As I mentioned several months back, my friend Ethan Mollick and I are writing a book tentatively titled For Fun and Profit: How Games are Transforming the Business World. As our publisher’s deadline approaches, I’d like to occasionally bounce early draft excerpts off of you all in hopes of getting useful feedback. And, to be honest, I find it difficult to maintain this blog and write my book simultaneously, so I’m cheating a little bit. :-)

My first draft excerpt has nothing to do with business, per se. It tackles the thorny issue of games and violence. Ethan and I feel that we cannot ignore this issue if we want our book to be taken seriously by a broad range of readers. But we also don’t want to get mired in the issue — after all, there are so many other things we need to cover! So we’ve tried to be brief, clear, and to the point. Tell me: did we succeed in getting the point across?

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I watched This Film Is Not Yet Rated a few days ago. Very interesting documentary (if “preachy”, but aren’t they all?) I recommend that you see it. All the issues raised in the film can be applied to the video game industry, and all are worth discussing, but I want to talk about just one, brief part. In the film, one person argues that (and I’m paraphrasing here): “violence with no gore should be reserved for adults, who can intellectually handle the fiction of it. Violence with realistic gore is what should be considered safe for kids.”

I’m not a psychiatrist. I don’t have kids. I can’t claim that I have a deep understanding of what does and does not negatively impact child development (beyond the obvious things — lack of affection, lack of education, lack of sustenance, etc — stuff we as a society manage to ignore every day in favor of more sensational news.) All that said, this argument struck a cord with me. Let me explain.

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Via Joystiq, an interesting controversy: id co-founder John Romero has accused the modding community of hurting the game industry by exposing or introducing inappropriate content (i.e. nudity) in PC games. His post was in response to the ESRB’s re-rating of Oblivion (which happened after a nudity mod surfaced.) John’s exact words: “modders are now screwing up the industry they’re supposed to be helping.”

There are a number of interesting comments on John’s original post which you may wish to read. Meanwhile, this raises a couple issues that I’ve been meaning to write about:

Whose Side Are They On, Anyway?

When consumers decide to create content for a game (or anything else), they’re doing it to indulge their own creative impulses, and/or to share something with friends, and/or to gain notoriety, and/or other reasons that have little to do with “wanting to help the industry” (or the developer, for that matter.) Let’s not kid ourselves: the guys who made Counterstrike didn’t do it to make Valve rich… that was simply a nice side-effect.

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The current console business model has been established for long enough that most of us take it for granted. Develop great hardware, sell it near or below cost, then generate profit by taking a cut of the revenue from all future game sales. If nothing else, this gets consoles into more homes, which benefits everyone in the long-term. But what would happen if the model were somehow disrupted?

I started thinking about this when I found out that the EU had voted to ban printer manufacturers from forcing consumers to buy their own-brand refills. The business model for printers is very similar to consoles: sell the printers cheaply, then profit from ink sales. (The major difference is that console makers don’t completely lock out third parties; they just exercise quality control and take a big cut of profits.)

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Presentation by John Geoghegan, Executive Director, The SILOE Research Institute (Former VP, Global Sales & Marketing, LucasArts)

It’s a very hostile environment out there. The Utah state legislature recently passed a bill by a landslide vote lumping violent games with pornography. Do you feel like a porn merchant? I don’t.

California, Michigan, Wisconsin, DC, Iowa, and Kansas have all passed or are considering laws like the one in Utah. These laws are unconstitutional, but that’s a technicality, people. We’re not making friends. I haven’t seen this much animosity since big tobacco told congress that cigarettes are not addictive.

It’s time for us to wake up people. We are in deep doo-doo. At the state and federal level, we’re in trouble. Hillary Clinton’s pushing her Family Entertainment Protection Act. Everyone knows hillary is a liberal, but conservatives can’t stand her, so she’s appealing to centrists with the family values issue. Republican moderates and soccer moms can relate to the violent games issue. It’s a safe and smart bet for her as a politician. It worked for tipper gore with the whole rap lyrics controversy.

We’re marketing games to a hostile environment. We have a bad reputation. We’re getting banned, fined, and pulled off the shelves. They’re crushing our product. Some of you think I’m exaggerating. I’m not. This is the perfect storm of circumstances, and we’re sailing right into it.

How not to market in a hostile environment? Basically, don’t do everything we’re doing right now. To be clear, I’m not complaining about the ESA. They’re probably still mad at me about the whole booth babe thing. For the record, I think the ESA is part of the solution, not part of the problem. But it can’t stop with the ESA.

