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The video game industry is the tertiary and quaternary sectors of the entertainment industry that specialize in the development, marketing, distribution, monetization and consumer feedback of video games. The industry encompasses dozens of job disciplines and thousands of jobs worldwide.[1]
The video game industry has grown from niche to mainstream.[2] As of July 2018[update], video games generated US$134.9 billion annually in global sales.[3] In the US, the industry earned about $9.5 billion in 2007, $11.7 billion in 2008, and US$25.1 billion in[update] 2010,[4] according to the ESA annual report. Research from Ampere Analysis indicated three points: the sector has consistently grown since at least 2015 and expanded 26% from 2019 to 2021, to a record $191 billion; the global games and services market is forecast to shrink 1.2% annually to $188 billion in 2022; the industry is not recession-proof.[5]
The industry has influenced the technological advancement of personal computers through sound cards, graphics cards and 3D graphic accelerators, CPUs, and co-processors like PhysX.[citation needed] Sound cards, for example, were originally developed for games and then improved for adoptation by the music industry.[citation needed]
Industry overview
Size
In 2017 in the United States, which represented about a third of the global video game market, the Entertainment Software Association estimated that there were over 2,300 development companies and over 525 publishing companies, including in hardware and software manufacturing, service providers, and distributors. These companies in total have nearly 66,000 direct employees. When including indirect employment, such as a developer using the services of a graphics design package from a different firm, the total number of employees involved in the video game industry rises above 220,000.[6]
Value chain
Traditionally, the video game industry has had six connected layers in its value chain based on the retail distribution of games:
- Game development, representing programmers, designers, and artists, and their leadership, with support of middleware and other development tools.
- Publishing, which typically includes both the source of funding the development of a video game, as well as providing the marketing and advertising for a game.
- Distribution, whether through retail or digital channels. Distribution typically includes manufacturing and duplication of game media and packaging for retail games.
- Retailer, storefront where the game is sold.
- Consumers, the purchasers and players of video games
- Hardware platform manufacturers, which can own and place limitations for content on the platform they have made, charging license fees to developers or publishers.
As games have transitioned from the retail to more digital market, parts of this value chain have become redundant. For example, the distributor may be redundant as a function of either the publisher or the retailer, or even in some cases as the case of indie games, the function of the developer themselves.[7]
Roles
Ben Sawyer of Digitalmill observes that the development side of the industry is made up of six connected and distinctive layers:
- Capital and publishing layer: involved in paying for development of new games and seeking returns through licensing of the properties.
- Product and talent layer: includes developers, designers and artists, who may be working under individual contracts or as part of in-house development teams.
- Production and tools layer: generates content production tools, game development middleware, customizable game engines, and production management tools.
- Distribution layer: or the "publishing" industry, involved in generating and marketing catalogs of games for retail and online distribution.
- Hardware (or Virtual Machine or Software Platform) layer: or the providers of the underlying platform, which may be console-based, accessed through online media, or accessed through mobile devices such as smartphones. This layer includes network infrastructure and non-hardware platforms such as virtual machines (such as Java or Flash), or software platforms such as browsers or Facebook.
- End-users layer: or the players of the games.[8]
The game industry employs those experienced in other traditional businesses, but some have experience tailored to the game industry. Some of the disciplines specific to the game industry include: game programmer, game designer, level designer, game producer, game artist, and game tester. Most of these professionals are employed by video game developers or video game publishers. However, many hobbyists also produce computer games and sell them commercially.[citation needed] Game developers and publishers sometimes employ those with extensive or long-term experience within the modding communities.[9]
History
 | This section may need to be rewritten to comply with Wikipedia's quality standards, as Section should focus on the history of segments of the industry (developers, publishers, etc.) and major events, which may be tied to hardware and software, but this should be less about reiterating the hardware and generations.. (March 2021) |
1940s–1960s
Prior to the 1970s, there was no significant commercial aspect of the video game industry, but many advances in computing would set the stage for the birth of the industry.
Many early publicly available interactive computer-based game machines used or other mechanisms to mimic a display; while technically not "video games", they had elements of interactivity between the player and the machine. Some examples of these included the 1940 "Nimatron", an electromagnetic relay-based Nim-playing device designed by Edward Condon and built by Westinghouse Electric for the New York World's Fair,[10] Bertie the Brain, an arcade game of tic-tac-toe, built by Josef Kates for the 1950 Canadian National Exhibition,[11] and Nimrod created by engineering firm Ferranti for the 1951 Festival of Britain.[12]
The development of cathode ray tube, the core technology inside televisions, created several of the first true video games. In 1947, Thomas T. Goldsmith Jr. and Estle Ray Mann filed a patent for a "cathode ray tube amusement device". Their game, which uses a cathode ray tube hooked to an oscilloscope display, challenges players to fire a gun at target.[13]
Between the 1950s and 1960s, with mainframe computers becoming available to campus colleges, students and others started to develop games that could be played at terminals that accessed the mainframe. One of the first known examples is Spacewar!, developed by Harvard and MIT employees Martin Graetz, Steve Russell, and Wayne Wiitanen.[14] The introduction of easy-to-program languages like BASIC for mainframes allowed for more simplistic games to be developed.
