The gaming industry is no longer a niche arena for a certain age group or consumer segment. With the advent of mobile gaming and improvements to hardware used in playing these games, gaming has become a viable form of entertainment for players from all backgrounds and ages. This switch to mainstream has also meant an increase in revenues generated by the industry with about US $9.5 billion generated in the United States in 2007, 11.7 billion on 2008 and 25.1 billion in 2010.

The improvements to hardware such as sound cards, graphics and faster processors have meant a related growth and development of the gaming industry as well. As a result, modern games, especially those that are PC based, have become very demanding as applications and serious gamers are among those who purchase high-powered personal computers to keep up with the newest games.

The Gaming Industry – An Introduction

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In this article, we look at 1) history of gaming industry, 2) types of gaming, 3) value chain, 4) economics of the gaming industry, 5) competitive rivalry in the gaming industry and 6) outlook in 2015.

HISTORY OF GAMING INDUSTRY

The gaming industry has undergone a substantial evolution since the 1970s and has moved from a fringe activity into the mainstream. In 1971, the arcade game Computer Space was released and was followed up by Atari Inc’s first commercially successful video game, Pong. Games entered the home formally with the release of an early gaming console called the Magnavox Odyssey. The market lost momentum in 1977 and was rejuvenated in 1978 by another successful game called Space invaders. With this, arcade machines began to appear in mainstream public spaces such as malls, stores and restaurants. Space invaders went on to make $2 billion in 1982. In the late 1970s, personal computer gaming also took off and the development of computing led to a simultaneous advancement in gaming technology as well.

The industry saw another crash in 1983, down from a successful period in the early 1980s. 1982 saw the peak of the industry with a revenue of $8 billion which overtook annual revenues or pop music and Hollywood films combined. The crash was brought about in North America because of too many substandard games. The Nintendo Entertainment System revived the industry once again. By the late 1980s, handheld systems such as Gameboy were also entering the market

During the 1990s, some important advancements were made in the industry including the use of CDs to store and distribute software as well as the large-scale implementation of GUI-based operation systems. Along with this, there were advancements in 3D graphics and these became the standard for video game visuals. The processing speeds and sophistication for computers also continued to develop and the size of hardware reduced significantly to herald the advancement of mobile gaming. The popularity of the internet allowed multiplayer games and competitive gaming. The industry continued to generate substantial revenues such as in 1994 an estimated $7 billion from arcades and $ 6 billion from home consoles in the US alone, which was close to 2.5 times the revenue generated by films in the country during the same time period.

The industry remained unpredictable in the 2000s as third party game developers game and went quickly. Some managed to stay on such as casual and indie games, Braid and Limbo. Mobile phone games began to be developed for iOS and Android devices and a new gaming platform emerged in the form of social media sites. Following 2010, the industry continues to develop and profit drives technological advancement which then benefits other sectors of the industry. Casual and Indie games continue to have a presence and there continues to be development in PC, console and mobile gaming.

TYPES OF GAMING

Over the years, video gaming has evolved to include a number of different mediums. Evolution has led from consoles becoming more sophisticated over the decades, PC games become multi player and more complex and an entire ecosystem of mobile games. Let’s look at what these all mean.

PC Gaming

PC games or personal computer games are played on a computer through keyboards, mouse, a joystick or a gamepad. These games are characterized by a lack of a central controlling authority and a greater capacity for input, processing and output. PC games lost the market to consoles briefly in the mid-90s but resurfaced in the mid-2000s thanks to digital distribution. Games can be played locally or online.

Console Gaming

A device that is used to play games is called a video game console. The console outputs a video image that displays the game. Consoles include those used to play games at home, handheld consoles, microconsoles and dedicated consoles. The console has evolved to now be one device that can be used as a set-top box, a web browser and a CD and DVD player.

