E3 and the video game bubble

Even though it's supposedly an industry-only trade show, the Electronic Entertainment Expo is an event of epic proportions for video game aficionados, as evidenced by the legions of fans who follow the show's daily announcements online, through blogs, news outlets, and (a more recent development) video feeds.

But despite its decade-plus place in the public consciousness (I've been attending since 1999), the E3 show has been to the brink of extinction more than once, and while it has pulled off a remarkable recovery over the past couple of years, there's still a chance history may repeat itself.

Related links
• Rockstar Games debuts 'Pass' with L.A. Noire DLC
• Nintendo DS Lite drops to $99
• E3 2011: Complete coverage

In brief, what happened was the trade show equivalent of a boom and bust cycle. Throughout the 2000s, game companies competed to outdo each other, with excessive budgets and outlandish displays, creating literal mini cities inside the Los Angeles Convention Center that easily trumped anything seen at the larger Consumer Electronics Show, which takes place in Las Vegas every January.

The trend peaked in 2006, after which the participants collectively realized that entirely too much money was being spent on the show, which had long since stopped being a place for retail buyers to make deals with publishers, and had become essentially a weeklong press conference. Simply put, the week's worth of media hits was judged to be simply not worth the investment.

At the time, the Entertainment Software Association, a trade organization that runs the event, agreed to retrench, scaling down the 2007 versioninto what then-Entertainment Software Association President Douglas Lowenstein called a "more personal, efficient, and focused" show. E3 went from 60,000 attendees the previous year to about 4,000, and from 400 exhibiting companies to fewer than 40. E3 2008 was a similarly small affair, returning to the Los Angeles Convention Center, but keeping the small, low-cost format.

After that two-year break, however, the money started to flow again, helped no doubt by the three-way success of the Xbox 360, Sony PlayStation 3, and Nintendo Wii. By last year, E3 was nearly as big as it ever was, although at the time sources in the industry told me there was "still a sense of nervousness among those who actually have to sign the checks to pay for the event."

This year promises to be another all-out spectacle, but is it really necessary? And, more importantly, is the show again getting too big for its own good? The key piece of evidence is that the majority of newsworthy announcements come not from E3 itself, but from a trio of large-scale press conferences held by Sony, Nintendo, and Microsoft before the show formally begins (and these press events are not officially part of the E3 show). By the time the doors of the Los Angeles Convention Center open, the major news is already out there, and easier than ever for everyone to see, as the three major press conferences are now streamed live via Web video. It's also worth noting that every video game publisher does a separate press tour with its new games either before E3 or after, or sometimes both.

Add to that the fact that the three major living-room game consoles are either past middle age or nearing the end of their life spans (as has happened periodically since the late 1970s), although price cuts have goosed hardware sales, and expected announcements about future generations of hardware are sure to generate a lot of buzz. Also, game sales in general have been declining for some time: April 2011 was a rare month of year-over-year growthafter several months of declines, and game sales are still off from the 2008 highs.

But for now at least, the interactive entertainment industry considers E3 to be worth the significant investment required--the same attitude held from the late '90s until 2006, when that thinking suddenly changed.

Will (and should) E3 remain a huge, expensive event? Or should the show scale back, or even, as I proposed last year, be opened to the public? Let us know what you think in the comments section below.