3 History

The emergence of the video game indsutry can be traced to Pong in 1971—the first widely available video game. From this point, the video and computer game industry formed into a hobby culture in the late 1970s when personal computers just began to become widely available. The industry grew along with the advancement of computing technology, and often drove that advancement. Today, the video game industry is a juggernaut of development, profit and still drives technological advancement which is then leveraged by other industry sectors. Though maturing, the video game industry is still very volatile, with third-party video game developers quickly cropping up and, just as quickly, going out of business.

4 Economics

The video game industry faces unique financial strains as it attempts to fairly compensate its talent and at the same time, turn a profit significant enough to fund the development of future titles.

Early in its history, profits for video games were easy to make since computing power was so sparse. Most games could be developed by a single programmer and that programmer could sometimes develop all of the art as well. For games with higher graphic requirements, usually a single artist was all that was required. Games developed by such small teams would sell hundreds or thousands of copies each, generating significant profits. Also, many of these games only took a few months to create, so one developer could release several titles in one year. Thus, publishers could often be generous with benefits, such as royalties on the number of games sold. Many early game publishers started from this economic client, such as Origin Systems, Sierra Entertainment, Activision and Electronic Arts.

As computing and graphics power increased, so did the size of development teams. Game development team sizes ballooned as more experts were required to deliver the graphic and technical quality which their audiences demanded and, frankly, came to expect. Now a game development budget can easily reach millions of dollars ( US dollars), even if middleware and pre-built game engines are used (which cost tens to hundreds of thousands of dollars to license). The required budget for games is still inflating and, while the target audience for games expanded quickly in the 1980s and 1990s, it has now slowed significantly. But game players continually demand higher graphic and technical quality in modern games, requiring game developers to hire even more experts and staff for each game developed. Today, most professional games require one to three years to develop, as opposed to the few months of early games. So, the publisher or developer must continually fund a game's development, hoping it will be a hit.

Normally, in most businesses, to increase profits one merely passes on the rising costs to the customer in higher prices. However game publishers are faced with one inescpable fact: few people will pay more than US$50 for a game. So raising prices to cover rising development costs is not an option.

The final exacerbating truth of the game industry is this: only the top 5% of games make a profit. Only the top 5% of games make a profit. This means, of course, that the other 95% of games released lose money. How can a small game developer stay in business if it releases one turkey (since it poured all its profits from previous hits into a title that bombed)? Often, it cannot, which is why so many game development companies spring up, release a few games, then quickly go under. This is not as big a problem for large game publishers since games that make it, make it big and the profits from their hits are used to fund all the games it will release that will end up losing money.

But what about the engineers and artists who went into developing the big hits for the publisher? Back in the 1980s and '90s, the developers were paid royalties for huge hits. Today, publishers find it hard to pay their developers bonuses since they want to hold onto the profits to cover their losses on any weak games they release. This disgusts many talented game developers and they'll often quit to go work for other game developers who promise greater compensation.

But even finding the real number of units sold is a massive, and sometimes impossible, undertaking. While ticket sales for movies are widely known and published, actual game sales numbers are closely guarded by publishers. If actual sales totals were widely known, developers could use the numbers to leverage more lucrative contracts for future game development deals with the publisher. Keeping the totals secret keeps most of the leverage in the publisher's hands.

Clearly, today's game development economic climate is a difficult balancing act, with a few winners and thousands of big losers.

5 See also

• Game Developer Magazine
• History of the video game
• Video game controversy
• Video game industry practices

6 External links

• GameDev.net, the leading resource for game development
• Game industry veteran Tom Sloper's game industry advice
• Newsgroup comp.games.development.industry via Google Groups
• Article on the development of Unix including the link to gaming

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