GamesBeat

E3 preview: A Q&A with Mike Gallagher, head of the Entertainment Software Association

If there’s a place video game developers show up to show off their wares, it’s the annual “E3” summit.

It runs Monday through Thursday at the Los Angeles Convention Center (it’s not open to the public).

At the head of it all is Mike Gallagher, the new Mr. E3.

He runs the Entertainment Software Association, responsible for ensuring the video game industry’s official media and analyst show projects an image befitting the $50 billion industry. Gallagher started his job a little more than a year ago. Previously, Gallagher was the top telecom and policy advisor for the Bush Administration. He is a gamer and he knows he has to outscore his opponents, some of whom say gaming is too violent and others who say the show is past its prime.

Two years ago, E3 was an 80,000-person extravaganza. But companies decided to scale it down. Last year’s show was a 5,000-person event. Gallagher promises it will be a media and analyst event for the “opinion makers” to see the best games the industry has to offer.

VB: How is this going to be a new kind of E3?

MG: The world’s eyes will be on the E3 Summit next week to see the hottest new trends in entertainment.  When you fuse the digital world, and all that is going on in technology, with the content of the video game industry, it’s a really really super mixture. It’s going to be on display next week and it’s the place to be.

VB: It’s a different show from two years ago and even from last year. How’s it going to be perceived?

MG: There is no doubt it’s different from two years ago. When I came aboard last year, the decision had already been made by the board and [former head Doug Lowenstein] to take the show down in size from the very big show to an invitation-only, very personal show that we had last year in Santa Monica. We sent out a survey to people like yourself and heard back overwhelmingly from the media that they liked the new format but there were things we could do better. They thought we could do better getting everything under one roof, moving people around more efficiently, and how the press conferences worked. We came up with a format in the Los Angeles Convention Center that meets all of those concerns. It’s going to be centralized under one roof, very efficient, and very media savvy. Last year was a proof of concept for the invitation-only summit.

VB: What are you going to talk about in your keynote speech on Wednesday?

MG: I’m excited to have my first address at E3. Last year I was aboard for a month. I’m going to lay out why there is a lot of respect for how great an industry this is.

VB: How did you choose the Texas governor, Rick Perry, for the other keynote?

MG: It makes complete sense Gov. Perry would be an invitee. Texas is a leading state when it comes to game development. They have an environment where they welcome the video game publishers and developers. They are reaping the economic benefit because of that. The average wage in the video game industry is over $90,000 a year and Gov. Perry understands that. We’re delighted for the first time to bring such a high level politician to E3. It’s a sign of respect for the industry and maturity.

VB: The industry still has its share of political battles regarding censorship. How are those going?

MG: We are winning those but we are not out of the woods. Our industry every day is selling one video game every nine seconds. We are broadening the market to include senior citizens and everyone younger. We are doing a lot to legitimize this as a cultural phenomenon and an economic phenomenon. We’re entitle to the respect that type of industry deserves. There are many in the state and federal arenas that operate off a broken, flawed historical stereotype. That problem is a top priority for us. We’re trying to set a positive image for this industry and to make sure politicians understand it. We’re deflecting the attempts to paint the industry and gamers in a stereotypical way.

VB: Would you say Jack Thompson (the crusading Florida anti-game attorney) embodies your opponents and their views?

MG: He is in the rear view mirror. (Thompson lost a round in a disbarment case a few days ago). The bright future that lies in front of us does not include Jack Thompson.

VB: The show has its critics. How do you feel about those? Like the show isn’t what it used to be. The show is past its prime.

MG: This show is targeted at people like you. The brighter minds in the media and the analyst community can come and be exposed to the senior executives of this industry and the up-and-coming games. They can sit down and experience them in a way where they aren’t competing with thousands of other people to see them and to be exposed to the top executives. That’s a different focus from the old E3. If we target for 4,000 to 5,000 people, and the old show had 80,000, you’ve got 75,000 people who aren’t happy. They’re not included. We understand that. We have a passionate consumer base for our products. The bottom line is this is about the business of the video game industry. This format provides that.

VB: Some companies have dropped out of the ESA. There seem to be several reasons. Some may not get along with you. Some don’t like the higher dues. And some worry if the mission is where it’s supposed to be.

MG: Who says they don’t get along with me?

VB: I can’t specifically answer that.