We love video games, right? So why shouldn’t everybody else? Right now, we’re in a defensive crouch, and our critics are playing rope-a-dope with us. The best defense is a strong offense. I propose a 12-step self-esteem recovery program for the video game industry. It’s time we held our heads up high, brothers and sisters. We have nothing to be ashamed of. Games are incredibly fun, creative, and artistic. We should be evangelizing!

1. We need to promote our perfectly good rating system, put in place by the ESRB. Let’s promote the hell out of it and make sure everyone knows about it. It worked for movies and TV, it can work for us!
2. Evangelize the benefits of video games. Read Everything Bad is Good for You by Steven Johnson. Johnson says games help kids compete more effectively, and makes them more intelligent. Games require many hours of sustained concentration and problem solving. In a world where more and more kids are on ritalin and can’t concentrate, this is a major accomplishment!
3. We need to do more quantitative research with leading universities to prove the positive impact of video games, and to quantify the negatives. We need to do research with the Harvards and MITs and the UCLAs or whatever, and we need to share the good and bad news. When we quantify the negatives, it will help us dispense with most of the negative mythologies out there.
4. We need to make it clear that new media is NEVER embraced at the start. It was true for movies, radio, pulp magazines, comics; for every new music wave, INCLUDING Mozart, there was controversy.
5. We need to preach moderation and promote good parenting. Parents should be moderating their kids interaction with ALL forms of media — text messenging, internet, movies, etc. We need to get parents off our backs and onto their kids backs.
6. We need to benchmark against sex and violence in prime network TV and movies. The corpses, blood, sex, and nudity in popular media totally outshadow what you find in games! We’re not as far on the cutting edge as many people like to say.
7. Embrace the constitution. We have a right to make and market our product in an unregulated manner — or at least, not the manner some states are suggesting.
8. We need to lobby. Let’s make political donations, and play the game that everyone else plays. We’re either not paying enough or we’re not getting the results we deserve, because i’m not seeing it.
9. We need to harness our best spokespeople. People like and trust celebrities like Spielberg — let’s get people like him saying why they like and want to work on video games.
10. We need to demonstrate our most creative games. We’re more than just GTA. We need to show people that it’s not all about guns and boobs. Games like Katamari, DDR, Guitar Hero, etc. Not a gun or a boob in sight in Guitar Hero!
11. Put the problem in statistical perspective. “M” rated games are a minority of our product.
12. Be proud! You’re marketing people — so show more pride. Don’t be ashamed to say you like video games; just say WHY you like video games. The depth of talent and degree of committment and the hard work going into games is incredible. You have every right to be proud, so BE proud!

Via Gamasutra, a breakdown of the highlights from Take-Two’s 10-K report. Aside from the notable (but unsurprising) revelation that North Carolina and Connecticut may soon join Los Angeles in suing over Hot Coffee, what I found interesting was information regarding the acquisition prices of Firaxis, Indie Built, and Irrational Games.

Apparently, Irrational (a respected studio about to release the much-anticipated System Shock 2) was worth between $6.2M and $10M, depending on future performance. Firaxis (also respected, but older, and with claims to well-established IP such as Civilization) went for $26.7M, a significant portion of which is also dependent upon future performance. Indie Built (Top Spin, Amped) settled in between the two at $18.5M.

So, does this mean that Sid and Civ are worth approximately $17M? ($26.7M - $10M). Or does it mean nothing more than “Take-Two will pay whatever it takes to cease being ‘Just the Parent of Rockstar, Inc.’” ?

In the past several months, many government bodies world-wide have voted to give tax breaks (and other incentives) to video game companies. As the industry grows and becomes ever more central to entertainment in general, governments are seeing a rare opportunity to build their own game-centric “Hollywood,” with corresponding long-term economic and cultural benefits.

The Isle of Man, a tiny self-governing democracy in the British Isles, just announced a zero corporate tax rate for game companies. Its neighbor, the UK, also offers major tax credits to game developers, but apparently many studios fail to take advantage of this due to confusion and/or ignorance.

The Australian government has created a $25M fund to encourge local developers, with the stated purpose of freeing studios “from the onerous constraints publishers impose.”

The Singaporean government has also made a major financial committment to fostering local game studios and training its citizens in 3d animation and game engineering.

In the US, both Georgia and Louisiana recently announced tax credits for game companies.

