In just its sophomore season, Electronic Entertainment Expo (E3), last held in May 1996 in Los Angeles, has become the one event you must attend to contend in the consumer multimedia market. Publishers and developers--400 in all, exhibiting some 1,700 new titles--flood the convention hall's confines to line up distribution, licensing, and affiliate label agreements. The balance of the fevered throng consists of journalists, analysts, distributors, and between-gig hustlers assembling either to deal, or simply to observe, the furious flow of new media commerce, and speculate on what any given piece of the action means. The multiple halls are cavernous, with some booths costing--say most speculators--up to a half million dollars.

What draws this crowd is the consumer market's signature odor, a blend of past profits, anticipated profits, continuous technological upheaval, and fear of collapse. Its state-of-the-industry prognosis, for attendees, is at once all-important and impossible to nail down. So to feed the finger-on-the-pulse frenzy, a healthy cadre of analysts attend, including Coopers & Lybrand (C&L), who figured particularly prominently this year, having passed out copies of its confidential survey of 40 publishers, "Economic Impact of the Interactive Entertainment/Edutainment Software Industry."

In the survey--co-authored with the Interactive Digital Software Association--C&L quotes a Link Resources estimate that worldwide consumer market hardware and software sales--combining the PC and console industries--had amounted to $4.4 billion in 1995 with a project rise to $9.6 billion in 2000. The C&L, survey showed that 80 percent of respondents had been in the multimedia business under a year, 80 percent were already shipping titles, and only 36 percent were profiting from the enterprise. The study also showed that the mean growth in R&D expenditure for respondents was 24 percent, versus 11 percent for an average Fortune 500 company. And survey results demonstrated that along the consumer market value chain, entertainment publishing was providing 35 percent of the overall revenues.

PC Data, a Reston, Virginia-based outfit which tracks individual vendors and titles, reports that 6,400 titles were for sale in 1995. The top five publishers were Intuit, with a 9.2 percent sales dollar share. Microsoft, with 8.4 percent; Broderbund, with 8.4 percent; SoftKey, with 8.3 percent; and Sierra, with 6.4 percent. Davidson & Associates, a diversified publisher, also made the top ten, placing ninth on this list with a 2.7 percent share.

A second research house, Woodstock, Vermont-based InfoTech, which tracks channel date, says there were 207 million consumer software units sold in 1995, up from 70.5 million in 1994. CD-ROM sales in the channel for 1994 had broken down categorically as $44.4 million through OEM, $13.2 million through direct sales, and $12.9 through retail. In 1995, sales reached $126.3 million through OEM, $33.8 million through direct sales, and $47 million through retail.

InfoTech says that what matters most in retail, where sales have proportionately grown most dramatically, is not segmentation--what categories of titles niche retailers like book or music stores carry-but how many titles they carry. Superstores, as well as large niche chains like Borders Books, which are inclined to stock as many as a thousand titles, represent the outlets most guaranteed to succeed as CD-Rom title sales venues.

A third researcher, The NPD Group, has released figures from a consumer purchase study covering November 1995 through February 1996. In terms of title costs, the study showed that consumers had been compelled to spend between t30 and $75 on over 43 percent of their purchases. Such arguably high pricepoints had not apparently helped light a fire in the marketplace: of those surveyed, only 21 percent had bought one or more titles in this holiday period. By comparison, over half of technology early adopters surveyed--those owning higher-end Pentium or PowerPC systems--had bought one or more titles during the survey months.

No doubt further increasing the general nervousness of the E3 melee, the various research houses in attendance provided widely different numbers; some pitched higher, others lower. This lack of statistical clarity fed the general hubbub, as did concerns over rising development costs, stale designs, and Hollywood's influence, or, some would say, bootprint. Other ingredients included downward price pressures, a stultifying distribution glut, an unhealthy abundance of platforms and titles, a market that remained unproven beyond a few game genres, and exciting but daunting new technologies like the Internet and DVD.

While statistics don't lie, they often confuse, and rarely do they tell the whole story. Given the topical range of the story that the numbers for the CD-ROM consumer title market begin to sketch out, the chaotic, eclectic consumer market might best be understood in profile, through brief cross-sections of three E3 exhibitors that might represent a large, a mid-sized, and a start-up publisher. Not surprisingly, each publisher, functioning at a different level, has different topics to discuss, but it is that very range and variety which can provide a perspective that has as good a chance as any to give an accurate characterization of the consumer title market for CD-ROM as it stands today.

