E3: Smaller and Smarter

E3 has gone through a lot of changes in the past two years, but one thing that remains consistent is the show's ability to gather the best in gaming. This year's E3 showcased the continued popularity of musically themed games and the importance of licensed content.

The E3 Media and Business Summit bears little resemblance to the E3 of 2006, when attendance topped 80,000. Thanks to high costs born by exhibitors, the conference crumbled under its own weight and in 2007, was moved to Santa Monica and limited to just 5,000 attendees. This year, the show returned to the Los Angeles convention center with attendance once again capped at 5,000.

But the more intimate surroundings didn't stop the big game console makers and software developers from announcing a slew of new partnerships and products. Sure parties were thrown—The Who played a private concert to guest of Harmonix, MTV Games and Rock Band 2—but in the meeting rooms business was under way.

Some of the biggest announcements came from the hardware manufacturers launching services that bring consoles closer to breaking down the barrier between the virtual and real worlds.

Microsoft announced a partnership between Xbox 360 and Netflix that streams video content to the console, and the launch of Xbox Live, a virtual community that Microsoft is positioning to dominate the living room. Xbox Live Prime Time features a game show channel that lets participants play in real time for actual prizes.

Not to be outdone, Sony will offer downloaded media content to the PlayStation3, which can then be transferred to a PSP for video on the go.

There's a new 80 GB hard-drive model coming this fall, for the same $399 Sony is currently selling the 40 GB console for today.

Nintendo continues to dominate the gaming world, and its Wii is the system to beat. But the company didn't make much noise at E3, announcing a smattering of games and new controller. Hard-core gamers are getting new titles like Conan, Lara Croft, Resident Evil and Street Fighter, but the bulk of new games are aimed at a more casual player and mass-market audience.

A host of family-friendly titles will be released by holiday 2008, like Warner Bros. Interactive Entertainment's Lego Batman, Guinness World Records and Speed Racer.

Disney is still riding high on High School Musical and its new game lets kids become characters in the upcoming High School Musical 3 film, learning the dance moves, singing along and taking trivia quizzes based on the series. Other titles from Disney include Bolt, Tinker Bell, Camp Rock and Sing It, a karaoke-like game featuring music from Disney properties and High School Musical's Olesya Rulin as a vocal coach.

Musically inspired games continue their popularity with new bundles from Rock Band and Guitar Hero. Both franchises are offering new music bundles and instrument controllers. Rock Band 2 brings the drums to the forefront with a kit that makes drum solos more of a focus.

Konami will also ship Rock Revolution for the holiday season and Dance Dance Revolution is celebrating its 10th anniversary with a new release. Disney is entering the rock band game fray with its own Ultimate Band.

Even titles that usually appeal more to hard-core gamers are getting warmer welcomes in family rooms, to the actual dismay of Rick Reynolds, producer of the Conan game series. In spite of the game's "mature" rating, The Age of Conan sold so well at mass-market retailers from the first day of its release, it has Reynolds wondering just who is buying the game and why it has migrated away from specialty retailers and hard-core gamers.

"This is not a normal pattern, serious gamers don't buy their games at [mass]," he said. Nevertheless, Reynolds is retooling its marketing for the mass market for future releases.

Virtual worlds are getting more robust with places like Sims welcoming branded content and increasing licensing agreements with names like H&M and Ikea. Sony is beta testing—with plans for a fall expansion—PlayStation Home, a virtual environment that a Sony representative described as "a highly customizable environment, almost like Second Life with a purpose."

Expect more convergence of the real and virtual worlds as game and software developers invite partnerships and expand licensing agreements. "Customers really respond to having real brands within the game, players actually prefer this to advertising," said Rod Humble, head of the Sims Studio. "It's a fascinating avenue for our partners."

And it's a trend that provides powerful exposure. Nearly a million Ford Mustangs have been "bought" by Sims players and 2 million have viewed the H&M fashions available in the game. On July 30, an ensemble of H&M apparel put together by one of these players went on sale at stores in the physical world.

Majesco Entertainment is open to licensing out bits of its newest games including Cooking Mama (due this holiday season) and Our House, where players take on remodeling projects and shop for supplies at a yet-unnamed home improvement store. "We are talking to license partners [for Our House]," said Kevin Brannan, senior product manager at Majesco.

Perhaps the most interesting licensing arrangement at the show was on display at an unassuming booth in the showcase pavilion. Novint Technologies turns the virtual into solid matter with its Falcon game controller. The Falcon works with computers and when used with software encoded by the company, lets the user feel objects inside the game. The controller has been on the market for several years but Novint lacked a critical mass of big name games to get the attention of retailers.

Founder and chief executive officer Tom Anderson hit on some creative licensing. "Instead of asking for support from the game publishers, we acquired the 3D touch rights for the game," he said. "They get incremental revenue from something they didn't even know they had."

Novint codes the game to work with the controller, pays royalties to the publishers and now players of Tiger Woods PGA Tour 08 can differentiate between the weight of a nine iron and driver. The controller currently works only with PC games. Novint adds the code to create texture and mass, and the games are downloaded from its Web site.