Mobile Gaming

A video game that is played using a mobile device such as a smartphone, a tablet or even a calculator or a smartwatch is known as a mobile game. The very first mobile game was Tetris on the Hagenuk MT-2000 device in 1994, and was followed by Nokia’s Snake in 1997. At present, mobile games are downloaded onto smartphone or tablets using an app store or are embedded in the device when purchased. Games can be played on the device or over the cloud.

VALUE CHAIN

Video game development has its own value chain. This chain determines the final price of the game as it reaches he consumer. This chain consists of the following vital parts.

Investment

Investments in this industry are growing as the industry itself is a popular one. Investment may come from the platform which will feature the game or a large publishing organization. Independent developers may also choose to fund their own games. The major challenge at this stage is to prevent copyright infringement and piracy.

Design and Creative

This is where the game is developed creatively by artists, designers and developers. The game is taken from a basic concept to a project plan. Documents and guidelines are created at this point to support game development. These include treatment documents to clarify the purpose of the game, game play, story, character descriptions and concept art. This is then translated into more detail in the design document. An art style guide is also created to establish a uniformity across the game for the same look and feel. Final a project plan will be created to keep everyone on track and establish timelines.

Production and Tools

This is the hardware and software to be used during the actual production of the game. Production tools may include those for modelling and graphic manipulation. Bigger setups may own their own gaming engine while smaller ones may use middleware which is licensed.

Publisher/Distribution

Here, the game publisher will work on marketing tool and catalogues to get the game into the market and ensure a return on investment.

Hardware

This part of the value chain involves the game hardware providers. These companies may be across various platform since most games developed these days are able to be accessed similarly. Some of these companies may pay extra or make special deals to launch a game across their platform initially and exclusively for a limited period of time. The largest of these companies are Microsoft, Apple, Sony and Nintendo.

End User

A key part of the value chain is the end user or the gamer. Most of these are men of all ages but women also make up a significant part of the market especially with the advent of mobile and online gaming.

THE ECONOMICS OF THE GAMING INDUSTRY

To understand competition in the industry, it is important to understand the economics of it. The more profitable the industry is, the more the need to gain a chunk of the pie. This need then leads to more innovation, investment and cutthroat rivalry to lead the pack.

Before technology developed to what it is now, developing video games cost relatively less and therefore, there was a great margin for profit. Often the games were developed by a single programmer or a small team and took a few months to prepare. This lead to several releases every year. With improvements in gaming technology, there became a need for larger development teams to deal with increased complexities in design that came with technological advancements. These teams now included programmers, artists, game designers and producers and many began to draw higher salaries, thereby increasing the cost of labor. The time frame for development also increased to anywhere between one and three years. This led to budgets of millions as marketing costs also sky rocketed.

The industry continues to bring in revenues and impact the economy with games such as Call of Duty: Black Ops bringing in $650 million in sales within the first few days of launch. The global video game market is worth $93 billion.

COMPETITIVE RIVALRY IN THE GAMING INDUSTRY

Given this immense revenue potential, it is no wonder that the gaming industry remains extremely competitive. The industry is growing and potential for success remains immense. Yet, companies within the industry are under a constant state of stress. The quickly developing technology together with intense competition, volatile consumer habits and lack of regulation means an unstructured industry where no competitive edge is sustainable and the top position is always being fought over. This is why there is a strong focus on a creative culture within a company while war strategies are required at the senior level to identify and remove competition.

The market remains unstable where success is enjoyed in cycles by any one gaming platform, where a downturn is only temporary. As technology advances in one area, it may enjoy a comeback stronger than ever. For example, online PC games had surpassed consoles in popularity in 2012 with consoles having little impact now on the sector. Experts see this downturn as the end of a cycle and predict a rebound for the medium.

