Not just a game. How the video-game industry growth became an economic miracle
A few decades ago, video games were a part of the so-called geek culture, a community of people obsessed with high technology. This makes sense because initially, video games were only housed in arcade machines and located in amusement arcades. Not everybody had enough time and money to go there. About the end of the 20th century, however, the situation changed drastically. How did it happen?
In the latter half of the 20th century, there were only two countries competing in the video game industry market—Japan and the United States. However, a full-fledged competition is impossible unless there is a real market, and the market was yet to be developed. Only in the 1960s did computers become commonly used. Major American universities were purchasing them for research and education purposes. It was at this time that a few guys at the Massachusetts Institute of Technology (MIT) created the first computer game. That game called Spacewar! was very primitive and featured two warring spaceships circling a planetary body and firing at each other. The developers were perfectly aware that their product could be sold, but the equipment was too expensive. No one would buy such a game. So, they decided to spread Spacewar! to other universities with the same computers. What became clear from all this was that computers were not just huge calculators.
However, it took a while for computers to become commonly used. The biggest challenge was the hardware prices. In the 1970s, hardware was still pretty expensive. Then a man called Nolan Bushnell had a brilliant idea of connecting games to television. Television was cheaper. Also, an ordinary family would more likely buy a TV than a computer with a limited set of functions. The video game console itself was created by another person. In 1972, Ralph Baer released Magnavox Odyssey to the public. The prototype console known as the Brown Box was developed in the 1950s. Bushnell and his partner Ted Dabney founded a company called Atari, which basically became responsible for the formation of American videogame industry, and used Baer's ideas as a basis for their own games. Atari was the company that promoted arcade venues for coin-operated devices. The golden age of arcade video games began. By the way, there was a time when Steve Jobs, who later became a co-founder of Apple, worked for Atari as well.
Witnessing the growth of the U.S. gaming industry, Japan decided that it was time to step forward. Sega and Nintendo, which were manufacturing games and toys, became the first companies to discover the future gold mine. However, if Nintendo became the official distributor of Atari games in Japan in 1973, Sega chose the piracy path and started to develop clones of popular video games. That helped Sega to enter the Russian market, and we'll get back to this topic later. In 1977, Nintendo released the Color-TV Game, its famous console, which took the company to the next level and turned it into a gaming industry giant.
In the 1980s, there was a major overproduction crisis in the video game industry. There were coin-op machines all over the place, and at the same time, consoles were no longer in demand. A lot of small Japanese enterprises went bankrupt. Sega and Nintendo were the only ones to stay afloat because video games weren't their one and only line of business. In the United States, the situation was even worse. Developers would rebel against giant corporations that paid them shockingly disproportionate salaries, compared to the overall profits. Atari kept losing employees. Some of them founded Activision, which later became an important market player, filed several multimillion-dollar piracy lawsuits against their former employer and won. Atari's reputation was damaged, and amusement arcades started to go bust. The community was shrinking, games were becoming more and more outdated while new devices, such as video recorder, were being released. Unsold video game cartridges were moved from California to New Mexico desert, thrown in a landfill, encased in concrete, and covered with sand. Video game revenues, that previously rose to $3.2 billion, fell to $100 million. At that time, the U.S. gaming industry was literally buried, and no one thought it would ever re-emerge.
In Asia, things went differently: the solution was found. In 1983, Nintendo released the legendary Nintendo Entertainment System (NES), that quickly won over the audience, captured 90 % of the market on both sides of the Pacific and kept holding its positions for the next decade. One of the innovations Nintendo has introduced was licensing third-party developers. Not every game could be approved for the system. And this is how the era of licensed video games started. In the United States, consoles were now being sold in sporting good stores, which meant that video games turned into a sport too. Nintendo was doing everything it possibly could to promote video games and was a driving force behind video game press creation. For a while, Nintendo's monopoly was undeniable. At the same time, because the company was standing for non-violent video games, its products, often bursting with unicorns and flowers, were considered some sort of entertainment for kids. At some point Mario, the protagonist of the titular video game series, became more popular among the U.S. audience than Mickey Mouse. Washington passed the antitrust law, and Nintendo had to back away. However, there was no U.S. company that could compete with Nintendo, and Sega, another Japanese corporation, became its chief rival.
This company targeted elder audience and released more violent games, including fighting games and shooters. This led to Sega introducing age rating labels that were put on games' packaging. Now, the company could create anything it wanted as long as it put an advisory on the box. In the 1990s, Nintendo released SNES—its fourth-generation console that immediately gained popularity, just like its predecessor. SNES was supposed to compete with Sega's 16-bit Mega Drive console that was considerably cheaper and became extremely popular in 90s Russia precisely for that reason. This was true for Sega's games as well, though they also left a low-hanging fruit for piracy. Ultimately, global video game industry planted the seeds of progress in Russia, and our country brought into the world the amazing game of Tetris, which is still very popular, with a number of variants released to the audience.
