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Social Games MIA at E3 Expo

E3 likes to position itself as the launch point for the future of gaming.

Already this week, Nintendo has unveiled Wii U, its next generation console; Sony has shown off its new portable device (dubbed PlayStation Vita) and the big games of holiday 2011 — and, in some cases, 2012 — are on display.

FarmVille
Source: Facebook
FarmVille

But while console and dedicated handheld systems are well represented here — and games for mobile phones have a moderate presence — there are very few social network gaming companies at the show. And given the growing size of that segment of the industry, that's a major hole.

"E3 tends to be dominated by the old school," says John Taylor of Arcadia Research.

Social network games might not stand up graphically to titles like "Battlefield 3" and "Rage," but they're certainly a financial force. Twenty percent of the U.S. population has played them at least once — and insiders expect them to eventually account for one-third of the overall revenues in the video games industry.

The most notable absence on the show floor is Zynga, the social games company said to be readying for an IPO that, if it goes as expected, would make it the second largest publicly traded company in the industry.

"For a company that significant that's not at the show, the amount of discussion surrounding it is incredible," says Adam Sessler, co-host of X-Play on G4 TV.

The maker of games like "Mafia Wars" and "FarmVille" (which boasts over 62 million active users and is played by 10 percent of all Facebook users), Zynga embraces a completely different business model than other players in the video game industry. Still, E3's governing body — the Entertainment Software Association (ESA) — says it very much wants to recruit the company to the annual trade show.

"I would say Zynga is an opportunity for us," says Mike Gallagher, CEO of the ESA. "Obviously, they're enjoying meteoric growth. We believe there's a home for them at E3 and would very much like to see them at the show. I think that over time, they will find the path. … At E3 we generate billions of media impressions and those fall on consumers, gamer and would-be gamers — and that drives a lot of excitement about what's coming in the future."

Analysts, though, say it will be tricky to get the company on board. With the show's strong retail and media focus — two things the company has little use for since the games are given away freely and players happily market titles for the company — E3 just isn't a good fit, they say.

E3 Electronic Entertainment Expo - A CNBC Special Report
E3 Electronic Entertainment Expo - A CNBC Special Report

"I don't think you see a lot of social network games, because it's unnecessary," says Taylor. "They have no need for retail and most of what they do is driven by other things — like free word of mouth. E3 has always been a retail show. It has always been a 'games press' show. And I think the games press is coming around to embracing a broader definition of what a game can be, but there still is an awful lot of judgment going on amongst mainstream gamers that certain types of games aren't really games."

While Zynga's sitting out E3, there are a small number of social gaming companies here. Most notable among those is Kabam, which makes social network games with the core gamer audience in mind (and which just secured $85 million in financing from Google Ventures, Pinnacle Ventures and others).

"It's a great show for meeting partners and every major gaming company is here," says Kevin Chou, CEO of Kabam. "There are a lot of major things going on in the industry and I think you're going to see this disruption of the traditional gaming space and digital really converge in an interesting way in the next couple of years."

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