LOS ANGELES -- Caught between an explosion of new technology and record-breaking sales, supermarkets and other retailers are facing a transition year in the interactive-entertainment business, said industry observers attending the Electronic Entertainment Expo here, May 11 to 13.
In contrast to last year's E3 show, shadowed by the shooting at Columbine High School, Littleton, Colo., which brought media attention on the video-games industry, this year's atmosphere was upbeat. More than 62,000 industry professionals turned out, up more than 12% from last year's 55,000. according to the Interactive Digital Software Association, Washington, which owns E3. On the exhibit floor, 430 exhibitors filled 550,000 net square feet of space, displaying new interactive-entertainment products and next-generation technology.
"Fresh off another record-breaking year, we're poised to start a new era where creative and technological frontiers will be expanded, and the industry's place as a powerful and important force in American culture and entertainment is further secured," said Douglas Lowenstein, the IDSA's president, during the media briefing session.
"This show is about an industry that's more than just games. It's about technology, education, and very basic changes in our culture and the very nature of how we are entertained," he added.
Attendees awaited the first look at the American version of Sony's PlayStation 2 DVD-driven system, due in stores Oct. 26. The system carries a suggested retail price of $299. Show-goers also awaited news of systems from Nintendo and Microsoft, both due mid-to-late 2001.
"Between 1999 and 2001, four new video-game consoles will be introduced. These machines represent more than just raw speed and power. They are multifunction set-top devices offering access to games, DVD movies, audio CDs, the Internet, e-mail and more. They are the first true convergence machines, and they symbolize the fact that the video-game industry will be the nerve center for home entertainment of the future," said Lowenstein.
With video-game publishers introducing more games than ever, a glut of offerings is expected to drive prices down, observers told SN.
"Some video-game retailers, especially mass merchandisers, are facing inventories 30% to 40% higher than expected, which could lead to deep discounting," said Mike Ribero, an executive vice president with Midway Games, Chicago, a game publisher. This could also prompt retailers to order lower quantities of each title, he said.
Demand for video-game software has waned as users wait for PlayStation 2, he explained. And while the best games continue to sell well, there is little demand for software that is not well reviewed. Many game suppliers cited constantly changing shelf space and the desire of food retailers to carry product with a low price point as factors that detract from selling games in supermarkets. For most supermarket chains, game rentals are their primary business.
"Supermarkets want a product that has a low price point of under $15; the average price for software runs from $24 to $69, making it unattractive," explained one source. "But don't get me wrong. Supermarkets that cross over into nonfood items show the software dealers that consumers want to shop for milk and bread and, if offered, just might buy a software product or two."
Lowenstein reported on the rapid growth in the industry, with 1999 retail sales at $6.1 billion, a growth of 15% over 1998. Last year, in addition to retail sales, another $500 million in revenues came from on-line games and another $880 million was derived from the rental of video games. More than two games were sold last year for every household in America as unit sales of PC and video games hit 215 million, up 20% over the 1998 figures, said Lowenstein.
The $6.6 billion in retail and on-line game revenues compares favorably with the $7.3 billion in box-office revenues generated by the U.S. motion picture industry in 1999. Lowenstein predicted that sooner, rather than later, video- and computer-game software sales will surpass the motion-picture box-office numbers. "In fact, if they'd just stop raising ticket prices while we lower retail prices, we'd probably already have done so," Lowenstein said.