As promised, Midway has responded to the complaints of its creditors and bankruptcy trustee by revising its proposed "key employee incentive plan" so that it spends less and doesn't appear to be rewarding folks for work they've already done or should be doing.

Filed last night, here are the key changes:

The proposed revisions, along with other less exciting issues, will be discussed and potentially approved tomorrow at a court hearing in Delaware. Still no word on when, if ever, they''ll get to see the really good stuff, like making Sumner and Shari Redstone's testimony public.

It was the biggest question at GDC: What do you think of OnLive? Will it work?

Given the major companies (EA, Take-Two, Ubisoft, Warner Bros.) behind it, OnLive is certainly not vaporware like the Phantom. It has solid technology and a business plan that could work. If the service runs as smoothly when it launches next Winter as it did in OnLive's GDC booth, it should have a fighting chance, especially amongst consumers who haven't yet bought an Xbox 360 or Playstation 3 (and most certainly by the time the big three launch their next consoles).

Regardless of whether OnLive is a hit, subscription-based or ad-supported video games are the future business model for the industry, just as it is for software and other forms of entertainment. Once consumers become comfortable not "owning" anything the way they do now, the insanity of buying a new console or version of Microsoft Office every few years will become apparent.

That transformation will mark a remarkable shift of power in the video game industry. No longer will Nintendo, Microsoft, and Sony be the center of the industry, defining technical specs and getting a cut of almost every dollar spent. The new center of power will likely be the cable and telecom companies that provide Internet and television service.

Remember when TiVo came out and the early DVR lovers bought its box? Today, TiVo is dying and most of us get TiVo-like service from our cable or satellite provider, via a set top box with a DVR built in. Instead of buying hardware for several hundred dollars, we just pay Comcast or Dish an extra $5 or $10 per month.

The controversies never end at Midway.

The "Mortal Kombat" publisher, already in bankruptcy and attempting to sell assets and stave off creditors, received a beat down in court this week from the government-appointed trustee overseeing the proceedings and the committee of unsecured creditors (basically everyone to whom Midway owes money except majority owner Mark Thomas, who has a secured loan) over its plan to pay bonuses of up to $3.755 million as part of a "key employee incentive plan."

As previously reported, Midway proposed paying bonuses to 29 key employees, five of whom are believed to be officers (top executives), for completion of three key steps:

The objections of the U.S. trustee and the creditors' committee break down like this:

-The "Wheelman" sale happened before the bonus plan was submitted. As the unsecured creditors tartly put it: "The notion that a bonus program designed to reward employees for past accomplishments could be considered an 'incentive' is simply disingenuous."

-Selling "Mortal Kombat" or submitting/completing a reorganization plan are the main jobs of Midway employees now, not something special for which they should be incentivized. In addition, there's no guarantee they'll do a good job of either one. "The second and third milestones are based solely upon the occurrence of events without regard to when the events may take place, or to results obtained," wrote the U.S. trustee, adding,  "Senior management should not be paid incentive bonus payments... to perform duties required to be performed by their obligations under the Bankruptcy Code."

-There's no guarantee that employees won't leave for a competitor as soon as they receive their bonuses. Given that potential buyers might condition their purchase on key employees remaining, that's a major problem.

-Even if the bonuses were justified, the amount is "outrageous," as the trustee put it. "The Debtors seek authority to pay bonuses to a selected group of officers and managers which are four hundred percent greater than bonuses paid to the same group in 2008 when the Debtors were not before the Bankruptcy Court," she noted. "Given the current state of the general economy, coupled with historical data related to incentive bonuses paid by these Debtors, the Motion constitutes an outrageous request and is not justified by the facts and circumstances of the case."

The unsecured creditors' committee did some research of its own and found the proposed bonus amounts equally disturbing: "In a survey prepared by the Committee's financial advisor, FTI Consulting, of compensation plans proposed in some twenty comparable bankrupcty cases in recent years, the Proposed Plan is, by far, the richest compensation plan that has been proposed, despite the unusually poor conditions of the current economy."

Of course, it's worth remembering that everyone has incentives. The unsecured creditors, certainly, want Midway to spend as little as possible so that there will be more cash left to pay them back under a restructuring or sale. While some of their criticisms are damning, others aren't 100% fair. The "twenty comparable bankruptcy cases," for instance, don't include any other entertainment or software companies.

Nonetheless, Midway seems to have gotten the message, most likely from talks that occurred before these objections were filed on Friday. A spokesperson tells the Cut Scene that a revised version of the "key employee incentive plan" will be filed tomorrow. We'll find out if the creditors and trustee still have such harsh words come Wednesday, when a hearing is scheduled.

Update: Midway had revised its proposed plan. Details here.

Electronic Arts seems to have a plan for its new M-rated properties: launch a direct-to-DVD animated movie with the game and develop a big budget feature film to expand the franchise in the long run.

"Dead Space," of course, had its animated DVD movie "Downfall" (below left) that came out along with the game in October. A feature film is being developed by Temple Hill Productions, the company behind "Gears of War" and "Twilight."

"Dante's Inferno" (above right) is further ahead on the theatrical feature path. It has already been set up at Universal Pictures and has a writer penning a script. Today comes news that Film Roman, the Starz Entertainment unit behind "Dead Space: Downfall" is also doing a direct-to-DVD version of "Dante's" that will come out with the game next winter.

 The only details about the "Dante's" project to come out are that separate anime studios are being tapped to create the nine different levels of hell.

News was revealed today as Starz is apparently looking to sell both animated movies to international TV buyers at the MIP market this week.

With all the meetings, demos, and random conversations I've been having at GDC (it's kind of cool to be in an environment where I can hardly go a minute without running into someone I know, who knows me, or who sees my name tag and wants to talk about my blog or rant about certain employment decisions made recently by certain newspapers), I didn't make it to a single speech or panel -- allegedly the point of GDC! -- outside of Iwata's keynote until yesterday afternoon. But I cleared my schedule because, really, how could you miss an opportunity to hear "Katamari Damacy" and "Noby Noby Boy" creator Keita Takahashi give a presentation titled "All About Noby Noby Boy?"

He did not disappoint. The man is just as off-kilter, wacky and hilarious as you'd expect from his work. And he was very frank from the get go in admitting that "Noby" hasn't sold too well (an impossible-to-categorize downloadable PS3 exclusive original IP? Who'd have expected that?). Watching him talk feels makes me think of Andy Warhol talking about one of his movies: The work defies almost every convention of the medium and when the creator talks, you get only more confused, not less. It seems like he understand what he's doing even less than we do.

Nonetheless, it's almost impossible to not be entranced by his ridiculously naive and pure love for his game. And to not wonder whether it's all an act -- Performance art with the video game industry (and even the fans who play his games?) as a canvas.

A few highlights:

-Takahashi's goal with "Noby" is for players to work together to get the girl to extend to the end of the solar system (if you haven't played the game that won't quite make sense; just roll with me). But with the game's limited sales, that will take 820 years at the current rate of growth.

-He's hoping to compress that a bit with an in-the-works iPhone version of "Noby Noby Boy." But he later revealed that has only been in the works for a week and he has no idea if/when it will come out. I'm going to guess that's not how Namco Bandai would have liked the game to be announced.

-One of his favorite ideas for the game he had to abandon was to give real, physical prizes to the first, 10th, or 1000th (etc.) players to achieve major goals, like extending the girl past Mars. The prizes included a "Noby Noby Boy" scarf knitted by his mother and a six foot doll made by his sister (I'm so sorry I didn't snap pictures of the photos he showed us in time). "If I can deliver an actual gift to players, this might make them think there is an actual 'girl' or 'boy" and believe, as the girl says, that if you chain the solar system everyone can be happy," he explained. Now it makes sense, right?

-He also considered making "Noby Noby Boy" dolls, like the ones pictured on left, "every day" after the game was was done to send to players. But he didn't feel there was a secure way to send them, or the scarf or doll, to players who earned them without addressing privacy concerns.

-That almost didn't stop him. "I thought it could be fun even if it went to the wrong address," he added. "Then they could sell them online and I'd buy them back and try to deliver them again to the right person."

-What is "Noby Noby Boy?" Here's how the creator describes it: "'Noby Noby Boy' is a ticket to go to a festival to change the solar system."

"That makes total sense," you're probably thinking. "But why would anyone make a game that's a ticket to a festival to change the solar system?" Takahashi has an explanation:

I felt constrained and cramped. In the last two-to-five years, the world has become cramped. It's difficult to explain. IT doesn't have to do with the recession. It feels contrained from a different perspective... Something is tying me up. It feels like I'm being constrained by systems. It might be [publisher] Bandai [Namco]. But it feels like there is something more constricting in the world.

"Noby" means to "not feel constrained, be liberated" in Japanese. Another meaning is "dilly dallying." I think that fits the game. It's a wonderful word.

Got it?

-Takahashi's concluding advice to his fellow video game makers at GDC? Forget your players, forget any rules, and just come up with something crazy you love. In other words, imagine you're John Lennon in the '70s. Or as he put it (in excerpts):

I think there's a great potential to games and that's why I'm dissatisfied with that is existing today... If we love video games, then we have to think about them much more and feel more and enjoy them more.... Perhaps we are hiding behind the rules of games and relying too much on past experience... Perhaps we have to ignore the players and companies and just create games we like...We shouldn't be afraid of being criticized or what the result will be. That method will create things that are fantastic or fanastically awful. But even if they're fantastically awful, they still have value. 

Well, maybe Takahashi is naive and insane. But in an industry that perhaps doesn't think outside of the box as much as it should and at a conference focused in large part on processes and techniques, I'm really glad we have a genuine 100% right-brained hippie (I hate the word, but it fits) in the mix.

I think it's a safe bet more readers of this blog have heard of "Pure" than "Club Penguin: Elite Penguin Force." The former is a major franchise launch and the first game from Disney Interactive Studios' Black Rock racing studio. The latter is a Nintendo DS spin-off from the popular kids' online world. "Pure" has 55 reviews on Metacritic. "Elite Penguin Force" has two.

According to Graham Hopper, we may have our priorities out of whack. The senior VP in charge of DIS noted during an interview yesterday that "Elite Penguin Force" has been his company's number one selling title (in units, not revenue) since its November debut. It's not exactly sexy, but it's based on a huge franchise (and even connects to it, with currency earned in the game available in "Club Penguin" on the Web), it's on the world's most pouplar videogame device, and it's a $30 title in an economic environment where value sells.

Like many publishers, Disney is finding that consumers are flocking toward value titles and only the very best known, best selling high end franchises, Hopper noted. As a result, games like "Elite Penguin Force" and "Phineas and Ferb" (another DS title, this one based on a Disney Channel show), which is DIS's number two title currently.

It's a very tough environment as Disney attempts to break into the AAA franchise world, Hopper admitted, particularly during the crowded fall when his company launched "Pure." Though it got good reviews and sold decently to predisposed fans, Disney was hoping it would break through to a broader audience. "If I had it to do over again, I would have released 'Pure' at a different time," he explained. "Relative to other racing titles we did well, but I would have loved for it to transcend the genre."

He has higher hopes that "Split Second," (left) the next title from Black Rock, will do next. Due in early 2010, it's a "Burnout" style arcade action racer set in a reality show where players set off explosions to mess with competitors. And while it's tough to make judgments based on the early build Disney showed, "Split Second" definitely appears to have major adrenaline and less of of the gearhead-targeted tricks and engine customization present in "Pure."

However, Hopper also noted that Black Rock has two teams working. So don't be surprised at all to see Disney give "Pure" another shot in late 2010 or 2011.

By now you probably know the winners of the Game Developers' Choice Awards ("Fallout 3" for game of the year and writing, "Dead Space" for audio, "Prince of Persia" for art, "World of Goo" for downloadable game, "God of War: Chains of Olympus for handheld, "LittleBigPlanet" for everything else). The ceremony was relatively fun and a great opportunity for an underappreciated creative community to celebrate its work together.