Now, let's return to consoles. By the mid-90s, the Japanese Sony had become yet another competitor. Before that, Sony had formed a partnership with Nintendo, and together they were going to launch the SNES-CD console. As Sony was the one to produce the CD-ROM add-on for the console, the company was supposed to get the rights to CD-ROMs, and Nintendo, on the other hand, was supposed to get the rights to cartridges. However, Nintendo was not willing to share the profit and entered negotiations with a rival of their so-called partner. The product was finished but never presented. Sony was outraged by the audacity and implemented best practices to develop and launch PlayStation One. This product ultimately surpassed its fifth-generation analogues developed by both Nintendo and Sega in popularity, and since then, Sony has basically driven other Japanese companies out of the console market.
As for the U.S. companies, it was clear that they couldn't keep up with other console developers and wouldn't be able to make it in the market occupied by Japanese companies, so they shifted their focus to personal computers. In 1993, the id Software company, that was still new to the market, created Doom— a product that changed the video game industry forever. It was a first-person shooter. Everybody was playing this game. People would download it to their work computers and talk about it at the dinner table. Internet services would become overloaded by the number of downloads. The main reason for the popularity of Doom was that the first level of the game was available for free, and only those who decided to proceed further had to pay. The game's creators would earn $20,000 a day. There was a time when Doom'smechanics were used by other developers in almost every single game. It became obvious that you could make stunning profits not only from console games but also from PC games.
The Internet hype era was the next stage of the video game industry development. It became significantly easier to distribute video games, and computers became much more affordable. Since PCs allowed developers and ordinary users to create unofficial additions and patches for video games and enable user-generated content, PC demand was growing. Also, those who had proper graphic cards could build gaming PCs themselves. Some companies that had successfully entered the market were not building devices, they were only developing great video games. It was in the early 2000s when the gaming industry flourished and boomed.
Around the same time, esports were thriving. In order to participate in a gaming tournament and win a prize, a gamer needed to possess professional skills. By the way, in 2001, Russia became the first country to officially recognize esports as a sport. Since then, a number of professional teams have appeared that have got a fan base of millions of people across the world. For instance, more than 4 million people tuned in to watch the International Dota 2 tournament in 2015.
Today, video games are booming again. Coronavirus and the content of let's players and other bloggers, among other things, helped propel console and PC game sales. In 2020, there were more than 2.7 billion gamers worldwide, and the number keeps growing.
On May 13, participants of the "eSports 'Epidemic': World Growth of the Gaming Industry" section of the Second Youth Internet Governance Forum will discuss the future of video game industry in Russia and worldwide, as well as what makes esports more popular now than ever before. You can register for the section via the event website: https://youth.rigf.ru/
In the latter half of the 20th century, there were only two countries competing in the video game industry market—Japan and the United States. However, a full-fledged competition is impossible unless there is a real market, and the market was yet to be developed. Only in the 1960s did computers become commonly used. Major American universities were purchasing them for research and education purposes. It was at this time that a few guys at the Massachusetts Institute of Technology (MIT) created the first computer game. That game called Spacewar! was very primitive and featured two warring spaceships circling a planetary body and firing at each other. The developers were perfectly aware that their product could be sold, but the equipment was too expensive. No one would buy such a game. So, they decided to spread Spacewar! to other universities with the same computers. What became clear from all this was that computers were not just huge calculators.
However, it took a while for computers to become commonly used. The biggest challenge was the hardware prices. In the 1970s, hardware was still pretty expensive. Then a man called Nolan Bushnell had a brilliant idea of connecting games to television. Television was cheaper. Also, an ordinary family would more likely buy a TV than a computer with a limited set of functions. The video game console itself was created by another person. In 1972, Ralph Baer released Magnavox Odyssey to the public. The prototype console known as the Brown Box was developed in the 1950s. Bushnell and his partner Ted Dabney founded a company called Atari, which basically became responsible for the formation of American videogame industry, and used Baer's ideas as a basis for their own games. Atari was the company that promoted arcade venues for coin-operated devices. The golden age of arcade video games began. By the way, there was a time when Steve Jobs, who later became a co-founder of Apple, worked for Atari as well.
Witnessing the growth of the U.S. gaming industry, Japan decided that it was time to step forward. Sega and Nintendo, which were manufacturing games and toys, became the first companies to discover the future gold mine. However, if Nintendo became the official distributor of Atari games in Japan in 1973, Sega chose the piracy path and started to develop clones of popular video games. That helped Sega to enter the Russian market, and we'll get back to this topic later. In 1977, Nintendo released the Color-TV Game, its famous console, which took the company to the next level and turned it into a gaming industry giant.
