The next generation of video game mahines looks likely to bring a boom to the region's fast-growing software industry. Deputy Business Editor Dan Jenkins reports on how North-East businesses are in pole position.

THE video games market is about to explode, providing huge opportunities for North-East games developers.

The industry's Big Three are all poised to launch a new generation of consoles that will revolutionise the sector.

First up to bat is Microsoft, with the Xbox 360 this year, to be followed in mid-2006 by the Sony PlayStation 3 and Nintendo's follow-up to the GameCube, presently dubbed the Revolution.

These machines will be several times more powerful than a home computer, as manufacturers aim to satisfy an increasingly sophisticated consumer.

Nintendo, Sony and Microsoft all unveiled their new toys - to a greater or lesser extent - last week at E3 in Los Angeles, the world's biggest games expo.

Right in the thick of it were four North-East game developers - Atomic Planet and Onisoft, both based in Middlesbrough, plus Tyneside firms Mere Mortals and Pitbull Syndicate.

They were part of a North-East stand organised by GameHorizon, a collaborative network of 11 North-East games design firms that launched in September last year.

GameHorizon is a division of Codeworks, the North-East Centre of Digital Excellence.

Simon King, Codeworks' head of sector development, said: "Because these next generation machines are going to be more powerful, the cost of producing the games is going to go up massively."

At present, an A-list title can cost up to £400,000 to develop -or more.

But this is expected to increase tenfold.

The global games software industry is estimated to be worth £11bn, with annual games sales expected to be more than £20bn by 2007.

The UK has Europe's biggest games market, valued at nearly £2bn, which doubled in the last six years. Britain is also the world's third largest software producer.

The industry in the region has achieved a faster rate of growth, more than doubling in the last three years.

Last year, it had a combined turnover of £15m and directly employed about 400 people.

"We are confident that will double again," said Mr King.

"North-East companies are competing globally and winning work.

"It is no exaggeration to say that games created in this region are being played every minute of every day, in every time zone from Seoul in Korea to New York."

Last autumn, two of the top five games in the US Billboard were produced less than five miles from his Newcastle city centre office - Driver 3, made by Newcastle-based Reflections, and Street Racing Syndicate, produced by Eutechnyx in Gateshead.

Eutechnyx, which attended E3 under its own steam, is poised to launch a follow-up to its million-selling, Bafta nominated game, Big Motha Truckers, dubbed Truck Me Harder.

The shift in what gamers expect from their consoles has largely been driven by the PC market. Massively Multi-Player Online Games (MMOGs) for home computers have become a huge success.

They offer players the chance to operate in virtual, online worlds, populated by hundreds, or even thousands of like-minded gamers.

To gun for this market, console makers are demanding games where players will be able to "grow" characters by downloading extra game levels or other add-ons.

Mr King said: "You used to buy either a driving game or a first person shoot-em-up. Now the trend is for games to have everything.

"With costs exponentially rising, the question is what this all means for an independent games company in the North-East."

GameHorizon believes the answer to this difficulty is collaboration.

Three partnership design projects worth several hundred thousand pounds are already off the ground.

Codeworks is also bringing major companies to the region on factfinding trips.

The list so far includes the world's biggest games publisher, Electronic Arts, plus Sony and Microsoft.

Carri Cunliffe, project manager, said: "They are realising how much of a culture of expertise there is in the North-East and are starting to bring work up here."

Promoting games design as a regional industry is linked into Codeworks' drive to help halt the "brain drain" of our brightest talents to the South-East.

Codeworks runs a graduate work placement scheme that it calculates has already retained talent worth more than £1m.

"It is changing," said Mr King. "But you are still more likely to find our brightest people in a Soho caf than one in Billingham."