Pixels And Profits: San Diego’s Video Gladiators

They’re the noisiest noise in the American family home, and the cornerstone of every kid’s Christmas list. In the 30 years since Atari first served up Pong, the videogame industry has become a billion-dollar powerhouse and an arena for international competition, blending high-tech sizzle and the glamour and hype of Hollywood. San Diego hosts many major players in the sixth generation videogame wars, and while none have rechristened a sports venue or sponsored a roller derby team in town, they have garnered world renown for San Diego as the next level in videogaming.

As hardcore gamers relentlessly stalk the next not-so-cheap thrill, Sony Online Entertainment (SOE), whose motion capture studio opened last year in Mira Mesa, lets its players hunt the most dangerous prey — each other. SOE makes massive interactive virtual universes like Everquest, Star Wars Galaxies, and The Matrix — and the in-development DC Universe Online, in partnership with local comics mogul Jim Lee — and turns them loose in cyberspace. As they move from a subscription-based revenue stream to a more fluid a la carte system with the eagerly awaited Playstation 3, expect to see less of your children and friends. "Online gaming hooks people very quickly," admits SOE president John Smedley, who sees virtual gaming communities as the natural next step for a generation of adults raised on coin-op action. But he sees how stewardship of beloved franchises can cut both ways. "Fans have expectations, and it limits you, because you have to rely on the licensor being there. But making virtual worlds is what we do." Smedley knows his customers as only one who has slashed them with a lightsaber can, and as a developer who updates his product in real time for a demanding audience simply must. "I made sports games for many years, and the only way I would hear about how people liked them was by how many bought it, and maybe an occasional message forum posting. Online gaming’s totally different. I get emails every day from fans of all our games."

As the oldest surviving U.S. videogame company, Midway Home Entertainment’s Chicago parent company was an old campaigner when video games were new. Started in 1958 as an independent manufacturer of mechanical arcade amusements, Midway was acquired by pinball wizards Bally in 1969, but its visionary genius exploded the market in 1978 when they rolled out legendary quarter-hogs like Space Invaders and Pac Man. Gobbling up rivals Williams and Atari in the ’90s, Midway became a publicly traded independent company again in 1998, though as of 2005, 88 percent of shares were owned by Viacom/CBS head Sumner Redstone. Midway held the pole position in the arcade arena when it set up shop in Mission Valley in 1993 to conquer the home console market.

Midway publicity manager Reilly Brennan says the company has committed to evolve by taking the giant step of exiting the arcade business in 2000. "That was our bread and butter, but eventually, we saw that our future was in the home." Midway has branched out into PC-based and online games with the cult favorite Unreal Tournament, and is collaborating with actor Vin Diesel (The Wheelman) and legendary action director John Woo (Stranglehold) to further blur the line between games and movies. Midway has also entered the kids’ gaming market with Cartoon Network and the penguins of Happy Feet leading the charge.

"A lot of people don’t realize it, but San Diego is one of the larger gaming centers in the world," says Smedley. "It’s just grown like crazy. We do a lot of hiring here." Close behind San Francisco and tied with Los Angeles, San Diego draws gaming pros into a strong, somewhat silent community that enriches San Diego and makes it much more than just another town. SOE has 500 on staff, while Midway employs about 200, to manage outside game projects, testing, and promotional and packaging artwork. Many more local studios, like Carlsbad’s Rockstar San Diego, (notorious for its Grand Theft Auto title) operate on the leaner side, with under 100 full-time artists and coders. Sony and Midway both recruit aggressively from area colleges, and agree that starry-eyed videogame hopefuls do indeed come to sunny San Diego to crank out pixelated mayhem.

For all the flash and innovation on tap, the market is still fickle, and as larger companies sort through the peaches and pits of acquired studios, more layoffs and mergers may be in the offing. Rockstar has been hit with a NASDAQ notice of non-compliance because of delays in releasing its quarterly report in July of 2006, and an investigative committee is reviewing its stock option grants and accounting practices. Bolstered by the other fiefdoms in Sony’s vast media empire, SOE’s growth factor is tough to see in stock numbers, but the sheer size of their online armies speak for themselves. Midway’s stock has been in turmoil in recent years, with $100 million in losses (on $100 million in sales) in 2004, and a current share price of $8.43, down from a high of $23.73, last November. With a horde of new projects lined up for 2007, however, Midway looks to jump off the new platforms coming from Sony and Nintendo. Brennan observes that their average customer is 29, and grew up with Midway games, and points to the frenzied pre-orders for their most recent Mortal Kombat entry to show they see where the market is headed. "The goal of the videogame industry, and I think we’re succeeding, is to be taken seriously as an entertainment medium. The stigma of games being a toy for kids is over." — Cody Goodfellow