February 7, 2005
Blockbuster With a Joystick
OS ANGELES, Feb. 6 - Ten years after being burned in their first attempts to combine movies and television with the video game business, media companies now seem willing to press the play button again.
Wall Street is rife with speculation that various media companies are on the hunt to acquire a video game maker like Activision or Electronic Arts. Studios are more aggressively licensing their television and movie properties to game makers. And the pitches for video game-inspired movies have made lunch at Spago sound more like the computer club at a junior high school.
At last week's Walt Disney Company conference in Orlando, Fla., investors were told that the company was in discussions to buy multiple game development studios and would spend nearly $50 million to develop the business. Disney executives are scouring their vast library of action films like "Armageddon," "Gone In Sixty Seconds" and the two-part "Kill Bill" for ideas for the next blockbuster game.
Such activity is a far cry from a year ago, when the video game business "was not one we or any other media company would touch," said Andy Mooney, the head of Disney's consumer products division.
What is driving the flurry is Hollywood's newfound respect for the profits earned by video game makers. Until recently, movie studios were happy to license their films to game developers, Mr. Mooney said. But as the profit margin on video games has remained around a healthy 25 percent - three times that of the average motion picture - the interest of companies like Disney has increased.
"There is a pressure on all of us to grow our business," said Michael Lynton, chairman of Sony Pictures Entertainment. "It looks really attractive - like many things - on the surface."
Under the surface, however, video games remain a risky and unproven test for media companies.
The most successful games are franchises unto themselves. With the exception of the recent games based on Spider-Man, The Lord of the Rings and Star Wars movies, the sales of movie-based games pale beside those of the alien-fighting "Halo" games and the violent "Grand Theft Auto" series, where players score points for shooting pedestrians and beating up prostitutes.
"It's not a one-size-fits-all business and there is no silver bullet," Mr. Mooney said. "Once you get past the 'Let's spend billions and go buy a game company stage,' you have to ask yourself, 'What is the right strategy?' "
Media companies have dreamed of crossover successes before. In the 1970's and 1980's, many studios acquired book publishers in the hopes of mining their titles for movie ideas. Later, Hollywood film producers tried to combine book publishing with movie making. Neither attempt panned out.
In the 1990's, DreamWorks SKG, Time Warner, Disney and others sought to build their own video game divisions, only to falter under the weight of high development costs or too little expertise. Some companies, like DreamWorks, sold their game divisions, while others scaled back and incorporated their games business into their technology units.
Those failures are part of the reason that smaller game developers have flourished. The culture that has persisted among developers is one in which they retain their entrepreneurial flair, while movies and television are mature businesses. And video game makers have yet to adopt the diva qualities and corrupting influence of star power that is more common in Hollywood
"There will naturally be culture clashes if they try to move these cultures together," said Neil Young, the executive in charge of production at Electronic Arts. "There is not a culture of fear in our industry. We are not afraid to fail."
The big media companies - where fear of failure is almost a job requirement - have taken vastly different approaches to exploiting the video game phenomenon this time around.
Disney is publishing its own game based on the coming "Chronicles of Narnia" movie, while Mr. Lynton said Sony Pictures will continue to license its film properties to developers. At News Corp., which also licenses their film and television shows for video games, chief operating officer Peter Chernin said recently that video game companies were currently too expensive to acquire. Time Warner is the most aggressive of the large companies, with a three-pronged approach including licensing, co-partnering with game makers and designing its own games.
Many companies are even looking beyond the marquee console games to multiplayer online games and cellphone games, which are growing in popularity and are cheaper to produce. A video game for Sony's PlayStation or Microsoft's Xbox can cost as much as $15 million to make, while a game played exclusively on a cellular phone can be developed for as little as $100,000. Twentieth Century Fox last month signed a two-year deal with game publisher Sorrent to make cell games for some of its upcoming movies.
But Mr. Lynton, whose bosses at the Sony Corporation in Japan make the popular PlayStation consoles and video games, cautioned that the industry should not overhype the synergies between games and other entertainment.
"The problem is, leaving aside the expense of buying a game company or starting one from scratch, when you get into the dynamics of the video game business, it is very different than film or television production," he said. "I have a hard time telling a good game from a bad one."
Instead, some media companies are hiring game developers to tell them what to think. In January 2004, Warner Brothers Entertainment hired Jason Hall, the co-founder of the game maker Monolith Productions, to run its newly formed Warner Brothers Interactive Entertainment unit, which is overseen by Kevin Tsujihara, executive vice president of business development and strategy, and Dan Romanelli, consumer products president.
That division is developing "The Matrix Online," a multiplayer game that participants will be able to play online and is expected to be introduced this spring after being delayed twice. Mr. Tsujihara said Warner planned to release up to three to five games per year. The main reason Warner started the division was quality control, he said.
"We don't want to have our movies and television shows hurt by bad games," Mr. Tsujihara said.
Quality aside, there are other more compelling reasons - if Warner games are a hit, the studio gets to keep all of the profits instead of sharing with the likes of Electronic Arts or Activision. Those numbers can be staggering: first-day sales of Xbox's "Halo 2" were $125 million, far surpassing the theatrical debut of most movies. And some industry analysts suggest that Warner, like others, is waiting for the introduction of the newest generation of DVD players to re-release vintage films, comic book serials and television shows it owns, which will be promoted and packaged alongside newly minted video games. If successful, video game companies might soon find that their friendly studio partners are fierce rivals.
"Studios are going to become game publishers and will treat them like movies, television or any other intellectual property," said Keith Boesky, a game industry consultant.
But when studios have tried to exploit video games as movies in the past, they have had limited success. (Remember "Final Fantasy: The Spirits Within?" No one else does. Video games that are too violent or lack a good plot are hard to translate to the screen.) When Paramount Pictures made two movies based on the "Lara Croft: Tomb Raider" game, Robert Friedman, vice chairman at Paramount Pictures, said the studio "desperately wanted to make movies that were PG-13." The first movie was a hit, the second a bomb that killed the franchise.
Paramount, which is owned by the media giant Viacom, has several movies in the works based on video games. These include "Fear and Respect" and "Area 51," both made by Midway Games, which is owned partly by Viacom chairman Sumner Redstone. Despite Mr. Redstone's investment in Midway, Mr. Friedman said Paramount was not required to make Midway games. "No one is going to mandate, in my opinion, the free flow of ideas," he said.
Peter Guber, the former chief executive of Sony Pictures and host of the television show "Sunday Morning Shoot Out," has experience juggling content among several media. In 1995, he set up the multimedia company Mandalay Entertainment Group, which has since shed its book division, focusing instead on original film and television production.
"If anyone thinks they are going to get a stream of ideas from video games or they are going to successfully make video games from a movie's conceit is mistaken," said Mr. Guber. "Ultimately you have to independently manage the properties of each division."