<a href="http://www.fortune.com/fortune/technology/articles/0,15114,480222,00.html" target="_blank">http://www.fortune.com/fortune/technology/articles/0,15114,480222,00.html</a>
The Biggest Game in Town
Music? Sales down. Hollywood? Hit or miss. Tech? Flat. No wonder everyone wants to be in videogames.
FORTUNE
Tuesday, September 2, 2003
By Peter Lewis
Let's play a little numbers game: On Aug. 14, Madden NFL 2004, a videogame pitting real-life NFL teams against one another, appeared on retailers' shelves. Within three weeks, the game grossed $100 million-two million copies sold at $50 a pop. In roughly the same period, the summer hit movie Seabiscuit returned $78 million. Madden doesn't just have better numbers, but better legs: By the time the next version comes out a year from now, gamemaker Electronic Arts will have shipped four million copies of Madden 2004, raking in $200 million. By comparison, last year's Oscar-winning Best Picture, Chicago, has taken nine months to bring in $171 million at the box office.
The average Madden 2004 player will spend, conservatively, 100 hours mastering the game over the year. That's four million sets of eyeballs times 100 hours. HBO's mobster smash The Sopranos drew an average of 11 million viewers for all 13 one-hour episodes last season. That's 143 million viewing hours for the most popular show on cable TV. Do the math.
There's more: Each of the 13 songs by major artists on the Madden 2004 soundtrack-groups like Blink-182, Alien Ant Farm, OutKast, and Nappy Roots-will burn themselves into the brain of each player more than 100 times, creating more impressions for new artists than they can get on radio or MTV. As a result, stars like 50 Cent and Mya are releasing new songs on videogames sometimes weeks earlier than the drop of their full CD. By the time the album comes out, demand among the kingmaking 16- to 34-year-old age group-in other words, the videogame generation-is stoked. And Madden isn't even at the top of the pile when it comes to game sales.
If you've got kids, or hang around with them, you knew videogames were big. But you may be shocked by how big they are, and not just in terms of the multibillion-dollar revenues and profit margins that are the envy of major entertainment companies. Games are becoming culturally pervasive, stealing time and dollars from other consumer entertainment options like movies, television, and, ahem, magazines. On average an American will spend 75 hours this year playing videogames, more than double the amount of time spent gaming in 1997 and eclipsing that of DVD or tape rentals today, according to market research firm Veronis Suhler Stevenson. Of the other forms of entertainment, only Internet usage is expected to grow faster than videogames-a fact that the videogame makers plan to use to their advantage.
And with time comes money. Though the global videogame market was just $28 billion in 2002, some people think it's on track to rival the movie, music, or television industries, perhaps by the end of this decade. Music sales have been falling in recent years, the moviegoing experience hasn't changed that much since Gone With the Wind, and network TV is on the skids. The games business has been racking up double-digit growth rates for the past decade, even through the recent tech slump.
Long considered to be the toy department of the entertainment business, the videogame industry is now starting to flex its muscle. In Hollywood, movie studios and music producers increasingly make sure they have the support of game companies before starting projects. And execs are jumping ship to go work in what is now called interactive entertainment. The tech world, too, is taking notice. Companies like Sony, Microsoft, and Nokia are placing huge bets that videogames will open lucrative new revenue streams worldwide. Their efforts promise to bring a new generation of consoles that in just a few years will make the look and feel of games virtually indistinguishable from television or movies.
But that's the future. A more immediate test starts this fall. In the coming months, several of the most powerful videogame software and hardware makers are initiating their boldest-and riskiest-moves to harness the power of the Net and the wireless world. Their goal is to create what could become virtual, ubiquitous gaming worlds.
And the odds are they'll pull it off. The big-spending youth market can't get enough of these games. According to a recently released study by the Pew Internet & American Life Project, 70% of last year's college students played videogames at least occasionally. Asked whether they have ever played videogames, the student response scored 100%. "Computer, video, and online games are woven into the fabric of everyday life for college students," the report concluded. "Gaming is a part of growing up in the U.S."
Those aren't just adolescent boys blasting Hell Knights on Doom or stealing stretch limos with Grand Theft Auto. One computer game, The Sims, has sold close to 20 million copies, counting sequels and spinoffs, and its main audience is teenage girls. At any given time, 30,000 people are playing pool online at Yahoo Games. Thousands more are playing card games on AOL Games, MSN Games, or Gamespot. According to Nielsen/NetRatings, more than 35 million people visited Internet game parlors last month.
