Russ Pearlman's Blog

E3 is a lot like walking into a casino – there are lots of lights, lots of sounds, lots of flash and lots of under-dressed girls vying for your attention.  If E3 took the conservative road over the last few years, it is certainly back this year.

As an E3 neophyte, I was a bit surprised about the focus of the show – purely about games that will be coming out over the next year or two. For the most part, these games are pretty ho-hum in terms of innovation – I don’t know how many para-military first person shooters I saw. They all have their quirks, and they are all enjoyable on some level, but they certainly don’t get the blood pumping like the days when it was all so new. (Not until I got a chance to play so many did I realize what a terrible FPS player I am on the console. Fortunately, the XBox 360 seems more forgiving than the PS3 for me, but ouch – did I get pwned.)

There were a few surprising games to me, though. My favorite was Eidos’ Mini Ninjas. Yes, this is the company that created such hits Blood Omen and Hitman, but in Mini Ninja’s, quoting the Eidos rep at the show: “There is no death.” You just hit enemies with your sweet ninja moves and they disappear in a cloud of smoke; poof – they are gone. What was really enjoyable, however, was the simplicity of the game play, the way in which it didn’t take itself too seriously and the numerous things you could do (from creeping along in the grass to conjuring the spirits of animals around you).

Tomorrow, I’ll plan on taking a closer look at some of the non-game announcements and demonstrations. I’ll also take a special look at some of the companies offering various monetization approaches.

I went as an invited guest to the Microsoft E3 press briefing this morning. Here are some of the highlights of the briefing:

• New games: there are bunch of great looking games that I’m sure I’ll get a chance to see more detail on during E3. These included four non-exclusive titles (Beatles Rockband, Tony Hawk Ride, Modern Warfare 2 and Final Fantasy XIII) and eight exclusive XBox 360 titles (Shadow Complex, Joy Ride, Crackdown 2, Left 4 Dead 2, Splinter Cell Conviction, Forza Motorsport 3 and Alan Wake).
• XBox Live innovations including access to lastfm.com (providing free music to all XBox Live Gold members), SkyTV (for those in the UK) and social networking tools (including Facebook and Twitter).
• Finally, they officially announced Natal dubbed as “A new way to play; no controller required”. I’d like to spend the remainder of my blog discussing it.

I have a Master’s degree in Artificial Intelligence, and I’ve always been fascinated by human and computer intelligence – both in how they work mechanically, how they can be used to solve problems and how they are different from each other. I’ve had the chance to apply this to a number of problems over my career, but I haven’t done anything fundamentally new. That’s why I’m excited when Microsoft spoke about what Natal can provide.

First, let me describe what it is – though I’m sure I won’t be able to provide a complete picture for you. Natal is essentially a device that sits on top of your TV (or under it) just like the Wii sensor pad. It is able to detect 3D movement in front of it, detect faces and hear sounds in the room. It does not require that you have a controller or anything in your hand. It provides input to the XBox 360 that can be used to navigate through menus using hand gestures (as was demonstrated during the briefing) or interact for games (like was demonstrated with a few games called Paint Party and Ricochet). While this project is still in its infancy, clearly there is some real meat to the promises that this could be available in the next year or two on a generally available basis. (It was announced that ‘select’ members of the E3 attendees would have a chance to see and use the prototypes.)

But, the last demonstration was the best – and it is what really got me excited. Peter Molyneux, President of Lionhead Game Studios and creator of some of the best gaming AI around, showed a video of a virtual boy named Milo that ‘lived’ within the XBox 360. Using the Natal controller, he had a person interact with the boy including dialog, facial expressions and exchanging ‘virtual’ materials (for example, Milo was able to take a piece of paper that was held out in front of the Natal. Physically, the paper remained in the room, but Milo took a copy of the paper into his virtual room). Milo was also able demonstrate a level of interactivity that I’ve never seen in anything before.

Now, I know that a lot of this is smoke & mirrors and a scripted demonstration. I’m sure that Milo couldn’t come close to passing a Touring Test - the Holy Grail of interactive AI – but this level of interactivity does impress. And, I think this really shows only the foundation of what you can do with AI mixed with interactivity like that provided by Natal.