But having been present at numerous awards shows in Hollywood, I couldn't help but notice some key differences tha indicate, well, this still ain't exactly the Oscars:

-Numerous nominees who weren't present. If "Grand Theft Auto IV" had won any awards, there wouldn't have been anyone from Rockstar here to accept. If "Gears of War 2" had won, Cliff Bleszinski wouldn't have been there to bound on stage.

-At the Oscars, there are seat fillers who jump into chairs if you so much as go to the bathroom. At the GDC's, empty seats abounded. I had a good half a row to myself.

-The number of female award winners: ZERO. The number of women who appeared at all: Two, one of whom runs the conference and one who was there to look pretty and escort winners offstage

-When you win an Oscar, you go to the Governor's Ball and numerous studio-sponsored parties and are mobbed by agents, producers, and well-wishers. Apparently if you win the Seamus McNally Grand Prize at the from Independent Games Festival Awards (the "indie" ceremony before GDC Awards proper), you end up at lame "Rock Band"-and-beer parties in someone's apartment. As I discovered when I was at just such a party last night and Erik Svedang, the creator of "Blueberry Garden," and several of his pals showed up:

Let's hope for the industry's sake that winners will have somewhere better to be in the future.

The biggest news from Nintendo president Satoru Iwata's keynote today, without a doubt, was that the Wii will now work with high capacity SD memory cards. Why? Because now the most popular home video game console in the world -- which has shipped over 50 million units -- is a digital media gateway in the living room.

Sony and Microsoft built their current consoles with the goal of having a "trojan horse" to do the same thing. Microsoft, thanks to the excellence of Xbox Live and decent sales for its console, has made solid progress in that space. Sony, thanks to the problems of Playstation Network and its struggles to sell devices, has not.

Nintendo doesn't seem to have thought about that at all with the Wii -- There's virtually no built-in storage and no home networking capabilities. It doesn't even play DVDs.

 Playing online multi-player games has also proven to be a major pain on the device. But downloading casual and classic games on the console is easy. And popular. The only drawback has been storage -- the console comes with a miniscule 512 MB of flash memory and only works with 2 gigabyte storage cards.

Now with a system update coming today, it's compatible with 32 gigabyte cards. Which means the ability to store downloadable games is limitless. With just a few of those cards, in fact, Nintendo owners can get more storage than the hard drives on the Xbox 360 and Playstation 3 (both those devices work with storage cards, but the user interface doesn't connect as seamlessly as on the Wii).

Which means users can download unlimited numbers of games. And there's theoretically no reason they  need a size limit, at least in terms of storage. If gamers are willing to wait, they could download a title as big as a standard disc (9 gb) or even bigger. (see update below)

And remember when I wrote that the Wii might start offering movie and TV downloads or streaming soon? With unlimited storage, that becomes a lot easier.

Of course, most people probably aren't going to spend the money to do this. But the brilliance of Nintendo's strategy is that most people don't have to. The huge audience that just wants to spend $250 and play "Mario Kart" or "Wii Fit" can do that. But some who start with that mindset -- and thus buy into the Wii -- may find themselves interested in more. And now Nintendo can upgrade them to 360/PS3-size storage and beyond.

So yes, Iwata's description of Nintendo creative guru Shigero Miyamoto's design process ande philosophy was fascinating. The DSi (which I've seen before and will try to write more about soon) has some fun new features that will undoubtedly prove popular. And the announcement of a new "Legend of Zelda" DS game (photo borrowed from MTV Multiplayer) was cool (the last one, "Phantom Hourglass," was phenomenal).

But long term, I think we'll remember today as the day that the Wii became able to do much more than an underpowered videogame console with accessible games and innovative controllers. Nintendo is now poised to become the centerpiece of the digitally connected living room that Sony and Microsoft wanted to be. And it did it by focusing entirely on games for a couple of years and then adding the one missing element: storage.

Update: An astute reader pointed out to me that it may not be technically possible, at least for now, to play games bigger than 512 MB, because it would need to utilize the system's flash memory while being played.

All signs point to Infinity Ward doing its first public reveal of "Call of Duty: Modern Warfare 2" tonight, most likely at or around the Game Developers' Choice Awards.

I've heard from several sources that some kind of "MW 2" reveal is coming this week. There's buzz here at the show and on Twitter that a reveal of something big will come tonight. There's a crew from Infinity Ward, including their head PR guy, in town. And this website just went up.

The interesting question is: What will it mean to "announce" a game that Activision executives have discussed publicly and Infinity Ward's head PR guy regularly twitters about? The first showing of gameplay footage? A trailer? A release date? Key details unveiled?

It's looking very likely we'll know before the day is through.

And assuming I'm right, the industry folks in attendance and the core gamers keeping track are sure to go crazy, since "Modern Warfare," which has sold well over 10 million units, is the most successful action game of the current videogame generation (and "Call of Duty" overall is the most successful franchise). To call this year's sequel "highly anticipated" would be as much an understatement as calling "Watchmen" "eagerly awaited" amongst comic book readers.

(Does this mean I was wrong to write "No major announcements of sequels we all know are coming [like "Gears of War 2" last year] are expected?" If this counts as an "announcement," then I guess so.)

Update: I was right. Although calling it a "reveal" is using the term generously. It's more like a green hued enigma that puts the "tease" in "teaser trailer." Oh, and "Modern Warfare 2" is coming out in the same early November time frame (Nov. 10 this year) that "Call of Duty" 3, 4, and "World at War" did. Shocking!

Paramount's "Star Trek: D.A.C." game will be all-out, top-down, multi-player space battles.

That's the word from three of the folks behind it, whom I just sat down with at GDC. I reported a few weeks ago that the downloadable game will come out along with the movie and will be a top-down space action title.

But unlike most movie games, it turns out, this one doesn't replicate the story of the film, or even tie into it. There's no single-player campaign. "It's all multiplayer, team-based battles," explains Ben Hoyt, a senior producer with Paramount Digital Entertainment, which is publishing "D.A.C." (And no, I didn't find out what that stands for). "It's designed to be quick and fast-paced. There are multiple ship classes and battles and several different game modes."

Up to 12 people can play the PS3 and 360 downloadable game, which features battles that are inspired by the movie, but not seen in it. Some of the starship designs, as well as the music and sound effects, are taken directly from the film, though.

"Star Trek" fans will remember that the movie was originally supposed to come out in December, but got delayed to May. That's good news for people looking forward to the game,which has been made on a tight schedule. The studio chose to make a downloadable game, rather than a disc one,  so that it could get a high quality title in time for the theatrical release (Just as Warner Bros. did with "Watchmen"). But even that would have been very difficult to get done by December, given that they've been working long hours to get it complete for May.

"We had it structured to develop the game for December," recalls Dave Baranoff, who oversees interactive for "Star Trek" director J.J. Abrams' production company Bad Robot. "But the push of the movie sealed the deal that we would be able to get out a quality game title we all believe in."

Those extra five months won't only help with polish, but have may have played a role in some of the major gameplay decisions. "Going in we said it was going to be a certain way, but luckily we ended up with time to explore and come up with some different things," notes Josh Glazer, Chief Technology Officer of developer Naked Sky.

"D.A.C." marks something of a step forward for Paramount. The only games it has self published previously are iPhone titles. So it's negotiating its first distribution deals with Sony and Microsoft  for this title.

It's also, in a bizarre corporate twist, a licensed game for Paramount, even though it's releasing the movie. When Viacom split into CBS and Paramount, CBS held onto the interactive rights for Captain Kirk et al. So Paramount is actually licensing the property from CBS, much like traditional game publishers usually license properties from studios like Paramount.

But there was one potential barrier bigger than CBS, Sony, Microsoft, or any release date standing in the way of "Star Trek: D.A.C.": J.J. Abrams. As with most movie-based games, the director, along with producer Bryan Burke and others involved in the project, have seen designs and given notes along the way. But the game never got an official greenlight from the director, and thus the studio, until there was a playable version that Abrams came in to try and approve.

"That was a scary meeting," admits Hoyt. "It was do or die for the game." 

Obviously it was "do." Gamers will find out whether they agree with Abrams' call in May.

P.S. Electronic Arts announced today at GDC that it's developing a "Star Trek" mobile game tied to the movie. But after initially offering to show the title, it backed out. So I don't have any more information than the fact that it's in the works

Updated with screen shots, finally.

This evening at the Game Developers Conference, Ubisoft hosted a small roundtable discussion (moderated by former Newsweek reporter N'Gai Croal) for press with three of its top creators from Montreal, along with the studio's CEO Yannis Mallat. The game creators who spoke were "Far Cry 2" creative director Clint Hocking, "Prince of Persia" producer Ben Mattes, and "EndWar" creative director Michael De Plater.

It's a rare and cool thing to see a video game publisher put people involved in creating their games -- and not executives (well, only one) -- front and center. In an industry that doesn't promote its creative talent enough, especially in casual forums where ideas can flow and journalists can have casual discussions with artists, Ubisoft did something I'd love to see others do more.

Hocking had some particularly interesting comments about what what video game creators don't need to learn from Hollywood. Mallat, on the other hand, expressed his strong belief that movie and video games production are merging -- Although his specific points about Ubisoft Montreal's work on the "Avatar" game were the same talking points you hear about any movie-based game. Mattes, perhaps tellingly, ended up talking almost exclusively about the role of A.I. partner Elika in his game (to me, she was the most interesting part of the game, in how she worked and how she failed).

Transcribing the entire roundtable -- let along the very long post-panel small group discussions -- is a bit beyond my capabilities. But I did write down some of the most interesting quotes from the evening for Cut Scene readers to enjoy:

Yannis Mallat

Michael De Plater

Clint Hocking

Ben Mattes

Before we gave ["Prince of Persia" partner character] Elika personality, she was a mechanic. She was what keeps you from dying.

The one thing I would beat my chest about is that we succeeded in creating an A.I. character [Elika] that you don't hate.

I find it interesting that some people say the game is too easy, but they don't point the finger at Elika.

[Talking about why there's no "dying" in "Prince of Persia"] The second you see [Elika's] hand grasping, you know you failed. You can make of that what you will.

There have to be ways to not punish players while making sure the guys on NeoGAF have enough to sink their teeth into.

[Talking about how the Prince and Elika grasp hands to swing past each other when hanging onto a pole in the game] That was an animation that was done to solve some bug we had the week before E3. It become one of the game's most touching moments.

If I were to do it again... I'd say we should take the mannerisms that make these people interesting and break them down into interactivity.

With sales and profits recently slowing and future success of the brand critical to the company’s growth, Activision is shaking up its “Guitar Hero” publishing division RedOctane. CEO Bobby Kotick has brought in a heavy hitter to run it: Dan Rosensweig, the former Chief Operating Officer of Yahoo.

Kotick knows Rosensweig from having served on the Yahoo board. The Activision CEO obviously wanted someone he trusts who has a strong business background – even if it’s not in video games -- running things.

When Activision merged with Blizzard, execs identified "Guitar Hero" as one of the three key franchises that would create value, along with "Call of Duty" and "World of Warcraft." So Rosensweig's task isn't just selling video games -- It's maintaining one of the three legs that supports a $13.7 billion company. (No pressure, though)

Rosensweig takes the title of CEO/president of RedOctane from Kai Huang, who formed the company – which Activision presciently bought in 2006 for $100 million – with his brother Charles.

It turns out that RedOctane's former head of publishing Dusty Welch, who used to be “Activision’s guy” at the unit, left in January (an Activision spokesperson said he still works for the company). Rosensweig is not a direct replacement for him, though. Welch used to report to Kai Huang. But Huang, and his brother,  now report to Rosensweig. To put it bluntly,, the founders aren't in charge anymore.

