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Mike Gallagher promises that we don’t know every secret associated with new games being unveiled at the Electronic Entertainment Expo (E3) in Los Angeles next week. Of course, he has to say that, as he is CEO of the Entertainment Software Association, the trade group that puts on E3.
And while we’ve seen a lot of leaks of games being shown already, Gallagher said we can still expect plenty of secrets among the 200 companies exhibiting across the sprawling Los Angeles Convention Center. There will be 3,250 products on display, and at least 70 of them have never been seen or announced before.
That’s why thousands of reporters, streamers, and social media mavens will attend. But he does acknowledge that the “bulge” of news around E3 is getting bigger every year, with some companies deliberately leaking to get their share of the attention of billions of eyeballs. In 2017, E3 content was viewed more than a billion times, and 16.2 million chat messages were sent on Twitch about E3.
About 50,000 industry professionals and another 15,000 others (the “consumer” ticket-holders) will descend on the event starting this weekend (Electronic Arts has an event on Saturday, and other press briefings begin Sunday and Monday, while the expo show floor runs Tuesday to Thursday). The flood is sold out, Gallagher said, dispelling the usual comments that “E3 is dead” or that the core game industry is being swamped by mobile games.
E3 will have a lot of spectacle, like a Nintendo Super Smash Bros. tournament and a blimp that will display selfies from the attendees for everyone to see in the sky. It will have lots of snaking lines as well, but hopefully they won’t be as annoying as they were last year, as the game companies have thought about how to accommodate the additional people waiting for a long time.
I talked with Gallagher, who has run the ESA and E3 for 11 years, this week about E3. Here’s an edited transcript of our interview. (Here’s the 2017 chat and the 2016 interview.) This year, we covered the basics on the show as well as the issues the video game industry is facing.
GamesBeat: Are there any secrets left, or have they all leaked out now?
Mike Gallagher: I’m sure there are secrets. Absolutely positive. You can take that to the bank. It’s exciting, though. You realize that the process of the news coming out—some of it is unfortunate, like the Wal-Mart thing. But a lot of it is by design. It helps build that buzz. If you follow the social media metrics like we do, E3 is not a day or a week. It’s a curve, a bulge, a seismic event that has a buildup and then a long tail. It’s all part of making that happen on a competitive basis at the show.
GamesBeat: I like to be prepared, but I also like to be surprised. It’s always a tradeoff. What kind of a crowd are you expecting relative to last year?
Gallagher: You have to let me do the preamble, and then I’ll answer all of that. What you’re going to see this year at E3 is a demonstration of the extraordinary cultural relevance of our industry. The investment impact of our industry. You’ll see those on full display, with more than 200 exhibitors at the show. It’s completely sold out. We have 80 of those exhibitors for the first time. E3 is the launch pad for innovation and entertainment. In prior years we had the birth of AR, VR, and MR. We expect to see the next evolution of those.
When you look at the show itself, we allowed consumers in last year. This year we’ve made a bunch of upgrades to the show to benefit exhibitors, media attendees, and consumers. Some of those are pretty obvious, like adding an extra day to the Coliseum, because that was such a hit, and also extending show hours, so we can have trade-only hours at a certain time, but continue to give great value to the consumer.
You’re going to see some fun activations. We have Fan Guru with a blimp flying above the LACC. Attendees can share selfies that will be shown on the blimp. We have a Smash Bros. tournament, as well as the ESL Arena. We have a Fortnite competition. When you talk about the cultural relevance of our industry, right now the iconic example of that is Fortnite. When you look at the impact it’s having just with Major League Baseball and soccer in Europe, where you have players mimicking the Fortnite dance, or filling rain delay time by playing Fortnite on the big screen in Cleveland, those are fantastic examples of our industry moving from the fantasy world into the real world. It shows the connection that we have with gamers. What we’ll see at E3 is a roll-up of all of that and how it’s going to grow in the next year.
GamesBeat: The billion or so eyeballs you guys get during E3, does a lot of that happen ahead of time now? Is that what you’re seeing as far as how big a bulge you guys have?
Gallagher: This illustrates the importance and the value of the show, and how we’ve evolved the show to provide value to exhibitors. I just had my 11th anniversary in this job. Eleven years ago, it was just at the ending days of being a retail show. Products were shown. They were viewed for the first time. The buyers were physical stores. They’d view the products and place orders. Those orders were for discs that ended up at stores in October.
That model has obviously changed over the last decade, and the show had to evolve with it. The real audience is the gamer. It’s not just a U.S. audience. It’s international. We have tens of billions of media impressions off the show. I’ll send you the metrics we do with social media – Instagram, Twitter, Facebook. They break records at E3 because of the extraordinary excitement amongst gamers for the show.