MG: I would press you on your sources. I haven’t heard that element come through where there is a personal disagreement with me, or, more importantly, there is a disagreement with the ESA’s mission. Every company that has left has embraced the ESA’s mission. If you look at the statements of the handful of companies that have left, they say that. I’m focusing on quality. I encourage people to reach out directly. The leadership knows exactly how to find me. This show is 100 percent on track. The convention center is sold out, the top tier journalists and analysts are coming. We are on target to have a productive event. When it comes to the ESA mission, to be the voice and leadership of the industry, we are making sure that the states and federal constituencies understand it. We have resources to meet that mission. On the dues, yes, the financing of the ESA fundamentally changed when the board and Doug changed the format about six or seven months before I arrived. It is not cheap to do a great job defending this industry. And while dues went up, the costs for the companies at E3 went down dramatically.

VB: It is unusual that some of the companies that dropped out of the ESA will still be at E3 in some way.

MG: What does that tell you about the value of E3? It’s the place to be. Some non-members are displaying on the periphery of E3.

VB: Did you lose the broadcast media that loved the extravaganza and the booth babes?

MG: We will have television coverage from the G4 cable channel. We have top-tier broadcast media companies. Last year, you remember the old display pavilion. People didn’t like it. Now it’s easier where you can meet with the executives and then go down and see the games in the same building.

VB: How is the health of the industry?

MG: Off the charts. Revenues last year were up 40 percent over 2006. That’s record-breaking performance for software and hardware both. The total in 2007 was $18.85 billion for hardware and software together. We’re just getting started. We are just beginning to penetrate more households. That’s going to signal a dramatic uprising in the fortunes of the industry. This year’s results so far are great. The fourth quarter is usually 45 percent of sales. This year is up 30 percent over last year year to date. That’s not spread evenly across all members of the industry. There has been a difficult transition to the new consoles. There are winners and losers.

VB: The economy has been weak. Is that dragging down the industry?

MG: The economy has been distressed for at least one year. There can be broad debate among economists about when the problems in the credit market and oil prices started affecting everyone. Our industry has thrived during that time. The reason why is we provide the best entertainment value of any form of media. You can take a game and play it for scores of hours and then go online for more. That’s a reason why our industry is succeeding rather than flagging.

VB: What do you think of the broadening of the video game market?

MG: I could not be more pleased with the broadening of the game market. It is poised to deeply penetrate the American cultural consciousness and a lot of economic benefits come with that. We are delivering. The Nintendo Wii has broadened the market to senior citizens. You have seen the scores of articles that are out there about senior citizens playing the Wii their retirement homes. That’s a program for PR success. We broadened the audience to include casual and mobile gaming. Now you have new things like the iPhone 3G. I realize the launch was a frustrating experience.  The core components are rocket fuel for the dynamic genius of the video game industry. We have great progress and opportunity ahead.

VB: What do you think of the console war?

MG: This industry is incredibly blessed to have a three legged stool for its success. All three of the consoles are doing very well with different segments of the market. The American population benefits from that competitive zeal of three strong platforms.

VB: Do you have any sympathy for the Microsoft guy who felt like E3 has become a console show and isn’t a PC game show?

MG: I think he’s wrong. You are going to see PC games, mobile games and everyone of our member companies will be displaying games of all kinds. We represent both video and consumer games.

VB: Where is innovation most evident to you?

MG: It’s in the quality of graphics, depth of story telling, quality of sound, integration of music into the experience. That takes technical innovation and an innovation in storytelling. Our industry is doing a fabulous job of that. Also, there is innovation in the interface with the game player. When you point at the Wii, and it’s so easy to understand out of the box, it brings in a whole new kind of game player. That’s very exciting for the industry. Look at EA Sports and what they’re doing with Madden football. They are focused on approachability.They will take advantage of the Wii platform to increase the size of the audience.

VB: What are you playing?

MG: My kids and I played through a lot of Mario Kart for the Wii. The degree of difficulty was much harder than its predecessor. It was harder for those like me and my kids took advantage of that. I played Grand Theft Auto IV and I appreciate the creativity and energy of that game. I can understand its economic success in the market. I recently played BioShock (from last year). I was behind the curve on that. I had to wait and be patient.

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Check out MobileBeat2008, our conference on July 24 in Silicion Valley that aims to help developers make sense of the significant changes going on in the mobile industry.


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