Random House now writing video games?

Entertainment stocks could find find new revenue streams following this model

By InvestorPlace Mar 5, 2010 8:33AM

Earlier this week, book publisher Random House launched a team whose sole goal is to create original stories for videogames and provide advice on titles in development.


It’s no surprise why: Though the recession took its toll on gamers in 2009, video games were still a $20 billion industry. Random House is hoping that its ability to tell a story will translate to this lucrative market. It’s a blunt nod to what the publisher expects to be a rather rocky road as eBooks gain appeal and erode the company’s current sales model.


Digital titles such as the ones sold for the Kindle from Amazon (AMZN) or the iPad from Apple (AAPL) are expected to generate significantly less revenue for companies like Random House compared to hardcover products they are used to selling.


The bookmaker -turned-video-game-consultant has started looking for a buyer for two original projects -- one a fantasy adventure and the other a horror thriller. Among rumored interested parties are Take Two (TTWO), the brains behind the much-maligned Grand Theft Auto video game series, and Electronic Arts (ERTS), the brains behind the recent hit Mass Effect.



Amazon and Apple, as the makers of digital book readers, actually should be rooting for Random House. If the move pays off, the company will have other revenue streams and won’t play hardball on eBook pricing. As AMZN’s spat with McMillan at the beginning of February showed, the budding electronic book business is not yet profitable enough to stand on its own and these publishers can still play hardball when it comes to pricing models.


Though there are no software geeks at Random House, the company certainly has the knowledge of storytelling to make this work. For its two prospective releases, the company provides everything but the programming -- from a cast of characters to plot to a rundown of the target gamer for the title.


Random House has already landed one client -- a small software outfit called Stardock Corp., which specializes in titles for the PC. So who knows, maybe the gambit will pay off.


As video games become common entertainment for all age groups and older players demand more sophisticated games and storylines, this may be a nice addition to the Random House business model. Only about 15 workers are on the project now, and have experience adapting the century-old book publishing model to fit modern times – including building a highly profitable Star Wars book franchise to capitalize on fans of the film. But that involved keeping all the work under one roof, not outsourcing a story to a software company or navigating meetings with programmers and game designers.


Only time will tell if video game firms will be willing to outsource their writing to companies like Random House, or if such moves will actually result in better products. But you can bet that if the move pays off, other entertainment companies like Dreamworks Animation (DWA) could be natural candidates to follow this model.


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