...the one in which GP explains why you can stick a fork in E3.

Catch it only on Joystiq...

A piece in today's New York Post reminds us that EA's most recent renewal of its $25.74 tender offer to acquire Take-Two stock expires today.

The most likely development is a renewed offer by EA.

As GamePolitics reported yesterday, Texas Gov. Rick Perry (R) met with industry giant Electronic Arts at E3.

Perry's chat with EA CEO John Riccitiello apparently took place after his poorly-attended keynote speech and an ESA-escorted tour (left) of the expo's tiny show floor.

As reported by the Austin American-Statesman, Perry described his visit with Riccitiello:

We're talking to these guys and saying, 'What's it take to get you to move to Austin, Texas?' You tell us what we need to do to be competitive, then our guys will sit down and look at it ... and see what we can do... The mentality is, 'We love California, it's a great state and a hip state, but Jiminy Cricket, it's costing us a lot of money to stay out here.'

Meanwhile, Empower Texans, an Austin-based nonprofit group which focuses on fiscal responsibility, has criticized Perry's trip, telling its Texas-based readers that they are being "joysticked":

The governor and Legislature are taking aim at your wallet with a little video game waste. Unfortunately, this isn't the virtual variety but the real-world deal. Texas Gov. Rick Perry wants lawmakers to give video game manufacturers boatloads of money to get them to design their games in the Lone Star State. This is corporate welfare at its worst. This is a $9-plus billion industry that is referred to as "recession-proof." They don't need your money.

 

Texas taxpayers already subsidize the industry to the tune of $250,000 per game made here... This is one barrel taxpayers should definitely jump.
 

Video game execs apparently hated this week's E3 .

They shouldn't feel bad. Everyone else hated it too.

I'll have more to say about that, but for now, digest these quotes from today's San Francisco Chronicle:

John Riccitiello, CEO of Electronic Arts:

I hate E3 like this. Either we need to go back to the old E3, or we'll have to have our own private events.

Laurent Detoc, president of Ubisoft North America:

E3 this year is terrible. The world used to come to E3. Now it's like a pipe-fitters show in the basement.

While Texas Gov. Rick Perry bragged about his state's financial incentives for game developers during yesterday's E3 keynote, legislators in North Carolina have apparently abandoned the idea of game biz tax breaks - again.

As reported by the Independent Weekly, North Carolina-based developers such as Epic, Red Storm and Destineer will be getting no love from the state government:

Though tax incentives from the Canadian government helped Montreal attract numerous major game companies, efforts in N.C. have proven unsuccessful. In a recent session of the General Assembly, House Bill 2509 called for tax credits for producers of "digital interactive media" in its first draft. By the second draft, the "digital interactive media" section had been gutted... There is no mention of the video game industry.

 

The bill was introduced by state Rep. Pryor Gibson, a Democrat... He adds that he's been working closely with game companies to help develop future bills for incentives.

As GamePolitics reported in August, 2006, a similar measure, also introduced by Rep. Gibson (left), failed to clear legislative hurdles.

ESA CEO Michael Gallagher (left) addressed the E3 crowd for the first time yesterday afternoon. Gallagher, hired in May, 2007, opted out of speechifying at last July's E3 in Santa Monica, citing newness in the position.

Yesterday's 2008 state-of-the-industry address was a workmanlike effort that had no major high or low points.

Although not seemingly a natural public speaker, Gallagher delivered a credible performance which would have been helped greatly by a warmer venue and better attendance. By our estimate, only 75-100 people caught Gallagher's speech, delivered in a cavernous meeting room at the Los Angeles Convention Center. Why not utilize the LACC's cozy theater, as the ESA has in years past?

The biggest disappointment in our view was that there was no audience Q&A following Gallagher's address. The ESA boss did, however, field one-on-one questions from media types after his talk.

Gallagher termed the current era the "golden age" of gaming and made five recommendations for going forward: 

• Remember our base. Never forget our loyal fanbase. We must continually push forward and look for new tech to keep them interested and involved.
• Welcome new gamers. Welcome in converts who've joined us recently, continue to serve them, as well.
• Broaden the use of games. Remembering it is still play, games are increasingly not just recreational. And this is a good thing and a growth trend that must be protected and strengthened.
• Help parents. We must continue to look for innovative ways to ensure games are parent-approved. All hardware providers include parental controls; this a great step. They now need education on how to use parental tools such as these controls.
• We must unite to support our policy interests.