I’ll have lots more to come in the next few days at E3. What a fun way to start.

Phil Cameron posted a really nice opinion piece on Gamasutra called ’The PC As Champion of the Game Revolution‘. In it, he opines that the PC is really where gaming began and where it continues to evolve – especially due to the nature to support indie development. Here are his salient points:

• Input devices – the PC supports keyboards as well as other types of controllers. But, its the unique nature of the keyboard vs. consoles / DSes / iPhones that make a big difference.
• The community – developers can leverage the Internet and gaming communities to learn and hone their craft.
• PC gamers – as supported by the subscriber base of PC games such as World of Warcraft, there is still a sizable audience of gamers.

While I think his points are interesting, I think he is confusing device (i.e., the PC) with connectivity.

Today’s PC is built with the idea of connectivity in mind. After all, the major uses of home computers is using email, browsing the web and using it for basic productivity software. When you play games, it’s natural that you are going to use all the infrastructure of the Internet and the communication it allows. Additionally, developers can leverage this same connectivity and community structure to help learn how to develop, how to test their ideas, etc.

Consoles were traditionally created to focus on the social living room instead of the virtual living room. Instead of having just 1 keyboard, they have 4 (or more!) controllers – allowing players in the same room to play together. But, times have changed – now virtually all consoles are connected to the Internet, allowing virtual living room play, access to broad communities and, yes, support for major indie games (see XBox Live Arcade).

Do I think PC gaming is dying? Eventually – yes. Laptops are being replaced with netbooks, and MacBooks can now be used to play juts about any PC game. The idea of spending $3,000 for a gaming machine just doesn’t make sense any more – and developers / publishers are going to try and make their game play on as many devices as possible. Physical stores such as GameStop just about require publishers of PC games to also have console versions of their games available as well.

The next revolution in gaming is connectivity – and while PC’s will certainly be part of that, it will ultimately be pushed by the consoles – and most likely Microsoft in the near term.

Following their most recent financial period, Nintendo’s CEO Satoru Iwata was asked the following question:

Question: I’d like to ask about your company’s online strategy as a whole. During the last Game Developers Conference, so many third parties were showing iPhone applications that I expected a surge in their download sales. How does President Iwata evaluate iPhone? How do you feel about the current situation of Nintendo’s WiiWare and DSiWare? What is your future prospect?

Answer: People often said that Nintendo and Apple share much in common and I’ve often been asked how I feel about Apple products because I myself have been using Apple products.
Quite recently, media have been reporting that iPhone is a rival to Nintendo DS, but I do not strongly agree mainly because of the difference in the customers. For the customers with whom we have the most strength, it must be rather difficult for Apple to reach, and for the customer base where Apple has the biggest strength, Nintendo products would have a hard time in receiving their appreciations.
About online sales in general, if people ask such extreme question as, “Do you think that 20 years from now, customers will still be visiting retail outlets in order to purchase the majority of software in packaged format?”, I will then have to answer, “well, perhaps, the situation will be different.” However, if I am told, “within a couple of years from today, there will be no retail outlets which will be selling packaged software,” my reaction must be, “there’s got to be something wrong with that assumption because I do not believe people’s behaviors can change in such a short time.” …

I think his answer demonstrates two blinds spots from Nintendo’s perspective:

• On the DS vs. iPhone front, Iwata believes that the different demographics for these two devices is sufficiently different that he can continue to rely on the DS dominating as a portable gaming device between the two. As I’ve stated on this blog before, my own son asked me for an iTouch to replace his own DS. He sees a huge advantage over Apple’s App Store, and he really enjoys the form factor much more – especially with the accelerometer. You’d think that Nintendo’s own success with the Wii would make them think of that too, but alas, they seem to be publicly saying that the DS is fine just the way it is. After all, the newly introduced DSi isn’t terribly different than previous generations.
• On the connectivity front, I think Iwata has it totally wrong. I wonder what the CEO’s of the music industry said about digital tracks during the time that physical retail CD packages were so successful? I wish he would elaborate on what he thinks the ‘advantages’ are for physical retail products. In my mind, there are huge downsides including the cost of goods sold (i.e., physical packaging), fixed cost vs. variable cost, lack of monetization model flexibility, etc.

