Mike Gallagher won’t be able to watch the Electronic Entertainment Expo (E3) from the comfort of a movie theater. As the chief executive of the Entertainment Software Association, the trade group of game publishers that put on E3, he gets a ringside seat at the game industry’s crazy circus.
Like yours truly, Gallagher will brave the crowds of 45,000 at the Los Angeles Convention Center in downtown Los Angeles next week. Millions more will watch online.
He will wait in line (the shorter VIP line, of course) to see the games that will keep the industry humming along as a multibillion-dollar business. In our annual ritual, I interviewed Gallagher this week about the trade show and the issues facing the game industry. Try as I might to get him to moan about something negative, Gallagher was happy as can be.
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While the core console video game business is static, the overall game industry is blossoming thanks to mobile, social, and online games. The industry could become a $100 billion business by 2017, according to market researcher Newzoo. Here’s an edited transcript of our conversation.
GamesBeat: Tell us about E3 this year.
Mike Gallagher: For us here at the ESA, this is like the Super Bowl. This is a fantastic time in the industry. E3 is such a powerful contributor to laying the foundation for the success of the next 12 months. It’s a great time to be in the business and great time to be holding E3. We’re excited about next week.
GamesBeat: Is it 40,000 or 50,000 attendees? What’s the estimate?
Gallagher: I do know, it’s the Goldilocks standard for E3. It can’t be too small, it can’t be too big. It has to be just right. For the L.A. Convention Center, that sweet spot is right around 45,000. That’s the number we drive toward. We actually suppress attendance to keep it under 50,000, because we believe that you can get in a too-hot range once you hit that. If it gets to be over that number, it’s problematic as far as the quality of the experience for everyone. Media, analysts, exhibitors, everyone starts having a rough show if we overcook it. So our number that we strive to hit is 45. That gives us room either way.
Last year we had 48,200. That’s a good number. Somewhere between 45 and 50 is the target.
GamesBeat: Is 2014’s show as big as last year’s?
Gallagher: Right now, we’re looking at about the same number of exhibitors. Last year’s was a sellout show. This is a sellout show. We fit like a hand in a glove at that number, just over 200 exhibitors. What’s unique each year is who those exhibitors are. One of the things we’re most intrigued by and excited to see is that we have new companies like Facebook and Google and Kabam that will be at the show for the first time, or at least having floor space for the first time.
That’s indicative of the growth and the value of E3, but it also shows that there’s a lot of innovation that’s coming in from outside players, from players new to the show. That keeps the energy level sky-high.
GamesBeat: What are some of the trends that you’re looking forward to, some of the big ideas you see coming up?
Gallagher: Last year was definitely a hardware year. You had PlayStation 4 and Xbox One both launching first-time playables at E3. They both launched to record-setting commercial success. Both of them outsold their predecessors by a significant margin. That’s a good sign. It shows the value of the show for kicking off a major investment like that.
This year we’ll see a few things on the hardware side. Everyone’s fascinated to see Oculus and Morpheus and virtual reality on display. But you’re going to see more focus shift to the games themselves. Now that the developers have had a year with those consoles — or in many cases more than a year, because they had them before launch – we’ll see some pretty remarkable game experiences at the press briefings and on the floor.
GamesBeat: What are some of the issues on your agenda this year?
Gallagher: We have a great conference that we put on around education. We’re now in year four of hosting that. We’ll have some very serious discussions with the education community about the progress we’re making using video games as a catalyst for improving STEM education, among other things. This year we’re privileged to have the CEO of the Boys & Girls Clubs of America. He’ll be speaking to that group, Jim Clark. Obviously the school day doesn’t have to end at 2:00. We’re pleased to extend the success we’ve had into those after-school hours.
The positive agenda is what you see on display at E3 – all the potential from the games. The ESA manages and leads on a portfolio of issues with our eyes to the future, making sure that the runway is extended for the industry. Those issues, some of them are very familiar. Others are new.
You look at the nature of the industry, it’s become more of an online presence. It’s really important that the industry continue to have very high standards around privacy and data security. When we look at how we treat customers, it’s very important that when we acquire and terminate a customer, we’re fair in how we go about doing that. A lot of state governments and the federal government have an eye on making sure that customer protection policies are sound.
As we move more and more into the mobile space, all the issues in mobile e-commerce become more of our issues. You have issues around currency and Bitcoin. How does our industry continue to thrive when the government takes certain actions to protect itself, but that also have a potential negative impact on us? The state and federal agendas are full, but the opportunity for the industry is even bigger.
GamesBeat: Do you still consider First Amendment issues to be a big part of your job?
Gallagher: First amendment issues are resolved and clear. Making sure that everyone necessary around the country understands that is certainly a part of what ESA does. But the Supreme Court case we won in 2011 has been a substantial catalyst for that understanding around the country.
