E3 ESA Keynote – Doug Lowenstein and ESA Rally the Troops

(This article first appeared in the May 22, 2006 issue of Jon Peddie’s TechWatch)

The twelfth annual E3 show officially opened, as has become tradition, with a State of the Industry keynote by Entertainment Software Association (ESA) president and chief cheerleader, Doug Lowenstein. Lowenstein reminisced briefly about the roots of the video game industry before launching into the central theme of this year’s keynote – namely that he believes the video game industry is becoming a transformational industry akin to the automobile, television, computer, and telecommunications industries of the twentieth century.

Doug Lowenstein, ESA president, says that video games will change the world.

The basis for his belief stems from research the ESA commissioned from Robert W. Crandall, a Senior Fellow of the Brookings Institution, and J. Gregory Sidak, a visiting professor of law at Georgetown University Law Center. Crandall and Sidak produced a white paper. The white paper based on the results of their research, released at the same time as Lowenstein’s keynote, is available at http://www.theesa.com.

The Crandall and Sidak white paper suggests that, while video games generate $10.3 billion in direct sales (software and hardware) in the U.S., they also generate $7.8 billion in sales of complementary products for a total impact of over $18 billion on the U.S. economy. The complementary products Crandall and Sidak cite include televisions (e.g. HDTVs for Xbox 360), gaming computers (e.g., Voodoo, Alienware), broadband services, CPUs and GPUs, mobile usage, movies based on video game IP, and advertising. A review of Crandall’s and Sidek’s research reveals that many of their conclusions are inferential or based on comments from industry players, such as IBM (one of the three CELL-chip partners, as well as owner of the Power-PC core used in the Xbox 360).

Nevertheless, Lowenstein took much of the research as fact. And while some of the assertions about how video game technologies are being presently being used elsewhere for training and research are sound, they either ignore or are ignorant of the reality that much of that same technology did not in fact originate in video games, but was developed earlier for military, cinematic, and CAD applications.

For example, Crandall and Sidak point to modern-day real-estate and travel websites as evolving from technology transfers from entertainment software, and in particular 3D video game technology, such as first-person shooters. However, that technology originated in CAD programs in the 1980s – the only difference is that due to a lack of computing power, such walkthroughs were typically pre-rendered, fixed-path (or variable path where each branch was pre-rendered) scenes. And virtual reality research, which, while having aspects of entertainment, originated more as an information sharing and communications technology, offered interactive 3D space walkthroughs before video games integrated that technology.

Likewise, they point to modern-day military training where combat simulations are used as a form of virtual training, and suggest that this is directly linked to video game technology. While in a micro view that is certainly true, in a macro view, much of the core technology, such as texture mapping and 3D world navigation, originated with military-funded simulators such as flight simulators developed by Singer and GE in the early 1980s.

What Crandall and Sidak miss is that 3D video gaming technology is evolutionary in the grand scheme of things, and not revolutionary. Without

a doubt, current gaming technology improves things like real-estate walkthroughs, military training simulations, and medical research and simulations in terms of increased real-time interactivity and realism, but the underlying principles have been there all along.

While the $7.8 billion in sales of complementary products attributed to video games may not be really accurate, and is likely inflated, one cannot also deny that video games and the technology that goes into them definitely do have both a technological impact and a sociological one on the lives of most of the people in the Western world.

Lowenstein used that premise to support his perspective that the video game industry will be a transformational industry. He pointed to the fact that by the year 2010, there will be 75 million Americans between the ages of 10 and 30 – something he calls the “millennium generation.” That’s as many as there are in the now aging baby boomer generation. And video game content and interaction are certain to provide a potentially broader perspective on a variety of subjects, ultimately making the millennium generation a political force to be reckoned with.

“Even today, ESA data shows that as many as 35% of American parents play video games, and 80% of those play with their kids. Video games are the rock and roll music for the digital generation, and Halo and The Sims and Zelda are their Grateful Deads and their Rolling Stones,” said Lowenstein, to underscore his point.

Lowenstein closed his keynote by reminding all in attendance that transformational industries have both good and bad components. For example, the automobile industry brought pollution and reliance on fossil fuels, television brought concerns about the sedentary life style of a new breed of man known as a couch potato, and telecommunications introduced issues related to the depersonalization of social interaction. On the bright side, Lowenstein said he believed that everyone would agree that the positives of past transformational industries overwhelmed the negatives, and that the coming years would hopefully see the transition of video games from pure entertainment into video games as a central feature in the economy, business, and education of America.

That certainly is a laudable goal, both on a U.S. level as well as an international one, but the roadblocks ahead, such as high console and title prices, the efforts to criminalize the sale of certain games to youngsters, and the stigma that game playing produces violent and aberrant behavior are serious, and may be difficult to overcome.