In the past, Nintendo and Sega set their respective consoles apart with home grown characters and franchises. Sony and Microsoft have taken the hint. Each sported a list of exclusive titles for their hardware. Sega, now making a bid to become the leading third-party publisher, may play a key role in this area as the former console maker decides what to do with its core brands such as Sonic the Hedgehog, Phantasy Star and Sega Sports.

For Sony's president and COO, Kaz Hirai, the upcoming console war this autumn is already settled. Sony, he noted, is the first company to have two consecutive top-selling systems (PlayStation and PS2). The real question, he said, is: "Who will be number two?"

No. The real question will be whether or not a newcomer can successfully enter the current market. Sony did it in 1995. Microsoft will try in 2001. And, if successful, look on the horizon for another entrant. After all, this is no basement industry. This is big media.

For more interactive gaming news and previews of the hottest titles shown at E3, visit playthings.com.