Then there were three: Sony, Microsoft, Nintendo and the evolution of the Electronic Entertainment Expo

In mere days, the ESA will host the 18th annual Electronic Entertainment Expo in Los Angeles, a multimillion-dollar event that serves as a soapbox for industry leaders, game developers and peripheral manufacturers as well as a focal point for video game enthusiasts. The show is a driving force for the industry, dictating Christmas lists in early June and establishing what products will live, die and fade from the public mind. Retailers eye consumer reactions to help them finalize their holiday orders and fans devour coverage of the event as if it was manna from heaven. Since the show's 1995 launch, video games have grown from a niche category to a central facet of modern entertainment -- finding their own place in the music industry, our national museums and even organizations like the Boy Scouts of America. No other event celebrates and glorifies the industry so thoroughly.

Yes, it's a trade show at heart -- as well as the industry's best hype machine -- but it's also a very prominent part of gaming fandom. Following the news, scrutinizing announcements and arguing over who "won" the show is almost an annual tradition. Amid all of the event's excitement, it's easy to forget its strange origins. The industry's biggest spectacle wasn't born from a rational need to create a unifying trade show, but instead from a federally imposed stalemate in the console wars of the 1990s.

Mortal Kombat on Capitol Hill

Screenshot from Mortal Kombat: the game that started it all.

In late 1993, Acclaim released the home console version of the popular fighter, Mortal Kombat. Since its release in arcades a year prior, the title had become immensely popular -- capitalizing on the popularity of Street Fighter II while simultaneously raising the stakes with digitized graphics (animations created from photographs) and comically gory violence. Naturally, the title was a hit, selling millions of units between the toned-down Super Nintendo version of the game and the fully featured (and graphic) Sega Genesis cartridge. Unfortunately, that popularity also made it a target, eventually drawing the attention of Joseph Lieberman, then Democratic Senator of Connecticut. Startled by the game's graphic content, Lieberman investigated other mature titles of the era and became gravely concerned about the marketing of violent video games to children. The senator quickly organized a congressional hearing to address the issue, bringing the video game industry under heavy scrutiny. Unbeknownst to Lieberman, these actions would eventually set the stage for the industry's first dedicated trade show.

The hearings began in December 1993. A panel made up of industry executives, educators and child psychology experts accused games like Mortal Kombat and Night Trap of rewarding children for acts of simulated (and gruesome) violence. As the hearings continued, panelists accused the industry of promoting racism, sexism, violence and homophobia. To make matters worse, Nintendo and Sega attacked each other throughout much of the hearing, hoping to trap one another in a mire of federal regulation. Eventually, Lieberman issued an ultimatum in the form of the Video Game Ratings Act of 1994: if the industry couldn't establish its own standard for rating games, the government would.

It was a forced turning point for the industry. Companies that had spent years combating each other in the marketplace now had to either work together, or face the wrath of the federal government. In 1994, executives from Sega, Nintendo, Atari, 3DO, Philips and Electronic Arts banded together to create a new trade organization: the Interactive Digital Software Association (IDSA) -- known today as the Entertainment Software Association (ESA). The group tapped Douglas Lowenstein, a Washington, D.C.-area consultant who had worked with Electronic Arts on an unrelated project, to head the IDSA as the organization's first president.

"One of the things that these companies realized was that the shield against criticism was informing consumers about what was in the product," Lowenstein said. "At the same time that they were looking to build a trade association, they brought on a consultant named Dr. Arthur Prober, who had done a lot of work in children's television. He developed what became the ESRB."

The newly formed Entertainment Software Rating Board placated Congress, temporarily silencing the outcry over violent video games.

Conceiving a trade show

GamePro's map of the inaugural Electronic Entertainment Expo in 1995.

Without having to worry about the threat of federal regulation, the newly unified games industry was free to use the IDSA to focus on common issues. It didn't take long before someone brought up the Consumer Electronics Show. CES had been the event of choice for the video game industry for several years, but many companies simply didn't feel at home at the venue.

"There was a CES in Vegas where the video game industry was relegated to temporary tents out in the parking lot," Andy Eddy, editor-in-chief of @Gamer magazine, remembered. "It was really windy and rainy. Some people had rain dripping on their monitors during exhibiting hours." Eddy explained that the gaming industry was pouring money into the show, and felt spurned by being relegated to leaky, off-site housing. "It sort of felt like we were at the back of the bus."

