LOS ANGELES – As gaming goes digital, what's the future of a show like E3?
The Electronic Entertainment Expo, the game industry's annual gigantic trade show, begins Tuesday in Los Angeles. The big three hardware makers are in town for the annual war of the press conferences, which since E3's debut in 1995 have grown from stiff-armed PowerPoint decks delivered from the podium of a hotel ballroom into sensory assaults held in rock concert venues. Microsoft went Monday morning, with Sony and Nintendo still to follow. Announcements from these industry giants still have a major impact on the game biz, and the big-budget games displayed on the E3 show floor still account for a massive business worth billions of dollars.
But that business is shrinking when it should be growing. In April, sales of Xbox 360 and PlayStation 3 games were down 27 percent and 46 percent, respectively, versus 2011, according to the investment firm Wedbush.
"We're going through the most dramatic transition this industry has ever seen," said Peter Moore, chief operating officer of Electronic Arts, at a small media briefing held at EA's Los Angeles office in May.
"We have to experiment with different business models," he said. "Digital is part of our future – it is our future."
Certain games from the savviest publishers are still finding record-breaking success: Last year, Activision Blizzard's Call of Duty: Modern Warfare 3 made $1 billion in 16 days, faster than any other entertainment product ever. As one analyst wrote, it's not the high-end games that are being squeezed but the middle, the B-tier impulse-buy products that, aggregated together, make up a substantial part of the total game software sold on consoles. Wedbush says that publishers have offered fewer and fewer new games each year since 2007. The mainstream gamers who buy those titles are migrating to iPhone, Android, Facebook and other platforms with less friction and cheaper games.
"All the things that people find controversial are the future of this industry," Moore, formerly an executive of Sega and Microsoft, said. But can those things be the future of E3? Apple doesn't show games on the E3 show floor. Neither does Zynga. And why would they? E3 is predominantly a trade show, at which publishers try to get retailers to place orders for their big upcoming games. This is all but irrelevant to makers of purely digital content, which reach consumers directly. The heyday of the Big Show may be long gone.
Electronic Arts has made big bets in social and mobile gaming, acquiring hot companies like Playfish and Chillingo and publishing a large slate of games on iOS devices, among others. It has pushed hard into digital distribution with its Origin service. It will show over a dozen of these games at E3, including the first Facebook game from Insomniac, maker of triple-A hard-core titles like Resistance: Fall of Man. But these won't be on the E3 floor; they'll be in a hotel suite where the tiny iPad screens won't have to compete with Jumbotrons pumping out the glaring visuals of the latest Xbox games.
"E3 is still important to the games business, but the business has been shrinking and losing casual share to social and mobile, so it seems less interesting and important than in the past," said Wedbush analyst Michael Pachter in an email to Wired.
"E3 is absolutely relevant for the hard-core, but the casual market includes people who don’t even consider what they are playing as videogames," he said.
In contrast to EA's exuberance about the industry's transformation, its chief rival Activision has taken a significantly more reticent approach. It has just 15 iPhone apps, all spin-offs of its successful console franchises: Call of Duty Black Ops Zombies and Skylanders Cloud Patrol.
Activision's tiny slate of mobile offerings is "consistent with our overall strategy as a company," its CEO Eric Hirshberg said to Wired via phone. "We focus all of our energy and capital ... on the areas where we think we can do the best stuff and make the biggest impact. Our strategy as it relates to emerging platforms has been to use them to expand and improve the overall appeal and experience of our core franchises."
Hirshberg doesn't see Activision's audience becoming much less enamored with big-budget gaming. "There's still a massive and very engaged audience for highly immersive, high-production-value games," he said.
With a cash cow like Call of Duty raking in billions every year, Activision is in the best position to benefit from this continued demand.
But here's the funny thing about Call of Duty. As the poster child for triple-A gaming, it should be exactly the sort of product that keeps E3 exciting. And yet Call of Duty: Black Ops II isn't actually playable at E3.
Yes, the press and VIP guests will get to try it out in meeting rooms behind closed doors. But the general show attendees, the over 45,000 gamers that pack the convention center for three days, won't get to play it. Hirshberg says that Activision will give out more information about Black Ops II this year than it did with last year's entry at E3, which also wasn't playable.
But still, what's Big Show if you can't play the Big Game? Paradoxical as it may sound, there's sense to the decision. The reason publishers put their games up for public consumption at E3 is to compete with all the other publishers for attention. But Call of Duty's success so transcends that of other videogames that it doesn't need to get into a high-tech popularity contest.
So as the traditional videogame industry contracts, so does E3 find itself squeezed from both ends. As hard-core gamers put more of their dollars into a smaller pool of games, it becomes less necessary for those games to attract attention. As publishers winnow their release schedules, they have fewer reasons to take out extensive show-floor square footage. And it's not a given that the new publishers of games will feel the need to fill in the space.
"The real point is that Zynga and mobile publishers should be at E3," says Wedbush's Pachter. "It is for the entire industry, and it's important for them to participate. Give them time, they will."
