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The video game industry (often referred to as interactive entertainment) is the economic sector involved with the development, marketing and sales of video games. It encompasses dozens of job disciplines and employs thousands of people worldwide.
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Considered by some as a curiosity in the mid-1970s, the computer and video game industries have grown from focused markets to mainstream. They took in about US$9.5 billion in the US in 2007, and 11.7 billion in 2008 (ESA annual report).
Modern personal computers owe many advancements and innovations to the game industry: sound cards, graphics cards and 3D graphic accelerators, CD ROM and DVD-ROM drives, are a few of the more notable improvements.
Sound cards were developed for addition of digital-quality sound to games and only later improved for music and audiophiles.[1] Early on graphics cards were developed for more colors. Later, graphics cards were developed for graphical user interfaces (GUIs) and games. GUIs drove the need for high resolution, games drove 3D acceleration. They also are one of the only pieces of hardware to allow multiple hookups (such as with SLI or CrossFire graphics cards). CD- and DVD-ROMs were developed for mass distribution of media in general, however the ability to store more information on cheap easily distributable media was instrumental in driving their ever higher speeds.
Modern games are among the most demanding of applications on PC resources. Many of the high-powered personal computers are purchased by gamers who want the fastest equipment to power the latest cutting-edge games. Thus, the inertia of CPU development is due in part to this industry whose games demand faster processors than business or personal applications.
Ben Sawyer of Digitalmill observes that the game industry value chain is made up of six connected and distinctive layers:
The game industry employs those experienced in other traditional businesses, but some have experience tailored to the game industry. For example, many recruiters target just game industry professionals. 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. Recently game developers have begun to employ those with extensive or long-term experience within the modding communities.
The video game industry began in 1971 with the release of the arcade game, Computer Space. The following year, Atari, Inc. released the first commercially successful video game, Pong, the original arcade version of which sold over 19,000 arcade cabinets.[3] That same year saw the introduction of video games 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, sparking a renaissance for the video game industry and paving the way for the golden age of video arcade games.[4] The game's success inspired arcade machines to become prevalent in mainstream locations such as shopping malls, traditional storefronts, restaurants and convenience stores during the golden age.[5] Space Invaders would go on to sell over 360,000 arcade cabinets worldwide,[6] and by 1982, generate a revenue of $2 billion in quarters,[7][8] equivalent to $4.6 billion in 2011.[9]
Soon after, Space Invaders was licensed for the Atari VCS (later known as Atari 2600), becoming the first "killer app" and quadrupling the console's sales.[10] The success of the Atari 2600 in turn revived the home video game market during the second generation of consoles, up until the North American video game crash of 1983.[11] By the end of the 1970s, the personal computer game industry began forming from a hobby culture, when personal computers just began to become widely available. The industry grew along with the advancement of computing technology, and often drove that advancement.
The early 1980s saw the golden age of video arcade games reach 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,[12] with the arcade video game industry's revenue in North America tripling to $2.8 billion in 1980.[13] By 1981, the arcade video game industry was generating an annual revenue of $5 billion in North America,[4][14] equivalent to $12.3 billion in 2011.[9] In 1982, the arcade video game industry reached its peak, generating $8 billion in quarters,[15] equivalent to over $18.5 billion in 2011,[9] surpassing the annual gross revenue of both pop music ($4 billion) and Hollywood films ($3 billion) combined at that time.[15] This was also nearly twice as much revenue as the $3.8 billion generated by the home video game industry that same year; both the arcade and home markets combined add up to a total revenue of $11.8 billion for the video game industry in 1982,[15] equivalent to over $27.3 billion in 2011.[9] The arcade video game industry would continue to generate an annual revenue of $5 billion in quarters through to 1985.[16] The most successful game of this era was Namco's Pac-Man, released in 1980, which would go on to sell over 350,000 cabinets,[17] and within a year, generate a revenue of more than $1 billion in quarters;[18] in total, Pac-Man is estimated to have grossed over 10 billion quarters ($2.5 billion) during the 20th century,[18][19] equivalent to over $3.4 billion in 2011.[9]
The early part of the decade saw the rise of home computing, and home-made games, especially in Europe (with the ZX Spectrum) and Asia (with the NEC PC-88 and MSX). This time also saw the rise of video game journalism, 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,[2] while a professional European computer game industry also began taking shape with companies such as Ocean Software.[20] The latter part of the decade saw the rise of the Game Boy handheld system. In 1987, Nintendo lost a legal challenge against Blockbuster Entertainment, which enabled games rentals in the same way as movies.
The 1990s saw advancements in game related technology. Among the significant advancements were:
Aside from technology, in the early part of the decade, licenced games became more popular,[21][22] as did video game sequels.[23]
Today, the video game industry is a juggernaut of development; profit still drives technological advancement which is then used by other industry sectors. Though maturing, the video game industry is still very volatile, with third-party video game developers quickly cropping up, and just as quickly, going out of business.. Nevertheless, many casual games and indie games have been developed and many have become popular and successful, such as Braid, Limbo, or Minecraft. Games are also made for mobile phones and social networking sites. For example, a Facebook game developer, Zynga, has raised in excess of 300 million.[24]
Early on, 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 several titles each 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 graphical and programming complexities. Now budgets can easily reach millions of dollars, even if middleware and pre-built game engines are used. Most professional games require one to three years to develop, further increasing the strain on budgets.
