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Ubisoft booth at the Electronic Entertainment Expo (E3), in Los Angeles, California, on June 9, 2011. (VALERIE MACON/VALERIE MACON/AFP/Getty Images)
Ubisoft booth at the Electronic Entertainment Expo (E3), in Los Angeles, California, on June 9, 2011. (VALERIE MACON/VALERIE MACON/AFP/Getty Images)

E3

Media, entertainment industries take note: The game industry has figured it out Add to ...

East restaurant 9 p.m.

Tommy Francois is all over the place. One minute he's diving into a précis on the Samurai influences in the original Star Wars movies, the next minute he's comparing the end of a video game development cycle to breaking up with a girlfriend. Since he took a seat at our table in this faux-rock-walled, upscale-ish Asian fusion restaurant on Hollywood Boulevard 20 minutes ago, he hasn't stopped talking. His glazed cod just sits there on the dinner plate, untouched. Ubisoft's media relations foot soldiers look on uneasily as Mr. Francois inadvertently let's slip some minor but as-yet-unannounced detail of an upcoming game, but he seems unconcerned.

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Mr. Francois isn't easy to peg for an executive. His unruly mop of rusty coloured hair, forest-green hoodie and militantly laid-back attitude make him a dead-ringer for that guy on your rez floor in college who always knew where to get the best weed. And yet Mr. Francois has one of the most important positions in one of the biggest game development companies on Earth. His official title is director of Ubisoft's Intellectual Property, and his job is to make people want to play games developed by his employer. And when they aren't playing, his job is to make them think about playing.

I'm at this Ubisoft-sponsored media dinner, and in Los Angeles generally, because I'm covering the Electronic Entertainment Expo, the single-largest video-game conference in the world. Over the next 72 hours I will talk to people such as Yves Guillemot, who runs Ubisoft, and Don Mattrick, who is responsible for Microsoft's entire interactive entertainment division. I will listen to some of the smartest business minds in the media industry talk about brand new ways to make and sell products. I will also watch a gaggle of bikini-clad young women wash cars as part of a sales gimmick for the new Saints Row game, the advertising for which carries the lazily innuendo-laden tag-line "Strap it on."

But beyond all the overbearing billboards and contractually upbeat booth babes and towering Styrofoam ogres littering the E3 show floor, something more significant is happening.

For better or worse, video gaming has suddenly become the most innovative and important media industry not named the Internet. At a time when just about every one of those industries is struggling to come to terms with the rise of the Web, video game companies have dreamed up myriad new business models, distribution mechanisms and customer loyalty programs. The work Mr. Francois and people like him do, which involves everything from directing short movies that expand on video game back-stories to creating elaborate mini-games and unlockable achievements to keep players hooked, is being copied by everyone from major retailers to U.S presidential candidates.

Since a bunch of bored engineers first manipulated a cathode ray tube to create a basic missile-launch simulator more than 60 years ago, the video game industry has struggled to shake off the perception of frivolity. Even as global video game market pushes past $50-billion (U.S.) and the game console increasingly becomes the content-streaming heart of many families' living rooms, there's this lingering sense that, when it comes down to it, this is still an industry tailored primarily to boys and young men who want an interactive version of a Spike TV commercial.

And in many ways, the gaming industry is immature - but not for the oft-stated and somewhat simplistic reasoning that many games are overly violent or lacking emotional subtlety. There are plenty of intelligent, complex and powerful video games, be they violent or not. Portal, a best-selling and critically acclaimed title, relies on little more than a physics engine and a sarcastic computer to drive gameplay. The bleak, post-apocalyptic America of the Fallout series is full of multi-dimensional characters and moral forks in the road. Even God of War, a hyper-violent franchise in which a Greek warrior named Kratos (whose facial expressions range from "impossibly infuriated" to "impossibly infuriated and possibly a little constipated") hacks pretty much everybody to cubes, comes with a rich storyline.

But anyone who has ever tried to play games on a public multiplayer server has probably witnessed first-hand the juvenile, misogynist or homophobic side of gaming - the almost ceaseless melee of grade-school-level profanity delivered anonymously. And as is the case in almost every creative industry, the content often mirrors the consumer. For every deep, emotionally rich game, there's a lazy sludge of testosterone and penis jokes. For every Fallout, there's a Duke Nukem.

Certainly, no other media industry is safe from such criticism, even if there's something more direct about video games, where the consumer has a far greater say in what happens. Regardless, the industry is changing. Since the introduction of Nintendo's Wii console in 2006, movement-based controllers have focused the gaming industry's attention on untapped demographics: seniors and families with small children, who otherwise have neither the patience nor palate to spend hours deciphering an Xbox controller for the purpose of shooting holes through an invading alien horde. Since that time, companies such as Microsoft have staked billions on a vision of universally accessible gaming, all the while trying to remain relevant to the hardcore, button-grinding base.