What happens now, when you have that social media, traditional media, as well as the retail lens, to a smaller degree—really, it includes all of that, but the focus is on the gamer. You have to build the interest. Then the event happens at E3. It spikes. Then you ride that all the way through the rest of the year as games are put in the marketplace and brought to consumers. That’s a much longer tail and an earlier lead-up than the model 10 years ago. E3 has evolved with that.
GamesBeat: A lot of people still say they love E3 and hate E3. I wonder if you’ve generally addressed some of that hate, so you can make those people more interested in E3.
Gallagher: Well, the first thing is, we’re not interested in trolls or what they have to say. But for those that attend the show, those that exhibit at the show, we’re always listening. Last year, right after the event, we took a survey. How did all the various elements come together? Then we listened to that feedback and made the design changes.
It’s not just us making the changes. It’s our exhibitor partners. For example, line standing—I already mentioned the lengthened show hours, more time for the Coliseum. The expanded footprint of E3 this year is meant to pull some pressure off the floor. You have Microsoft’s very creative—as they say, the biggest investment they’ve ever made at E3 is happening this year. That helps extend the footprint of the show. You’ll see other things alongside Microsoft’s deployment in that area so it’s attractive to consumer.
GamesBeat: Are they still considered part of E3, even though they’re not on the actual floor?
Gallagher: Absolutely, yes. They agreed. They’re on the floor. They’ll also have their very significant deployment at Microsoft Theater. And they’re doing the press briefing this year in a very exciting way. The answer is unequivocally yes.
On the consumer experience, our exhibitors heard feedback, as we did. Some of the lines were long. They were short relative to PAX or Comic-Con, but they were long by our standards. Also, there wasn’t a lot to do. The process for where to stand and how to do that wasn’t as well-laid-out as it could be. This year you’ll see some definite improvements and a lot of creativity by the exhibitors. I would expect they’ll take full advantage of the attention they have from the consumers standing in line and make that a much more fun experience.
GamesBeat: Sort of like waiting for Space Mountain at Disneyland.
Gallagher: I wouldn’t want to make that comparison, but I do love that line. Even though I’ve stood in it 100 times, I still like the way that line’s done. I love Pirates of the Caribbean too. That line is a delight to stand in.
GamesBeat: Of the 200 or so that are exhibiting, do you notice anything interesting about the categories of the industry they fit in?
Gallagher: That story is always told after the show is over. We don’t have perfect visibility there. There are more than 2,000 announcements that are going to be made, and there are always going to be dozens – last year there were more than 100 – that are first in the world. We’ll see plenty of those. That question is best answered after the fact. We withhold any big trends.
One thing I said last year, I’ll repeat it now. For the last four years we counted the number of booths with VR, AR, or MR. Four years ago there were 16 or so. That was fun and novel. The next year it was 38, the next year was 70-some, and last year was 130. This year I think the story will be, “Who doesn’t have it?”
Years ago, when I first started going to CES, I remember the first plasma television. It was funny, because there was a rope with a screen, and that’s all there was, a screen running a loop of some footage, and about 200 guys standing in front of it slack-jawed. Wow, look at that! Now everybody has these screens. That happened in a relatively short period of time. I think that’s happening with some technologies that have had their birth on the floor of E3. Four or five years later, everybody’s got it. That’s one of the powerful forces we bring as an industry.
GamesBeat: Do you think the companies care more now about esports, VR, or cryptocurrency and blockchain, taking advantage of that for things in games?
Gallagher: If you’re asking me in an unscientific sense, from the conversations I’ve had and what I’ve seen, cryptocurrencies are a greater percentage of that pie. That’s where the money flows, and where the developments, when they happen, can be massively impactful. But the other two are still right in there.
GamesBeat: As far as what people will notice that’s different than last year, it seems like there are stricter policies on security. How do you expect the mad rush to go on Tuesday, when people line up and get ready to go in?
Gallagher: When we looked at the world climate today and talked with security experts in Los Angeles, as well as security experts from our member companies that do events around the world, we did make the decision to heighten security, principally in two ways that are visible, and in several ways that are not visible but highly effective, to make sure we’re doing everything we can to keep attendees safe.
One of those is the use of metal detectors coming in, and the other is bag checks and the prohibition on bags being brought in as a general matter. We’re encouraging everyone to leave their bags in their hotels. We will have a bag check outside of the building and it will be patrolled by bomb-sniffing dogs, so we’ll have preventative safety around those things. But the metal detectors, we’re making a very significant investment. We’re deploying as many of those as we can. Each one of those metal detectors has a wand backup right there, so they can wand you if it’s tripped and move the process along as fast as possible.