After a meeting between video game executives and CES organizers (the Consumer Electronics Association, or CEA) failed to resolve the industry's issues, companies started looking for alternatives. Pat Ferrell, creator of GamePro magazine, cooked up an idea for a trade show built specifically for the game industry. He began to reach out for support.

"I started calling guys like Bill White (Sega) and I talked to Bing Gordon (Electronic Arts)," Ferrell told us. "They told me, 'If you can show us you can throw this thing, we'll jump in.'" That wasn't going to be a problem, Ferrell said -- his outfit was a wholly owned subsidiary of International Data Group (IDG), which had its own exhibition management firm, IDG World Expo. "We were already doing shows like MacWorld."

It was decided that the expo needed ties to the industry's new trade group, and Ferrell struck a deal with the IDSA, proposing an industry-specific alternative to CES: the Electronic Entertainment Expo. "At the same time," Lowenstein recalled. "CES put together a proposal to create kind of a dedicated video game segment of their Chicago show."

Ferrell knew there was only room for one gaming trade show, and needed a way to force companies to pick a side. "I laid my dates on top of theirs," he told us. "Now the companies kind of had to decide what horse they were going to bet on."

With two options on the table, the IDSA and the industry's leading firms had to come to a decision. Sega immediately backed the proposal for a new show, while Nintendo erred on the side of caution, defending CES. "Nintendo had a long, very successful relationship with CES," Lowenstein explained. "It wasn't so much that they had any issues; it was more, you know, if it ain't broke, don't fix it."

The IDSA eventually voted on the issue, with the new show winning the motion with a vote of 7-2. Still, Nintendo and Microsoft stubbornly refused to join the project. "This war continued for three or four months," Ferrell told us. Eventually, someone had to blink, and Ferrell received a call from the CEA's Gary Shapiro. "He was on the phone for me, and he said, 'Pat? It's Gary. You win. We're done,' and hung up," Ferrell remembers, laughing. "That was the whole conversation!"

Within hours, Ferrell was on the phone with Microsoft and Nintendo, making plans to include the two companies in E3. With all other options eliminated, the firms reluctantly agreed to join the show. Smaller companies joined in too, now that all of the major gaming outfits were on board. According to Eddy, "Once Nintendo bought in, everybody else bought in." The industry was finally ready to host its own event.

The early years

Nintendo's geodesic dome display at E3 1995 (Marty Katz/Time Life Pictures/Getty Images).

On May 11th, 1995, the inaugural Electronic Entertainment Expo opened its doors. Despite having filled out all available space in the Los Angeles Convention Center, Lowenstein was nervous. "We didn't know if anybody was going to show up!" he said. Lowenstein described the act of building a new trade show as virgin territory. The IDSA simply didn't know if the show was going to be a success, but it didn't take long to get an answer.

"Literally the first day of the first show, I remember walking around and, you know, it was the best thing I'd ever seen," he told us, recalling the relief of seeing the halls crowded with attendees, and lines snaking away from registration. "Normally you never want to see that, right? You never want people waiting on line for an hour. People were pouring in; it was a sense of 'we've got something here.'"

The LA Convention Center's front-facing South Hall was completely booked by the time Nintendo chose to join E3, costing the company a premium location. Still, Nintendo made the most of it, filling out nearly a fourth of the convention center's 210,685-square-foot West Hall and attracting plenty of traffic for its efforts. Sega's and Sony's booths were huge too, collectively representing about a third of the South Hall's enormous 346,890-square-foot show floor. Their lavish displays set a precedent that would continue for years to come, and would eventually cause the entire show to buckle. In the meantime, the console war of the era raged on -- the major manufacturers may have banded together to form the IDSA and create E3, but all bets were off when it came to the show floor. Sega made the first volley, revealing its previously announced Saturn launch date to be a farce: rather than releasing the new console in September, as planned, the 32-bit machine hit retailers on the first day of the show. Sony, not to be outdone, fired back with the original PlayStation's launch price: $299, a full $100 cheaper than the suddenly available Saturn. Nintendo demoed the Virtual Boy for the first time, too -- but that didn't work out in the long run.

With over 40,000 attendees in its first year, the show was clearly a success, and the IDSA knew it had something big on its hands. Under the existing agreement, IDG had control of the E3 name and its intellectual rights. Lowenstein said the trade association quickly renegotiated those terms.