The arcade video game industry grew out of the pre-existing arcade game industry, which was previously dominated by electro-mechanical games (EM games). Following the arrival of Sega's EM game Periscope (1966), the arcade industry was experiencing a "technological renaissance" driven by "audio-visual" EM novelty games, establishing the arcades as a healthy environment for the introduction of commercial video games in the early 1970s.[15] In the late 1960s, a college student named Nolan Bushnell had a part-time job at an arcade where he became familiar with EM games such as Chicago Coin's racing game Speedway (1969), watching customers play and helping to maintain the machinery, while learning how it worked and developing his understanding of how the game business operates.[16]
1970s
In 1971, the first commercial arcade video game, Computer Space, was released.[17] The following year, Atari, Inc. released the first commercially successful video game, Pong, and 19,000 arcade cabinets of the original arcade version were sold.[18] In that year, video games were introduced to the home market with the release of the early video game console, the Magnavox Odyssey. However, both the arcade and home markets would be dominated by Pong clones, which flooded the market and led to the video game crash of 1977. The crash eventually came to an end with the success of Taito's Space Invaders, released in 1978, inspiring the golden age of video arcade games.[19] The game's success prompted the prevalence of arcade machines in mainstream locations such as shopping malls, traditional storefronts, restaurants, and convenience stores during the golden age.[20] More than 360,000 Space Invaders arcade cabinets were sold worldwide,[21] and by 1982, generated a revenue of $2 billion (equivalent to $6.31 billion in 2023) in quarters.[22][23]
Space Invaders was soon licensed for the Atari VCS (later known as Atari 2600), becoming the first "killer app" and quadrupling the console's sales.[24] The success of the Atari 2600 in turn revived the home video game market during the second generation of consoles, until the video game crash of 1983.[25] By the end of the 1970s, the personal computer game industry began forming from a hobby culture.
1980s
In the early 1980s, the golden age of video arcade games reached its zenith. The total sales of arcade video game machines in North America increased significantly during this period, from $50 million in 1978 to $900 million by 1981,[26] with the arcade video game industry's revenue in North America tripling to $2.8 billion in 1980.[27] By 1981, the arcade video game industry was generating an annual North American revenue of $5 billion[19][28] (equivalent to $16.8 billion in 2023). In 1982, the arcade video game industry reached its peak, generating $8 billion in quarters,[29] surpassing the annual gross revenue of both pop music ($4 billion) and Hollywood films ($3 billion) combined.[29] This was also nearly twice as much as the $3.8 billion generated by the home video game industry that year; both the arcade and home video game markets combined in 1982 total of $11.8 billion[29] (equivalent to $37.3 billion in 2023). The arcade video game industry would continue to generate an annual revenue of $5 billion in quarters through to 1985.[30] The most successful game of this era was Namco's Pac-Man, released in 1980, of which more than 350,000 cabinets were eventually sold,[31] and within a year, collected more than $1 billion in quarters;[32] in total, Pac-Man is estimated to have grossed over 10 billion quarters ($2.5 billion) during the 20th century.[32][33]
In the early 1980s, 8-bit home computing and home-made games boomed. This was especially in Europe (with the ZX Spectrum and Commodore 64) and in Asia (with the NEC PC-88 and MSX). Video game journalism arose at that time, which was later expanded to include covermounted cassettes and CDs. In 1983, the North American industry crashed due to the production of too many badly developed games (quantity over quality), resulting in the fall of the North American industry. The industry would eventually be revitalized by the release of the Nintendo Entertainment System, which resulted in the home console market being dominated by Japanese companies such as Nintendo,[8] while a professional European video game industry also began taking shape with companies such as Ocean Software and Gremlin Interactive.[34] In 1987, Nintendo lost a legal challenge against Blockbuster Entertainment, which continued game rentals in the same way as movies. In 1989, the Game Boy handheld system was launched.
Video games transitioned from having been showcased at general trade shows like Consumer Electronics Show, to dedicated shows like Nintendo Space World and Electronic Entertainment Expo.
