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Press Start to Begin?

It’s taken more than a decade, but Texas has established itself as a major hub for the video game industry. But how big a player can the state become?

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The 2013 Gaming Expo at SXSW Interactive, in Austin.
SXSW

A large cylinder surrounded by various brown rectangles fill the screen of video game graphics artist Jeff Toney’s Dell computer. As he continues to work on the cylinder-shaped illustration, it soon becomes clear he’s creating a three-dimensional tree. He begins adding smaller and smaller polygons to his tree to give it more definition. Shapes resembling eyes appear, then a nose and a mouth. Finally, he adds a mustache. This, Toney explains, is Bartleby the Grandfather Tree, a character in Wizard101, an online game that’s reminiscent of the Harry Potter story. “Bartleby is the focal point of the user’s introduction to this magical world,” he says. “It’s like the first glimpse of Hogwarts in Harry Potter.”

Toney is a principle artist at KingsIsle Entertainment, an Austin-based video game production company that targets eight- to twelve-year-olds, a growing market in the video game industry. KingsIsle is the brainchild of Elie Akilian, who founded the company in 2005, and his move to capture this young audience is a bit risky. The average age of a gamer is thirty, and more than two thirds of people playing video games are over eighteen. By targeting this younger demographic, KingsIsle is trying to reach a much smaller share of the audience. But Akilian and his vice president of marketing, Fred Howard, don’t want to alienate older players. KingsIsle’s goal is “to create a great product targeted for a younger audience but sophisticated enough for adults,” Howard said. In most entertainment mediums, this is old hat. Pixar and Disney have for years been creating highly profitable movies (The Incredibles, the Toy Story series) that are ostensibly aimed at children but enjoyed by adults. The Harry Potter series proved that an entire franchise could appeal to all generations. But in the video game milieu, it’s harder to create an experience that is both appropriate for and attractive to an audience of kids and adults.

KingsIsle’s strategy is also unusual in that they released Wizard101 as a free-to-play game, meaning anyone could simply go to the game’s website, log in, and play. No purchase required. They’re banking on a tiered-rate system: hook players on a few free adventures, and once they’re addicted, make them pay for access to the entire game. “We were fairly ridiculed in 2008 [when the game was released] by the gaming press and hard-core games,” Howard said. “The press belittled free-to-play games as low quality, and our belief is the inverse. If you have to convince a player to buy full access to your game, you have to up your game in quality and fun.”

But the if-you-build-it-they-will-come (-and-then-pay) plan appears to be working. Wizard101 now has more than thirty million registered users, and last summer its website was one of the top one hundred most-visited in the United States. The game won Best MMO of 2010 from Beckett Massive Online Gamer Magazine, number one Best Family Game of 2009 from MMORPG.com, and Best Family MMO of the Decade from Massively.com. MMORPG.com wrote, “Parents of younger kids and tweens will definitely want to check out Wizard101 if they haven’t already. While Mom and Dad are at it, they should also call Grandma and Grandpa to get them started too. Wizard101 is that good and that fun for players of all ages.” KingsIsle launched its follow-up, Pirate101, last fall and has already attracted five million users.

With two hits under its belt and a third game on the way, KingsIsle’s success has helped turn the industry’s attention to some of the smaller boutique video game production companies and their role in the evolution of a business that is morphing quickly. And it’s been a bit of a surprise that indie houses out of Texas are producing some of the industry’s most critically acclaimed and commercially successful titles, like Borderlands 2, from Dallas-based Gearbox Software. Venture capitalists and company founders have certainly taken notice that you don’t have to operate out of expensive Silicon Valley to be a major player. Texas is doling out financial incentives to businesses that open up shop here, and overhead costs like real estate and salaries are typically lower here than in California. It’s been more than a decade, but Texas has taken a number of steps to establish itself as a major hub for the video game industry. The only question is how big a player can the state become?

When KingsIsle first opened in 2005, their offices were located in the same building that once housed Origin Systems, a Texas video game pioneer that opened during the early days of PC gaming, back when developers used Apple II computers and learned how to build games on the fly. Origin, founded in 1983 by Richard and Robert Garriott, lived up to its name, as it really was the first major video game developer in Texas. Richard Garriott had been creating video games since he was in high school, and he was selling them out of Ziploc bags, but his role-playing fantasy game Ultima grew enormously popular, and he needed help from a publisher and a distributor to keep up with demand. He and his brother eventually started Origin, which they sold to Electronic Arts, in 1992. (Richard continued to work in the video game industry, but he’s become as well known for his other passion: space travel. In 2007 he paid $30 million to visit the International Space Station. He’s also a man about town whose Austin home, Britannia Manor, has been featured on MTV’s Cribs and houses an observatory, a carousel, and Garriott’s extensive art collection.)

