Wait a second...I just finished reading an article on gamespot which told the story a tad differently. ESA has supposedly made this decision on their own, not by coercion from big developers.
They are deliberately downsizing E3 in order to cut out all the worthless crap that fills it now (i.e. booth babes, rock bands, and endless crowds of non-game-industry people). This will drastically reduce the size of the event and therefore make it much more friendly for smaller developers. In other words, game develpoers will display their progress in a conference-room setting to potential publishers and sponsors.
This, in turn, will encourage the development of games with a virtue of quality, instead of games designed as tech demos to impress the drooling masses.
This could be a very good thing for the game industry.
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