Video, computer, and virtual reality games industry

Industry Snapshot

GENERAL INDUSTRY: Arts and Entertainment

CAREER CLUSTER: Arts, A/V Technology, and Communication

SUBCATEGORY INDUSTRIES: Coin-Operated Games Manufacturing; Computer and Peripheral Equipment Manufacturing; Computer Software Games Publishing; Computer Storage Device Manufacturing; Electronic Computer Manufacturing; Electronic Toys and Games Manufacturing; Input/Output Equipment Manufacturing; Software Publishers; Video Game Machines (Except Coin-Operated) Manufacturing

RELATED INDUSTRIES:Computer Hardware and Peripherals Industry; Computer Software Industry; Toys and Games Industry

ANNUAL DOMESTIC REVENUES: US$57.2 billion billion (Entertainment Software Association, 2023)

ANNUAL GLOBAL REVENUES: US$250.45 billion (GlobalData, 2023)

NAICS NUMBERS: 3341, 339930, 339999, 511210

Summary

Dedicated to interactive entertainment, the video, computer, and virtual reality (VR) games industry is one of the fastest-growing segments of the entertainment industry. Comprising software, hardware, and peripherals, the electronic game industry provides entertainment experiences ranging from immersive games requiring hundreds of hours of play to casual games popularized by social media and mobile devices. The industry relies on innovative technologies to create entertainment for a global audience ranging in age from toddlers to senior citizens.

History of the Industry

Considerable controversy exists as to what constitutes the first video game. In 1952, Alexander Douglas, a doctoral student at the University of Cambridge, programmed his university’s computer to run tic-tac-toe simulations. Some historians attribute the first video game to William Higinbotham, a scientist at Brookhaven National Laboratory. In 1958, Higinbotham prepared for a public open house by programming a table-tennis game to run on a laboratory oscilloscope. His game, Tennis for Two, was enthusiastically greeted by the public and was the hit of the open house.

In 1962, the first game available outside a single institute, Spacewar!, was created in a Massachusetts Institute of Technology (MIT) computer laboratory after hours by members of MIT’s Tech Model Railroad Club. The object of the game was to shoot down one’s opponent’s spaceship without falling into the sun. Other programmers who were familiar with academic computers could potentially modify the gameplay of Spacewar!, and many did.

The 1970s saw the birth of consumer video games. Instead of being relegated to military bases or universities, video games became coin-operated and were installed in pinball and arcade parlors, pizzerias, and other recreational areas. Clones of Spacewar!, based on the original programming at MIT, began appearing in arcades.

In the late 1970s and early 1980s, home video-game consoles began to appear. Manufacturers such as Atari and Magnavox offered simplified versions of coin-operated arcade games playable in consumers’ homes, and game consoles sold well. During 1972, the Magnavox Odyssey sold over 100,000 units. These consoles worked with cartridges containing individual games, enabling users to play many different games by purchasing many different cartridges for the same console.

As the decade progressed, consumers became disenchanted with the quality of cartridge-based games, which were noticeably more primitive than the full-sized coin-operated machines found in arcades. Seeking to earn profits quickly, some companies preyed on consumers eager for the latest games by repackaging old games and selling them as new titles. Other companies’ game quality dropped precipitously as coin-operated games continued to advance, and consumers became reluctant to purchase titles from an industry that sought only profit.

During this same time period, personal computers (PCs) began to drop in price and become more affordable for families. Personal computers were popular not only for business applications and word processing but also as hubs of game playing. Infocom’s Zork series and other text-based games formed a genre known as “interactive fiction” that was popular with young adults. As PCs’ processing power increased, games with simple graphics became available.

In 1985, the Nintendo Company released the Nintendo Entertainment System (NES), which was sophisticated enough to rekindle interest in game consoles. The Nintendo games were graphically sophisticated for the time, and they introduced a pair of plumbers (the Mario Brothers) and other iconic characters to the gaming public. These characters became increasingly important as video gaming evolved, because industry sales would come to be driven in part by franchise characters such as the Mario Brothers who were featured in many different games.

Sega, too, became involved in the console technology race and introduced Sonic the Hedgehog as a franchise character for its Sega Genesis console. While Sega’s games were graphically superior to those of Nintendo, the NES had a more aggressive marketing and public relations campaign behind it, and it sold significantly better. In 1999, Sega released the Dreamcast, the first game console with Internet access, but even that could not save the company.

At the start of the 2010s, Sony’s PlayStation 3, Microsoft’s Xbox 360, and Nintendo’s Wii systems were battling for dominance of the console market, and PCs remained strong contenders for video game dominance. The video gaming industry has grown into a multibillion-dollar industry, one that consistently earns greater revenues than the motion picture industry and appeals to a wide range of demographics. By the early 2020s, the dominant consoles were the Nintendo Switch, PlayStation 5, and Microsoft’s Xbox Series X/S.

