Warner Bros. is diving deeper into digital games today as it announced the formation of WB Games San Francisco. The new studio will specialize in developing and publishing high-quality, free-to-play, mobile, social, and browser-based games.

This is another example of The Battle Royal (our theme for GamesBeat 2013), where all the walls come down between industries competing in entertainment. In this case, a big movie studio with a sizable console game division is now expanding into games that are distributed in a digital fashion. As it does so, it will compete with some of its own allies, such as Kabam, the San Francisco-based maker of Warner Bros.’ Hobbit games.

“We are extremely pleased to add WB Games San Francisco to our global portfolio of studios and publishing capabilities,” said Martin Tremblay, the president of Warner Bros. Interactive Entertainment, in a statement. “As our company has grown over the years, it has been a high priority to attract and cultivate creativity and innovation in top markets for game development around the world.”

Greg Ballard, Warner Bros. Interactive Entertainment’s senior vice president of Digital Games, will lead the studio.

“The Bay Area is the home of social and mobile gaming, and WB Games San Francisco is Warner Bros. Interactive Entertainment’s opportunity to expand our game development capabilities into the epicenter of the digital world,” said Ballard in a statement. “San Francisco is a hotbed of local talent and convenient access to major partners, and this will help us achieve our goal to bring our top entertainment and gaming brands, as well as original IP, to multiple mobile, social and emerging platforms.”

WB Games San Francisco will oversee publishing of all other mobile games developed by Warner Bros. Interactive Entertainment, and it will share offices with Flixster. Warner will have to manage the projects that it undertakes in-house with those that it farms out to specialists such as Kabam, which makes mobile and social games. The tension on that front is similar to Warner’s relationship in past years with Electronic Arts, which made the Harry Potter games for Warner.

The company is making the announcement just in time to hire folks at the Game Developers Conference in San Francisco next week.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Kristian Segerstrale has resigned from his job as the head of digital games at Electronic Arts. Chief executive John Riccitiello announced the move in a memo yesterday and said that chief operating officer Peter Moore is taking over as head of digital.

Segerstrale was the last remaining co-founder of social-game maker Playfish still at EA. EA bought Playfish for up to $400 million in 2009, signaling a big shift as the popularity of games spread beyond traditional consoles to new platforms such as Facebook.

Segerstrale continued to run the Playfish division and eventually took over as the head of social and mobile games after Zynga hired away EA’s Barry Cottle. Segerstrale’s job was to turn EA into a leader in games as services, where free-to-play business models rule. In those games, users play titles on social networks, iOS, and Android for free but pay real money for virtual goods. That’s a far cry from EA’s traditional business of selling console games in stores for $60, but it has now become a huge chunk of the company’s revenues.

In the memo, reported by TechCrunch, Riccitiello said that Segerstrale was going back to startups.

Today, we are announcing Kristian Segerstrale’s departure from EA, and the consolidation of the digital publishing, marketing, and Origin groups that make up EA Digital to report to our COO, Peter Moore.

Kristian has elected to return to the world of startups where we first met him. I want to thank Kristian for the vision and tireless energy that he invested to help make EA Digital what it is today: a highly efficient and digitally-tuned operation unlike anything else in the gaming industry. Kristian’s contributions strengthened EA, and we wish him well in the future.

With the move of the EA Digital teams under Peter’s direction, he will now have responsibility for all of EA’s revenues globally – packaged goods and digital. Aligning the EA Digital groups in Peter’s organization, which already includes Global Publishing, EA Global Media Solutions, Worldwide Customer Experience and Mobile and Social Publishing, gives us greater focus on how we can use digital tools to accelerate revenue growth and improve the customer journey across all of our business.

Congratulations to the people and teams that helped build EA Digital into a game-changing asset for our business – I look forward to seeing your efforts continue to help shape how EA leads this increasingly digital industry. And congratulations to Peter Moore as he steps up to take on new responsibilities at EA and lead this exciting new chapter in our business.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Chris Petrovic (pictured above) is the general manager of GameStop Digital Ventures. His job is to make sure that the world’s largest video game retailer crosses over into the digital era, when gamers are as likely to download a digital game to their computers or phones as they are to walk into a store and buy a disk. GameStop still has 6,614 stores and annual revenues of $49.5 billion. Within a couple of years, the company wants to grow its digital revenues to $1.5 billion a year. The retailer grew its downloadable content sales by 315 percent last year, and it has acquired digital game startups Kongregate, Spawn Labs, and Impulse. Will that be enough for the company to “cross over” to the digital age?

