Market structure

115

the industry volume in these countries is presented in Table 12. The omission of Japan is probably due to unavailability of data.

Table 12. Industry volume in major game development areas (collected from Games Investor Consulting Ltd. 2007).

Country Independent

developers Publishers

First company

founded

First global hit

Development jobs in 2005

Australia 45 15 1980 1982 1 250

Canada 110 21 1985 1985 6 100

France 85 20 1983 1987 1 750

Singapore 25 15 1999 NA 500

South Korea 211 20 1994 1998 9 000

United Kingdom 160 70 1982 1983 8 000

United States 650 120 1971 1972 25 000

These figures show that the United States is the number one country in game development. The United Kingdom, South Korea and Canada are also very strong. These countries have been active in game development since the early 1980s. South Korea is a newer game development country that has become a strong player in the international market. Canada overtaking France and growing to match the UK is explained by the generous support to Canadian firms in the form of tax exemptions, subsidies and grants by the Canadian government (Games Investor Consulting Ltd. 2007, p. 2). In Finland the first game firms were founded in the early 1990s and the first international hit was Max Payne developed by Remedy Entertainment in 2001. Finnish game firms employ around 1000 people. (see Figures 22 and 23 in section 5.5.1)

116

as younger generations age they are more and more avid gamers, also later in life. In the United States the average age of a gamer is 35 (ESA 2008, p. 2) whereas in Australia the average age is 28 (Brand 2007, p. 5).

Figure 4. UK gamers as a percentage of age groups (Pratchett 2005, p. 4, data from 2005).

The gamer population is dominated by men, but not to a significant extent. In the USA 40% of gamers are female and 60% male (ESA 2008, p. 3) whereas in Australia females make up 41% of the gamer population (Brand 2007, p. 5). In 2008 European gamers own an average of 36 games.

Males have an average of 39 games and females 31. The variation in the population is great as those who consider themselves heavy gamers own an average of 67 games. The UK is the leader in Europe with an average of 43 games per gamer. Surprisingly, there is very little variation between the age groups. (Nielsen Games 2008, p. 29) The above figures indicate that computer and video games have become a mainstream form of entertainment comparable to films and music.

Game development is a growing industry. Siwek‘s (2007, p. 20) study on the economic contribution of the game software industry to the US economy shows that employment in the sector grew from 20,177 in 2002 to 25,007 in 2006. This gives a compound annual growth rate of 4.444%. The growth also shows in sales (Table 13). In 2003-2004 the game software industry grew 4.45 times faster than the US GDP and in 2005-2006 5.43 times faster. These are impressive figures, even though in some years the growth is slower.

Table 13. Growth in entertainment software compared to GDP in the US (Siwek 2007, p. 30).

Year

Real annual growth Entertainment

software

Real annual growth

US GDP

Times share

2003-2004 17.34% 3.90% 4.45

2004-2005 3.87% 3.20% 1.21

2005-2006 17.91% 3.30% 5.43

117

The Entertainment Software Association‘s 2008 Essential Facts report plots the growth of the industry from 1996 to 2007. Sales almost quadrupled during that time (Figure 5). Growth in the number of units sold is similar (Figure 6).

Figure 5. Market size trend in billion dollars in the United States, inflation adjusted (ESA 2008, p. 11).

Figure 6. Market size trend in million units in United States (ESA 2008, p. 11).

These figures allow us to calculate the change in the unit price (Figure 7). The unit price was relatively stable during the 12 years that the data cover.

118

Figure 7. Price per unit trend in United States in inflation adjusted USD (based on data from ESA 2008, p. 11).

The industry life-cycle theory posits that as an industry matures, sales stabilise and price decreases.

So far the game software industry is not showing such dynamics. Sales are still growing in both dollar and unit terms and price has remained stable. It may be that the industry has not yet reached the stage at which such phenomena occur and they are thus yet to come. It may also be that the dynamics of the games industry do not conform to those of more traditional manufacturing industries based on which the industry life-cycle theory was developed. Hayes and Dinsey (1995, p. 65) state that games sell almost as many units at £49.99 as they would at £39.99.