The Garriotts’ legacy produced a fertile foundation in which the seeds of the gaming industry could grow. Origin staffers founded many of Texas’s early video game successes, including Mesquite-based id Software, which John Romero, an Origin alum, founded in 1991 with John Carmack, Tom Hall, and Adrian Carmack (no relation to John). In 1993 id released Doom, a groundbreaking first-person shooter. The game, which was released on shareware, became a major hit—it is believed that more people had Doom downloaded on their computers in 1995 than Windows 95. PC World named Doom the nineteenth-best tech product of all time and video game website 1Up.com named it the most influential game ever. Id continued producing successful sequels to Doom and popularized the concept of video game franchises. Without Doom, the Call of Duty franchise might not exist. Two more major Texas-based studios, 3D Realms and Ensemble Studios, also opened in the nineties, each producing a popular video game series (Duke Nukem and Age of Empires, respectively). During this time, the gaming industry took hold in Austin and Dallas, and each city developed its own gaming identity. “Dallas became the first-person shooter city and Austin became the role-playing game city,” says Tim Willits, who joined id Software in 1995 and is currently the studio director for the company.

By the early 2000’s, Texas began earnestly working to attract more tech and gaming companies. As part of the wooing process, the state could point to a solid tech culture that had already rooted in Central Texas. In 1983 Microelectronics and Computer Technology Corp., a research consortium financed by tech companies, spent more than $150 million on supercomputer research and eventually created fourteen companies in Austin. Dell, IBM, and Motorola had also set up shop in Austin and its surrounding suburbs, creating the tech corridor that was eventually nicknamed “Silicon Hills.” As video games grew in popularity, savvy legislators saw the growth potential in bringing more of that industry’s dollars to the state. So to help jumpstart gaming, the Legislature created a generous incentive program. In 2007 the Film Industry and Incentive Program legislation was updated from its 2005 version to include financial breaks for video game companies. Studios who spend a minimum of $250,000 in Texas can apply for cash grants to reimburse part of their expenditures. And the Eighty-third Legislature just approved $95 million for the fund, up from $22 million appropriated for it in 2007-08 session. The state also raised the maximum reimbursement rate for video game companies from 15 percent to 20 percent, while also reducing the amount of money needed to receive maximum reimbursement from $5 million to $3.5 million.

The growth in the number of gaming companies in Texas since the inception of the incentive program is undeniable. According to the Texas Film Commission, in 2006 there were 80 video game companies in the state employing more than two thousand people. Today there are 183 companies with more than five thousand employees, making it second, after California, in the number of video game jobs. The Texas video game industry grew by an annual rate of 13.7 percent from 2005 to 2009, nearly five times the growth of the state’s overall economy, and created more full-time jobs from 2009 to 2011 than any other entertainment sector. Major video game companies, such as BioWare, makers of the popular Mass Effect and Dragon Age series, as well as Blizzard Entertainment, creators of World of Warcraft, opened studios in Texas.

And the money flows both ways. In 2012 video game companies spent $52.5 million in Texas, and a 2010 report from the Entertainment Software Association estimates that the industry produces nearly half a billion dollars in economic impact for the state.

In addition to the increase in companies and employees, the video game titles coming out of Texas have improved too, both in quantity and quality. According to the Texas Film Commission, in-state studios either produced or worked on 54 games that were released in 2005. In 2011 that number rose to 86. Gearbox Software has shipped 7.5 million copies of the game Borderlands 2 since its release last September, making it the seventh-highest-selling game of 2012. Arkane Studios, which opened its Austin studio in 2006, released Dishonored in 2012, which won video game website IGN’s Best Overall Action Game of the Year and the British Academy of Film and Television’s Best Game of 2012.

Despite the tremendous growth, however, Texas still lags significantly behind California. The state of California has 13,000 video game employees, which dwarfs the Texas number. Most of Texas’s video game companies also produce smaller titles, and the state lacks AAA developers, the industry’s equivalent of blockbuster moviemakers.

“One of the things preventing a Texas video game boom is the lack of AAA developers,” says Max Hoberman, a former Bungie employee who worked on the Halo franchise. Hoberman now works at the Austin-based studio Certain Affinity, which he founded in 2006. “These developers are opening satellite studios in remote locations in Texas, and a lot of money these companies are making is not staying in Texas.”

BioWare is an example of the problem Hoberman describes. In 2006 the Canadian video game developer opened a studio in Austin. They started the studio specifically to create Star Wars: The Old Republic, a massively multiplayer online (MMO) game, and chose Austin as the location for its satellite office because of its extensive history with the genre. The game received rave reviews, with a Metacritic score of 85, but the game was a commercial disappointment. The year after its release, in 2011, the company laid off many of its employees in Texas. And while BioWare’s other studios were busy working on sequels to their popular franchises, the Austin employees worked on updates to the Old Republic.

The experience at BioWare is not a unique one. Large developers often open smaller studios around the country and close them down when things turn sour. Warren Spector, a Texas video game pioneer who helped create Deus Ex, which IGN named the fourth-best Modern PC Game, told me that in order for Texas to truly succeed, companies here need to start publishing their own games, like Richard Garriott did back in the eighties.

“We need to get some publishing here. The money for Austin games comes largely from out of the state,” Spector said. “That’s not good. Any time there’s a downturn in the economy or in the video game business, the East Coast and West Coast publishers shut down their remote efforts, not their home offices. That introduces a lot of chaos into the Austin game development scene.”