You can see the tension all around at E3 - the cheery cooking simulator occupying booth space right next to the slash-and-stab mediaeval gore carnival. Massive ads for the latest entry in the Halo or Call of Duty franchises (which likely took as much time and money to make as your average Hollywood summer blockbuster) down the hall from the shoestring-budget indie game. And that tension is producing the kinds of innovative business models every struggling media industry should be studying closely.

One way or another, gaming is going to grow up. And how it goes about doing that is going to have one hell of a ripple effect.

Los Angeles Convention Centre 11 a.m.

Jay Minn won't let me leave until he shows me the fart button. It's his favourite feature in the whole game. Look, look: every super-hero farts differently. Iron Man farts dollar signs (his alter-ego is a billionaire, after all). The invisible woman blushes and, you guessed it, turns invisible. Mr. Minn is positively giddy.

Gazillion Entertainment's booth space is up on the second floor of the west hall, away from the uninhibited booth-babery and bass-heavy sound effects saturating the main show floor below. Instead, their neighbours on the second floor are other small and medium shops, as well as a room reserved by the Entertainment Software Association for a workshop titled "Understanding and combatting game software piracy" (when a reporter tries to attend, he is told the workshop is for law enforcement only).

Mr. Minn is one of Gazillion's 200 or so employees, and the developer primarily responsible for a game called Marvel Superhero Squad Online. Unless you're an industry watcher, you've probably never heard of the game, the developer or the company. And yet it's up here in this out-of-the-way booth (Gazillion hands out beer mugs and pizza in an attempt to lure passers-by) where you'll find the kinds of innovations that are changing the video game business, and will probably change a whole lot of other businesses, too.

You can play MSHSO right now. It's a Web-based game, playable on a browser and basically free. The game is essentially a very stripped-down version of the kind of mini-mission multiplayer games familiar to fans of Diablo or World of Warcraft: you pick a character, complete missions and, in the process, collect loot and increase your character's various abilities. Only instead of orcs and barbarians, MSHSO's characters are cartoon representations of licensed Marvel superheroes. The decision to go with Marvel characters was in large part a business one - Gazillion wanted to hit a sweet spot by building a game that fathers and their kids would enjoy (the ability to make your character fart is apparently a prime example of hitting this sweet spot). The missions are designed to take between 15 and 30 minutes - a small enough time commitment to play right before dinner or bedtime.

Throughout the free-to-play game, Gazillion has found new ways to make money. Alongside the available characters is a special one you can only get by entering a code found on pizza takeout boxes from a restaurant the game developer has signed a promotion deal with. When the movie Thor came out earlier this year, the title character popped up in the game as part of yet another promotional deal.

Even though the game is free to play, you can still purchase in-game currency to spend on various character abilities and perks - especially handy if you don't feel like spending the time needed to collect those abilities and perks the hard way. You can even buy subscriptions for $10 a month or $80 a year, which gives your character the ability to earn the in-game currency you'd otherwise have to pay for separately. In another Gazillion game, you can pay a few in-game coins every time you die so that your character doesn't re-spawn back at the beginning of the level. You don't need money to do anything in these games, just to make life easier.

"The days of going to stores to buy games are over," says Mr. Minn, as he showcases once more the gastrointestinal faculties of his game's various protagonists. "Nintendo doesn't want to hear that, Sony and Microsoft don't want to hear that, Wal-Mart doesn't want to hear that, but it's true."

But the thing is, Wal-Mart might be the only one of those companies for which that statement is correct. The three major console-makers in the business right now all run on-line stores, where users can download everything from $60 games to HD movies to free demos. A significant portion of Microsoft's 90-minute press conference is spent showing various ways Xbox users can take advantage of this functionality. Steam, an online computer-game shop, regularly makes some of the biggest titles in the world available for purchase on the same day they hit retail store shelves.

Many of the new business ideas coming out of the gaming industry are going to fall flat, or at least annoy a lot of people (many gamers protested, for example, after Ubisoft tried an anti-piracy measure that forced players to remain on-line any time they played a game, and would not allow the game to run otherwise), but nonetheless, the industry keeps experimenting.

Walk to the back of one of the showrooms and you'll find a neat little side-effect of this experimentation. This row of PCs is the staging ground for the show's small, indie games. Some of this stuff looks like it was coded on a drunken dare. On one machine, you play a vector that must navigate through a tunnel without hitting the edges. That's it - it's cheap-looking and simple and, for some inexplicable reason, maddeningly addictive.

The rise of those on-line stores on most major game consoles has been a boon to the indie game world. Apple's app store and similar outlets have given small-time game developers a way to easily distribute and make money off their creations. It's not a completely telling statement, because each download costs so little, but the best-selling game of all time is probably Angry Birds.