Dan “Shoe” Hsu, the editor-in-chief of GamesBeat, did a fireside chat with Petrovic at our GamesBeat 2012 conference. Here is an edited transcript of the talk.

GamesBeat: As we hear about Gaikai, OnLive, Ouya, and more and more digital distribution, how is GameStop reacting to this? How are you looking at the future? And also, how are you helping developers and helping the consumer? So, Chris, welcome. And first, could you tell us what GameStop Digital Ventures is?

Chris Petrovic: At GameStop Digital Ventures, we’re responsible for the global digital strategy of the organization. More specifically, we focus on new and external opportunities. That’s a fancy way of saying that we look at investments, acquisitions, and strategic partnerships to help drive the overall digital vision for the organization.

We’re working closely with my fellow senior management colleagues back at corporate headquarters in [Grapevine, Texas] to figure out how to best leverage the assets and synergies that GameStop has, to become a meaningful and larger player in the digital space as it evolves this business from just brick and mortar into, I would say, a kind of multichannel hybrid company. Ultimately, our goal is to meet the needs of the consumer, and the consumer is actually driving us and pointing us in a lot of these different directions that we’ll talk about.

GamesBeat: You hear a lot of industry people talking about how the future will be all digital. How does that affect your strategy? Do you see a future where brick and mortar will go away, where traditional retail and physical media will go away?

Petrovic: No. Without putting any time constraints on that kind of prognostication, I guess everybody could be right, that at some point those things could go away. I think one of these things that we in this industry tend not to get right is the chronology of technological advancements. I think gaming in particular has a lot of different dynamics to it that are different from books and music and movies. But at the same time, we’re not…by virtue of the fact that my division exists and by virtue of the fact that we’ve done half a billion dollars of digital revenue in 2011, we’re acknowledging that it’s a major part of our focus and the consumer’s focus.

GamesBeat: How does that half a billion compare to your retail sales?

Petrovic: On an absolutely dollar basis, we’re a public company — you can look at the reports — but we’re about a [$9.5 billion] company overall. For 2011, we reported half a billion dollars in digital sales. When I joined in 2009 it was virtually zero. So when you look at it from an absolute growth basis, obviously there’s a much higher hockey stick on the digital side, but it’s also very nascent. We see it becoming a meaningful part of our business. It already is. I think in 2014, we said we’ll probably do up to $1.5 billion. It’ll probably be 10 percent of overall revenue, but growing much more quickly.

GamesBeat: Have you projected far enough into the future to see where your digital revenues will match your retail revenues?

Petrovic: No, I think that would be, for us, just an exercise in futility. Once you go out beyond a certain number of years, it’s just a finger-in-the-wind prognostication. There are so many variables that haven’t even come to light yet, whether it’s the next console cycle or new platforms. It would be a flawed model at best.

GamesBeat: One of the things GameStop is very famous for is resale. You resell a lot of used products. If we moved to an all-digital world sometime in the future, or a world where digital distribution is dominant in the business, how does that affect your resale business?

Petrovic: We’re talking about digital, but there still needs to be a physical device through which you game. Whether it’s a console, whether it’s a smartphone, whether it’s a tablet, whether it’s a next-gen Android device like Ouya…all these things require some kind of physical product to use.

We’re embracing of all those things. Many people may know that we’re a very large player in the sales of Android tablets. We have them in about 1,600 of our stores. We developed our own wireless Bluetooth gaming controller. And we’re working with developers to make tablet games controller-enabled because we feel that’s where the sweet spot is for our customer: taking a tablet, connecting it to your big screen, sitting on your couch with a controller, and playing. So we embrace all of these different kind of endpoint devices.

