Video game industry

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The expo floor at the 2010 Game Developers Conference

The video game industry is 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, 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 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

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:

  1. designers, and artists, and their leadership, with support of middleware
    and other development tools.
  2. 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.
  3. Distribution, whether through retail or digital channels. Distribution typically includes manufacturing and duplication of game media and packaging for retail games.
  4. Retailer, storefront where the game is sold.
  5. Consumers, the purchasers and players of video games
  6. 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:

  1. Capital and publishing layer: involved in paying for development of new games and seeking returns through licensing of the properties.
  2. Product and talent layer: includes
    designers and artists
    , who may be working under individual contracts or as part of in-house development teams.
  3. Production and tools layer: generates content
    middleware, customizable game engines
    , and production management tools.
  4. Distribution layer: or the "publishing" industry, involved in generating and marketing catalogs of games for retail and online distribution.
  5. 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.
  6. 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:

modding communities.[9]

History

Further information: History of video games, History of arcade video games, and History of video game consoles

1940s–1960s

Further information: Early history of video games and Early mainframe games

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

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

The Magnavox Odyssey was released in 1972 as the first home video game console.
See also:
Golden age of video arcade games, and Second generation of video game consoles

In 1971, the first commercial

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

personal computer game
industry began forming from a hobby culture.

1980s

The Nintendo Entertainment System, released in 1985, revived the American video game industry after the video game crash of 1983.
See also:
Golden age of video arcade games, Second generation of video game consoles, Video game crash of 1983, Third generation of video game consoles, and Fourth generation of video game consoles

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,

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

Electronic Entertainment Expo
.

1990s

The PlayStation was the most popular video game console of the fifth generation, with the mass adoption of CD media.
See also: Fourth generation of video game consoles, Fifth generation of video game consoles, and Sixth generation of video game consoles

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
    Mac OS
  • Shrinking of hardware, with
    mobile gaming
  • The emergence of the
    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

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

The sixth-generation PlayStation 2 is the best-selling console of all time.
See also: Sixth generation of video game consoles and Seventh generation of video game consoles

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

See also: Eighth generation of video game consoles

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

See also: Ninth generation of video game consoles and Impact of the COVID-19 pandemic on the video game industry

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

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