2008 State of the Industry Address
E3 State of the Industry Speech
Delivered by Michael Gallagher, President and CEO, ESA
July 16, 2008
Thank you all for coming to the 2008 E3 Media & Business Summit. I hope you all are enjoying the Summit, which has truly been a great event so far. We have seen some innovative new products, which I know will wow consumers and make 2008 another successful year for our industry. I also thank Governor Perry for his ongoing support and exceptional remarks this morning. I wish more politicians had his clear understanding of the benefits we as an industry can provide.
This is a remarkable time for our industry as we are in a new era of acceptance of computer and video games. We are well-positioned to capitalize on these opportunities and I am extremely proud to stand here today as CEO of the ESA. It's also a special time for me as it marks the beginning of my second year as the head of this peerless trade association.
Let me start though by asking a quick question. In what year did the television become an accepted part of the American economic and cultural landscape? If you can't come up with a fast answer it's not surprising. 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, we will recognize that now is the time that our industry became a recognized and accepted part of our cultural and economic landscape.
With this new-found level of acceptance, I believe, comes respect. That's a loaded word, respect. It has a lot of applications, but few as powerful and evident as the one shown this week. Imagine, five years or even two years ago, an elected official from one of the most powerful states in the country addressing this gathering. In my predecessor's time, our association was fighting state officials, not welcoming them and listening to their inspirational words of encouragement.
Does that mean that all problems and controversies are behind us? Of course not.
But when esteemed former Supreme Court Justice Sandra Day O'Connor promotes video games to teach civics lessons; when The Times of London declares it's “inevitable” that soon we will all be gamers; and when Chevron takes out full page advertisements in national newspapers urging people to play a game to think about the energy crisis; then it seems clear that many people realize the bell has indeed rung.
Propelled by remarkably diverse content and astonishing technological innovation, our industry has continued to grow and attract millions of new consumers of all ages and from all backgrounds.
Those who write and talk about our industry in narrow demographic terms are living in a different time. Many hear the bell. Our challenge moving forward is to make sure that everyone hears it – and takes part in it.
The evolution of game content over the past few years is revolutionary and key to our industry's growth. Today, the computer and video game industry is like a movie multiplex, offering a broad range of entertainment choices that appeal to a diverse consumer base. In 2007, 94 percent of titles rated by the ESRB were appropriate for ages 13 and under. 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.
The entertainment options available are endless. First and foremost there are the blockbuster games that gamer enthusiasts embrace. Since the last E3 Summit several major releases were welcomed by fans and applauded by reviewers, including Halo 3, Super Mario Galaxy and Grand Theft Auto IV. And I know our members have quite a few blockbuster titles premiering at this show.
There are also new types of games on the market today: 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?
Today, computer and video games are also used for more serious purposes.
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.
And, as much as it pains me to say as a graduate of the University of California, researchers at the University of Southern California created Modern Prometheus to teach ethical decision making.
The United Nations World Food Programme, is using its game Food Force to educate children about world hunger.
The wide variety of content our industry produces will only expand in the coming years as researchers find more uses for computer and video games. In fact, the Robert Wood Johnson Foundation recently announced more than $2 million in grants that will enable a dozen research teams to explore the use of digital interactive games to improve health behaviors and outcomes. The projects vary from a University of Florida study designed to evaluate how action games can improve everyday cognitive function in older adults to a University of Washington project that will investigate the health impact of online mobile games for people with type 2 diabetes. There are also grants to study the positive aspects of games – we have indeed come a long way.
In addition to the growth in game content, the entertainment software industry has also advanced its technological innovation.
In the 1970s, individual gamers pecked at keyboards or manipulated a dial to move black-and-white dots across the screen. Today's games create new worlds with incredibly realistic animation. New graphics—like many in the entertainment seen this week—provide images that look more and more life-like with each new title released. It's no surprise that some of those games are reviewed as in the same manner as movies. They have scripts, characters and music considered fit subjects for commentary and scholarly study. I don't think Pong – bless its little square boxes – was ever featured in Rolling Stone.
Thanks to new technologies, players can change their environment, scores, and heart rate. Nintendo's Wii has helped revolutionize our industry. By creating games that made physical activity fun, we've tapped into a whole new demographic of gamers.