Even though there may be an assumption that more games will be delivered digitally, you still need an endpoint device. The other thing that we realize, too, is that 70 percent of purchases of digital products that are made in our stores involve some other form of payment besides a credit card. So when you think about all of the other ways that you could pay for stuff, when the purely digital platforms are limited to a credit card as the primary means…. We see a lot of people coming in with cash, we see a lot of people coming in with gift cards, and with trade credit. We have an ecosystem that’s very unique in terms of unlocking value that others can’t, and we do that with and for our partners as well as for our own digital platforms.

GamesBeat: The resale business: Can it do well just selling hardware and peripherals?

Petrovic: It’s definitely TBD. But you have to also understand that we have digital platforms that are actually engaged in the distribution and sale of games, whether it’s downloadable PC games or free-to-play social games. We’re working on a mobile initiative to help consumers and developers more effectively find each other. Ultimately, it’s a customer service for us to curate mobile games, as discovery and monetization become more challenging. We know a lot about our customers; we have good insights into what games they want to play. And so creating those kinds of conduits or liaisons between content creators and consumers is still important. We’re also selling preowned iDevices. There’s a huge market for that. We’re selling new Android tablets. So there’s a lot of other stuff out there besides just console games that makes up that ecosystem.

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The number of Americans who play at least one hour of video games per month has more than doubled over the last three years, increasing from 56 million in 2008 to 135 million in 2011, according to research firm Parks Associates. The majority of these new gamers are “casual gamers,” the firm says, particularly those who play games like FarmVille and Angry Birds on social networks and mobile devices.

“The increase in the number of gamers is impressive because it crosses almost all demographics,” said Parks Associates research analyst Pietro Macchiarella. He adds most of this growth is due to tablets and smartphones usurping the PlayStation 3, Nintendo Wii and Xbox 360 as popular gaming devices. Three-fourths of tablet owners play games on the device, while 57 percent of smartphone users play games.

The ongoing “casualization” of video games is having an impact on the market as well. British research firm Ovum predicts digital game revenues will increase by 16 percent year-on-year in 2011 to reach $24 billion. They say that number will grow to $53 billion by 2016 as more publishers adopt casual-friendly strategies and free-to-play (F2P) business models. Xbox has benefited greatly from a casualization strategy, Ovum says, by using its motion-sensing device Kinect for Microsoft’s Xbox 360 to expose casual gamers to hardcore titles like racing game Forza Motorsport 4. The research firm says this strategy helped Xbox LIVE revenues grow by 19 percent against last year.

“These changes have significant implications for the gaming industry,” Macchiarella said. “This new majority of casual gamers is looking for games with low entry barriers, with limited investments required in terms of dollars and time necessary to learn the game. In addition, the ubiquity of portable devices and Internet access allows more people to play on-the-go, putting pressure on the gaming industry to design games that can deliver a satisfactory experience within these specific conditions.”

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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GameStop, the world’s biggest game retailer, announced today it has begun working on a GameStop branded gaming tablet. And last week, the company said it had begun a closed beta test for its cloud-like online gaming and digital download service.

The moves show that the world’s biggest game retailer is getting ready for an era in which digital gaming is just as important as buying packaged disks in retail stores.

GameStop president Tony Bartel told GI.biz that the tablet will use Google’s Android operating system and can come with games preloaded on it. Bartel said that gamers in Dallas, Texas, started using the hardware a couple of weeks ago. GameStop plans to stream games to the new device with the technology it acquired with the purchase of Spawn Labs. GameStop will also release a dedicated controller for the device.

And last week, Bartel said in a speech that the game streaming service is in a closed beta test. With one part of the streaming service (pictured above), you can instantly play demos of games on GameStop’s web site, without downloading anything. If you buy the game, it begins to download to your PC. While you wait, you can continue with the instant-play, and your progress is saved to the final game upon completion of the download. That kind of service is dubbed progressive download. Once the download is complete, the game executes on the user’s own machine.

Bartel talked about the service in a demo at the Cloud Gaming USA conference in San Jose, Calif. It’s a “try before you buy” service where you can see what the game looks and plays like before you buy it. Gamers can play for something like 15 minutes.

By contrast, rivals such as OnLive and Gaikai offer game streaming where the game is executed in servers in web-connected data centers, or the cloud. Video of the game is then sent to users, who can log in from anywhere and play high-end games on low-end computers. Bartel said that you can also use the GameStop service for “streaming to a new screen.”

