LOS ANGELES — Video games are no longer the geeky stepchild of popular entertainment. Last year, US sales of what is now called "interactive entertainment" topped $7 billion, closing in on the $9 billion film industry. Throw in a host of other measurements, say those who study popular media, and what used to be the noisy baby in the backseat is now helping steer the entire culture, technologically and creatively.
Nearly half of all US homes own one game-playing machine, and 23 percent own more than three, according to Nielsen Entertainment. The technical requirements for video games are pushing the most popular technologies - including cellphones, Palm Pilots, computers, and TV - to become more versatile and powerful. College grads are now more likely to head into interactive software than moviemaking, and most big films such as "Spider-Man" and "Star Wars" are created simultaneously with interactive games that are released at the same time.
Perhaps most important, interactive entertainment is changing the way an entire generation sees itself in relation to the world, expanding popular storytelling beyond passive consumption to include involvement in the development and outcome of an experience. This relatively young industry - only three decades old - is now so pervasive that each person has a stake in how it evolves.
"We have a whole new generation of game players who are going to be the prime engine of our economy and society," says Robert Andersen of the College for Creative Studies in Detroit. "These are the people who will be writing our books, interpreting history, becoming scholars and doctors. It's too late to marginalize the gamer now; the industry is imbedded in the fabric of our society."
This industry is now at an important crossroads, say experts, largely due to its explosive growth. With the costs to develop a hit new game now topping $10 million, major game companies such as Sony and Microsoft are in danger of favoring profits over the innovative spirit that brought them to this point.
"We need games with better stories, more interesting and complex characters; games that keep you up at night wrestling with whether you made the right ethical or moral choices," says Doug Lowenstein, president of the Entertainment Software Association (ESA).
"We are seeing [interactive entertainment] in its infancy right now," says Rob Adams of Orbital Media, which publishes family games. "It's like being at the dawn of television," he says. "What happens now is going to affect how everyone is entertained in the future."
Take a walk through the industry's annual trade show known as E3, which ended in May, and it's obvious that much of the serious development money goes for games based on movies ("Harry Potter," "King Kong," "Spider-man," to name a few); sequels to popular franchises ("Final Fantasy XII," "Sims 2," "Halo 2"); and knockoffs of the most popular genres - fantasy and war games.
Much like the film industry, an overemphasis on blockbusters is one of the industry's biggest weaknesses as far as encouraging innovation and creativity, say observers. "Future titles need to offer more than wild shootouts, violent explosions, and the wholesale cheapening of life," says game designer Howard Sherman.
"We've been moving in the wrong direction," says Steve Meretsky, a designer and industry veteran, "toward bigger budgets, centralized decisionmaking by fewer big companies that has led to more licensed games [based on movies and books], and fewer experimental games."
Many of the young talents that might help create those games are also discouraged by the industry's focus on money. They say it's nearly impossible to get an audience for a new game concept, especially one with the creativity and vision of a "Sims," the groundbreaking "God-game" (players control every aspect of their characters' lives, thus "playing God") that revealed a largely untapped mainstream audience for social and nonviolent games.
"It's pretty much impossible to bring a new idea to one of the big companies now," says Sean Smith, a college technology major from Arizona who attended E3. Major companies, such as Sony, Microsoft, and Nintendo, talk about the need for innovation, but at this stage innovation most often shows up in ever more powerful hardware, rather than in genuinely creative new games. Indeed, the next generation of gaming platforms - Playstation 3, X Box 360, and Revolution - which was the talk of this year's E3, rival the computing power of the Pentagon, while most of the games for the new hardware are a predictable mix of war, racing, and sports games.
At the same time, there are promising signs. Peer Schneider, editorial director of IGN.com, a game website, points to the emerging world of educational and training software being used in venues such as hospitals ("Escape from ObeezCity," a game to teach children about obesity) and the military ("America's Army"). All these tap the sophisticated interactive tools developed by the video-game industry. But, he adds, even within mainstream games there are bright spots, such as "Nintendogs," a new game in which players take care of dogs, derived from the simple virtual pet games of the 1990s. This is an example of what Mr. Schneider calls "the nursing factor" - characters caring for one another - made possible by the new, more powerful machines that can store far more character information.
"Even in a popular war game such as 'World of Warcraft,' if you have a strong character and a newbie comes into the game, you have to take care of him and help him out," he says. "The strong character gets stronger by taking care of the weaker."
Others point to the online communities as a hot spot for innovation, in particular "mod" games. Short for modification, mod games are variations made by fans on existing games. These underline the spontaneous creativity in the vast online communities. One of the most anticipated new titles due next year, "Spore," the latest from Sims designer Wil Wright, capitalizes on interactive players' growing desire to customize games. Players begin as a single cell, then progress through full-blown civilizations that launch into space.
"Once you customize, you're still playing it based on your own actions," says Nick Earl, a vice president at Electronic Arts, which is producing the game. "But there's great opportunity for players to express themselves. It's the best, most innovative and artistic part of what we create."
Many observers agree that the online game community represents the most important social and cultural components of electronic software's future. "Online games have the potential to transform entertainment into a global-community exercise, breaking down borders, cultural and language barriers, and even political prejudices," says ESA's Lowenstein. "I doubt any other form of entertainment holds out that promise," he says. "We have only scratched the surface of what [interactive entertainment] can be."