It's creativity vs. megazap in video-game sales battle

The home video-game business is starting to look like a scene out of its own blast-'em-up products. Last year, the industry was an outstanding player of the earnings game. With each direct hit on the market, it racked up incredible profit points. But now, the game business itself is up on the screen, scrambling to avoid the rapid fire of the market. Last week, Twentieth Century-Fox Games went down to defeat. The division made game software based on movies and television shows.

For a person in the midst of this action, Thomas Lopez seems unusually calm. Over lunch here, this senior vice-president of Activision Inc. didn't dwell on present losses at this major video-game software company. He didn't talk much about Christmas sales - which could make or break many gamemakers. He's confident about the future, and about one new Activision game in particular: Space Shuttle.

Space Shuttle is a new genre in game software, Mr. Lopez says. It's an ''experience'' that ''widens your horizons.'' You are the astronaut that's guiding your ship through liftoff, docking with a satellite in space, touching down at Edwards Air Force Base. You see and hear everything as it would be from inside the spacecraft. It could take a month for you to learn how to get the whole maneuver down pat.

Analysts and executives agree that this industry must graduate from the traditional game themes of chasing, shooting, and getting through a maze if it expects to regain stability.

Some teen-agers are getting bored with these ideas. ''It's the same games over and over,'' says Deborah Sodickson, a 14-year-old Atari player in Waban, Mass. ''You get to know what's going to happen. It takes the fun out of it.'' Deborah says that she's ''lost interest'' in games like Space Invaders and Pac-Man and that the family is now thinking about buying an IBM computer, because ''it has more you can do with it.''

''What is needed is new kinds of games, real breakthroughs,'' affirms Clive Smith, an analyst with the Yankee Group, a market research firm that specializes in high technology. ''Creativity is the long-term structural problem in this industry.''

But short-term problems, which can't be ignored, bombard these companies, too. First, there are just too many firms in the business. Many jumped in when the market was booming last year. They have made ''too many games,'' says Randi Hacker, managing editor of Electronic Fun & Games, a magazine for teen-agers which is devoted to computer entertainment. ''There are too many inferior variations on the same themes,'' she says.

Gamemakers and retailers overestimated the excitement of the market, and now store shelves and warehouses are stuffed with game inventory. ''The mound of inventory is being eaten away,'' explains Bruce Entin, Atari spokesman, ''but not fast enough for retailers to make mega-orders'' for new products.

Retailers are heavily discounting some products, selling them in the $4-to-$ 10 range. Games normally sell for $25 to $35. While the press has been reporting widespread discounting as a big reason for company losses, this doesn't seem to be so. A visit to toy stores in the Boston area, at least, shows only minimal discounting, mostly on nonhits of last year or games made by companies going out of business. ''Discount pricing is contributing to losses,'' Mr. Entin says, but ''inventory is what's really hurting.''

Inventory has also piled up because consumers have been switching from game machines to home computers. As the price of home computers dropped, customers went for a machine that could do more than play games. The major gamemakers, which have made games exclusively for game machines, are just now beginning to adapt their software to home computers. Meanwhile, home video-game machines are selling at phenomenal discounts.

All of this spells chaos for the industry. Since January, the Consumer Electronics Division of Warner Bros., comprising mostly Atari products, lost $ 536.3 million. Losses at Activision for its fiscal first half were $3.9 million and the company has just announced a 25 percent reduction in its work force. Imagic, a privately held video-game company, will have a loss year, too. And Mattel Electronics is in the hole $201 million for the first six months.

''We need to get a lot better organized as an industry,'' says Bruce Davis, Imagic president and chief executive officer. When demand was racing at breakneck speed, he says, the industry ''didn't have a chance to develop maturity.'' But now that demand has slowed, ''there is more time to pause and reflect on the nature of this business.''

There's a lot to reflect on, especially in the area of new products. The latest games are adventure, mystery, or life-experience oriented. A Cambridge, Mass., company, Infocom, makes one that's pure text, in which the player moves around in a complex plot.

Along with the themes, game technology is getting more sophisticated. Playing on a personal computer will give gamesters more options, like being able to add their own rules and features to a game.

But the technology that has everyone on pins and needles is the laser videodisc. Laser discs create realistic images on the screen which look just like cartoons or movies. The picture is a vast improvement over the dot graphics now in use. The hottest laser game is Dragon's Lair, made by Cinematronics in El Cajon, Calif. It's an adventure game about a medieval knight on a mission to rescue a princess. But because videodisc players are so expensive, this product has been limited to the coin-operated arcades. Coleco, however, has bought the rights to Dragon's Lair and says it will eventually make it available for home use.

''Everyone's looking at it (laser technology), but I don't know if it will ever get to the home,'' says Bruce Davis at Imagic. ''It's an expensive technology with limited utility.''

Industry executives see the present turmoil in the industry as temporary. But analysts say the only companies to come out smiling in the end will be the ones with good-quality software, a stronger retailer relationship, and the financial clout to manage a large advertising budget. Right now it looks as if every company is in a precarious financial position - which makes survival predictions a guessing game at best.