This implies that the firms are not striving for decreases in price as they would not create a decisive competitive advantage over other producers.

Additional evidence on the growth of the game market comes from online game subscriptions. The website mmogchart.com plots the growth in the number of active online game subscriptions. Figure 8 covers such data between the beginning of 1997 and April 2008. Each active subscription consists of a consumer paying a monthly flat rate for playing. As a consumer can have an active subscription to several online games at a time, this data should be interpreted as growth in sales rather than purely as growth in consumer base.

119

Figure 8. Growth in the number of active massively multiplayer online game subscriptions (retrieved from mmogchart.com).

Besides growth, the game market is also showing two notable characteristics, namely games falling into either the hit or miss category and the obligation for the firms in most countries to go onto the international market. The division of games into hits and misses is noted by Guérin (2006), according to whom thousands of games are produced each year of which around 200 end up as hits.

In the UK in 2000 the top 99 games accounted for 55% of all sales. The 99 games represented 3.3%

of games developed. (Spectrum Strategy Consultants 2002, p. 12) Another industry characteristic coming across from the reports is the inability of the home market to sustain the domestic game software production. For example, Australia has one of the highest per capita consumptions of entertainment products in the world, but it is still a small market by sales volume (Standing Committee on Communications, Information Technology and the Arts 2004, p. 58).

Currently the games industry is facing several challenges, such as the relation to violent behaviour of young people and low appreciation as a form of culture. Traditionally TV has been blamed for turning viewers into mindless drones but during the last two decades attention has been directed increasingly to games in this respect. Violence is related to games in societal debate even though, according to Thompson (2002, p. 24), most of the popular kinds of games are non-violent. There have been two US Senate hearings on game violence. The first one in 1993 resulted in a rating system on games (Kent 2001, p. 472). Because of several gun incidents at US schools there were again senate hearings in 1999 on game and film violence. However, the latter hearings did not have a great influence on the industry (p. 555). Thompson (2002, p. 26) argues that the easy access to guns in the USA has more of an effect on gun violence than shooting games do. Another threat is the isolation of young people into the game world rendering them unable to function in the real world and in social situations. However, games can be a social hobby with countless discussion

120

boards on the Internet and friends gathering to play together. (ibid., p. 28). There are no signs of the conception of the violent nature of games fading. The British Prime Minister Gordon Brown announced in September 2007 that he would protect children from ―harmful violence and sexual imagery‖ by reviewing legislation on the promotion and sale of video games to minors (Ingham 2007). The games industry has responded with their own investigations. In 2001 the Interactive Digital Software Association published the ―Video Games & Youth Violence:

Examining the Facts‖ report that emphasises the decrease in youth violence that has taken place as video games have become increasingly popular (see IDSA 2001b).

In addition to being condemned for violence, games have been labelled as not good enough to be called culture, not to mention art. Jenkins (2000, p. 118) compares the position of games to that of jazz music, the Broadway musical, the Hollywood cinema and the comic strip in the 1920s. At that time cinema was suspicious because of commercial motivations, technological origins, violence and eroticism (ibid.). Indeed, in a similar fashion games are now ―popular but despised, thought to be beneath serious evaluation‖ (Poole 2000, p. 13). The aversion to games is similar to the attitudes that new cultural forms usually face. Cowen (2000, p. 185) states that parents and the elderly people are usually cultural pessimists who perceive the new cultural ideas popular among younger generations as cultural corruption. For example, popular music has been blamed for encouraging drug use, rooting for communism and corrupting white youth with ‗black‘ sounds. Artists have also been blacklisted from radio and even imprisoned for indecent behaviour. (Denisoff 1975) Nowadays cinema is recognised as an art form and perhaps in the future that will also be true for games. Another aspect of the common attitude against games is the fear that games will somehow replace more traditional art forms (Poole 2000, p. 3). Poole points out that films did not replace theatre just as the Internet did not replace the book. King (2002, p. 17) concludes that fundamentally games are experiences that people can share and such activities are important for society as a whole.