RedOctane's new CEO was Yahoo’s COO from 2002 to 2006, helping successfully steer it out of the dot-com bust, though also leaving behind a tumultuous and troubled company (to what extent, if any, he bears responsibility for Yahoo's struggles in the past two-plus years is obviously well beyond the purview of this post). Before that, he held a number of roles at Ziff Davis, ultimately becoming president of the company and overseeing the merger of ZDNet and CNET. He has been a partner at private equity firm Quadrangle since leaving Yahoo.

I spoke to Rosensweig briefly today about what he brings to the job and where he sees the “Guitar Hero” franchise going, particularly given his strong background in online media.

(The interview was conducted in an airport on my way to GDC, so transcription is not as exact as I would have liked. Apologies for that.)

Ben Fritz: You don’t have a direct background in video games or music. So why do you think you’re the right guy for this job? Why did you take it?

Dan Rosensweig: Frankly there are very few opportunities in the world right now for high growth businesses like this. When I left Yahoo I was not sure I’d see another opportunity like this to work with a big brand that’s taking the world by storm and making people smile.

I think the future of entertainment and the Internet is being built on the strength of great brands like “Guitar Hero.”

BF: Based on that, is it safe to say that you think the Internet will be of increasing importance to the future of “Guitar Hero?” That it’s not just about plastic guitars?

This week the Cut Scene will be reporting from the Game Developers Conference in San Francisco, one of two major industry events (along with E3 in June). GDC offers a great opportunity to mix serious artistic panels discussions on which developers discuss their craft with speeches by industry luminaries and interviews with publishers talking about their products and strategies.

I hope to bring some of that all to Cut Scene readers this week. I'm sure there will be plenty of surprises, but here's some of the content I know you can expect:

"But will there be news?" some may be asking? Probably not a lot. No major announcements of sequels we all know are coming (like "Gears of War 2" last year) are expected. The one big hope for a major announcement will of course come at Iwata's speech. Nintendo fanboys are undoubtedly salivating at the prospect he might talk about the long-rumored "Kid Icarus" update or the next "Zelda" title.

Sometimes limitations are an artist's best friend.

Case in point: "Grand Theft Auto: Chinatown Wars." It's a great DS game -- I'd put it in competition with "The Legend of Zelda: Phantom Hourglass" as the best game every for the system. But it's also a great "Grand Theft Auto" game. Definitely better than the recent expansion pack "Lost and Damned" and even a bit better than "Grand Theft Auto IV."

Why? It's a lot less indulgent than either of those games. Rockstar clearly put a lot of work into what works on the DS -- not just in terms of the controls, the processing power, and the graphical and audio limitations, but also the way most people play Nintendo's portable console in short bursts. The missions are tight, the controls are clean -- moreso than ever thanks to the touch screen -- and the violence is over-the-top fun in the best traditions of the series.

Sure, the physics, the graphics, and the gunfights that spread across multiple levels of multiple buildings are impressive and occasionally astounding in "GTA IV." But they're less exuberant and more visceral -- the game is a tragedy and the action always has that tinge to it. It's too intense and too involved to ever be pure fun.

But that approach wouldn't work on the DS. You can't make action that big, involving and intense on an underpowered portable device. Rockstar wisely realized that and designed its new game accordingly. Here's how I describe the gameplay in my recently posted review of "Chinatown Wars":

"GTA" games work best when the characters and themes match the action -- That's why "GTA IV" was so good and "Lost and Damned" wasn't quite up to par. In "Chinatown Wars," Rockstar nails the writing, crafting a tale that's as irreverent as the gameplay:

The basic narrative formula is incredibly familiar to "GTA" veterans -- a foreigner arrives in Liberty City and quickly finds himself caught up in a gang war, doing jobs for unsavory and amusing characters while on a personal quest. But Hong Kong native Huang Lee is not ridden with pathos like "GTA IV" protag Niko Bellic. He's a smart ass who doesn't take anything or anyone he finds in Liberty City too seriously.

Rockstar has great fun with that attitude, using Lee to mock many of the clichés one might expect in a game called "Chinatown Wars." When his uncle talks about the family honor being "besmirched," Lee responds with a laugh, reminding him that it's "2009, not 1403." Rockstar's trademark portrayal of the culturally respected as corrupt and hypocritical plays out in genuinely funny ways, with old Chinese men spouting lines like, "I know a proverb about that once, but I forgot it."

Finally, while it hardly falls into the purview of a critical review, you have to give Rockstar the credit it always earns: With a big main story, dozens of side quests, and entire drug-dealing economy, local and wi-fi multi-player, and easy replay of every mission, the game is simply massive. Probably the biggest ever on the DS (save perhaps for, again, "Zelda: Phantom Hourglass"). In a down economy, Rockstar continues to give players some of the best value for their entertainment dollar.

Full review: Grand Theft Auto: Chinatown Wars

With only two months to go until the theatrical release, Brash's "Night at the Museum 2: Battle of the Smithsonian" game has been picked up by Majesco.

A source close to the game confirmed the deal, as did a search on the ESRB's ratings website.

Licensor Fox and Foundation 9, parent company of the game's developer Pipeworks, have been looking to find a new publisher for the game since Brash went out of business in November. But apparently it was a close call, with the deal only coming together in the past few weeks, and final details still being worked out now. (Don't confuse it with Majesco's own "Escape the Museum" that comes out Tuesday.)

I'm told that Ubisoft was very interested and almost picked it up, before ultimately deciding to pass. It was shopped to numerous other publishers, but many were concerned about the extremely short timeline. A source at one publisher said they were interested in the game when they say it last month, but simply didn't think they'd have enough time to put together a marketing plan building up to the film's Memorial Day weekend release.

For Ubisoft and most other publishers, "Night at the Museum 2" wouldn't be a big deal -- just a blip on their slate. But it is a big deal for Majesco. The relatively successful but still tiny publisher of "value" titles hasn't released any games based on movies since 2006's horrible "Jaws Unleashed." In addition, it will be only the second game ever released on the Xbox 360 by Majesco, which has been focused on Nintendo's Wii and DS for the past few years. Of course, given its kid appeal, "Night at the Museum 2" will also be released for Nintendo's two consoles.

"Night at the Museum 2" is the last Brash game set for release this year to get a new publisher (save for "Prison Break," which appears to be consigned to the video game dust heap). "Tale of Despereaux" was already released by Atari and "Six Flags Fun Park" by Ubisoft. "Saw" has been picked up by Konami, though the Japanese publisher has yet to announce the deal. It remains to be seen whether any publisher want to pick up Brash's games in the works for 2010, like "Clash of the Titan," "Superman," "The Flash," etc. and pay to finish production.

Reps for Majesco haven't yet responded to a request for comment.

Honestly, who among us didn't used to watch "Who's the Boss?" in the '80s and think, "There's a girl who's going to fill Sigourney Weaver's shoes someday?"

Details here.

February video game sales data was just released today and all the data, including the top 10 titles, console sales, and industry growth, are below. But here are your key points:

The industry is slowing, but still growing despite the recession

It's nothing close to the phenomenal 34% growth of the U.S. video game business last year. But 10% when the rest of the economy is contracting is still quite impressive. And software and hardware are contributing virtually evenly to the mix -- a good sign that the hardware cycle isn't slowing and that current gamers aren't cutting back disproportionately on buying new titles.

Microsoft had a good comparison, Sony had a bad one

The 54% jump in Xbox 360 sales is impressive. But you have to remember that last February Xbox 360 sales were dismal, due largely to supply constraints post-holiday and in anticipation of "Grand Theft Auto IV." This past Fall's price cut helped too of course. But nothing as amazing as that 54% number would indicate actually happened for Microsoft. It's just back to where it should be.

Sony, meanwhile, had a decent month, given its recent problems. Sales were almost flat, despite the fact that the PS3 sold unusually well last February (thanks in part to the then-recent victory of Blu-ray, as well as the 360's supply problems). Still, I'm sure Sony would love to see PS3 sales actually grow for a change. The PSP, meanwhile, continues to suffer. No wonder Sony's pushing aggressively for big new titles like "Hannah Montana," "Assassin's Creed," and "LittleBigPlanet" on the device.

 Killzone 2, Street Fighter IV both had solid launches

323,000 units in fifth place isn't bad for a PS3 exclusive that launched on the last Friday of the month. Quite good, in fact.

And Capcom kicked ass, at least as far as February releases go, with "Street Fighter IV," selling 849,000 units across the two high-end consoles. By contrast, Capcom's big sequel last February, "Devil May Cry 4," sold 528,700 on the same platforms.

FEAR 2 and 50 Cent, not so much

Warner Bros.' heavily hyped "FEAR 2: Project Origin," it's first stab at a non-licensed title for the  hard-core market, flopped. Despite launching early in the month, both the PS3 nor 360 versions sold less than 136,000 units. There are all sorts of possible reasons, most notably that in the current economy mid-level hard core titles simply aren't selling. But it's still a bad sign for the studios' ambitions to compete with major publishers that a sequel with relatively good reviews couldn't do better.

"50 Cent: Blood on the Sand," had the same problem, though it did launch late in the month. Still, THQ's expectations may have been more modest, since it bought the former Sierra title from Activision at what was likely a sizable discount off the full development cost.

Remember Nintendo? They're still dominating

There were no major new Nintendo releases, but that didn't slow the House of Mario down too much. It still claimed five of the top 10 games, with another, "Guitar Hero: World Tour" breaking into the top 10 only with its Wii version. Notably, the newest Nintendo game on the top 10, was at #1, "Wii Fit." It's "only" nine months old. "Mario Kart DS," meanwhile, is on the top 10 over three years after its debut.

And the Wii, once again, topped the market, growing 74% -- helped, of course, by easing supply. DS sales were flat, but still well ahead of every other console except the Wii.

Paramount and developer Naked Sky have yet to confirm any details about the downloadable "Star Trek" game they're making to go with the movie, which I reported on last week. They haven't even stated that it's happening.

But Naked Sky has left an amusing clue on its website. The game, as some leaked promo art from the upcoming season one Blu-ray release demonstrates, is called "Star Trek: D.A.C." With that in mind, check out the statement that's currently on Naked Sky's home page. I've bolded some letters to help make the message clear:

Hmmmm

It's no surprise that THQ is shuttering or spinning off some development studios given its recent decision to lay off a staggering 24% of its workforce.

But it's perhaps instructive to notice about which of its 11 remaining studios it is now spinning off or selling (after previously closing five). One that really stood out to me on a list reported by Crispy Gamer is Heavy Iron. It has been around since 1999 and has worked on nine titles for THQ in that time. But if you look at its four most recent releases and the one it's currently working on, you'll notice a trend:

Heavy Iron has become THQ's go to studio for lead development on Pixar games. But that deal is about to be over. Disney is taking development of the Pixar games internal starting with 2010's "Toy Story 3." Which pretty much leaves Heavy Iron without a raison d'etre. THQ doesn't have any more licenses to assign. And given how conservative the publisher is now being about original properties, we can't expect it to keep many, if any, internal developers alive for that purpose.

Of course, Disney will probably be on the hunt for talent to help it make Pixar games. The only internal studio it has that focuses on kids' games, Avalanche Software, is already pretty busy making games based on the Disney Animation Studios films. So as Heavy Iron looks for assignments, or its staff looks for new jobs, it's possible they could be working on Pixar games for a new publisher.

What about the other two studios being spun off or sold? Well, Incinerator Studios never really got off teh ground since it was founded in 2006. At the time, the publisher said it looked forward to Incinerator bringing "its own ideas for next generation development." But all it made in its short life was versions of "Cars" for the Wii and 360, "Cars: Mater National" for the PS3 and Wii, the Wii and PS2 versions of "MX vs ATV: Untamed" and Wii/PS2 game "Nicktoons: Globs of Doom." Once again, experience working on Pixar titles probably didn't help.