1990s
Game related technology advances of the 1990s include these:
- The "3D Revolution" where 3D polygon graphics became the de facto standard for video game visual presentation, initially in the arcades during the early 1990s,[35] and then on home systems with 3D consoles and PC graphics cards in the mid-1990s.
- The widespread adoption of CD-based storage and software distribution
- Continuing advancement of CPU speed and sophistication
- Widespread adoption of GUI-based operating systems, such as the series of Amiga OS, Microsoft Windows and Mac OS
- Shrinking of hardware, with handheld game consoles and mobile phones, which enabled mobile gaming
- The emergence of the Internet, which in the late 1990s enabled online cooperative play and competitive gaming
Aside from technology, in the early part of the decade, licensed games became more popular,[36][37] as did video game sequels.[38]
The arcades experienced a renaissance in the early 1990s following the release of Street Fighter II (1991), which led to a number of other popular fighting games such as Fatal Fury (1991) and Mortal Kombat (1992).[39][40] The arcade resurgence was further driven by increasing realism,[41] with the "3D Revolution" from 2D and pseudo-3D graphics to true real-time 3D polygon graphics, following the release of games such as Virtua Racing (1992) and Virtua Fighter (1993).[35][42] In the late 1990s, there was a transition away from arcades to home systems. Until about 1996-1997, arcade video games represented the largest sector of the global video game industry, before arcades declined and the console market surpassed arcade video games for the first time around 1997-1998.[43] Arcade systems such as the Sega Model 3 remained more technologically advanced than home systems in the late 1990s,[44][45] but the gap between arcade and home systems began narrowing in the late 1990s.
The video game industry generated worldwide sales of $19.8 billion in 1993[46] (equivalent to $41.8 billion in 2023), $20.8 billion in 1994[46] (equivalent to $42.8 billion in 2023), and an estimated $30 billion in 1998[47] (equivalent to $56.1 billion in 2023). In the United States alone, in 1994, arcades generated $7 billion[48] in quarters while home console game sales generated $6 billion[48] Combined, this was nearly two and a half times the $5 billion revenue generated by movies in the United States at the time.[48]
2000s
In 2000s, the video game industry was in heavy development; profit still drove technological advancement used by other industry sectors. Technologies such as Smartphones, virtual reality, and augmented reality were major drivers for game hardware and gameplay development. Though maturing, the video game industry was still very volatile, with third-party video game developers quickly cropping up, and just as quickly, going out of business.[citation needed] Nevertheless, many casual games and indie games became successful, such as Braid and Limbo. Game development for mobile phones (such as iOS and Android devices) and social networking sites emerged. For example, a Facebook game developer, Zynga, raised more than $300 million.[clarification needed][49]
2010s
Indie games are not the main driver but significantly impact the industry, such as Spelunky, Fez, Don't Starve, Castle Crashers, and Minecraft, with millions of dollars and users.[50][unreliable source?] In the 2010s, the shift increased to casual and mobile gaming, and in 2016, the mobile video game market was estimated at $38 billion in revenues, compared to $6 billion for the console market and $33 billion for personal computing gaming.[51] Virtual reality and augmented reality games arose during this decade. As of 2014, newer game companies arose that vertically integrate live operations and publishing such as crowdfunding and other direct-to-consumer efforts, rather than relying on a traditional publishers, and some of these grew substantially.[52] Spurred by some initial events in the late 2000s, eSports centered around professional players in organized competitions and leagues for prize money, grew greatly over this decade, drawing hundreds of millions of viewers and reaching nearly $500 million in revenue by 2016 and expected to break $1 billion by 2019.[53]
2020s
The next generations of Xbox Series X/S and PlayStation 5 were planned for 2020, but the video game industry was affected by the COVID-19 pandemic that had a worldwide impact starting in March 2020 due to forced stay-at-home orders by governmental regulations. There were similar impacts to the video game industry as with other industries, such as cancellation of in-person trade shows, conventions and esports events, and the delay of many games into late 2020, 2021, or beyond, and the industry was one of the few to actually thrive from a home-bound population using video games to cope. The market had a 20% year-to-year growth from 2019, reaching over $179 billion in global revenue in both hardware and software for 2020.[54] Easily learned games with high social interactions were popular, including Animal Crossing: New Horizons,[55] Fall Guys, and Among Us.[56][57][58][59]
As the pandemic wore on from 2020 into 2021, a secondary effect was the impact of the global semiconductor chip shortage on hardware manufacturing. The three major console vendors, Nintendo, Microsoft, and Sony, were impacted by availability of supply of core components, and for the latter two, limited the launch of their new consoles. The chip supply shortage also affected personal computer gamers, coupled with demand for computer parts to be used in cryptocurrency mining, which artificially raised prices and made it difficult to purchase newer components.[60] However, after cryptocurrency mining started paying out less during and following the 2021–2022 cryptocurrency crash, computer parts such as GPUs have become more affordable as of August 2022.[61]
Economics
 | Graphs are unavailable due to technical issues. There is more info on Phabricator and on MediaWiki.org. |
The chart shows the impacts of the 1977 crash, the golden age of arcade games (1978–1983), the video game crash of 1983, the console revival (late 1980s), and the rise of mobile gaming since 2008.