DAVIDSON & ASSOCIATES: A LARGE PUBLISHER'S LESSON PLANS

As Jan Davidson tells the story, in a lucidly instructive voice that still carries echoes of her years as an educator, the march from an elementary school classroom in 1982 to the presidential office of a then-nascent software publisher that by 1996 was ranked second in the home education market was a common-sense progression. Of Davidson and Associates--now ninth in the game market as well--she says, "We began in 1982 as a mom-and-pop company, to fill a need for good software that I'd recognized as a teacher. As we grew, we realized, beginning in 1990, that continued success in this converging business required that we study intellectual property models and make a plan. The `studio' model we came up with is based on our having and integrating two strategic elements: multiple sources of product, and superior distribution."

That model led Davidson & Associates to become a company which today leverages its efforts across five tightly integrated businesses. Three of the businesses are software for school, consumer education, and consumer entertainment; the other two are distribution and international sales. According to PC Data, Davidson and Associates' 1996 home education market sales gave it an 11.7 percent share, and its game-market sales gave it a 3.5 percent share. Davidson and Associates' flagship learning products line, the Blaster Series, had $17 million in worldwide 1995 revenues, based on home and classroom sales of 525,000 units. The company says its leading 1995 game, Warcraft 2, a strategy title from its Blizzard Entertainment division, sold 500,000 units worldwide in its first three months. Overall, PC Data ranks Davidson the ninth most profitable publisher in the consumer market, with a 2.7 percent share.

By following her strategy, Davidson, along with her husband, chairman and CEO Bob Davidson, have built a diversified company whose annual report tells much of the story of the company's growth. The report also lends a glimpse into the dimensions of multimedia publishing, as it passes into mainstream culture. A measure of this transition is that in 1996, it takes two reports to tell the whole tale: in summer 1996, Davidson & Associates was acquired for $1.15 billion by a still larger and more diversified company, CUC International, whose roots lie far afield from consumer multimedia.

Two Corporate Reports: Two Tellers, Two Tales, One New Direction

Over the past five years, Davidson & Associates has seen its revenues rise nearly tenfold, from $16.5 million in 1991 to $147.2 million in 1995. This increase was attributed to a 65 percent rise in core product sales, a 32 percent rise in affiliated product sales, and a 58 percent rise in distribution revenues. Its R&D expenditures increased by over 1,000 percent as well, from $1.6 million in 1991 to $19.7 million in 1995. And the company nearly quadrupled its new product rollouts, from six titles in 1991 to 23 in 1995. Additionally during this period, the company acquired an educational reseller, co-founded a consumer distribution company with Mattel Electronics, formed several strategic partnerships, acquired six smaller publishers, and was in turn acquired itself.

In its eventful early 1990s, Davidson formed product development partnerships with Fisher-Price for a line of branded preschool titles, and with Viacom's Simon & Schuster in a broad agreement for the development of Simon & Schuster properties across the home and school markets. It partnered with Addison-Wesley and several state and local school districts on the development of Vital Links, a full-year, multicultural, middle school multimedia history curriculum. And Davidson also built affiliate label relationships with such established developers as IVI Publishing and Capitol Multimedia.

On the distribution front, Davidson became 75-percent partners with Mattel in NewMedia Express, a consumer distribution company that now has exclusive agreements with over 1,500 stores. Its school reseller, Educational Resources, is an experienced company that sells 4,000 products into the classroom. And Davidson Associates Europe has localized Davidson products in 30 countries and translated them into 15 languages.

In early 1996, in developments that shook the industry, Davidson and game publisher Sierra On-Line were acquired by CUC International, a firm virtually unknown in CD-ROM and multimedia circles. CUC, it turns out, is a membership-based service provider, a kind of "price club" that had 46 million members and $1.4 billion revenues in fiscal year 1995. It also has its own aggressively pursued ideas on where the information age is taking the entire field of consumer purchasing.

CUC, explains its corporate report, is positioning itself as a leading consumer-services content provider for the information age. Essentially a database marketing company, it provides access to its services via telephone, TV, and computer. In this way it combines content with direct-marketing expertise, in horizontal markets as diverse as travel, automotive, and financial services. For example, CUC builds affinity programs in markets: its travel services sell through multiple channels as branded products, such as the Sears Discount Travel Club, CitiBank's CitiTravel, and the like. CUC currently sells such services through 49 of the top 50 national banks, and 20 major retailers.

Davison Directions: What CUC's Resources Will Buy

While many of the details of the still-in-progress CUC acquisition are not public, Jan Davison says that Davison & Associates' management team, led by her and her husband, will remain in place and retain full authority after the deal is finalized. Speaking as the overseer of product development, however, she was willing to spell out what, in terms of product, this juggernaut of increasing leverage might mean.

