Are Investors Game for Episodic Titles?

I used to enjoy covering the E3 gaming expo and the Consumer Electronics Show. There was Comdex, too, in the perfect party setting of Las Vegas. But Comdex is no more and now even E3 has scaled back somewhat. This year, the gaming expo (produced by IDG) became an invitation-only affair, meaning that instead of about 60,000 conference attendees, IDG was only expecting several thousand media and select others to show up to see the latest developments and hear what Microsoft and Sony have to say about gaming. I’m sure there was still plenty of shwag, too.

Organizers of E3 said that they wanted a more intimate atmosphere where business would be the emphasis. In regards to private equity, I saw one funding deal get announced last week; that was for Trion, a developer of online games based on TV episodes. About a month ago, a similarly focused game developer named Telltale raised venture funding.

Their funding announcements come as venture firms pulled back on gaming investments in 2006 despite lucrative exits early in the year. Investment dollars dropped nearly 38% in 2006 to $137 million, down from the $219 million invested during 2005, according to Thomson Financial (publisher of peHUB.com). I expect to see another drop off at the end of 2007, based on the anecdotal evidence.

It seems odd there would be a dip in 2006. Especially after VCs scored with the sale of Massive and XFire. XFire, as you’ll recall, raised $12.5 million before Viacom purchased it for $102 million. Massive raised nearly $18 million before Microsoft paid somewhere between $250 million and $400 million to acquire it.

In the context of making money with video games, the franchising of TV shows makes sense, just as Electronic Arts has grown over the years thanks to its licenses of the sports titles (think John Madden Football). With Trion and Telltale now funded, you should expect to see more of your favorite shows come to a video screen near you. I should’ve seen this coming. I can play Star Wars Legos for hours. And I believe wholeheartedly what Trip Hawkins has to say about mobile gaming. But what remains to be seen is if gamers will have the same passion for playing a simulation of Lost.