Game Over?

For a brief moment, Guitar Hero and Rock Band were just about the biggest video games ever. But now that the fad has crashed and burned, can the Cambridge company behind these hits prove it’s more than just a flash in the pan?

Photograph by Tom Schierlitz

Photograph by Tom Schierlitz

Central Square looks like a grimy remnant of pre-knowledge economy Cambridge, dotted with aging storefronts and fast-food joints. But right in the heart of the neighborhood, above the grit, are the gleaming headquarters of video-gaming rock stars Harmonix Music Systems. And it’s here that I find myself on a mid-October afternoon, overcome with awe as I take in what Harmonix calls the Star Chamber.

I’m surrounded by a stunning 64-inch television, a fire-engine-red couch, purple leather folding chairs, and a rack with just about every video-game console you can think of. The Star Chamber is where employees test-run the music-based games that just a few years ago made Harmonix one of the most-watched companies in the world. Out of this room came Rock Band. This room is a gamer’s paradise.

And I’m really trying to enjoy paradise right now, but that’s getting harder and harder to do, because a young Harmonix staffer named Annette Gonzalez is kicking my ass in Dance Central 2, a new game the company will be releasing in a couple of weeks for Kinect. We’re in Battle mode, and a song called “Technologic” by the French electronica group Daft Punk fills the room. As Gonzalez and I dance to the song, a camera is scanning us, comparing our moves with the animated rug-cutter we’re supposed to be imitating on the giant TV screen. The better we mimic the virtual dancer — whose steps were created by Harmonix’s own professional choreographers — the more points we earn. I execute a perfect pushback move and “Flawless” flashes on the screen. At round’s end, I’m feeling pretty good about myself, if a bit winded. I’ve accumulated 29,000 points. Then I notice that Gonzalez’s score is 752,798.

A bit later, I sit down with Harmonix CEO and cofounder Alex Rigopulos, who is excited about Dance Central 2. “This is the game I wish Dance Central 1 had been, if we had had the time and resources to make it,” Rigopulos says. If he’s right, then the sequel could be a certified smash, considering that the original sold 2 million copies in the States.

Rigopulos, a rangy 6-foot-2, is wearing a corduroy sport coat over a T-shirt with cover art from his company’s hit Rock Band game. The 41-year-old is a former music major who went on to the MIT Media Lab to get a master’s degree in computer music. While there, he met Eran Egozy, a computer science and electrical engineering major who plays classical clarinet. The two came up with a simple idea: Create a new type of video game that would give non-musicians the sensation of actually making music.

They spent nine years failing for the most part, though there were a couple of tiny successes along the way. Then, in 2005, they teamed up with a company called RedOctane to release Guitar Hero, a game that let people “play” along to popular rock songs by mashing on buttons on a plastic guitar. Guitar Hero became an instant sensation, selling millions of copies. In time, the gaming giant Activision bought RedOctane, which owned the rights to Guitar Hero. So Rigopulos and Egozy created a competing game, Rock Band, which incorporated drums, a microphone, and a bass guitar. It, too, was a giant hit. In 2006 the college buddies sold their company to Viacom’s MTV Networks for $175 million. Two years after that, the pair made Time’s list of the 100 most influential people in the world.

But then somebody sent the needle screeching across the turntable. Sales of music games tanked, in part due to the ferocious price competition between Guitar Hero and Rock Band. Harmonix released a much-hyped version of the game, Beatles: Rock Band, but it was a dud. Maybe gamers were tired of playing fake instruments; maybe with the advent of Facebook and smartphones, they were simply moving on to different types of video games altogether. Whatever the cause, the bubble had burst, and in late 2010 Viacom recorded a $260 million write-down on Harmonix — the corporate accounting version of a bitch-slap. Just a few days before the year ended, Viacom sold Harmonix to a private equity firm for $50, plus the assumption of $100 million in liabilities. A disaster.

Rigopulos remains upbeat, shrugging off the write-down and fire sale of his company. “That was a strategic decision senior management made about where they wanted to place their bets,” he says. In fact, he seems almost thankful, saying, “It created an opportunity for Harmonix to have a new beginning as an independent studio.” It’s also his shot, after years of focusing on what’s essentially been a single type of game, to prove his company is more than a one-hit wonder.