"Our titles," says, "Have become very rich in resources, and to build them we need a rich and flexible and ever-changing development environment." For instance, Starcraft, the company's new 1996 Blizzard title, requires 3D cinematics and uses battle.net, a new free service that Davidson developed to enable multiplayer gaming over the Internet. Other technologically taxing new products include Davidson's Funnybone line, which require hand-drawn animation and 2D and 3D rendered scenes--"seen through clear cellophane 3D glasses, or what we call toonVision technology," Davidson says--and a great deal of original music. The company's latest "Blaster" title, Mega MathBlaster, according to Davidson, "uses 3D virtual space graphics and pop music to engage the children, and includes a carefully developed CD-ROM guidebook for parents." And for Vital Links, their massive project oriented toward middle school students, Davidson says, "We made use of a great variety of technical and design resources to build curriculum that, following the best learning theory we could find, would appeal at the same time to students of diverse backgrounds, interests, and capabilities."

And there are even more changes afoot, she says. "While we capitalized a new $2.5 million R&D facility in 1994, the technology keeps changing as we move farther into the Internet, 3D, and video. We continue to build resources for digitization, for creating live action and 3D real-time fly-through environments, for new digital video editing, for more efficient code development, for curriculum-building systems, and more." While Jan Davidson does not say so herself, it is just this kind of resource bank that, putting aside other issues like distribution leverage, makes it hard for many smaller developers to compete.

BETHESDA SOFTWORKS: MESSAGE OF A MULTIMEDIA MIDDLEWEIGHT

A lead title in game publisher Bethesda Softworks' Fall 1996 list, among eight new products shipping, is The Elder Scrolls: Daggerfall, a role-playing game (RPG) sequel to their 1994 hit, The Elder Scrolls: Arena. PC Data figures show that Arena, named the best RPG in 1994 by Ziff's Computer Gaming World, had worldwide revenues of $4.6 million in fiscal year (FY) 1994 on 90,000 unit sales, of $1.23 million in FY 1995 on 24,000 unit sales, and of $330,000 in FY 1996 on 6,000 unit sales. The success of this title made Bethesda the industry's 22nd largest game publisher in FY 1994, with a 0.9 percent market share. Following the hit-driven flow of the market, however, Bethesda dropped to number 52 in 1995--but climbed back up to 46th place in 1996, bolstered by its moderately successful line of new action and sports games, including titles like PBA Bowling.

Daggerfall, which runs on older PC DX66 machines, is a huge game, according to its product flyer, offering "complete freedom of movement within a true three-dimensional environment." The player "can explore thousands of cities, towns, villages, dungeons, and countless miles of wilderness...and can interact with hundreds of fully rendered beings from a variety of races." A player can follow "any one of thousands of quests" and, in this rich, unnatural world, own property "complete with 3D furniture." The user can also join guilds and invent spells. There are advanced special effects, like changing weather conditions, and AI effects, like "tracking the player's reputation with all nonplaying characters." For closure, Daggerfall has "dozens of separate endings, completely dependent upon the player's actions."

Founding Bethesda CEO Chris Weaver describes Daggerfall as a groundbreaking title, "due to the control and freedom it offers a player, which translates into a deeper entrance to the game." That approach to game development--emphasizing interactivity, variety, and user control--is at the heart of Bethesda's game plan for angling for a deeper entrance to the RPG market.

A Ten-Tear Product History

Bethesda Softworks is a division of Media Technology Limited (MTL), an R&D firm begun in 1983 by Weaver and other students at MIT's Architecture Machine Group, or "ArcMac." Preceding its entry in the game market, MTL developed--and still builds--such products as interactive catalogs, military training, and communications systems. With its elite, early credentials (ArcMac was predecessor to MIT's Media Lab), MTL clients have included the likes of ABC, PBS, MIT, NASA, Time Warner, and the U.S. Congress.

MTL entertainment division Bethesda's first games, in the sports category, came out in the mid-1980s on Amiga and Atari, and its first big hit was Wayne Gretzky Hockey, which sold 350,000 units beginning in 1988. Since then Bethesda has worked primarily in sports, action/ adventure, and RPG categories, having had, the market data shows, some solid wins and gaining a nice number of awards. Unique for a small, private publisher, and growing from its particular history, the company builds its products almost entirely in-house. It does its own design, programming, animation, testing, marketing, manufacturing, packaging, and fulfillment.

