Adult themes may have dominated video game play in 2002, but they’ll soon be relegated to the back seat as developers gear up for the year the industry pays homage to the demographic that started it all – kids.

Richard Ow, senior account executive with industry tracker The NPD Group, says video game and console sales have increasingly moved from consumer electronics retail channels into the mass market over the past year, which indicates that more families are buying. Between the first and second halves of 2002, Ow says the 17 and under demographic moved up nine percentage points to corner 69% of the market.

This shift is being driven by the fact that consoles have come down in price significantly over the last year. Sony’s PlayStation 2 and Microsoft’s Xbox are now retailing for US$199 – US$100 less than their debut prices – and the Nintendo GameCube has dropped US$50 to US$149. The increasing affordability of the video game entertainment option has gained a lot of traction with families that are choosing to stay home and keep activities low-key this year in light of a lackluster economic climate and disturbing world events.

The fact that the PS2 and Xbox both double as DVD players only adds to the family appeal because they can serve as total entertainment systems for a fraction of the amount that one would expect to shell out for multiple entertainment components.

It also necessitates a central living room location for the system, which encourages whole-family involvement in the video game experience. And this parents-too usage pattern shift is a much more natural one now since many of today’s parents hail from the Atari generation. As more of them open up to playing age-appropriate games with their kids, the whole industry gets a very important stamp of approval.

Responding to all of these factors, both Sony and Microsoft have been actively preparing their affiliate game publishers for a major focus on the under-12 set in the coming year. ‘They’re sending out the message and showing us the demographics and the research data they have,’ says Jamie Leece, president of New York’s Gotham Games, which recently released Piglet’s Big Game with Disney Interactive. Leece expects both Sony’s and Microsoft’s development arms to create more kids games in-house and to farm out more kids titles to third-party partners in 2003.

So how much legwork will the console companies have to do to get back in with kids? Sony’s PlayStation 2 currently controls 74% of the global console market across all demographics, according to a report commissioned by the U.K.’s Entertainment and Leisure Software Publishers’ Association from market statistic researcher Screen Digest. And many attribute Sony’s market dominance to its vast library of game titles, which acts as a draw to both ends of the age spectrum and ensures that the console can grow with families.

Controlling a 14% share of the market, Nintendo tends to skew younger by virtue of the kid-friendliness boasted by its core game franchises, which include Super Mario, The Legend of Zelda and Pokémon. The company’s hardware is also more toy-esque than Xbox or PS2, both of which have a distinctly consumer electronics look and feel.

The Xbox is widely recognized as the technologically superior console, which makes it most attractive to older technophiles. So Ow estimates that only about 15% to 20% of Xbox sales come from consumers under the age of 12. But interestingly, Xbox is the only console that offers parental controls.

Competition may be fierce between consoles, but the handheld market can almost entirely be summed up in four words – Nintendo Game Boy Advance, which is the uncontested leader in that product category. ‘Kids ages six to 11 represent more than half of GBA’s market,’ adds Ow.

But even the best system won’t make any headway in the kids market if it doesn’t have the right games. Ow is predicting that while the console market might top out this year in terms of dollars because of the steep drop in prices, software will become the driver for the entire industry over the next three years. And as the installed base of households in which families play together grows, so too will demand for family-oriented and arcade-style games that appeal to everyone.

Currently, the top-selling game chart across all consoles is split in half between games rated T for teens or M for mature and titles that are deemed appropriate for everyone with an E rating. But there are some fundamental differences between what works in an all-ages game and what works in a kids game. ‘Older games require a certain understanding of things like scrolling menus and commands, while younger-skewing games play on such an intuitive level that they’re really ageless,’ says Michael Fischer, VP of marketing for Sega America. ‘If you look at the best games, like Sonic the Hedgehog or Super Mario, the difficulty level is ramped in such a way that as you play, you’re learning new skills without knowing it.’ This year, Sega is planning to both aggressively seek out new kids licenses and expand its in-house properties, which include Sonic and Super Monkey Ball.

When THQ released Rugrats Royal Ransom with Nickelodeon last year, the studio had to make sure the game was simple enough, keeping in mind that some of its target audience doesn’t read and therefore needs graphic or vocal instructions. According to Peter Dille, THQ’s senior VP of worldwide marketing, game play for kids titles needs to be balanced on an age scale. It should be just as much fun for the younger child (who may not get past the first few levels) as it is for the older child, who will breeze through the beginning but find it more challenging as the game progresses.

But game play aside, most publishers agree that a good license is the secret to success in the kids video game market because kids ‘like to have adventures with familiar characters,’ as Gotham Games’ Leece puts it. Whether original stars of a long-running game series (like Nintendo’s Mario and Sega’s Sonic) or characters from popular TV shows like The Powerpuff Girls, Scooby-Doo and SpongeBob SquarePants, established properties dominate the kids software market.

Redwood City, California-based Electronic Arts took a stab at creating a character from scratch last year when it released Ty the Tasmanian Tiger, developed by Aussie outfit Krome Studios. The game required a lot more marketing effort and didn’t come close to matching the success of licensed juggernaut Harry Potter and the Chamber of Secrets, which sold more than a million units, says Trudy Muller, EA’s corporate communications manager. The gameco is back on firm licensed ground this year, working with U.K. developer Warthog on several Warner Bros. titles, including upcoming Q4 release Looney Tunes: Back in Action. The company has inked distribution deals for games centered around licensed properties like Harry Potter and Lego, and it also has a slate of games with Disney Interactive coming out this fall.

Although Xbox group product manager Molly O’Donnell agrees that popular licenses are important, she stresses that the power of a good gaming experience shouldn’t be downplayed. ‘More kids are renting before buying. They’ll rent because of interest in a license, but they’ll buy or not buy based on the actual gaming experience they have.’ O’Donnell says kids love strategy and puzzle games like Blinx: The Time Sweeper, and Xbox’s sports titles have also proven to be quite popular with the under-15 demo.

THQ and Nickelodeon are circumventing the traditional problems associated with games based on new, original characters by tapping into the might of Nick’s marketing muscle for the launch of Tak and the Power of Juju this October. Nick plans to spin the game off as a TV show or movie, so it will begin teasing Tak this month through on-air elements like interstitials, program promos and behind-the-scenes shorts. ‘It’s a very comprehensive marketing campaign for the character, which leaves us free to focus and spend our marketing money on the gamer audience,’ says THQ’s Dille.