"We went to them and said, 'Look, we want to own the show. We're happy to have you put the show on, but we're gonna own it.'" he said. "So we negotiated a different deal, which made the then IDSA the owner of E3 and its intellectual property. Eventually, we owned it all and we entered into a vendor relationship. We hired IDG World Expo to actually put on the show. They received a management fee for doing that, and we pocketed the net profit after management fees and expenses."

News of the show's success spread through the industry, and soon companies were knocking on the IDSA's door.

"When we went to year two, demand for space skyrocketed," Lowenstein said. "We not only had the traditional game companies, but we had educational software companies; we had peripheral manufacturers."

It was the mid-'90s, and the "edutainment" industry was still trying to establish itself with consumers. Mainstream news made some fuss over the CD-ROM titles that debuted at the 1996 show, including interactive encyclopedia software and digital history and art collections. Today, Lowenstein laughs at the memory of the category.

And the celebrity spectacle begins: Michael Jackson and executives at Sony's PlayStation party on day one of E3 1995 (AP Photo/Rene Macura).

"I used to joke with people about it," he said. "They'd ask me why the market hadn't taken off, and I would say, 'When was the last time a kid went up to mom and dad and said, "I want Math Blasters for my birthday"?'" E3's future was in the gaming enthusiast's corner.

That same year, Sony knocked $100 off of the price of its PlayStation, prompting a reactionary price cut from Sega. Jeff Green, former journalist and current director of editorial and social media at PopCap, remembers the Nintendo 64 as the star of 1996.

"Back then there was a sort of superiority and elitism about the PC gaming crowd that I was a part of, you know -- looking down on all the consoles," Green said. "Then the N64 came along, and really, that was kind of our first look at next-gen 3D graphics. I think many of us were genuinely blown away ... that felt like the future at the time."

In 1997, the show started a quick two-year stint in Atlanta, Ga. Green remembers that too, but not very fondly.

"That was crazy. It was super-freaking hot," he recalled, laughing. "I know that was when a bunch of shooters got shown for the first time on the PC, like Half-Life, Unreal -- those games. Mostly though, I remember the heat."

With the major console announcements out of the way, the show was more focused on software. Duke Nukem Forever began its laughable tradition of endless delays, and future hits rolled out across the show: Banjo-Kazooie, Resident Evil 2, Metal Gear Solid and more. E3 left Atlanta after the following year, but not before Sega announced the Dreamcast, its final attempt at winning the hardware race. The new console's reveal was the most arresting announcement of the show, but it was closely tailed by The Legend of Zelda: Ocarina of Time.

Sony didn't wait until the next Electronic Entertainment Expo to respond to the Sega Dreamcast. In March 1999, the company officially announced the PlayStation 2, immediately shifting the conversation into Sony's realm. Sega pushed back by bringing a strong launch lineup to E3 that summer, which had since returned to its original venue. It was the dawn of a new console cycle, but the show was tainted in the wake of the Columbine high school massacre. Reacting to the news that the shooters were avid fans of Doom, the media once again focused its attention on violence in video games, descending upon the show to uncover the culture behind "gore games."

One Time article of the era passively shamed E3 attendees enjoying a demonstration of Quake III, asserting that it was "as if Columbine had never happened." The author, David S. Jackson, went on to describe how companies avoided addressing the issue. To be fair, some of them were.

"A lot of game companies put their shooters and their violent games behind closed doors," Green recalled. "That's a common practice anyway, but games that were supposed to be on the show floor were taken off because of the negative press around the violence."

Lowenstein remembered the period too, and explained that he tried to be optimistic that the media would treat these situations differently in the future.

"It was a real challenging period, but at the same time, we knew that eventually there would just be an organic shift," Lowenstein said. "I spoke once at E3 and said, 'In our lifetime we're going to have a president of the United States that grew up playing Grand Theft Auto.' It's true, we already have people in Congress that grew up playing Grand Theft Auto."

Establishing a new generation

Lines outside the Los Angeles Convention Center at E3 2004 (David McNew/Getty Images).

