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 and over $90 billion globally.¹⁴ Thanks largely to the introduction of the Wii and mobile games, today’s audience for games extends beyond the young-male gamer stereotype.

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Though the obsessive gamers who frequent GameSpot and IGN.com are largely youthful and male, the population of casual gamers has grown much more diverse. These numbers speak to the economic health of the digital gaming industry, which has proven to be recession-proof this far. Digital gaming companies can make money selling not just consoles and games but also online subscriptions, companion books, and movie rights.

Money In

Traditionally, the primary source of revenue in the digital gaming industry is the sale of games and the consoles on which they can be played. But just as the digital turn has altered the distribution relationships between other mass media and their audiences, it has also transformed the selling of electronic games. Although the selling of $60 AAA (top of the line) 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 the free-to-play model. Of these, the boxed game/retail model is the most traditional, dating back to the days of cartridges on Atari, Sega, and Nintendo console systems from the 1970s to the 1990s. By the 1990s, games began to be 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.

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.¹⁵ 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.

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Free-to-play (sometimes called freemium) is the latest pay model, and is common with casual and online games, such as 100 Balls. Free-to-play games are offered online or downloadable 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 (e.g., Angry Birds Seasons, Clash of Clans, and Temple Run), popular MMORPG games—like Sony Online Entertainment’s EverQuest and DC Universe Online—also offer free-to-play versions.

Video Game Stores vs. Digital Distribution

Several brick-and-mortar stores sell boxed game titles (Walmart, Best Buy, Target), but there is only one major video game store chain—GameStop, which operates more than 6,600 stores in the United States and fourteen other countries, often in shopping or strip malls. The biggest challenge to gaming stores, regardless of size, is digital distribution. All three major consoles are Wi-Fi capable, and each has its own digital store—Xbox LIVE Marketplace, Wii Shop Channel, and PlayStation Store. Using these platforms, customers can purchase and download games, get extra downloadable content, and buy other media—such as television shows and movies—as the consoles compete to be the sole entertainment center of people’s living rooms.

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, which carries more than three thousand games from a variety of game publishers. 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—a situation that has drawn more independent developers to work in the Apple operating system.

Digital Gaming Tie-ins and Licensing

Beyond the immediate industry, digital games have had a pronounced effect on media culture. Fantasy league sports have spawned a number of draft specials on ESPN as well as a regular podcast, Fantasy Focus, on ESPN Radio. On FX, fantasy football has even inspired an adult comedy called The League, while the Web series The Guild follows the on- and off-line lives of a group of gamers. Like television shows, books, and comics before them, digital games have inspired movies, such as Super Mario Bros. (1993), Lara Croft: Tomb Raider (2001), and the Resident Evil series (2002–present, including a sixth installment in 2016). For many Hollywood blockbusters today, a video game spin-off is a must-have item. Recent box-office hits like Avatar (2009), Transformers: Dark of the Moon (2011), Frozen (2013), and Godzilla (2014) have companion video games for consoles and portable players. Japanese manga and anime (comic books and animation) have also inspired video games, such as Akira, Astro Boy, and Naruto.

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Whereas game adaptations of other media can serve partly as advertising for a cross-media franchise, some games also include direct advertising. In-game advertisements are ads for companies and products that appear as billboards or logos on products in the game environment, or as screen-blocking pop-up ads. In-game ad specialist agency IGA claims to put “hundreds of millions of impressions per week” in video games played on PS3, Wii, and Xbox 360 for clients like McDonald’s, T-Mobile, Geico, AT&T, and Red Bull.¹⁶

Money Out

AAA game titles (games that represent the current standard for technical excellence) can cost as much as a blockbuster film to make and promote. With a budget of $100 million, Grand Theft Auto 4 (GTA4) currently ranks as the most expensive console game ever made. During three and a half years of production, more than one thousand people worked on the game. Just obtaining rights for the hundreds of music tracks in GTA4 involved contacting more than two thousand people.¹⁷

Development, licensing, and marketing constitute the major expenditures in game publishing. 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.

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Independent gamemakers must also deal with two types of licensing. First, they have to pay royalties to console manufacturers (Nintendo, Sony, or Microsoft) for the right to distribute a game using their system. These royalties vary from $3 to $10 per unit sold. 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 following ten years.¹⁸

The marketing costs of launching a 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 campaigns surrounding the debut of a blockbuster movie. Just as avid fans line up for the midnight release of a new Avengers or Jurassic Park movie, devoted gamers mob participating retail outlets during the countdown to the midnight launch of a hotly anticipated new game.