GameStop picked up its digital distribution technology when it acquired game-streaming service Spawn Labs and online storefront Impulse earlier this year. A full rollout of the GameStop service is not expected until next year.

At Cloud Gaming USA, Bartel said his company is focused primarily on immersive games, not casual or simple games. These games are console-like in quality. The technology is very demanding and latency (interaction speed) is critical. And on average, people play these games for a longer time. In the past, there were significant technological barriers to this kind of immersive game being delivered via the cloud. Those included bandwidth, latency and the ability to scale it to millions of players. There were also costs to adapting games, business model questions, and conflicts with platform companies, Bartel said.

Bartel said that NPD has noted a big gap in awareness and usage on cloud services. Only 22 percent of Americans know what “cloud computing” means. They’re also wary because of scandals like the PlayStation Network outage. IPSOS reported that 40 percent of people do not believe that files stored in the cloud are as secure as private files stored on their own computers.

But gamers do want to try before they buy, try games when they’re thinking about them, and avoid large downloads, according to GameStop’s own research. Bartel said that cloud gaming is a way to enhance the overall consumer experience and is “one of many new gaming options we are pursuing.”

GameStop bought online indie game portal Kongregate, and Bartel said that digital content businesses are on track to generate hundreds of millions of dollars in revenues for GameStop in 2012. That’s still a small percentage of its overall revenue, but it has a very fast growth rate. One of the initiatives producing results on this front is the ability for users to buy digital download content inside stores. Bartel positioned the cloud as a way to extend the console experience, rather than replace it.

You can, for instance, use multiple devices to access your games when you are away from home. As demoed before with the Spawn Labs technology, you can “sling” games. That is, you can log into the Power Up Rewards account on GameStop and play games that you have previously played.

Bartel said the company has the advantage of knowing the playing tastes of 13 million gamers through its rewards program, which tracks 150 million games played by the members. It can thus recommend games that they are more likely to buy.

Hoag will sit on EA’s executive compensation and leadership committee, and his addition brings the board to 11 members. Hoag is a founding general partner at Technology Crossover Ventures, a tech investment firm with more than $7.7 billion in capital under management.

Hoag also sits on the boards of eHarmony, TechTarget, Zillow and Netflix. EA chief executive John Riccitiello said that Hoag was a valuable addition to EA’s board because of his insight into mass market consumer technologies. Hoag said he has followed EA closely and is watching the company focus on the transition to the digital distribution of games and services.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Digital business models could substantially boost revenues at Activision Blizzard in the next three years, the company says.

Thomas Tippl, chief financial officer at the world’s biggest video game publisher, said during the company’s analyst meeting today that the company could make more money through non-traditional revenues related to its major hit franchises. That shows that Activision Blizzard is rapidly moving into digital markets and new business models as it adapts to a major transformation of the gaming business.

Tippl said the company’s goal is to generate about $1.25 billion in additional revenue through ongoing expansion of current games in the next three years. On top of that, the company has not yet added the potential impact of new game projects such as an upcoming Bungie game and the upcoming massively multiplayer online game, code-named Project Titan, from the company’s Blizzard Entertainment business. And the company could also have some upside from new business models associated with future projects.

As an example of a new business model, the auction house for its upcoming Diablo III game could generate considerable transaction fees for the company. In the game, players will be able to pay real money to buy virtual items that others collect during the course of game play. Players can earn things such as better armor and sell them off to other players for real money through the game’s own user interface.

The company is also “methodically investing in mobile and social gaming projects,” Tippl said.

In the past year, the company generated $1.7 billion from digital revenues, such as online subscription fees for World of Warcraft.

Upcoming opportunities (pictured at right) include map marketplaces — where Blizzard takes a cut on user-generated custom multiplayer map sales — for the two coming expansions for the StarCraft II game. Blizzard also has a couple of upcoming expansions for World of Warcraft, as well as geographic expansions. The company is translating World of Warcraft into Portuguese for launching in the fast-growing market of Brazil.

