Fewer Players in the Gaming Group

By Mike Musgrove
Sunday, June 8, 2008

Why is the ESA shrinking?

In recent weeks, the video game industry's Washington-based trade group, the Entertainment Software Association, has seen a number of its high-profile members -- video game design studios and publishers -- leave the organization.

Out the door are a formidable collection of game companies: Activision, Vivendi, LucasArts and Id. Some industry insiders say other game companies may follow.

Together, the four companies represent millions of dollars of video game sales and a big chunk of the industry. Activision is one of the world's largest game publishers, and it puts out the Guitar Hero games. Vivendi Games publishes the popular computer game World of Warcraft, which 10 million fans pay a monthly subscription fee to play. Those two companies, by the way, are working on a merger that should be completed in coming weeks.

In a phone conversation last week, ESA President Michael Gallagher played down the exits as not-unusual trade group churn.

"There are hundreds of trade associations in Washington and virtually all feature member turnover and the ESA is no exception," said Gallagher, who took over last year. He is only the second person to lead the 14-year-old association.

The ESA was formed to give the young industry a voice on Capitol Hill and keep the government from regulating violent videogames. In the same way that the movie industry's trade group oversees movie ratings, the ESA runs the Entertainment Software Rating Board, which rates game content with the aim of keeping violent, "M"-rated titles, such as the latest Grand Theft Auto game, away from children. The organization has a successful track record.

The recent exits come as the video game industry has never been more successful; despite signs that consumers are trying to tighten their belts, video game sales are up this year.

Most of the companies who have left the ESA haven't explained their move, though it appears that rising dues may be a factor. The organization's fee structure has increased twice in recent years and now amounts to millions of dollars in some cases; one company says fees quadrupled from one year to the next.

The fees fund an organization that goes after issues of concern to the industry, such as piracy, which costs game makers billions of dollars annually. Earlier this year, for example, the ESA worked with local authorities to shut down a bootleg game operation in Mexico. Whenever a politician tries to make the sale of violent video games illegal, the ESA legal team goes into action. The day I talked to Gallagher, he said he'd spent the morning on Capitol Hill talking to staff about the effectiveness of the industry's game rating system.

Jeff Brown, vice president of communications at game publisher Electronic Arts, said that it is "unfortunate" that some industry leaders have left the organization, though he would not speculate on their reasons for departing. As for EA, "there's no thought of leaving the organization," he said.

A little backstory: The ESA used to throw a major annual trade show called E3 that was the organization's main revenue source. But somewhere along the line, game publishers came to question the cost effectiveness of spending millions of dollars to make a splash at the show. The ESA opted to reinvent the show into a smaller and more intimate, "invitation only" event. One year, the show saw 60,000 attendees, the next it was down to around 5,000.

As industry analyst Michael Pachter puts it, "these [publishers] got rid of E3 so they wouldn't be spending money, and they suddenly find they are spending the same amount of money, but without the spectacle of E3." For top-tier companies, he said, the annual fees amount to $4.5 million or more.

"I can't comment on whether the ESA is effective or not," Pachter said, "but clearly several members decided that this is not the kind of reward they expect for that amount spent."

Todd Hollenshead, chief executive of Id Software, said his company's exit from the organization was a business decision and that the ESA "is a credit to the industry."

"Our departure from ESA is probably temporary and was not political," he said. "It was just a question of other priorities this year that we wanted to focus on."

The company, famous for shooter games like Doom and Quake, had debated letting its membership drop last year as well, when fees quadrupled, Hollenshead said. This year, his company's annual QuakeCon fan event, where thousands of fans travel to the company's headquarters in Texas to play the company's games, takes place within a few weeks of this year's E3.

The ESA Web site still lists 24 members; some think that number is going to shrink more.

Hal Halpin, head of a consumer group that focuses on gamer-interest issues called the Entertainment Consumers Association, said he knows of two other game companies that are planning to leave, in addition to "several others that are unhappy but remain with the organization."

"It's really concerning for all of us. Anyone who cares about the games business should be concerned about what's going on with the ESA," he said.

When Gallagher took the job last year, I paid a visit to ESA headquarters, located downtown near the Verizon Center. I challenged him to some video games and was impressed to find that he could talk knowledgeably about games -- and hold his own on a game controller. He joked to me that during his years as a telecom executive in both the private and public sector, none of his speeches had ever gotten as much online attention as the few speeches he'd made since taking the reigns at the ESA.

He's been kind of quiet since that time, from my perspective, at least. After a Fox News show featured an uninformed pundit going off about the allegedly sexually explicit nature of a popular video game called Mass Effect, some gamers complained that the ESA did not step in to defend the game industry.

Gallagher said he works "to diffuse conflicts before they happen" and, as part of that strategy, has had "scores of meetings" with legislators across the country behind the scenes.

"When it's necessary for the industry to have that loud, clear and public voice to defend itself from a baseless attack, I will be there," he said.

While top-ranking game industry executives were quick to get on the phone or respond to my e-mail queries about Gallagher last year, they weren't as chatty this year. Sony's PR people, for example, promised that the company's PlayStation division head would respond to some questions a couple of weeks ago, but that never happened.

Last year, Robbie Bach, head of Microsoft's game division, got on the phone to sing Gallagher's praises. This year, Microsoft sent me a statement: "We're as committed as ever to the ESA, and we look forward to participating in E3 this summer." Nintendo released a shorter, nine-word statement along the same lines.

I'm not going to E3 this year, after attending the show for nearly a decade. But, to be fair, that's as much a story about declining newspaper budgets as it is one about a trade show's future.

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