Early development costs were minimal, and video games could be quite profitable. Games developed by a single programmer, or by a small team of programmers and artists, could sell hundreds of thousands of copies each. Many of these games only took a few months to create, so developers could release multiple games per year. Thus, publishers could often be generous with benefits, such as royalties on the games sold. Many early game publishers started from this economic climate, such as Origin Systems, Sierra Entertainment, Capcom, Activision and Electronic Arts.
As computing and graphics power increased, so too did the size of development teams, as larger staffs were needed to address the ever-increasing technical and design complexities. The larger teams consist of programmers, artists, game designers, and producers. Their salaries can range anywhere from $50,000 to $120,000 generating large labor costs for firms producing video games[62] which can often take between one and three years to develop. Modern budgets typically reach millions of dollars and use middleware and pre-built game engines. In addition to growing development costs, marketing budgets have grown dramatically, sometimes two to three times of the cost of development.[63]
Traditionally, the video game monetization method is to sell hard copies in retail store. Cheaper production and distribution methods include online distribution.[64]
In the 2010s, the video game industry had a major impact on the economy through the sales of major systems and games such as Call of Duty: Black Ops, which had over $650 million of sales in the game's first five days and which set a five-day global record for a movie, book or video game.[65] The game's income was more than the opening weekend of Spider-Man 3 and the previous title holder for a video game Halo 3.[66] Many individuals have also benefited from the economic success of video games including the former chairman of Nintendo and Japan's third richest man: Hiroshi Yamauchi.[67] By 2014, the global video game market was valued at over $93 billion.[68]
The industry wide adoption of high-definition graphics during the seventh generation of consoles greatly increased development teams' sizes and reduced the number of high-budget, high-quality games under development. In 2013 Richard Hilleman of Electronic Arts estimated that only 25 developers were working on such games for the eighth console generation, compared to 125 at the same point in the seventh generation-console cycle seven or eight years earlier.[69]
By 2018, the United States video game industry had matched that of the United States film industry on basis of revenue, with both having made around US$43 billion that year.[70][71]
Since 2000, the video game industry was considered recession-proof, having thrived compared to other industries during the 2008 Great Recession, and as one of the more profitable industries during the COVID-19 pandemic in 2020 and 2021. Video games are seen as a low-cost vice and entertainment for consumers when approaching recession.[72][73] However, in 2022, atop pandemic economic fallout including chip shortages, supply chain disruption, and consumers preferring outdoor activities, the industry started to indicate recession with global revenues falling for the first time in twenty years.[74]
Retail
The industry's shift from brick and mortar retail to digital downloads led to a severe sales decline at video game retailers such as GameStop, following other media retailers superseded by Internet delivery, such as Blockbuster, Tower Records, and Virgin Megastores. GameStop diversified its services by purchasing chains that repair wireless devices and expanding its trade-in program through which customers trade used games for credit towards new games.[75] The company began to produce its own merchandise and games. In Britain, the games retailer Game revamped its stores so customers would spend time playing games there. It built a gaming arena for events and tournaments.[76] The shift to digital marketplaces, especially for smartphones, led to an influx of inexpensive and disposable games,[77] and lower engagement among gamers who otherwise purchased new games from retail.[78] Customers also shifted away from the tradition of buying games on their first day of release.[79]
Publishers often funded trade-in deals to encourage consumers to purchase new games. Trade-in customers at the Australian retailer Game would purchase twice the games per year as non-trade-in customers. The sale of pre-owned games kept retailers in business, and composed about a third of Game's revenue. Retailers also saved on the UK's value-added tax, which only taxed the retailer's profit on pre-owned games, rather than the full sale on regular games. The former trade-in retail executives behind the trade-in price comparison site Trade In Detectives estimated that the United Kingdom's trade-in industry was about a third of the size of its new games business.[80] They figured that sites such as eBay, which convert used games into cash, compose about a quarter of the UK's trade-in market,[81] but do not keep the credit within the industry. While consumers might appear to receive better offers on these sites, they also take about 15 percent of the selling price in fees. Alternatively, some retailers will match the trade-in values offered by their competitors. Microsoft's original plan for the Xbox One attempted to translate trade-in deals for the digital marketplace, with a database of product licenses that shops would be able to resell with publisher permission, though the plan was poorly received or poorly sold.[80]
Practices
Video game industry practices are similar to those of other entertainment industries (e.g., the music recording industry), but the video game industry in particular has been accused of treating its development talent poorly. This promotes independent development, as developers leave to form new companies and projects. In some notable cases, these new companies grow large and impersonal, having adopted the business practices of their forebears, and ultimately perpetuate the cycle.