Technological advances have also allowed games to be more mobile than ever. Remember when we thought we had seen it all when the first Game Boy came out in 1989? Well, today, in addition to what is available on the PSP and the DS, players can enjoy games on their cell phones, blackberries and numerous other devices. Today's cell phones have more computing power than the Apollo 11 landing module. Cell phones and mobile games are two of the new frontiers that publishers and developers are exploring.
And the on-screen content is just part of the innovation story. This generation's game consoles are so powerful they are aiding in our quest for better health. In August of 2006, Stanford University began using Sony's Playstation 3 to go beyond genome mapping and broaden our understanding of the human body. By utilizing the processing power of over one million PS3 consoles connected to the Internet, systems not being used for play are being used for research that many believe will help us find the cures for numerous diseases, including certain forms of cancer. All this from an entertainment source once considered just a pastime for teenage boys.
And like everything else in our world, the technological advances are accelerating. With more than 400 colleges, universities and technical schools worldwide offering programs and courses in video game design and development, this innovation is bound to continue. Among the new freshmen at Georgia Tech this fall, there could be a designer who may just create the next generation of game applications, consoles or controllers that our grandchildren will enjoy.
These advances have in turn fueled dramatic growth in our industry.
In uncertain economic 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. And, this trend is continuing. New data shows that current 2008 sales are up 30 percent over last year.
The video game industry set the pace over all others in 2007, with record-breaking sales and off-the-charts consumer demand. In fact, an astonishing nine games were sold every second of every day last year.
Last fall's release of Microsoft's Halo 3 is a prime example of our success. The third version of this popular game was the best-selling title of 2007. It took in more revenue in its first day of sales than the biggest opening weekend ever for a movie, Spider-Man 3, and the final Harry Potter book's first day sales.
And this spring we witnessed another blockbuster release when Grand Theft Auto IV sales totaled more than $500 million in 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 our industry will support over a quarter million American jobs.
And the good news is that experts predict these positive trends will continue beyond next year. A recent PriceWaterhouseCoopers report, projected video game industry global sales will achieve double-digit growth for the next four years and top $68 billion by 2012.
This robust economic news could not have been achieved without our continuing appeal to core customers and a broadening of our appeal to new ones.
This afternoon, I'm proud to release the 2008 version of our Essential Facts About the Computer and Video Game Industry. This booklet details the diverse audience that is embracing computer and video gaming. Let me give you a few highlights from this report:
- Today's average game player is 35 years old;
- One out of every four gamers is over age 50;
- And if you look at the entire American game-playing population, the percentage of adult women players is nearly twice the percentage of teenage boys – 33 percent to 18 percent.
This year's publication also illustrates just how widespread gaming is in our nation. Thirty-eight percent of American homes have a video game console; 65 percent of American households play computer and video games; and 41 percent of our fellow citizens expect to purchase one or more games this year.
As gaming has become part of our cultural landscape, corporate America is also embracing games. As many of you read last month, the ESA 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.
All you have to do is watch the news or read the newspaper to see our cultural significance. National news programs, like The Early Show, Good Morning America and the Today Show, cover our industry's products and positive impacts like never before. Many leading newspapers provide ongoing coverage from game reviewers, columns and blogs.
I believe we are entering the golden age of gaming. But, we need to work together to make that entry a smooth one and to further weave entertainment software into the economic and social fabric of America. And speaking of challenges, I want to issue some to the industry.
How do we embrace this new era when more Americans are using computer and video games for entertainment and beyond? In some aspects, we should build on what we have been doing. In others, we must change the way we think and do business. With that in mind, let me put forward five concepts that I believe we should employ to make that happen.
1. REMEMBER OUR BASE – We must never forget our core customers. Avid gamers have been with us from the start and we must remember them as we expand our offerings and keep them loyal. We need to continue producing the engaging, compelling games that our traditional consumers expect, but we must also look for new ways to use technology to keep them engaged for years to come.
2. WELCOME NEW GAMERS – We need to welcome in the gaming converts who joined us recently. To continue to draw these casual players in, we need to continue expanding our content and providing them with new and more appealing game choices.
3. BROADEN THE USES OF GAMES – While the operative word remains play, video games, as I mentioned earlier, are increasingly not just recreational, but are also involved in more serious pursuits. These new commercial aspects of our business can only continue to thrive as the generation that grew up with computer and video games naturally incorporate the entertainment and educational aspects of the games into their lives. This is also something our industry should further by expanding our content options.