The "remember the base" remark is oddly remiscent of partisan politics. Gallagher, of course, was a Bush Administration official before taking the helm at ESA. Although GameSpot felt that Gallagher took a shot at his predecessor, Doug Lowenstein with this remark:

In my predecessor's time, our organization was fighting politicians, not having them embrace us.

...we didn't take it that way, believing that Gallagher was simply commenting on the times. After all, if politicians have learned that they can't successfully legislate game content, those battles were either won or begun on Lowenstein's watch.

As with Gov. Perry's keynote, I live-blogged Gallagher's speech on Twitter. I've pasted those observations in after the jump. Once again, these are unedited SMS messages, entered via mobile phone. Please forgive misspellings, punctuation, etc.

What if you gave a keynote speech and (almost) nobody came?

That was the situation in which Texas Gov. Rick Perry (R) found himself at E3 yesterday. Despite being selected as the first political figure to keynote the ESA's annual trade show, Perry attracted an audience estimated to have been between 50-60 people, including ESA employees. The sparse attendance was accentuated by the cavernous room reserved for the speech, which was set up with hundreds and hundreds of chairs.

Despite the lack of onlookers, the Guv soldiered on, delivering in his folksy style a credible speech touting the benefits of running a business in Texas, the creativity and success of the video game industry and touting the Lone Star State as a great spot for game developers to set up shop.

Following his speech, Perry was escorted (left) by ESA boss Mike Gallagher to the small space that passed for a show floor where he viewed some displays and spoke with G4's Adam Sessler. As he was leaving, we thought we heard someone say that he was headed for EA next. Perhaps the Guv was hoping to persuade EA to bring some biz to Texas.

So why didn't anyone show up for the keynote, an obvious embarrassment for the ESA? There are several possibilities:

• The show had already opened when the Guv spoke. In years past, the keynote opened the show. Pent-up E3 enthusiasm would find its first outlet at the keynote because there was nothing else competing with it. The room was always packed.
• The ESA used to put out a breakfast of some sort for the media types just prior to the keynote, always a solid strategy to lure a pack of perpetually broke game journos.
• Attendance at the show was perhaps 5% of what it once was. Naturally, there are fewer potential attendees for any single event.
• Some people may not have wanted to hear from a politician in general; some may not wanted to hear from Gov. Perry specifically

Although there was no question & answer segment such as former ESA boss Doug Lowenstein used to hold following his keynotes, I really wasn't expecting a major political figure Like Perry to hold a Q&A in this setting.

While on hand at the keynote I live-blogged my immediate impressions via Twitter. These have been pasted in after the jump.

Texas Gov. Rick Perry, who will deliver today's keynote address at E3 in Los Angeles, explains his decision to appear in a guest column for the San Antonio Express-News:

...Although high resolution graphics, new storylines and technological advancements will grab most of the headlines coming out of [E3], I would encourage a closer look at the real story: the emergence of a bonafide economic engine...

 

Seemingly overnight, the video game industry has become a major player, with over $18.8 billion in U.S. sales last year. The industry in Texas has kept pace with the national trend... it is clear the computer and video game industry is on fire... To help further encourage the industry... Texas has instituted measures that offer qualifying video game developers financial incentives similar to those offered to the film industry...

 

In barely more than a generation, video games have transformed a diversion for the few into a mass medium. The notion that gaming is confined to adolescent males is long outdated. Recent research has shown that the average video game player is 35 and that 40 percent of gamers are women.

 

Today, games help people of all ages to live, learn, work and, of course, play... There are those who might see only gloom and doom in our national economy. We should look to sectors like the video game industry that have embraced the notion of global competition and follow their example to greater prosperity.

GP: This is probably the first time we've seen such a public expression of support for the game biz from a major political figure. GamePolitics will be live-blogging the Guv's keynote which begins at 9:15 PST.

We'll also be live-blogging ESA boss Michael Gallagher's state-of-the-industry speech at 1:15 PST.

To follow those live reports, jump over to Twitter and follow GamePolitics

In a novel, if certainly controversial suggestion, Filipino game design artist Ryan Sumo argues that video game companies should compete with bootleg sellers in poorer countries by selling products with minimalist packaging and even allowing the pirates to burn the actual discs.

Sumo makes his argument in a guest column for The Escapist:

Piracy supports an underground economy and the livelihoods of thousands... in Asia, especially in countries where most people live below the poverty line. This underground exists primarily because its participants cannot afford the exorbitant prices charged by game publishers...

 

Publishers and console manufacturers like Nintendo are convinced that once they stop piracy, the money from all those lost sales will suddenly come flowing into their coffers. For whatever reason they never take into account their prospective market's spending ability...