Sometime over the next few weeks, Capgemini will be releasing a Video Game segment POV (point of view). In that POV, we will be highlighting a number of the points above along with some other broader points about consumer behavior. I will also be attending E3 June 2-4… I do hope that I have the chance to speak with someone at Nintendo during the conference, because I really do believe that the answer publically espoused in this response should not represent the future thinking of Nintendo. If it does, I believe they will be dramatically hurt by the expanding Connected Entertainment revolution.

Over the last several weeks, I’ve been working with a few clients who are looking to launch new e-learning platforms in the near future. One client is a major test preparation company (helping students prepare for standardized testing and providing subject tutoring) and the other is a major K-12 textbook publisher.

As part of our investigations on how best to implement these platforms, we’ve been looking at learning management tools and learning content servers. Most of the off-the-shelf variety of education specific content tools support several standards including SCORM (Sharable Content Object Reference Model).

SCORM is actually a standard that comes from the Department of Defence (not Education?) under the Advanced Distributed Learning (ADL) initiative that was started in 1997. As you can imagine then, numerous government agencies are heavily using SCORM including the armed services, the FBI and many others.

So, what’s the problem with SCORM? Well, as you can image, standards by their very nature tend to be made to solve general problems instead of specific problems. Here are some issues as I see them today:

1) SCORM is effective for non-evaluative content (i.e., learning materials) but it is lacking in evaluative content (i.e., drills and assessments); for example, SCORM does not support short-answer or essay questions as part of an assessment How could you use this for K-12 or higher education without this support?

2) SCORM not only defines the content, but it also includes some presentation-specific scripting within the learning objects themselves. Anyone who’s had to deal with separation of data and presentation logic know how painful it can be if the core material is merged. This would be like storing HTML code in your database so that you can present it to an end user’s browser. If you then wanted to support, for example, an iPhone – you would have to parse through that HTML and provide a new look and feel. That’s a lot more painful that just parsing through core content.

3) Overcoming SCORM limitations requires some pretty significant – and non-standard – approaches. For example, most vendors suggest the use of custom developed Flash objects or other types of rich media for content or questions that can’t be supported by the standard.

4) Like any other standard SCORM progress is slow and it can be implemented with proprietary extensions by any vendor.

The most recent version of SCORM (2004) was released in March of this year. While they have added in some nice restrictions, they have not addressed fundemantal problems that would allow SCORM to become more of a universal educational language. That’s really too bad. As I wrote in my blog previously, I think the Federal CTO should be leading the charge in things like SCORM so that we could build a real platform to support education across K-12 and universities. I’d love for major book publishers, schools, teachers, etc. to all speak the same core language and instead of focusing in on technology focus in on the learning content and teaching our kids.

Congratulations go to Apple – their application store has achieved over 1,000,000,000 downloads in just over 9 months. Their current rate is about 100 million downloads per month, which I expect to pick up significantly when they release the 3.0 update this summer (due to support for micro-transactions).

While 1,000,000,000 is an impressive number (that’s why I’m not just spelling it out – it looks so much better with all those zeros), what does that really mean in terms of revenue for Apple? The majority of those applications are free, but we can probably piece together a reasonable idea:

• Back in August of 2008, Steve Jobs told the WSJ that Apple sold about $1 million per day at the application store. Today Apple sees at least 2x the traffic it did back then, so we could use $2 million per day as a conservative estimate.
• Apple takes 30% of sales, which translates to $600 thousand per day for Apple.
• Given that figure, Apple should expect revenues of $20-25M annually coming from the application store.
• Additionally, Apple charges $99 or $299 for developers. While I haven’t found any credible source for the # of developers who have subscribed to Apple’s iPhone developer program, we do know that there are over 15,000 applications on the store. Given a 2:1 (applications per developer) ratio, that would equate to only 7,500 subscriptions or only about $750k. (Even in a best case scenario, this does not represent a huge revenue opportunity for Apple.)
• While I can only speculate on what micro transactions will do for the future, I would expect the average application price to drop (from about $1.75 today) since many developers will lower their base price looking for add-on fees. But, I expect those add-ons to dramatically increase their overall revenue.

