This month, retailers, distributors and analysts will converge in Atlanta to see the latest offerings from software publishers and developers at the interactive software industry’s biggest show, the annual Electronic Entertainment Expo (E3).

Launched two years ago as a showcase for software products for computers and video game systems, E3 just keeps getting bigger. This year’s show, taking place from June 19 to 21 at the Georgia World Congress Center and the Georgia Dome, spans some 535,000 net square feet of exhibit space. That’s up from about 480,000 square feet or the equivalent of 21 football fields last year. ‘Even though we have this consolidation trend in the business overall, we’re experiencing growth in the show,’ says Doug Lowenstein, president of the Interactive Digital Software Association, which owns the show.

More than 400 companies have already signed on as exhibitors, which is comparable to last year. E3 1997 is expected to draw about 40,000 attendees, with visitors coming from as far away as the U.K., France, Australia and Japan.

In recognition of the growing number of software publishers and developers operating outside the U.S. and the increasing amount of business that U.S.-based companies are doing overseas, E3 is kicking off International Day on June 20. Also new to the show this year is an expanded conference program, with panels arranged under six themes: Building Models That Work: Managing Business Trends, Surviving the Technology Explosion, Game Developers Track, Trends in On-line Entertainment, Retail Distribution and Marketing, and Financing New Media.

Some companies are scaling back their efforts at E3, which is more a sign of the strains in the industry than of diminished regard for the show. ‘I think most publishers have re-evaluated what they spend at trade shows versus what they get back,’ says Debra Streicker-Fine, president and CEO of Cloud 9 Interactive of Marina Del Rey, California, which is sharing a booth under the banner of its distribution partner, Simon & Schuster Interactive. ‘Almost everybody has severely cut back the glitz and the expense and they’re just bottom line showing products and meeting with people.’

On the other hand, a good share of the show’s exhibitors will likely be new to the show, including OmniMedia. The London, England-based company is taking out a booth at an American trade show for the first time. The move is key to helping it expand its presence in the U.S. following the opening of a Ph’enix, Arizona, office last year. ‘This is really the show to be at,’ says Richie Leitner, vice president of sales and marketing with OmniMedia. ‘If it were [held] twice a year, I think people would do it twice a year.’ The show occurs at the perfect time of the year to offer retailers a sneak peek at products that will launch in the fall.

And it’s products indeed that retailers will be anxious to check out. While all things surrounding video games may overtake the floor, the kids business is sure to have a strong footing at the show.

When it comes to titles targeted at kids, the overwhelming consensus is that attendees can expect to see more products featuring licensed characters or established brands. Customers and retailers like them, and publishers and developers are looking for titles that will move off store shelves. The Disney model of developing CD-ROMs around its feature film properties is a proven success. To sell products at premium prices, titles must be tied in to strong properties, says Jon Richmond, president of Los Angeles-based Fox Interactive.

‘It’s become such a competitive area [that] it’s difficult to succeed without a licensed character or franchise attached to the children’s product [when] it isn’t a hardcore educational product aimed at a very young audience,’ says Craig Relyea, head of marketing at DreamWorks Interactive of Los Angeles, which is rolling out Chaos Island based on The Lost World: Jurassic Park.

More titles aimed at girls are likely on their way following Mattel Media’s success with Barbie titles launched last year. It’s widely agreed that girls software is still a relatively untapped market. But the challenge to developing titles for girls, says Judy MacDonald, president and CEO of PrintPaks Inc. of Portland, Oregon, is finding the right product that will appeal to this audience.

Though perhaps less prevalent than in the video game business, innovations in technology will appear in kids titles. There will be talks of the DVD platform and Intel’s MMX chip, says OmniMedia’s Leitner. And Cloud 9’s Streicker-Fine forecasts more use of 3-D and voice recognition and connections to the Internet. But on-line tie-ins are less likely to be incorporated into products aimed at kids than those geared to teens or adults, says Richmond of Fox Interactive. ‘Unless you’re able to create some kind of proprietary Web site that allows kids to explore within a defined space, I think parents, rightly so, are very leery of providing product to their children that allows them unbridled access to the Internet.’

At the same time, ‘I think we’re all struggling with what should be the platform on kids products, and how far you can push the window in terms of system requirements,’ says Hope Neiman, vice president of marketing for Disney Interactive of Burbank, California. Children’s publishers and developers have been hesitant to drop older platforms for fear of losing potential consumers. But Disney Interactive feels confident that ‘there is starting to be a large enough installed base’ to release titles such as its upcoming Disney’s Magic Artist on Windows 95 only.

A new strategy that is sure to catch on as companies look to increase their customer base is pursuit of the mass-merchant market. ‘We’re trying to expand how we reach people,’ says MacDonald of PrintPaks, which is entering this market by reintroducing four of its hit titles from last year under the Make Your Own banner for a price of US$9.99 each. For its part, Fox Interactive is making its foray into kids software with products specifically created for mass-merchant outlets. Its FoxToons line is kicking off with four edutainment titles, starring established characters, priced at US$14.98 each (see ‘CD-ROM Roundup,’ page 78). ‘I believe that the future of kids software, on a broad basis, is in premium-quality, value-priced product,’ says Fox Interactive’s Richmond. But Disney Interactive’s Neiman cautions that ‘the price-value relationship has to be in balance,’ regardless of a product’s price point.

Value-added items are becoming bigger components of software packages. OmniMedia, for example, is including sticker and coloring books and audio recordings with its new title The Mystery of the Missing Princess. And the package turns into a free-standing castle. The purpose, says Leitner, is to increase a product’s playability outside the CD-ROM.

More bundling of CD-ROMs with other consumer products, from videos to toys, is likely, says DreamWorks’ Relyea, because it ‘plays off licensed properties and takes advantage of the different synergies that can be created.’

In terms of distribution, Cloud 9’s Streicker-Fine anticipates more exploration of alternative channels, such as retailers that have not been selling software, and more use of direct methods, including direct mail and on-line sales. Cloud 9 has recently begun offering its titles to cable subscribers in Santa Barbara, California, via the ICTV service (see story page 78).

While software is the show’s focus, attendees may also hear of how some interactive companies are extending their reach to other media. Humongous Entertainment is taking its original characters from the interactive world to television and licensed consumer products (see story page 79). And Cloud 9 Interactive is looking to do the same with its original characters, as well as participating in a yet-to-be-announced television co-production with a Canadian studio.

With so much movement in the kids software business, attendees can count on one thing: E3 will offer more than enough to keep them occupied.