Daggerfall, in development for 30 months, offers players a great deal of flexibility with an innovative model designed to hold players' interest longer than many games oriented toward greater immediate visceral razzle-dazzle. According to Weaver, what sets Daggerfall apart is that "It's not tightly quest-driven; a player can find nonlinear things to do for many dozens of hours within a game. Our proprietary Xngine engine allows for full first-person freedom of movement in a true 3D environment. There are, besides graphics and music, 100,000 words of NPC (nonplayer character) text." Weaver points out that "a player can create a fighting-intensive game, or one centered on such social activities as trade. "This overall capacity for free interaction lets a player step into the life of a character--making the game as immersive as virtual reality," he says.

A Veteran Publisher's Strategy: Staying the Course

Today's game market is no easy place to navigate for a mid-sized private publisher bound by limited resources. Product categories and player communities that were established during the 1980s are having their edges eroded, both by new technical capabilities and by a widening of the perceived potential market. Game structures that formed around platforms with limited capabilities are now facing such issues as including high-resolution multimedia data types and building connectivity into game designs. At the same time, the penetration of various computer platforms into the consumer market has greatly increased the overall potential market but also the total number of publishers, all the while diluting the strong, word-of-mouth player communities that had grown up around specific genres and even games.

For Bethesda's Weaver, survival in this altered business means having the technical and design sophistication to make accurate platform forecasts and, perhaps more challenging, "staying focused on quality, with a conviction that if you do so the market will be there."

Weaver says that, until recently, "both publishers and consumers had a sense of the game market. Now this has broken down, with many new, wealthy publishers--and Hollywood studios in particular--stealing and diluting designs and buying shelf space. This breakdown has precipitated much distributor and buyer confusion, which has led to improper purchases, such as choosing based on the most attractive box, and the resulting inevitable consumer dissatisfaction and diminished purchasing desire. So veteran vendors haven't been able to target their products with the earlier preciseness, and even good games have not had the sales they might have enjoyed in previous years." However, Weaver predicts, many of the new, opportunistic entrants, whether large or small. will get a quick come-uppance: "30 percent of the companies exhibiting at this year's E3 won't be around in 1997."

One big reason companies will fail, says Weaver, who has credentials with Bethesda's parent company as a technology forecaster, is that they will make bad technology bets. "New technology always follows a bell curve of acceptance," he argues. "It succeeds not by its technical quality alone, but aLso by its application. Full-motion video, for example, hurts rather than helps games if it is not used as a tool in a coherent game design. Inexperienced but well-bankrolled newcomers and under-funded startups alike won't understand this, and will instead tend to go for the flash."

The strategy Bethesda as a veteran pubLisher is adopting in this contentious atmosphere, Weaver says, is to protect itself by remaining attuned to the expectations of its core audiences, in sports, action, and role-playing games, which are the company's areas of proven competence. "We will continue positioning ourselves as a standard-setter," Weaver says, "so that even if we aren't a household name, well have a word-of-mouth reputation which can eventually make its way to a whole range of potential consumers. The one effort we are making to attract the new crop of consumers--about whom there is almost no useful data, by the way--is to simplify our interfaces to make our games as immediately compelling for the inexperienced player as possible."

MCGRAW-HILL HOME INTERACTIVE: STATIONS OF A STARTUP

Scattered throughout the E3 exhibit hall were numerous startups, some with unfamiliar names and others whose parent-company affiliations clearly made them "children of privilege." Three such examples of this latter category were MGM Interactive, born of movies; Hasbro Interactive, born of toys; and McGraw-Hill Home Interactive (MHHI), born of print. Most of these ventures had sprung from large companies who had escaped or been left out of the 1993-95 merger mania, and now hoped to leverage their substantial nondigital properties (e.g., movies, G.I. Joe dolls, textbooks) in an infuriatingly vague consumer electronics market. In many cases, it seemed, the publishers shuddered, opened their wallets, and handed their whole operations over to hired-gun managers with proven multimedia pedigrees.

MHHI engaged Bill Nisen, who had previously led a first-generation new media tools company, as CEO. It hired credentialed developers, including the former lead designer and producer of MECC's Oregon Trail. For its first, Fall 1996 title round, it acquired or jointly developed products which had been begun by other companies, including one by Knowledge Adventure. Now, in mid-1996, MHHI was shepherding its first year's launch while working on a more lasting strategy.

What drove his parent company into the market, Nisen says, was a desire to create new revenues by leveraging McGraw-Hill properties and efficiencies. One categorical property was educational publishing, a successful if slow-growing $80 million business, which also seemed suited to the digital conception of "learning games." And while McGraw-Hill had developed some multimedia classroom products in its education unit, Nisen adds, "the company didn't know how to develop, market, or distribute for the home. Its choice was to pay for a consultant's report and follow it as well as possible or, conversely"--to borrow a phrase from an increasingly popular educational model--"to learn by doing." McGraw-Hill Home Interactive, following the latter route, was born in Silicon Valley in January 1995.