"Lots of people are astonished; they don't really understand the pervasiveness of computer-based gaming," says Tom Melcher, CEO of There, an online gaming and communications service launching next month with backing from major cable and telecom companies. "It wasn't something they grew up with. Now, I'm 40, and I can remember a time when there weren't any electronic game devices at all. But for kids who came of age in the 1980s and 1990s, they can't remember a time when there were not game machines all around them."
That's not hyperbole. More than half of American households have some sort of game machine, like a Sony PlayStation, a Microsoft Xbox, or a portable Nintendo Game Boy Advance. As new and better machines roll out, consoles will become a fixture in more and more living rooms.
Already, videogame culture is almost completely embedded in the lives of people under 30. Consider the fierce competition among music stars and professional athletes to get on the cover of-no, not Sports Illustrated, Rolling Stone, or the Wheaties box-the videogame package. "I mean, this is a dream come true, for me to be on the cover of Madden NFL and be part of the game," Michael Vick, the superstar quarterback for the Atlanta Falcons, told the Sporting News this summer. "It's something you think about as a kid, but you don't think it will ever happen."
No company better tells the tale of the new power in video games than Electronic Arts, the $2.5-billion-in-revenues monster of sports, movie, and action titles. From its grassy campus in Redwood City, Calif., the company dictates where the industry is heading and how it's getting there. And the man at the machine is Lawrence Probst III, chairman and chief executive of EA. Tall and trim, Probst is one of the grownups in the maturing world of videogames. He is described by colleagues and competitors alike as hard-nosed but never rough-edged. In an industry that mints money on guns and girls, Probst refuses to include gore or raunchy graphics in EA games.
But trash talk, that's another thing. With the same cockiness one might find in the EA game Def Jam Vendetta, Probst vows that his company will become the "biggest and best entertainment company in the world."
Bigger than Disney, bigger than Viacom, bigger than AOL Time Warner (the parent company of FORTUNE's publisher)? Probst just smiles. Sure, its sales wouldn't even service AOL's debt load. But EA is drubbing those giants when it comes to return on invested capital: 42% to AOL's 5%. It's a pure digital play and doesn't have to worry about things like movie studio backlots, cable pipes, or theme parks. It's also the first stop when those companies want to license their content. They know EA has the power to move millions of games. Among the company's franchises: Harry Potter, The Lord of the Rings, James Bond, and Superman. J.K. Rowling, Harry Potter's godmother, even writes original story lines for the games. Investors have bought into the EA story: Its stock recently hit an all-time high of $90, making the $13.2-billion-market-cap company the world's fourth-largest software maker, behind Microsoft, Oracle, and SAP
The Biggest Game in Town
Music? Sales down. Hollywood? Hit or miss. Tech? Flat. No wonder everyone wants to be in videogames.
FORTUNE
Tuesday, September 2, 2003
By Peter Lewis
Let's play a little numbers game: On Aug. 14, Madden NFL 2004, a videogame pitting real-life NFL teams against one another, appeared on retailers' shelves. Within three weeks, the game grossed $100 million-two million copies sold at $50 a pop. In roughly the same period, the summer hit movie Seabiscuit returned $78 million. Madden doesn't just have better numbers, but better legs: By the time the next version comes out a year from now, gamemaker Electronic Arts will have shipped four million copies of Madden 2004, raking in $200 million. By comparison, last year's Oscar-winning Best Picture, Chicago, has taken nine months to bring in $171 million at the box office.
The average Madden 2004 player will spend, conservatively, 100 hours mastering the game over the year. That's four million sets of eyeballs times 100 hours. HBO's mobster smash The Sopranos drew an average of 11 million viewers for all 13 one-hour episodes last season. That's 143 million viewing hours for the most popular show on cable TV. Do the math.
There's more: Each of the 13 songs by major artists on the Madden 2004 soundtrack-groups like Blink-182, Alien Ant Farm, OutKast, and Nappy Roots-will burn themselves into the brain of each player more than 100 times, creating more impressions for new artists than they can get on radio or MTV. As a result, stars like 50 Cent and Mya are releasing new songs on videogames sometimes weeks earlier than the drop of their full CD. By the time the album comes out, demand among the kingmaking 16- to 34-year-old age group-in other words, the videogame generation-is stoked. And Madden isn't even at the top of the pile when it comes to game sales.
If you've got kids, or hang around with them, you knew videogames were big. But you may be shocked by how big they are, and not just in terms of the multibillion-dollar revenues and profit margins that are the envy of major entertainment companies. Games are becoming culturally pervasive, stealing time and dollars from other consumer entertainment options like movies, television, and, ahem, magazines. On average an American will spend 75 hours this year playing videogames, more than double the amount of time spent gaming in 1997 and eclipsing that of DVD or tape rentals today, according to market research firm Veronis Suhler Stevenson. Of the other forms of entertainment, only Internet usage is expected to grow faster than videogames-a fact that the videogame makers plan to use to their advantage.
