Video Games Go to the Movies : Entertainment: With sales booming, movie studios are collaborating with high-tech developers to create games that use real film and video footage.

Last summer, soon after Sony Pictures signed Arnold Schwarzenegger to star in “The Last Action Hero,” company executives from across the country gathered in a screening room on Sony’s Culver City lot to plan a massive marketing offensive for the movie, which is expected to be one of 1993’s blockbusters.

They included the usual music, merchandising and licensing managers. But also on hand was a group of relative newcomers to the process: Sony’s New York-based games division.

Their marching orders that day were to create a relatively new kind of video game--one that captured both the nuance and high-tech excitement of the Schwarzenegger film. To that end, the game group received everything from the highly confidential script to raw footage. As the production proceeded, they were even alerted to last-minute plot changes.

“The Last Action Hero” will arrive in theaters in June. Six months later comes the game, which will include actual scenes from the $70-million movie.

Until recently, such a collaboration between movie makers and game developers would have been pointless. Video games were created by computer programmers, and their crude, jerky, cartoonish images more closely resembled a preschooler’s painting than a Hollywood film.

But today’s video games, featuring high-quality video, CD-like sound and elaborate animated images, are redefining an industry that has enjoyed explosive growth since Nintendo virtually reinvented the business in the mid-1980s. Industry sales hit $4.5 billion last year--a remarkable figure considering the relatively narrow audience for video games: largely male teen-agers.

Hollywood is therefore taking notice. Studios that once regarded video games as a licensing opportunity about as important as T-shirts are creating game divisions and bringing game designers in on the ground floor of important new movies.

Game companies, for their part, are adopting Hollywood production techniques to create sophisticated games that use real film and video footage. Some game characters such as Nintendo’s Mario and Sega’s Sonic are so popular that movies and TV shows are being developed around them.

The blossoming relationship between the video game and film industries is emerging as one of the most important dimensions of the much-heralded courtship between Hollywood and Silicon Valley.

Hollywood executives stress that they aren’t trying to move in on the traditional game business, now dominated by Nintendo, Sega and a handful of independent game software companies. Rather, they view games as the forerunners of a new genre of “interactive” home entertainment, one that will become a major outlet for the storytelling talents of Hollywood artists.

“It’s changed from being a toy business to being an interactive entertainment business,” says Olaf Olafsson, president of Sony Electronic Publishing, which includes the Sony Imagesoft video game company. “There are now technology and marketing ties with music, music videos, motion pictures and television.”

This newfound symbiosis carries plenty of risks. As Warner Communications learned in the disastrous collapse of its Atari subsidiary, the video game business can be extremely volatile.

Moreover, some executives are wary of importing Hollywood’s enormously expensive production methods into the game world. No one suggests, however, that video games--which cost at most a few million dollars to produce--will ever approach the average Hollywood production budget of $28 million.

Nor has the entertainment industry figured out the complex contract and copyright issues that arise when film footage or movie scores are used in a video game. While games provide a new outlet for the talents of actors and musicians, they also raise the thorny issue of whether a performer’s appearance in a movie automatically means the images can be used in a video game.

Nonetheless, new, feature-packed game systems--notably the CD game machine from Sega; an upcoming Nintendo CD machine and a new system from 3DO, a Silicon Valley start-up backed by Time Warner, Matsushita and AT&T--have; created enormous opportunities for movie companies as they seek to grab a bigger slice of the ever-growing home entertainment pie.

“Now, with full-motion video, high-quality animation and three-dimensional graphics, we have a palette to paint with,” says Skip Paul, an executive vice president at MCA who has spearheaded the company’s relationship with 3DO. “We can explore interactive entertainment.”

Paul and others insist that it is a mistake to think of this new field as the video game business. Trip Hawkins, founder of 3DO, refuses to call his company’s system a game machine, preferring the inelegant label “interactive multi-player.” And, befitting the fancy name, 3DO’s systems are expected to cost about $700--more than four times the price of a Nintendo machine-- when they hit the market later this year.

Even if this grand new world of interactive entertainment turns out to be more hype then substance, video games still represent an important new direction for the entertainment industry. At Sony Imagesoft, game designers are racing to bring out Sega CD titles not only for “The Last Action Hero” but also for Francis Ford Coppola’s “Dracula” and the upcoming Sylvester Stallone movie “Cliff Hanger.” The Sega CD machine lacks the power and snazzy graphics of the 3DO system, but it does offer full-motion video and top-quality sound.