Defining a Market Opportunity

MHHI selected the 8-to-14 youth edutainment market, Nisen says, because it most closely mirrored McGraw-Hill's print textbook target group, and was also a relatively open niche on the new media side. Yet Nisen hastens to remark that an unconquered market niche is rarely as ripe for picking as it may appear, on the contrary, he says, while early-teen edutainment lacks a competitive market, the demographic itself makes a tricky target. "Sandwiched between lower elementary products, a lucrative but saturated niche--populated by The Learning Company, Davidson, and the like--and products for high school ages, the 8-to-14 market remains an unproven category," Nisen says. "But in this middle niche, while there is indirect competition from games, there are few products that blend educational principles with quality entertainment."

Yet, Nisen adds, the market potential seems inherent in the predilections of the 8-to-14 demographic. "Kids of this age are comfortable with computers, while at the same time their interests, perspectives, and social worlds are all expanding. Such personal growth in their social dealings will mesh nicely with the new wave of hybrid CD/online products. If CD-ROM titles have until now relied on branching structures to be compelling, many soon will include a connectivity option that allows meeting and interacting with others."

Building a Product Line

MHHI's four 1996 titles, all shipping as single-user products, are in the areas of social studies, math, and science. While these categories, along with the future category of language arts, represent the parent company's strength areas, none of the products are based on existing properties, but all four are built from original content. Nisen doesn't say as much, but one senses that McGraw-Hill chose not to gamble with any flagship products until the company knew more of what was involved.

One 1996 title, Pyramid: Challenge of the Pharach's Dream, is an adventure game licensed from established consumer publisher Knowledge Adventure. A second social studies title, also an adventure game and MHHI's most promoted launch offering, is Pony Express Rider, in which kids, says a press release, "experience the Old West as a Pony Express Rider galloping through dangerous territories and influencing the outcome of U.S. history."

In this game (which includes the use of video), players enter a world that Nisen says should establish age-group empathy immediately, since the actual Pony Express riders consisted almost entirely of young men and women under 18. The title's design, he adds, "uses an adventure structure to put players in charge of the action, so their experiences are personalized. The scenario is historically accurate. And there is substantial if limited freedom: while you can't drive your horse over a cliff or shoot people, you must make narrative choices to keep your circumstances from turning sour."

Dangerous Territories: A Tenuous Title Market, Even for the Front-Funded

All current and future MHHI titles, Nisen says, will have a built-in flexibility for plug-in multiplayer and collaborative structures. And all will be based on "a premium strategy of designing for children" without condescending to them. There will be 3 to 5 new titles in 1997, he adds. Beyond such general points, though, the startup's future product plans were far from final when the current four titles were showing at E3. However, Nisen was willing to mention a few of the more threatening edutainment market demons he was facing. . .listing them out, in fact, as if they were memorized.

The advantage for a multimedia startup having a parent company like McGrawHill, he argues, is that edutainment "is a front-loaded market in terms of investment: you must establish yourself to hope to become profitable. McGraw-Hill has, or is saying it has, the resources and resolve to stay the course, a factor instrumental in finding good development talent."

But the market's vagaries still add uncertainty to the venture, even with the up-front funding that sets MHHI apart from other startups. Edutainment, like most electronic media title markets, remains largely unprofitable for most who try their hand in it, and promises certain success to no one. Nisen catalogs the challenges MHHI faces as follows: "First, we are competing for the time of an age group that is finding increased freedom: not only can they play outside, they can play games on powerful $200 systems like Sega, which for parents are now almost discretionary purchases. Second, our own platform--the PC--is itself exploding, so there is not nor can there soon be a stable development environment. Yet, third," he continues, "the market conversely requires a high-end development environment to keep top creative talent. Fourth, it typically takes a minimum of $1 million to build a title in the premium category we have targeted, and however much we can build efficiencies over time, the push for higher quality will be rising just as fast. And fifth, the channel-bottleneck has already kept several good companies from even leaving the starting blocks during the last two years."

Intensifying the pressure, Nisen says that rather than being able to access the parent company's channel capabilities, one big MHHI mandate is to figure out how to build new media distribution. Thus, like many first-time exhibitors at E3, MHHI was at the time still "negotiating" a way to reach its customers.