The sensational press eventually died down, and the industry rode out of 1999 with strong sales. By the time the 2000 show arrived, Sega had sold over 2 million Dreamcasts and PC World reported that Nintendo was closing in on its 100 millionth Game Boy. Both Halo and the Xbox moonlit the show, but not as we now know them -- Microsoft teased its upcoming console with a tech demo (the final hardware would eventually be revealed at CES 2001), and Halo hadn't yet made the jump to consoles. The show's most hyped announcements centered on the rivalry between Sega and Sony, with each company exhibiting major titles for the Dreamcast and PlayStation 2, respectively. Despite beating the PlayStation 2 to market, Sega's Dreamcast failed to resonate with consumers -- by 2001, it had resigned itself to its fate as a software company, demonstrating titles for both the Xbox and the newly announced Nintendo GameCube. Nintendo also showed off the Game Boy Advance, and early demos of what would eventually become Metroid Fusion.

Soon, Sega faded from the gaming community's collective consciousness, isolating the three companies that rule the roost of the console industry today: Sony, Microsoft and Nintendo. For the next four years, their devices were the stars of E3, seeing landmark releases for each platform as the show trudged forward. Two Zelda games made their way to the GameCube between 2002 and 2004, and the massively popular Halo franchise received its first sequel. Sony first announced the PSP in 2003, prompting Nintendo to respond with the release of the original DS the following year.

As the gaming industry waged war on the E3 show floor, the IDSA found itself doing battle with the media. "Our people would call reporters and leave a message and say, 'We're with the Interactive Digital Software Association,' and nobody would ever know who they were," Lowenstein told us, explaining that the organization's name simply wasn't recognizable. "It was a mouthful and people got the acronym all wrong. Half the time people called us the ISDA." Even board members had a tendency to flub the moniker, Lowenstein said, and the organization eventually rebranded itself as the Entertainment Software Association, or ESA.

Nintendo's Wii booth at E3 2006 (Robyn Beck/AFP/Getty Images).

As games rolled out over the next few years, Microsoft focused on its next hardware release -- beating the competition to the punch. When the Xbox 360 hit the market in late 2005, Sony and Nintendo were just teasing their next-generation hardware. However, Japan's giants got a chance to fight back at E3 2006. Sony outfitted a two-story booth with theaters showcasing games from the PlayStation 3's launch lineup, and Nintendo's Wii sparked the imagination of the community.

"It just demoed so well at that E3," Green told us. "This was at a time when people were still making fun of the name, and the whole thing seemed like a gimmick. We're definitely all used to it now, and most of us have nunchuks collecting dust in the closet or whatever, but at the time, at that show, it was so exciting to play." Nintendo's lavish booth piped digital product demonstrators in via large LCD screens, spooking guests who didn't notice the two-way camera that allowed the personalities to see and even talk with them. The competition had equally impressive presentations, featuring multiple levels, large screens and enormous spaces. For attendees, the structures were fantastic and grand, but exhibitors were feeling the strain of that grandeur.

Santa Monica

Sony's Jack Tretton and Chewbacca show off a Star Wars-themed PSP at a scaled-back E3 in Santa Monica in 2007 (Chris Weeks/WireImage).

"By 2006, the show was huge," Lowenstein explained. Each year, he'd sit down with the major exhibitors to get a bead on how the show was going, and as the show matured, a trend developed. "I'd go and sit in these little meeting rooms with Kaz Hirai of Sony, you know, or Howard Lincoln or whoever from Nintendo or Larry Probst from EA, and we'd sit down and I'd say, 'How's the show going?' and invariably at some point, a lot of them would say, 'This is ridiculous. This is crazy. We're spending so much money here, we can't justify this anymore.'"

E3, they told Lowenstein, was just getting too expensive. "Companies spent literally $5 million and $10 million building some of these booths," he said. In 2006, the situation came to a head. The ESA (formerly the IDSA, remember?) held its annual post-show meeting, and heard from a number of prominent companies that they would not be returning to the show in 2007. Lowenstein described these parties as E3's "anchor tenants," the companies whose presence drew not only the crowds, but other exhibitors as well. "There was more than one," he hinted to us, not so subtly. "More than two. If big companies started pulling out and they gave everybody else cover to pull out, the show would go from huge to nothing literally overnight."

The ESA had to either find an alternative, or risk losing the show altogether. The organization decided that E3 would become an invite-only media summit rather than a large expo, and moved the event down the road to Santa Monica, Calif.

