Harnessing Hollywood

The licensed video game industry has gone from rags to riches over the last 20 years as publishers and developers have learned to leverage the power of movie, TV, character entertainment, and sports properties. Here, a look at the industry's ups and downs, plus untapped opportunities.

Cause and EffectIn 1983, sales of video games, which included home entertainment systems and personal computers, reached $3 billion, dominating the entertainment sector up to that point, but dark clouds loomed overhead and by 1984, the industry saw its demise. Atari, Coleco, Mattel, and others threw in the towel, effectively ending the golden age of the home video game industry. What happened?

Some have argued the rush to release licensed titles such as 1981's Pac-Man and 1982's

E.T.: The Extra-Terrestrial

was the catalyst for the industry's downfall. The industry anticipated record-breaking sales of these licensed video games, with Pac-Man sales expected to mirror those of its coin-operated counterpart

E.T.: The Extra-Terrestrial

expected to rival those of the movie, which, at the time, was the highest-grossing motion picture in Hollywood history.

The Pac-Man video game cartridge was released to much fanfare. However, poor game play and equally disappointing graphics saw lackluster sales, to say the least. In the long run, the inferior quality of the game turned many people off, and the video game industry reportedly found itself stuck with 5 million unsold game cartridges.

The next big glitch of the era came a year later with the release of another highly anticipated licensed title,

E.T.: The Extra-Terrestrial

. Reportedly having paid more than $20 million to Amblin Entertainment and Steven Spielberg for the E.T. license, industry executives had high hopes for the game. It has been reported that to meet the 1982 Christmas holiday season, the game's programmer, Howard Warshaw, was pressured to complete the game's design in a matter of months. Nonetheless, Warshaw had enough faith in his handiwork to reportedly present the game to Amblin and Spielberg as "the game that would make the movie famous." Little did industry insiders know that only 1 million units would sell, making the game one of greatest failures in the history of video games. This, on top of an overabundance of profitless cartridges from the other industry players, decimated the landscape and essentially put an end to home video game entertainment.

That is, until the mid- to late-1980s, when their replacements stepped up to the plate to fill the void. A new foundation was being built by companies such as Nintendo and Sega-both with strong business models and market savvy. However, the ghost of license past had never left the industry, rearing its ugly head time and again. Licensed movie titles such as

Total Recall

and

Who Framed Roger Rabbit?

, both successful movies, were commercial disasters when translated to video game formats, once again keeping the industry from translating silver screen profits to the home video game business. It was apparent that marketing mavens and game developers were operating on different wavelengths and equally dissimilar timetables. Throughout the remainder of the 1980s, most licensed titles performed poorly in the marketplace, receiving bad reviews and collecting dust on store shelves.

Fast-forward to the present. According to data from The NPD Group, since the introduction of Sony's PlayStation 2 in 2000 and the subsequent introductions of Nintendo's GameCube and Microsoft's Xbox in late 2001, the total life-to-date (LTD) retail sales of licensed next-generation console video game software in the U.S. has exceeded $6.1 billion, representing 27 percent of the industry's $23 billion in LTD U.S. retail video game sales for all three consoles.

The licensed sports video game category for next-generation consoles has seen the most growth, grossing more that $2.5 billion in LTD U.S. retail sales, while licensed movie and TV titles have earned more than $1.2 billion and $513-plus million, respectively. All other licensed categories on next-generation consoles have brought in a combined LTD total of more than $2.3 billion.

Clearly, marketing and development teams are effectively communicating, and though it appears the video game industry finally has learned the formula for success, the industry must be careful not to rest on its laurels. The need for continued strategic marketing of licensed product cannot be overstated.

Strong branding is a leading factor in retail sales of all video games, but when a title is licensed and marketed in unison with other mediums of entertainment such as movies, these games can sell as well as their box-office siblings.

Spider-Man: The Movie

and the

Lord of the Rings

franchises are both good illustrations of licensed video game victories. These games, which mirror the plot lines of the films while giving players the ability to control the game's protagonists-in both cases, the movie's lead characters-have become cash cows for both licensee and licensor.

For example,

Spider-Man: The Movie

, developed for the three next-generation consoles, parallels the motion picture's story line while also integrating different characters and villains from the comic book series. The game essentially immerses the player in a world spanning the history of the franchise. With the perfect combination of storytelling and compelling game play, there's no denying the video game helped to drive movie sales as much as the movie helped drive consumers to video game retailers, strengthening the brand across the board. The formula worked. This game alone has brought in more than $113 million in LTD U.S. retail sales.

Spider-Man 2

, the soon-to-be-released video game based on the movie sequel set to open in theaters in July, should see similar, if not better, sales figures.

According to the recently released report from The NPD Group, "Toying with Video Games: An In-Depth Report on the Impact of Video Games on Traditional Toys," knowing which types of video games are most popular among children can be useful for identifying new licensing opportunities.

Action-adventure is top among the total group of children ages 5 to 12, with 67 percent of parents saying their children play games within this genre, followed by children's games at 45 percent and racing at 43 percent. Action-adventure appears to be most popular for all groups except girls ages 5 to 8, who are more likely to play children's video games such as

SpongeBob SquarePants

and

Rugrats

.

According to the report, the top six favorite characters/themes for toys among boys ages 5 to 8 are also within the top eight favorites for video games. Three of these are licensed titles from which both video game publishers and toy manufacturers benefit, namely

Spider-Man, Scooby-Doo, and SpongeBob SquarePants

. A fourth, Pokémon, first established as a video game, has shown the cross-over potential from video games to toys. The remaining two, however, have their roots in the traditional toy industry-Hot Wheels and

Yu-Gi-Oh!

-proving toy-established properties have the potential to transition successfully to video games.

Power Rangers

also continues to show opportunities, as it remains a favorite brand for boys. Nearly 3 in 10 parents of younger boys (ages 5 to 8) say it's their sons' favorite character/theme.

Ranking at No. 1 for girls ages 5 to 8, Barbie sales are strong across both toys and video games.

SpongeBob SquarePants, Scooby-Doo, and Powerpuff Girls

also have a strong standing for both toys and video games. Bratz is high on the toy list, but falls lower on the video game list, raising the question of whether there is a potential to grow the Bratz brand in the video game industry. Other possible opportunities for expanding toy-oriented licenses to video games include Disney's Princess and Hello Kitty, which resonate with girls ages 5 to 8.

A word of advice for video game developers and publishers: Be careful not to make the same mistakes made by companies in the 1980s. Because of the millions of dollars spent today on the development of a single video game, you must recognize the importance of not rushing a title to market.

The video game industry can expect to see a much more profitable year in the remainder of 2004 and well into 2005, thanks, in part, to the release of major licensed properties and entertainment vehicles geared toward both children and adults.