Today, about 72 percent of households play computer or video games. The entire U.S. video game market, including portable and console hardware and accessories, adds up to about $20.8 billion annually, while global sales are expected to reach $111 billion by 2015. Thanks largely to the introduction of the Wii and mobile games, today’s audience for games extends beyond the young-male gamer stereotype. Though the obsessive gamers who frequent GameSpot and IGN are largely youthful and male, the population of casual gamers has grown much more diverse. According to the video and computer game industry’s main trade group, the Entertainment Software Association, the average game player is thirty years old and has been playing games for thirteen years. Women constitute 46 percent of game players. Gamers play across a range of platforms: 51 percent of U.S. households have a video console, 43 percent play games on smartphones, and 37 percent play on a dedicated handheld player. Gamers are social, too: 62 percent of them play games with others, either in person or online.30 These numbers speak to the economic health of the electronic gaming industry, which has proved recession-proof so far. Digital gaming companies can make money selling not just consoles and games but also online subscriptions, companion books, and movie rights.

The Ownership and Organization of Digital Gaming

For years, the two major components of the gaming industry have been console makers and game publishers. The biggest blockbuster games are still produced and distributed by the leading game publishers, and many are designed to be played on the leading game consoles connected to big television sets. At the same time, the emergence of game platforms on mobile devices and on social networks has expanded the game market and brought new game publishers into the field.

Console Makers

The video game console business is dominated by three major players: Nintendo, Sony, and Microsoft. Nintendo got its start manufacturing Japanese playing cards in 1889. After seventy-seven years, the playing card business was becoming less profitable, and Nintendo began venturing into toy production in the 1960s. By 1974, the toy business evolved into the company distributing Magnavox’s Odyssey home video console by 1974. Nintendo would release its own video game console three years later. In the early 1980s, Nintendo had two major marketing successes. First, the company developed and released the very successful platform game Donkey Kong (1981), in which players help Jumpman rescue Lady from the giant ape, Donkey Kong. Developed for multiple consoles, the video game was the Japanese company’s breakthrough into the U.S. console market. Second, Nintendo developed the Nintendo Entertainment System (NES) console, which reached U.S. markets in 1985 bundled with the Super Mario Bros. platform game. With this package, Nintendo set the standard for video game consoles, Mario and Luigi became household names, and Super Mario Bros. became the most successful video series for the next twenty-five years.

Sony, also headquartered in Japan, emerged after World War II as a manufacturer of tape recorders and radios (the name Sony is rooted in the Latin word sonus, meaning “sound”). Since then, Sony has been a major player in the consumer electronics industry, producing televisions, VCRs, computers, cameras, and, beginning in the mid-1990s, video game consoles. Its venture into video games came about because of a deal gone bad with Nintendo. Sony had been partnering with Nintendo to create an add-on device to Nintendo’s NES that would control music CDs (hence the name they proposed: “play station”). When the partnership fell through, Sony went into direct competition with Nintendo, launching in 1994 the impressive PlayStation console, which doubled the microprocessor size introduced by Sega (from 16 bits to 32 bits) and played both full-motion and 3-D video. Described in the New York Times as the “CD-based video game machine,” PlayStation was also capable of playing music CDs—a nice retort to Nintendo.31

Continuing the console battle, in 1996 Nintendo released Nintendo 64, a doubly powerful 64-bit microprocessor complete with even more realistic images and even clearer 3-D motion graphics. This launch created a buyer’s frenzy—for the Nintendo 64 as well as for the Super Mario 64 game cartridge that launched with the console, dubbed by critics “the best video game ever.”32 Meanwhile, other console makers—such as Sega, Atari, and SNK—were trying to compete, sometimes making incredible technological leaps, like Sega’s 128-bit Dreamcast, which came equipped with a built-in modem. Ultimately, these advancements were copied, and then overshadowed, by Nintendo and Sony products.

The main rivalry between Nintendo and Sony was more or less resolved by 1997, with Nintendo claiming the market for children up to age fourteen and Sony’s PlayStation becoming the console of choice for serious young-adult gamers. By 1997, the newly broadened audience had created an impressive market for the video game industry worth $5.5 billion.33 PlayStation 2, released in 2000, heightened this trend. As a masterpiece in console engineering, and through Sony’s alliance with third-party game publishers who were churning out the world’s most innovative titles (Call of Duty, Final Fantasy), PlayStation 2 would become the most successful console of all time.