The fact that those two developers are being spun off as independents, rather than shut down, indicates that some people involved must think they can get work. Which makes some sense given their history working on licenses. The road is tougher for RTS/RPG specialist Big Huge Games, which THQ has said it will either sell or shutter. The publisher only bought it last year, but has apparently quickly given up hope of competing in that space favored only by core gamers. It will probably be an uphill climb to find another publisher or investor willing to bet money on a developer like Big Huge at this time, even given what's probably a dirt cheap price.

It's basic economics: Huge supply and limited consumer attention means low prices. That's why there's a price war amongst the 6,000 games in the iTunes app store. Look through the top 100 paid titles and you can't help but notice that 98 of them are $5.99 or less. Some of the highest quality titles are shockingly cheap. Warner Bros. "Watchmen" game is just 99 cents. EA's "SimCity" is only $5.99. The awesome tower defense game "Fieldrunners" is only $2.99. 

At those downloads, you have to sell a lot of downloads to make a profit (at least if you're anything more than one person working at night). Making even $100,000 on a $5 game means that, after Apple takes its cut, you need to sell nearly 30,000 copies. That's no easy task in a space where the very best selling games, like "iShoot" and "Super Monkey Ball" have sales in the mid six figures. The top titles might be moving enough units to turn a profit even at a low price. But the sales charts fall off rapidly after the top 100 or so. There are a lot of iPhone games making not a lot of money.

And the iTunes "shelf" only makes matters worse. The number of games that can be featured in the app store on the iPhone is miniscule. If you don't have the connections or luck to get featured, there's only one other way to get noticed: hit the top of the popularity charts. What's the biggest hindrance to that? A high price, for one thing.

How then, can developers and publishers afford to invest in high quality titles and make a profit? Today Apple came out with a fantastic answer as part of the iPhone 3.0 software update coming this summer: in-game downloadable content. I've already written about how DLC has become absolutely crucial to the business model for AAA Playstation 3 and 360 games.

On the iPhone, it could make an even bigger difference. In the current retail model, publishers still need to sell a game to a consumer for $50 or $60 before they can make more money off of DLC. But with a digtially distributed iPhone game, developers can give consumers exactly what they are demanding: the core game cheap, or even for free. Then the game makers can start making money off that base by offering downloadable content. Razor and blade, meet the iPhone.

Tons of people have said that "Resident Evil 5" is not racist, from the New York Times to Destructoid to commenters on pretty much every video game site on the planet.

But here's a question: How many quasi-respected writers have said the game -- not the 2007 trailer, but the game itself -- is racist? Plenty of writers, including yours truly, have said it has some disturbing racial overtones or images that conjure a racist past. And some have started an essay or review by asking whether "Resident Evil 5" is racist. But who has actually accused the game of being "racist," as in promoting or exhibiting the belief that one race is superior to another? I can find exactly one example: Earl Ofari Hutchinson in the Huffington Post. Everyone else, it seems to me, is asserting that the game is to some degree ignorant of the meaning of some of its images given the history of colonialism.

Am I wrong? Are there examples of quasi-respected writers saying "Resident Evil 5" is a racist game?

If I'm not, then aren't all the reviewers and bloggers and commenters screaming "Resident Evil 5 is not racist!" attacking a straw man? And if that's true, then don't these people owe it to those of us who have critiques of the game's racial imagery to either engage our arguments directly (as, I should grant, some have) or else shut the hell up?

Marvel has been a comic book publisher for over 70 years, but in the past few years, it has become a whole lot more -- launching its own movie studio that released "Iron Man" last year and has a sequel, "Thor," "Captain America" and "The Avengers" in the works.

So if Marvel can raise over $500 million to control its own movies rather than license them out to studios, can it do the same for games? After all, Disney and Warner Bros. and Universal and Paramount are all doing it.

When talking to worldwide consumer products president Simon Phillips today about his company's ten-year MMO licensing deal with Gazillion, I asked him. Here's his answer:

Rest easy Activision, THQ and the rest. It'll be a while until Marvel tries to make you as irrelevant as it's making the big movie studios.

Gazillion sure knows how to make a splash. The MMO (massively multi-player online game) publisher has been operating in stealth mode for three years, putting together a collection of development studios and signing one of the biggest video game licensing deals in recent memory: A 10 year pact with Marvel giving it exclusive rights to make MMOs based on every single character in the comic book publisher's library.

It already has two Marvel MMOs in the works: One is a casual game based on the "Super Hero Squad" kids property that's coming as a TV series on Cartoon Network and a THQ console game later this year; and "Marvel Universe," a rebooted version of the AAA game that Microsoft canceled (leaving developer Cryptic Studios to turn its work into the upcoming "Champions Online").

So what the hell is Gazillion? In a nutshell, it's private equity backed -- I'm not sure how much, but you can assume it's substantial, well into the tens of millions if not more -- and it has four major MMO development studios under its umbrella and eight projects either planned or in the works:

-NetDevil, which Gazillion recently acquired, already has "Lego Universe" and "Jumpgate Evolution" in development, along with an unannounced MMO. The Lego Group controls its eponymous game and will handle publishing. But Gazillion got the rights to "Jumpgate" when it acquired NetDevil and will co-publish it in the U.S. with Codemasters, which is handling retail distribution.

-Gargantuan, a studio founded by Gazillion, is making "Marvel Universe."

-Slipgate Ironworks, started by id co-founder John Romero, which Gazillion has quietly been involved in from the beginning. It's producing an unannounced original MMO.

-Amazing Society, another existing studio that Gazillion has quietly been working with from its inception, is developing the "Super Hero Squad" MMO and two unannounced titles.

Founder and CEO Rob Hutter (left) knows that MMOs are a huge risk. But in a down economy when traditional console publishers in particular are struggling, he sees it as the biggest opportunity, particularly when combined with licenses.

"We saw the meteoric success of 'World of Warcraft' and now more casual titles like 'Runescape,' 'Club Penguin' and 'MapleStory' are proving the format really has traction," he explained. "The missing piece is bringing worldwide dominant entertainment brands into the space in a way that delivers high quality MMOs with properties that have a tremendous amount of recognition."

We all know the drill with video games that become movies and vice-versa. If it starts as a game, the movie comes out several years after the game first becomes popular and, in an effort to reach a mass audience without alienating the core fans, usually ends up pleasing no one. If it starts as a movie, its gets licensed 15 months before release, giving the developers barely enough time to get a game out, let alone one that's high quality.

Some folks in Hollywood are trying to find a new way around that conundrum. The formula is simple: Get some geeky producers, video game developers, studio executives, etc. together at the creation of a property, before there are any dollar signs, release dates, or unit sales to get licensing folks' attention, and develop it for multiple media all at once.

Today comes a really intriguing example of that new approach: Fox Atomic has made a deal with production/management company Union Entertainment and developer Zombie Studios to turn the tactical military game "Blacklight" into a movie and comic book (that's concept art from the project around this post). You haven't heard of "Blacklight?" That's because it's in early development at Zombie, the Seattle-based maker of "America's Army" and the upcoming "Saw." It doesn't even have a publisher yet.

Union, which specializes in putting together games, movies and comics (they made the deal for "The Darkness" game and have the video game concept "Zero G" set up at Fox) took at look at "Blacklight," saw the multi-media potential, and helped sell it to Fox Atomic, the studio's youth-skewing division.

Fox Atomic is now developing "Blacklight" as a movie and comic book and has hired Jason Dean Hall to write the feature script and also create the world that will be drawn on for all media. Meanwhile, Zombie is taking the momentum of a movie deal with it to seek a publisher. Union is attached as a producer on both the game and movie side.

I got on the phone today with everyone involved to find out how this unusual project got put together and what it might mean for the future of games and movies. The conversation included Zombie co-CEO and "Blacklight" creator Mark Long; Fox Atomic development director and comics editor-in-chief R. Eric Lieb; and Union's president Richard Leibowitz, Creative Director Dan Jevons, and manager Dmitri Johnson, who are attached as producer and executive producers, respectively. Here are some excerpts:

Ben Fritz: First tell me what exactly "Blacklight" is and how it was created.

Mark Long: About a year ago, I started thinking about where we were going to go next. We specialize in military [first person shooters]. I began thinking about a team tactical shooter set in the near future. A near enough future that it could be based on science fact, not fiction.

When you have the ability to come up with fantasy weapons, games almost design themselves because you can come up with fun things. But when you're in the tactical realism category, it's really hard. For instance, try to find one real weapon somebody hasn’t already put in a game. That’s how we decided on a covert ops team set 25 years in the future that's given the mission of hunting down and capturing or killing the former commander of their team.

 It's kind of a "Heart of Darkness" story. You deal with your dark self and the repercussions of your policies in a region. It's set in the imaginary city of Balik, Kajikistan. We chose that region deliberately so we could have a Romanesque architecture that has fallen into ruin. Now, 25 years in the future, it's covered with ubiquitous banal advertising. Think "Blade Runner" meets Bulgaria.

BF: And what's different about your game from, say, the Clancy titles or "Call of Duty?"

"Resident Evil 4" was one of, if not the, first games I played when I was getting back into gaming in 2004 and 2005 (after a late high school-through-early-20s hiatus) that utterly blew me away and demonstrated how far the medium had progressed since I last saw it. So I was super excited about "Resident Evil 5," if a bit wary based on what I initially saw.

And now that I've played it? The phrase that comes to mind is "How the mighty have fallen." Or, as I put it in my Variety review that recently posted:

Sometimes a revered veteran falls behind the times. The highly anticipated "Resident Evil 5" offers few terrifying moments or new ideas, mixing tired features from the series' previous incarnations with poorly implemented ones borrowed from modern games, all set against a backdrop with disturbing racial overtones.

It's certainly not a disaster. The production values are excellent and there are a few unique touches, most notably the use of the bright African sun in the early levels to amplify the horror in a way I've never seen. Instead of feeling anxious in the dark, I felt exposed in the light (At least until the game abandoned that idea and moved into a bunch of generic caves and sci-fi backdrops).

I'll be honest: Overall, I wasn't just disappointed in "Resident Evil 5." I actively disliked it. If I hadn't been reviewing it, I would have stopped playing after a few hours. I think my review lays out my reasons pretty well. But for those who like lists, here they are one by one:

 -"Resident Evil 5" is not scary. At all. I know that the series moved away from the horror and towards action with "RE 4," but there's still a pretense of horror here. The first header in the briefing book Capcom provided is "The horror continues" and the back of the box screams "You don't have to face the fear alone." Most notably, the game keeps many of the allegedly scary tropes from past incarnations: Tentacles exploding out of infected natives' heads; blood dripping from the ceiling; boss battles with giant slimy monsters. And in case you can't tell it's supposed to be scary, you can push a button to "investigate" and get eerie observations from Chris Redfield like "Looks like it was torn apart by animals. Not a good way to go." (That's my snarky way of saying that Capcom needs to show and not tell.)

It's 2009. Horror today is defined by the psycho-sexual gore of "Saw" and the unpredictable terror of "Left 4 Dead." The "Resident Evil" series either needs to catch up with some new scary ideas or just give up on the horror concept entirely.

2. It's is a mediocre, derivative action game. The lack of scares would be somewhat acceptable if "Resident Evil 5" were a great action game. But it's not. Playing "RE 5" is, in many ways, a montage of action video game cliches from the past few years:

Now that they're all in, it's instructive to compare earnings growth for the public American video game publishers during the holiday quarter. (I'm excluding Activision Blizzard since it wasn't the same company a year ago, so comparisons are impossible; and I'm using GAAP numbers to compare apples to apples)

Company            Revenue change    Net income change
Electronic Arts           10%                      -1842%
Majesco                     76%                         55%
Take Two                    7%                         -33%
THQ                          -30%                      -1337%

All pretty crappy. But wait a minute. What's that company in the middle? The one with substantial growth not only in revenue, but growth in net income at a time when everyone else's losses were ballooning?

