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This article is reprinted from TEQ Magazine, a publication of the Pittsburgh Technology Council.

The June/July 2004 issue of TEQ focused on the burgeoning entertainment technology industry in Pittsburgh and, in particular, the exciting work being done at Carnegie Mellon University's Entertainment Technology Center. The video gaming industry is experiencing a period of "convergences" unlike any other time in its brief history. As a result of these many convergences, it will be necessary to recognize the increasing sophistication of the legal and business issues of which game developers must be aware. To be sure, the video gaming industry is growing up.

Convergences can take many forms. First, there are the hardware convergences. Originally, video games were played by a handful of people on mainframe computer systems. Later, gaming moved to primitive home console and arcade systems. With the growing popularity of personal computers, PC-based games also because popular. Beginning in the 1990s, there began the cycles (which usually lasted about five years each cycle) of proprietary hardware platforms. Starting with very primitive systems, consoles moved into 8, 16, 32 and 64-bit systems to the current 128-bit Xbox, GameCube and Playstation 2 Systems. With each new system has come an increased demand for better and more sophisticated gaming content. In addition to the enormous popularity of console-based systems, with the widespread availability of broadband Internet access, PC games have gained popularity, especially in the world of Massively Multiplayer Online Games (MMOGs).

Also, this broadband access has allowed console players to play with other players via the Internet via subscription services (such as Xbox Live). Almost as quickly as a new hardware platform is introduced into the marketplace, rumors abound with respect to the "next generation" machines, which will render the new platform obsolete. The current players in the gaming console world (Sony, Nintendo and Microsoft) are keeping their options open with respect to the next generation of consoles. One recurring theme, however, is the need of manufacturers to respond to consumer demand with respect to entertainment and gaming experiences. In fact, that is the reason why both Sony and Microsoft chose to include DVD playback as part of their 128 bit systems.

The need to respond to rapidly changing consumer demand and tastes could likely result in a much different type of device in the future. For example, a single device may play video games, act as a High Definition Cable box, serve as a master "jukebox/TiVo" for MP3s and DVDs, etc. How this "lifestyle technology" plays out will have a very significant impact on game development. New platforms fuel new demand for content. The typical life cycle of a console has historically resulted in strong game sales for that platform in years one and two, flat sales in year three and sharply diminished sales in years four and five. The cyclical nature of the business, along with the increasingly more complex nature of the games themselves (which, in turn, cost must more to develop and involve much longer development cycles) have posed significant economic challenges to game developers.

In addition to these "home" convergences, video games have also found their way onto other electronic devices. From the advent of the handheld game system (such as the very popular Game Boy systems first introduced in 1989) to cell phones, PDAs and other "hybrid" devices, there are opportunities for developers to create rich content for these varied platforms. While development times are significantly shorter for such games (typically a year or less, compared to 3-plus years to develop a typical console game) and the costs are much lower (typically less than $500,000 compared to $7-10 million for a full featured console game), there are significant challenges for developers working to develop games for portable electronic devices. The largest impediment appears to be a lack of uniformity or even compatibility among the various devices. For example, there are real challenges to make a game developed for a Nokia phone playable on a Motorola phone, let alone a Palm PDA device.

As computer technology has rapidly advanced, so too have the tools available for use by game developers. This has allowed games to have a much more realistic and real time interactive quality that was absent in the past and has led to "content convergences." I like to refer to this as "Siliwood" – the convergence of computer technology and the entertainment industries. There are now a multitude of examples of in-licensing of content into games such as: brands (e.g., "NBA Hang Time" and "Madden NFL Football"); Personalities (e.g., "Tony Hawk Pro Skater" and "Ken Griffey Baseball"); Trademarks (e.g., billboards which appear in auto racing games or in stadia); literary properties (e.g., "Harry Potter"); movies (e.g., "Lord of the Rings" and "The Matrix"); music (e.g., soundtracks in games); and cartoons (e.g., "SpongeBob SquarePants" and "Rugrats").

A local example of this type of convergence is the CMU Entertainment Technology Center's development of a video game based on Pittsburgher George Romero's classic film "Night of the Living Dead." Each of these intellectual properties must be licensed and the economics of royalties and license fees must be factored into development cost and return on investment. In addition, many games now utilize Hollywood talent for voices and even in-license the names and likenesses of well-known actors.

The opposite has also occurred (a sort of "reverse" convergence) – popular video games are now being adapted into television shows and movies. Examples include "Lara Croft: Tomb Raider" and "Super Mario Bros.," both of which were based on popular video games. In an interesting twist, the UPN network began airing a show titled "Game Over," which depicts the lives of video game characters after the game is over and a PC game version of that television show was simultaneously released.

As these convergences become more prominent, game developers have begun to utilize many of the same types of talent involved in the creation of films. For example, screenwriters, composers and actors are increasingly playing key roles in game development, as gamers demand a content rich interactive experience not previously available. MMOGs, in particular, feature these content rich environments.

Turning that convergence around, many motion pictures are now created in much the same way as a complex video game. For example, films such as "Finding Nemo" are almost exclusively creations of computer animation. Even large "live action films" such as "The Lord of the Rings" trilogy were largely created in computer studios and not film sets. Thus, many of the same creative people are gravitating to both types of creative endeavor.

In next month's TEQ, I will address the economic impacts of these convergences in the video gaming industry.