Hollywood and Gaming: Over and Done With?

Not too many years ago, studios would have fought tooth and nail for the licensing rights to an upcoming film that had hit potential. Today, it’s a much less crowded field.

Hollywood sign
Mark Ralston | AFP | Getty Images
Hollywood sign

THQ, which has made millions making games from the Pixar films, recently struck a deal with Dreamworks to makes games based on their upcoming properties. For THQ, it’s a chance to appeal to the younger segment of the gaming world, a demographic it has been solidly in control of for years. For Dreamworks, it’s a chance to expand its properties beyond the theater screen—with minimal financial risk.

THQ is something of an anomaly in the gaming world these days. With the exception of sure-fire blockbusters, most gaming companies aren’t that interested lately in licensing the gaming rights of titles from film studios, having been burned too many times by titles that were critical and commercial failures.

"Licensing content is dead," Take-Two Interactive CEO Ben Feder proclaimed at Digital Hollywood, a recent entertainment industry conference. Videogames, he says, "are getting closer and closer to (the studios') core business."

Brian Farrell, CEO of THQ, and Jeffrey Katzenberg, CEO of Dreamworks, beg to disagree. Gaming companies, says Katzenberg, are essential partners—especially for youth-oriented fare.

“We follow the gaming industry closely, but that doesn’t make us experts in it,” he says. “It takes a very unique skill set to tell a great story in a video game...the translation of our film, which is a passive experience, into a game story, which is an active experience, is a complete unique set of skills and talents that we don’t have in our studio.”

THQ, which lowered its forecastsMonday based on poor sales of its recently released UFC Fighting game, acknowledges that licensed titles won’t fill all the holes in its balance sheet, but they do supply a steady stream of income to help revenue over the long haul.

“It’s not about this year, it’s about the pipeline,” says Farrell. “The reason of this deal was it gave us a nice pipeline of games moving forward after getting our cost structure in line to where our revenue are.”

Most game publishers, though, are more interested in building out their own franchises—giving them not only more control over the story and direction of the title, but a bigger return on the investment, since there is no partner to share the revenue with.

In the meantime, they’re also looking to take on film and television studios on their own turf. Some theaters that have seen weak box office receipts have transformed into gaming parlors, letting people play competitively on the big screen. And both Microsoft and Sony are exploring ways to bring original content to users.

Sony began running an original reality series earlier this year, called “The Tester," that garnered 2.4 million views. A second season of the show, in which contestants compete in a series of challenges to win a spot as a game tester for Sony PlayStation—which, ironically, is a low-paying, long hour job—will air this fall.

Microsoft, meanwhile, reportedly had talks with former News Corppresident Peter Chernin about creating a television channel that will air exclusively on Xbox Live, the console's online service that allows owners to play with and against each other. To date, no formal announcements have come from either party.

While THQ and Dreamworks have a good relationship, the film industry generally views the video game industry with suspicion. U.S. box office receipts in 2009 were up 10 percent to $10.6 billion, according to the MPAA. Despite falling 8 percent from the 2008 numbers, videogame sales trounced that number, coming in at $19.7 billion.