Games Grow and Grow

In the 20+ years since Super Mario Bros. was released on the Nintendo Entertainment System, or NES, the gaming industry exploded into a multi-billion dollar behemoth. Advanced consoles and PCs hit the market, providing platforms for ever increasing complexity and artistic virtuosity. The world wide web provided a forum for massive online worlds and digital distribution. Games marched into our homes and offices, onto our iPods and cell phones, into our living rooms and chat rooms, seeping into the collective consciousness as a new medium of entertainment and communication. More than two generations of people have grown up with video games as an integral part of their development, a continuously expanding market segment that presents almost limitless possibilities for growth. Gaming is big business, plain and simple, and Georgia is looking for a bigger cut.

And why not? The Electronic Software Association (ESA) states that there was $7.4 billion in game software sales in the US alone last year, nearly tripling figures from 1996. 69% of American heads of households play computer or console games, and the average age of an American game player is 33 years old. Gaming is not child’s play by any stretch of the imagination, nor is it solely a male phenomenon. 38% of all game players are women, though many of them may not admit to being gamers. But whether they play solitaire on their work computer or bowling on their cell phones, they are indeed gaming.

The gaming industry has grown in more ways than sales; it has widened its very scope of operations. While home entertainment gaming, either on consoles like the PS3, Xbox 360, or on PCs, continues to create the most revenue from game sales and maintains the highest profile in the public eye, video games have worked their way into the worlds of advertising, marketing, military training, education, and even political discourse. It has become so expansive that the term “video game” almost seems archaic.

While the video game industry as a whole has been growing rapidly for two decades now, the Georgia gaming industry is just reaching its nascent stage. The state has a number of gaming programs at its colleges and universities, a gaming super-hub in GameTap, and developers that are creating engaging material. The Georgia Game Developers Association (GGDA) says there are over 50 companies currently developing in the state. Yet Georgia gaming is still not at the level of established gaming communities in Southern California, Montreal and Orlando, where game publishers continually pump money into new products.

It is no secret the state of Georgia would like to increase its presence in the world of game technology and production. When the state passed legislation to spur the entertainment industry in Georgia in 2004, it included video game development as a component. Currently the Georgia Department of Economic Development (GDEC) and the GGDA are working on new measures to build on that legislation, and Bill Thompson, head of the Georgia Film, Video and Music Office has recently appointed Asante Bradford as a liaison to the digital entertainment community. Industry insiders expect the video game industry to double in size over the next 5 years, and The State of Georgia is positioning itself to be a part of that expansion.

Georgia already has a solid industry base to build upon. The GGDA estimates, conservatively they say, that there are already 2,000 Georgians working in some aspect of game development, and over 2,000 students enrolled in gaming programs in state schools, a number that is expected to continue to grow. Most of those programs are relatively new, and the backlog of prospective graduates is about to explode. If Georgia wants to keep graduates in state, it will need places for them to work. Kevin O’Gorman, President of the GGDA and Chair of the Game Design and Development program at American Intercontinental University in Dunwoody, says that “it’ll take another year or two to get to a critical mass, but ultimately you’ll have all these people in the metro-area trained for that work.” The key, he says, “…will come down to funding sources. That’s the missing link.” If there are not jobs for them to fill in Georgia, they will ply their wares elsewhere.

Finding the Funding

Which leads to the seeming crux of all of life’s problems, money. How can Georgia developers acquire the funding necessary to drive the gaming industry? To find that answer, one must first understand the various markets and sources that fuel game development, and the opportunities that are available in the industry. Fortunately, the state can already provide examples that may illuminate the situation.

Game development funding, in the most traditional sense, comes from companies like Electronic Arts and Midway, large publishers that advance money to development studios to create specific games. In exchange for the advance, the publisher provides advertising and marketing, as well as access to closed distribution channels. Often royalties are paid to the developers. Where there were publishers, development companies sprang up to accommodate their needs. Naturally, attracting publishers to the state would be ideal, and one college is leading the charge.

The Savannah College of Art and Design (SCAD) recently announced what could be the first wave of publisher enticement to the state. Electronic Arts (EA), which through its subsidiaries publishes such gaming mainstays as the Madden and Medal of Honor franchises, has joined with SCAD in the creation of a studio pilot program that will focus on professional production practices for video games. The program has its own super secretive building on campus, complete with NSA-like security measures. EA is evidently taking the process very seriously.

While developments like this are certainly beneficial to Georgia’s gaming industry, it would be foolhardy to assume that massive publishing companies are going to suddenly uproot their entire operations and move to the state. However, the wonderful cost of living in Georgia and the Atlanta area, absolutely cheap by major city standards, along with tax incentives and the proximity of Atlanta’s major media market, may just convince them to open new offices here. Attracting publishers to the area is an important goal, but it is not the only way to help build the industry here.

