Final Project
Video Games in a business perspective
Gregory Franusic
Texas A&M International University
FRANUSIC
2
Abstract
This study looks at the factors that drive video game players to purchase a particular
game, while highlighting the market trends that allow a game to sell on a large scale. The
literature suggests that there is a strong evolution in this market making the competition even
stronger than in the past, caused by the fact that players have different habits and preferences
across the different regions of the globe, which explains the emergence of publishers as market
players in order to reduce the risks related to the instability of the market. 16,598 games sold
over 100,000 copies between 1980 and 2016 were used as the database for this study. The
results of this study highlights the impact of game genre, platforms in which a game is released,
exclusivity and geographic differences on video game sales. The study helps guide these
companies to the right path, highlighting new market trends.
KEYWORDS: videogames, criteria, sales, market tendency, regional factors,
Microsoft, Sony, Nintendo, quantitative analysis, players.
FRANUSIC
3
Introduction
Over the past two decades, video games have established themselves as the most
lucrative market (by far) in the entertainment industry. And as proof, already in 2019, video
games generated twice as much revenue as the movie and recorded music industries
combined, as revealed by data released by Newzoo, Billboard and IFPI respectively. And the
dominance of video games has been further amplified in the past year, with the market
enjoying a more than 20 percent jump in revenue to nearly $175 billion, while the movie
industry suffered a historic collapse of more than 70 percent in revenue. Mobile games are
now the largest money-making segment and are expected to account for more than half of
the total video game market revenue by 2021.
The purpose of this project is to understand the evolution of the video game market
from the early 1980’s to the mid 2010’s. Therefore, it is important to analyze the foundations
of the market during the last four decades. Decades that have seen many publishers release
countless games, each more different than the last. By analyzing the sales of more than 15,598
games that have sold more than 100,000 copies worldwide, the objective is to understand if
there are any links between game sales and criteria related to game genre, year of release,
platform, publisher or geography. With these elements based on past statistical information,
it may be possible to understand trends in the video game market and predict future sales,
with the ultimate goal of knowing what kind of game will be the most popular in the long run.
Putting ourselves in the shoes of a company wishing to enter the video game market,
this analysis has, without pretension, the objective of serving as a reference base for the
development of a new game project. Indeed, in a market where competition is increasingly
fierce, any mistake in positioning could lead a company to a colossal failure, negatively
impacting the financial health of the company. Indeed, creating a video game is becoming
FRANUSIC
4
more and more expensive, because of the technological advances that each project must have
in order to compete in this environment. It is therefore essential for any publisher to enter
this market with full knowledge of the expectations, requirements and tastes of gamers
around the world in order to reach its target.
Literature Review
The video game industry is one of the most dynamic sub-sectors of the media and
entertainment sector to which it belongs. It is responsible for much of its growth. Since its
emergence in the early 1970s, the sector has grown steadily to reach more than US$52 billion
in global sales in 2009, more than twice, for example, the cumulative sales of the record
industry in the same year (US$23 billion) (PWC, 2011). Note that in 2006 the two values were
equivalent (34 billion for video games and 33.5 for recorded music), but video games grew at
a double-digit rate until 2009, averaging 16% annually from 2005 to 2009 and nearly five times
the average growth of the sector as a whole (PWC, 2009), 16.7% in the United States for 2005–
2008 compared to only 2.8% for the U.S. economy as a whole (ESA, 2010), while the music
industry was declining rapidly. Similarly, according to the OECD (2005), the revenues of this
sector in the United States exceeded those of the cinema (theaters) as early as 2001. In Great
Britain, as of 2009, not only has this industry surpassed cinema (total revenues) but its
popularity is equivalent to that of music or film downloads, according to the British regulator
Ofcom’s annual survey of communications markets (Ofcom 2010). The video game software
industry is not only a growth industry but also contributes, directly or indirectly, to the
development of global technology markets including PCs, cell phones, especially smartphones,
and now tablets. Its growth favors the deployment and adoption of high-speed and very high-
speed networks. This has resulted in significant technology transfers to other sectors. For
example, Apple’s adoption and introduction of the mobile interface of Nintendo’s Wii in its
FRANUSIC
5
iPhone. These transfers are often made through what is called “serious games” in the fields of
health, education, but also military since the army was one of the first large-scale institutions
to use video games for training (flight simulators, etc.). The economic importance of video
games for growth, added value and employment is growing. In the United States alone in
2009, the sector employed 32,000 people but contributed to the employment of 120,000
people according to the study by the Video Game Industry Association (ESA, 2010). It
represented an added value of 4.9 billion US dollars in that same year.
