SAN FRANCISCO -- It's a make-or-break year for the E3 Media & Business Summit, one of the biggest events in the $18 billion video-game industry. Stripped of the glitz and hype of the past, this year's show, which opens next week, is a smaller, quieter affair that is struggling to keep retail distributors, media and investors interested. The biggest news is expected to come from the major console makers, including a possible price cut, a look into new games and hands-on time with some upcoming releases. In all, it will be a critical year for E3, says Tal Blevins, vice president of games content for IGN.com. "This year will be a big test to see if there will even be another E3 or who will participate next year," he said. "Companies will see how much coverage they get out of the show and how much value they are getting out of the conference." "E3 is significant this year only because Sony ( SNE) and Microsoft ( MSFT) are claiming they are going to unveil something big at the conference," says Dan Ahrens, portfolio manager for the Ladenburg Thalman Gaming and Casino fund. "That's important because we know what happens with the PlayStation and Xbox 360 can drive what happens to the independent publishers' games." For investors, E3 is likely to be a mixed bag. Analysts say announcements from E3 are unlikely to impact any video-game stocks in the short term, but they hope to be there to watch what to expect later in the year. "The conference used to offer retail, media and investors an early look at games and an opportunity to speak with company managements," says Michael Pachter, an analyst with Wedbush Morgan. Now the games have long since been announced and the event is virtually useless for retail and for investors." This year, E3 is off to a rocky start. The conference has seen a change of venue from Santa Monica to Los Angeles.
Meanwhile, Activision ( ATVI) and Blizzard Entertainment, a part of Vivendi Games, and LucasArts will not be a part of the event. Last year, E3 went from a show open to almost anyone interested in video games to an invitation-only event. As a result, the number of attendees has shrunk from about 60,000 in 2006 to about 4,000. The conference has also became less of a spectacle, with suites and private meetings replacing midgets dressed as game characters, strobe lights and pulsating music. "E3 has gone from a circus style of exhibition to something that looks like it could be an accounting software convention," says Scott Steinberg, managing director of Embassy Multimedia, a consulting firm. The changes have left many in the industry unhappy. "E3 had much more of an impact when it was a show," says Blevins, of IGN.com. "The video game industry is about fun and entertainment, and we should have a show that reflects it," says Blevins, who has attended every E3 conference since it started. But analysts say they are still hooked to the show. "It's the only event of its kind where companies have the opportunity to show what they have coming in the second half of the year," says Todd Greenwald, an analyst with Signal Hill Capital. "The other shows, E For All, in October is too late, and the Game Developers Conference in February is too early."
At E3, it will be all about playing the games and assessing how they are shaping up, say industry experts. "I am looking for surprises," says Greenwald, "either a surprise announcement or a game that looks dramatically better or worse than what we have been led to believe." Here's a preview of what many attendees are expecting to hear and see at the show this year: Game-console makers Microsoft, Sony and Nintendo are likely to lead with some of the biggest announcements. Industry watchers are widely expecting a $50 price cut for the Xbox 360 from Microsoft. The company could also show some of the big titles it has lined up for the console including new footage of its Gears of Wars 2 game. Microsoft may also give the audience a peek into Halo Wars, its upcoming real-time strategy game that is based on its blockbuster Halo franchise. Bungie Studios, which announced last year that it has split from Microsoft, is also likely to show a new title designed for the Xbox 360, says Shane Satterfield, editor-in-chief of Game Trailers. The buzz in online gaming discussion boards also suggests an Xbox 360 karaoke game called Lips, a social gaming channel and an avatar system similar to Nintendo's Mii. Nintendo's game lineup for the second half of the year is largely unknown. Nintendo is likely to reveal what it has up its sleeve at E3, with one possibility being its Animal Crossing game for the Wii.
Sony, once the leading console maker, now sees its Sony PlayStation 3 locked in a tight race with Microsoft's Xbox 360 and lagging significantly behind the Wii. Sony will use the event to get gamers excited about its console by offering a look into its upcoming exclusive titles such as KillZone 2 and Resistance 2, says Steinberg. The company could also offer an updated look into its much-anticipated game, Little Big Planet, and its long-delayed PlayStation Home service. Among game publishers, Electronic Arts ( ERTS), along with Harmonix and Viacom's ( VIA) MTV Networks, is likely to show off Rock Band 2, the sequel to the hit Rock Band game released last year. Rock Band 2 could feature new guitar shaped and drums accessories. EA could also demo its popular Madden NFL football game that hits its 20th anniversary this year, say analysts, and focus on its casual gaming offerings. Activision isn't participating in E3 but the company will hold its own press conference away from the venue. Analysts expect the company to announce and give users a look into its upcoming titles such as Guitar Hero 4 and Call of Duty 5. Although THQ ( THQI) had its gamers day a few months ago, the company is likely to show an updated version of its Saints Row 2 game at E3. "A good playable version of that game might encourage some investors," says Greenwald. THQ's stock is down about 31% this year.