By Ryan Olson

It’s difficult to accurately describe the state of the video game industry in only a few words, but suffice it to say there’s a lot of change going on—and more opportunities than ever before. Players have a huge variety of options thanks to brand new consoles, portable systems with plenty of great games, and the ongoing options offered by the personal computer. The widespread availability of broadband Internet and the tremendous popularity of social networking and user-generated content has both investor-backed startups and established companies trying to figure out how to build even better games.

In March, more than 10,000 developers, company officials, and media will descend on San Francisco’s Moscone Center for the 2007 Game Developers Conference (GDC) to show off their work, offer opinions on the state of the industry, and discuss its past and future. Now in its twentieth year, the conference will include tracks on everything game design, programming, business, audio, and visual arts, as well as internal summits focused on serious, mobile, and independent games.

This week the GDC announced the keynote speakers for its 2007 conference, which will include legendary Nintendo game designer Shigeru Miyamoto and Sony Computer Entertainment President Phil Harrison. The news comes after a holiday season during which both companies released much-anticipated hardware that, when combined with Microsoft’s year-old Xbox 360 system, completes a trifecta of next-gen game consoles.

We recently caught up with Jamil Moledina, executive director of the GDC. We covered a number of different subjects including this year’s conference, startup opportunities, and even McDonald’s. Excerpts from the conversation follow:

Red Herring: GDC’s been around for twenty years. How is the conference evolving, especially given the Entertainment Software Association’s July announcement of plans to scale back its monster E3 trade show (see E3 Stripped Down)?

Mr. Moledina: A lot of the folks who used to have a home at E3 are looking to GDC… disenfranchised E3 expats. The other part is publishers who had their IP launches at E3 and no longer have a place to do that. E3 was driven by the large booths on the floor. GDC is the opposite. It’s built on attendance. That’s not just our ideology, it’s our business model. People buying passes are our customers. Since that’s what makes GDC work, [it’s] a classic development event. This is the audience that can make or break a platform.

We operate this thing much like a leading magazine. It’s great for attendees because we’re filtering [content], and it’s great for the press because we’re only selecting things that rock the free world.

RH: What opportunities are there for game startups? Some companies we’ve spoken to paint the development landscape as one with essentially two options: low-cost, Web 2.0-style “lite” games or big budget, boxed titles a-la Madden or World of Warcraft.

Mr. Moledina: There’s a lot of conventional wisdom out there that’s just not accurate. You can produce a AAA next-gen title with a small team. There are developers doing this with few people… you can jump into the online universe with a very low overhead [and without] a huge infusion of cash.

You can create the $50 to $60 [experience] on a very small budget with a small team. If you can get into the Wednesday release schedule with [Xbox Live] Arcade, Microsoft will take care of that. Achieve limited success and you can go to packaged goods.

Steam [from Valve Software] helps with that. GameTap [from Turner] helps with that. IGF [the Independent Games Festival] helps with that. There are different ways to rise above the static. Once you do that you can make the case for why someone else should invest in your product. Every VC wants to see the prototype.

These days there’s a much more direct link between merit and success which was completely obfuscated by [things like] marketing, who you know, luck… really stupid things in the past.

RH: There’s certainly a huge shift going on.

Mr. Moledina: Everyone had preconceived notions about how these things work… ideas of how games are made, marketed, and bought. The entire deck is shuffled. E3 used to be this huge tent pole the entire industry built their entire marketing campaign around. That is gone. The things we’re talking about—broadband and new enabling tools and business models that didn’t exist before—change the old boys’ network and turn the industry into a meritocracy.

This is a change this industry has been waiting for. The toolset is making it easier for non-programming people to make an entire game. It’s somewhat akin to the advent of digital video in the film industry. People who have professional-quality tools go out and make a movie about what happens if you eat McDonalds for 30 days. There’s a tremendous enabling, merit-based order that’s arising.

You don’t have to get on to the Today show anymore… you just have to get a lot of hits on YouTube.