In 2009, the global market was worth more than US$52 billion, according to PWC,
which predicted more than US$55 billion for 2010 and a turnover of more than US$82 billion
by 2015, if the forecast of a cumulative annual growth of 8.2% over the 2011-2015 period is
confirmed. The consulting firm estimates the market based on consumer spending on
consoles (including handhelds), PC games, online games and mobile games. It now adds
advertising revenues. Between 2004 and 2015, this global market would grow from less than
$30 billion to more than $82 billion (PWC, 2009, 2011).
According to PWC (2011), the video game sector (along with television) is expected to
drive the growth of the media sector at an estimated rate of over 8% in the coming years. The
firm added that within this industry, this growth would be driven primarily by the online and
mobile gaming segments, with the advent of smartphones and tablets driving not only market
development, but also increasingly sophisticated mobile applications. A. T. Kearney (2010,
2011) identified the same growth drivers. These growth prospects seem strong, compared to
those of the sector as a whole (around 5%), which only decreased by an average of –2.4% in
2009 (PWC, 2011), but with strong variations by sector, with the press (newspapers and
magazines) and music being the most negatively affected. In 2009, video games represented
3.8% of the total ($1357 billion) (PWC, 2011).
FRANUSIC
6
The developed economies were the main markets until 2009, accounting for more than
half of the global market or 26 billion euros (Idate, 2011). In 2009, the Europe, Middle East,
Africa (EMEA) market was the leading market ahead of North America, Asia-Pacific and Latin
America, but it gave up this position to Asia-Pacific in 2010 (PWC, 2011): $16.9 billion versus
$22. The main driver of this growth is the online and mobile gaming segment, due in part to
its importance within the overall video game industry. The Asia-Pacific region holds three of
the largest national markets among the top four worldwide, in order of importance the United
States, followed by Japan, then China and South Korea. Latin America represents a modestly
sized market and despite the fact that since 2015 the numbers have been boosted.
The most important gaming platform remains console games. It reached $28.1 billion
in 2010 (PWC, 2011) or almost 60% of the total, but its share of the total market is also tending
to decline, in relative value, to about half of the market (from 70% in 2004) (PWC, 2009). It is
followed by the online and mobile gaming segment, which is also the fastest growing segment
with cumulative annual growth rates reported in 2015 of 14.9% for online games and 11% for
mobile games, representing revenues of $28.4 billion and $12.7 billion respectively. PC games
will continue to decline in absolute and relative terms. Advertising revenues ($1.8 billion) in
2010 for video games are growing at a steady rate of nearly 10%. It should be noted that each
of the regions has specific characteristics in terms of the relative share of each platform. For
example, the share of PC games in Europe remains significant compared to other regions. The
decline is less marked there than in North America, which is also the case for Asia-Pacific. It
should be noted, however, that certain types of games, which are very widely distributed,
such as MMOGs, still require a PC, which leads to a stabilization of the market. North America
is the leading market for console and handheld games with nearly $12 billion in sales in 2008.
EMEA is second and Asia-Pacific is third, with nearly $11 billion in the former and $7 billion in
FRANUSIC
7
the latter. In contrast, Asia Pacific is by far the largest market for online and mobile gaming
platforms with $9 billion in sales in 2009, followed by EMEA with $5 billion. These two markets
have always outpaced the North American market, with Asia leading the way. In fact, North
America is only one-third the size of the Asian markets ($3 billion). In Europe, double-digit
growth continued, but the pace of growth eventually slowed, stabilizing for Europe at around
10% in the early 2010s. The other regions show similar characteristics.
The growth of these markets has been driven by the increase in broadband network
connections, innovation in games themselves and the transition from portable games to the
new generation of consoles offering online access: online services for Microsoft and Sony
consoles were launched between late 2003 and early 2004, with Nintendo (DS Wifi
connection) following in 2005. This rapid evolution illustrates the driving role of technological