A PLACE AT THE TABLE

1996 will almost surely be remembered as a year when many consumer publishers failed miserably at the bottom line, then did whatever they could to stay alive. A year when many an old media publisher's CFO tried to surgically remove the resident multimedia startup--but was overruled by a CEO who was at least curious about the deeds of such competitors as CUC. A year when new product teams, ignoring how their current efforts are piling up on retailers' shelves--if they've gotten that far, as most do not--sang the promise of 1997's forthcoming DVD, 3D, and hybrid applications. A year when rookie shoppers continued to pay not for product quality but for brand name. And, finally, a year when, in modest increments and total inconsistency with prevailing conventional wisdom, publishers, merchandisers, and even consumers continued to see, as in previous years, how much better the new crop of products is getting to be.

In such a raw game, where cards are complex and contradictory and the cost to sit at the table is high, the odds usually favor the better-funded. As with most bets, however, wealth in the area of multimedia publishing can take two forms: richness in resources and richness in knowledge. A CUC has rich resources, a Davidson a cache both of rich resources and product knowledge, and a Bethesda the leverage of, as Chris Weaver says, knowing its genre and customers. The one likely resource a startup might have, trying to make it to next year's E3 exhibition floor, is its drive.

Lawrence Gussin is a CD-ROM Professional contributing editor who has worked as a strategic planner, analyst and designer since 1986, in the areas of school and consumer products.

RELATED ARTICLE: Johnny Wilson's Computer Gaming World: Mapping the Gaming Industry Maze

For those noncomputer game addicts among us--statistically, this means nearly all females over the age of 11 and most males over 30--gaming is a labyrinth. Below a few clear peaks of SimCity, Myst, and Doom (recognizable by their flagship profits), the games domain is dusky terrain, home to a mysterious range of genres: role-playing games (RPG), action, adventure, puzzle, sports, war, empire-building, strategy, combos simulation, and others. While the revenues generated by these genres attract a lot of adults to the business, a smaller group also pursues computer games as an expressive medium. One such pursuer is Johnny Wilson, Editor-in-Chief of the much-read Ziff magazine, Computer Gaming World

A glimpse at Computer Gaming World reveals the paradox of computer gaming. Amidst heavy, manipulative advertising, harsh color schemes, exclamations of violence, and interminable faux 9th or 29th century story environments, there is interesting analytic writing. Wilson says that writing owes its acuity to the richness of the genre and the creative expectations of its fans. "Gainers are knowledgeable, game styles are in constant flux," Wilson says, "and developers face broad pressures: to use new technology, compete with Hollywood productions, keep budgets low, and, in the face of all this, build games that are enticing."

HOW GAME GENRES RISE AND FALL

In 1995, Wilson says, action/arcade and combat simulation games accounted for 55 percent of overall sales. But a genre's popularity ebbs and flows, while genre design styles often split off from other genres. One such split, he says, occurred as Computer Gaming World was founded in 1981, when "strategy games, needing little processing power, were dominant. Most were fantasy-based, Dungeons & Dragons affairs. But many readers played strategy games that re-enacted actual battles--like Napoleon at Waterloo--and saw their games not as fantasy but as analytic history. They wanted the magazine to split the genre," he says, "giving war games its own category, which we did."

A second split occurred among narrative titles. "In the original adventure games," Wilson says, "players interacted with computer characters and solved puzzles to advance a story. In a subset of these games, players, beyond the normal puzzle-solving, also did first-person battle to move the story along While some adventure gamers loved the intense combat, others hated it. So role-playing games split off as a separate genre."

The course a genre follows is also affected by technology. "Role-playing games cycled down in the 1990s, because," he says, "being story-based, the games were art-intensive, and with the advent of multimedia, expensive to build Publishers saw that the more analytic strategy game genre used less art but sold as well." On the other hand, he adds, a recent game, SSI's Panzer General, showed how the war game genre, which had arguably been plagued by abstract and arcane interfaces, might rebound. "SSI used new, higher-performance capabilities to clean up the Panzer interface and make game play easier," Wilson explains. "This generated a new base of users and the title has sold 250,000 units fairly unexpectedly."

Often, a dormant genre need only wait for new technology to appear. Action/arcade or "twitch" games, Wilson says, "were failing a few years ago, being loosed on horizontal scrolling designs that were derivative of cartridge titles. But now games like Doom that deliver 3D, first-person experiences played in immersive environments, have become the hottest thing around."

THE GAME INDUSTRY TODAY

A potentially larger but less sophisticated player base, together with huge platform gains, is, Wilson says, challenging the industry's continuity. Should a game emphasize video, or connectivity? Should designs change to attract newcomers? will mainstream consumers, accustomed to having plots fed to them before a TV drama's first commercial, explore an adventure game for hours just to learn what it is about? "Nine of ten games are already bad," in Wilson's estimation, and a similar ratio demonstrably unprofitable, and so the rare publishers who do succeed will be those who identify and pay attention to their customers.

