What is it about Mario in a tiny car that seems to get people riled up?

The little guy with the huge mustache doesn’t look like he could do much damage, but in the videogame world, he’s a beast. According to the Guinness Book of World Records, Mario Kart Wii is the best-selling racing game across all genres. Figures from Nintendo released last year said the game had sold 15.4 million copies, compared with the previous record, set by Sony’s GranTurismo 3, which sold 14.89 million copies.

Today, two challengers confront Mario Kart with new games. The most direct challenge comes from United Front Games, a nearly three-year-old company based in Vancouver, British Columbia, and Sony with ModNation Racers—a kart racing game exclusively for the PlayStation 3 and the handheld PSP in which users can create their own tracks, environments, and cars. Another game, Blur, is being released for the Xbox 360, the PlayStation 3, and PCs. Even though it’s not a traditional kart game, it borrows elements from the genre and its advertising campaign mocks Nintendo. Not to be outdone, Nintendo today rolls out a new non-racing Mario game, Super Mario Galaxy 2.

Analysts see the launch of the new Mario game as a potential boost for an ailing industry. Sales figures for April showed a sharp drop, the third time in the first four months of this year and the 10th time in the past 13 months that sales fell from the comparable year-ago period. For April, U.S. consumers spent $766.2 million on consoles, games, and related products—a 26 percent drop from the year before.

Earlier this month, representatives from Sony and United Front Games stopped by the Portfolio.com headquarters in Manhattan to offer a demo of ModNation Racers and to talk about their new game. Here are highlights from my conversation with Dan Sochan, a UFG producer.

How did you end up coming to create United Front Games and then working with Sony on this project?

A lot of us had worked together in the past at Black Box Games, which was then acquired by Electronic Arts, and other people were at Radical, which was acquired by Activision. And so we all came together and formed the company—we’re wholly employee owned—and we kind of looked at the experience and skill sets of the two teams, and we wanted to be a two-team company. In one, we had a lot of pedigree in racing, having worked on Need for Speed and Project Gotham, so we said, OK, this was the area we wanted to tackle. But we wanted to do something new and different and get rid of the shackles of photo-realism and tackle a genre that’s definitely very profitable and sells a lot of units, kart racing, but we felt it needed something new.

So we came up with a game idea of what next-generation karting meant to us and how we felt we were going to be able to innovate and bring a lot of new things to the table. We pitched it to a few different publishers, and as soon as we met with Sony we just were on the exact same page with exactly what we wanted to do. Little Big Planet (a PlayStation 3 game released in 2008 that had a heavy user-generated content component) hadn’t been announced yet, but it was obviously something that was in the works, and they really believed that it was something they called gaming 3.0. It wasn’t just making games bigger, faster, and prettier, but really changing ways we develop games, to allow people to customize, build their own experiences, a sort of choose-your-own-adventure style of gaming. And so it lined up really well with our skill sets and technology, so we decided to build ModNation Racers together.

What does a game like this cost? How much money did you spend developing ModNation Racers?

I can’t really talk about dollars and cents, but it was a "triple A" budget to make a "triple A" game…. If you think of some of the smaller titles that cost a couple million dollars, we’re considerably more than that.

Nintendo Wii and Mario have come to dominate the kart-racing space. But there are certainly other types of racing games. Explain the difference in racing genres.

Nintendo really did establish the kart-racing genre and that type of game. What it generally meant is slightly smaller cars. Usually it’s about some sort of iconic characters, licensed characters, so there’s been Sonic, and there’s been Mario, and there’s been Star Wars characters thrown into these karts. It involves, usually, weapons but not super-violent, aggressive machine guns and things like that, but sillier weapons. And it’s intended to be accessible, pick up and play, as opposed to GranTurismo, which is meant to be a simulator.

But how do you intend to fight Nintendo at their own game?

We knew it was going to be a challenge right from the very beginning, where if you say "kart racing," you’re going to be compared against the Mario Kart. They are the king. They defined the genre over 20 years ago back on the Super Nintendo, and they haven’t had a lot of competition.

We’d definitely love to outsell Mario Kart, but more than anything else, the genre just basically needed to be brought into the next generation. There’s room for competition within that space. Very few games have ever put a lot of time and effort into it. Usually they take a racing game, spend a few months working on it a little bit, and then throw licensed characters in there and hope that will help sell the game. We didn’t want to have licensed characters specifically for that reason. We wanted it to be all about the quality of the customization and about the racing itself and let that stand on its own and then let people create their own characters.

Beyond the money that players put down to buy ModNation Racers ($59.99 for the PlayStation 3, $29.99 for the PSP version), you’ll also be selling some additional add-ons and allowing users to upload their creations for other players to use for free. What’s in store for the future with the economics of user-generated content?

It’s interesting thinking of the economic side of things, because user-generated content on the PC has been around for 10-plus years, with games like Team Fortress, and it was always done for passion by the community. They wanted it to be very open source, like a Linux, and they didn’t want there to be any price tag associated with it, so it will be interesting to see what something like StarCraft (a PC real-time strategy game that allows users to create spaceships and then sell their creations online) does, and I think you’ll probably see some people who will be a little bit bitter and frustrated with it.

They’ll feel like it takes away from those who are just passionate and are doing it as a labor of love, but then you’ll also probably see some people who will start quitting their jobs and stay at home and build fantastic levels, and that has a lot of interesting ramifications as well. That’s great, thinking that someone can just be at home and be a professional game designer without having to work for a company per se and can start up their own business.