JEFFREY KAYE: For sheer in-your-face spectacle, few events compare to the Electronics Entertainment Expo or E3. This is the video game industry's annual trade fair, where the titans and wannabe titans of the business gather to unveil their latest wares: Games of speed; whimsy; and combat: Lots and lots of combat. More than an assault on the senses, E3 is a testament to the growing size and clout of the video game industry. The business last year racked up more than $7 billion in game sales. As revenues grow, so do the industry's ties to Hollywood and professional sports, which are eager to turn their blockbuster movies and best athletes into lucrative games.
NEIL YOUNG: I think if you sort of measured video games in terms of their cultural impact today and sort of where they fit for the use in young adults of America, it's as valid an entertainment form as music, TV, film, you know, literature.
JEFFREY KAYE: Neil Young is the general manager of the Los Angeles studios of Electronic Arts, or EA. EA is the world's leading developer of video and computer games. Last year it took in more than $3 billion -- thanks in part to such best-selling series as Madden NFL, The Sims and Lord of the Rings.
Young credits the increased complexity and realism of video games for his industry's growth.
NEIL YOUNG: When you are building a game really what you are doing is creating a world. You're creating a universe -- one like a film where every shot is carefully orchestrated and the filmmaker really controls sort of what the audience sees from shot to shot.
In a video game, the computer game, really what we are creating is we are crossing the world. And we're giving the player the tools and the rules to be able to kind of explore that world in a way that they can see fit.
to develop as a combat training tool for the Army went on to become a critically acclaimed video game.
JEFFREY KAYE: But critics of the industry say game makers too often create virtual worlds steeped in violence and sex. 16 percent of all video and computer games sold have been rated mature by the industry for violence and or sexual consent.
The latest conflict is over the most recent version of the Grand Theft Auto series. Already controversial for its digital mayhem, critics are also complaining about hidden sex scenes that proficient gamers can unlock.
But for game makers, controversies over content are just speed bumps in a rapidly growing industry.
VOICE: What the hell is -- oh Batman!
JEFFREY KAYE: One concern is mushrooming production budgets with some video games costing more than $20 million to make.
In their search for new ideas and talent to keep the game industry growing, companies like EA are increasingly turning to the ivory tower, forming partnerships with America's colleges and universities. One of them is the University of Southern California.
ANTHONY BORQUEZ: I think USC definitely would, you know, wants to be the leader in game development and game research.
JEFFREY KAYE: Anthony Borquez, the director of USC's Information Technology Program, started teaching video game production at the campus three years ago. He admits academic colleagues were initially skeptical.
ANTHONY BORQUEZ: I think a lot of people are mistaken that, you know, you're playing games and having a good time in the classroom. When it very much -- it's very different. It's rigorous, probably some of the hardest technology that we've taught.
JEFFREY KAYE: EA is a major patron of USC's video game program. It has donated more than $8 million to the school. Much of that money has gone to found and operate the EA game innovation lab at USC's respected School of Cinema Television.
At the lab, researchers are supposed to blue sky developing video game ideas away from business concerns and market pressures.
RICK NELSON: The idea will be that you can grab a whole bunch of clouds and bring them over and you will be able to start a thunderstorm.
JEFFREY KAYE: Graduate student Rick Nelson's current project is a game called "Clouds."
RICK NELSON: I think that part of our goal here is to prove that you can have a lot of fun, and you can create pleasant systems that people will want to engage with without a lot of violence and without a lot of, sort of the destructive qualities of modern games.
JEFFREY KAYE: EA hopes the ideas and innovations that spring from this lab might one day be turned into marketable games, ones which might appeal to women and older people who account for a small percentage of gamers.
NEIL YOUNG: That's the real opportunity, I think, for us as we go forward in the next five years is answering the question that our company was founded on which is: Can a computer game make you cry? Can it move you emotionally? You know, can it resonate with you like a great piece of art resonates with you? When you put down the controller you know, can you have learned something about yourself? And that is the potential ultimately.
JEFFREY KAYE: To develop those games the industry is investing in the next generation of storytellers, animators and software engineers.
SPOKESPERSON: What were you thinking about doing?
SPOKESPERSON: I don't know if I want to stop or --
JEFFREY KAYE: EA supports a video game summer camp at USC for high-school students from across the country. At the lab the teens learn how to turn their ideas into to finished and playable games.
STUDENT: I'm trying to get Dumbledore to shoot good magic at the death eaters and the death eaters to shoot evil magic at Dumbledore.
JEFFREY KAYE: Student Denise Hong sees a career for herself as a game designer.
DENISE HONG: I've seen like so many amazing games, and I feel that I want to contribute to like the production of like a really great game some day.
JEFFREY KAYE: But increasingly video game technology is being used for far more than fun and games. At USC's Institute for Creative Technologies or ICT, academics together with experts from the U.S. military and creative talent from Hollywood have formed a collaboration to create video games with a deadly serious purpose: The training of soldiers for real world combat.
SPOKESMAN: Tucci, how is the boy?
SPOKESMAN: The boy has critical injuries sir.
JEFFREY KAYE: The ICT with $145 million in U.S. Army funding is developing simulations to try to hone soldier's street level, person-to-person command skills.
SPOKESMAN: Sergeant, send two squads forward.
JEFFREY KAYE: Dell Lunceford, who used to be the Pentagon's top man for interactive technologies, is the ICT's chief technology officer.
DELL LUNCEFORD: Kids that grew up playing games and living in an interactive world, it's just a learning mechanism that they're much more interested in.
SPOKESMAN: This is a hostile area; get out of here now.
JEFFREY KAYE: In a warehouse space dubbed Flat World, the ICT has created a virtual combat environment. Here, real life visitors make their way through a violent and battle scarred city in the Middle East -- encountering threats that range from quick triggered insurgents to rock throwing youths.
The starring character is a virtual U.S. Army Sergeant who explains in his own words why he was created.
SPOKESMAN: What can you do for the war fighter?
SPOKESMAN: Tough, realistic training is the key to building effective teams. My job is to try to make sure that soldiers get that kind of training every time they step into the virtual training area.
DELL LUNCEFORD: It will not replace the need for the soldiers to be able to go out in the desert and practice their skill, sitting in a real tank, moving around in real dirt. That will not go away for a long long time. The days of the Holodeck -- of Star Trek -- are not here yet but as a simulationist and a little bit of a futurist I think it is only a matter of time.
JEFFREY KAYE: Whether or not ICT's work will lead to success on the battlefield is an open question. But the center has scored one clear success with gamers.
A consumer version of Full Spectrum Warrior, a game which ICT helped