Eric Hirshberg, president of Activision Publishing, said that the company will also make new revenue from a premium subscription plan for its upcoming Call of Duty Elite social network. Activision Blizzard will also launch a free-to-play, microtransaction-based version of Call of Duty for the Asian market, where free-to-play titles are popular.

Bungie is also working on a multi-platform game that will yield non-traditional revenue. And Blizzard Entertainment is also working on a next-generation massively multiplayer online game, code-named Titan. Tippl said overall that in the past few years, Activision Blizzard has invested $2 billion in new game initiatives.

Earlier this year, Blizzard made the first 20 levels of World of Warcraft into free-to-play levels. That has resulted in a 60 percent increase in the creation of new accounts. And Blizzard’s China partner, Netease.com, is busy expanding World of Warcraft into new cities in China.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Starting today, gamers can use a variety of payment systems to pay for the upcoming game, Deus Ex: Human Revolution from Square Enix. The move shows that GameStop is shifting into digital games in a big way and embracing changes that are blurring the line between physical and digital game sales. Digital distribution is a hot competitive market, with rivals including Electronic Arts new Origin digital distribution service, Valve’s Steam service, and cloud gaming services from OnLive.

“This is part of a wider rollout and vote of confidence for PC games,” said Steve Nix, GameStop’s general manager of digital distribution, in an interview. “This shows stores and digital distribution are complementary.”

Gamers can now use any accepted form of payment — including used game trade-ins, gift cards — to purchase brand new titles. Deus Ex: Human Revolution is available for pre-order and it becomes available on Aug. 23. But a user could trade in some games today in exchange for store credit and then use that to buy the new game. The user gets a redemption code that they could take home and use to download the title on the PC on Aug. 23. Nix said PC titles were once GameStop’s largest category.

Nix said that GameStop has had great success selling downloadable content for consoles in stores. In that case, consumers can buy redemption codes that they use when they go online. They can download titles on Xbox Live or the PlayStation Network. Consumers who buy the digital PC version of Deus Ex: Human Revolution can get a bunch of extras, like a digital version of Deus Ex: Game of the Year Edition and Deus Ex: Invisible War; the Explosive Mission DLC Pack for in-game use in Deus Ex: Human Revolution; and double points toward GameStop’s reward system, PowerUp Rewards.

Grapevine, Texas-based GameStop operates 6,753 stores in 17 countries, but it is moving fast to become a digital online retailer in recognition of the shift from physical to digital retailing. The company bought the Impulse digital download technology, indie game portal Kongregate.com and the Spawn Labs game streaming technology as well.

Some game developers hate the fact that GameStop sells a lot of used games, which do not generate any revenue for game developers. But by promoting the sale of new games, GameStop can claim that its used game sales aren’t hurting developers. Nix said the digital purchasing is more convenient for gamers, since they can purchase a hot new game even if physical copies are sold out.

Ballard is a long time veteran of games who has worked in top executive positions, most recently as chief executive at Transpera, a mobile video ad network. Before that, he was CEO at Glu Mobile, a publicly traded mobile games company. He was also chief executive of SonicBlue, which made digital video recorders and music players; and 3Dfx, a graphics chip maker that was acquired by Nvidia. He was also CEO of Warner Custom Music and president of Capcom Entertainment.

Hiring an executive of Ballard’s caliber shows that the digital side of the business is getting so big that big game companies such as Warner Bros. — which has a couple  of thousand people working on games from Batman to Lord of the Rings Online (pictured above) — have to hire top talent to attack it. Warner is one among many traditional media companies getting serious about digital games.

He will report to Thomas Gewecke, president of Warner Bros. Digital Distribution, and Martin Tremblay, president of Warner Bros. Interactive Entertainment. Ballard will oversee the business and strategy of the company’s digital games business worldwide. That includes games that are distributed online to the PC, console, and handheld game devices. It includes social network games, TV-based games, mobile games, and massively multiplayer online games (MMOs).

Ballard will oversee games such as Turbine’s Lord of the Rings Online and other MMOs. He will recruit a general manager to run the Turbine MMO division. Ballard will evaluate new opportunities such as in-game ads, product placement in games, and virtual goods sales. The company added Ballard to manage the digital business because mobile and online games are becoming a bigger part of the overall industry, Tremblay said. And Ballard has expertise in these markets.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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