Oh, it's just Majesco. They're not even a real company, right? They just publish crap for the DS and Wii. And it's true that Majesco's market cap is only $31.4 million, $5.7 billion for EA, $571 million for EA, and $184 million for THQ. And all of its growth comes from a very low base, as does its 65% jump in stock price since Jan. 1 (all the way to $1.03.)

Except... Executing on the Wii and DS is exactly what other publishers are trying to do better. Have you even heard of "Jillian Michaels Fitness Ultimatum 2009?" Me neither, but it sold over 500,000 units on the Wii alone. At $40 a pop, and given the low cost of making that game, it's a serious hit. By comparison, EA's "Madden NFL '09," which has a better brand and cost more to make, sold just 116,000 units in its first month (and has surely not gotten close to 500,000 since then). Majesco also has its "Cooking Mama" franchise, soon to become "Gardening Mama" as well, which has had four games sell a total of 3.7 million unit in the U.S. That's two successful Nintendo brands right there, neither of which require substantial spending.

What's remarkable is that Majesco didn't get to its current state through foresight so much as well timed failure. Back in 2005, the then-small publisher decided to try and compete with the big boys, releasing expensive AAA flops like "Psychonauts," "Advent Rising," and "Aeon Flux." You know how EA got burned this fall by "Mirror's Edge" and "Dead Space?" That's what happened to Majesco in 2005.

The result was that Majesco was teetering on the edge of financial ruin. Its solution? In what seemed like a desperate ploy to conserve cash at the time, president (now CEO) Jesse Sutton said in early 2006 that the company would focus on "publishing value priced software and games for handheld systems."

That, of course, was an extremely prophetic decision, because it meant Majesco by necessity focused on Nintendo's Wii and DS at a time when many other publishers were betting big on the 360 and PS3. Flash forward three years and everybody else is trying to jump on the Nintendo bandwagon that Majesco's very successfully riding.

Of course, the industry biggies want to produce better games than Majesco has done so far. But the "Cooking Mama" publisher is starting to up its quality bar a bit by hiring the developers of "Parappa" (there's something core gamers have actually heard of) to make a new Wii music title.

Obviously, EA and Take-Two and THQ and Activision are not looking to become tiny "value" publishers like Majesco. They'd like to keep mega-franchises like "Madden" and "Saint's Row" and "Bioshock" humming on the PS3 and 360 and even find a few more like them. But while they continue, in the words of THQ CEO Brian Farrell, making "fewer, better bets" in that space, they're looking to make more, smaller bets and essentially use the Majesco model as the solid base of their business.

And if THQ's "fewer, better" bets don't work out, well, Farrell might soon find himself sounding a lot like Sutton three years ago.

David Hayter, the voice of Snake in the "Metal Gear Solid" games and writer of two "X-Men" movies, "Watchmen" and the upcoming adaptation of "Lost Planet" has started a production company that will generate film, TV, Internet and, yes video game projects.

Variety's Michael Fleming has the details.

It appears that Frodo is coming home. Not to the Shire, but to Warner Bros.

Though neither company said anything about it, New Line's licensing deal with Electronic Arts for "Lord of the Rings" games expired at the end of last year. Originally set to end in 2007, the two companies agreed on an extension that March until the end of 2008 (the pact also included literary rights holder Tolkien Enterprises).

The last game released under the deal was January's poorly received, soft selling "Lord of the Rings: Conquest" (one of the reasons the game turned out so badly may have been that developer Pandemic had to get it done before EA's rights expired at the end of 2008, though apparently the publisher got a two-week reprieve to release it in early January).

Since EA first got its hands on the "Lord of the Rings" license back in 2001, New Line has transitioned from an independent studio under the Time Warner corporate umbrella to a label for Warner Bros., which now handles most of its business operations. Warner, of course, has its own videogame unit, Warner Bros. Interactive Entertainment, that has grown from a licensing unit to a full-fledged publisher with its own slate of AAA titles.

So, you own a major publisher... you just got back the interactive rights to one of the top entertainment properties in the world... Can you guess where I'm going? It's a safe bet that Warner Bros. won't be licensing out "Lord of the Rings" again. Instead, based on logic and what some sources have told me, expect Warner Bros. to start producing "Lord of the Rings" games itself soon (whether they're based solely on its films, or also stuff from the books, will depend whether it makes a deal with Tolkien Enterprises).

What, oh what, kind of games might Warner do with the "Lord of the Rings" license? Well, there are two "Hobbit" movies that New Line is producing with MGM for 2011 and 2012. Not only is there an obvious movie tie-in or two, but that could also help revive interest in any games set in Middle Earth.

A Warner Bros. Interactive Entertainment rep declined to comment.

As movie studios increasingly handle their own videogame publishing, this will continue be the trend. Why keep licensing out your best stuff if you can make the games yourself? Disney, for instance, is in the process of taking back the Pixar license from THQ, which has the rights to make games based on "Up" and one more film, most likely 2011's "Newt" (Disney is doing 2010's "Toy Story 3").

Of course, while "Lord of the Rings" is big, Warner Bros. has another videogame license currently in the hands of EA that it's no doubt salivating to bring back home: Harry Potter. That won't happen for a while, though. EA's deal extends through Warner Bros.' last film, which will be part 2 of "Harry Potter and the Deathly Hallows" in 2011. (Although, according to reports, WB may already have its studio Traveller's Tales working on "Lego Harry Potter," perhaps in some kind of co-publishing deal with EA.)

Update: Joystiq picked up this post and added a good additional point I forgot about: Warner Bros. is a major equity holder in Turbine, developer of "Lord of the Rings Online,"  and published the most recent expansion "Mines of Moria." That means it has the "LOTR" console and MMO videogame rights all wrapped up internally. How precious.

Update 2: Another bit of evidence confirming this report comes from GamesIndustry, which reports that an animator at developer Traveller's Tales revealed on a resume that her company had pitched Peter Jackson on a "Lego Lord of the Rings" game. Traveller's Tales is owned by Warner Bros.

One of Hollywood's top digital distribution executives thinks so.

In an interview I recently conducted with Curt Marvis, president of digital media for Lionsgate, for Variety's technotainment blog, he specifically mentioned the Wii as a huge opportunity for his studio to distribute movies and TV shows and said he thinks it'll happen this year:

While he certainly didn't say movies on the Wii are a sure thing, an executive in Marvis' position is the most likely to know what's being talked about and what's in the works.

Nintendo is already working on a limited video service for the Wii in Japan, with original content it's producing with ad agency Dentsu. But moving to the U.S. and adding Hollywood movies and TV shows would be a huge step.

If Nintendo does that, it could easily become a major player in the fast growing, albeit still small, online video business. Since they're connected to televisions, studios are counting on video game consoles to be a big part of that growth. Already, the Xbox 360's video marketplace is one of the biggest online movie distributors after iTunes. And Sony is aggressively trying to catch up, this week adding the last major media company that wasn't on board with its service, NBC Universal.

There are 16.2 million Wiis in the U.S. now, compared to 12.8 million Xbox 360s and 6.3 million Playstation 3s. So the Wii could effectively double the market. But it could do even more. Since the Wii is popular with so many non-traditional gamers, it's in more households that aren't as digital savvy as the typical 360 or PS3 household. So they're less likely to be downloading movies or otherwise accessing video from the Web. If the Wii's video service is exceptionally easy, it could bring millions of new customers to digital movie/TV distribution and prove a boon for Hollywood.

Of course, unlike the 360 and PS3, the Wii couldn't handle high definition content. More importantly, downloading a significant number of TV shows and movies would be difficult, given the console's lack of a hard drive (SD cards can only take you so far). A full video service would have to come with enhanced storage or be done via streaming (which would mean lower visual quality). It might not have been meaningless that Marvis said the Wii could soon "stream movies."

Count Lionsgate as one more studio getting into the video game space, though it's not ready to dive into the deep end.

In an interview I did with him for Variety's Technotainment blog, Lionsgate digital media president Curt Marvis says his studio is talking with partners about getting into the casual games business, including online and phones:

Another area we’re taking in more specifically for my group is casual gaming and mobile games. There are some huge numbers that are being done by certain successful products in that area. And even not so huge but profitable businesses, particularly in the casual area.

Any games Lionsgate makes would, of course, be based on its own movie and TV properties.

As I reported last month, Lionsgate seriously considered self-publishing the PC/PS3/360 game based on its "Saw" movies that was dropped by Brash after it went bankrupt, but ultimately passed (it was bought by Konami). Without commenting on that title, Marvis confirmed that Lionsgate isn't ready to get into the AAA disc market given the high risk and big financial exposure, stating, "You invest in a real game these days and it's like making a movie."

Which is a shame, since I would love to see a "Madea Goes to Jail" game made in Unreal Engine. Another dream crushed.

For those keeping score, this new information on Lionsgate's strategy puts the movie studios' approach to video games as follows:

While we're all watching the big publishers like EA, THQ, and to a lesser extent Take-Two and Activision Blizzard struggle, it's interesting to see what parts of the games business are hot.

If you pay attention to investors -- and that's usually a good idea to know what companies seem to have the most potential -- it's the social casual gaming space. As PaidContent noted today, three separate companies that do online casual PC gaming with a strong social component have raised money recently, totaling $17 million.

Though Rotohog, OMGPOP, and SuperSecret are somewhat different, doing fantasy sports, facebook-style social networking tied to gaming, and virtual worlds, they all rely on alternative revenue streams like advertising, micro-transactions and subscriptions. That, apparently, is where investors think the big money is going forward, not $60 per pop AAA titles. There are already enough companies trying, and mostly failing, to make money that way.

It's understandable that investors and the media would be most interested in how "Grand Theft Auto IV" is performing for Take-Two, since it represented about 40% of the entire company's publishing revenue and 23% of its total revenue (which includes distribution via its Jack of All Games subsidiary).

That's why Rockstar's leadership is so handsomely compensated and gets a cut of the profits for its label, as well as ownership of new properties they create, going forward.

But of course Rockstar has other games, none of which have approached "GTA" in success. "Midnight Club: Los Angeles" its latest title, isn't even in the neighborhood around the ballpark (how's that for a metaphor?). Despite solid reviews, figures buried at the bottom of Take-Two's earnings filings with the SEC for the last two quarters reveal it has earned about $80 million in retail sales. That compares to $770 million for "GTA IV."

Some quick math, reveals that "Midnight Club: LA" has sold around 1.3 million units, which works out to an even 10% of what "GTA IV" has done so far. That's certainly not a disaster, but as CEO Ben Feder put it after the previous earnings call, it is "slower than expected." And it gives you a good sense of just how far behind "GTA" "Midnight Club" performs, especially in a recession where the biggest titles are dominating sales. Being Rockstar's second biggest franchise is kind of like being the second biggest online music store behind iTunes.

Take-Two also revealed in yesterday's earnings call that the original "Red Dead Revolver," which is getting a sequel this fall, sold a total of 1.5 million units. That's not a particularly impressive figure -- certainly not the kind of number that would make a company like Activision see a franchise. The fact that it's making a sequel indicates Rockstar is going with its gut that it can significantly on the original.

Back in December when it cut guidance and announced bigger layoffs, Electronic Arts said that weak catalog sales were one of the primary reasons. "Key catalog titles continue to underperform" was listed as one of the main reasons for the earning shortfall.

Last month, when Activision Blizzard announced earnings, the company didn't specifically discuss a decline in catalog sales, but CEO Bobby Kotick did tell me that "titles in the top 10" are what's "capturing the interest of consumers."

