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Rules of the Game
Mary Beth Grover, 12.27.99

ROBERT KOTICK, THE 36-YEAR-OLD chief executive of Activision, has spent eight years in the videogame business, turning out high-tech mayhem for the young, testosterone-stoked gearheads who have traditionally driven sales.

So it was with no small amount of surprise that he noted the overnight success of Deer Hunter, from a rival game publisher. The simple, emphatically low-tech title lets most any rookie fare pretty well with a rifle--no rocket launcher or plasma blaster needed.

Such entries are called "casual" games because they reach the rest of us. Once dismissed by the industry, they sell for about $20 and are waging a convincing assault on sophisticated, hardcore bestsellers like Quake and Doom, which cost at least twice as much. Casual games involve undemanding on-screen pursuits such as hunting, figure skating and Harley racing, and even the klutziest customers can learn to play them pretty quickly. Thus a whole new group of buyers has responded. Men in their 40s and 50s have taken up Deer Hunter. Women now buy half of PC games.

"We'd been designing games for this lunatic fringe of 16-to-35-year-old guys who can't get a date on Saturday night," Kotick says, "games that require 60 to 80 hours of play and a degree in astrophysics to figure out.... I realized, holy cow, there is a mass market for (casual) games."

His eureka moment came last year when he saw that Quake II, a supertech entry made by Id Software (FORBES, Oct. 18 ) and marketed by Activision, was stuck at number 20 on the bestseller list, while the simplistic Cabela's Big Game Hunter had leaped to number 4.

So, for $2 million in stock, he grabbed the software outfit that made Cabela's game and shelled out $34 million for two other firms. Cabela's Big Game Hunter and its sequel are now hits, with sales of 1.5 million copies. The sequel helped Santa Monica, Calif.-based Activision score record revenue of $115 million in the September quarter. Its mass market (read: casual) division now has annual sales of $50 million, about 8% of the total, and is expected to grow fourfold in two years.

Five of the top ten bestselling games for PCs are casual titles. Deer Hunter has sold 1.5 million copies in two years. Frogger, an old Atari game spruced up for new release by Hasbro Interactive, has leaped over the 1 million mark. Sales of $20 games will hit $400 million this year, doubling in just two years to almost one-third of the $1.3 billion market for PC-based games. (Games for Sony Playstation and other dedicated consoles compose a separate, $3.5-billion-a-year market.)

Which isn't to say that Activision and other top gamemakers are giving up on complicated, graphically superior games like Quake, which has sold 1.1 million copies thus far. Kotick plans to release 22 such titles next year, but few games sell even 100,000. Of 1,000 graphics-intense titles on the market last year, just 37 passed that mark, and only 1 cleared 500,000.

They also are incredibly costly to produce (see table). A shoot-'em-up like Doom can take 18 months to create and can run more than $5 million for design, programming, production and marketing. Just to break even, you need to sell an unlikely 156,000 units.

Mass-appeal titles generate wholesale revenue of only $15 per unit, about half that of Quake-like titles, but they cost much less to bring to market. A typical casual entry can run about $400,000, putting the break-even point at just 27,000 copies or so. And developers can crank them out faster. Deer Hunter was designed in only three months for $70,000.

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