Not only is the video game biz on the verge of becoming the most profitable sector in the entertainment industry (with some estimates predicting sales to exceed US$16.9 billion by 2003), but it is now stepping into schools and turning its products into educational tools.

In a groundbreaking strategic partnership with Sony, San Diego-based educational software and Internet company Lightspan has cornered the K-8 market on video games in the classroom. Created under the guidance of educators and adhering to national educational objectives and standards, the company’s Lightspan Achieve Now series consists of 80 ‘adventures’ that hinge on lessons in reading, language arts and math. For example, in Timeless Math 1, two kids find a mysterious library book that, when opened, transports them back to ancient Mayan civilization. Trapped in a pyramid, Maria and Todd must solve a series of complex math problems related to rational numbers in order to escape.

PlayStation produces all of Lightspan’s software at Sony Disc Manufacturing, and Sony charges license fees for the use of its gaming platform for a for-profit venture.

Launched back in 1996, today more than 3,600 schools in 43 states are using Lightspan systems, according to the Interactive Digital Software Assocation. Dr. Thomas Lockamy, deputy superintendent of academic affairs for the Norfolk, Virginia school system, says his district was ‘looking for a program that was not the same old duplication of workbooks and teacher-directed remediation, and this answered the charge.’

The out-of-the-box approach to learning seems to be working well so far. A report from the University of Delaware has found that reading and math scores increased ‘significantly’ among first- and second-grade students in the statewide Delaware Challenge education technology project, which used instructional programs created by the Lightspan partnership.

Lightspan’s Achieve Now profit is generated by a perpetual license business model. For example, in August, the company signed a US$2.5-million contract with the Camden, New Jersey school district. When priced out over the academic lifespan of a child from kindergarten to eighth grade, the cost breaks down to about US$600 per student per grade on average. The only additional cost to the school is for the PlayStation consoles that students are given to use at home for the academic year, and Sony sells the systems at a rack rate of US$92. Although the Achieve Now software can be played on either PCs or Sony PlayStations, 95% of participating school systems opt to use PlayStations, for two reasons. First, while many children from low-income families do not have access to a computer in the home, over 99% of Americans have televisions; and second, experience shows kids prefer the video game platform.

While it’s clear how Lightspan benefits from its educational market toehold, the advantages for Sony are more subtle. As Parker delicately notes, ‘Of all the things PlayStation has going on in the world, this is relatively minor when it comes to generating revenue.’ However, he says it’s the intangible benefits that matter most. ‘Exposing kids to the system who may not have the opportunity otherwise is important, as is the positive image,’ he explains. ‘It’s nice for parents to see that video games are not all evil.’

Although at first glance Nintendo might have seemed a more logical delivery system choice since its games tend to target kids in the K-8 demo, Lightspan chairman and CEO John Kernan says his company chose to go with PlayStation because it offered ‘the best technology at the best price, and Sony is a company with which we could develop a solid, long-term relationship.’

In practical terms, explains Sony’s business development manager Nash Parker, PlayStation was the only economically feasible option because it’s CD-ROM-based. ‘If you were to try and put the software onto Nintendo’s cartridges, you would have to build the circuit boards–a much more expensive method. And beyond the cost advantage, CDs are more durable, and you’ve got to think about durability when you’re giving stuff to kids.’