Speech at The Economic Club of Pittsburgh
Delivered by Michael Gallagher, President and CEO, ESA
September 17, 2008
Thank you, Kevin, for inviting me to speak today. It's a special pleasure to address the business leaders, students and members of the media in Pittsburgh. That's because this city has a unique place in the history of media and mass communications and that is, after all, what my industry is – a new and growing medium of entertainment and mass communications.
Let me start by asking a quick question. In what year did radio become an accepted part of the American economic and cultural landscape? I'm sure you don't need someone from DC to tell you that the first commercial radio broadcast in history was done right here 88 years ago by KDKA. But exactly when radio was transformed from a sensational novelty to an essential part of our lives and culture is a bit harder to pinpoint.
While a phenomenon is occurring, it is nearly impossible to pinpoint the arrival of a new era. No one, as they say, rings a bell saying the world has changed. It's obvious only in retrospect.
I believe that at some point in the future, when we look back at the last year or so, we will recognize that now is the time that the entertainment software industry became a recognized and accepted part of our cultural and economic landscape.
This is a remarkable time for our industry as computer and video games are more a part of how we live, work and play than ever before. Consider some facts:
- Last fall's release of Microsoft's Halo 3 took in more revenue in its first day of sales than the biggest opening weekend ever for a movie at that time, Spider-Man 3, and the final Harry Potter book's first day sales.
- Despite the uncertain economic times we're living in, recent data shows that current 2008 sales are up 43 percent over last year.
- The average gamer today is 35 years old; 40 percent of gamers are women; one out of every four gamers is over 50.
- Two-thirds of our nation's households play computer and video games and 41 percent of Americans expect to purchase one or more games this year.
People who think of this industry as dominated by teenage boys playing games like Donkey Kong are simply living in the wrong century.
When one reads headlines like: "Economy in trouble? Not for video games" in the Post-Gazette; when Disney picks Carnegie Mellon for a new research laboratory to develop the next generation of entertainment because CMU's expertise in computing, robotics, human interaction and entertainment is "No. 1 in the world;" then it seems clear that the bell has indeed rung here in the Steel City. Many here in western Pennsylvania hear the bell. My message to all of you is to make sure that everyone hears it – and takes part in it.
The evolution of game content and game technology over the past few years is revolutionary and has been key to our industry's growth, attracting millions of new consumers of all ages and from all backgrounds.
Not only do ESA members produce the traditional arcade, action and adventure games popular with our core customers, but there is now an astonishing variety of choices that appeal to gamers from nine to 90 years old. There are role playing games that help children learn responsibility by caring for a digital "pet;" music games that take the place of traditional karaoke at happy hours; strategy games that enable aspiring engineers to construct the cities of tomorrow; and puzzle games that help keep our minds young and active.
Who would have imagined a couple of years ago that nursing home residents would be more excited about video games than bingo or bridge? Here in western Pennsylvania, American Legion Post 301 donated a Nintendo Wii and flat screen television to Oak Hill Nursing & Rehabilitation Center in Hempfield so its residents can participate in an affordable therapy that sharpens motor skills and eye-hand coordination.
In addition to the variety of game content available, the technology behind today's games is truly astonishing. Our industry's games now utilize incredibly realistic graphics and motion sensitive controllers to make game play more engaging than ever. Any Steelers fans who have played Madden 09, and I am sure there are a few of them here, know just how far we have come.
These technological advances and increased content have in turn fueled dramatic economic growth in our industry. In uncertain times, our industry's performance has been remarkable. According to NPD Research, in 1996, the industry had $2.6 billion in sales. In the 12 years since then, annual sales nearly quadrupled to $9.5 billion. When you include hardware sales, 2007 was an $18.85 billion year for our industry. Currently, year-to-date sales are up strongly in 2008, we could see the combined hardware and software sales total over $22 billion this year. And a recent PriceWaterhouseCoopers report projected video game software industry global sales will achieve double-digit growth for the next four years and top $68 billion by 2012. With the U.S. accounting for $17.6 billion of that.
The video game industry set the pace over all others in 2007, with record-breaking sales and off-the-charts consumer demand. In fact, the industry's sales of 270 million games meant that an astonishing nine games were sold every second of every day last year. Sales of last spring's blockbuster, Grand Theft Auto IV, totaled more than $500 million in just the first week.
These remarkable sales, among others, support a growing workforce. Currently, computer and video game companies directly and indirectly employ more than 80,000 people in 31 states with a total national compensation of $2.2 billion. By 2009, it is projected that the industry will support over a quarter million American jobs.