It seemed like that's the trend in the games industry during the recession. But maybe it's just the trend at certain publishers. Because Take-Two today has had the exact opposite experience.

"We have been seeing growth in our catalog sales year-over-year," CEO Ben Feder told analysts on a conference call, "including this most recent quarter when catalog sales grew 30%."

"The current phase of this hardware cycle places a greater emphasis on catalog titles," he added.

Everybody agrees that there has been a greater concentration of sales in the top titles. But while everything else is plunging for EA, it seems Take-Two has found the market is more of what Feder called "a barbell... with AAA titles at one end and value at the other."

One other way in which Take-Two is bucking some trends: While most third party publishers struggle to figure out Nintendo's platforms, particularly the Wii, its "Carnival Games" franchise for the two consoles is doing boffo sales. As of Jan. 31, the publisher has shipped four million units of the Wii version, which launched in August of 2007, the DS version which launched last July, and "Carnival Games: Mini-Golf" for the Wii, which sent on sale in October. Two million of those have come since August 1, indicating the games were pretty big holiday sellers.

But despite those positive signs, Take-Two is still struggling like so many publishers. While revenue rose 7% to $256.8 million from the same quarter last year, net loss ballooned by 33% to $50.4 million on higher costs. And although Take-Two healthily beat its guidance for the current quarter, its maintained its overall guidance for the fiscal year, due in part to some unannounced titles being pushed back and in part, no doubt to the economy. Guidance for the current quarter, which calls for revenue between $200 million and $220 million and  continuing, albeit smaller, losses, seemed to come in lower than investors expected.

As a result, Take-Two stock had a schizophrenic day, surging 14% to $6.85 before the markets closed and earnings were announced in anticipation of good news, then falling back 7% in after-hours trading.

It lost $50.4 million in the quarter

"Grand Theft Auto IV" may not be as big as "The Dark Knight" or "Grand Theft Auto: San Andreas," as I just wrote, but it's still pretty effing big. $750 million in sales in nine months is pretty damned good. And the Rockstar label, which makes most of its money from "GTA," accounts for 40% of parent company Take-Two's revenue. 2K Sports and 2K Games, by contrast, both of which release substantially more games, account for 25%.

That's why Take-Two signed a groundbreaking deal with Rockstar's top talent, primarily co-founders Sam and Dan Houser and Rockstar North president Leslie Benzes, in December that included ownership of future games and profit sharing.

In its earnings today, Take-Two detailed the first payments to "certain employees of Rockstar Games," (the Housers, Benzies, and possibly a few others): 2.85 million shares of stock. Or approximately $20 million at today's price.

Not a bad start. And of course that's separate from any payments the Rockstar leaders will be getting in profit sharing. The plan is in full effect this quarter and included new downloadable title "The Lost and Damned," which, Take-Two says, is already profitable (though they declined to say how many copies have been downloaded from Xbox Live).

Remember when "Grand Theft Auto IV" grossed over $500 million in its opening week last April and Take-Two bragged that it was the largest launch for any entertainment product? Well, they were totally right, but as new data released by Take-Two today underlines, it sure didn't have much staying power.

On its earnings call, the publisher said the "Grand Theft Auto" franchise earned another $60 million in the quarter ending Jan. 31, bringing the total since "IV" was released to $770 million. Given that the new game has shipped over 13 million units, it's safe to assume that the vast majority of that money is for it and not catalog versions. $750 million is a safe estimate.

That means "GTA IV" made about two-thirds of its revenue-to-date in the first week alone. Talk about front-loaded. By contrast, the year's biggest movie, "The Dark Knight," made about 45% of its total domestic gross in its first week (worldwide gross is really tricky since it opened in different countries on different dates). Even assuming "GTA IV" has some life left in it, it will have done well more than half its sales in the first week.

Let this also put to rest the old canard that video games may make more money than movies. Sure they can open bigger, since a lot of video game fans like to get their hands on a big title as soon as it's available. But "GTA IV" has made about $750 million to date and might get into the $800 millions. "The Dark Knight," by contrast, sold over $1 billion worth of tickets. And that's just box office. There's also DVD sales and rentals, cable, pay-per-view, video-on-demand, and eventually a broadcast airing. Add it all together and you've got well over $1.5 billion, or double "GTA IV."

Also worth noting: "Grand Theft Auto: San Andreas" is the biggest franchise installment to date, selling 21.5 million units. "GTA IV" is looking extremely unlikely to surpass that figure (in fact, I'm ready to state unequivocally it's not going to happen). That's perhaps no surprise, given that the Xbox 360 and Playstation 3 currently have an install base about half the size of the Playstation 2 a year after "San Andreas" launched (not to mention that the latter game eventually came out for PC and Xbox). Then again, "GTA IV" is estimated to have cost $100 million to make, substantially more than "San Andreas." Higher costs and lower sales = less profits

As movie studios increasingly publish their own video games, and confront the reality that they usually can't publish a quality AAA game on a film's production schedule in time for theatrical release, downloadable is the new trend.

Warner Bros. did it with "Watchmen: The End is Nigh" and now Paramount is doing the same with its "Star Trek" film reboot. I've actually been looking into this project for a little while, trying to nail down all the details, but they came out today in a surprising way, via leaked art for an insert in the upcoming season one blu-ray release.

As the art indicates, the game is coming out in May and it's being published by Paramount and produced by Naked Sky Entertainment, an L.A. based developer that made the game "Roboblitz."

Based on conversation I've had, it appears the game has been in development for under a year and it's aimed for release on Xbox Live Arcade and Playstation Network (the 360 and PS3's downloadable services) day-and-date with the film on or around May 8. Perhaps no surprise given the relatively short development cycle, it's probably not a fully 3-D adventure, though it is obvious from the artwork that players control the Enterprise in space battle.

Interestingly, Paramount's deal to do a "Star Trek" movie game is entirely separate from Bethesda Softworks' license to do its "Star Trek" games and Cryptic's upcoming "Star Trek Online." Latter two are licensed by CBS, which still owns the TV show, while Paramount, which was previously part of Viacom with CBS, has the interactive rights tied to the movies.

"Star Trek: D.A.C.," as the game is called, will be the biggest self-published title to-date for Paramount's young interactive group, which just started getting into games last year. So far it has only released several iPhone games, as well as three casual PC titles it co-published with Legacy Interactive.

I expect I'll have more details soon on what the game is like, how the downloadable title came together in under a year, and what the hell D.A.C. means.

It's not that uncommon for console makers to team with third party publishers on big titles for joint marketing efforts. If Sony can get you to buy, say, "Grand Theft Auto IV" with ads that emphasize it's on Playstation 3, or Microsoft the same for a game on 360, it's worth the money in a fierce console war.

"Resident Evil 5" is the first major game in 2009 to test the 360 vs the PS3. And Microsoft is investing a lot in the fight, including a special edition of its console.

The really surprising detail came in the mailing I got from Capcom today with a retail copy of "Resident Evil 5." The game was for 360 -- a little unusual in that nobody asked my console preference, but hardly a big deal. What I've never seen before, however, is a letter enclosed with the game, directly from Microsoft, touting the advantages of its console.

Since the two versions of the game are identical, Microsoft really has to stretch to make its case. Amongst its claims:

With "Halo Wars" out of the way and no major first party titles on the horizon save for "Halo: ODST" in the fall, it's no surprise Microsoft is looking to ride the year's big third party games. Will it be able to sell fans, and the press, on the idea that "Resident Evil 5" is better on 360? It seems like a stretch, but it's sure going to try.

On Friday, Eurogamer reported that a source detailed the seven "Guitar Hero" titles set to come out this year after this month's "Metallica," some of which haven't been announced, setting the Internet abuzz over whether there's really that many games from a single franchise in the works.

And while I can't confirm all of them -- specifically the Van Halen edition and "Band Hero"; the rest of them I know are correct -- the number of titles is just about right. Back in September during a conference call with analysts, Activision Blizzard management said they were planning to double the number of "Guitar Hero" skus in 2009, from 12 to about 24.

If you count the number of skus (each version of a game for a console counting as a sku) -- four each (PS3, PS3, 360 and Wii) for "Metallica," "Greatest Hits," "Van Halen," "Guitar Hero 5," "DJ Hero" and "Band Hero," along with two DS editions -- you get 26. Which means, give or take a sku, Eurogamer is probably dead on.

And don't forget, unless plans have changed, Activision is planning to triple the number of "Guitar Hero" releases for 2010. So if this year's schedule seems excessive, prepare to soon be flabbergasted.

Most video game professionals will tell you that switching a game from one developer to another mid-production is a costly and difficult move that rarely makes sense artistically or financially. You have to transfer assets and get an entire new team trained not only on the technology modified for the game, but creatively in the mindset that has gone into its world, characters, and mechanics. It's really hard to justify.

And yet... It sure seems to be happening this year. First came "Splatterhouse," which Namco Bandai took away from BottleRocket in February. The publisher is currently, according to my sources, considering what new developer it will assign the game to (I hear the internal team that made "Afro Samurai" is a candidate but not a sure thing). On Friday, Ubisoft confirmed that it took "I am Alive" away from independent developer DarkWorks and is giving the game to its internal studio in Shanghai to complete.

And of course there's Sega's two "Aliens" games, previously in development at Gearbox and Obsidian, both of which have been taken away from their respective independent developers while the publisher figures out what to do with them. According to my sources, the games were put on hold purely for budgetary reasons. Sega is suffering from the recession and its own business problems and can't justify spending the millions it would take to finish producing them, especially since they might not have even come out this fiscal year.

That leaves Sega with two games it would still like to complete, as I've previously reported. But doing so will probably require, yes, handing them over to new developers.

I'd hardly call it a major trend. But it is clear that publishers seem willing to do what the convention wisdom tells us they shouldn't, which indicates something is changing in the economics of the industry, or the incentives publishers are encountering during a recession, to make taking games away from outside developers mid-production seem more logical.

If you spent time with video game press, there's something remarkable about the Metacritic page for the "Watchmen" movie: the sheer diversity of the scores.

The highest score for "Watchmen" is 100 and the lowest is 20. The critics are all over the map. And I'm not just talking about one divergent opinion. "Watchmen" has four 100's, three 20's, a bunch of 75's, a bunch of 50's, a bunch of 40's -- the critics are truly divided. They're coming at the movie from totally different perspectives, debating all of director Zack Snyder's choices, indirectly engaging each other, and providing viewers (or potential viewers) a variety of perspectives on what's so far the year's biggest and, arguably, most important film.

In the world of video games, that virtually never happens. Maybe once or twice in history, but I've certainly never seen it. It's incredibly rare for a major title to  come out and for some of us to love it, some hate it, and some be in between. Instead, fans seem to consider it a "controversy" when a critic comes in on the low end of a 20 point range (I know because I've been that critic). And of course it was a major Internet emergency for some fans when another publication recently came in all the way at the bottom of a 30 point range for a AAA title.

Looking at that range of opinions on "Watchmen," I realize what a shame it is that we don't have the same critical diversity in the world of video games. As I wrote a few months ago, it's a sign of a healthy mature medium when critics are engaging what artists are doing, fiercely debating whether innovative choices are brilliant or disastrous, and giving the audience lots to think about, instead of pretty much the same opinions over and over and over again

Imagine how annoyed fans we would all be if Hollywood took our favorite video games and turned them into movies by simply remaking existing films and inserting the games' characters and settings.

Yet that's exactly what we tolerate, again and again, the other way around when games adapt movies. The latest example is "Watchmen," for which the creative process appeared to consist of answering the question: "Into what existing game genre can we just drop some characters from the movie and comic?"

