Staff Reporter Troy Wolverton is in Los Angeles to attend the Electronic Entertainment Exposition -- better known as E3 -- which is the video-game industry's giant annual gathering. He's filing occasional dispatches on news, rumors, sights and thoughts from the show.

Thursday

My last day at E3 began with a meeting with J. Allard, a vice president at Microsoft ( MSFT), who heads up Xbox development. A more extensive question-and-answer article with Allard will run in the coming weeks. Meanwhile, here are some excerpts:

  • Allard and Microsoft believe that timing will be a key factor in the Xbox 360's success. Microsoft didn't release the Xbox until 19 months after Sony (SNE) put out the PlayStation 2, he noted. And even then, the device was a kind of rush job, Allard suggested. The Xbox team hadn't yet jelled by the time the device launched, the company didn't have a big relationship with industry titan Electronic Arts (ERTS) at the time, and the company was essentially forced to go with off-the-shelf hardware, Allard said. All that combined to give Sony an insurmountable lead.

    But this time, Microsoft has had years to develop its console and design it with custom parts, and it will have the first next-generation hardware on store shelves, Allard said. Along with relationships forged with most key game publishers, those factors will help Xbox 360 fare better in the marketplace, he said.
  • At Microsoft's press event on Monday, Allard boldly stated that 1 billion people would play Xbox 360 games in the coming years. Considering that Microsoft has sold fewer than 30 million units of its original Xbox, the comment raised more than a few eyebrows. In our interview, Allard backpedaled a bit from the prediction, saying it was more of a "challenge to the industry" than a specific company target.
  • Like a latter-day Paul Masson, Microsoft will sell no version of Halo before its time, Allard said. Microsoft-owned Bungie Studios, which developed the uberpopular, first-person shooter game, is cooking up "some interesting stuff," Allard said. But a new Halo has not been mentioned as one of the 25 to 40 Xbox 360 titles that Microsoft expects to have available at or near the launch of the console.

  • I was able to take a look at some of the games in development for the 360. Microsoft, for instance, showed off a video that featured a number of upcoming games that highlighted some of the Xbox 360's features. Among the game clips aired were Quake 4, developed by Id and published by Activision ( ATVI), and Dead or Alive 4 from Tecmo.

    I also had in in-depth look at Gears of War, which will be an Xbox 360-only title developed by Epic Games. The game, a third-person shooter, uses Epic's Unreal Engine technology, which is behind such titles as the Tom Clancy's Splinter Cell series from Ubisoft.

    Gears of War doesn't appear to break much new ground in terms of game play; you follow a series of missions that typically involves getting into firefights with denizens of evil. But the game did show off the high-definition resolution of the Xbox 360. And one cool feature: Players can interact with inanimate objects in the environment, shooting out windows or even using a bazooka-like weapon to blow through walls.


    One of the interesting things about the video-game industry is that having a game available "at launch" means different things to different people. Sometimes, companies truly mean that the games will be available on the same day that a particular console goes on sale.

    Other times, companies use the more slippery "launch window." EA, for instance, is saying that many of its Xbox 360 games will be available within the device's "launch window," which their developers defined as within about six weeks after the Xbox 360's actual launch date.

    Epic Games had perhaps the most liberal definition of a game being available "at launch." Although the Xbox 360 is scheduled to debut on store shelves this holiday season, Gears of War won't be available until sometime in 2006, company developers said. Indeed, the title might not be available until up to a year after the Xbox 360 is launched.


    Gaming: A Spectator Sport?

    Among other Microsoft-touted features: The Xbox 360 will allow users to watch online games in a "spectator mode." The idea is that just like sports fans who tune in to watch televised football and basketball games, gamers will want to watch other gamers compete, Microsoft says. The feature will allow active gamers to study the techniques and tricks fellow enthusiasts employ to get through various games. Meanwhile, casual gamers will be able to watch tournaments featuring the best players on the network.

    It remains to be seen how much of a draw this will be. Most of the gamers at the conference seemed much more interested in taking their turn playing games than watching others do the same.


    One thing each console maker is stressing this time around is backward compatibility; each of the new consoles from Microsoft, Sony and Nintendo will be able to play games designed for the game machines they are replacing.

    But some developers are apparently working on what might be called "forward compatibility" also. Microsoft's Rare Studios, for instance, is upgrading Kameo: Elements of Power, an unreleased fantasy title originally developed for the Xbox, for the Xbox 360. As might be expected, the new version looks much more detailed when compared side-by-side with the original version. The pathways feature distinctive cobblestones, for instance, and the main character in some scenes fights with thousands of individually rendered trolls. Unfortunately, one part of the Kameo upgrade wasn't so impressive: The eponymously named lead character's features appeared dark in most scenes, making her facial expressions and sometimes movements hard to discern.