4. HELP PARENTS – We must continue to look for innovative ways to help caregivers ensure that the games their children play are parent-approved. We already have made remarkable strides over the past few years. Eighty percent of children cannot purchase Mature-rated games. And, that isn't me saying so, that is the latest study from the Federal Trade Commission. Eighty percent…that's a 433 percent jump since the FTC begin surveying this in 2000. And it places us above movies and music when it comes to partnering with parents.
We have the most comprehensive ratings system in the entertainment industry. And, we have voluntarily established numerous tools and policies to help parents make educated choices. In addition, all hardware makers include parental controls on their latest console systems and handheld devices. Now that we have those on every platform, it's our industry's responsibility to increase parental awareness and usage.
5. AND FINALLY, LET'S UNITE TO SUPPORT OUR POLICY INTERESTS – As I said earlier, Texas is a leading state in recognizing our industry's contributions. And there are a number of others, including Georgia and Wisconsin, who are seeing our industry's transformation and helping us grow through economic incentives. The ESA has been working effectively with those states, and we will continue to do so.
In addition, there are dozens of elected officials, both on Capitol Hill and in state capitals, who have joined with us in promoting awareness of the ESRB ratings. We appreciate the partnerships we have developed with these states.
Of course, not everything is sweetness and light and not all the elected officials are so enlightened—both domestically and internationally.
Friends and allies across the globe are facing their own challenges. Our success as a business and entertainment medium has caught the attention and the interest of foreign regulators and governments. Earlier this year we saw the release of the Byron Report, which praised the ESRB's work with retailers to help enforce sales restrictions to minors. We are now seeing a robust debate between the BBFC and PEGI. And while this is a European question requiring a European solution, our American experience proves that industry self-regulation is the best way to provide parents the information they need to make appropriate purchasing decisions.
Proposals to regulate games are all too common in countries like Cyprus, Australia, and Germany. Recently the EU's Information Society Commissioner encouraged my European counterparts to increase their efforts to help protect children from inappropriate online contacts and game content. Here in the United States, we already voluntarily provide innovative and best-in-class tools and information to caregivers to help make informed choices. The ESRB's simple-to-understand system of ratings and content descriptors are heralded by the Federal Trade Commission, watchdog groups, and legislators.
Here at home, some states have passed, and others no doubt will try to enact, unconstitutional legislation that restricts the creative freedoms on which this remarkable industry has thrived. Other politicians devalue the $20 million investment in an average triple-A video game and the contributions of thousands of technological artists by weakening our country's intellectual property laws. Still others seek to mischaracterize our industry. They lay every deficiency in society from violence to obesity at our feet.
It is time for all of our elected officials to wake up and realize the numerous positive economic and social impacts of our industry. And it is well past time that states stop wasting their time – and the taxpayer money that has now run into the millions of dollars – trying to enact legislation that infringes on the creative energy of our developers and our artists.
The ESA is working to promote policies and programs that create a positive and beneficial ecosystem that we all can operate in. We have also fought unconstitutional legislation every step of the way and where we haven't won in the state legislatures, we have won in the courts. Every time.
But, we can't do it alone. We need your help to strengthen our voice and make sure it's heard by elected officials.
Over 150,000 gamers have joined the Video Game Voters Network so they can participate in the political process. I want to see that number reach 200,000 by next year's E3. If you haven't done so already, I encourage you to join the VGVN over in the Concourse Hall Foyer while you're here at E3 and make our voice heard.
This industry has come a very long way in a very short time. And we're finally gaining the respect we deserve. Respect from the business community and from elected officials. Now is the time that we need to keep working and doing what we do better than any other industry or community so that today's level of recognition and accomplishment will pale in comparison to what we are about to achieve.
Let's leave this hall recognizing the distance we have traveled and listening to the bell that is marking a milestone in our industry's history. And let us encourage others to hear it as well. All of us lucky and privileged enough to work in this new entertainment medium should feel exceptionally proud of what has been accomplished. I challenge you to name another industry that has a more passionate consumer base than ours. And, a workforce that is as talented and energetic as ours. Look around...no, really…look around. You can see people in this room and throughout the Los Angeles Convention Center this week that have devoted their professional lives to this art.
I hope that over for the remainder of the Summit, you feel the excitement and enthusiasm generated by the innovative and creative software on display. Be inspired by the new worlds you've seen and the epic stories unveiled. And, with that energy we will conquer our challenges and reach new audiences.
Thank you again for coming to the 2008 E3 Media and Business Summit. It was a privilege to speak with you today and, I am honored to serve this great industry.