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Video games are big business. The value of the global market is pushing the US$200 billion mark (£158 billion): bigger than the music industry and Hollywood combined. But the gaming industry has also been facing challenges. The market is shrinking from its peak at the height of the pandemic, and there has been a rash of layoffs and studio closures.In this uncertain environment, game developers are, more than ever, looking to create experiences that stay with their players.…Story continues…
By: Charles Fernyhough
Source: The Conversation
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Critics:
In 2017 in the United States, which represented about a third of the global video game market, the Entertainment Software Association estimated that there were over 2,300 development companies and over 525 publishing companies, including in hardware and software manufacturing, service providers, and distributors. These companies in total have nearly 66,000 direct employees.
When including indirect employment, such as a developer using the services of a graphics design package from a different firm, the total number of employees involved in the video game industry rises above 220,000. Traditionally, the video game industry has had six connected layers in its value chain based on the retail distribution of games:
- Game development, representing programmers, designers, and artists, and their leadership, with support of middleware and other development tools.
- Publishing, which typically includes both the source of funding the development of a video game, as well as providing the marketing and advertising for a game.
- Distribution, whether through retail or digital channels. Distribution typically includes manufacturing and duplication of game media and packaging for retail games.
- Retailer, storefront where the game is sold.
- Consumers, the purchasers and players of video games
- Hardware platform manufacturers, which can own and place limitations for content on the platform they have made, charging license fees to developers or publishers.
As games have transitioned from the retail to more digital market, parts of this value chain have become redundant. For example, the distributor may be redundant as a function of either the publisher or the retailer, or even in some cases as the case of indie games, the function of the developer themselves. Ben Sawyer of Digitalmill observes that the development side of the industry is made up of six connected and distinctive layers:
- Capital and publishing layer: involved in paying for development of new games and seeking returns through licensing of the properties.
- Product and talent layer: includes developers, designers and artists, who may be working under individual contracts or as part of in-house development teams.
- Production and tools layer: generates content production tools, game development middleware, customizable game engines, and production management tools.
- Distribution layer: or the “publishing” industry, involved in generating and marketing catalogs of games for retail and online distribution.
- Hardware (or Virtual Machine or Software Platform) layer: or the providers of the underlying platform, which may be console-based, accessed through online media, or accessed through mobile devices such as smartphones. This layer includes network infrastructure and non-hardware platforms such as virtual machines (such as Java or Flash), or software platforms such as browsers or Facebook.
- End-users layer: or the players of the games.[8]
The game industry employs those experienced in other traditional businesses, but some have experience tailored to the game industry. Some of the disciplines specific to the game industry include: game programmer, game designer, level designer, game producer, game artist, and game tester. Most of these professionals are employed by video game developers or video game publishers. However, many hobbyists also produce computer games and sell them commercially.
Game developers and publishers sometimes employ those with extensive or long-term experience within the modding communities. The industry’s shift from brick and mortar retail to digital downloads led to a severe sales decline at video game retailers such as GameStop, following other media retailers superseded by Internet delivery, such as Blockbuster, Tower Records, and Virgin Megastores. GameStop diversified its services by purchasing chains that repair wireless devices and expanding its trade-in program through which customers trade used games for credit towards new games.
The company began to produce its own merchandise and games. In Britain, the games retailer Game revamped its stores so customers would spend time playing games there. It built a gaming arena for events and tournaments. The shift to digital marketplaces, especially for smartphones, led to an influx of inexpensive and disposable games, and lower engagement among gamers who otherwise purchased new games from retail. Customers also shifted away from the tradition of buying games on their first day of release.
Publishers often funded trade-in deals to encourage consumers to purchase new games. Trade-in customers at the Australian retailer Game would purchase twice the games per year as non-trade-in customers. The sale of pre-owned games kept retailers in business, and composed about a third of Game’s revenue. Retailers also saved on the UK’s value-added tax, which only taxed the retailer’s profit on pre-owned games, rather than the full sale on regular games.
The former trade-in retail executives behind the trade-in price comparison site Trade In Detectives estimated that the United Kingdom’s trade-in industry was about a third of the size of its new games business. They figured that sites such as eBay, which convert used games into cash, compose about a quarter of the UK’s trade-in market but do not keep the credit within the industry. While consumers might appear to receive better offers on these sites, they also take about 15 percent of the selling price in fees.
Alternatively, some retailers will match the trade-in values offered by their competitors. Microsoft’s original plan for the Xbox One attempted to translate trade-in deals for the digital marketplace, with a database of product licenses that shops would be able to resell with publisher permission, though the plan was poorly received or poorly sold. Video game industry practices are similar to those of other entertainment industries (e.g., the music recording industry), but the video game industry in particular has been accused of treating its development talent poorly.
This promotes independent development, as developers leave to form new companies and projects. In some notable cases, these new companies grow large and impersonal, having adopted the business practices of their forebears, and ultimately perpetuate the cycle. However, unlike the music industry, where modern technology has allowed a fully professional product to be created extremely inexpensively by an independent musician, modern games require increasing amounts of manpower and equipment. This dynamic makes publishers, who fund the developers, much more important than in the music industry.
In the video game industry, it is common for developers to leave their current studio and start their own. A particularly famous case is the “original” independent developer Activision, founded by former Atari developers. Activision grew to become the world’s second largest game publisher. In the meantime, many of the original developers left to work on other projects. For example, founder Alan Miller left Activision to start another video game development company, Accolade (now Atari née Infogrames).
Activision was popular among developers for giving them credit in the packaging and title screens for their games, while Atari disallowed this practice. As the video game industry took off in the mid-1980s, many developers faced the more distressing problem of working with fly-by-night or unscrupulous publishers that would either fold unexpectedly or run off with the game profits. The industry claims software piracy to be a big problem, and takes measures to counter this.
Digital rights management have proved to be the most unpopular with gamers, as a measure to counter piracy. The most popular and effective strategy to counter piracy is to change the business model to freemium, where gamers pay for their in-game needs or service. Strong server-side security is required for this, to properly distinguish authentic transactions from hacked transactions.
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