INTERACTIVE SOFTWARE GAINING IN MAINSTREAM

DAN ALAIMO

WASHINGTON -- Interactive software has emerged as a mass-market entertainment category, according to Doug Lowenstein, president of the Interactive Digital Software Association here.

SN spoke with Lowenstein prior to IDSA's fourth annual Electronic Entertainment Expo, better known as the E3 Expo, which will be held in Atlanta May 27 to 29. IDSA is the trade group representing video and computer game publishers.

"We are meeting this year at a time when the entertainment software industry is the fastest growing segment of the entertainment industry in the U.S. today," he said. "That is occurring at a time when prices are coming down, which tells us that more and more users are coming into the market."

The interactive entertainment software industry grew by 38% in the United States last year to $5.6 billion, Lowenstein said. By comparison, he noted last year's theatrical box office, including 'Titanic,' was about $6 billion. In 1998 IDSA expects a growth rate of between 20% and 40%, stemming largely from increases in the video game console business for products such as Nintendo 64 and Sony PlayStation.

On the console side of the business, "we are in the middle of what somebody described as the 'sweet spot' of the hardware growth cycle," said Lowenstein. The installed base of the latest generation of game consoles will probably peak in 1999, he predicted.

"We know that each year these hardware machines are on the market, the software gets better and better. So the story at the E3 Expo for consoles is more advanced software, better games, better graphics and an overall higher-quality game experience."

Many supermarkets with video rental departments also rent video games and computer software. Both mainstream and budget products are being carried by increasing numbers of chains. The E3 Expo is the leading show for all of these products, industry observers said.

"As this business has evolved beyond being a specialty retail business into a mass-market business, I believe that there is greater opportunity for supermarkets to find an additional source of revenue from the sale of video or computer games," Lowenstein said.

"But to be successful in this market, you need to do your homework. It is not a slam dunk. It's not as easy as throwing a bunch of games on the shelf and assuming that people are going to buy. You need to understand the market and you need to understand the types of games that appeal to different audiences. You need to measure that against the people who shop your stores. And obviously, you need to be somewhat influenced by price points."

On the personal-computer side of the business, two things are happening, Lowenstein said. On the high end, there have been advances in 3D acceleration, improvements that will be shown at the E3 Expo. "This is hardware technology that enables the PC to be used to play games that offer 3D environments," he said.

More important to supermarkets, Lowenstein said, is the growth in number and quality of budget-priced software products. He noted, for example, that two top titles, "Deer Hunter" and "Myst," are now priced around $20.

"The edutainment genre particularly has seen some erosion of prices, and that is certainly an area that would be very enticing to a supermarket" with a family-oriented customer base, he said. Many of these consumers have just bought computers and "they are looking to buy types of product that they think will contribute to their children's education."

Meanwhile, the demographic appeal of interactive entertainment of all kinds is broadening. "The time when gaming was the province of adolescent boys is past. We have entered an era where people of all ages and all genders are migrating to video and computer games as one of their primary entertainment options," Lowenstein said.

"That will be reflected in a greater degree this year than ever before in terms of the variety of software products that will be showcased at the show."

The E3 Expo had about 400 exhibitors in more than 500,000 square feet last year, and because of consolidation and other factors, Lowenstein expected the same for this year.

Held in Los Angeles its first two years, the E3 Expo will return there in 1999. Show dates will be May 13 to 15.