The Industry Today

As the video game industry has grown, it has realized the need to open new markets. A significant portion of the industry still caters to “hardcore” gamers, or those seeking the most advanced possible hardware and software features and who play games that require hundreds of hours to solve. However, the overall industry seeks to provide a wide range of games to appeal to all ages, genders, and tastes. As the industry seeks to reach all possible markets, casual gamers have become important alongside hardcore gamers. Casual games do not require the powerful hardware needed to run hardcore games, and they generally require very little time commitment. Throughout the world, then, gaming is becoming more popular, more accessible, and more profitable.

The video, computer, and VR games industry, like most industries reliant on technology, is evolving quickly. Although consoles and PCs are currently the dominant platforms, casual gaming (often played in conjunction with social media) is gaining popularity. Thus, the video game industry consists of more than just first-person shooters and sports simulations. It includes solitaire and other simple one-person games, mobile games such as Candy Crush Saga, and games featuring immersive worlds such as the Grand Theft Auto series, as well as educational games designed for young players.

Casual games do not require the same time commitment that hardcore games do. Players can drop in and drop out of casual games without having to remember complex plots, tactical plans, or anything else. Dropping in to play a casual game has no impact on the player’s enjoyment because there is no plot to remember. Hardcore games encourage players to spend dozens, if not hundreds, of hours exploring and mastering them. Generally played on consoles or PCs, these games can cost millions of dollars to make, market, and distribute. Hardcore games run the gamut from sports simulations to realist military simulations to fantasy role-playing games (FRPGs).

Another typical type of hardcore game is the massively multiplayer online role playing game (MMORPG). Players of MMORPGs usually pay a monthly subscription fee to access a shared virtual space simultaneously with other gamers from around the world. These are known as “persistent worlds,” because events continue to occur in them even when the player is logged out of the game. Other persistent virtual worlds are free to play but have in-game advertising or charge fees for specific, premium features. Historically, these online games have been played mostly on PCs, but console manufacturers are increasingly aware that their players desire virtual gathering spaces and are building virtual worlds based around their consoles.

The social aspect of gaming has grown quickly. Some players not only want to interact with other players (for example, through MMORPGs and virtual worlds), but also encourage their friends on social networks to play with them. Social games (often played while logged into social networking sites, such as Facebook) encourage players to get other members of their social networks involved in them.

More serious games have grown into a serious business. Also known as educational or vocational games, these interactive games are increasingly used by businesses and other organizations. Employers have recognized the value of using games to train their employees in a virtual world before letting them loose in the real world, with real profits and losses. The US Army, recognizing the power of gaming, has experimented with using military simulation games as recruiting tools.

With the increasing popularity of video games, especially social and casual games, the way consumers access their games is shifting. In the past, consoles and personal computers (PCs) were the dominant gaming platforms, with handheld consoles such as Nintendo’s GameBoy and Sony’s PlayStation Portable as the third most popular platform. This system of game delivery is changing, however, with the evolution of mobile phones. As mobile phones become more sophisticated and better able to support processor- and graphics-intensive games, they are poised to take over as the most popular gaming platform.

As with other parts of the entertainment industry, video games borrow from and mix with many aspects of popular culture. Film, television, toys, and video games seed one another with concepts and licensed properties: popular video games have made the leap to feature films, and television shows have spawned their own video games. Indeed, many projects that begin as films, television programs, video games, or comic books seek to develop complementary projects in the other media to maximize profitability, particularly so-called genre projects. It has become increasingly common for a science-fiction film, for example, to have a novelization, a comic book adaptation, mobile-phone-based casual gaming tie-ins, and a hardcore console and PC game adaptation or spin-off. Cooperating companies strive to release all such adaptations around the same time, so that each will increase the audience for the others. This entwining of various media is moving toward a convergence of seemingly all entertainment. Hardware manufacturers for PCs, consoles, hand-held devices, and mobile phones are readying themselves for their products to allow consumers to communicate, play games, play video, and access the Internet.

Within the video games industry, there are several subindustries. In larger companies, each subindustry may be a subdivision of the same corporation. Game design studios come up with game concepts and details of play (known as game mechanics). The design team writes the plot and designs the characters and setting. Designers create the story that the game publisher will flesh out. Some design teams are subsidiaries of larger game-publishing houses, while others are third-party developers who contract with publishers on a game-by-game basis.