The answer, of course, is a brawler, and so we get "Watchmen: The End is Nigh," which might better be called "Bad WatchDudes" or "Who Watches the Double Dragon?" (If they wanted to give the game a title in the form of a horrible pun, that is)

That might be fine, if you were dealing with a property that's all about kicking ass and taking names, with a somewhat ironic take to make up for the fact that the gameplay is so very retro. It does help that brawler games were popular in the '80s, when "Watchmen" came out, but the comic and movie are decidedly not ironic.

As I wrote in my review for Variety, "The End is Nigh" turns a "dense and cerebral comics classic into a distressingly shallow videogame in which there's nothing for players to do but beat the living crap out of everyone they see."

Sure, there's some excuse in that the game takes place in the '70s when playable characters Rorsach and Nite Owl were kicking ass as crimefighting partners, but it's still "Watchmen." There should be something to do besides take down literally every single person you encounter (isn't there a single innnocent citizen walking around New York?). But that's literally all you do for six chapters, culminating in a lame boss fight where you have to take out a guy wearing body armor, which means it takes several dozen punches, kicks, and crowbars to the head to knock him out.

There is a plot that attempts to be "Watchmen"-esque, but it's just as old fashioned as the brawling in the sense that it's not connected at all to the gameplay. To make matters worse, it's not even connected to the characters. Rorsach and Nite Owl are just clueless pawns in somebody else's conspiracy, a conspiracy pretty thoroughly described in the comic, meaning anyone who read it won't be very surprised to see what happens.

The result, unsurprisingly, is that it's hard to build up much motivation to engage in 20 year-old gameplay with no connection to the story.

That being said, players who just want a brawler will appreciate that it's well made. The animations are fluid and detailed, the controls are responsive (if a bit too easy for hard core players), and the graphics are out outstanding, especially for a $20 downloadable title.

But I couldn't escape the same feeling I had while playing "Quantum of Solace," which basically just took "Call of Duty: Modern Warfare" and slapped James Bond and some scenes from the movie into it. Of course we have to be respectful of the fact that we're unlikely to get the most originality out of movie-based games, since they're always made on tight schedules (although allegedly "Watchmen" was made downloadable to help ameliorate that problem). But if you're going to turn a movie (or any source material) into a video game, I really feel strongly that you need an idea that respects the spirit of the source material. Not just an existing genre and set of mechanics that you can justify, somehow, using for the movie's purposes.

Full review: Watchmen: The End is Nigh

On Thursday, Midway's mysterious owner Mark Thomas made his first declaration to the bankruptcy court.

As the Chicago Tribune and GamePolitics have noted, he put to rest allegations that Sumner Redstone was doing a favor for a buddy with what appears to be a sweetheart deal. Thomas, a 52 year-old Mass. resident who runs his own private equity firm, testified that he has never met or spoken to Sumner Redstone, or his daughter Shari who served as chairman for about a year and is heavily involved in the family business dealings. He apparently found out about the deal from two attorneys from a firm representing the elder Redstone whom he knew, and the deal was accomplished entirely through intermediaries.

Of course, that doesn't put to rest the apparently legitimate allegations that Thomas did get a sweetheart deal. For only $100,000 he got control of $70 million in Midway's debt, $30 million of which is secured and thus must be the first to paid back as the "Mortal Kombat" publisher sorts through what it owes to whom in bankruptcy court. It's telling that Thomas describes the purposes of the holding company he formed to buy Midway in the following order:

Notice that? The debt comes first. the company second. Clearly the benefit he might get from being paid back even a fraction of the $30 million secured debt (the odds of him seeing any of that unsecured debt are pretty low) was at least half the reason to do this transaction. And the fact that he lists it before the common stock of the company gives the clear impression that it was the #1 reason.

Also aiding that argument is the fact that Thomas, who has no experience in the video games business, first found out about the potential deal on November 14 and it closed on November 28. Two weeks is not enough time to perform due diligence on a company and assess its operations, its chances for success, the state of the market, and all the other things you do when you're buying a company.

But it is enough time to figure out whether spending $100,000 to get a $30 million secured loan is a good investment. Especially when you know that your purchase will trigger a bankruptcy that means that company has to start paying back its debts, with yours coming first. Ka-ching.

Sumner Redstone may not have known Mark Thomas, but his attorney Creighton Condon and Peter Lyons, an associate of Condon's, certainly seem to have set the guy up with a good deal.

But while he's pretty clearly a financial opportunist (not a crime), Thomas might just be the right guy for Midway given the dire financial situation in which it has been put by Sumner Redstone's financial machinations. A look at his resume shows he has been involved in enormous and very successful corporate restructurings, most notably the split of ITT Sheraton into three separate public companies. He also oversaw multi-billion dollar acquisitions of companies like Caesar's (the hotel/casino, not the pizza place), MSG (owner of Madison Square Garden, the Knicks and Rangers), and a New York TV station.

Now that it's selling off publishing rights and canceling projects, Midway doesn't really need executives with experience making games (no offense, Matt Booty). It needs someone who can get it out of bankruptcy with as much value as possible intact (and, gamers can hope, without destroying franchises we care about like "Mortal Kombat" and, ummm...). Mark Thomas seems like a solid candidate for that job. Whether he deserves a to profit as much as $29.9 million for his efforts... well, that's debatable.

You know that recession thing we've been going through? It hasn't been hurting GameStop. The nation's largest specialty video games retailer recently announced sales in 2008 were up a whopping 24% and profits rose 33%.

So why did its stock fall 14% today? Because somebody is about to kill the geese that lays GameStop's golden egg. Or rather, squeeze its margins.

Much of GameStop's profit growth comes from used games.Consumers like them because they're cheaper. GameStop loves them because the profit margin on buying a used game from some kid and then re-selling it is much higher than buying a new game from Microsoft or Activision and then selling it at a set $60 or $50. How much higher? Used game sales represent 44% of the company's gross profits, but only about 22% of its total revenue, according to Credit Suisse analyst Gary Balter.

Amazon.com's move today to start buying used video games is a major blow to GameStop's profit machine. Not because of the sales competition. There are already lots of used games for sale on Amazon.com through third parties. And it's not even clear yet whether the mega-etailer plans to sell the games itself on its site or wholesale them to others.

The problem is on the buying end. Amazon.com is offering higher prices to consumers than GameStop, or GameCrazy. As CNET News helpfully compiled, the difference ranges from $1.50 for "Mario Kart DS" ($16.50 vs $15) all the way to $2.75 for "Fallout 3" ($25.50 vs $22.75) and "LittleBigPlanet" ($29 vs $26.25).

That means one of two problems for GameStop: Either it will buy, and thus sell, fewer used games because more of us with games we want to get rid of will use Amazon. Or it will have to raise its purchase price for used games in order to compete, thus squeezing its profits.

It may not have to raise prices all the way to match Amazon, since consumers still there is a significant convenience factor to going to your nearby story. But it'll have to raise them some if it wants to stay competitive.

That's a win for consumers, a loss for GameStop, and further evidence for video game publishers that they have to come up with new features, like social play and downloadable content, that can keep the burgeoning used games market from destroying their business model.

Update: Analyst Ben Schachter of UBS thinks the market is overreacting, arguing that online trade-ins are very different from in-store. "Online game sales currently comprise less than 2% of GME’s [GameStop's stock ticker] total business (via the gamestop.com website)  and we estimate well-less than 10% of industry game sales," he wrote in a research note today. "We believe the 'instant gratification' of the trade-in process at physical stores remains a key advantage for GME, and we note that GME once offered online/mail-in trade-ins but stopped after issues w/product quality/shipping expenses. The bottom line is that [Amazon] is a formidable competitor, but we don’t see any meaningful near-term risk, and online used just isn’t a particularly big market."

In its last earnings call, Viacom admitted that "Rock Band" has been a money loser because of the high cost of producing the instruments. The profit is in the software, Chief Financial Officer Tom Dooley explained, and now that there's a good amount of hardware deployed, MTV is hoping to turn the franchise profitable by selling more software to those of us who have instruments. Or to use a familiar analogy, "It’s the razor, razor blade phenomenon. You’ve got the razors out into the marketplace and sold now we have to push the razor blade through."

Meet your newest razor blade: "The Beatles: Rock Band."

When MTV and Beatles music publisher Apple Corps. announced plans to make a game in the fall, they said very specifically that it would be a stand-alone game not affiliated with the "Rock Band" franchise. The implication being that they Beatles were simply too big for the "Rock Band" brand.

But MTV has apparently convinced them otherwise. In part because of the exact phenomenom Dooley described -- A game not affiliated with "Rock Band," which might require (or be connected in consumers' minds to) new hardware, would be a lot tougher to make profitable. Especially given the huge royalties MTV is paying Apple to get the Beatles rights.

In this economy, Viacom can't afford that. A game very specifically designed to work with existing "Rock Band" instruments is a much better sell for the struggling cable conglomerate, both for branding and profit margins.

MTV, through EA, is releasing the game on September 9 (9/9/09 -- get it?). No exclusivity deal like "Rock Band 2," which came out for Xbox 360 a month before Playstation 3. And no delays for the Wii version, as with "Rock Band 2," when it basically missed the holiday season by coming out Dec. 18. Harmonix has its act together on the world's most popular current-gen videogame console, the one that has proven the best seller for Activision's "Guitar Hero," and will release it simultaneously with the other 2 consoles. Which makes a lot of sense given what a mainstream demographic a Beatles game is intended to target. No Playstation 2 version however, even though that proved the second most popular console for "Guitar Hero: World Tour."

And there's even more ways MTV is looking to turn the Beatles game into the profit machine "Rock Band" hasn't been. You know how Wii games usually cost $50? "The Beatles: Rock Band" for Wii will cost $60. MTV is trying to be the publisher that finally gets Wii pricing in line with Xbox 360 and Playstation 3, despite the lower costs of development and the more casual audience.

There will be specialized instruments "modeled after instruments used by John Lennon, Paul McCartney, George Harrison and Ringo Starr throughout their career," but they'll cost more. No more red ink on the hardware either. The stand-alone guitar for "Rock Band 2" costs $70. For "The Beatles: Rock Band," it'll be $100.

And the premium bundle? The one with a guitar/bass, drums, a mic, and the game? That's coming in at a whopping $250, a full $60, or 32%, more than the same offering for "Rock Band 2."

MTV's deal with the Beatles was an unmistakable sign that it's willing to spend big to bring its music games to a very broad audience and vanquish "Guitar Hero." But today's announcement about the release details is an unmistakable sign that it's determined to use that deal to turn "Rock Band" into a profitable franchise.

Update: I asked an MTV rep why they changed their mind and decided to turn the Beatles game into a "Rock Band" spin-off and got this response: 

During our initial announcement, we said that this game will be a custom standalone dedicated game experience and completely brand new production that will be an unprecedented, experiential progression through and celebration of the music and artistry of The Beatles. And that is still very true.

The decision to include the Rock Band name in the title was a collaborative decision by Apple Corps, The Beatles, and MTV Games and Harmonix. As we moved through the creative process, it just seemed to make sense to clearly highlight the association between The Beatles game and the critically-acclaimed Rock Band franchise.

Looking at this past fall's AAA releases for Playstation 3 and Xbox 360, you've got games in all genres, you've got sequels and originals, you've got hits and flops. But all of these them, save for a handful, have one thing in common: paid downloadable content.

I went through the list and I could come up with only four major releases for the two high end consoles that haven't released, or announced, paid DLC: "Left 4 Dead" (only free DLC so far, though paid is surely on the way), "Pure," "Saint's Row 2," and "Resistance 2" (no nothing yet for those).

It's a pretty remarkable evolution from just a year ago, when big games like "Assassin's Creed," "Bioshock," "Uncharted," "Kane and Lynch," "TimeShift," "The Simpsons Game," and "Ratchet and Clank: Tools of Destruction" all came and went without paid DLC.