Difficulty in Predicting Futures

Over time, it has been observed that expert predictions often turn out completely wrong in this industry. As an example, in 2006 Michael Pachter of Wedbush Morgan Securities, an expertise firm said, “I think the PC gaming market will cease to grow, while sales of console games will increase by 50%. PC gaming will become a niche, albeit of a comfortable size, but still a niche.” He had support in this opinion from the like of Bill Gates and the facts at that time which included the faltering popularity of MMOs or Massively Multiplayer Online Games. These had been dominating the landscape since 1995. But following this statement, there was the release of the iPhone, the launch and rising popularity of Facebook and Facebook game developer Zynga. Within six years, the gaming landscape had changed entirely from what had been predicted. A difficulty in predicting the future means all strategies end up being reactionary and no concrete plans can be made longer than two or three years.

Operating in Uncertainty

Publishers and developers in the industry have learned to operate with the uncertainty. Given consumer expectations, development costs cannot be reduced drastically and the need to invest in new technology takes away from any productivity gained from old technologies. But with all these difficulties, there have also been some avenues that have allowed new business models to emerge. These include online games, social networks, smartphones and tablets. Games can be offered free for a basic level with in-game purchases or advanced paid options. This allows risk to be minimized and a profit making channel built into games that have a better chance of gaining popularity. Console manufacturers also need to be wary since new games are being developed that can be played across consoles, thereby reducing their power over publishers.

Job Prospects in the Gaming Industry

So if you are interested in the gaming industry, where can you fit into this value chain? Some possible avenues are discussed below.

  1. Composer – As games become more complex and detailed, music composers can play a great role in bringing the game to life much life films or television shows. A good way to get started in the field is to work for a small producer or an indie game developer.
  1. Developer – This is the most obvious and key role in the industry. Though it helps if you have had the right training in school for this role, people are increasingly able to use their skills to become independent developers. An Android based console, Ouya is a great tool for creating games and is free to use.
  1. Marketing – As an immense number of games flood the gaming arena every year, marketing these games becomes a key role for the industry. It is vital to set the game apart from others and promote it effectively, otherwise it will be overshadowed by others.
  1. Journalist – There are game journalists who may run blogs or write for different publications and online communities.
  1. Voice Actor – Another job that usually comes to mind only for film and television is voice acting. There is great opportunity for this type of work in the gaming industry.
  1. Game Tester – A video game tester needs to be able to play all kinds of games in various genres while paying attention to details and remaining patient. Flaws need to be identified in both good games and really bad ones so this is not an easy job.

OUTLOOK IN 2015

There are some interesting trends being predicted for the industry in the coming year. SuperData is a research firm that tracks and analyzes digital sales of video games. CEO Joost van Dreunen’s top trends for the industry for 2015 include:

Virtual Reality

Facebook acquired the company which created a virtual reality device for $2 billion with the hope of turning this device into a mainstream product. Sony is also working on a VR device of its own using the code name Project Morpheus using its considerable experience and funds.

Twitch

Amazon is also getting deeper into the industry by acquiring Twitch for $970 million. Twitch is a video platform that is dedicated to lice-streaming game play and competitions. As the largest retailer of video games, Amazon will be able to use this platform connect consumers with relevant content and products and will have access to the perfect audience for advertising and pushing sales.

Esports

The popularity of platforms such as Twitch is largely because of the increase in popularity if competitive video gaming and tournaments. The extremely popular game League of Legends with 80 million players per month, had a recent world championship in South Korea with 40,000 attendees and 32 million online views. This could be a potential platform for advertisers and a possible dedicated cable channel.

Mobile Gaming

It is estimated mobile games will bring in more revenue this year that console games will. Big publishers will continue to try to capitalize on this by buying talent and intellectual property rights from smaller studios and developers. There is also the danger for saturation in this area however.

More Women in the Industry

There is finally an expectation that the industry will begin to take female gamers seriously as an audience, the Entertainment Software Association undertook a study that reports an estimated 48 percent of all US gamers to be women, outnumbering teenage boys. Women in executive roles in video game companies are becoming more prominent and their voice is becoming stronger for more diverse characters and story lines.

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2 comments

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1

More grease to the elbows on this evolution of gaming industry

2
sharjeel Assam Cheema

I want job in gaming field as a role of giving new and better ideas for making new games