Electronic game development community thrives in Texas
Making Mayhem--and Money
It's been about 30 years since electronic games first began gobbling our quarters, and the Pong generation is getting grey around the temples. But many of them are still playing, though most of the action has moved from arcades to computer desktops and the living room TV. And they've been joined by hordes of new players.
Few early pongsters and space warriors could have imagined that their passion would one day grow into a multibillion-dollar enterprise. But that day has arrived, and a number of these addictive games are made in Texas.
Growing and resilient
According to the Interactive Digital Software Association (IDSA), an entertainment software industry group, about 145 million Americans--about 60 percent of the population--play electronic games regularly. U.S. consumers purchased a whopping 225 million units of video and computer games and "edutainment" software in 2001.
Inexpensive entertainment traditionally has been highly resistant to economic downturns; Hollywood remembers the Great Depression as a boom time, for instance. And the electronic gaming industry is no exception, sailing through the 2000 dot-com bust and the shocks of 9-11 with little more than a pause. Brett Russell, vice-president of Dallas game developer Terminal Reality, says the economic downturn "really didn't seem to affect our industry very much at all. Even people who are staying home and not spending much money will still spend money on entertainment."
IDSA reports that, after dipping slightly in 2000, total U.S. sales of video and computer games rose by nearly 8 percent in 2001, to nearly $6.4 billion. By comparison, U.S. domestic movie box office receipts totaled $8.4 billion in the same year, according to the National Association of Theatre Owners.
IDSA estimates that in 2000, the development and publishing of entertainment software directly supported about 29,500 American jobs earning wages of nearly $2.5 billion. California is the reigning center of the gaming industry, with about 8,600 jobs or 29 percent of the total, most of them in the San Francisco Bay Area. Massachusetts' Boston-area tech center accounts for another 3,300 jobs, and Texas ranks third, with almost 1,800 jobs in gaming clusters in Austin and the Dallas area.
Of course, other businesses benefit from the thriving state of the games industry. One of the few successful initial public offerings (IPO) of stock since the collapse of the dot-com bubble recently was initiated by Grapevine-based GameStop Inc., the nation's largest specialty retailer of video games and entertainment software; its February 2002 IPO raised $348 million. Game publishers--the firms that market and publicize electronic games--are primarily based in California. In the hardcore gaming world, Texas has made its mark through the talent and skills of its developers, the artists and programmers who bring the mayhem and magic to life.
Texas' stake in games development dates back at least to the 1983 founding of Austin's Origin Systems, whose Ultima fantasy games proved hugely popular in the early days of home computers. Other Texas-based gaming greybeards include Garland's Apogee Software, founded in 1987, and id Software, founded in Mesquite in 1991, which created the controversial--and mega-selling--Doom and Quake game series. Game players know all three companies were seminal in the development of modern electronic gaming. Their alumni have gone on to found and work for numerous other companies.
The success of such homegrown companies helped create a critical mass of game-savvy tech workers in Texas, which combined with other advantages, such as a relatively low cost of living and a favorable tax climate, to lure other companies to the state.
Super Happy Fun Fun Inc., a company developing games for Nintendo's GameCube and Sony's PlayStation II, moved from the San Francisco Bay Area to Texas in 2001. According to Mark Stephen Pierce, the company's founder, "I'd run some shops in California, and I was well-acquainted with the challenges employees have in the Bay Area. We'd pay people decent wages, and they still couldn't afford a house. So there were a lot of quality of life issues. Of course, the big determining factor was that we could do business here. Austin has quite a substantial development community. There's a big enough base of talent, which is what we live off of."
Texas' games industry seems remarkably healthy; in recent months, Austin papers have documented significant office expansions in the area by Digital Anvil, Aspyr Media and NCsoft. But the nature of the industry is changing dramatically, spurred by higher development costs and shifting player preferences. For one thing, the cost of developing ever more sophisticated and eye-popping games is rising.