Thinking Outside the Box

Traditional funding from publishers may have set the standard, but as the gaming industry continues to expand beyond home entertainment, newer methods of financing development appear. “All of us are looking for ways of monetizing games that are better than the traditional ways,” says Ian Bogost, Ph.D., an Assistant Professor at Georgia Tech. Bogost researches “how video games represent the world and how they make arguments,” or video game rhetoric and criticism. “You know, the traditional product-in-a-box is really hard for a lot of reasons, one being closed distribution channels,” Bogost states. Outside of his teaching post, which includes heading the exceptionally cool sounding Experimental Games Labs, he also runs Persuasive Games. Persuasive develops games that may not be familiar to causal gamers, as they are anything but the “product-in-a-box” type console games. Previous titles from the company include Oil God, Airport Insecurity, and Disaffected, a game about “crappy service at Kinko’s.”

Persuasive has been able to incorporate a number of different financing methods for its games, most of which can be played in 5 to10 minutes. They have worked with digital publisher Shockwave.com, a game hub that uses pre-play advertisements to finance developers like Bogost. Shockwave.com gives the developer an advance for the game, then uses a revenue sharing system generated from the pre-play ads to compensate the developer.

Persuasive has also worked in the world of advergames, which are designed with a singular advertising purpose in mind. Know those little games on company websites that hold your attention just long enough for a brand image to be seared into your brain? Those are advergames, and they are becoming more and more prevalent each day. Many companies have already incorporated their own in-house game development teams just to create advergames for their websites.

Turner, the all-seeing, all-knowing media mogul of the south, has several different development teams working to produce advergames for its various entities. Cartoon Network, for example, has its own internal game studio. The team there designs games “as tools to familiarize our audience with characters of the shows…the environments they may be in,” says Brad Merritt, lead designer at Cartoon Network’s New Media department. “The primary focus of games is supporting the network.” Companies have learned that games are more than just entertainment, they are powerful weapons in the war for consumers’ attention.

Video games are clearly conducive to the world of advertising, marketing and branding. Games are interactive, as opposed to more passive mediums like print, and they give the potential customer the feeling of receiving something in return. Companies can blast television commercials all day long at media savvy consumers, who can tune it out or change the channel, but give them a five minute entertainment break at work and you know your message is delivered.

With Atlanta’s prominent advertising community and a number of large corporations already headquartered here, certainly advergames could play a role in stimulating Georgia’s gaming industry. As O’Gorman says, “I tell my students, if nothing else, you can always get a job with Coke, Home Depot, Arby’s, whatever.” It may not be as glamorous as designing third-person havoc storms like Grand Theft Auto, but then again, not everyone wants to be a gaming Michelangelo, and hey, it pays the bills.

Branding in a Virtual World

The relationship of advertising and gaming does not end with advergames. In fact, advergames may end up being the little brother to another potential revenue source, in-game branding. Hollywood has been using product placement for years. Whether it was a cowboy smoking a genuine Marlboro in a Western, or a hip urbanite drinking a Budweiser at their favorite sitcom bar, branding and media have always gone hand in hand. Video games may offer even greater branding opportunities than film and television.

One Atlanta company that is already incorporating in-game branding into its business model is Kaneva. The brainchild of former Internet Security Systems (ISS) founder Chris Klaus, Kaneva is an online world that represents a true innovation in the development community. It combines aspects of social networks like MySpace and FaceBook, media sharing sites like YouTube, and massively multi-player online games (MMOG) into one unique environment. Users can create identities, make friends, play casual games, share media and even develop their own games using Kaneva’s platform. Currently in its public Beta mode, Kaneva already has over 150,000 members.

Unlike MMOGs like World of Warcraft, the undisputed king of American MMOGs with over 8 million users, Kaneva does not charge a subscription fee. Instead, Klaus and company hope to generate revenue using a combination of in-world purchasing, you can buy everything from furniture for your “house” to Valentine’s cards for your sweetie, and sponsorship. “I think there are huge marketing opportunities that have never been done before,” says Klaus. “Where, in the past, if you think of TV and movies, it’s kind of a static thing.” Virtual worlds like Kaneva, along with MMOGs, allow in-game branding to go to a much more dynamic place. As an example, Kaneva recently struck an agreement with Number One Parts Incorporated (NOPI), a leading after market auto parts distributor. The agreement will provide a NOPI community on Kaneva where users can gather in a NOPI themed hangout, participate in contests, or checkout a virtual NOPI Custom Car Showcase.