Some developers are turning to alternative production and distribution methods, such as online distribution, to reduce costs.
Today, the video game industry has a major impact on the economy through the sales of major systems and games such as, Call of Duty: Black Ops, which took in over USD$650 million of sales in the game's first five days, which set a five-day global record for a movie, book or videogame.[25] 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.[26] 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.[27]
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.
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.[28] In the mean time, 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.
In 2004, the U.S. game industry as a whole was worth USD$10.3 billion.[29] However, economic problems remain today with regard to publisher-developer contracts (see copyright: transfer of rights). Typically, developers receive a royalty of around 20% of the sales profits, and the rest goes to the publisher. Rather than dividing royalties, many publishers buy the development studio outright. Some developers begrudge the tendency for the studio's original management to leave in the wake of a buyout, while the remaining employees try to finish the project only to be shut down after a few years. These buyouts often result in a big push to finish video game projects in time for the holiday purchasing season, and transfer of creative control to the publisher.
In June 2011, the global video game market was valued at US$65 billion.[30]
The industry claims software piracy to be a big problem, and take measures to counter this.[31] However, digital rights management and other measures have proved noticeably unpopular with gamers.[32]
Some gamers have shown disapproval of publishers having creative control on various internet forums since they 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,[33][34][35] the video game industry continues to grow.[36] Also, personal computers have made the independent development of music almost effortless, while the gap between an independent game developer and the product of a fully financed one grows larger.
In the computer games industry, it is easier to create a startup, resulting in many successful companies. The console games industry is a more closed one, and a game developer must have up to three licenses from the console manufacturer:
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.
An alternative method for publishing video games is to self-publish using the shareware or open source model over the Internet. However, it remains to be seen whether freely made and distributed games can survive in the era of multi-million dollar production.
The Japanese video game industry is markedly different from the industry in North America and Europe.
Generally, games have a greater market share of total entertainment in Japan than in the West. Japan has created some of the largest and most expensive titles ever made, such as the Shenmue, Final Fantasy, Metal Gear and Mario series of games.
Video game arcades are still relatively popular in Japan; for every arcade game released in the US, nine are released in Japan. The history of the Japanese arcade is very significant in the story of the decline of the American arcade, and in the shape of game design in general.
Consoles and arcade games are the main media for Japanese game design; PC games are nowhere near as popular. This necessarily dictates that there are fewer independently developed games coming from Japan, as it is much harder to develop independently for a console than it is for a PC.
The structure and culture of a Japanese game developer is different from a western one. Throughout the history of Japanese game design, many developers have seen fit to remain mostly anonymous, even using pseudonyms to a large degree in video game credits.
Also, the division in labor for video game development is different. For example, Japanese game design teams had a dedicated designer (which they called a "director") much earlier than American design teams adopted the practice. Secondly, Japanese game designers throughout history generally had far more people working on a particular game than a comparable western design team. For example, Street Fighter 2 (1991), a Japanese title, had almost one artist working on every character in the game, plus two programmers and a musician, with the result being a team of twenty or more people. Mortal Kombat (1992), a comparable American title, was developed by four people: a programmer, an artist, a musician, and a background artist.
Canada has the third largest video game industry in terms of employment numbers.[37] The video game industry has also been booming in Montreal since 1997, coinciding with the opening of Ubisoft Montreal. Recently, the city has attracted world leading game developers and publishers studios such as Ubisoft, EA, Eidos Interactive, Artificial Mind and Movement, Bioware, and Strategy First, mainly because video games jobs have been heavily subsidized by the provincial government. Every year, this industry generates billions of dollars and thousands of jobs in the Montreal area. Vancouver has also developed a particularly large cluster ofvideo game developers, the largest of which, Electronic Arts, employs over two thousand people. The Assassins Creed series, along with the Tom Clancy series and more recently Rainbow Six, have all been produced in Canada and have achieved worldwide success.
The UK industry is the third largest in the World in terms of developer success and sales of hardware and software by country alone but fourth behind Canada in terms of people employed.[37] In recent years some of the studios have become defunct or been purchased by larger companies such as LittleBigPlanet developer, Media Molecule[38] and Codemasters.[39] Though the country houses many of the world's most successful franchises such as Tomb Raider, Grand Theft Auto, Fable, Dirt and Total War, the country is trying to find its identity, with many of the games without any cultural influence coming from the UK, with most influence derived from North America.
The country also goes without tax relief, which means most of the talented development within the UK may move overseas for more profit, along with parents of certain video game developers which would pay for having games developed in the UK.[40] Though in its current state it is large, at the rate the industry in the country is going it will lead to the country being moved down in the rankings and falling behind countries such as France and, recently overtook by, Canada.[37]
A fairly recent practice, since the mid-1990s, of the video game industry is the rise of game players as developers of game content. The rise of video game players as fourth-party developers of game content allows for more open source models of game design, development and engineering. Game players create user modifications (mods), which in some cases become just as popular, maybe even more popular, as the original game created. An example of this is the game Counter-strike, which began as a mod of the video game Half-Life and eventually became a published game in its own right that was very successful.
While this "community of modifiers" may only add up to approximately 1% of a particular game's user base, the number of those involved will grow as more games offer modifying opportunities (such as, by releasing source code) and as the international community of gamers rise. According to Ben Sawyer, as many as 600,000 established online game community developers will exist by 2012. This will effectively add a new component to the game industry value chain and if it continues to mature it will integrate itself into the overall industry.[2]