And yet into this new world of serious gaming—so securely dominated by Sony PlayStation—came the computer software goliath Microsoft. “The machine, called Xbox,” wrote New York Times technology writer John Markoff in 2000, “is both a technical tour de force by the world’s largest software publisher and a shot fired across the bow of the giant Sony Corporation, which now dominates the $20 billion video game industry.”34 The Xbox, which represented a $500 million commitment from Microsoft, had many firsts: the first console to feature a built-in hard disk drive; the first to be connected to an online service (Xbox LIVE); and the first to have Dolby Digital sound, for a cinematic sound experience. While Xbox could not offer the arsenal of games that PlayStation gamers had access to, the console did launch with one particular game, Halo. Game critics and players immediately recognized this sci-fi first-person shooter game—now a multibillion-dollar franchise—as Microsoft’s “killer app.”35

Today, Sony’s PlayStation 4 (2013), Microsoft’s Xbox One (2013), and Nintendo’s Wii U (2012) are the leading consoles, providing the most creative, interactive, hyperrealistic, and stimulating entertainments.

Game Publishers

As the video game industry moves away from consoles and toward streaming services, browsers, smartphones, and tablets, game publishers have had to adapt to new technological innovations and predict future media trends, all while still offering good gameplay and stories. In some cases, the game-console makers are also the game publishers (sometimes making the game proprietary, meaning it only plays on that company’s system). For example, Microsoft famously published its Halo game series to drive sales of the Xbox. Similarly, Sony publishes the Uncharted game series just for PlayStation, and Nintendo publishes The Legend of Zelda series solely for its gaming platforms.

More often, game publishers are independent companies, distributing games that play across multiple platforms. Sometimes the publishers are also the developers of the game—the people who write the actual code for the game. But publishers may also be just the distributors for the game developers (just as film studios may distribute the work of independent filmmakers). Two leading independent game publishing companies, Activision Blizzard and Electronic Arts, have been particularly good at adaptation and innovation, producing the most imaginative and ambitious titles and selling the most games across multiple platforms. King (Candy Crush Saga) and Rovio (Angry Birds) are two other major players, respectively dominating in social gaming and mobile gaming.

Activision Blizzard was created through the merging of Activision and Vivendi’s Blizzard division in 2008. One half of the company—Activision—got its start in the 1970s as the first independent game developer and distributor, initially providing games for the Atari platform (before Activision, console makers like Atari created only proprietary games for their own systems). Activision was unique in that it rewarded its developers with royalty payments and name credits on game box covers, something that hadn’t yet been considered by other game publishing companies, which kept their developers anonymous. As a result, top game designers and programmers migrated to Activision, and Activision began to produce a number of top-selling games, including the X-Men series (2000–), the Call of Duty series (2003–), and Guitar Hero (2006–2011).

Meanwhile, Blizzard Entertainment, established in 1991 as an independent game publisher, has three famous franchises in game publishing: Diablo (1996–), StarCraft (1998–), and World of Warcraft (2001–). Dedicated, as the company says in its mission statement, to “creating the most epic entertainment experiences . . . ever,”36 and known for its obsession with game quality, artistic achievement, and commitment to its fans, Blizzard has dominated in real-time strategy games and remains one of the most critically acclaimed game publishers in the world. As one company, Activision Blizzard has become a publishing giant in the industry.

Electronic Arts (EA) got its name by recognizing that the video game is an art form and that software developers are indeed artists; the name Electronic Arts is also a tribute to the United Artists film studio, established in 1919 by three actors and one director—Charlie Chaplin, Mary Pickford, Douglas Fairbanks, and D. W. Griffith—who broke away from the studio-dominated film industry (see page 239). Operating under the same principle that Activision pioneered—of recognizing game developers on the package and paying them high royalty fees—EA was able to secure a stable of top talent and begin producing a promising lineup of titles: Archon, Pinball Construction Set, M.U.L.E., Seven Cities of Gold, The Bard’s Tale, Starflight, and Wasteland.

The company’s big breakthrough, though, was signing a contract with Super Bowl–winning coach and television football commentator John Madden in 1984. The game, John Madden Football, was released in 1988, with annual versions coming out every year since 1990. This became the modus operandi for EA: Create a popular game (or, more typically, buy the company that produces the popular game) and then create annual updates until the game stops selling. The Madden series has become a billion-dollar enterprise, and EA has since developed a reputation for specializing in sports games, with such series as FIFA (soccer) and NASCAR (racing). EA also struck gold with Battlefield, Crysis, Rock Band, Mass Effect, and Dragon Age: Origins.

Unlike Activision Blizzard, EA has quickly moved toward mobile and social gaming platforms. Electronic Arts acquired PopCap Games, the company that produces both Bejeweled and Plants vs. Zombies, as well as other social media gaming start-ups, and has more than 127 iPhone game apps and 41 Android game apps for direct download. The company has also sought to compete directly with Activision Blizzard’s World of Warcraft series by developing (through its Canadian subsidiary, BioWare) the lavish new MMORPG game Star Wars: The Old Republic (2012), the most expensive game made to date, with a price tag approaching $200 million.37

One of the newest major game publishers, Zynga, was established in 2007 and specializes in casual games. FarmVille, Draw Something, Zynga Poker, and Hidden Chronicles are among its hit games. But in recent years, Zynga’s games on the Facebook platform have lost players to competing developers like King (Candy Crush Saga, Bubble Witch Saga) and Wooga (Diamond Dash, Bubble Island). Zynga’s next step is developing games for mobile devices to decrease its reliance on Facebook.