Whether it is a billboard in the middle of a virtual world, a unique hangout designed around a company’s products, or creating a mini-game around an advertiser’s products, these online environments offer unique opportunities for branding, along with advertiser assurance of visibility. If you take out a billboard in a mission based MMOG, “the guys running the game guarantee you X-number of eyeballs,” says O’Gorman, “because part of the mission is to walk from point-a to point-b, and I guarantee you everyone has to walk this road, everyone will see this billboard.” Traditional media has a much harder time offering such assurances.

Naturally, a balance between excessive branding and game playing must be achieved if developers do not want to run off the players. Todd Harris, COO and Executive Producer at Hi-Rez Studios in Alpharetta, thinks the theme and environment of the game decide what kind and how much advertising is acceptable. Says Harris, “The major considerations and gamer feedback to date has been, if it fits the game world, they’re very receptive to it and it actually makes it a more
immersive environment.”

On the other hand, inappropriate branding attempts can turn off potential customers. Hi-Rez is currently developing an MMOG called Global Agenda, an espionage thriller set in the near future. While Hi-Rez will consider in-game branding as they get closer to release, they will be sure to allow only those opportunities that enhance their world. You are not likely to see a Global Agenda operative munching on a Whopper in the middle of a war zone, but you may just see the tattered remains of a Burger King billboard in the background.

A Private Affair

In-game branding can certainly be a source of revenue for game developers and publishers, but it likely will not come close to generating the funding necessary to establish a major development studio or to drive an emerging industry. Costs of console game and MMOG development have mirrored their movie counterparts in Hollywood, skyrocketing as high as $100 million in some cases. Even the most basic console games generally cost more than one million dollars to develop, and the risk is tremendous.

Development of big games takes years, usually between two and five, and requires massive teams to complete. Harris, who estimates Hi-Rez is in the absolute lowest bracket of MMOG development size, has 35 people working on Global Agenda and plans to add more. Some games see as many as 500 different sets of hands on them before completion. If you have ever finished a first-person shooter or hi-tech sports game, then you’ve probably noticed the Lord of the Ring-like credits that run at the end. Funding for new companies has to come from other sources, and other options are emerging from the world of independent investment.

Georgia already has some examples of private investment that could serve as inspiration to others. Both Hi-Rez and Kaneva are independently funded operations that stem from previously successful tech entrepreneurs. Kaneva is funded by Klaus, who helped sell ISS in 2006 to IBM for over one billion dollars. Hi-Rez has the might of Erez Goren behind it, a businessman with a successful track record of establishing companies, first with Radiant Systems, a provider of retail store point of sales systems, and then with Blue Cube Software, an enterprise software company that he sold in 2006. Both Goren and Klaus were already gaming fans and saw the tremendous growth in the industry.

The success of these two companies could very well influence future growth in the Georgia gaming community. Harris thinks the key to growth could hinge on setting an example. “Having a success story, whether it’s a studio or a publisher, once a success story comes, then many will follow.” Simply witnessing a successful venture can be enough to encourage other investors to follow suit. We all saw the explosion of the Dot Com industry, and unfortunately the subsequent implosion, and the gaming world has the opportunity to follow suit, hopefully learning from the mistakes along the way. The state should be able to internally supply a sufficient amount of investors. In 2006, the Atlanta Business Chronicle reported on two studies that indicate Atlanta will have the largest growth of households with “$1 million or more of investable assets,” of any major metro city in the country, a number that should make potential developers very happy. The keys will be to locate investors and show them that gaming is a more than viable investment opportunity.

A new venture may just make that easier. Bert Ellis, former CEO of Atlanta Web consulting firm iXL Enterprises Inc., is working with Thomas Tull, CEO of Legendary Pictures and Executive Producer of the movie 300, in rounding up $150 million of private equity for a video game development/publishing company called Brash Entertainment. According to an Atlanta Business Chronicle article, Brash will develop games licensed from existing entertainment franchises, starting with a game version of 300. The ambitious startup has set a goal of creating 60 to 100 titles in the next five years, a tremendous amount of games that could require over a billion dollars to complete.

Brash Entertainment is currently headquartered in Los Angeles with offices in Atlanta. The company will outsource development of its games around the world, and if the state plays its cards right, Georgia could land some of those. With budgets in the tens of millions, or even hundreds of millions, just landing a couple could provide a
major boost to the states gaming community. Nothing is guaranteed, however, and if the state wants to compete for those titles, development studios will have to show their ability to take on such massive projects.