And once users buy those games - be they big-budget or indie titles - the industry is getting better at keeping them hooked. On-line leader-boards, "100 per cent completion" bonuses, achievement points, virtual trophies, all of that stuff matters. Because those consoles are all hooked to the Internet, and because just about every big-name title released today is inevitably followed by various new add-ons and other downloadable content for purchase a few weeks or months later, there's a lot of money to be made in keeping a gamer's attention.

You can see the potential everywhere: the billboard space on all the virtual tracks in those car-racing games, it's up for sale. The Microsoft Kinect hardware that lets a user control games simply through movement and voice, how long before it's programmed to recognize that Canucks jersey you're wearing and send you ads for playoff tickets? And how long before the other major media industries start trying the same business models?

The Galen Centre 10 a.m.

A lot of this looks familiar. The Microsoft press event, packed with journalists and industry types, kicks off with a preview of the new Call of Duty game and ends with a sneak peak at the new Halo game. In between, the vast majority of new titles announced here will be sequels, prequels and other entries in well-known, best-selling franchises. The following day, Nintendo will do the same thing, offering a presentation full of Mario, Zelda and similar beloved characters. Game developer Bethesda's big title at E3 is the fifth instalment of the Elder Scrolls series. All over the hallway walls are ads for the third Saints Row game.

(As an aside, the folks responsible for marketing Saints Row will make a serious run for the title of Most Crass Advertising at E3. In addition to the bikini car wash mentioned earlier, they will proudly announce they've pimped out a lucky contestant's 1998 Honda Civic to the tune of $30,000, explaining that it's all a part of the Saints Row "win a rim job" contest).

These sequels are the video game industry's safe bets. Just as Hollywood increasingly fills the summer months with new (and usually dismal) instalments of past box-office winners, the big video game studios need proven best-sellers. In an age when the average big-budget game takes years and hundreds of millions of dollars to make, the industry is becoming more risk-averse.

To get a sense of what a modern game development cycle looks like, consider Rayman, the hugely popular platformer game developed by Ubisoft. For those unfamiliar with the game, imagine a brightly coloured children's animated show filtered through the lens of an acid-user's daydreams.

The Rayman franchise is almost 20 years old. The original titular character didn't have any arms or legs because the designers wanted to save on animation.

That was then. The newest Rayman game, unveiled at E3, is the product of two years' work by a team that started out with 15 engineers and eventually ballooned to 80. Rather than shy away from animation, Ubisoft went to one of the most prestigious art schools in Paris and got artists to design level scenery. Then the engineers went to work designing software that essentially lets characters run through the artists' creations. This latest instalment of Rayman comes with full HD at 60 frames per second, 4-person multiplayer and a brand new game engine running the action (indeed, Ubisoft may well end up making more money later on by licensing that engine to other game developers).

All of this costs money. That's why Ubisoft, like many other major developers, tends to shovel cash into existing franchises that have a pre-existing audience. But the increasing cost of big-name games is having another, more significant effect.

East Restaurant 10 p.m.

Yves Guillemot tells us Ubisoft is working on tools that let the company "reuse assets." The top executive at the company is soft-spoken and shrewd. You get the sense that if Ubisoft switched gears from video games to plumbing supplies tomorrow, he'd still figure out a way to make money in the new business.

His reasoning is this: the quality of video games is getting to the point where it's difficult to distinguish them from movies in theatres or on DVDs. Given that Ubisoft's most important asset is its intellectual property - the various characters and worlds it has created for its games - it makes sense to spend time figuring out where else that intellectual property may find a home. That's why the company had teams develop short movies based on the Assassin's Creed franchise. It wasn't a one-off project, either - this company wants to go into the movie business. So when Mr. Guillemot talks about reusing assets, he's talking about tools that let developers pull a character out of one medium and drop it in another.

It's not too hard to guess where this is headed. Perhaps the biggest announcement at E3 this year was Nintendo's newest home gaming console, the Wii U. The new machine means it's only a matter of time before Sony and Microsoft follow suit with brawnier, brainier consoles of their own. Game developers, in turn, will rush to make use of that new gaming power, spending more money on bigger, richer games. Eventually (and in some cases, even now) those games become something more, spilling out into the worlds of movies, books and anywhere else their creators think there's money to be made.

And that's what this is about, ultimately - not the somewhat headache-inducing experience of trying to play Sonic the Hedgehog in 3D, or the impending release of a Duke Nukem title that has seemingly been in development for half a century and (to editorialize momentarily) is almost certainly going to suck. The big news out of E3 is that an industry with some of the most important intellectual property and innovative business models anywhere is about to flex its muscles. The rest of the media world should probably take note.

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