We’re doing everything we can to communicate with the attendees: “Hey, this is happening, Please allow extra time.” We’re working with the LACC on how we’re going to develop the line inside the building for then going on to the floor at show opening. Whenever there are surges in activity – we obviously anticipate that on Tuesday and Wednesday – we’ll have a special process internally which will be as pleasant as possible to the consumers that are there early that allows to get as many in as possible ahead of when we open the doors.
GamesBeat: Is there a recommendation to avoid the show opening time, just as far as alleviating the rush?
Gallagher: No, not at all. If we did that, it would probably double the pressure. There would be so much excitement around it. We think it would be counterproductive to have any kind of direction like that.
GamesBeat: Are you at the same number of fans going in this year, 15,000?
Gallagher: Right. As you know, we have to cap attendance. We’re not trying to drive it. If we were trying to drive it and the building could handle it, who knows how many people we’d have at the show? That’s not the goal. The goal is quality for the consumer and value for the exhibitor. That’s what we drive toward. That number last year was pretty much the max.
We did a survey of the exhibitors following, and the feedback we got was that it felt very full on Tuesday. It felt full, but better on Wednesday, and then comfortable on Thursday. That’s what we heard back. That’s not, obviously, a scientific summary, but that’s how it felt. The limitations of the building and the high production value of the show dictate how many people we can have in. We have to work with the fire marshal and our exhibitors to make sure that’s done safely.
We were at the limit last year, and we’ll hit that same number this year. The target number for consumers is 15,000 and the balance is trade as in prior years. What we’ve done this year to relieve some of that pressure is to stagger the show hours. We’re learning as we’re going and I’m sure we’re going to learn more this year.
GamesBeat: How have you taken the feedback where some of it wanted to be like Gamescom, where you have a couple of business days and then the fan days start after that?
Gallagher: We had that discussion with the LACC and AEG, our two landlords if you will, our hosts for the show. As it turns out, we can’t get weekend access because of subsequent shows that follow on to ours. Without weekend access, the date segmentation doesn’t work as smoothly. We have that as a longer-term goal, to continue to look at that.
Maybe you saw the announcement about the convention center a month ago, with a story in the Los Angeles Times, where they talked about what they plan to do to enhance the facility. As you know, for years, we’ve been very consistent and vocal about the need for the LACC to be updated, upgraded, and expanded. There’s a plan on the table to do that that looks like it’s achievable and has the support of the city and AEG.
We’re obviously waiting. The proof is in the pudding. But the building, the way it’s designed right now, can only handle so many people. That’s a governing factor. If we had a larger facility that was more modern and more contiguous – these are all things they’re looking to fix – we could have a larger footprint and have a greater segmentation in time, meaning have trade days and not. But right now that’s just not an option with the way we fit in the calendar and the physical space of the LACC.
GamesBeat: What sort of issues are you looking at this year as important for the game industry?
Gallagher: You’ve probably seen a number of the statements we’ve made. Washington is very fertile ground for leadership for ESA. But that leadership now extends not just to Washington D.C., but to states and state capitals. We’ve been very active on that front over the course of this calendar year.
There’s been an extraordinary premium placed on international coordination when it comes to issues like trade, immigration. When you look at our particular business model challenges around things like in-game transactions, that type of coordination – while it’s not completely new – has to happen faster and to a greater degree. Those are the types of things that are driving our year this year that are different than in prior years. Not to mention, we had a meeting in March that got a lot of attention.
GamesBeat: In-game transactions in particular, is that an issue unto itself, or does it link somehow with trade concerns?
Gallagher: We’ve found that the video game industry, as we’ve expanded to where we’re $36 billion domestic and more than $100 billion worldwide, as you’ve seen the business models expand and the number of gamers expand, to 2.6 billion, as you see the cultural relevance of gaming become central to governments and policymakers around the world, that implicates more issues on a global basis.
When you look at the business models for in-game transactions, that’s been an area of high emphasis, much higher than in prior years. Also, a need for coordination amongst my counterparts, all of us together – those that run ISFE, CESA, and the other trade associations that represent the industry around the world – for us to be able to speak with one voice, speak based on facts, and speak with solutions that work for both the gamer and the game-maker.
GamesBeat: What progress have you made toward different goals, like diversity?
Gallagher: Diversity and inclusion are goals that we strive for every day. They’re also goals that we will continue to chase. I don’t know that you ever achieve an end state. It’s much more a state of mind and a commitment, making sure that we’re living that commitment. I know that it’s a top priority to the industry. From the discussions we have with diverse audiences, whether it’s the disabled or women or minority groups, we have a dialogue throughout the year. It’s ongoing.
It’s not just us as ESA, but also our member companies. We continue to learn how we can do better. We’re committed. You hear CEOs from all ESA members committing to that pledge and then taking steps to make it real. You heard my remarks to that effect at Night to Unite. It continues to be a very high priority, and one where we’re sensitive to the fact that we have a lot of work to do.
