The Oculus Rift will ship for consumers in Q1 2016
Courtesy of Oculus VR
By Chris Morris
June 15, 2015

Big games. Big battles. Big bets on the future. And, for the first time, the show will open its doors (slightly) for an eager general public that has been hoping to get in since the expo began.

E3 is the gaming industry’s biggest and splashiest event of the year. Nearly 300 companies will be on hand to show off their biggest games of the upcoming holiday season—as well as titles that won’t be available until 2016 (and, in some cases, even later). All totaled, over 1,600 products will be on display for an estimated 50,000 industry professionals.

They’ll be joined for the first time by 4,000-5,000 “prosumers”—marketing speak for avid gaming fans. That’s something the Entertainment Software Association (ESA) has shied away from in the past. But as other gaming showcases have become popular with game publishers, who wanted to give fans early influence to their titles (and reap the marketing benefits of word of mouth), show officials had little choice but to change their stance.

“The inclusion of prosumers will help raise awareness and excitement of the new games and products that will be unveiled during E3,” says Rich Taylor, senior vice president for communications and industry affairs with the ESA. “We are proud to offer this opportunity to both our exhibitors and the biggest fans of our community.”

Video games are big business—and they’re getting bigger. Sales of traditional video game hardware (such as consoles and handheld gaming systems) and software in 2014 topped $22.4 billion, according to the ESA—an 8 percent increase from 2012. Meanwhile, gaming on mobile devices (which has been a growing focus at E3 in recent years) had estimated revenues of $25 million last year, according to research firm Newzoo.

This year’s E3 will have a few overriding themes: Virtual reality, a faceoff between some of the industry’s biggest franchises, and the coming shift in audience.

Virtual reality headsets from Oculus and Sony (SNE) will be front and center at the show (with HTC and Valve’s Vive represented as well). Attendees will strap on the headsets to try dozens of VR games and the new technology will likely get the majority of media attention. But analysts warn that it will likely be several years before VR has any sort of significant impact on the industry’s bottom line.

 

Prices for the hardware are still unannounced. And without a critical mass of headsets in the market, many publishers will sit on the sidelines before investing significant R&D dollars into the technology.

“VR is the bright, new, shiny object in the industry,” says John Taylor, managing director at Arcadia Investment Corp. “It’s going to, most likely, have a pretty significant wow factor. … I’m looking for how much third-party support there is [among publishers] that’s truly dedicated to this. It’s going to be some time before we have an installed base of too many of these.”

The show will also showcase one of the biggest lineup of games in several years, many from billion dollar franchises. For dedicated gamers, that’s a smorgasbord but for publishers it sets up a titanic marketing battle. Microsoft’s (MSFT) Halo 5: Guardians will do well, but since it’s restricted to a single system, it’s likely to lag behind in the race for year’s top seller. That fight is likely to come down to Activision (ATVI) (Call of Duty: Black Ops 3) and Electronic Arts (EA) (Star Wars: Battlefront), which will both be available on the Xbox One and PlayStation 4.

“[Activision] has its A-team on this, so this should be a fantastic year for Call of Duty, but then you’ve got Star Wars, which is the biggest entertainment property in the world against it,” says Taylor. “It will be interesting to see who gets more skin on this jump ball.”

While publishers battle for the spare time and attention of core gamers, though, the industry is approaching a crossroads. This will be the third holiday on store shelves for the Xbox One and PlayStation 4. At this point, the early adopter and a large portion of the dedicated gamer category have bought new consoles, so the focus needs to shift to a more casual audience in order to maintain hardware sales momentum.

That necessitates a wider selection of family friendly games, a category that’s presently fairly sparse. Activision’s Skylanders, Disney’s (DIS) Disney Infinity, and Warner Bros. Lego games are all doing well, but things get thin beyond that.

Analysts say they’ll be looking for games to fill that hole, with a particular eye on several revivals in the music games genre.

“I think there’s a thinking that at the end of that first cycle there were some missed opportunities, says Colin Sebastian, senior research analyst with Robert W. Baird & Co. “There’s some innovation left in that genre.”

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