E3: Game industry poised to be major economic factor

During his annual “state of the industry” address to analysts and reporters at the E3 Expo in Los Angeles, Calif., ESA President Doug Lowenstein emphasized the game industry’s burgeoning significance to the American economy and society. The ESA is a trade group that represents the video and computer game industry, and the sponsor of the E3 Expo.

Lowenstein pointed to a new study authored by Dr. Robert Crandall of the Brookings Institution and Prof. J. Gregory Sidak of the Georgetown University Law Center entitled Video Games: Serious Business for America’s Economy.

Crandall and Sidak’s research found that the entertainment software business provided direct and indirect contributions of more than $18 billion to the nation’s gross output in 2004. Both researchers said that figure would steadily increase as the industry grows in the years ahead.

What’s more, said Lowenstein, innovations in graphics and immersion pioneered by the game industry have a spillover effect into other businesses, such as architecture, real estate and medical imaging. Consumer demand for broadband Internet access has accelerated as more gamers go online.

Crandall and Sidak’s research also suggests that video games provide tangible benefits in training, education and productivity, translating into more realistic and cost-effective training tools for a variety of industries.

Lowenstein remarked on the rapid pace of innovation in the video game industry, and pointed out that while the movie business has shifted paradigms every few decades — from silent pictures to sound, black and white film to color, stop-motion and hand-drawn animation to CGI — the video game business has evolved pretty much every five years.

2006 faces the video game industry with yet another major change as Sony prepares to roll out its PlayStation 3, Nintendo its Wii, and Microsoft readies a second generation of games for its Xbox 360.

“The truth is it’s not terribly important how many units of hardware and software are sold in 2006,” said Lowenstein. What’s important, he added, is how the industry positions itself for the future — 2007 to 2010. Lowenstein predicts continued accelerated growth and market expansion in that time.

By 2010, said Lowenstein, there will be 75 million Americans between the ages of 10 and 30 — a millennial generation, he called them. These people will have grown up never knowing a time when they weren’t gamers, are comfortable with technology and interactivity, and will ultimately regard games as a central part of their daily life. These millennial kids will grow up and move into positions of power and authority, said Lowenstein.

That’s a marked contrast to the situation today, where politicians and others regard gaming distastefully and discount the game industry’s impact on the American economy.

“If this simply meant that we would engage in a few more years of constitutional battles before politicians move on to the next flavor of the month, it would not be terribly important,” said Lowenstein. “But if it means people will fail to see the nexus between a flourishing video game industry and critical components of economic growth, that’s not healthy for the country at large.”

Lowenstein urged attendees to visit the site to and to download Crandall and Sidak’s white paper themselves. He said it’s chock-full of evidence that supports the assertion that the video game industry is critical to the American economy and to future growth in other industries.

Following his prepared remarks, Lowenstein fielded questions from reporters. During his state of the industry speech in 2005, Lowenstein commented on the burgeoning growth of the casual game market. Are casual games still important?

Lowenstein told Macworld that the answer was yes. Casual games have been growing rapidly as a market segment over the past year, and many people who won’t otherwise play games are interested in them. Lowenstein said the challenge for casual game developers is to create games that have simple mechanics that interest casual gamers in trying new and innovative games they wouldn’t have otherwise.

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