Activision and Vivendi Act as One: Meet the New Boss Edition

IGN asked for my opinion about Activision and Vivendi's withdrawal from E3 and The ESA . . . So I told them. It ran on The Insider yesterday.

Here it is:

Last week Activision and Vivendi announced their pull out from E3 and the ESA. There is a lot of speculation out there and everyone is treating it as a single story. In reality, there are two stories and perhaps a foreshadowing of things to come..
The first story is E3, and its not so big. The only reaction to the decision is Yawn. . . . why did you wait so long? It would be a story if E3 really ever was what it called itself in 2006:

E3 is acknowledged as the must-attend, must-exhibit event for everyone who matters in interactive entertainment. Over 62,000 of the world's most influential retailers, distributors, developers, investors and media gather here for three days of intensive deal-making. There's nothing else like it in the world. The most products, the biggest crowd, the hottest action: E3 brings it all together under one roof

It was really a dick waiving opportunity which everyone was too afraid to not attend. When I survey my colleagues in the industry, I am hard pressed to find a single person who ever accomplished anything at E3. Sure, meetings happened, and demos were shown, but no one closed deals, no new product was sold and no lives were changed. The only to really came out of the event, were incremental orders and commitments to follow up meetings. The buyers, who already made their commitments before coming to E3, sometimes increased orders if there was a good showing at E3. Considering the buyers were about . 001% of the 100,000 attendees, and the orders never covered the well beyond seven figure costs for the largest exhibitors, the show didn’t make a whole lot of sense. Today, it makes even less.

Don’t get me wrong. I went to every E3 and loved most minutes of every one. I even created one of the most memorable days in my then 9 year old son’s life when he skipped school to go to his first E3 and attend, Star Wars: Revenge of the Sith on opening day. But aside from scoring elusive “cool” points with my son and seeing a bunch of people in the industry who I only saw one time a year, I really never got anything done which could not have been done elsewhere, and probably over the phone. Sure, Charles Cornwall made it more entertaining when he matched the knowledgeable red blazered Nintendo booth attendants and raised the ante with women from the Playboy modeling agency in the Eidos booth, but there was still no real business. I will admit, even though the girls knew fuck-all about the games, they did touch you a lot and Eidos did get a lot of those incremental orders in Atlanta.

Today’s E3 stripped away everything which was good and left us with a hollow shell of what it was originally supposed to be, a place to do business. The problem is, starting with the first show, it became something much different thana place to do business. It evolved into the greatest promotional showcase on earth where we proudly displayed the impact of our business on the world. Kind of like the high blood pressure medications Rogaine and Viagra, which never really worked for their original purposes, but found great success in the lowest common denominator medical markets of hair restoration and erections, E3 evolved into mind boggling cacophony of the noise, lights, games and parties, which made the industry like no other on earth – and it was good. With the media portraying games in a negative light the rest of the year, this was our opportunity to display our business to the world, on our own terms. After about 10 years of E3, they started to come. MTV, CNN, MSNBC, E, all of the letters showed up to validate our business. And then it stopped. Rumors still flow about EA or Sony pulling out, triggering a domino effect, but I believe the big show could have been saved. In reality, after too many years of fighting battles for an ungrateful constituency, Doug Lowenstein, in an act which can only be compared to Moses smashing the first set of tablets, took E3 away from the industry. The industry, which benefited from the adulation bestowed upon it at the event The ESA created, kept bitching about the money and effort the show required. He was tired and was not going to fight the publishers and the platforms one more time. If they didn’t get it, let them pull out, and see what happens to them. Careful what you wish for publishers.

It didn’t have to be like this. By closing down E3, The ESA, and by extension, the industry, threw away one of the most valuable events in history. I challenge anyone to point to any event, in any industry, which rivals E3 in scope. As the various efforts to fill the void learned, it is really, really hard to build something like E3. Leipzig may be starting, but it has not hit the mainstream yet. It may not make sense for publishers to underwrite the entire event, but The ESA may have done things differently before shutting it down. The event could have paid admission public days like the Tokyo Game show with national sponsors supporting the show, and there are probably a bunch of other solutions, but it is too late now. It is gone.
Last year’s E3 had as little business function as prior E3s without any of the upside. Publishers were given small demo rooms in hotels and equal positioning at the Baker Hanger. The whole point of E3 for the big guys was to show they are the big guys. Why display product in the same manner as everyone else? If Activision has the same size presence and same number of screens as Mastiff, why go? They could not show their scale, but still had to get special builds made and man the booths. All of the expense and aggravation without any benefit. So, they pulled out. As a testament to how insignificant the decision is in the greater scheme of things, the decision did not even merit a press release. They were outed by the press.