Publishers provide the money and the technical expertise to make a game. They employ programmers to write the code necessary to turn designs into software. Artists take these lines of code and create models, textures, and animation, as well as audio tracks, to turn the raw code into a full audiovisual experience. After analyzing the game for bad code and other quality problems, the publisher gives the go-ahead to mass-produce and distribute the game, either on physical media or as a downloadable file online.

Industry Outlook

Overview

The outlook for the video and computer games industry shows it to be on the rise. While buying and playing video games has continued to be popular, the rate of growth in both industry jobs and revenue slowed during the recession of 2007–9. Nevertheless, between 2009 and 2012, direct employment in the US video game industry grew at an annual rate of 9 percent, compared to an annual increase in total US employment of less than 1 percent.

The Bureau of Labor Statistics (BLS) projects that between 2022 and 2033, jobs for US-based computer programmers are projected to decrease by 11.2 percent during this time, which the BLS attributes to companies increasingly outsourcing work to programmers in countries where wages are lower. However, employment of applications software developers is projected to increase by 25.7 percent between 2022 and 2032, which is much faster than average. Similarly, employment of web developers is projected to grow by 17 percent and that of systems software developers by 21.7 percent over that same period. The median annual wage for software developers was $127,260 while computer programmers earned a median wage of $97,800.

Both revenue and employment are predicted to increase through the next decade. The industry is one of the fastest growing in the United States. The Electronic Software Association (ESA) reported in its 2023 annual report on the state of the industry that domestic consumers spent a total of $57.2 billion on the video game industry in 2022, of which the majority was spent on game content; the remainder was spent on hardware and accessories. The ESA also noted that more than 268,000 people were employed by the electronic gaming industry in the United States.

The video game market has been undergoing an evolution, from focusing on so-called AAA or event PC and console games (the equivalent of film blockbusters or best-selling novels) to producing a greater quantity of smaller casual games that offer greater returns on investment. Larger games are still made, but in a tepid consumer market, fewer companies and venture capitalists were willing to risk millions of dollars on investments that might not pay off.

Additionally, many companies are attempting to save money by changing their distribution channels. Instead of selling games on discs in cases on store shelves, producers are offering digital downloads and other nonphysical distribution channels. The percentage of digital format sales (including subscriptions, digital full games, digital add-on content, mobile applications, and social network games) versus physical format sales has been steadily increasing, from 31 percent in 2010 to 54 percent in 2013—the first year digital sales surpassed physical sales—to 74 percent of all game sales in 2016. By 2021 physical media constituted only 10 percent of all game sales, with the remaining 90 percent coming from digital formats.

Wanting to protect their profits, many video game companies are exploring the future of games with an online or streaming model. Video game companies can bypass consoles and the need for high-performing, top-of-the-line PCs for gaming by offering games primarily as online applications playable in most browsers. While this type of shift could be good news for video game companies themselves, retail sales of consoles, PCs, and used games could crash.

The outlook is sunnier for the global market. Globally, developing countries are focusing on science, technology, engineering, and math (STEM) vocations. Cities in China’s Guangdong and Shandong Provinces worked with the US vocational training company Kaplan to develop video game career programs for their cities. As a country, China also became a stronger consumer of video games, leading to a larger local video game industry, in the 2010s; however, increased government regulatory oversight resulted in numerous production delays in the late 2010s.

Employment Advantages

The video game industry is a strong field for anyone who loves video games, multimedia art and design, or programming. The growing industry means that there will be additional jobs at middle and larger companies, while do-it-yourself types may want to consider opening their own casual gaming enterprises. The video game industry allows an individual to be part of bringing a creative effort to the marketplace.

Detail-oriented individuals with a penchant for detective work may also find fulfilling work in the game industry. Replicating and hunting down programming errors can be a full-time job, and the more experience one has in the industry, the more likely one is to move up the ladder. Working in the video game industry also allows one to work with high-end technology. The massive computing power needed for gaming allows industry personnel to work with the latest technology.

Annual Earnings

Global revenue for the video game industry topped $250.45 billion in 2023 and was predicted to reach $470 billion by 2030, according to GlobalData. The majority of that increased revenue will come from the mobile and cloud gaming, with mobile gaming expected to top $270 billion in revenue and cloudy gaming earning $30 billion.

The domestic job market for video game companies in the United States is a mixed bag, with employment for some jobs in the industry projected to have rapid growth while others are projected to have slower than average growth. While game companies continue to hire, some industry veterans have expressed dismay that the companies hire for specific projects and then let their senior staffs go before the next game, allowing for decreased salaries. Some programmers have found more success in relocating to other parts of the country or even internationally. Domestic job opportunities are likely to decrease, because of increased competition from developing countries such as India, China, and Vietnam. These developing countries are providing more technology training to their citizens, allowing large companies to outsource programming positions to countries with cheaper labor.

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