We’re optimistic because of the nature of the video game industry. We’re an interactive and expressive medium. We have great advantages over tech generally. We’ll be able to close the gap faster.
GamesBeat: How do you feel about where the American industry stands relative to the rest of the world?
Gallagher: Highly competitive, that’s for sure. We have so many standout companies and an extraordinary pool of game developer talent here in the U.S. We have the best capital markets in the world when it comes to investment. If you look at the pace of innovation, whether it’s measured in patents or deployment of first-in-the-world technologies – from the iPhone to Magic Leap – we continue to be at the leading edge of innovation here in this country.
It’s a worldwide market, though, as has been pointed out frequently. More than 90 percent of the world’s customers are outside the U.S. If you look at our large members, they tend to be about half U.S. employees and half deployed around the world. That’s for a lot of reasons: development for those other markets, as well as having a 24/7 work cycle, which is highly advantageous to the gamer, and for meeting the demands of bringing out great new titles on a reasonable basis.
You have a number of those forces that put us in a position of strong leadership in the U.S., but other markets are growing. China is growing very rapidly, and it has a much higher population. That’s not a secret. They also have great aptitude and desire to lead in this industry, both in their own country and also abroad.
Look at the board of ESA. We have Nexon, which is very geographically diverse. We have PlayStation, Nintendo, Square Enix, Capcom, and others that have their roots in Japan, where the industry started. We have great companies like Xbox and Take-Two, which are founded and based here in the U.S. but have operations worldwide. From an ESA perspective, the market and the challenge and the opportunity are global.
GamesBeat: Are you specifically worried that a trade war with China could hurt the games industry? Or with other countries as well.
Gallagher: We have to be careful about words like “trade war.” That can be hyperbolic. It can be scaremongering. There are things in the relationship with China that need progress. The protection of IP, the market access provisions that are very one-sided—for U.S. companies going to China there are very high barriers to entry imposed by the government, ownership restrictions and the like, technology transfer. Meanwhile, those restrictions are not in place here. We have a very open market. Our capital markets, our patents system, all the things we do for any startup in the U.S. are available to any company from China. That imbalance needs attention.
Words like “trade war” are counterproductive in the context of that. We’d much rather see progress on fair access to each other’s markets, because that’s what’s best for the game publishers and gamers themselves around the world. It solves inefficiencies. We have other international challenges, like GDPR. That’s a very high-level concern because it’s hard to implement a system which is vague and going to change. It brings to light challenges. Those types of things need to have calm international dialogue for solutions. Talking about “trade wars” is counter to that. It’s not something we want to emphasize in any way.
GamesBeat: How are you doing at attracting mobile games, getting those companies to come to E3? That’s half the market now. Is that something you’re still trying to make happen?
Gallagher: We’re absolutely trying, and we’re finding that there’s been a great payoff in the sense that mobile games, as we pointed out last year, were taking a growing presence at the show. I’ll send you the numbers for this year in mobile games, but you’re going to see participation from mobile game companies.
Facebook, for the first time, has a booth on the floor at E3. That’s a powerful statement as to the value of the industry to Facebook, and as you know, the most rapidly growing part of their business is on mobile. Also, through M&A activity—you see companies like Activision acquiring some of the biggest players in the mobile game space. If you look at Fortnite, that’s a runaway success. It’s only on one mobile platform right now, but the revenue numbers there are staggering. Just wait until they get onto Android. The footprint of E3 is a launch pad for mobile, and it’s become increasingly available and used—we expect to see more of that this year with 126 companies that will be showing mobile games at E3.
GamesBeat: I saw Tencent announced that they’ll be on the show floor for the first time, with Arena of Valor.
Gallagher: That’s another sign of the great health of the show, the value of the platform, and the international reach of the show. The one other connection I’d give you is to 5G. AT&T, as you’ve probably heard, has a booth on the floor where they’ll be demoing gameplay over 5G. We think that’s brilliant business for AT&T. The gamers of today are their optimum customers.
John Ledger, the CEO of T-Mobile, he’s come to the show for the last two years and visited us in the ESA suite. He’s looked out over the floor and said, “These are my customers.” That’s how he saw the opportunity two years ago. AT&T is seizing that with their 5G investment and leveraging the connection to gamers as a reason why that significant investment is worthwhile. That’s backed up by the numbers. Video games are 75 percent of the total revenue in the iPhone App Store. They’re 90 percent of the revenue in Google Play. You can see why they’re there and the power of E3, the power of video games on mobile.
GamesBeat: Are you looking forward to a particular game the most?
Gallagher: I always have to be careful about that. We’re a host to them all. I’m excited for the press briefings. Those are always a highlight for me. E3 is the most powerful showcase for new games, for gamers worldwide to participate in. It’s magic in a bottle every year.
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