Israel’s video game industry focuses on the technology

Creating a game is a ‘Hollywood-size endeavor,’ so local firms are playing to their other strengths.

Though Israel has established a reputation as high-tech powerhouse, its position in one of the hottest growth industries in technology – video games – is fledgling.
The US video game market is the largest, accounting for close to half of global industry sales. It boasted revenues of $20 billion in 2009. This is nearly double its revenue just five years ago, and for many investors, games are a bright spot in entertainment, given flat box-office returns and declining music sales.
Charted for growth and founded on strong technological underpinnings, video games would seem a natural place for Israel to establish a presence.
The consensus among industry veterans as to why that hasn’t happened is that in order for the industry to take off, Israel needs both capital investment and an experienced ecosystem of developers to create games. A modicum of government support would also be welcome.
“Creating a game today is a Hollywood-size endeavor,” says Eli Wurtman of Benchmark Capital Partners. “It’s a $50 million investment. We don’t have the ecosystem for people to make huge investments like that. You don’t see AAA [blockbuster] game titles coming out of Israel.”
The place Israel has seen some success is – not surprisingly – the technology side of the business.
Oberon Media is one of Israel’s bigger success stories, though it’s now headquartered in New York. Oberon distributes casual games – simple, often free-to-play games targeted at a broad audience. The company’s strength lies in its content delivery system and its position as a global distributor.
Oberon partners with developers to make their games widely available on multiple platforms such as PC, Web, and mobile.
Another content-delivery company is Exent Technologies, which does digital delivery of games. The relatively venerable, 18 year-old company employs 110 people at its Petah Tikva headquarters.
Graphics-intensive Lucid specializes in multi-GPU computing, enabling different graphics cards to be used in tandem on single computer. Venture firms have invested a total of $40 million to date.
In-game advertising company Doublefusion places dynamic, real-time ads within its partners’ games.
“We can do things which are part of the 3D environment of games,” explains CTO Hillel Rome.
“Take Pro Evolution Soccer [Playstation 3]. In the real world there are billboards. So they put billboards in the game. Traditionally they are hard coded, but we can change it dynamically. We can put up a cereal ad in the morning, and a different ad at night.”
Doublefusion has raised over $36 million in funding since its inception in 2004.
The most recent success stories are 3DV systems, acquired by Microsoft for an undisclosed sum in 2009, and PrimeSense. Both firms are makers of motion-sensing camera technologies linked with Microsoft’s Project Natal, a new hands-free motion-sensing game platform.
Although technologically the industry in Israel is progressing, as far as game content goes, there’s not much development.
Oded Sharon leads the Israel chapter of the International Game Developers Association (IGDA). His independent Corbomite Games is one of the few companies creating game content in Israel.
“There hasn’t been any big success [in Israel] content-wise,” he says. “Investors are hesitant in something that Israel has yet to prove it can do. It’s a chicken-and-egg scenario. We don’t have the money to produce worthwhile content, so no one does.”
One company developing interesting content is Funtactix, which aims to deliver “wii-quality” multiplayer, action gaming over the Web. It hopes the option to create virtual avatars and port them between different Funtactix games will appeal to social players. The company has received $6 million in funding from Jerusalem Venture Partners and Benchmark Capital.
A few other pure-content companies include first-person shooter modifications Rising-Eagle and Petrograd, and Battle Dawn, a Web-based strategy game.
Sharon says government support is another factor needed to encourage the game industry in Israel.
“When it comes to Israeli film and television,” says Sharon, referring to the government-funded film industry, “there are numerous success stories of Israeli films abroad. We know how to produce content here. But you won’t see any government funds going to game developers.”
Guy Bendov’s company Sidekick is developing games for Microsoft’s Project Natal. A co-founder of Doublefusion, the in-game advertising company, Bendov has spent the last 18 years in the industry. He says that in investors’ minds, video games fall between categories.
“They’re not quite technology, and they’re not quite content,” he says, adding, “venture capital firms want to invest in something scalable. Game development studios work on a project-by-project basis, which is more tricky.”
Bendov is optimistic about the near future of the games industry in Israel.
“For the first time, Israel can be said to have an ecosystem,” he says,speaking of the development efforts swirling around Project Natal. “Wehave PrimeSense and 3DV  on the hardware side. Microsoft Research &Development has a big presence in Israel. And on the development sidewe have Sidekick and other companies creating games for Natal.
“Israel is known for its innovation. There’s a lot of interest in what’s happening in Israel.”