Hoberman believes a blockbuster success by a Texas studio could act as a catalyst for the entire state. “Talented developers attract more talent,” he says. “The state is booming. The incentive program is getting better. But more than anything else, Texas needs a homegrown, huge success story. Those stories are going to be the seeds that allow the industry to grow.”

After the success of Wizard101, KingsIsle moved to a new office space at the Domain, a business, retail, and residential center in northwest Austin. The company’s continued growth required them to buy more space inside their building to accommodate what is now the largest independent studio in Austin and one that shows no signs of slowing down.

SXSW is integral to the growth of the industry. The annual event brings attention, and more importantly investors, to these local companies’ backyard. The Interactive festival, which focuses on emerging technologies, now hosts a three-day Gaming Expo as part of its program and this year will host its inaugural SXSW Gaming Awards. And while video games remain under the Interactive umbrella, the presence of filmmakers, artists, musicians, and other creative people at SXSW can lead to the cross-medium collaborations that the video game industry seeks.

“SXSW provides a platform for very creative people to showcase their talents,” said Hugh Forrest, Director of SXSW Interactive. “We understand that there is a great deal of common ground between the film industry and the gaming industry. SXSWeek works such that attendees have many opportunities to take advantage of that common ground.”

Texas, and Austin in particular, presents the video game industry with possible interactions with creative forces outside of the gaming sphere. Some may imagine game makers as engineering nerds associated with Silicon Valley, but that can be a cheap stereotype. Artists and designers are as equally valued as coders in the industry. Many video game companies are drawn to Austin because it’s a large urban artists colony. 

Panic Button is one such studio that has sourced local artistic talent for its games. Founded in 2007 by video game veterans, they’ve helped out in the production of Kinect Star Wars and Injustice: Gods Among Us, a game that features DC Comics’ superheroes, as well as other projects. Adam Creighton, Panic Button’s director of development, says that incentives and economic interests played a part in their decision to locate in Austin, but was not the sole motivation.

“Part of it is entertainment,” Creighton said. “Austin’s a creative hub for everything from movies, music, interactive. It’s a great environment for attracting people on so many fronts.”

It also helps that with Texas’ low cost-of-living, starving artists can spend more time on the art and less on the starving. According to Salary.com, cost of living in San Francisco, one of the major video game hubs in California, is 72.9 percent higher than Austin. So while California video game employees are on average paid $10,000 more per year than their Texas counterparts ($97,694 versus $87,630), they’re not necessarily enjoying a more luxurious lifestyle.

“The amount of culture and ease of living compared to some of the other gaming centers is incredible,” Howard said. “If you’re trading cost-of-living and value of your money in Austin versus San Francisco, it’s night and day.”

Texas universities are also actively engaged in creating video game degree programs to help deepen the in-state talent pool. Southern Methodist University in Dallas has developed a Master’s program, known as The Guildhall, that works directly with gaming companies to craft a curriculum that ensures students can immediately contribute to the industry. While most universities only offer undergraduate programs, the University of North Texas and University of Texas at Dallas have followed SMU’s example and offer Master’s programs in video game design with course programs that allow students to hone skills directly related to gaming.

“The biggest weakness [of the Texas video game industry] is longevity,” said Spector, who is involved in starting a gaming program at the University of Texas. “We’re constantly hiring from the same talent pool, which means we don’t always encourage new and original ideas. Fresh blood might help.”

While the pieces for a blockbuster Texas success story may be in place, the video game industry is in a transitional phase where AAA game production may no longer be the focus. While the Call of Duty and Grand Theft Auto series may generate huge revenue for the industry, online and mobile gaming are on the rise and could become the dominant trend. Spector describes the video game industry as being “in a period of chaos where no one knows what business models will sustain us in the future.”

Twisted Pixel moved from Indiana to Texas in 2008 after finding out about the state’s incentive program. Since then, the studio (which is owned by Microsoft) produced a couple of successful titles through the Xbox Live Arcade, including ‘Splosion Man, which the Xbox community named the Best Original Xbox Live Arcade Game of 2009. Unlike most games, which are sold in retail stores, Xbox Live titles are sold through an online marketplace only accessible on an Xbox 360 or the Xbox One. This distribution model is becoming increasingly popular in the industry, and allows for smaller companies to survive by averting direct competition with AAA gaming companies.

Likewise, KingsIsle’s business strategy proves it’s possible to reach a mass audience without creating a AAA game product. By targeting a specific audience and creating a quality game that will appeal to them, KingsIsle doesn’t need to generate millions in retail sales. And by offering the game through its website, they cut overhead costs associated with making games in disc form.

This is not to say AAA gaming is going to die. Major retail releases are still the industry’s cash cow, and that’s not likely to change anytime soon. And companies like Gearbox and Arkane prove that AAA gaming can thrive in Texas. But for the state’s industry to truly grow in the coming years, it will have to display flexibility and diversity.

“I think the state will mirror the change and diversity we see globally in the industry,” said Willits of id Software. “Whether it’s been cellphones or energy, Texas has always been at the forefront. And I think the same will be true of the video games.”

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