 

In the Philippines... piracy isn't a matter of right or wrong; it's a matter of survival. To eradicate piracy means depriving people of jobs... It means eradicating the businesses that employ them and negating the taxes funneled to the Philippine government. Developers and publishers will claim a huge victory, but they'll soon notice that those billions of dollars in lost sales aren't exactly showing up on their bottom line.

GP: This is a provocative way to look at the piracy issue. Sumo makes a reasonable economic argument. On the other hand, the publishers do have legitimate rights.

Reporter Victor Godinez writes about tomorrow's E3 keynote speech in the Dallas Morning News.

As GamePolitics has reported previously, Texas Gov. Rick Perry (R) will deliver the Expo's keynote. Having a political figure speak at E3 is a first for the show. Godinez quotes Perry spokeswoman Krista Piferrer on Perry's E3 appearance:

Texas is one of the top states in the nation for the gaming industry. We want to build this industry in the Lone Star State... I think there are a few other states who have [a Texas-like tax] incentive program [for game developers], but it's not very far and wide.

As we've noted before, however, Texas' game developer tax breaks are fraught with content restrictions, unlike those in other states with such incentives.

Godinez notes that more than 2,000 people work in the game biz in Texas, adding over $340 million to the state's economy.

The Video Game Voters Network issued an alert yesterday recommending that its members contact New York Governor David Paterson (left) to urge that he not sign pending video game legislation into law:

This bill would waste NY residents hard earned tax dollars on investigating video games when the facts are already in. We have much higher priorities for our resources and dollars than this kind of crusade.

As GamePolitics reported last month, the New York State Senate overwhelmingly passed a measure sponsored by Sen. Andrew Lanza (R). An identical bill also cleared the State Assembly.

While the VGVN, which is owned and operated by game publishers trade association the Entertainment Software Association (ESA) is opposing the measure, the Entertainment Merchants Association (EMA), a group which represents game retailers, apparently does not plan to take action. In a statement issued following the bill's passage, the EMA said:

The bill is unnecessary and seeks to solve a problem that does not exist. But we do not anticipate that video game software retailers will have a problem complying with its requirements.

GP: As I pointed out in my Joystiq column, the Lanza bill is largely symbolic (see: NY Video Game Bill Barks, Doesn't Bite.

With E3 press conferences getting into full swing this morning, Alex Pham of the Los Angeles Times examines what has become of the once-huge video game extravanganza

Swinging from circus romp to buttoned-down boring, the annual video game confab known as E3 kicks off today in downtown Los Angeles like an overgrown teenager grappling with an identity crisis and longing for the world to take it seriously.

Now in its 14th year, an undercurrent of factionalism has cast a shadow over what should be the $40-billion industry's biggest event...

Pham spoke with Disney Interactive exec Graham Hopper, an ESA board member who expressed concern about defections by several game publishers, including Activision:

It's more important than ever for the industry to be able to speak with a clear voice on those [political and regulatory] issues... The game industry is emerging as an important cultural voice in the entertainment world...

Spike TV's Geoff Keighley expressed concerns of his own:

E3 used to be such a spectacle. As much as everyone groaned about it, everyone still saw it as a national stage for the industry... I don't think people are convinced the ESA is doing as good of a job as it can be... [The Fox News attack on Mass Effect] was the perfect opportunity for the ESA to step up, and they were nowhere to be found.

Meanwhile, Cnet's Daniel Terdiman takes his own look at the 2008 E3. ESA VP Rich Taylor told Terdiman:

We'll know the result... as we get throughout the week. But all indications are, from early feedback and the way things are teed up, that folks are looking forward to a very successful and positive week... Hardware sucks the oxygen out of the room very easily [at E3]. In non-console-launch years, the software becomes the focus (and) we get to see so much of the creativity coming from game developers and game designers.

G4TV host Adam Sessler was enthusiastic:

We're going crazy over E3. This is definitely the biggest [E3] in terms of the amount of games you can see... So we're having 35 live demos on our stage.

On Saturday VentureBeat posted Dean Takahashi's excellent, eve-of-E3 interview with ESA CEO Michael Gallagher.

Among his remarks, Gallagher took a rare shot at embattled anti-game attorney Jack Thompson, telling Takahashi:

[Thompson] is in the rear view mirror... The bright future that lies in front of us does not include Jack Thompson...

