n 1999, the interactive game industry posted high scores.

Sales of video game and PC software increased 11 percent from $5.5 billion in 1998 to $6.1 in 1999, according to the Washington, DC-based Interactive Digital Software Association (IDSA). More than 215 million computer and video games were sold last year, a 19 percent increase over 1998 sales levels. The entire electronic entertainment category took in between $7 billion and $7.5 billion in 1999, surpassing theatrical box office revenues for the first time.

"Growth in 1999 was driven almost entirely by the video game software market," says Matt Gravett, a game analyst for Reston, VA-based PC Data.

Software publishers are fighting for market share in this extremely competitive market. According to PC Data, Nintendo was the leading software publisher, with a market share of 25.3 percent in unit sales and 25.5 percent of revenue. Rounding off the top five are: Sony (including 989 Studios), Electronic Arts, Midway and Acclaim. In the PC game arena, Havas Interactive claimed the top spot with a unit share of 16.8 percent and a dollar share of 15.7 percent, followed by Electronic Arts and Hasbro Interactive.

While reaching record levels in 1999, the market is expected to be relatively flat this year, according to industry observers. This year looks to be a transition period, with growth expected to explode again in 2001 and 2002 as Sony, Microsoft and Nintendo launch their next-generation systems.

"We anticipate continued growth in 2000, though not at the explosive levels of the previous five years as the industry glides through a transition to new video game console systems," says Doug Lowenstein, president of the IDSA. "From a sales standpoint, historically, as we transition from one hardware generation to another, there is a dip in software sales as demand for software for the retiring platforms wanes before the installed base of new machines can fill the void. It's natural for there to be a pause, but the long-term outlook is for sustained, high-level growth."

Mass merchandisers are playing a bigger than ever role in the industry. As gaming has moved over the last few years from a niche market to a mass market audience, mass retailers have stepped up their participation in the category. In addition, as the current crop of video game systems has matured, pricing on the hardware and software has reached more mass market levels. The role of mass retailers should continue to grow as many of them extend their brands to the e-commerce space, says Lowenstein.

"I think overall, mass merchants are driving the mature video game business—the PlayStation, N64 and the emerging Dreamcast sales," says Jeff Nuzzi, director of retail marketing for Los Angeles-based Fox Interactive. "Typically, on a product's launch, like we saw with Dreamcast last fall or the PlayStation in 1996, software specialty retailers get the day-one, early adopter purchasers. But as the titles mature and the installed base of users grows, plus the sheer numbers that mass offers, mass merchants really do drive the majority of sales volume."

With a host of titles forthcoming based on popular movies and TV shows, Fox is looking to leverage key licenses to draw in consumers who may not necessarily be gaming fans. At this year's E3, the company is unveiling Alien Resurrection for the Sony PlayStation; Buffy the Vampire Slayer for the Dreamcast, PlayStation and PC; Planet of the Apes for Dreamcast, PlayStation and PC; Simpsons Wrestling for PlayStation; and Titan AE for PlayStation, based on the upcoming Fox animated feature. Fox also is releasing several sports titles for PlayStation and PC including NBA Basketball 2001, NHL Championship 2001 and NFL on FOX 2001.

Officials at Redwood City, CA-based Konami agree that mass retailers are a vital channel for the gaming industry. "I think mass merchandisers play a critical role in the industry, especially with the PlayStation, because it has become a mature mass market platform." says Craig Howe, brand manager for sports titles for Konami. "We've seen over the course of the past few years, video games have outgrown movies in the entertainment industry. And anytime you hit that plateau, you open yourself up to a much broader audience."

Konami is highlighting a number of titles with recognizable brand names at E3 to create a mass market appeal. The company is releasing a line of ESPN branded games, beginning with ESPN Baseball Tonight for the Sega Dreamcast. "In addition to the platforms being much more mass market, we are bringing a real mass market brand to consumers," says Howe. "With ESPN being the number one sports network on TV in over 75 million households worldwide, we really open up the category to new levels."

The line also includes NBA Tonight, a fall release for the Dreamcast; MLS Game Night, a soccer title for the Sony PlayStation; Bass Fishing for the PlayStation; and the company's first titles for the highly anticipated PlayStation 2, X-Games Snowboarding and International Track & Field (which will also be available for the Dreamcast).

With a variety of games across many genres and demographic groups, Hasbro Interactive has had the opportunity to test the waters in a variety of retail channels, including drug stores and supermarkets. The Beverly, MA-based company has a number of popular licenses and brand names, such as Nascar and Tonka, that help them stand out in a crowded marketplace and appeal to a broad audience.

"We have a program designed for supermarket and drug chains and we have made some progress in getting distribution in them," says John Hurlbut, general manager and senior vice president of marketing for Hasbro Interactive. "We definitely think there's a plan. We have great brand names and we have product that may be two or three years old that plays very well, if it's a brand name everybody knows and you put it in a jewel case or a budget line program. Our stuff should really stand out on the shelf at a sharp price point. I think we'll work on a very tailored approach with different chains and different opportunities, but in general we see some of our kids and family titles doing really well at $9.99."