Americans love video games. According to market research firm International Data Corporation, U.S. video-game sales are expected to hit $29.5 billion this year. That’s almost three times the size of the all-powerful movie industry, and the video-game business is expected to do nothing but grow. Last month, for example, the game Call of Duty: Modern Warfare 3 did $738 million in sales — in its first week. It’s estimated that global sales for the overall industry, including hardware, will reach $115 billion by 2015. And unlike the early years, when consoles and games were seen as expensive toys for kids, today, nearly everyone plays some kind of video game. More than 230 million people kill time with nominally free games like FarmVille and Mafia Wars on Facebook.

Massachusetts has become a launching pad for many successful gaming companies. The state now ranks as the fifth-largest employer of video-game developers in the country, with most of the local jobs concentrated in the Boston area. Needham-based Turbine, for example, is part of the Time Warner family, and employs 400 people who create online games like The Lord of the Rings and Dungeons & Dragons. In Quincy, Irrational Games makes the wildly successful BioShock franchise, which has sold more than 8 million copies. And last year, Zynga (the creators of FarmVille) set up a shop in Harvard Square by merging two Massachusetts firms, Conduit Labs and Floodgate Entertainment, into Zynga Boston. In 2009, the 75 or so Massachusetts video-game companies raked in around $2 billion.

There’s quite a long history of exceptional video-game talent around here. Starting in the late 1950s, MIT helped create some of the very first computer games, including electronic Tic-Tac-Toe and Mouse in the Maze, in which players collected prizes like cheese and martinis by, yes, guiding a mouse through a maze. In 1961, an MIT team led by Steve Russell launched the action-game genre — if not the entire gaming industry — when they started building Spacewar!, which involved two players trying to shoot each other’s spaceship out of the heavens.

Russell eventually left Cambridge for Stanford, but Massachusetts continues to draw strong talent. In fact, the Princeton Review says that three of the top-rated gaming-development programs in the country are here: MIT, Worcester Polytechnic Institute, and Becker College.

“Eds and meds and games, that’s Massachusetts!” says Timothy Loew, executive director of Becker’s Massachusetts Digital Games Institute. But Loew believes that the state doesn’t quite understand the gold mine it has. Compared with mainstays like education and healthcare, he says, games are an afterthought.

Another challenge for the industry here is the emergence of smartphone games, which is putting pressure on traditional gaming centers such as Los Angeles, Silicon Valley, and Boston. Then there are the business incentives offered to Boston video-game companies in the hopes of luring them elsewhere. At a Beacon Hill hearing in early October, for instance, Jeffrey Goodsill, the vice president and general manager of Tencent Boston, held up a recruitment package sent to him by the province of Quebec. Tencent is one of the largest gaming companies in the world, worth around $40 billion. At the hearing, Goodsill said moving his branch to Montreal would save him up to 37.5 percent, something he said Tencent’s Chinese management is interested in. Montreal has given out nearly half a billion in tax credits over the past 15 years, and there are now something like 8,000 people working in the industry there. And they’re far from alone. “More than 20 other states are giving incentives,” Goodsill says. “We just need an even playing field.”

Some local talent has already been snatched away. In April former Red Sox pitcher Curt Schilling and his company, 38 Studios, decamped for Rhode Island in exchange for $75 million in loan guarantees. The company has high hopes for the February 2012 debut of its role-playing game Kingdoms of Amalur: Reckoning. Schilling has promised his new home state that he’ll employ 450 people by the end of next year, a 50 percent increase from his current workforce of 300.

In an effort to keep from losing still more companies, state Representative Vincent Pedone (D-Worcester) proposed new legislation in October to provide employment tax credits to the video-gaming industry. Before crafting his bill, Pedone says, he spent 18 months talking with the governor, university leaders, and local video-game executives. “I think that we as a commonwealth should look at investing in this industry, because this has the potential of being this generation’s biotechnology.” At this point, his bill is still in committee.