The most well-known developer and publisher of games for mobile devices is Rovio, founded in Finland in 2003. In 2010, Rovio’s Angry Birds became an international phenomenon, as millions of players downloaded the game on touchscreen devices for the chance to slingshot-launch birds at pigs hiding in increasingly complex structures. By 2012 (as Rovio released Angry Birds Space), the downloads of all of the company’s Angry Birds titles reached a billion.38 Like Zynga, Rovio has moved to diversify, and it brought Angry Birds to Facebook in 2012.

Other top game publishers around the world include Square Enix (Deus Ex, Final Fantasy), Ubisoft (Assassin’s Creed, Rayman), Sega (Sonic the Hedgehog, Super Monkey Ball), THQ (Saints Row, Red Faction), and Namco Bandai (Dark Souls, Tekken).

The Structure of Digital Game Publishing

AAA game titles (games that represent the current standard for technical excellence) can cost as much as a blockbuster film to make and promote. For example, Activision Blizzard’s MMORPG Star Wars: The Old Republic (2012) took six years of production, with hundreds of programmers, writers, and artists working on the game, as well as an untold number of contract workers. Using recorded voice dialogue rather than text, Star Wars: The Old Republic has more voice acting than any previous game, online or off. To get the game ready for its global launch, EA assembled 1.6 million players to test an early version of the game.39 Development, licensing, manufacturing, and marketing constitute the major expenditures in game publishing (see Figure 3.2).

Development

The largest part of the development budget—the money spent designing, coding, scoring, and testing a game—goes to paying talent, digital artists, and game testers. Each new generation of gaming platforms doubles the number of people involved in designing, programming, and mixing digitized images and sounds.

Licensing

Independent gamemakers must also deal with two types of licensing. First, they have to pay royalties to console manufacturers (Microsoft, Sony, or Nintendo) for the right to distribute a game using their system. These royalties vary from $3 to $10 per unit sold. (Of course, if a console manufacturer such as Nintendo makes its own games exclusively for the Wii, then it doesn’t have to pay a console royalty to itself.) The other form of licensing involves intellectual properties—stories, characters, personalities, and music that require licensing agreements. In 2005, for instance, John Madden reportedly signed a $150 million deal with EA Sports that allowed the company to use his name and likeness for the next ten years.40

Marketing

The marketing costs of launching an electronic game often equal or exceed the development costs. The successful launch of a game involves online promotions, banner ads, magazine print ads, in-store displays, and the most expensive of all: television advertising. In many ways, the marketing blitz associated with introducing a major new franchise title, including cinematic television trailers, resembles the promotional campaign surrounding the debut of a blockbuster movie. For example, Rockstar Games reportedly spent $150 million for the marketing of its 2013 blockbuster release, Grand Theft Auto V. In this case, the marketing budget eclipsed the $115 million development budget.41 Just as avid fans line up for the midnight release of a new Spider-Man or Hunger Games movie, devoted gamers mob participating retail outlets during the countdown to the midnight launch of a hotly anticipated new game.

Selling Digital Games

Just as digital distribution has altered the relationship between other mass media and their audiences, it has transformed the selling of electronic games. Although the selling of $60 AAA console games at retail stores is an enduring model, many games are now free (with opportunities for hooked players to pay for additional play features), and digital stores are making access to games almost immediate.

Pay Models

There are three main pay models in the electronic game industry: the boxed game/retail model, the subscription model, and free-to-play.

The boxed game/retail model is the most traditional and dates back to the days of cartridges on Atari, Sega, and Nintendo console systems from the 1970s to the 1990s. By the 1990s, games were being released on CD-ROMs, and later DVDs, to better handle the richer game files. Many boxed games are now sold with offers of additional downloadable content, known as DLC in gaming circles. For blockbuster console games, retail sales of boxed games still reign as the venue for a game premiere. As of 2013, the biggest game launch ever—in fact, the biggest launch of any media product ever—was the September 17, 2013, release of Grand Theft Auto V. The game, published by Rockstar Games, generated more than $1 billion in sales in just three days, more than any other previous game or movie release.42

Some of the most popular games are also sold via subscription models, in which gamers pay a monthly fee to play. Notable subscription games include World of Warcraft and Star Wars: The Old Republic. Subscriptions can generate enormous revenue for game publishers. At its height of popularity, World of Warcraft earned more than $1 billion a year for Activision Blizzard.43 Players first buy the game (either boxed or as a download at $19.99, with expansions costing $29.99–$39.99) and then pay a subscription from $12.99 to $14.99 a month. EA’s Star Wars: The Old Republic has a similar subscription cost.