And Pennsylvania is taking part in the growth. The computer and video game industry here grew by 21 percent in 2006, more than 12 times as fast as the commonwealth's overall growth, adding $39.8 million to the Keystone state's economy.
But, I believe we have only scratched the surface and that by working together we can help bring new jobs to Pennsylvania and hasten Pittsburgh's transition to a new economy. A number of states, including Louisiana, Texas, Georgia and Wisconsin, have embraced the video game industry and see our technology as a tool to bring home economic benefits. Texas, like other states, offers the entertainment software industry tax breaks, like those the film industry has enjoyed for decades. These benefits are encouraging our member companies and smaller firms to relocate or grow in these areas and bring jobs and money.
Texas's governor, Rick Perry, recently addressed the video game industry at our E3 Media & Business Summit. In his remarks, he expressed pride in Texas's video game industry. While Texas is third biggest game producing state, he wants them to be number one. His issued an impassioned call for the industry to expand its presence there while at the same time calling for an increase in the tax incentives that game developers and publishers can qualify for.
While our roots will likely always be in entertainment, today, there is a growing recognition of the benefits gaming can bring to education and businesses. Consider these examples:
- Hopelab's Remission teaches children with cancer about their illness and the importance of adhering to their health regimen
- Virtual Iraq is a modified commercial video game helping veterans cope with the debilitating symptoms of post-traumatic stress disorder
- The United Nations World Food Programme is using its game Food Force to educate children about world hunger
- And the Connellsville Area School District, just south of here, used a grant from the Highmark Foundation to purchase gamer bikes and a game called Dance Dance Revolution to supplement school gym classes. Video game gym class – if that doesn't motivate kids to sweat, I am not sure what will.
As gaming has become part of our cultural landscape, corporate America is also embracing games. The ESA recently released the results of a study it commissioned researching how companies and nonprofits utilize game technology. We found that 70 percent of major employers use interactive entertainment software to train employees.
- Canon U.S.A. uses a video game to train new copier technicians.
- IBM developed Innov8, a role playing game that teaches graduate students a combination of business and IT skills.
- The Hilton Garden Inn, meanwhile, introduced the first training game for the hospitality industry, which places employees in a virtual hotel, interfacing with customers and fielding typical guest requests.
Advertising is yet another illustration of the entertainment software industry's growing cultural impact. In 2006, Nielsen Media Research estimated $75 million was spent on this new way to reach potential customers. Nielsen predicts this figure will increase 14-fold by 2010 to $1 billion.
To respond to our industry's growing demand for employees and the spread of games into our society, academic institutions are becoming interested in games. More than 400 colleges, universities and technical schools worldwide now offer programs and courses in video game design and development.
Pennsylvania students interested in video game related fields have several academic institutions to choose from. Carnegie Mellon University features an Entertainment Technology Center that has several programs for gaming related professions. There is an entertainment technology program at Duquesne University and the Art Institute of Pittsburgh offers three programs in Interactive Media Design, Visual Effects and Motion Graphics, and Media Arts and Animation. In addition, on the other side of the commonwealth, the College of Media Arts and Design at Drexel University has a program in Digital Media that trains students in areas like digital sound, design, and 2D to 3D modeling and animation.
I will speak at Carnegie Mellon's International Conference on Entertainment Computing later this month, and am looking forward to meeting the people who will create the future of our industry. The industry is in high demand of new talent and more students are choosing majors related to computer and video game development than ever. These students can expect to reap the benefits. Even in a tight labor market, industry salaries average $92,300 annually.
In addition to growing our workforce, these institutions are also helping to advance our technological innovation. In fact, as I referenced earlier about the exciting news regarding Disney and Carnegie Mellon, professors and students have been charged with fostering new technologies for Disney's Parks & Resorts Division, Disney Media Networks, ESPN, Walt Disney Feature Animation, Walt Disney Studios Motion Pictures, Disney Interactive Media Group and Pixar. The lab on Forbes Avenue will engage in research and development on computer animation, computational cinematography, autonomous interactive characters, robotics, data mining and user interfaces, among other initiatives. Who knows, if they decide to piece those media together, the lab's next-generation of technologies could include animated sportscasters delivering play by play analysis to Steelers games from Disneyland.
As you can see, the entertainment software industry has come a very long way in a very short time. And we will continue to keep working so games can further improve our lives, both as an entertainment source and an educational tool.
We hope you will join us in this effort by taking advantage of the economic, cultural and social opportunities our industry provides and encouraging its growth here in the Keystone state.
I hope you leave here with a sense of the distance we have traveled and that you are listening to the bell and will join us in encouraging others to hear it as well.
Thank you again for coming today. I would be happy to take any questions you might have.