What's the reason? Well, in a word, it's this . As theSlate article explains, the cost of development for the PS3 and 360 has ballooned compared to the last generation (the article actually purports to be explaining all of the videogame industry's economic woes, which it obviously doesn't since there's not even a mention of the Wii. But for our purposes, it works).

As anybody in the video game business will tell you, that's just the start of the problem. Sales for these high end titles are falling thanks to a hugely competitive market and the relatively low install base compared to the last generation (the Playstation 3 lagging behind the PS2; the 360 about equal with the original Xbox; and the Wii requiring completely different design from the others, unlike the GameCube). That's why so many publishers are fretting so much about anything that isn't a sequel to a huge franchise like "Call of Duty," "Halo," or "Grand Theft Auto." The results are more often "Mirror's Edge" than "Left 4 Dead."

(The Wii is of course a different animal. There's not a good distribution system for DLC and development costs are significantly lower. The challenge for most publishers who aren't Nintendo is just selling discs in the first place.)

Despite those dynamics, publishers aren't able to raise prices. We've been at $60 for 360 and PS3 titles since this console generation begin and, amidst a recession, we're unlikely to change anytime soon. The pressure is going in the other direction, in fact. If a game isn't a best seller, publishers have a tough time keeping it at $60 (witness EA's recent price cut for most of its 2008 releases).

DLC is a major solution to this problem. Not because the additional revenue is all that significant. "Call of Duty 4's" heroic map pack appears to have been the most successful piece of DLC so far, selling 1 million copies on Xbox Live alone in its first nine days ($10 million in revenue). Assume a few hundred thousand more copies after those first nine days on 360 and then on Playstation 3 and you get maybe $15 million or so. Given  that "CoD 4" sold over 10 million units at retail, earning over $600 million, that's not much. 

But it's hugely profitable, much moreso than the game itself, because the production costs are much lower. That's true whether you're talking about new in-game items (like "Dead Space"), a new area with missions (like "Fable 2's" Knothole Island) or even an entirely new story set in the same world ("GTA IV: The Lost and Damned").

When consumers measure the value of DLC, the default seems to be comparing the content to the total in the retail game. If the DLC costs $10 and it takes about five hours to play, while the $60 retail version took about 30 hours, that seems like a fair value. Except it doesn't cost close to 1/6 as much to produce. A lot of the costs baked into that $60 aren't actual level production. They include early prototyping, character design, controls, mechanics, camera position, menus, and of course all the things they tried that didn't work.

With DLC, that stuff's all done. The controls, the camera, the engine are the exact same in "Operation Anchorage" as the rest of "Fallout 3." All the developers have to do is build new assets in the same aesthetic they've already used and maybe design some new missions. That couldn't cost more than a few hundred thousand dollars. Maybe a few million in the case of a really big piece of DLC like "The Lost and Damned."

(By contrast, for an original downloadable game like "Watchmen: The End is Nigh," the publisher has to take on all the costs of a normal game. So it's no surprise that game costs $20, but only has a few hours of actual gameplay, about the same as the $10 Knothole Island.)

It gets even better for publishers. Not only is it a lot cheaper to produce DLC compared to the selling price, but the there's no costs to manufacture the game and ship each copy to a retailer. And after all that, you don't have to split the revenue as widely. On a typical $60 game, about $20 goes to the retailer, $20 to the console manufacturer (Sony or Microsoft or Nintendo), and $20 to the publisher.

For DLC, however, the publisher only has to pay approximately 30% (negotiable, of course) to Microsoft or Sony. That means it's getting literally twice as much on the gross dollar as it is for a disc game. (It's a little different for the first party games Microsoft and Sony publish themselves, of course, but the same principles apply).

No wonder virtually every major 360 and PS3 game now has DLC. All the publisher has to do is build another level or some new maps -- or in the case of some games like "Tomb Raider; Underworld," hold back stuff originally intended for the game -- and the game can be significantly more profitable.

Most of it isn't too innovative -- typically it's new missions or geographical areas that extend the game, or maybe some new items you can use. But we're starting to see developers think creatively. "The Lost and Damned," for all its flaws, introduced new characters that fit smoothly into the universe "GTA IV" created. I'm really impressed by EA Sports' idea to put out a compressed version of "NCAA Basketball" that centers entirely on March Madness.

DLC sales don't show up in NPD charts or any other regularly publicly disclosed data. And they're not certainly not significant enough to turn a flop into a big hit. But for those games on the margin, the ones that sell OK but not great, it can make the difference between loss and profit for a publisher, transforming an unattractive economic model into one that's worth the investment.

I think it's generally a bit tacky for writers to link to stuff about how great they are, but when someone specifically praises you for doing exactly what you're aiming to do with your career -- and when your employer recently indicated they don't value that work as much as you wish they did -- sometimes you just can't help it.

Which is why I'm shamelessly linking to what the excellent and intelligent (honestly!) blog VersusCluClu land wrote yesterday about my work.

I'm already uncomfortable writing about myself this much, so let's end on a more worthwhile note: Best wishes and a fond farewell from videogames journalism (if not the industry) to Newsweek's N'Gai Croal, who forged a path in many ways for those of us writing for mainstream publications about video games as a business and an art form.

Update: In his last "Vs. Mode" with N'Gai, Stephen Totilo at MTV's Multiplayer blog has a suggestion for the job I should take if this journalism thing doesn't work. Let's just say my first order of business would be "Tom Clancy presents Rayman Raving Rabbids."

However Stephen doesn't answer the really key question: Who will be his new "vs. mode" partner? Or will it be retired with N'Gai's departure, kind of like a jersey number for a legendary player?

I'll have my full review of "Watchmen: The End is Nigh" online tomorrow, but playing the game the last couple of days brought an issue to the forefront of my mind: Shipping a game with offline-only co-op in the year 2009 is an abomination.

When you play a game like "Watchmen" or, to bring up the last major release that spring to mind, "Kane and Lynch," in which co-op is key and there's no online component. It's almost like the publisher is giving you the finger. "We recognize that playing with a friend is key to enjoying this game," they seem to be saying to you. "But we were just too cheap or too rushed to hit our release date to bother making it possible in the way most people play with their friends today. Enjoy this game in the same way you would have if it had come out in 1985."

And when the game in question is a downloadable title, like "Watchmen," meaning that every single person playing it has an Internet connection and therefore (unless they are playing it on an Xbox 360 and are not an Xbox Live gold subscriber) has the ability to play it online, it's like they gave you the finger and then flicked you in the ear for good measure.

To be honest, there's virtually no reason for split-screen co-op anymore. The only genre for which it still makes sense is racing games, because it's a competitive game suitable for short play sessions. That makes it appropriate to play with friends in the same room. And unlike most sports games (also short and competitive), everyone can't play off the same camera.

I suppose there's nothing wrong with including split-screen co-op as an option. "Gears of War" (1 or 2) via split-screen sucks, because it's really hard to see get a good view of the battlefield when there's so little vertical space and everything is so frikking tiny. But if your buddy doesn't have an Xbox 360 online, or the two of you can only afford one copy of the game, it's better than nothing.

But split-screen co-op on a game that takes at least a few hours to play, isn't competitive, and is harmed by a constrained view space, like "Watchmen: The End is Nigh," is inexcusable. The fact that you can't play online is so annoying, in fact, that I think I might have preferred it if Warner Bros. had just shipped the game with no co-op at all, so it wouldn't be so painfully obvious what's missing.

Tough negotiations between the music biz and MTV could leave "Rock Band" without new downloadable tracks from one of the big four labels.

Billboard is reporting that MTV and Warner Music have been unable to reach agreement on a single deal since WMG chairman Edgar Bronfman decided last summer that his company deserves bigger royalty rates for music video games. The two sides have traded offers and haven't reached a compromise. For now, reportedly, there's content coming through the pipeline, but it'll be all out by early summer.

That could be a major blow to "Rock Band," which has prided itself on the wide array of tracks available to download, much more than for "Guitar Hero."

Given the tough business deals that Activision negotiates, you would think it would be in the tougher position with Warner. But it's apparently doing fine with Warner, as evidenced by the upcoming "Guitar Hero: Metallica" (a Warner Music act)

Of course, as I reported a few weeks ago, MTV is already losing money on the "Rock Band" hardware. If giving into WMG's demands (thereby probably triggering higher royalties to the other labels) would mean losing money on the DLC as well, I can see why it's playing tough. Some part of that franchise has to actually make a profit.

Browsing through some of Midway's bankruptcy filings to see if there's any more interesting information in there besides today's revelation that the publisher is considering selling the "Mortal Kombat" franchise, I came upon some very specific data about how its top designer is compensated.

Ed Boon is the co-creator of "Mortal Kombat" and currently the lead designer for for the fighting franchise at Midway. Though he isn't mentioned by name in the bankruptcy filings, there is extensive discussion of a "key designer" who is "responsible for historically the Debtors’ most successful video game series." Later on it mentions that the series had a new release in the fourth quarter of 2008.

The series is obviously "Mortal Kombat" and the designer is Boon. In this filing, Midway is asking the bankruptcy court to approve continued payment of Boon's bonus plan in order to retain his services, which it claims is "critical to maximizing the value of one of the Debtors’ primary assets" (a.k.a. "Mortal Kombat").

Why? Well, he's in charge of making the "Mortal Kombat" games and also the guy who handles most interviews and publicity. If he were to leave, it would be yet another PR nightmare for Midway and would likely lessen the value of the franchise to a potential buyer.

So how much does Boon get for his work? Well for "performance of new release version of the Video Game in fourth quarter 2008 and first quarter 2009" -- in other words, sales of November release "Mortal Kombat vs DC Universe" in the five months when it will have achieved most of its sales -- the bonus is $900,000. In addition, Boon gets $105,000 for other revenue from the "MK" franchise (older games, movies, etc.) in those two quarters.

Of course we still don't know what Boon's annual salary is. But if you've ever wondered how much a successful game designer associated with one of the industry's top franchises earns in sales bonuses alone, now you know.

By contrast, the bonus pool available for 110 employees under the "design team bonus plan" Midway offers is $325,000 in the same period when Boon is making just over $1 million. So it pays to be the top guy and the public face.

(Oh, and yes, I almost wrote "kreator" in the headline. I managed to restrain myself.)

Jay Cohen is taking over Jerry Bruckheimer and MTV's video game joint venture in hopes of kicking the year-old but still nascent operation into high gear.

As reported last week, the former senior VP of publishing at Ubisoft left unexpectedly with indications he would be working with a more traditional entertainment company here in L.A.

Now numerous sources have confirmed that the Cohen's new employer is the game studio formed by MTV Games and Jerry Bruckheimer Films (the company behind some little franchises like "Pirates of the Caribbean" and "CSI").

The hiring answers the 15 month-old question of what exactly is going on at the company, which launched in December of 2007 as a way for Bruckheimer to bring his brand to a new medium and MTV to expand its slate beyond "Rock Band."

Since then, radio silence. No announcements of projects in the works and not even rumors here in Hollywood about stuff going on.

But it looks like Bruckheimer is finally ready to get things going. As I reported when Cohen left Ubi, he's one of the top decision makers in American videogame publishing, so he certainly has all the connections and experience necessary to work with developers and make AAA titles.

Neither Bruckheimer nor MTV have commented (yet), so there's no indication of what the next steps will be (more hirings? deals with developers? titles getting the green light?). At the time the mega-producer made his deal with the cable conglomerate, he indicated he wouldn't be making games based on his movies and TV shows (since the rights for those are mostly owned by the studios), but rather looking to do original stuff. The plan is that just as Bruckheimer's name means something in movies and TV, it can do the same for video games.

If successful, it would be a first, since no individual or company has really cracked the nut of being a "producer" for video games the way people regularly produce movies and TV shows (i.e. sheparding development and production without being an employee of the studio/publisher). Now it's up to Jay Cohen to see if it's possible.