Free-to-play (sometimes called freemium) is the latest pay model and is common with casual and online games, like 100 Balls. Free-to-play games are offered online or as downloads for free to gain or retain a large audience. These games make money by selling extras, like power boosters (to aid in gameplay), or in-game subscriptions for upgraded play. In addition to free casual games (like Angry Birds Seasons, Clash of Clans, and Temple Run), popular MMORPG games like Sony Online Entertainment’s EverQuest and DC Universe Online offer free-to-play versions. Even World of Warcraft, the largest MMORPG, began offering free-to-play for up to twenty levels of the game in 2011 to lure in new players.

Video Game Stores

Apart from buying boxed game titles at stores like Walmart, Best Buy, and Target, or online stores like Amazon, there is really only one major video game store chain devoted entirely to new and used video games: GameStop. The chain, which started in Dallas, Texas, in 1984 as Babbage’s, today operates more than sixty-six hundred company stores in the United States and in fourteen other countries, including Canada, Australia, Austria, Denmark, Finland, France, and Germany.44 GameStop stores usually appear in shopping and strip malls, and beyond video titles, they also specialize in gaming magazines (including their own proprietary title, Game Informer), strategy guides, and video game accessories.

Today, the traditional brick-and-mortar chain GameStop is trying to negotiate the shifting ground of the digital turn. Some of GameStop’s digital survival strategies include selling customers video game access codes to digital game downloads in the stores, selling Android tablets and refurbished iPads, and investing in other digital gaming companies.

Digital Distribution

With the advent and growing popularity of digital game distribution, game players don’t need to go to a department store or retail game shop to buy video games. All three major consoles are Wi-Fi capable, and each has its own digital store—Xbox Games Store, Wii Shop Channel, and PlayStation Store. Customers can purchase and download games, get extra downloadable content, and buy other media—including television shows and movies—as the consoles compete to be the sole entertainment center of people’s living rooms. These console-connected digital stores present the biggest threat to brick-and-mortar game stores.

Although the three major console companies control digital downloads to their devices, several companies compete for the download market in PC games. The largest is Steam, with more than seventy-five million subscribers and about 50 percent of the PC game distribution market.45 Steam is owned by Valve Corporation, which used the digital store to help distribute its Counter-Strike game online starting in 2003. Steam also carries more than three thousand games from a wide range of game publishers. Other companies that sell digital game downloads for PCs include Amazon’s Appstore, GameStop, Microsoft’s Games Marketplace, Origin (owned by EA), and GameFly.

Of course, the most ubiquitous digital game distributors are Apple’s App Store and Google Play, where users can purchase games on mobile devices. Although Google’s Android system has surpassed the iPhone in market penetration, Apple customers are more likely to purchase apps, including games. This has drawn more independent developers to work in the Apple operating system. As one technology writer summarized, “Quite simply, developers have long known that Apple device owners are closely locked into the Apple ecosystem, with credit cards on file.”46

Alternative Voices

The advent of mobile gaming has provided a new entry point for independent game developers. As Canadian Business magazine noted, the cost of entry has decreased substantially. “The average cost of making a major console game for Xbox 360 and PlayStation3 is about $20 million, but almost anyone can churn out a new game app for the iPhone. And independent developers need only pay Apple’s $99 fee for a developer’s account to get their creations to the market—no Best Buy or Walmart shelf space required.”47

But even so, time and money are still required to develop quality games. Many independent game developers and smaller game companies, shunned by big game publishers who are focused on the next big blockbuster games, are finding funding through Kickstarter, the crowdsource fund-raising social media Web site for creative projects. Video game developers make a brief pitch on Kickstarter and then request a modest amount—sometimes just a few thousand dollars—from supporters to get started. “Rather than seeking help from publishers who demand a high rate of return and, thus, a product that appeals to a broad group of gamers, developers can turn directly to their most devoted fans,” the Washington Post explained. “And if enough of those fans are willing to pony up cash for the promise of a game that suits their tastes, it gets made, regardless of how quirky or niche-oriented it is.”48 (The Oculus Rift virtual reality headset that Facebook bought for $2 billion got its start in a comparatively modest Kickstarter campaign, which raised more than $2.4 million, far exceeding its $250,000 goal.) A number of top games at Apple’s App Store—including Temple Run, Tiny Wings, and Jetpack Joyride—are great success stories, started by small independent developers. But the cautionary tale is that it takes incredible persistence against great odds to make a successful game. Rovio made fifty-one failed app games in six years and nearly folded before Angry Birds became a worldwide success in 2009.