And with time comes money. Though the global videogame market was just $28 billion in 2002, some people think it's on track to rival the movie, music, or television industries, perhaps by the end of this decade. Music sales have been falling in recent years, the moviegoing experience hasn't changed that much since Gone With the Wind, and network TV is on the skids. The games business has been racking up double-digit growth rates for the past decade, even through the recent tech slump.
Long considered to be the toy department of the entertainment business, the videogame industry is now starting to flex its muscle. In Hollywood, movie studios and music producers increasingly make sure they have the support of game companies before starting projects. And execs are jumping ship to go work in what is now called interactive entertainment. The tech world, too, is taking notice. Companies like Sony, Microsoft, and Nokia are placing huge bets that videogames will open lucrative new revenue streams worldwide. Their efforts promise to bring a new generation of consoles that in just a few years will make the look and feel of games virtually indistinguishable from television or movies.
But that's the future. A more immediate test starts this fall. In the coming months, several of the most powerful videogame software and hardware makers are initiating their boldest-and riskiest-moves to harness the power of the Net and the wireless world. Their goal is to create what could become virtual, ubiquitous gaming worlds.
And the odds are they'll pull it off. The big-spending youth market can't get enough of these games. According to a recently released study by the Pew Internet & American Life Project, 70% of last year's college students played videogames at least occasionally. Asked whether they have ever played videogames, the student response scored 100%. "Computer, video, and online games are woven into the fabric of everyday life for college students," the report concluded. "Gaming is a part of growing up in the U.S."
Those aren't just adolescent boys blasting Hell Knights on Doom or stealing stretch limos with Grand Theft Auto. One computer game, The Sims, has sold close to 20 million copies, counting sequels and spinoffs, and its main audience is teenage girls. At any given time, 30,000 people are playing pool online at Yahoo Games. Thousands more are playing card games on AOL Games, MSN Games, or Gamespot. According to Nielsen/NetRatings, more than 35 million people visited Internet game parlors last month.
"Lots of people are astonished; they don't really understand the pervasiveness of computer-based gaming," says Tom Melcher, CEO of There, an online gaming and communications service launching next month with backing from major cable and telecom companies. "It wasn't something they grew up with. Now, I'm 40, and I can remember a time when there weren't any electronic game devices at all. But for kids who came of age in the 1980s and 1990s, they can't remember a time when there were not game machines all around them."
That's not hyperbole. More than half of American households have some sort of game machine, like a Sony PlayStation, a Microsoft Xbox, or a portable Nintendo Game Boy Advance. As new and better machines roll out, consoles will become a fixture in more and more living rooms.
Already, videogame culture is almost completely embedded in the lives of people under 30. Consider the fierce competition among music stars and professional athletes to get on the cover of-no, not Sports Illustrated, Rolling Stone, or the Wheaties box-the videogame package. "I mean, this is a dream come true, for me to be on the cover of Madden NFL and be part of the game," Michael Vick, the superstar quarterback for the Atlanta Falcons, told the Sporting News this summer. "It's something you think about as a kid, but you don't think it will ever happen."
No company better tells the tale of the new power in video games than Electronic Arts, the $2.5-billion-in-revenues monster of sports, movie, and action titles. From its grassy campus in Redwood City, Calif., the company dictates where the industry is heading and how it's getting there. And the man at the machine is Lawrence Probst III, chairman and chief executive of EA. Tall and trim, Probst is one of the grownups in the maturing world of videogames. He is described by colleagues and competitors alike as hard-nosed but never rough-edged. In an industry that mints money on guns and girls, Probst refuses to include gore or raunchy graphics in EA games.
But trash talk, that's another thing. With the same cockiness one might find in the EA game Def Jam Vendetta, Probst vows that his company will become the "biggest and best entertainment company in the world."
Bigger than Disney, bigger than Viacom, bigger than AOL Time Warner (the parent company of FORTUNE's publisher)? Probst just smiles. Sure, its sales wouldn't even service AOL's debt load. But EA is drubbing those giants when it comes to return on invested capital: 42% to AOL's 5%. It's a pure digital play and doesn't have to worry about things like movie studio backlots, cable pipes, or theme parks. It's also the first stop when those companies want to license their content. They know EA has the power to move millions of games. Among the company's franchises: Harry Potter, The Lord of the Rings, James Bond, and Superman. J.K. Rowling, Harry Potter's godmother, even writes original story lines for the games. Investors have bought into the EA story: Its stock recently hit an all-time high of $90, making the $13.2-billion-market-cap company the world's fourth-largest software maker, behind Microsoft, Oracle, and SAP