Naturally, we couldn't resist asking the volatile Thompson for his reaction to Gallagher's remarks. In an e-mail to Gallagher, cc'd to GamePolitics, Thompson wrote:

Dear Mike:

 

I really enjoyed your "Jack Thompson is in the rearview mirror" comment.  I think it is a reasonable thing to say, based upon what you think you know about what is going on between me and The Florida Bar, but in fact it is not accurate.  You don't know what is going on behind the scenes.
 
What I would like you to know, however, is that I plan to file a lawsuit this week against the ESA.  It's about time.  If you think my current, soon to be past, Bar problems are an impediment to that suit, think again...

 
I look forward to the entire video game industry having the  ESA and the ESRB in its rearview mirror.  That should be accomplished soon.

GP: The lawsuit of which Thompson speaks is apparently some type of RICO allegation. We've asked for more details but are taking a wait-and-see attitude as to whether this one ever happens. Not every lawsuit Thompson threatens actually gets filed, and this one in particular has the whiff of a non-starter.

Thompson also sent Gallagher the picture included in this report, which is, we have to admit, an amusing touch.

Getting all of the Thompson news out of the way so we can focus on E3, the controversial barrister has - not unexpectedly - filed several motions with the Florida Supreme Court, objecting to last week's report by Judge Dava Tunis which recommended that he be disbarred for life.

Over at VentureBeat, Dean Takahashi serves up a terrific Q&A-style interview with ESA CEO Mike Gallagher (left).

The interview comes on the eve of E3 and Takahashi fires some tough questions at Gallagher.

Highlights include:

VB: How did you choose the Texas governor, Rick Perry, for the other keynote?

 

MG: It makes complete sense Gov. Perry would be an invitee. Texas is a leading state when it comes to game development. They have an environment where they welcome the video game publishers and developers. They are reaping the economic benefit because of that... We’re delighted for the first time to bring such a high level politician to E3. It’s a sign of respect for the industry and maturity.

 

VB: The industry still has its share of political battles regarding censorship. How are those going?

 

MG: We are winning those but we are not out of the woods... There are many in the state and federal arenas that operate off a broken, flawed historical stereotype. That problem is a top priority for us. We’re trying to set a positive image for this industry and to make sure politicians understand it... 

 

VB: Would you say Jack Thompson (the crusading Florida anti-game attorney) embodies your opponents and their views?

 

MG: He is in the rear view mirror... The bright future that lies in front of us does not include Jack Thompson...

 

VB: Some companies have dropped out of the ESA. There seem to be several reasons. Some may not get along with you. Some don’t like the higher dues... 

 

MG: Who says they don’t get along with me?

 

VB: I can’t specifically answer that.

 

MG: I would press you on your sources. I haven’t heard that element come through where there is a personal disagreement with me, or, more importantly, there is a disagreement with the ESA’s mission. Every company that has left has embraced the ESA’s mission... When it comes to the ESA mission... we are making sure that the states and federal constituencies understand it...

Read the entire interview at VentureBeat.

The National Law Journal offers a profile of Seth Krauss, executive VP and general counsel for Grand Theft Auto series publisher Take-Two Interactive.

Krauss, who came on board when the Strauss Zelnick team seized control of T2 in early 2007, lists his duties as:

Intellectual property (IP) concerns, First Amendment cases and securities law issues... When he joined the company, the legal department comprised exactly two in-house attorneys, neither of whom was well versed in IP law. The staff now numbers 15, including three full-time IP lawyers and several others who concentrate on licensing and development.

So, what is Krauss's take on T2's seemingly endless controversies?

In the kinetic world of interactive entertainment, the company's business leaders continually generate new challenges for the legal department. The company "creates content that I am very proud of," Krauss said.

 

Nonetheless, Take-Two has had to defend itself against those who consider this form of entertainment scary and dangerous. Krauss works with his counterparts at other game companies and other allies to meet criticism by politicians and critics "who try to politicize the video game industry."...

 

Broad questions about whether to regulate the industry are on the agendas of various legislative bodies, as well. Take-Two has engaged in lobbying in the past, and this responsibility falls under the scope of Krauss' duties.

The PlayStation 2's requirement for a rare metal in its manufacturing process helped fuel a bloody, decade-long conflict in Africa's Democratic Republic of Congo, according to an investigative report on Toward Freedom.

The site alleges that demand for coltan by Sony and other personal electronics manufacturers led Rwandan troops and Western companies to exploit the people and mineral resources of Congo, with children often forced to work in mines.

Oona King, a former member of the British Parliament, told Toward Freedom:

Kids in Congo were being sent down mines to die so that kids in Europe and America could kill imaginary aliens in their living rooms. 

