Those yellow dots are Hollywood's lunch.

And Pac-Mac is eating it. Well, not specifically Pac-Man, but the gaming industry in general.

Last weekend I went to see Revenge of the Sith. During the opening ads, at least 50% of the ads shown were for video games. Two of them were even presented movie-trailer style, like the spot for Forza Motorsports, the most polished of the bunch.

Now, I followed E3 on TV this year—thanks to Cablevision who seems to be the only carrier of G4 in the New York City area—and the main thing I took away from the Playstation 3 and Xbox 360 demos was that Hollywood is in a lot of trouble. And I was reminded of this as I watched this Xbox Live experience on the big screen.

Yes, this isn’t a new statement. No, this isn’t something we haven’t already seen unfold in retail and the box office. But it’s a new shift in the trends framing that activity. Just take a look at the effects shown in the next-generation console demos and decide how long the big Hollywood blockbuster can last, especially when you consider some key points:

• An expanding gaming market means a larger, older, general audience, beyond the usual hardcore and teenage audiences.
• The use of star voice talent is on the rise, as they positively affect sales of titles. In addition, other contributors such as writers and composers are becoming equally as important (e.g. Harry Gregson-Williams on the MGS series for starters).
• Development costs continue to soar—if you’re going to spend $20 million to make a game, you better make sure the elements are up to snuff.

All arrows are pointing to more polished, “Hollywood” type of productions that are targeted to the general population and not just the “gamers.” Even Sony’s Ken Kutaragi has said “We’ve never once called [the PS3] a game machine….We want to realize a new future in entertainment with the use of computers.” (Microsoft has made similar statements, but more home-media-center oriented and not nearly as ambitious as what Kutaragi expressed.)

The Achilles’ Heel of this is the lack of major players, specifically because EA has eaten most of them up, bought sizable chunks of folks like Ubisoft, or by signed deals with others like SquareEnix. There are very few studios that can produce games to the scope, detail and quality that the new consoles demand, and so for the forseeable future we’ll still have to suffer plenty of insipid throw-aways.

At the same time, however, Hollywood will continue to lose its core of thrill-seekers, those less interested in story and more interested in effects and fireballs and explosions. And this is a core, because they’ve been shown to have such a hard time getting people to watch their larger endeavors, such as Kingdom of Heaven, a favorably-reviewed movie that just simply hasn’t found an audience. In the modern Hollywood world, a movie that makes modest but consistent revenue for years and years is basically a failure. Blockbusters must be blockbusters, because failed attempts can bankrupt. But take a look at filler like XXX: State of the Union—can one honestly believe that given the chance to watch something like this, or play something like this to the graphic detail of the Killzone 2 demo, that people will prefer to watch?

No, they don’t think so either. Which means it’ll be interesting to see how the studios enter the game industry in full force as things unfold, because not doing so means allowing their cash cows to die.

Dave Winer-esque moment: Lest we forget, Sony is also a movie studio. Ka-ching!