Also, it’s a great shield for the industry and its creative energy. The developers and storytellers and magicians making video game experiences can labor in a sense of security, knowing that their works are entitled to the same protections as books and music and movies. That’s a very profound, important thing. It’s known more broadly. We’re in better shape, probably the best shape we’ve ever been in, when it comes to first amendment issues as an industry.
The industry has shown a great responsibility and responsiveness to that freedom. You see it on display at E3. You see entertainment experiences that are every bit as compelling, if not more so, than what you see in cable TV, broadcast TV, music, literature. The First Amendment is a wonderful thing.
GamesBeat: Do you feel like you have a new generation of politicians that understand this industry better?
Gallagher: We’ve absolutely seen that on display. We’ve had three wave elections in my time here, meaning where you have very large amounts of House and Senate turnover. What happens every time is that lowers the average age of legislators. Of more than 5,000 state officials out there, we’ve probably seen over 50 percent turnover in my seven years here.
The younger that demographic skews, the more easily they understand how compelling the video game experience is as an entertainment medium, how good it is for their families, and also what a great job-creating engine the industry can be, with $22 billion in sales last year and jobs in 38 different states earning an average wage around $100,000 a year. 22 states today have incentives to attract our industry. They do that because our industry is now much better understood by politicians and policy makers.
We have to work hard every day. Certainly there are people that still don’t fully understand the industry. We’ll reach them eventually. But a very large number are positive. To give you one major example, the E-Tech caucus on Capitol Hill, which is a bipartisan caucus that focuses on advancing the video game industry. That was launched in the same year as the Supreme Court argument. It now stands ready and is very engaged with us at ESA in making sure that the growth of the industry is known and the responsible approach we take to parents and to children is known. It’s a very good partnership.
There are plenty of places to be optimistic. Just recently we gave Rick Perry and the comptroller of the state of Texas awards down at SXSW for their commitment to advancing policies that grew our industry to a remarkable degree in Texas. The more that word gets around, the better. There are plenty of reasons to be very optimistic about the environment that we’re in. But we stay vigilant every day.
GamesBeat: You talked last year about the creative destruction in the industry. How do you feel about the shifts that are going on, where we see fewer of the console developers and a lot more of the mobile folks?
Gallagher: I’d say you see more of both. You may see fewer titles, but that doesn’t mean less investment. It means there’s a lot more going into each of those games. If you played any of the games on the PlayStation 4 or the Xbox One, a remarkable amount of talent went into making those experiences. If you look at the games that will be shown at this year’s E3, you’ll see a powerhouse level of technical ability, on the console side, on mobile, on tablet, and on PC.
It’s additive. While there’s creative destruction that goes on amongst the various companies and elements, you do see an overall expansion of the market. The latest figures are that we’re going to be a $90 billion worldwide industry in 2017. Plenty of people, as you look at ESA in its 20th year, are going back and thinking, “Who would have thought?” That creative destruction, overall, is a very positive component of the industry. We take the talent that moves off of one title or out of one company, put it into another, and create the next fantastic entertainment experience. No industry does that better than the video game industry.
GamesBeat: I would guess that you might have some work to do making sure that the voice of the mobile game industry is heard just as loudly as the voice of the console makers?
Gallagher: That is a challenge that we grasp with zeal and a great desire. We have member companies at ESA that are in the mobile space and are successful in mobile, but we also know that we need to do more to be attractive and better known among the mobile game community. We’re dedicated to that. The experience that you see when you have cross-platform gameplay, whether it’s PlayStation Now or the ability to play FIFA on virtually any device with a screen and have a different interaction depending on the medium in your hand, it shows that our industry and our leadership at ESA, they understand mobile.
E3 is a great place to cut through the noise in mobile and get your game seen and heard and talked about. You can get out of the ocean of mobile games that currently exists in the app stores. You have the ability to step up a notch by coming to E3. We’re looking forward to growing the experience for mobile in a big way.
GamesBeat: Those guys might have some concerns on the horizon about the Children’s Online Privacy Protection Act II (COPPA) law. (It requires that game makers proactively protect children from privacy invasions).
Gallagher: You’ll remember, at the GamesBeat conference, one of the things I underscored was that if you’re making games today that are targeted at children or may reach children, you’ve got to be very responsible. Not just for the sake of your own company, but for the whole industry. The FTC rules are a big challenge for everyone in the industry. Being responsible is job one.
We stand ready here at ESA to help in that effort. We do that for all of our members. We extend that further into the mobile community, to make sure that great entertainment experience they’re building connects successfully with the marketplace and doesn’t get misdirected because of problems with the government or with consumers. ESA is a proven, effective partner in that regard. We look forward to extending our work in that area.
GamesBeat: Fair use has been on your agenda from time to time as well, I think?
Gallagher: It has, absolutely. Fair use is interesting. Our industry is the most connected to the consumer when it comes to intellectual property that there is. In many cases, the consumers are part of the creative experience themselves. The magic that happens when you’re playing these games is partially directed by and influenced by the gamer.