"Right now, average budgets are in the $2 to $4 million range, and many [companies] have spent $10 million to $20 million on a game," Pierce says. "Such expenses make it difficult for small, independent game developers to keep afloat, particularly if they don't score a major hit with notoriously fickle gamers. "It's going to be more and more like the movie industry," says Pierce. "Publishers will have to place their bets more carefully."
Pierce predicts that this will encourage the same kind of conservatism afflicting Hollywood; sequels will be seen as safer bets than untested ideas, and oddball projects will find it harder to get financing--until the next "Big Thing" emerges.
"But that's the challenge [facing] the independent shops--to come up with new and innovative entertainment," says Pierce.
Many independent developers are being acquired by game publishers. Austin's Digital Anvil, for instance, was recently acquired by Microsoft, while California's Electronic Arts has purchased Origin Systems.
"A lot of independent developers have died," Russell says. "Normally, what happens with a startup development group is they either have a great hit and are around for a long time, or they do one game and go out of existence. And when an independent developer has a super hit, a publisher is going to buy them out very quickly, because they don't want to keep paying royalties. It's cheaper to pay a big lump sum."
Jason Henderson, an Austin-based freelancer who has written for popular games such as Red Alert II and Renegade, highlights the price squeeze small games companies face: "You build a product that costs millions of dollars, and gets more expensive every year to make, but the price point has changed little in the last 10 years. It costs several million dollars to make a computer game, but it still costs the same 30 bucks on the shelf, and only a few games end up being hits. And these days, only a giant company like Electronic Arts can afford to make a game a hit, because it requires securing the proper shelf space and very expensive advertising."
Not that the trend toward consolidation is necessarily a bad thing. Russell says, "If you're independent, you want to be bought out sooner or later. Otherwise it's a hard struggle."
Perhaps the most important change sweeping the gaming industry today is the burgeoning popularity of console games--those played through a gaming console hooked to a television, such as the GameCube, PlayStation II and Microsoft's Xbox--over PC-based games.
"Overall, PC gaming is giving out its last death rattles, but the console industry is just taking off," says Russell. According to IDSA, American consumers bought nearly three times as many video games as PC games in 2001, and industry observers expect this trend to continue.
"There's about 15 million PlayStations in the country, four million Xboxes and 5 million GameCubes," Pierce says. "Every analyst you talk to will agree that that number's probably going to grow to 70 million over the next four years. Each [purchaser] will probably buy about six pieces of software, so there'll be incredible growth there."
The next next big thing?
Another recent development in electronic games is the one bright spot for PCs: the growth of online gaming conducted via the Internet. Many modern PC games allow players to battle one another, either in teams or in all-against-all "deathmatch" tourneys, on common virtual ground. So far, the console makers haven't captured much of this market, although they certainly hope to.
The newest twist in online gaming is the "massively multiplayer" role playing game, a format spearheaded by Origin Systems' Ultima Online, which debuted in 1997. In these games, literally thousands of players can--for a monthly fee--participate as characters in truly enormous virtual fantasy worlds, making friends and foes, exploring, battling and in general living the high life in a colorful alternate reality.
Ultima Online is still going strong and has spawned several competitors. Origin's founders now run the Austin-based U.S. headquarters of NCsoft, a Korean company whose massively multiplayer Lineage: The Blood Pledge has 4 million subscribers worldwide. Austin's WolfPack Studios has designed a new entry in the massively multiplayer market, Shadowbane, for Ubi Soft Entertainment, which expects the game to generate $40 million in its first two years. Pierce says these games have a rich future.
"Its a big investment to get it set up and once it's up you have to maintain it, but they're very profitable--if you can get 100,000 customers paying $10 a month, you're doing all right," he says. "Regardless of which direction electronic gaming takes in the future, Texas appears to be well-situated to benefit."
"There are only a few clusters of these companies in the nation, and Texas is one," Henderson says. "We have a lot of tech-savvy workers. The business models may change, and the industry may shrink into three or four gigantic firms, but computer gaming is only going to grow and become more important."