Wilson illustrates his point with two defining, conflicting recent events: "the video bandwagon," and the success of Doom. "While proponents of video proclaimed that more realistic visuals made games more appealing, and full-motion video was the natural next step, they ignored the fact that gamers wanted control, which video removes.

Thus, rather than video games, 3D games turned out to be the rage. 3D is immersive, giving players the capabilities to look, hide, and the like, while video acts oppositely, creating a new proscenium wall that blocks the suspension of disbelief." Another problem with video as well as with high-end graphical visualization is the cost of art. "The options are limited, as game play must serve and show off the art. A designer may ask for 30 assault ships, but the producer would rather put the resources into two ships that could be loaded with really neat multimedia effects."

New CD/online hybrid platforms also require strategic thinking. Wilson sees the titles "adding a new dimension to games, by combining player opponents with machine opponents. But they also challenge sequential product models which many companies follow along with accompanying long production cycles. Hybrids argue for a stream of package and online upgrades, such as new arenas, weapons, character types, and the like, added regularly to enrich the game experience. The business model will be to convince players to upgrade games which they have already accepted: not Blizzard's Warcraft V release but, in a sense, the Warcraft XXV upgrade."

A GAME INDUSTRY PERSPECTIVE ON "EDUTAINMENT"

In Wilson's view, the notion of "edutainment" recalls an old observation that the Holy Roman Empire was neither holy, Roman, nor an empire. Likewise, he says, edutainment titles "are usually neither educational nor entertaining; it's the rare designer who can package educational objectives with the perception of freedom that games require."

The flawed integration between schooling and gaming emerges, he argues, when designers try to build an edutainment title by taking a game design and throwing in some facts. Educators see the result and are put off. For example, Wilson says, "Electronic Arts began EA Kids, an edutainment division, by creating an advisory committee, which promptly told them that teachers would not see the series as fun. As a result, EA had a bad launch." Reversing the process, he adds, referring to McGraw-Hill's Pyramid: Challenge of the pharaoh's Dream, "Knowledge Adventure developed and then sold to McGraw-Hill Home Interactive a pyramid-building game that could fit nicely in a middle school curriculum, but neither company would promote it this way out of fear that it would not be perceived by the buying public as a game."

The only games that have crossed to the education market, home or school, according to Wilson, have been those that, like Davidson's Math Blaster or MECC's Oregon Trail," considered the scope and sequence of major textbook markets as the title was built." Teachers recommend such games with confidence, he says, and the titles build sales on word of mouth.

Viewing the E3 exhibition floor, Wilson says, takes him back to a basic fact of computer games. "One reason so many games gravitate to violence and fighting is that the easiest payback a game can give is in terms of spectacular special effects, such as exploding body parts, that gamers eat up. New technology will increasingly also support nonviolent cooperative games, based on the concept of virtual societies, but designers will still have to remember to provide a payback. There has to be some kind of dynamic reward." Wilson suggests as models games from Starwave that combine cooperation and competition, and the Hundred Years War game on America Online, in which players take on roles in historical situations and engage in economic competition, diplomacy, warcraft, and more.

Such informal learning, built on risk and resource management, is common in computer games. "Even Nintendo graduated from early designs, where players had unlimited ammo, to games where players had to conserve resources," Wilson says. "The weirdest role-playing games involve actions and consequences. And new platforms will let designers combine risk/reward with multimedia punch and data structures allowing more complex simulations." Wilson points to established war and strategy board game company Avalon Hills' recent computer war game, Third Reich, which, he says, has "a resource model that makes players plan the economics of a campaign before proceeding militarily. They visualize mechanisms and form choices, correlated to historical record and often done in daily campaign terms. This teaches them a lot about history, logistics, and planning."

RELATED ARTICLE: TEC Direct and an Emerging Web Channel

Browsing Colorado-based TEC Direct's colorful, kid-oriented Web site catalog, located at http://www.edutainco.com, edutainment product shoppers can view print-and-image descriptions of individual titles. If zip-savvy, they can download demos of perhaps two dozen (about ten percent! of the catalog's titles. They can request a free print catalog, or, filling out an electronic bill, they can purchase any titles displayed.

