Video games giant sees battle in Europe

By Gavin Haycock

PARIS (Reuters) - Electronic Arts, the video games giant that created the "Need for Speed" series is finding the race for entertainment will determine how the battle for gamers on consoles, computers and cell phones is won and lost.

Two key challenges in the industry are which gaming products Europeans single out as their top picks and what success firms have in improving technology. This will also influence how far cell phones go in driving revenues across the industry.

"I believe the biggest fight will be in Europe," Gerhard Florin, Electronic Arts' (ERTS.O: Quote, Profile, Research, Stock Buzz) international publishing head Gerhard Florin told the Reuters Technology, Media and Telecoms summit in Paris this week.

"Whoever wins the hardware war in Europe, most likely will be the overall winner," he said, referring to leading players such as Microsoft Corp. (MSFT.O: Quote, Profile, Research, Stock Buzz), Sony Corp. (6758.T: Quote, Profile, Research, Stock Buzz) and Nintendo Co. (7974.OS: Quote, Profile, Research, Stock Buzz), with their Xbox 360, PlayStation 3 and Wii respectively.

Major recent technological advances have radically improved the graphics on gaming consoles and personal computers, but technological hurdles still remain in cell phones.

Florin said the revenue prospects for cell phone gaming largely depends on what sort of new players get involved.

"If new consumers come in, they might not react to new hardware in the same way as the core gamers who go for bits and bytes and have to have the latest processor power," he said.

Florin thought technology had done so much to improve the quality of games on computers and consoles that the industry was now turning its attention elsewhere, namely the quality of story telling and bringing more emotion into gaming.

STORY TELLERS

"Everybody gets carried away with the technology. When the technology gets more usable ... then the story tellers get more to the forefront," he said. "My hope is, but I can't tell you when it will be, that we reach the peak in perfection so that the consumer doesn't see the difference in technology anymore -- then it is a pure race for entertainment."

This was one of the reasons why Electronic Arts and Dutch television production company Endemol EML.AS recently developed a virtual world avatar creator called "Virtual Me" that lets consumers create digital versions of themselves. These can then be integrated into shows in Endemol's virtual world, including "Deal Or No Deal," and "Fame Academy."

UBS analysts said in a research note on Tuesday that U.S. and European games markets could grow 50 percent from $12 billion in 2006 to $18 billion in 2009 with peak profitability in the current console cycle occurring in 2008-2009.

The broker said new revenue opportunities should come from games consoles moving from the living room onto the Internet.

"The risk is that the rising costs of developing games and industry changes could leave some players behind," UBS said.

Telecoms executives at the Reuters TMT summit in Paris said they saw the value in cell phone gaming, but were yet to be convinced of the industry's ability to ramp up its revenues.  Continued...