"It's not a thing you buy, it's a place you go."
That's how Thomas Tippl described World of Warcraft when we spoke with him at this year's Electronic Entertainment Expo (E3). But the COO of Activision Blizzard (Nasdaq: ATVI) just as easily could have been describing the video-game industry itself.
Video games are already bigger than movies, music, and books, and unlike those forms of entertainment, they're interactive. You use your brain to solve puzzles and conquer levels. You use your legs to leap obstacles or your hands to drive a vehicle. You can meet up with real people -- your friends, family members, or strangers -- to form guilds and teams to go on adventures or compete in sports. Video games really are places we go.
At this year's E3, David Gardner and I witnessed some truly remarkable innovation. We previewed a number of great games, of course, but it was really the breakthroughs in hardware and the cloud that had us captivated and excited about the future. The video-game industry is an exciting, growing, innovative industry, and we think there's money to be made for investors in the space.
With that said, here are our nine big takeaways from E3 2010.
1. Bigger than last year
It was apparent from the moment we stepped foot in the Los Angeles Convention Center: This year's E3 had more exhibitors, more displays, and a whole lot more people -- almost 5,000 more. While that meant weaving through thick crowds between exhibitions and missing a few game demos, the additional dose of humanity is a strong sign that times are getting better in the video-game business. Higher overall attendance is one thing, but the number of major retail buyers was up 20% from 2009.
2. Dead Space 2
We played or previewed at least two dozen new games at E3, and this year's hair-standing, goose-bumping award goes to Electronic Arts' (Nasdaq: ERTS) Dead Space 2, set for release in early 2011. Like God of War III and Call of Duty: Modern Warfare 2 from last year, this was the game. Gorgeous graphics, superb sound, gravitating gameplay -- heck, it has everything. Less than two minutes into the demo, you were already telling yourself: "I must have this game. Is there any more clever alliteration I can use to describe it? I must have this game."
3. Homefront: THQ's Latest Duff?
At last year's E3, my personal hair-standing, goose-bumping award almost went to Homefront. The first-person shooter (FPS) from small developer THQ (Nasdaq: THQI) distinguished itself from that very tired space with stunning graphics, controller-shaking carnage, and a compelling story. But the more fleshed-out version of the game previewed at this year's E3 disappointed mightily on those first two fronts. Some gamers might like the Red Dawn-style storyline that underpins the game, but serious FPS fans aren't going to swap even a second of their precious Call of Duty time for Homefront. THQ finally looked as though it had a surefire hit in the pipe, but it might be back to the drawing board for this struggling developer.
4. MMO Mania
Everyone wants a piece of World of Warcraft. Square Enix showcased Final Fantasy XIV, the latest installment in its popular role-playing franchise. This brings the series into the massively multiplayer online (MMO) world, where players from across the globe can meet up online to tackle missions and share favorite recipes. Perfect World (Nasdaq: PWRD) also previewed a slew of new MMOs, as did Realtime Worlds with APB, a MMO that lets gamers choose sides in an urban war between criminals and law enforcement.
But with Activision Blizzard set to release Cataclysm, the latest expansion pack for World of Warcraft this fall, we don't think any of these new MMOs can make as much as a dent in this 11.5 million-strong subscriber base.
5. Take-Two's impressive slate
No company impressed more -- at least for the breadth of quality games coming out -- than Take-Two Interactive (Nasdaq: TTWO). Whether it's the rich, story-based world of Mafia II, a FPS reimagination of '90s classic XCOM, or Civilization 5, the latest installment in the hit strategy game, Take-Two has something for every gamer's passion. The next logical question, of course, is whether this seemingly rich pipeline will return Take-Two to profitability sometime in the next 12 months. Without the next Grand Theft Auto expected anytime soon (early 2012, perhaps), that might still be a long road.
6. Nintendo 3DS
Nintendo (OTC BB: NTDOY.PK) reaffirmed its reputation as the best innovator in the video-game industry with the debut of its new 3-D, glasses-free version of its popular DS handheld device. Yes, perfectly rich 3-D graphics to the naked eye! We came, we saw, and yes, we were blown away. And while there are a slew of new titles coming out this holiday season ready to take advantage of its new dimensional prowess, the 3DS goes beyond just video games. You can also watch 3-D movies and take 3-D pictures with the device's three built-in cameras. No price or release date has been set yet, but you can bet the 3DS will be a must-have item on gamers' holiday wish lists.
7. OnLive
There weren't many booths David and I made a beeline for, but OnLive was one of them. This cloud-computing, subscription gaming service promises to take hardware largely out of the equation when it comes to video games. With all game processes run on OnLive's remote servers, there's no need to pony up for an expensive console or upgrades to your PC. Have a three-year old desktop or a TV? Will travel; that is, with a modest monthly fee and additional cash for the rentals.
Well, I can't speak for the value proposition, but I can speak for the service. David and I tested out the service, which was being demoed on Dell and Apple laptops. And we're not talking five-year-old games but recent releases and graphically demanding games such as Assassins Creed 2 and Batman: Arkham Asylum. The games played without a hitch, making OnLive, which went live June 17, a potentially disruptive force in the industry. Can it achieve critical mass? Will consoles go the way of Sega Dreamcast? We'll be watching.
8. The Microsoft Kinect
When David and I first saw Project Natal at least year's E3, our reaction was something like this: "Wow, looks neat -- and will probably be really expensive when it comes out in 2013." OK, so we had it wrong. Now called Kinect, Microsoft's (Nasdaq: MSFT) new motion -ensing platform, which captures human movements with nearly unflappable precision, comes to stores Nov. 4 -- of this year! The device fits over the newer versions of the Xbox 360, and it's rumored to have a price tag of less than $200.
With that kind of price and at least a dozen Xbox 360 games ready to use the Kinect, this will be the killer piece of hardware that people of all ages around the world will clamor for. Better still, Microsoft has really raised the bar on hardware innovation, forcing Nintendo and even Sony, despite its new Move device, to play catch up. Video-game publishers have yet another exciting platform for new content development at their fingertips.
9. Activision Blizzard COO Thomas Tippl
Finally, it was a great opportunity for David and I to get quality face time with Thomas Tippl, one of the top executives at the top video-game company on the planet. For much more, including Tippl's take on the Kinect, World of Warcraft's future, CEO Bobby Kotick, and a lot more, check out our exclusive interview.
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