So much for “slow news day.” A few hours ago, Senators Hillary Clinton and Joe Lieberman unveiled a bill that prohibits selling games with mature content to minors.

Predictably, the ESA responded almost immediately with a polite but firm rejection of the bill. The bill calls for the use of the ESRB as the yardstick via which content is judged, so it isn’t a total disaster for the industry. Ironically, the ESRB just got (very publicly) bashed by the The National Institute on Media and the Family… and Lieberman took part in that, too. Don’t politicians normally wait at least a couple of days to contradict themselves?

Kudos to GamePolitics.com for its coverage of all this, btw.

Eric Zimmerman has published a “Game Developers’ Bill of Rights” on Gamasutra.com. The bill is based on the Creator’s Bill of Rights, which was written for comic developers in 1988.

It begins with article #1: “The right to full ownership of what we fully create.” The other rights derive from this one, including final say over creative, distribution, licensing, and marketing matters. In other words, ultimate control.

Zimmerman quotes Greg Costikyan, who once argued that developers should retain the rights to their games “because they fucking should.” Points for succinctness, but not much else. In any industry, when you take money from an investor to fund an embryonic venture, the investor usually ends up owning the venture. There are two ways around this:

1. Fund the venture on your own to start, then negotiate for more control based on your initial, demonstrable success.
2. Become respected enough that you can negotiate for control rights from the very beginning of the venture process.

As an entrepreneur and small business owner, I wish things weren’t this way, but they are. Why not focus on practical solutions to developers’ problems? Working towards greater solidarity would be a good start. Support of digital distribution initiatives would be another.

Ultimately, a developer is free to negotiate their own deal — or to walk away from an “unacceptable” offer. A publisher that does business with an inexperienced developer is taking a big risk… which explains (however unsatisfyingly) their ownership demands. Do I think publishers abuse their control? In many cases, yes. Are they wrong to negotiate for ownership in the first place? Probably not.

• Full story
• Blast from the past: a response to the comic creator’s bill of rights

Doug Lowenstein, president of the Entertainment Software Association (ESA), spoke for us at MIT today. Some interesting quotes (paraphrased because I can’t type fast enough):

On gamer demographics: The average age of gamers today is 30. Even if you discount casual games like solitaire, the average age is still mid-to-late 20’s.

1/3 of all gamers are women, but most of them are casual gamers. There is content with cross gender appeal (like sims, mario, etc). But we really need something more profound and fundamental — a cultural shift that tells women that games are not just for men.

DJE: How about a marketing shift? More ads including women; fewer ads including blood, sweat, and/or shrieks of rage?

On content diversity: Say what you want about Passion of the Christ, but it’s the third biggest box office moneymaker of all time. ~37M people saw the film. It revealed that there’s this huge audience that was being ignored … those who want something with an openly religious theme. What is the game industry doing to explore this and other underserved markets?

We need games that move *beyond* today’s conventions; games that keep you up at night making you wonder if you made the right choice in the game.

DJE: Planescape Torment was like that. I agonized about my decisions, then I agonized about reloading the game to experience the alternatives. ;)

On the complexity of games: Too many buttons, too many things to figure out. No one likes to die over and over. We make games so complicated that there’s an entire book publishing industry built around addressing the problem!

DJE: More reason to be excited about the Nintendo Revolution — why use a million buttons when you can communicate so intuitively with your body?

On pricing: Next-gen AAA titles will be more expensive … approximately $60 at retail. What about a game sold for $9.99 for ten hours of play? It would be a lot cheaper to make. One part of the problem is that reviewers look down their nose at shorter games, calling them “limited” or “shallow” or “simple.” My point is that we need games that are limited and simple.

DJE: This would definitely broaden the market; some people want to buy the latest games but just can’t afford them. Giving them a choice is smart. It might even help fight piracy. Episodic content is another solution.

On cultural backlash: There aren’t hordes of 12 year olds buying Grand Theft Auto. Most of the time, little Johnny got it from mom and dad (and that’s taken from federal data, not industry-sponsored research.)

However, we ignore the legitimate concerns of moms and dads at our own peril. They buy, and increasingly, play our games. We’ve all seen games that contain controversial content which is constitutionally protected, but which raises the question: was it really necessary to realize the designer’s vision in this case?

See the semi-complete text for Doug’s speech, minus anything I missed because I type too slowly.

• MIT CMS student Alec Austin, blogging alongside me