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Silicon Valley and Hollywood Now Fast Friends

Tuesday, 24 Nov 2009 | 12:43 PM ET

As we head into the holiday shopping and entertainment season, a funny thing is happening to Hollywood and Silicon Valley heavyweights. Once rivals, they're now key partners in a new kind of "if you can't beat 'em join 'em" approach to digital entertainment.

It's no secret in this economy that discretionary income has become a rare breed, with moviemakers and video games creators competing for every entertainment dollar. But if necessity breeds invention, then these two sides of the equation have found a meeting of the minds.

"Our storytellers can't tell their stories without state of the art tools," Dreamworks Animation CEO Jeffrey Katzenberg tells us.

Modern Warfare 2
Source: Activision
Modern Warfare 2

So in that respect, with Hollywood and games makers using many of the same tools, it's no surprise that movie blockbusters are looking more and more like video games, and major title game releases, like Activision's "Call of Duty: Modern Warfare," are looking more and more like movies.

"I think films are benefiting from a lot of the technologies developed in gaming," says Sony Computer Entertainment of America CEO Jack Tretton. "Gaming is benefiting from a lot of the technologies developed from the film industry. The consumers are the ultimate benefactors."

Turf wars and power struggles between Hollywood and Silicon Valley are now giving way to a new kind of cooperation, where each is using its own leverage to extend each other's brands.

Says Electronic Arts CEO John Riccitiello: "The same people who are heavy consumers of movies, the ones who go to the theaters two, three, four times a month, are the same people who buy a lot of video games. That is telling me there is a consumer that is engaged in a deep way in the kind of storytelling and the kind of entertainment we both create."

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So why not come up with a way for both sides to make money from the same property? That's exactly what's happening now. Case in point: The latest version of Call of Duty will sell something like 12 million units by year's end, generating close to $1 billion. But rather than looking at that as box office competition, studios are lining up to secure the rights of the game so it can be transformed into a feature film. Same goes with EA's "Sims" franchise which has already sold a staggering 100 million copies.

"There is a massive audience of people that already feel good about (The Sims) so it is that much easier to be sure that the movie will be successful," says Riccitiello.

Same goes with the upcoming "Dante's Inferno" coming early next year from EA.

"We can do just tremendous things with the graphics," says Jonathan Knight, the game's executive producer, who walked me through early renderings of the game's animation. The graphics were extraordinary, so realistic, and the characters so compelling that it's no wonder movie rights have already been sold, in this case to our parent NBCUniversal . In fact, the rights were old even before the game was produced.

"The reason this game has so much attention from the big studios early on is the designs that went into the characters, and the world, and the universe and script and everything and they really felt that was absolutely leverageable into a feature film project," says Knight.

If this vertical strategy of special effects, technology, movie-making and game development sounds familiar, it's because one studio in neither Silicon Valley nor Hollywood pioneered the concept. George Lucas and his film and tech and entertainment empire has been doing this for years, with broader Hollywood only now beginning to recognize just how intriguing it can be.

"We actually shared one pipeline and one code base that (Industrial Light and Magic) uses to do a lot of their special effects," says Darrell Rodriguez, LucasArts Entertainment President. "We actually shipped (Star Wars: The Force Unleashed) on the same pipeline. We are able to leverage our great stories and our great characters across all the medium that the Lucas companies service."

All of this overlap means big new business for the likes of Intel , Advanced Micro Devices , nVidia, Hewlett-Packard , Cisco Systems , all of whom are practically falling all over each other to work with Hollywood to show just what their technology can do. Analysts say investors looking at content creators like Time-Warner, NBCUniversal, even News Corp. and Viacom , Dreamworks and Disney ought to consider how robust their vertical strategies are to make sure the shelf lives of their properties are being extended as long as possible.

In my next post, it's not just about game development and movie-making, but the advent of 3-dimensional moviemaking, enjoying a real tipping point, not just in movie theaters, but coming soon to a living room near you.

Questions? Comments? TechCheck@cnbc.com

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