In the 1980s, there was a major overproduction crisis in the video game industry. There were coin-op machines all over the place, and at the same time, consoles were no longer in demand. A lot of small Japanese enterprises went bankrupt. Sega and Nintendo were the only ones to stay afloat because video games weren't their one and only line of business. In the United States, the situation was even worse. Developers would rebel against giant corporations that paid them shockingly disproportionate salaries, compared to the overall profits. Atari kept losing employees. Some of them founded Activision, which later became an important market player, filed several multimillion-dollar piracy lawsuits against their former employer and won. Atari's reputation was damaged, and amusement arcades started to go bust. The community was shrinking, games were becoming more and more outdated while new devices, such as video recorder, were being released. Unsold video game cartridges were moved from California to New Mexico desert, thrown in a landfill, encased in concrete, and covered with sand. Video game revenues, that previously rose to $3.2 billion, fell to $100 million. At that time, the U.S. gaming industry was literally buried, and no one thought it would ever re-emerge.
In Asia, things went differently: the solution was found. In 1983, Nintendo released the legendary Nintendo Entertainment System (NES), that quickly won over the audience, captured 90 % of the market on both sides of the Pacific and kept holding its positions for the next decade. One of the innovations Nintendo has introduced was licensing third-party developers. Not every game could be approved for the system. And this is how the era of licensed video games started. In the United States, consoles were now being sold in sporting good stores, which meant that video games turned into a sport too. Nintendo was doing everything it possibly could to promote video games and was a driving force behind video game press creation. For a while, Nintendo's monopoly was undeniable. At the same time, because the company was standing for non-violent video games, its products, often bursting with unicorns and flowers, were considered some sort of entertainment for kids. At some point Mario, the protagonist of the titular video game series, became more popular among the U.S. audience than Mickey Mouse. Washington passed the antitrust law, and Nintendo had to back away. However, there was no U.S. company that could compete with Nintendo, and Sega, another Japanese corporation, became its chief rival.
This company targeted elder audience and released more violent games, including fighting games and shooters. This led to Sega introducing age rating labels that were put on games' packaging. Now, the company could create anything it wanted as long as it put an advisory on the box. In the 1990s, Nintendo released SNES—its fourth-generation console that immediately gained popularity, just like its predecessor. SNES was supposed to compete with Sega's 16-bit Mega Drive console that was considerably cheaper and became extremely popular in 90s Russia precisely for that reason. This was true for Sega's games as well, though they also left a low-hanging fruit for piracy. Ultimately, global video game industry planted the seeds of progress in Russia, and our country brought into the world the amazing game of Tetris, which is still very popular, with a number of variants released to the audience.
Now, let's return to consoles. By the mid-90s, the Japanese Sony had become yet another competitor. Before that, Sony had formed a partnership with Nintendo, and together they were going to launch the SNES-CD console. As Sony was the one to produce the CD-ROM add-on for the console, the company was supposed to get the rights to CD-ROMs, and Nintendo, on the other hand, was supposed to get the rights to cartridges. However, Nintendo was not willing to share the profit and entered negotiations with a rival of their so-called partner. The product was finished but never presented. Sony was outraged by the audacity and implemented best practices to develop and launch PlayStation One. This product ultimately surpassed its fifth-generation analogues developed by both Nintendo and Sega in popularity, and since then, Sony has basically driven other Japanese companies out of the console market.
As for the U.S. companies, it was clear that they couldn't keep up with other console developers and wouldn't be able to make it in the market occupied by Japanese companies, so they shifted their focus to personal computers. In 1993, the id Software company, that was still new to the market, created Doom— a product that changed the video game industry forever. It was a first-person shooter. Everybody was playing this game. People would download it to their work computers and talk about it at the dinner table. Internet services would become overloaded by the number of downloads. The main reason for the popularity of Doom was that the first level of the game was available for free, and only those who decided to proceed further had to pay. The game's creators would earn $20,000 a day. There was a time when Doom'smechanics were used by other developers in almost every single game. It became obvious that you could make stunning profits not only from console games but also from PC games.
The Internet hype era was the next stage of the video game industry development. It became significantly easier to distribute video games, and computers became much more affordable. Since PCs allowed developers and ordinary users to create unofficial additions and patches for video games and enable user-generated content, PC demand was growing. Also, those who had proper graphic cards could build gaming PCs themselves. Some companies that had successfully entered the market were not building devices, they were only developing great video games. It was in the early 2000s when the gaming industry flourished and boomed.
Around the same time, esports were thriving. In order to participate in a gaming tournament and win a prize, a gamer needed to possess professional skills. By the way, in 2001, Russia became the first country to officially recognize esports as a sport. Since then, a number of professional teams have appeared that have got a fan base of millions of people across the world. For instance, more than 4 million people tuned in to watch the International Dota 2 tournament in 2015.
Today, video games are booming again. Coronavirus and the content of let's players and other bloggers, among other things, helped propel console and PC game sales. In 2020, there were more than 2.7 billion gamers worldwide, and the number keeps growing.
On May 13, participants of the "eSports 'Epidemic': World Growth of the Gaming Industry" section of the Second Youth Internet Governance Forum will discuss the future of video game industry in Russia and worldwide, as well as what makes esports more popular now than ever before. You can register for the section via the event website: https://youth.rigf.ru/