Wedbush Morgan analyst Michael Pachter, posing in front of an Elvis impersonator

A couple of weeks ago, we wrote a piece for the "Global Literacy 2008" special edition of Newsweek magazine. In it, we argued that the Internet is the new sweatshop, by looking at properties ranging from YouTube to Spore that are being built on top of use-generated content. Since we could only use brief snippets of these email interviews in the print edition of Newsweek, we thought you might appreciate reading the game-related Q&As in their entirety. We heard first from Spore creator Will Wright; next up is Wedbush Morgan analyst Michael Pachter.

Electronic Arts announced that within just a few days, 500,000 creatures have already been created using the Spore Creature Creator. Then they said that they've hit a million Does this surprise you?

I'm not surprised at the number, it suggests around 100,000 users doing 10 apiece, which sounds about right. I heard from EA that [its CEO John] Riccitiello did 10, and he's clearly the target demographic ;-) Now, if we can find out how many Sam Houser created, that would be a story.

How do you factor user-generated content into your forecasts for games such as Spore, LittleBigPlanet, or even last year's Halo 3, with its built in photo mode and video uploader? What impact does this activity, nearly four months out from the launch, have on your forecasts for Spore. Have you shifted your initial estimates on LittleBigPlanet based on the response to Spore?

I think UGC (user-generated content) in this context is more like viral marketing, unlike UGC in World of Warcraft or even Halo, which comes after the fact. I expect around 3 million units of Spore to ship, so 100,000 users the first week of Creature Creator isn't really all that meaningful or unexpected. I saw ads on gaming websites, but this game has greater mass appeal (like the Sims), and mass market advertising will be more impactful than viral marketing.

Executives at Electronic Arts have suggested that they may exploit this user-generated content in a variety of ways, from toys to card-based games. Should users be somehow compensated if their "work" is used in this manner? Do publishers have any legal exposure if they don't compensate their users?

The appeal of UGC is its impact on the ultimate game experience, and that will take on a life of its own once a million players start uploading creations. I think of it more like eBay, which was a cool idea early on, but which became more interesting as it added users. Once a few hundred thousand creative types begin to upload cool creations, I think that the user experience will be enhanced to the point that the game will attract even more players. Ultimately, I think UGC will make a big difference; now, it merely shows the potential.

The same is likely true of LBP, but the user base won't be quite as broad (younger, and PS3 only).

The legal claim can be overcome by a waiver. For example, Newsweek owns your words, since you sold them in advance.

EA can choose to compensate users for UGC, and will likely attract even more and richer content if they do so. Can you imagine a 10 cent royalty on something copied a million times? That would encourage a lot of content. I don't know what they plan, but capitalism usually trumps slavery.

Can all games benefit user-generated content, or is it only certain games?

Most games can be improved upon, so I expect UGC to be part of all games (except Nintendo's) five years from now. There will always be IP owner concerns about character integrity (we can't have a white Mickey Mouse or a yellow Barney), but if characters can be made sacrosanct, I think you will see UGC part of even Disney games.