    The Xbox 360 is no more than about six months from being launched, but many developers -- and Microsoft -- still apparently have their work cut out for them.

    Few of the actual Xbox 360 games shown at the conference were anywhere near completion -- Gears of War, for instance, was just 35% of the way along, Epic's developers said. And those demonstrated titles were running, at best, on "alpha" versions of the Xbox 360 hardware. That alpha version only has one CPU, as opposed to the three-processor chip the Xbox 360 is supposed to have, and it has an older graphics card than will be employed in the final device.

    But some developers were able to show off games on nominal Xbox 360 hardware. Other developers apparently weren't further along. Activision, for instance, has four games in development for the Xbox 360 hardware. But at E3, Activision's demos of those games, which include Call of Duty 2 and Quake 4, were all PC versions -- not the Xbox 360 ones -- company representatives said.


    Grand Theft Auto on the Lam

    I met with Paul Eibeler, CEO of Take-Two Interactive ( TTWO). Eibeler talked about the moves the company is making to diversify beyond its flagship Grand Theft Auto franchise and how the company is approaching the next generation of consoles. Some excerpts:

  • Take-Two has one of the most ambitious development efforts under way for the Xbox 360, planning to offer eight titles for the game machine at or near its launch, Eibeler said. The company is placing a particular emphasis on its sports titles, he said. Eibeler declined to say precisely how many games Take-Two will have available at the launch of Sony's PlayStation 3, but said the company would put out about the same number as it's planning for the Xbox 360.
  • Notably absent among the launch titles was a new version of Grand Theft Auto. Although the company is coming out with a new iteration of the game for Sony's PlayStation Portable, Eibeler declined to detail the company's plans for the next-generation consoles. Take-Two worked out an exclusive arrangement with Sony for previous versions of the game, whereby they didn't show up on the Xbox until months after they were available on the PlayStation 2. Analysts have said that those arrangements helped Sony secure its lead over Microsoft in the current console cycle.
  • Eibeler acknowledged that EA's exclusive deal with the National Football League -- which locked out Take-Two from continuing its competing NFL title -- was a significant setback. But Take-Two is moving forward and still sees the sports genre as a big piece of its diversification strategy. And the company was able to use the long-term nature of EA's deal with the NFL to persuade the other sports leagues to offer Take-Two longer-term contracts than the standard one-or-two year deals it previously worked with, he said.

  • The next-generation consoles may be revolutionary, but the games demonstrated for them at E3 were generally evolutionary, at best. Indeed, as some industry watchers noted in conversations with me, all the publishers seemed to be in a rush to copy ideas or do new iterations of their own, earlier games.

    Except for The Godfather game, the Xbox 360 games from EA, for instance, were all new iterations of venerable titles such as Need for Speed, Madden NFL Football and FIFA soccer. On the showroom floor, Take-Two demonstrated its latest version of Top Spin tennis game for the Xbox 360.

    THQ's ( THQI) two next-generation titles were both new franchises, but that doesn't mean they were exactly original. The Outfit, for instance, is yet another World War II genre game. And Saint's Row looked like a poor man's version of Grand Theft Auto.

    That's not to say that there's nothing new under the sun. Activision, for instance, showed its upcoming The Movies title. The game is like a combination of The Sims and Adobe Systems' ( ADBE) Premiere video-editing program set at a movie studio. The object of the game is to become the top-ranked studio by developing successful money-earning strategies and reputation for enhancing movies. Along the way, you have to manage moody stars, temperamental directors and marketing budgets. And, you get to develop your own movies, using thousands of preset scenes, costumes and characters. At the end of the process, you can export a final clip that you can send out to friends.

    The game, which will launch this fall on the PC, is pretty amazing in its complexity. It remains to be seen, though, how many aspiring fantasy movie moguls are out there.


    My final executive meeting of the day was with Atari ( ATAR) CEO James Caparro, whose chief job is to reverse the fortunes of the struggling publisher. Among the highlights of our conversation:

  • Atari believes its greatest growth opportunity lies outside traditional game revenue. Caparro, a former music industry executive, thinks Atari can learn from the music industry, which garners substantial revenue from areas other than CD sales. So, the company is exploring the idea of licensing the intellectual property from its games to movie studios, as well as the idea of "lifestyle" games that revolve around known musicians, Caparro said. Within five years, Atari expects to have 50% of its revenue coming from such nontraditional sources, he said.
  • Other publishers have been gobbling up game studios in an effort to bring more IP in house and lower licensing and royalty costs. Don't expect Atari to follow a similar path in its turnaround effort, Caparro said. Atari instead is focused on trying to get the best titles it can whether they're from in-house studios or outside developers, he said.
  • In terms of game genres, Caparro said there are at least two that Atari has pretty much ruled out: sports and children's titles based on licensed content. Entering either one of those areas, each of which has entrenched leaders in EA and THQ, respectively, would be a major mistake, he said.