Hasbro has an extensive lineup of products to show at E3, with offerings for all ages and platforms. The company has two big titles in its motorsports line, which includes Nascar and Formula One licensed products—Nascar Heat and Grand Prix 3, which is being launched in conjunction with Formula One's return to the U.S. later this year. In the company's Family line, Hasbro is launching several popular game show titles—Wheel of Fortune 2, Jeopardy 2 and Family Feud—for the PC and PlayStation. In addition, under its MicroProse line, Hasbro is unveiling Risk II, a remake of the classic board game with more territories and attack routes.

The company is also launching its first PlayStation games for the children's market, including CatDog in Saving Mean Bob, Nascar Racers, Nicktoons Racing, Tonka Space Station and Action Man.

While Hasbro has made some inroads into drug stores and supermarkets, many in the industry feel the opportunities for those channels are yet to come.

"Historically, [drug stores and supermarkets] have not been viable channels, though there are signs that as software prices continue to fall to more traditional mass market pricing levels, these channels are re-entering the market," notes Lowenstein. "I expect that they will become a place where consumers will find budget and casual game-oriented software at affordable prices, rather than the blockbuster, triple-A releases."

Adds Peter Von Schlossberg, vice president of marketing/business development for New York-based Simon & Schuster Interactive, "These are potentially viable channels. We have not seen a lot of success in there so far. It's a question of whether software becomes an impulse purchase, at what price does it become an impulse purchase, and then is it an impulse purchase within those channels. They certainly have the foot traffic, but it's unclear as to whether the mindset of those consumers is in the software area."

Simon & Schuster Interactive is showing its first console titles at E3. With more children's and casual game titles appearing, and companies like Sony pushing lower-cost titles, the company feels now is the time to move some of their popular franchises to the console arena. Simon & Schuster Interactive is releasing a Dreamcast version of its popular Deer Avenger game as well as Miss Spider's Tea Party for the PlayStation. On the PC side, the company has M&M's Lost Formula, a math game with the M&Ms characters; I See Sue, an educational title about dinosaurs; two mature titles: Last Call and Panty Raider; and two Star Trek Deep Space Nine titles, The Fallen and Dominion Wars.

El Segundo, CA-based Mattel Interactive has had successful offerings in the mass channel across all of its brands, according to Karen Peterson, director of licensed brands for the company's Learning Division. Coming into E3, the company is increasing its focus on building brands across multiple entertainment categories and platforms. Peterson also feels that with their lower price points and easy-to-display packaging, several new games, such as PokeROM, would be appropriate for drug and grocery channels.

Mattel is showing a variety of titles in their Learning Division including two games featuring Arthur, the famed children's character—Arthur! Ready to Race for the PlayStation and Arthur's Absolutely Fun Day for Game Boy Color. The company is also showing PokeROM for PC, building on the Pokémon craze; Elmo's Undersea Adventure and Ernie's Space Adventure for PC, the premier products in a new line of Sesame Street adventure titles; and Fisher-Price Rescue Heroes Meteor Madness, which comes with a special headset and Voice-Tech technology.

LucasArts Entertainment is also offering a variety of titles across multiple platforms, according to Tom Sarris, director of public relations for the San Rafael, CA-based company. "We're showing several titles at E3 that will represent the greatest variety of platform offerings that we've ever had," he says. "We're going to be showing titles for PC, PlayStation, PlayStation 2, Nintendo 64 and Dreamcast."

The company's showcase title is Star Wars Episode I: Obi-Wan for PC, which company officials see as the next evolution of their first-person action game series. LucasArts is also showing its first PlayStation 2 game, a Star Wars title to be released in the first quarter of 2001; Star Wars Demolition for the PlayStation, a no-holds-barred demolition derby/vehicular combat game; the fourth installment of the company's Monkey Island adventure series for PC; two Nintendo 64 titles that will be based on one of the company's licenses; and Super Bombad Racing for the Dreamcast, a game akin to Nintendo's Mario Kart title, with pod racers and Star Wars characters, very high-resolution graphics and the ability to upload high scores onto the Sega Dreamcast Network.

Redmond, WA-based Nintendo is hoping to sate gamers' appetites until the release of its next-generation console system and the Game Boy Advance handheld unit next year. According to Beth Llewelyn, a company spokeswoman, the company had a 47 percent market share in 1999, encompassing N64 and Game Boy software titles.

Nintendo is releasing two Pokémon titles for the Game Boy—Pokémon Gold and Pokémon Silver. For the N64 system, the company is launching Hey You Pikachu, a voice recognition game featuring the Pokémon character Pikachu, which will come packed with a microphone. Other big titles include: Perfect Dark, Kirby 64: The Crystal Shards, Legend of Zelda: Majora's Mask and Banjo-Tooie for the N64, and Donkey Kong Country, Wario Land 3, Crystalis and Warlocked for Game Boy.

Continuing to gain market share, Redwood City, CA-based The 3DO Company is looking to leverage the success of its proprietary brands. The company has created a number of franchises in the last few years that have proven to be very popular with gamers. 3DO is releasing new titles in its Army Men and Might and Magic brand lines, each of which has sold millions of units across multiple product categories. Along with the recently released Army Men World War, the company is showing Army Men Sarge's Heroes 2 and Army Men Air Attack 2, as well as Might and Magic 8 for the PC and a new title in the Crusaders of Might and Magic console game line. 3DO is also highlighting its Sammy Sosa product line with High Heat Baseball 2001 and Softball Slam for PlayStation and PC, and extending the BattleTanx line with World Destruction League BattleTanx.