So, based on my own analysis, I’d predict that Apple will see roughly $25M (and growing) anually from the application store. I would expect this to grow significantly with microtransactions – my prediction is that we could see a 25-30% growth followed by a rise in base pricing as the overall quality of premium applications increases within the application store. For Apple, I think that would translate to roughly $35M annually.

Just $35M?! Yep. Even a succesful platform like Apple will only see revenue roughly equal to one of it’s most successful applications. So, Apple better get in the game (pun intended) if they want to significantly raise that number. My suggestions:

• Start to understand consumer behavior and use that to your advantage: advertising, demographic research that you can sell to developers/publishers, etc.
• New monetization models such as subscription based pricing (to a set of Apple or premium developer titles), premium service offerings (App Store Gold which allows users to connect socially, play multi-player games, etc.)
• Certification / rating services – provided for developers to ensure that games / applications are of high quality; getting the Apple stamp not only helps filter out the games, but Apple makes money 2 ways: 1) charging for the certification itself and 2) collecting a higher premium since those applications are likely to charge consumers more.

1,000,000,000 is an impressive number Apple… 35,000,000 – not so much…

Well, if you are reading this blog posting, you have found your way to my new blog site. I’ve moved domains, and I’ve changed over to new blogging software. I’m hoping to make more regular postings moving forward (at least once per week). Additionally, I’ve started writing a book, and I hope to start sharing some of the topics on this forum so that I can get feedback and make sure that everyone gets a nice preview of what’s to come.

Back when I was working at Koios Works, a video game development company, we developed a game called Tin Soldiers: Julius Caesar. As we were a small company working with a small publishers, we were responsible for developing the game as well as helping to support the marketing descriptions. As I was looking for interesting material to put on the box, I ran across this Caesar quote:

Beware the leader who bangs the drums of war in order to whip the citizenry into a patriotic fervor, for patriotism is indeed a double-edged sword. It both emboldens the blood, just as it narrows the mind.

And when the drums of war have reached a fever pitch and the blood boils with hate and the mind has closed, the leader will have no need in seizing the rights of the citizenry. Rather, the citizenry, infused with fear and blinded by patriotism, will offer up all of their rights unto the leader and gladly so.

How do I know? For this is what I have done. And I am Caesar.

It sounded really great, and it was perfect for a game on this incredible man. Unfortunately, it was totally bogus. It seems that this quote was created somewhere around the year 2000.

So, what does that have to do with the year 2009? Well, a sociology student from Ireland decided to run a little experiment across the new “media web” to see what would happen. He posted a quote on Wikipedia on the French composer Maurice Jarre’s encyclopedia page hours after the French composer’s death on March 28. This quote – which he totally made up – was attributed to Jarre and it said: “My life has been one long soundtrack. Music was my life, music brought me to life.” Some facinating things followed:

• The quote, which was provided on Wikipedia with absolutely zero reference, was quoted by journalists across the globe in numerous obituaries
• Wikipedia “editors” – a large number of unpaid volunteers – quickly caught the lack of a reference and flagged the entry within minutes of its posting
• Eventually, the Wikipedia entry was cleaned since primary sources were missing
• Only the Guardian printed a correction

Lessons? Several:

• Journalists can be lazy – finding something on Wikipedia without checking for primary resources; this is the type of sloppy reporting – Dan Rather anyone? – that lowers confidence in the traditional media
• “Wisdom of the crowd” works! The editors of Wikipedia were able to quickly spot the fraud and take corrective action almost right away
• Newspapers better look out; as Howard Kurtz of the Washington Post finally embraced in his article yesterday, printed newspaper is a dinosaur – experiments like this show why dynamic information flow is so much stronger than one-way.

On April 28, the US Supreme Court ruled 5-4 that the FCC can fine broadcasters even in the case of fleeting expletives. As you may remember, there were a number of high profile cases during entertainment award shows where U2′s Bono, Cher and Nicole Richie had used the “f word” during their acceptance speeches.

