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Wednesday, August 25, 2004 - Page updated at 12:00 AM

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Penny Arcade takes razor-sharp jabs at video-game industry

Seattle Times technology reporter

Penny Arcade Exposition


What it is
A two-day convention about video games and tabletop gaming. There will be panel discussions by industry veterans, video-game demonstrations and tournaments. Also planned are performances by music bands and a hands-on preview of the upcoming game "Halo 2" for the Xbox. All ages are welcome.

Where
Meydenbauer Center in downtown Bellevue

When
9 a.m. Saturday to 11:59 p.m. Sunday. 39 straight hours of activity.

Price
$15 for a one-day pass; $25 for the full expo.

More information
www.penny-arcade.com/pax

Microsoft debuted its Xbox video-game console in 2001 to a steady stream of criticism about its controller, which some players said was too big and bulky for their hands.

The issue proved a jackpot of material for the two Seattle men who produce Penny Arcade, an online comic that ruthlessly pokes fun at the video-game industry. They sharpened their pencils and tore into the Xbox, drawing a picture of the controller's designer, who had giant-sized hands, asking, "What's the big deal?"

Another comic showed an Xbox player whose controller had secretly been replaced with an 800-pound grizzly bear. The player picks up the bear and asks his roommate, "Did you order one of those new smaller controllers?"

The comics are classic Penny Arcade, the twisted brainchild of Mike Krahulik and Jerry Holkins. Holed up in a spartan office in a small, faded building in Northgate, the two take aim at video-game land three times a week with a Web-based comic full of nonsensical plot twists, oddball characters and language so coarse it could be considered offensive. This is not a comic for children.

Online jabs at an industry aren't unusual in a world where blogs and e-mails sling mud at just about everything. What is surprising is Krahulik and Holkins are making money at it, enough to live on at least, with the majority of their revenue coming from online advertising.

This weekend, they are kicking up their income stream with a new venture: the Penny Arcade Exposition, a video-game convention Saturday and Sunday at the Meydenbauer Center in Bellevue. Krahulik and Holkins expect it to grow every year.

About 1,400 people have registered, a testament to Penny Arcade's rabid fan following. Even some companies the comic has shredded will be there, a testament to Penny Arcade's influence. The site gets about 175,000 viewers a day.

"Penny Arcade is very well-respected in the gaming industry," said Larry Hyrb, director of programming for Microsoft's Xbox Live service. "They poke a lot of fun at us, which is OK because we poke a lot of fun at us as well."

Walking down the halls at Xbox is like viewing a Penny Arcade gallery. Hyrb said many developers and testers read the comic religiously and tape printouts to their office doors.

"They're really an unbiased source, an unfiltered voice of the gamers," he said.

Objects of criticism

Xbox co-creator Kevin Bachus, whose new company has been the subject of Penny Arcade's harshest criticisms, said he is fine with the attention. He is president of Florida-based Infinium Labs, which plans to launch a new video-game console in November after nearly two years of hype that was short on details.

One Penny Arcade comic showed a diagram of Infinium's booth plan at E3, the annual video-game convention in Los Angeles. Each room at the booth was labeled with such words as "lies," "flimflam," "dishonesty," "duplicity" and "deceit."

To show no hard feelings, Infinium invited Krahulik and Holkins to its booth at the show and taped paper to the doors with the same words on them.

"It always stings a little bit to have somebody say something or draw something that's uncomplimentary," Bachus said. "At the same time it was tremendously flattering. Out of all the things they could have drawn that week, that they chose to draw us is in a way kind of cool."

Holkins, 28, and Krahulik, 26, met in journalism class in 1993 at Spokane's Mead High School. After graduation, they stumbled through a series of unfulfilling jobs — washing dishes, collecting balls at a golf course, fixing computers — and played video games all the while. Then a gaming Web site held a contest to find someone who would create cartoons about video games. The two kept submitting comics until the site wrote them to stop because the position was filled.

Undeterred, they made photocopies of their work and left it at comic-book shops, hoping for a big break.

"We would just hope that people would pick them up and take them," Krahulik said. "We just wanted to make comics."

They eventually found another online video-game site that agreed to run their comics every week, but the site's owner didn't like the salty language, they said. Rather than tone things down, they developed their own rudimentary Web site in 1999. The 12,000 or so fans they had developed followed.

Back then, it seemed anybody with a Web site was making big money, and Holkins and Krahulik wanted in on the action.

"There were a lot of people just making hobbyist-type Web sites that were being snapped up by larger organizations and being paid a lot of money to run them," Holkins said. Inspired, the two sold all the rights to Penny Arcade to a little-known dot-com called eFront, which intended to use the content to sell advertising.

"At the time, we were like, 'This is it,' " Holkins said.

"They sent us a check for like, $1,000 or something like that," Krahulik added. "We were like, 'Woo-hoo!' "

They quit their jobs, moved to Seattle and Krahulik got married. A few months later, eFront folded. They got the rights back, but dreams of becoming millionaires were dashed, and money was scarce.

They lived off fans' donations for two years, receiving about $6,000 to $8,000 a month, while the site's readership soared.

That was a period Krahulik and Holkins refer to as "B.K.," or "before Khoo." The Khoo is Robert Khoo, a former business analyst for a consulting firm who joined the company in 2003.

Unlike Penny Arcade's founders, Khoo knew a thing or two about business. Krahulik and Holkins charged advertisers $1,500 a month for 7.5 million page views, which Khoo estimated at 97 percent below market value.

"The way we calculated that was how much money we needed to live each month," Krahulik said. "That's how much we charged."

Khoo quit his job and offered to work at Penny Arcade for free for two months, promising he would make Krahulik and Holkins rich. He's still the only employee.

Revised business model

Since then, he has restructured the way the site sells advertising and lined up side projects for the creative team.

Now, the business model includes selling merchandise and sponsorships and offering creative services, such as making comics for strategy guides or for video-game publishers to use as advertising.

The Penny Arcade team isn't rich yet, but Krahulik and Holkins have enough money to live on. They are thinking about buying homes.

They dream of selling their business to a big company one day — one that won't go bankrupt — and never having to work again.

This weekend, they are spending about $35,000 on the Penny Arcade Exposition but expect to make a small profit on the event. And nearly 10 years after sketching their first comic, they will be the stars of their own party.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2004 The Seattle Times Company

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