The business of video games

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MIGGY CASTAÑEDA

As a younger person, you were probably told not to get addicted with video games. What if I told you that the video game industry was valued at $99.6 billion as of 2016? It probably doesn’t come as a surprise to hear that it’s just that lucrative, especially given the rise of mobile gaming.

Last year alone, mobile games took a huge lead from PC and console gaming, generating $36.9 billion in total revenue worldwide, according to market research firm Newzoo.

The economics

A video game’s development 30 years ago was simple, and could be worked on by a single programmer, or a small team of programmers and artists. This made the industry easier to break into at the time, with new releases coming out every few months.


Due to the relatively low cost to develop titles for systems at the time, developers like Sierra Entertainment or Activision were perfectly comfortable offering generous benefits to their teams, including royalties. It was this generosity and market saturation that would lead to the Video Game Crash of 1983, or the Atari Shock.

Your little Family Computer/Nintendo Entertainment System back when you were a child was the product of the 1983 video game crash, and was instrumental in reviving the industry as a whole through the effects of the crash in 1985. The crash also resulted in the rise of Japan as a primary contender in the console arena.

Today, it takes a larger development team and selecting a profitable title to turn into a game. They also have to figure out a suitable method of marketing the game beyond ads in magazines and word-of-mouth. Given that the current generation of gaming involves high-definition graphics, many developers are choosing to allocate resources in their development, instead of focusing on many different titles. This has resulted in less high-budget, high-quality titles, or in games that take years to develop—the most current offender in that being Square-Enix’s Final Fantasy XV.

Impacting the economy

You’ve probably walked into a mall and wandered toward video game retail stores on certain days, only to spot a line of men, women and children in line for the latest title released that day. Releases of highly anticipated games or consoles tend to have a fairly significant impact on the economy, one such incidence being the release of Final Fantasy XV. On its release in December 2016, the game sold through 64.63 percent of its physical copies in Japan, according to Media Create.

Forbes also reported that the game sold over 5 million copies on its release in Western markets, making it the fastest selling title in the history of the Final Fantasy franchise.

Sales from titles like these, or 2013’s Call of Duty: Black Ops, can take in revenues above the standard blockbuster film during the first five days of release. In the case of Black Ops, the total take was $650 million, surpassing that of Spider Man 3.

The widely anticipated Nintendo Switch is also set to make a splash, though a report from the Financial Times states that the company’s conservative ship target of 2 million units might hurt the company more than a higher target would.

In a more competitive setting, several brands and personalities have recognized the value of competitive gaming leagues and are rushing to sponsor them, effectively turning the team and the game by extension, into a marketing tool.

Yearly conventions to showcase video games also affect the local economy, with accommodations, venues, and other establishments set to make huge profits owing to the sheer volume of people who attend such events.

Final thoughts

As a business worth millions across the world, it shouldn’t be a surprise that you hear people talking about considering breaking into the industry, although it is more likely that it’s about making a game that they feel is worth their effort than the eventual profits. After all, many of the creators of some of the longest-running game franchises didn’t think they would someday be at the forefront of the industry, being raised to become the standard for all other titles to come.

Miggy Castañeda writes about personal finance for MoneyMax.ph, a financial comparison website aiming to help Filipinos save money through diligent comparisons of financial products.

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