At a minimum, it's widely believed that the discs that are inserted into consoles to play games will disappear soon. "I don't think we need disc drives anymore, and my hope is the next generation of consoles won't have them," said Mark Rein, vice president of North Carolina developer Epic Games Inc.
Once discs go the way of the dodo, it's possible that people could use other Internet-connected devices in the living room to play video games.
"Imagine if you could download games onto a television like apps on an iPhone," said Chris Ulm, CEO of Appy Entertainment Inc. in San Diego. "Then a lot of people would have to think whether a console is still worth it."
OnLive Inc., a start-up run by veteran technology entrepreneur Steve Perlman, is hoping to take the industry one step further by making downloads irrelevant. The company is testing a service that runs video games on servers and streams them through a broadband connection the way Netflix streams movies.
Electronic Arts Inc. — which grew into one of the nation's largest video game publishers with blockbuster console franchises such as Madden Football — is seeking to refashion itself for an era in which "200 million console players have become 1.5 billion consumers gaming on multiple devices," as Chief Executive John Riccitiello said on a recent call with investors.
EA's reconstruction of its FIFA soccer video game franchise is one indication of how consumers could be buying and playing games in the future. Once available only on discs, FIFA now is served up on the iPad and iPhone, on Facebook as a social game and online as a marketplace where players can assume the role of a team owner.
"Three or four years ago, we'd build the game, launch it and go take a break on the beach," said Peter Moore, who used to run the Xbox business for Microsoft and is now president of EA's sports games unit. "Today, it's a 24-hour live operation with commerce, competitions and events. We think of our games less as a product and more as an ongoing service." The result is that last year, EA's FIFA franchise rang up $100 million, or more than 10% of its overall revenue, from online and mobile sources.
With billions of dollars at stake, console manufacturers are not accepting that the future could very well pass them by. Sony executives have already said they are developing a PlayStation 4, and Microsoft is widely believed to have a new Xbox in the works. Both companies have been candid about their intentions to turn their devices into digital entertainment hubs that deliver movies, music and TV shows on demand.
"Our aspiration is to be the all-in-one device for all the home entertainment you would ever want," said David Dennis, director of program management for Xbox.
Already, the 30 million users of the Xbox Live online service spend more than $900 million a year downloading games, renting movies or buying TV shows. Netflix streaming has also become popular on living room game consoles.
"The console is no longer just the disc and the hardware," said Mark Long, co-CEO of Zombie Studios in Seattle. "The collection of services behind the box are now more important than what's in the box."
For now, consoles still command a significant chunk of the business, accounting for 64% of the spending on games last year, according to Deutsche Bank.
"The world evolves at a certain pace," said OnLive's Perlman. "Habits will keep people attached to their consoles for a while."
Michael Gallagher, president of the Entertainment Software Assn., said that as long as people keep playing games, it will be good for his industry. "It's not an either-or proposition," he noted. "It's both. And that means growth."
The trade group invited companies like Facebook Inc. and social games developer Zynga Inc. to present at E3 this week, but they declined, meaning the show will still focus primarily on traditional console games rather than the broadening industry.
Also notably absent will be Apple, which is putting on its Worldwide Developers Conference in San Francisco at the same time.
Appy's Ulm said he and his developers would skip E3 this year to attend the Apple event.
"E3 is not as important to the industry as it was in the 1990s," he said, "because consoles are not as important."