"It went from being a 60,000-attendee show to being a 5,000-person media showcase," Eddy recalled. "It was basically a bunch of conference rooms in hotels." Attendees weren't enthusiastic about the new format. Announcements still came in 2007, but, BioShock, Halo Wars, LittleBigPlanet and the show's other announcements seemed less exciting for the lack of spectacle.

"It was scaled so far back that it had the effect of making it look insignificant." Green told us. "What I realized at the time was that part of the importance of E3 was just being big -- a celebration of gaming itself and a declaration of how big an industry it is, how popular it is. It sort of needed the yearly chance to crow about itself -- it makes everybody feel better, despite it being a complete pain in the ass." Scaling back the show may have been the right move at the time, but the disdain for the new format seemed to be universal. "The only thing that was worse than having a giant E3 was having a tiny E3," Green concluded.

The show's smaller format persisted for one more year, just long enough for the ESA to change its mind. Lowenstein had left the organization by that point, but feels a return to form was a wise decision. "I wouldn't have changed the show," he told us. "It worked great for us, and I think it worked great for the industry back then. I think that's one of the reasons it sort of came back."

In 2009, E3 returned to the LA Convention Center and opened attendance to a wide audience once again. Not everything was the same, however -- the ESA placed some limitations on the show, capping attendance at 45,000 and imposing other restrictions in hopes of managing both crowds and cost. Even so, the show was mostly back to old form.

Modern day

Usher performs at Microsoft's Xbox event at E3 2012, proving the spectacle of E3 is alive and well.

Starting in 2009, Microsoft and Sony gunned for the motion control market by introducing Kinect (known as Project Natal at the time) and the PlayStation Move, respectively. The next year, Nintendo unveiled its quirky 3DS handheld, and Sony eventually followed by announcing the comparatively powerful PlayStation Vita in 2011. E3 once again became a spectacle of gaming hype, featuring the usual deluge of major game announcements and fantastic floor demonstrations. As Sony and Microsoft tinkered with their next-generation hardware, Nintendo charged ahead with the Wii U, announcing, redesigning and hyping the console over several years.

Although the 2013 show still promises to be a banner year, undoubtedly trumpeting the launch of Sony and Microsoft's upcoming next-gen hardware, the firms are approaching the event a little differently than normal.

"One way that a lot of companies have been dealing with the fact that E3 is so huge and impossible to move around, is of course, the way they're all doing these pre-E3 events now," noted Green, referencing Sony and Microsoft's respective PlayStation 4 and Xbox One events. Both companies will host their normal E3 pressers too, but the early peeks allow the firms to offload some of the major news ahead of the show, dodging the noise these announcements would normally compete with. Nintendo's approach is even more unprecedented -- by canceling its own large-scale press conference, and speaking to its fans personally via its Nintendo Direct livestreams, Mario's team has all but withdrawn itself from the contest to "win" E3.

One of these moves would have been insignificant on its own, but the fact that all three major players have broken away from the standard E3 announcement format could affect the show's entire atmosphere. By hosting their own events to announce the PlayStation 4 and Xbox One, Sony and Microsoft have softened the blow of their biggest announcements ahead of E3 -- creating the opportunity to make software the star during a hardware launch year. Of course, the new consoles will still be major news, but since it's already old news, it's far less likely to outshine game announcements that might otherwise have been overlooked. A subtle difference, but an important one, considering that games sell hardware -- not the other way around.

This change in format might even lead to E3's next evolution: a more streamlined show with fewer major announcements. It's a trend we're already seeing in other sectors of the consumer electronics space -- CES 2013 was ruled by smaller companies, with firms like Microsoft skipping out almost entirely. Companies are withholding announcements from these large venues in order to exhibit them in less noisy environments, be that a private event or just a more focused trade show like Mobile World Congress or IFA. As a result these larger shows are getting smaller, or at least less extravagant.

It's all too easy to simply think of E3 as this event that takes over the gaming media for a week every summer, but it's more than that. Its creation is a symbol of the industry's maturity, one of its first major steps to differentiate itself from the greater category of consumer electronics and software. At the same time, it's also a symbol of war -- an extravagant battleground for the major players of the video game space and the subject of a thousand heated debates among enthusiasts. In a way, it's both a unifying and dividing force, and a large part of the culture that fuels the industry.

Lead Image: Robyn Beck / AFP / Getty Images (E3 2004)