Mirroring the strategy of Davidson Associates purchaser CUC--which aims to establish itself as a top consumer-services content provider through extending its direct marketing into new media publishing--Martin Grosjean, president of two-year-old TEC Direct, says he's in a hot business. He thinks print and online direct sales provide consumer software channels that must continue to grow--despite the fact that direct sales haven't expanded its market share during the last two years. He thinks the niche TEC Direct staked out--children's edutainment--is the one with the largest capacity for expansion And, for corroboration of these beliefs, he notes that TEC Direct received a second round of venture funding, led by Westbury Capital Partners, in April 1996.

REACHING THE HOME: RETAIL VERSUS DIRECT

The reason direct sales must grow in importance, he says, is that lack of retail shelf space is a continuing problem for publishers and consumers: there are few venues where one con browse and purchase a wide variety of titles. This occurs at a time when publishers are trying to penetrate every conceivable consumer niche and are offering thousands of titles. Beyond top-selling titles, he argues, "This is a narrowcast publishing model which, given the display requirements of multimedia titles, no retail category will service." This approach makes direct sales particularly important to small publishers who can't get on shelves and who see direct offering a strategy for instant distribution TEC Direct now includes over 200 titles from 85 publishers in its catalog, says Grosjean and has participated strategically in a number of new company launches

Today's numbers, he adds, don t accurately represent what occurs in the channel. If retail grew more quickly than direct sales since 1994, with the entry of superstores like WalMart, this means on y that the number of outlets has grown, not the number of unique titles carried And if during this period the scattershot publishing strategy of pursuing direct sales through 800 numbers waned, and if some multimedia catalog businesses proved likewise unsuccessful, these problems he says, resulted from lack of focus TEC Direct, he says, "from our child-friendly visuals on up, is directed at how families use leisure time in their homes, and at giving them an expanding variety of choices."

A NEW BEGINNING: THE ONLINE CATALOG

TEC Direct's prototype Web site catalog has been up since January 1996; and as yet unpromoted, it gets 100 to 500 hits per day and accounts for but five percent of the company's current business. Still, argues Grosjean, the synergy it offers for integrated product display, demonstration, purchase, and the inherent capaciousness of its "virtual shelfspace" make it an intuitive eventual winner. Some publishers understand its promise and "are pushing toward this idea of electronic distribution."

The first users of the online catalog have been, as might be expected, Netscape-equipped early adopters, who account for 85 percent of the site's hits. This hardy audience has had no problem viewing the presentations, says Grosjean, beyond waiting for the graphics to paint, and they've found the purchasing mechanism, with its option for encryption, easy to use. Even these users often find Winzip demo downloading problematic, he says, "and the more the consumer market widens to include less sophisticated users, the more of a problem this will be."

The solution, he says, lies with edutainment publishers grasping the potential of online selling and building user-friendly demos as part of a wider online promotion strategy. "Game publishers see this leverage," he explains, "so they build self-extracting demos that can be set up with a few mouse clicks."

Davison & Associates Divisions

Companies Mentioned in This Article

Bethesda Softworks, a Division of Media Technology Ltd. 11370 Piccard Drive, Suite 120, Rockville, MD 20850; 301/963-2000; Fax 301/926-8010; BBS: 301/990-7552; http://www.bethsoft.com

Computer Gaming World (Ziff Davis Publishing) 135 Main Street, 14th Floor, San Francisco, CA 94105; 415/357-4985; Fax 415/357-4977; jwilson@zd.com

Coopers & Lybrand 1251 Avenue of the Americas, New York, NY 10020-1157;212/536-2000, 800/832-4425; Fax 212/536-3035, 212/536-3500

CUC International 707 Summer Street, Stamford, CT 06901; 203/324-9261; Fax 203/348-4528

Davidson & Associates 19840 Pioneer Avenue, Torrance, Ca 90503; 310/793-0600; Fax 310/793-0601; http://www.davd.com

InfoTech P.O. Box 150, Skyline, Drive, Woodstock, VT 05091-0150; 802/763-2097; Fax 802/763-2098; infotech@valley.net

Interactive Digital Software Association 1130 Connecticut Avenue NW, Suite 710, Washington DC 20036; 202/833-4372; Fax 202/833-4431

McGraw-Hill Home Interactive 225 Shoreline Drive, Suite 650, Redwood City, CA 94065; 415/829-6200; Fax 415/615-9085; http://www.mhhi.com

The NPD Group 900 West Shore Road, Port Washington, NY 11050; 516/625-2294; Fax 516/625-2347

PC Data 11504 Links Drive, Reston, VA 22090; 703/435-1025; Fax 703/478-0484; pc_data@aol.com

TEC Direct P.O. Box 21330, Boulder, Co 80308; 303/444-3700, 800/338-3844; Fax 303/444-5203

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