There is this closer connection than with a movie or a song, where it’s one-way. It’s one production, done one time, and it’s consumed in the same manner by every consumer. Our difference – that interactive nature, the partnership with the consumer – leads to a very nuanced perspective on intellectual property issues like fair use.
The example I use that’s very iconic is how it’s hardwired now, into at least one console – and I’d argue it’s embedded in all of them, but the PS4 has the specific share button — this notion that I did something great, it was my experience, and now it’s recorded and uploaded to a social media outlet where the entire world can view it. They can see what I’m really proud of — or embarrassed by – in my video game play.
That share button is indicative of how open-minded our industry can be on issues like fair use. It does not mean that theft is allowed. It does not mean that compromising the economic models that make up the industry is acceptable. It does mean that there’s a very positive relationship with the consumer, and we do well navigating issues like fair use.
GamesBeat: I saw you had a release with the Mars project.
Gallagher: This is the GlassLab. It’s something I’m very proud of in our time here at ESA. It’s a great collaboration of remarkably dedicated education specialists. Those are in the orbit of the Gates foundation and the MacArthur foundation, who put it together, and our member companies. In this case it’s Electronic Arts, which has housed the Glasslab for the last two years.
The idea was, let’s make great video game content that is immediately usable in the classroom, that teaches children core curriculum-compliant subject matter. It’s not a babysitter. It’s not meant to be a detour from the education experience. It is the education experience.
We did that with the first game, with SimCity, and we’re very proud of the results we’re getting back from that beta launch last November. That’s tracking very well. The second game, what we’re doing with NASA on the Mars project, is also looking to be very exciting. We’re seeing traction not only with the quality of the games and in the classroom, but also our partners. There’s a lot of interest in what’s going on with Jessica Lindl, who runs the Glasslab. You could see a very significant force for education, an expansion in the quality of education in the United States, come from the video game industry and from Glasslab.
You also can’t forget the College Game Competition. We’re in our second year of that, and I don’t know if you went by and saw the schools that were able to be there, but we had five colleges exhibiting. We had a tie for the winner. To think about being a college student today, where you get to compete for the college game of the year at E3 and be on the floor at E3 with companies like EA and Activision, Microsoft, Nintendo, Sony, Bethesda, they were floating on air for three days. It was very successful last year. We have terrific interest this year. From my experience of looking at these games, they’re fantastic. Everyone’s going to be impressed with what the college guys are bringing to E3.
GamesBeat: Do you have some favorite games of your own this year?
Gallagher: There are so many different rumors about what’s available on each of the platforms. One of the most recent articles had something like the 27 games to watch at E3.
For me, right now, I’m glad my son is home, because we just started playing Watch Dogs, which is just phenomenal. Given how, in Washington, there’s a very robust debate about the government monitoring individual communications, Watch Dogs touches that in a very significant way. I think it’s very well-done. I’m looking forward to the new FIFA, because my son’s a big soccer player. The World Cup couldn’t make that better timing. Skylanders is kind of a new thing for me. I want to make sure I get a full dose of that.
If you look at what Nintendo’s doing, I’m fascinated to see how the first ever competition at E3 works. I’m sure there’s going to be people camping out to get into the Smash Brothers tournament. I love Smash Brothers. I played it on the GameCube with my kids, endlessly. The new Mario Kart’s out and in our lobby.
I could go on and on with you about how much excitement there is in the market today, but that’s what this E3 is going to be about. It’s the future revealed. What about you? What are you hearing that’s going to be hot or that intrigues you?
GamesBeat: I still see some of the smaller mobile game guys trying to figure out what to do. Some of them have their hotel suites outside the show, or they’re doing something down the street. It would be interesting to see more of those guys figure out how to participate. They have such short leads between when they announce a game and when they ship it. They don’t want anybody to copy their games. It’s an interesting timing issue for some of those guys, still, how they can make a show like E3 work for them.
Gallagher: Yeah. If you look at the timing issue, you have a number of companies that’ll be showing titles – previewing them or letting you play them in a limited way on the floor – where it might come out in the fall or in the following year. That cycle is something they’re very comfortable with. But as you point out, for mobile, there’s a very quick pivot between finishing it and getting it out there.
On that note, it shows the relevance of E3 that they’re there, even if they’re on the margins. We can do a number of things. We have a lot of flexibility. We just need to hear a bit more from them about what they’d like.
GamesBeat: Another thing I was going to note is that it seems like most of the big games see two E3s before they ship. The number of titles that have delayed into 2015 is getting a little alarming at this point.
Gallagher: I wouldn’t say it’s alarming. I think it’s a product of the new console cycle. That’s a disruptive force for new game releases, in the timing and in the economics. That’s probably what’s driving that, although I’m not a game developer. I think that’s a significant hurdle for them to clear. We’ll see if it continues into the future.