Packed E3 a sign of a healthy game industry

LOS ANGELES--If the huge crowds and crowds at E3 this week are any indication, the video game industry is in a lot better shape than a lot of people thought.

All throughout the two main halls at the Los Angeles Convention Center where E3 has been going strong since Tuesday morning, throngs of people make it hard to move, and at booth after booth, if you don't have an appointment, there's little chance you're going to get your hands on any of the hot games and hardware being shown here this year.

For more than a year, there's been a hint of doom and gloom surrounding the industry as its leading analyst, The NPD Group, has reported month after month of year-over-year sales declines. In April, for example, the firm bore the bad tidings that the industry as a whole saw 26 percent year-over-year declines, and that hardware revenues were down 37 percent year-over-year.

But on Wednesday, in a confession clearly timed to hit during the industry's premiere event, NPD admitted that its longstanding methodology for measuring industry sales has ignored some significant streams of revenue.

And that meant, NPD said, that its original determination that the industry had recorded $10.5 billion in sales in 2009 was off by at least 42.8 percent, since it now acknowledges an additional $4.5 billion to $4.75 billion in revenues from nontraditional categories like used-game sales, digital full-game downloads, rentals, subscriptions, mobile game apps and downloadable content.

And even the minimum of $4.5 billion in additional revenues may not tell the whole story.

"Our expanded estimate of consumer spending reflects the growing number of options to purchase, acquire and interact with video games ranging from GameFly rentals to iPod Touch game apps," NPD analyst Anita Frazier said in a release. "Consumer spending on social-network games like those offered [on] Facebook would push this estimate even higher."

The news of NPD's new numbers explains something I was having a little trouble understanding after several days here: the huge crowds and obvious high levels of excitement about the latest developments in the industry. After reading--and writing--about the many months of declining revenues, I was expecting a rather somber E3. But from the minute I got here, it was impossible not to notice the buzz.

Capping the attendance
Seeking information about the size of this year's E3 and what that said about the industry, I stopped in on Dan Hewitt, a spokesperson for the Electronic Software Association, which puts on the show.

The ESA doesn't plan on issuing any official numbers about E3 attendance until Thursday evening, but Hewitt told me that the ESA had decided in advance of this year's convention to cap attendance at about 45,000.

"The purpose of that is two-fold," Hewitt explained. "One is to ensure that the business of the industry can get done. When you're walking the floor, it's not conducive [to business] if people can't get where they need to be. Second, it's to help ensure the integrity of the event. What we've heard from folks is that the show has a huge amount of buzz, but it's just the right size, and people can still have conversations on the floor and do meetings, and they don't have to yell above tens of thousands of individuals."

Hewitt added that the ESA had had to shut down registration for E3 a week or two ago because the 45,000 cap had been reached. "The fact remains," Hewitt argued, "if we were to open up the doors [to everyone], we could easily have 100,000 folks or more, but that's not conducive to having the business of the industry done, and E3 is a trade event."

Last year, 41,000 people attended E3, a number unencumbered by any limits beyond the fact that attendees must have some professional industry affiliation.

In addition, he explained, the show is maximizing its available space in the convention center and that as of Wednesday afternoon, there were about 400 exhibitors, up from an estimated 270 in 2009. And, buttressing the notion that there is plenty of excitement for the crop of games coming down the pike this year, Hewitt said attendance by retail buyers is up about 20 percent from 2009, and that international attendance is up at least 20 percent.

Ultimately, Hewitt said, all those numbers--plus the new, more optimistic figures from NPD--give some statistical validity to what a lot of industry people had been trying to tell skeptics for some time: things are going pretty well in the video game business.

"The foundations of the industry are strong," Hewitt said. There is an "engaged consumer base that is highly interested in the new products coming to market, and you've got a number of different distribution models...that are able to deliver high quality entertainment to consumers."

To be sure, someone like Hewitt has a professional responsibility to put a positive spin on the situation, and there's no disputing that retail sales of packaged games and hardware have gone through some tough months since the recession began to take its toll on the industry in early 2009.

"I'm generally bullish" on the industry, Peter Dille, Sony Computer Entertainment of America and PlayStation Network senior vice president of marketing, said in an interview. As to "the notion that the category is recession proof, it's better to say it's incredibly recession-resilient. Relative to other entertainment categories, gaming has held up incredibly well."

But despite the fact that the biggest booths at E3 belong to companies like Sony, Nintendo, Microsoft, Electronic Arts, Ubisoft, and the like, it's an event that belongs to the entire industry, and the packed aisles and sold-out hotels near the convention center are pretty clear signs that a lot of people think there's a good deal of business to be done this year.

Not to mention the fact that those giant booths have been pretty much packed to the rafters with people eager to get their hands--or not, as the case may be--on things like Nintendo's 3DS handheld, Sony's PlayStation Move and Microsoft's Kinect. Add in the incredibly long lines to get into events like Microsoft's Sunday night formal unveiling of Kinect and it's hard to escape the sense that a healthy and crowded E3 is a sign of good things to come for the industry.

On June 24, CNET News reporter Daniel Terdiman and his Geek Gestalt blog will kick off Road Trip 2010. After driving more than 18,000 miles in the Rocky Mountains, the Pacific Northwest, the Southwest and the Southeast over the last four years, I'll be looking for the best in technology, science, military, nature, aviation and more throughout the American Northeast. If you have a suggestion for someplace to visit, drop me a line. In the meantime, you can follow my preparations for the project on Twitter @GreeterDan and @RoadTrip.