The real story is pulling out of The ESA. The ESA is this industry’s most important advocate. The organization’s impact as a lobbyist in Congress is effective, but not really tangible, nor are the anti piracy efforts, which certainly saved the business a lot of money. We can however point directly to litigation efforts, which challenged, and beat, every legislative attempt to restrict or impair the sale of video games – 9 court rulings and an injunction against enforcement in the State of California. If not for The ESA, video games would likely not be considered an expression of free speech under the First Amendment to the Constitution. As Doug Lowenstien so eloquently pointed out to us in his farewell speech at DICE 2006, running The ESA was a thankless task. These efforts must continue and be supported. Unfortunately, both are at risk of ending.
Journalists and pundits are speculating about the reasons for Activision’s withdrawal. I really think it is much more simple than we are hearing, but let’s knock some of the rumors down first. Kokaku pointed to cut backs in budget and efficacy of The ESA as a motivation. As a lobbying organization The ESA publicly discloses its targets. You can see them in the Senate Lobbying Database. Through 2006, the lobbying efforts included online gambling, virtual property taxation and internet privacy, these issues were dropped in 2007. A nice theory could be espoused based on gambling mogul’s Steve Wynn’s involvement in Activision and close frienditude with Bobby Kotick, or the significance of object taxation and privacy issues on the Blizzard side of the business. But this would presume Activision was involved for the lobbying in the first place. Lobbying is only part of the work funded by Activision’s fees and if they really cared about these issues, they would say something. There are not enough members to drown their voice. There is also speculation about the departure of Gail Markels. Gail, who ran the successful litigation against the States left a couple months ago when the organization shut down its New York office. The announcement indicated The ESA was consolidating offices and did not need a New York presence. Gail’s role was also consolidated under Ed Desmond, who has been with the organization for eight years. It is still to early to tell the impact and whether Mr. Desmond will maintain Gail’s stellar performance. I really don’t believe Activision was so invested in Gail they would walk over her departure. Finally, many are speculating about disappointment over the new Doug, Mike Gallagher. There is no question Mike is not Doug, but this is not necessarily a bad thing. The person who grows a business is not always the best person to run a business. They are two different animals. The industry and the organization were much different when Doug started than when he left. Doug was an in your face, grass roots agitator. Leading with his face, he approached each affront with bulldog tenacity. He took way more than his fair share of shots from the media on our behalf and the industry was not always there to support him. But the business has matured. I may be wrong, but we may have to tone down a bit. We may have to take a more behind the scenes-Jack Valenti approach to the business, where he is a mean son-of-bitch behind closed doors and a politician in public. Mike is a very nice guy who comes from the belly of the beast. We can expect a less confrontational organization than the old ESA and again, it is too early to know whether it is a good thing. I don’t think Mike’s presence, or the three points in the aggregate drove the decision. Just look at Activision.

If you think about the company as an organization, the answer is more than clear. Activision is one of the most bottom line oriented companies in the business. They do not spend money which does not have to be spent. Activision’s official statement was:

“After careful consideration, Activision has decided not to renew its ESA membership for business reasons and will not be participating in any official E3 activities. We appreciate the work that the ESA has done over the years in promoting the interactive entertainment industry with state and federal governments and wish the ESA best of luck with the show.”

This cigar is just a cigar. They simply did not want to pay the fee. ESA membership fees are based on revenue. The soon to be largest publisher in the world will be paying more than anyone else, and it did not sound like fun. As far as the impact on lobbying,. . . not so much. Activision, which historically has not lobbied directly, can pay a portion of the money they would otherwise pay in membership fees and target their own issues. Litigation? Their withdrawal will not stop ESA’s efforts. Moreover, we have yet to see whether this action is truly a withdrawal, and not a negotiating posture to revise the fee structure has yet to be seen. If it is a withdrawal, it could signal the end of The ESA as we know it.
By withdrawing, Activision sent a message to the other publishers. E3’s death resulted from the cascading effect triggered by the first publisher’s decision to withdraw. No one could pull out alone, because competitors who stayed may gain an advantage. Since no one wanted to be there anyways, once someone flinched, everyone followed. The ESA may feel the impact of this cascade effect again. While they may support the organization, the largest publishers cannot be happy with a revenue based membership fee. Activision’s move threatens the integrity of the system.
The foreshadowing is a bit more ominous. This seems to be the first Actard action. Activision and Vivendi have gone to great efforts to say they are not doing business as a single company and won’t until after the announcement. They even issued to separate statements regarding The ESA withdrawal. It this is true, it is an odd coincidence for two publishers – who happen to be in the midst of a merger – to withdraw from the trade organization they both helped found, on the same day, at the same time. As everyone in the industry learned during EA’s reign on top, the number one publisher does not act like everyone else. The guy on top often makes the bold moves the industry follows. What is good for number one is good for the industry. While Actard won’t lead with the same margin a EA, it is still number one. This could be the first assertion of position. Bobby Kotick is a smart guy, if it is, it was not done by accident. I hope they remember the words of their licensor, Spiderman “With great power comes great responsibility.” Is this an indication of how they are going to handle it?