At issue in front of the Supreme Court was actually a fairly narrow question: since the FCC had for years ignored such minor slips, was it now reasonable for them to change their policy and start to impose fines now? By making their ruling, the court essentially says ‘Yes’ and remanded their decision back to the appeals court for further deliberation.

Now, you might ask yourself a few questions: 1) are fleeting expletives really so bad? 2) how can networks control such things – after all, in the cases sited above, these are not scripted comments and 3) since so much worse is already on cable, the Internet and late-night TV – aren’t we being prudish in these cases?

Well, let me take them one at a time then:

1) The cases where fleeting expletives were raised were during major, prime-time awards shows. These are the types of shows that often family members enjoy together. A single foul word is not going to corrupt a child, but as we saw following Bono’s initial ‘reaction’ that other celebrities were quick to create their own publicity by following suit. By being lax the first time, the FCC has essentially ‘invited’ more occurrences – and the change towards a zero-tolerance policy essentially snuffs it out completely. (After all, we are just talking about a fine – it’s not like we are going to shut down these major broadcasters.)

2) Modern broadcast television often utilizes delays of 5-7 seconds for live events. Simply ‘bleeping’ or even wholesale cutting of broadcast is quite easy to accomplish. Any argument of hardship is simply a red herring.

3) As I pointed out in point #1 above, the comments from Bono, Cher and Nicole Richie all occurred during shows that are likely to have large family audiences. This is not a show like 24, Lost or Southland where a parent has a reasonable expectation of violence, sexuality or explicit language. So, the challenge with these situations is that parental control can not be reasonably set. It’s like going to a ‘G’ rated movie but knowing that ‘R’ rated language could slip in at any time. If this were the case, then no parent could reasonably allow their child to watch ANY broadcast while safely assuming that their child will not be exposed to explicit language. I know that’s stretching the situation, but it’s logically true.

While the Supreme Court ruling answered a narrow question, there are still some larger points to be settled. So, this is by no means over. But, I do hope that the FCC fines stand and the major broadcasters take heed – if parents are to be enabled to help set limits for their children, they need the support of the media industry to help establish reasonable expectations of content.

Up next – Janet Jackson’s ‘wardrobe malfunction’…

I’m taking a break today from my normal focus on M&E and instead talk about a bill that I’m supporting today at the Senate in Austin, TX. The bill is SB2336.

Today, the Texas Medical Board (TMB) has broad powers to act against physicians in the state of Texas. While it is admirable that the TMB can revoke the license of physicians that do not met adequate medical professionalism, they are also in a position to abuse that authority. Specifically, here are the major concerns:

• Complaints to the TMB can be anonymous and come from disgruntled office workers, competitors, insurance companies and defense attorneys
• Patient that are included in these complaints are not notified – and their medical records can be used without their consent by a reviewing physician appointed by the TMB
• The reviewing physicians do not need to be specialized in the area they are investigating
• The TMB has the right to revoke a physician’s license without going through a jury process (this is not true of the Texas Bar that requires such a procedure for lawyers)
• A physician’s license can be revoked even in cases of ‘clerical’ errors – not relating to patient care

This touches my home directly. A physician that we have used for past surgeries has had several complaints filed against him to the TMB. One complaint came from a competitor when their shared practice broke up. Another complaint came from a disgruntled employee that had been fired by the practice. And a third complaint came from a defense attorney where the doctor had been a witness for the suing party.

While the TMB review did not find any medical maleficence, they did find several minor clerical errors in his files. For example, the date of birth was not included on every page of a file. Or, while dictating / typing, ‘his’ had been used instead of ‘hers’ in the case of a female patient. The TMB has scheduled a hearing in September of this year where they will decide if they will revoke his license or not – just because of clerical issues.

This particular physician has indicated that if the TMB continues to barrage him with legal requests and threaten to remove his license, that he will have to leave the United States. This is from a physician that performs a surgery that he invented, that has had tremendous results from kids throughout the world and is not performed competently by anyone else. Do we really want to doom future kids that need this life improving surgery to lesser medical care?

Today, the Senate Committe on Health and Human Services is hearing testimony both for and against this bill. I will be testifying in support, and I’m hoping that it gets the full consideration of the Sentate and House when (or if) it comes to a floor vote this month.