Hollywood studios rush to exploit booming interactive media market.

In recent months, nearly 40 Hollywood studios and production companies have created interactive divisions to vie with computer firms, video game producers and each other for the potentially highly lucrative multimedia market, according to industry experts.

The terms "interactive" and "multimedia" describe the rapidly expanding universe of new media, which include CD-ROM games and electronic books, interactive television services and on-line computer services that many see as the future of entertainment.

An article in New Media magazine reported that in 1991 U.S. movie-goers bought only $5 billion in tickets, while interactive entertainment garnered $10 billion -- $3 billion for computer games and $7 billion for arcade games.

According to Dataquest, a San Jose-based computer industry research group, the total number of CD-ROM drives, or players, sold in the U.S. before 1994 was 9.7 million, but that number will increase by an estimated 17.5 million this year.

Former 20th Century Fox President Strauss Zelnick, who quit Fox to run Crystal Dynamics, an interactive action/adventure game company based in Palo Alto, Calif., predicted that the interactive industry will eventually evolve into a $20-billion business. Industry analysts estimate the industry's current size at between $5 million and $20 million.

CD-ROM is still in its infancy; PC-based multimedia is only five years old and didn't start taking off until three years ago.

One reason CD-ROM is not growing faster is that there are currently several incompatible machines on the market for playing various kinds of interactive games, books and audio-visual entertainments, explained Andrew Nelson, creative director of Knoxville, Tenn.-based interactive entertainment company CyberFlix.

CD-ROMs designed for IBM-compatible personal computers are currently outselling CD-ROMs for Apple Macintosh computers by a ratio of five to one. IBM and Apple Mac CD-ROM players compete with the CDI player from Phillips, the popular new 3DO player and various "small box" platforms that allow games from companies like Sega and Nintendo to be played on the TV screen.

"Hollywood, purveyors of pop culture to the world, sees all these kids playing video games rather than going to see film flops like 'The Last Action Hero' and wants to get in on the action," Nelson said. Hollywood studios' advantage over the more established interactive multimedia companies is the scope of the studio's distribution networks and the vast amount of "content" (films, books and characters) that they already own.

However, it may not be as easy for the Hollywood studios' interactive divisions to dominate the market as one might think.

"Consumers won't buy titles in quantity unless they look really good and are fulfilling in terms of interactivity and game play," said Gabrielle Mitchell, associate editor of Computer Retail Week magazine.

"The studios are afraid of missing the CD-ROM boat and are buying up titles as fast as they can," added Gillian Newson, senior associate editor of New Media magazine. This feeding frenzy has resulted in a flurry of acquisitions, distribution deals and joint ventures. For example, Virgin Interactive Entertainment, a major player with several hot titles, was recently bought by Blockbuster Entertainment. In turn, Blockbuster sold Virgin Interactive to Spelling Entertainment Group, a company in which Blockbuster owns a controlling stake.

Paul Worthington, senior editor of Multimedia World, a PC-based multimedia magazine based in San Francisco, flatly stated: "I think it's pretty disgusting the way the studios are coming in and trying to take over a new medium. The best-selling interactive title, 'Myst,' was developed by two brothers."

But the studios' aggressive intrusion into the market may end up precluding such individual developers from successfully introducing their products, Worthington warned.

Although Hollywood studios have introduced a great many interactive titles, and they have plans to introduce considerably more, so far the studios have failed to make much of an impact on the Top 20 sales list. The top-sellers list continues to be dominated by firms such as InterPlay Productions, Spectrum HoloByte and Broderbund Software.

The leading movie company in the interactive field is LucasArts, whose No. 3 best-seller game "Rebel Assault" is based on the movie classic "Star Wars."

"None of the studios has a hot title," said Mitchell. "The studios have to realize that there is a different way of entertaining people in games than in storytelling. So far, they all seem to have missed the mark. They have all the tools to make the graphics exciting and the sounds really fun, but they are still learning how to balance the fireworks with the nuts and bolts of a game."

Within the interactive divisions of Hollywood studios, Time Warner Interactive is ahead of the others, and Sony Electronic Publishing lags the field, according to Worthington.

Mitchell rates Time Warner and Paramount as tied for first place and agrees that Sony is alone at the back of the pack.

Time Warner Interactive, a unit of Time Warner Inc., hit the market first, introducing a lot of titles that most consumers weren't interested in. None of Time Warner's titles were breakaway hits, although "Hell Cab" did well. The company underwent several name changes and its flow of title introductions subsided for a while. But the company has a huge number of new fall titles, including "Woodstock: 25th Anniversary," a multimedia reference work featuring the concert and interviews.

Meanwhile, Paramount Interactive has built a huge multimedia studio in the San Jose area and is gaining momentum, said Mitchell. During the filming of some Paramount movies, such as "The Addams Family Values," the studio arranged for game-specific scenes to be shot. In addition, Paramount is heavily involved in publishing outside interactive books and acquiring games from small entrepreneurs. Paramount could have a hot interactive title in the "Mighty Morphin Power Rangers" from Xithias. That interactive game is based on the wildly popular children's television show of the same name.

MCA/Universal Interactive Studios has purchased part of the 3DO Co., a Redwood City, Calif.-based video game console manufacturer, and the Irvine-based video game firm Interplay. "MCA hasn't come out with anything great yet," Newson said. But she admitted the company's interactive" Jurassic Park" has promising potential.

Most of Disney Software's titles are educational, but they have sold pretty well. However, the Disney titles are on floppy disks that have to be downloaded onto a computer's hard drive. The studio just released its first CD-ROM title for PC, called Aladdin, based on Disney's hit animated film of the same name.

Fox Interactive, a relative newcomer, plans to produce CD-ROMs over the next three years from several of its upcoming sequels to hit films, including "Die Hard 3," "Predator 3" and "Alien 4." Fox plans to exert considerable effort to simultaneously market its games and upcoming movies, including some fast-food cross-promotions. An industry first is planned by Fox this fall, when it is slated to premier "Pagemaster," a feature film starring Macauley Culkin, and simultaneously launch a Pagemaster video game on cartridges for Sega Genesis and Nintendo.

Sony, one of the two original developers of the CD-ROM drive, announced two years ago that it intends to take over the CD-ROM software market. But it has yet to deliver on that stated intention. A number of Sony titles have failed miserably.

"Sony is the biggest head-scratcher; they don't have hits," Nelson quipped.

Despite all Hollywood's excitement about interactive, the technology is still many years away from reaching maturity. "There is a tremendous amount of hype about interactive," Nelson said. "But it is still very risky for investors. It's an exciting new medium, but it is at the same state movies were in the 1890s. It's not an art form yet. It is developing its language."