The video game industry has undergone significant changes from the early days of Atari in the mid-1970s. Today, the industry covers multiple platforms and is projected to reach $111.1 billion in global revenue at the end of 2015. With technological innovation, 8-bit Atari machines have transformed into 64-bit gaming consoles that are comparable to modern computers. The video game industry has eclipsed the movie and music industry by an insurmountable margin. In 2013, Grand Theft Auto V grossed more than Iron Man 3, the highest grossing film that year, in the three days following its release.
Traditionally, the video game industry was limited to consoles, such as Microsoft’s (MSFT) Xbox and Sony’s (SNE) PlayStation, but it now includes PC games, mobile games and, in the near future, virtual reality. Mobile gaming continues to be the industry’s fastest growing sector, which explains Nintendo’s decision to release five of its classic games on mobile platforms by 2017.
Since the launch of Atari in the mid 1970s, gaming consoles have made massive strides. Next generation consoles, PlayStation 4, Xbox One and Nintendo’s Wii U not only play games but also act as media hubs. Given an Internet connection, each console can provide access to online game networks and a variety of multimedia apps, including Netflix (NFLX) and Hulu. However, despite the vast array of features, console gaming continues to flounder. The majority of sales occur during the holiday seasons while sales in the remaining months stagnate.
Though Nintendo’s Wii was successful, Nintendo’s Wii U has struggled to make a similar impact . Even though Wii U is less expensive than Microsoft and Sony’s systems, the battle for market dominance only concerns Sony’s PlayStation 4 and Microsoft’s Xbox One. The two consoles offer similar product titles and multimedia applications, so Sony and Microsoft must differentiate from each other through exclusive game titles and new online features. Sony is currently leading the console war, selling over 20 million units since the PlayStation 4 launch in November 2013. In the same time frame, Xbox One shipped a total of 10 million units. While continued priced cuts have helped move product, Microsoft’s pricing strategy has cut into profit margins.
Although sometimes an afterthought to game consoles, computer gaming has become the dominant player in the overall gaming industry. It is estimated the PC gaming market grew to $26 billion in 2014. Many attribute the growth of computer gaming to customizable and more advanced technology.
Unlike the traditional console industry, the PC game market consists of hardware, game titles, accessories and upgrades. For computer gaming enthusiasts, a top of the line graphics card is a necessity to support next-generation game titles. As a result, major graphic cards producers AMD (AMD) and NVIDIA (NVDA) continue to prosper. In particular, NVIDIA posted revenue of $1.15 billion in Q1 2016, a 4% increase year over year. Besides graphics cards, PC gaming requires a headset, keyboard, monitor, and mouse that are capable of supporting recent game titles and maximizing the user’s playing experience.
As the fastest growing sector in the video game industry, the mobile gaming industry market is expected to expand to $20 to $30 billion in 2015. Additionally, mobile gaming is projected to overtake both PC and console gaming in the near future. Mobile gaming consists of free-to-play and payable apps available on smartphones or tablets. In the U.S., it is estimated that 64% of adults own a smartphone and 42% of adults own a tablet. As a result, mobile gaming has grown exponentially over the past five years.
Besides increased access to the Internet and devices, the convenience of mobile gaming versus traditional portable consoles, such as Playstation Vita and Nintendo DS, has made it a success. For many, mobile games provide entertainment during daily commutes, and the ability to access games from a smartphone enables them to forgo carrying an extra device. Likewise, mobile apps are significantly less expensive than their counterparts. While most game apps have a free-to-play option, premium content ranges from $1 to $10. By comparison, a new PC or console games starts at $59.99. Amongst mobile games, Supercell’s Clash of Clans and King Digital’s (KING) Candy Crush are two of the highest grossing apps.
Future of the Video Game Industry
Since Nintendo Wii made interactive gaming popular, developers have been searching for the next breakthrough in the gaming industry. Oculus VR, which was acquired by Facebook (FB) in 2014, is developing virtual reality gaming systems. Virtual reality gaming not only provides an interactive aspect but also appeals to users’ sight and hearing, creating a truly immersive experience.
Developments have also been made in video game streaming to coincide with the proliferation of video streaming services. Currently, the available consoles provide networks through which users can download fully functioning games instead of purchasing physical copies. Besides full-fledged gaming consoles, Amazon (AMZN) Fire TV and Sony PlayStation Now offer users video streaming and gaming services at a fraction of the cost of consoles.
While video games have generally been associated with children, the average gamer is actually 35 years old. Male gamers comprise 56% of the total gaming population while female gamers make up 44%. Out of the total U.S. population, roughly 59% of Americans play video games, with 51% of households owning a dedicated game console.
The Bottom Line
While not immediately apparent, the lucrative nature of the video game industry far surpasses the music and movie industries. Not only do video games provide hours of entertainment to many Americans, it is also a large source of employment for graphic designers, developers and programmers. With interest slightly waning in the U.S., industry leaders have begun to target emerging markets. Without neglecting developed nations, developers are sustaining interest through frequently updated digital content and the proliferation of mobile gaming.