However, unlike the music industry, where modern technology has allowed a fully professional product to be created extremely inexpensively by an independent musician, modern games require increasing amounts of manpower and equipment. This dynamic makes publishers, who fund the developers, much more important than in the music industry.
Breakaways
In the video game industry, it is common for developers to leave their current studio and start their own. A particularly famous case is the "original" independent developer Activision, founded by former Atari developers. Activision grew to become the world's second largest game publisher.[82] In the meantime, many of the original developers left to work on other projects. For example, founder Alan Miller left Activision to start another video game development company, Accolade (now Atari née Infogrames).
Activision was popular among developers for giving them credit in the packaging and title screens for their games, while Atari disallowed this practice. As the video game industry took off in the mid-1980s, many developers faced the more distressing problem of working with fly-by-night or unscrupulous publishers that would either fold unexpectedly or run off with the game profits.
Piracy
The industry claims software piracy to be a big problem, and takes measures to counter this.[83] Digital rights management have proved to be the most unpopular with gamers, as a measure to counter piracy.[84] The most popular and effective strategy to counter piracy is to change the business model to freemium, where gamers pay for their in-game needs or service. Strong server-side security is required for this, to properly distinguish authentic transactions from hacked transactions.
Creative control
On various Internet forums, some gamers have expressed disapproval of publishers having creative control since publishers are more apt to follow short-term market trends rather than invest in risky but potentially lucrative ideas. On the other hand, publishers may know better than developers what consumers want. The relationship between video game developers and publishers parallels the relationship between recording artists and record labels in many ways. But unlike the music industry, which has seen flat or declining sales in the early 2000s,[85][86][87] the video game industry continues to grow.[88]
In the computer games industry, it is easier to create a startup, resulting in many successful companies. The console industry is more closed, and a game developer must have up to three licenses from the console manufacturer:
- A license to develop games for the console
- The publisher must have a license to publish games for the console
- A separate license for each game
In addition, the developer must usually buy development systems from the console manufacturer in order to even develop a game for consideration, as well as obtain concept approval for the game from the console manufacturer. Therefore, the developer normally has to have a publishing deal in place before starting development on a game project, but in order to secure a publishing deal, the developer must have a track record of console development, something which few startups will have.
Alternatives
An alternative method for publishing video games is to self-publish using the shareware or open source model over the Internet.
Gaming conventions
Gaming conventions are an important showcase of the industry. The major annual video game conventions include Gamescom in Cologne (Germany), the E3 in Los Angeles (US),[89] the Penny Arcade Expo, and others.
Regional distribution
 | This section needs expansion. You can help by adding to it. (June 2018) |
As with other forms of media, video games have often been released in different world regions at different times.[90] The practice has been used where localization is not done in parallel with the rest of development[91] or where the game must be encoded differently, as in PAL vs. NTSC.[92] It has also been used to provide price discrimination in different markets or to focus limited marketing resources.[90] Developers may also stagger digital releases so as not to overwhelm the servers hosting the game.[93]
International practices
The video game industry had its primary roots in the United States following the introduction of arcade games and console systems, with Japan soon following. With the introduction of the personal computer, Western Europe also became a major center for video game development. Since then, the industry is primarily led by companies in North American, Europe, and Japan, but other regions, including Australia/New Zealand, and other East Asian countries including China and South Korea, have become significant sectors for the industry.
World trendsedit
International video game revenue was over $142B in 2022.[94] This is almost double the revenue of the international film industry in 2023.[95]
The largest nations by estimated video game revenues in 2016 are the United States ($46.4B), China ($44B), and Japan ($19.1B).[94]
The gaming industry saw strong growth in 2020, the first year of the pandemic, and this trend continued into 2021.[96]
Largest marketsedit
According to market research firm Newzoo, the following countries are the largest video game markets by annual revenue, as of 2022[update]:[97]