Rich Robinson, senior producer at Imagesoft, has gotten a good taste of both the potential and the pitfalls of creating a game in tandem with a movie. He arrived at Imagesoft a little more than a year ago, where he says the enormous film and music resources of Sony made him feel like the proverbial kid in the candy store. “This is the wish list I’ve had since I’ve been in the business,” he says.

As he began to develop the video game for “Dracula,” he met with director Francis Ford Coppola--a game enthusiast himself--and executive producer Ken Fuchs to get a feel for “the overall aura of the film.” He later was given access to all the film’s footage, of which he used about 20 minutes for the game. In addition, the Imagesoft designers used blueprints of the movie sets to create their computer-graphics renderings of certain scenery, such as Dracula’s castle.

But Robinson also encountered the “rights” quagmire.

“I came into it thinking the film rights and all the sub-rights would be included,” he says. “But all of a sudden when you want to put Anthony Hopkins in the game, they have their own rights and approvals.”

The “Dracula” game, to be released this month, does not include any of the film’s stars. And because game production did not really begin until after shooting was finished, there were no scenes shot specifically for the game.

In the future, though, Robinson and others expect that game producers will routinely be on movie sets, requesting certain shots specifically for use in a game, although cost considerations will place limits on such cooperation.

Sony Pictures has moved aggressively into the game business, and its strategy goes beyond simple cooperation between game developers and movie producers. Sony is launching an in-house unit that will specialize in creating the elaborate computer-generated special effects that have become a staple of major Hollywood movies. Those effects could easily be transferred to Imagesoft for use in games.

Moreover, Sony’s electronics group will probably launch its own game system next year--probably based on Nintendo’s upcoming CD system--and the game division will play an important role in supporting that machine. All of this creates big opportunities for cross-promotion of films and games.

“We see this new world of video games both as a business and as a marketing tool,” says Sid Ganis, president of marketing and distribution at Sony’s Columbia Pictures unit. The “Dracula” game, he says, “will have a substantial effect on other ‘Dracula’ business,” boosting demand for home videocassettes and merchandise and even prolonging the film’s run in theaters.

All the major Hollywood studios see similar opportunities. MCA is betting on 3DO, although it is still licensing movie properties such as “Jurassic Park” to traditional game companies even as its new “interactive studio” unit develops 3DO products. Time Warner is also an investor in 3DO and plans to produce software for the machines, as does Paramount.

Hollywood’s sudden interest in interactive entertainment could spell trouble for the Nintendos and Segas of the world. Not only will they face formidable new competitors, they could lose out on licensing deals for Hollywood’s most sought-after films.

“I don’t think the best-quality licenses are going to be available to the video game companies,” says Gilman Louie, chairman of Spectrum Holobyte, an Alameda-based company that has licensed one of the “Star Trek” TV shows.

But game software firms are positioning themselves by establishing alliances with studios and upgrading their own production methods. Not surprisingly, one of the most ambitious firms is Sega, which produces game software as well as machines. The fast-growing company has hired many of its new employees from the entertainment industry.

The company isn’t modest about its ability to create products that will match anything coming out of Hollywood. Already, Sega’s hugely successful Sonic the Hedgehog game has spun off a network TV special, a syndicated after-school TV series, a board game and comic books. Nintendo’s famous Mario character will be played by Bob Hoskins in a Disney feature film scheduled for release this summer.

“Why is the movie industry waking up to this?” asks Tom Kalinske, president of Sega. “Sonic II grossed $300 million. That’s the answer.”

The successful game companies have long recognized that they’re competing for the same entertainment dollars as Hollywood. Yet those companies must be careful to retain the action features--the dynamic of the game play itself--that keeps the core teen-age audience coming back for more.

“Technology will allow games that look more like movies, but the crux is still good game play,” says Bill White, director of advertising for Nintendo. “You can’t rely on a popular (movie) license to hold up a mediocre game.”

And it still isn’t clear how consumers will respond to film-based video games or other next-generation interactive entertainment products. Video games are designed to be played many times; players may not enjoy seeing the same videos over and over again.

The few experiments in interactive movies, in which viewers can choose among plot sequences, have not been terribly successful.

Times staff writer Alan Citron contributed to this story.