So, what is coltan? From the report:

After it is refined, coltan becomes a bluish-gray powder called tantalum... [which] has one significant use: to satisfy the West’s insatiable appetite for personal technology. Tantalum is used to make cell phones, laptops and other electronics made, for example, by SONY, a multi-billion dollar multinational based in Japan that manufactures the iconic PlayStation...

Researcher David Barouski commented:

[The] PlayStation 2 launch... was a big part of the huge increase in demand for coltan...  SONY and other companies like it, have the benefit of plausible deniability because the coltan ore trades hands so many times from when it is mined to when SONY gets a processed product, that a company often has no idea where the original coltan ore came from, and frankly don’t care to know. But statistical analysis shows it to be nearly inconceivable that SONY made all its PlayStations without using Congolese coltan.

A Sony rep told Toward Freedom that the company now takes steps to ensure that it does not use coltan illegally obtained from Congo in its manufacturing processes.

Irish tech site SiliconRepublic ponders whether the Emerald Isle can become a major player in the video game industry.

Sure and begorrah, the answer is: probably not.

Entry barriers are too high. Ireland's best bet, SiliconRepublic concludes, is niche areas such as casual games and support services. Dylan Collins, CEO of Dublin-based DemonWare until its acquisition by Activision, commented:

I don’t want to sound like a pessimist but the reason you may never see a console games publisher from this country make it to that [upper] level in the near future is simply the cost of making a triple A game like Grand Theft Auto for the Xbox, PlayStation and Nintendo platforms. It would cost at least €15m to €20m to develop. And if you want to factor in marketing and distribution, you could be talking the same amount again...

 

More and more peripheral opportunities will emerge. Basically anything that goes around playing a game – from marketing to customer support – publishers are looking at what they want to keep inside and outside their company. There are definite opportunities there...

The New York Times' Deal Book blog speculates today that Activision Blizzard may be eyeing an acquisition of Grand Theft Auto publisher Take-Two Interactive.

Electronic Arts, of course, has been chasing T2 for most of 2008 and has a tender offer outstanding. EA's problem, however, is that T2 shareholders just aren't jumping on board so far.

Analyst Mike Hickey of Janco Partners told the Deal Book:

We absolutely believe Activision will take a look at Take-Two. If a competitor is for sale, you take a look, and if EA is your real rival, why wouldn't you stir the pot a little bit?

However, UBS Securities analyst Ben Schachter pooh-pooh any such deal:

It is highly unlikely that Activision would try to outbid EA. They have enough on their plate at the moment.

The oft-quoted Michael Pachter of Wedbush-Morgan had his own opinion:

There are only three players involved — EA, the FTC and the arbs. Is EA likely to withdraw or lower their offer? No, because they want Take-Two. The odds of the FTC not approving the deal on market concentration is virtually zero. And if the arbs want to sell the stock, they'll sell the stock — they don't care what [T2 chairman] Strauss Zelnick thinks the stock is worth.

Variety's Ben Fritz serves up some new info on Activision's recent departure from the ESA, although his interview with CEO Bobby Kotick raises as many questions as it answers.

While Kotick's comments to Fritz seem to indicate that Activision's departure from ESA is only temporary, actions always speak louder than words and the monolithic game publisher is apparently hiring its own exec to handle government relations. That would include things like lobbying and First Amendment issues. 

Here's what Kotick told Fritz:

I said don't view [pulling out of ESA] as anything but time off... With the combined companies [from the merger with Vivendi], the [ESA membership] dues went up enough that I said for it to make sense [to spend that money], we have to make a strategic plan. We don't have that because nobody owns it for us right now.

 

We have our own issues that are not the industry's issues. Our challenges are sufficiently different from other publishers' issues that we need our own point person. We'll have someone soon.

The Activision-specific issues reference by Kotick include Blizzard's enormous WoW subscriptions as well as substantial dealings in China. So, will Activision ever return to the ESA fold? Kotick said:

We'll consider it.

The reaction to next week's E3 Expo in Los Angeles could dictate the show's future, according to Priya Ganapati of TheStreet.com. She quotes IGN exec Tal Blevins:

This year will be a big test to see if there will even be another E3 or who will participate next year. Companies will see how much coverage they get out of the show and how much value they are getting out of the conference...

 

E3 had much more of an impact when it was [an extravaganza]. The video game industry is about fun and entertainment, and we should have a show that reflects it.

GP: I will be reporting from E3 next week...