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Games Business Could Double to $20B in Next Decade, IEMA Conference Told

7 Aug, 2003 By: David Ward

The game business could double to $20 billion in the next decade, speakers told attendees at a recent industry conference.

Despite what has been a slightly unnerving year for the games business, with even Sony's PlayStation 2 not quite delivering promised numbers, video games are poised for potentially huge growth over the next few years, attendees at the 4th annual Interactive Entertainment Merchants Association (IEMA) executive summit were told.

Kicking off the conference in Dana Point, Calif., late last month, Microsoft SVP and chief Xbox officer Robbie Bach said the video game industry in the U.S. has the opportunity to double to $20 billion over the next decade. But Bach warned that to do this the hardware makers, game publishers and retailers need to change the way they do business, including the way they merchandise games.

“We have to think about ways in which we can open up stores, so things aren't behind glass and yet theft isn't a problem,” Bach said. “In-store theft and piracy can be a huge hindrance ... because as anyone in the music industry will tell you ... if we don't do a good job on this, we won't see growth -- in fact, we'll see decline.”

But Bach also criticized publishers, saying that with the costs of developing a console game reaching $10 million to $15 million, many game companies are reluctant to experiment on new characters and new genres.

“We're getting into a situation where we're producing more and more of the same,” he said. “Think about what's happening in the video game business in Japan. It's not been a great business over the last few years, and one of the reasons is they're losing entertainment dollars to other forms of entertainment, predominantly cell phones. Part of that is the question of whether there has been enough innovation and enough new and exciting content.”

As to whether the games industry is becoming too reliant on licensed content, especially from movies and TV, the consensus was that licenses are here to stay. THQ president and CEO Brian Farrell said, “Clearly licenses have a built-in marketing hook that should help us, particularly with our retail partner. One of the great trends in the last couple of years is the quality of the games in terms of licensed product. The impression of the past of ‘It's not what's in the box, it's what's on the box,' that's not true now.”

While most of the industry remains focused on the upcoming holiday sales season, executives for leading publishers are also keeping one eye on the next generation of consoles expected in 2005 or 2006. The big question is whether anyone can beat Sony, which came out of nowhere to dominate the console business for the past eight years.

Electronic Arts chairman and CEO Larry Probst suggested Nintendo faces the greatest challenge going forward, saying, “In Nintendo's case, it's a marketing challenge and not a technology challenge. Their primary challenge is how to reposition themselves to that older demographic so when the new machines show up, that 20-year-old kid in a college dorm who everybody listens to says, ‘I'm going to buy a Nintendo machine.’

No one is quite sure how the next six months will shake out for the game industry, but the IEMA conference did a lot to reassure the attending retailers that one threat they don't have to worry about, at least for the short term, is online distribution.

Cameron Ferroni, Xbox Live general manager, said traditional brick-and-mortar stores seem to work best even when selling online services. Ferroni said Microsoft offered Xbox Live starter kits for sale online and found that of the about 500,000 units that have been sold to date, less than 1,000 were sold online at the company's Web site.

Ferroni said Microsoft expects to have 1 million Xbox Live users by the end of this generation of consoles and 5 million to 10 million of its console owners online during the next generation, but again he stressed that traditional retail will continue to play the dominant role in that effort as well. “The retail channel is the conduit to the mass market,” Ferroni said.

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