Mix it Up

Developing console games, PC games and MMOGs is great for some companies, but the costs and risks of doing business in these highly volatile environments may be too prohibitive for some prospective developers and investors. Fortunately, there are other niche markets that can provide opportunities for them. The cellular gaming market is billion-dollar industry worldwide, and judging from the incessant clicking you hear in any public area, does not seem to be slowing down. Blue Heat Games in Atlanta is one of the city’s most established game development companies, having sold over 30 titles to publishers like EA Sports and Sony Pictures. Founded by Marcus Matthews and Ken Lightner, two veterans of PC and console game development, Blue Heat has sold over one million copies of its games. One of their more recent projects even had a big name celebrity attached, as Snoop Dogg Boxing stormed into phones in 2006. People will not give up their cell phones in the near future, and the cellular gaming market should continue to provide opportunities for emerging developers.

Cell phone gaming may be a nuisance to classrooms and boardrooms, but game development is more readily accepted than ever in those environments. Educational and training titles, generally falling under the category of serious games, are viable products for developers. Big Fun Development, a rather curious name for a serious game developer, has been creating serious games alongside its other offerings since 1996. New York transplant and Big Fun founder Dov Jacobson came to Atlanta in 1992 to start a game development company for Turner. When Turner was acquired by Time-Warner in 1996, Jacobson’s development company was let go. “They pitched us overboard so quickly,” said Jacobson, “that I was able to hold the company together, and take some projects we were working on.”

Big Fun has developed games for schools and simulators for the military. They created a game for the American Society for Prevention of Cruelty to Animals called Fetch, which encourages children to come to develop good pet habits. They have designed web-based trivia and logic games. They have built console games and advergames. By diversifying their content creation, Big Fun has been able to maintain a relatively steady course in the highly volatile gaming environment. “Really, with Big Fun, the concept was to concentrate on game type, and to be able to move that from one technology and one genre to another,” said Jacobson.

While Big Fun has developed a number of web based flash games, Jacobson is quick to point out that those only make up a portion of their budget. “What we found was, the web based games like Fetch, they’re pretty entertaining and they’re fun to do, but they’re relatively limited in terms of budget,” he said. “We do them, but we can’t build a studio around them. In order to build a viable studio, we had to build 3-D games.” It is precisely Big Fun’s diversity that makes it an encouraging model for up and coming development companies.

A Digital Horizon

In the end, it may come down to an Atlanta entity to encourage more growth in the state. GameTap, a division of Turner Broadcasting, was launched in 2005 and quickly became the online gaming hub. Initial services offered by GameTap included access to gaming classics like Pitfall and Galaga. The company now includes original games, original programming, MMOGs and virtual communities in its grab bag of fun. For a subscription fee, users have access to it all. But where GameTap really raised the bar was through the expansion of digital distribution of games.

Digital distribution is “shattering the traditional ‘cradle to grave’ marketing plans,” says GameTap Vice President of Content Ricardo Sanchez, “by extending the life and reach of each gaming title.” Much like television syndication, GameTap allows video games to live on beyond their initial runs. This provides new revenue possibilities for publishers that simply did not exist previously. “GameTap has a dynamic revenue sharing program with publishers, which allows them multiple financial opportunities through membership, online advertising and digital distribution.”

Creating new streams of revenue for publishers is great for them, but where GameTap is truly revolutionary for developers is the idea that a traditional publisher may no longer be necessary for a successful game development studio. Publishers were essential for most of gaming’s history. They had the funding and the access to distribution channels, “which is one of the main things a publisher provides,” says Harris. If a developer wanted to sells games in Wal-Mart or Best Buy, even if it could afford the production costs, it needed a publisher. With digital distribution, that dynamic is changing.

“Now instead of games being only available in brick and mortar stores,” says Sanchez, “players can now go online, try the game to see if they enjoy it, and then purchase it via digital download or at a retail store.” The retail store is still an important cog in the distribution chain, but its stronghold over game distribution is eroding. “That’s still a significant element of sales,” says Hi-Rez’s Harris, “but over the next couple of years that will likely shift more and more in the digital direction.”

As the shift to digital distribution gains steam, more and more opportunities open for prospective development companies. With console games, PC games, advergames, cellular games, casual games, serious games, MMOGs, virtual worlds and the emergence of in-game branding, the gaming industry is poised to continue its growth. This is an industry on the rise, an industry filled with potential, and there is no reason Georgia can not play a role in that growth. The Georgia video game industry already has a solid foundation of development companies, a supportive government, a massive media conglomerate in Turner, a tech savvy city in Atlanta, and the gaming students necessary to continue to build internally. The only question left is, can Georgia build on it? Game on.