Video games aren't just child's play. The video-game industry, composed of consoles, mobile gaming, and PC-based gaming, is poised to rake in more than $100 billion a year in revenue by 2018. It involves sophisticated gameplay, high-resolution graphics and immersive, social interactions, a far cry from the early days of arcade games.
But if history is any lesson, even these mighty newcomers may one day fall. It's helpful to recall five examples from the past.
Atari—Video Arcade Game Birth
Atari was the largest video game maker once upon a time. It formed in 1972 and is largely credited with birthing the modern arcade and computer game industry. It developed and released more than 100 video game titles, including classics such as Asteroids, Breakout, Centipede, Crystal Castles, Missile Command and Tempest. It is home video game console was cutting edge, bringing Pong to the living rooms of thousands of homes. The company's ownership changed hands a number of times, eventually becoming the property of Warner Entertainment and subsequently Hasbro (HAS).
As competition became more fierce in the 1990s and early 2000s, Atari couldn't keep up as an innovator and sales languished, losing tens of millions of dollars each year from 2005 and on. It is Jaguar home gaming console was a flop, and in 2008 Atari was sold to Infrogames, which itself was experiencing financial troubles. Atari filed for bankruptcy protection in 2013 and emerged a year later as a company focused on social and casino gaming. (See also How The Video Game Industry Works.)
THQ—Success and Failure
THQ Inc. was known for its hugely popular wrestling games such as WWF Smackdown! and WWE Wrestlemania series, as well as exclusive licensing deals with Nickelodeon Pixar and Disney to bring games based on characters such as Spongebob and Rugrats. An acronym for Toy HeadQuarters, the company was founded in 1989 and saw rapid success through the 1990s and 2000s. Unfortunately, its record of success came to an end soon after.
By 2010, the company was bleeding money as newer versions of games in its franchised series such as Red Dawn were not well-received. In 2012, the company defaulted on a $50 million loan and was forced into bankruptcy. Unable to emerge from bankruptcy protection, the company was forced to liquidate its assets. The THQ trademark was purchased in 2014 by Nordic Games.
Hudson—Early Platform Producer
Hudson Soft was a Japanese video game maker that began as an electronics re-seller in 1973. By the 1980s, the company was producing more than 30 individual titles each month, including such favorites as Bomberman, Excitebike, R-Type, Adventure Island, and Mario Party.
It produced games for a wide variety of early platforms including the original Nintendo Entertainment System, Super Famicom, Sega and more and employed more than 500 people at its peak. As the 1990s saw more sophisticated games and a move away from the traditional arcade game side-scroller, Hudson began losing market share and struggled to keep up. In 2012, the company was absorbed by Konami (KNMCY), a long-time strategic partner, but the Hudson name was dropped.
(See also How to Invest in the Video Game Industry.)
Westwood Studios—Role-Playing Games
Westwood was founded in 1985, originally creating content for early console and PC systems such as Commodore 64, Amiga and Atari. The company was eventually acquired by Virgin Interactive in the early 1990s and sold to Electronic Arts in 1998.
Westwood is well known for creating the Command & Conquer and Red Alert franchises along with early role-playing games such as Eye of the Beholder and The Legend of Kyrandia. After the takeover by EA, Westwood creative staff felt pressure to change the style and gameplay to fall in line with what Electronic Arts management demanded. After failing to come to a consensus, EA shut down and liquidated Westwood in 2003. Some Westwood staff were rehired by EA while others left to found their own video game studios.
3DO—New Gaming Console
3DO was founded in 1991 as the San Mateo Software Group or SMSG. Soon after forming, the company shifted focus to creating cutting-edge gaming hardware, the 3DO. Trumpeted to be the next-generation gaming console, the 3DO featured games stored on CD-ROM discs as opposed to cartridges as well as other technologies new at the time, such as interactive multimedia and multiplayer capability.
Another unique business model was that the 3DO console would be manufactured by many different companies each licensing the right to do so, including partnerships with Panasonic (PCRFY), LG and MCA. The 3DO Multiplayer console debuted in 1993 for a pricey $699 and was an immediate flop. The system was simply a bit too expensive and a bit too ahead of its time. 3DO abandoned the hardware business and became a game developer for a while, but most of its games were received poorly; its most popular game was Army Men. The company went bankrupt in 2003. (See also Are Big Budget Video Games Dead?)
Brøderbund Software was responsible for many nostalgic games such as Prince of Persia, Choplifter, Loderunner, and Where in the World is Carmen Sandiego?. Founded in 1980 in Eugene, Oregon, the company also created the hugely popular Print Shop line of software. Brøderbund partnered with early innovators such as Sierra Online to create rich multimedia content for its games.
However, the company came under increasing pressure in the late 1980s. Brøderbund had a failed IPO in 1987 but successfully went public in 1991. After going public, Brøderbund tried and failed to acquire The Learning Company, and it a twist of irony, saw itself bought by The Learning Company three years later. The combined company was subsequently purchased by the toy maker Mattel in 1999, who closed the company down after years of lackluster sales.
Today's Video Gaming Successes
The industry today owes much to the pioneers who came before, many of whom failed to adapt to a rapidly changing, tech-driven market. Few would have predicted the rise of mobile gaming and the success of companies such as King (KING), maker of addictive puzzle games like Candy Crush commanding a market capitalization of nearly US$7.5 billion and Zynga (ZNGA), the company who revolutionized social gaming with Farmville, with a market cap of more than $2.6 billion.
These new kinds of game companies rival traditional game studios like Take-Two Entertainment (TTWO), worth $2.4 billion and owner of labels Rockstar Games and 2K, but still behind giant Electronic Arts (EA), with its $25 billion market cap. Key to EA's success has been strategic acquisitions and nimbleness, owning properties ranging from puzzle games such as Bejeweled to sports games, such as FIFA Soccer, to the Sims.
Activision (ATVI) has also swollen to almost $20 billion in market capitalization by snatching up massively multiplayer online role-playing games (MMORPGs), including Blizzard Entertainment and its hit World of Warcraft.
(See also Will Zynga Stock Make a Comeback?)
The Bottom Line
The video game industry today is huge, with gamers from all over the world spending billions of dollars each year to play. But the industry is also ever-changing with technological progress and consumer attitudes. Failure to keep up can spell disaster for even a once-successful video game studio. This list is just a highlight of the many hundreds of video game companies that have come and gone over the past three decades.