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Sex, profits and video games
Thursday, October 31 2002
by Matthew Clark

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Soon Santa will be coming to town with a bag full of video games, but it's not just children who are wishing for the latest electronic titles.

Despite the tech sector misery and faltering consumer confidence, the video game industry is booming as never before. Last year US video game sales surpassed cinema box-office sales, and this year the global industry is forecast to be worth USD31 billion, according to the Informa Media Group. In Europe, the almost recession-proof sector is predicted to have 2002 sales of USD7.5 billion.

If you think this market is driven by the whims of children, think again. The average game player is 28 years old, according to the Interactive Digital Software Association. Around 90 percent of games are purchased by adults, and 40 percent of players are women. Children of the 1980s who grew up on Atari are now willing to plough a big portion of their wages into games. "For me, buying a video game is the same as spending money on a movie or a nightclub; it's just something I do every week," said Kieron Gillen, deputy editor at PCGamer magazine in the UK.

With consumer attitudes like this, it's no wonder shares in game maker Electronic Arts were closing in on a 52-week high of more than USD70 a share by mid-October. For the coming Christmas quarter, the company has forecast revenue of more than USD1 billion -- a record-breaking figure for any video games company.

The consensus is that cut-throat competition -- with Microsoft, Sony and Nintendo all vying for the top spot -- is what's driving this staggering growth. "It takes about two years to make a game; so a year and a half or two years after new consoles are launched, things are really hot," said Gillen. This pattern equates to a cycle that sees the launch of new games consoles every five years, he notes, with tremendous software sales in the intervening years.

In this five-year cycle, by 2007 punters can expect to see the next wave of innovation: on-line gaming in massive global grids that pit hundreds of players against each other. This is around the same time that industry sources have pegged for the release of Xbox2 and PlayStation 3. And next month Microsoft will launch its Xbox Live on-line gaming network in US, a closed broadband network. The company is betting that the network will set Microsoft apart from Sony and Nintendo, whose on-line offers are Internet-based.

"Of course Sega already tried this, with not much success," said David Mercer, vice president of broadband practice at Strategy Analytics, referring to Sega's failed Dreamcast console. The console, which had on-line functionality, struggled to compete with PlayStation 2. Mercer says broadband penetration, particularly in the case of the European market, will be the key to success for on-line initiatives.

He also said that in five years' time, the industry may not be big enough for all three contenders. "If I had to say who won't be around in five years, I'd say Nintendo."

Clearly the stakes are rising for game makers, who are pushing the envelope with more sex and more violence in a bid to lure grown-up gamers. Last year Take-Two Interactive Software released Grand Theft Auto 3, one of the most popular games of all time. Children's groups quickly condemned the game, which featured bloody shootouts with police in a Mafia underworld. This year Acclaim Entertainment is pushing the driving game BMX XXX, which offers prostitutes and pimps as major characters; some US retailers are already refusing to sell it.

Some experts say it's the utter, engrossing realism of these games, not their violence alone, that makes them hits. "It's all about creating an environment that's completely immersive," said Paul Hayes, communications director of the games technology company Havok. "People want to be involved in a story and not just have it told them, like in the movies."

Havok, which was born out of Trinity College Dublin, makes the software that other developers use to build interactivity and realistic dynamics into their games. The gaming boom has been good for the company, which employs 50 and has featured 200 percent revenue growth year-on-year for the last two years.

Hayes said Havok engineers have spent much of this year perfecting the virtual movements of the human body doing things like falling down the stairs or getting thrown around. "We call it rag-doll kinds of actions," he said. "Last year it was all driving games. Next year it will be human interaction games -- wait and see."



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