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Turns out video games are kind of a big deal

It’s no big news that video games make a great deal of money. But your average fan might not realize just how profitable the industry truly is. Annually, the video games sector is generating more money than either of the music or film industries, with profits in the dozens of billions.

But let’s not be vague; let’s talk numbers… hard numbers. According to PricewaterhouseCoopers latest Global Entertainment and Media Outlook, in last year alone, the industry raked in just under 42 billion dollars. I can’t imagine how much money the snack food industry made as a result. Jokes aside, it’s interesting to consider just how much collateral profit other industries are making due to the booming success of the video game market. HD TV’s, surround sound Hi-Fi’s, XXXL t-shirts and Cheetos must all be making a killing off our industries success. And it has no signs of slowing down anytime soon, with the same report predicting the industry will be worth about $70 billion by 2012 –suddenly that ‘$775 million’ Activision E3 party is starting to sound a little more reasonable.

Illegal amounts of money aside, what exactly generates all of this revenue? The simple answer is software. In 2008, US software sales eclipsed hardware revenues by close to 30%, with expected revenues to sky rocket to $34.7 billion globally by 2012. The profitability of software sales has always been the driving force behind the video game industry. It’s really a brilliant system - while a consumer will purchase a given hardware device only once, they ’ll continue to purchase software over and over for the lifetime of that device. Consequently, hardware sales act as a platform for ongoing revenues. With more and more people buying games than ever, software is now driving exponential growth. The strength of software revenue even shapes the way hardware manufacturers operate. A fundamental mantra of hardware manufacturing is that short term losses from hardware sales are justified by the inherent prosperity of long term software sales.

While the music industry moans about illegal downloads diminishing profits and Hollywood loses ground to home cinema, the gaming industry continues to go from strength to strength - it’s truly astounding how quickly the industry has grown.  Software sales alone have quadrupled since 1996, growing on average by over a fifth every year. In fact, the broader trend of gaming seems to be exponential expansion – with software revenues nearly doubling in the US over the latter half of this decade, from $7 billion in 2004 to $12.1 billion in 2009.

So software makes bucket loads of money. Great. But put those revenues from software sales alone in the context of the broader entertainment industry and you might start to grasp just how successful gaming has really become. According to the Motion Picture Association of America (MPAA), box office takings for 2009 were approximately $10.8 billion, falling over a billion dollars short of the $12 billion generated by US software sales. Impressive for sure, but the data becomes truly astounding when you consider that we’re talking about the American market here, a nation whose culture is arguably synonymous with film.

Unsurprisingly, all those software dollars are backed up by a hardware race that is healthier than ever before. Browsing tallies of the most successful gaming platforms, it’s key to note that each of the current generation systems will unquestionably enter the top 10 highest selling platforms of all time, provided current projections hold true. Assuming this is the case and with exception to Nintendo’s Gameboy and the Sony Playstation, every one of the all time most successful platforms has been released in the last decade. For an industry that begun with the first home consoles in the early 1970’s, such a skew towards recent hardware clearly evidences the growing popularity and strength of the industry.

I can’t help but mention the fact that all this commercial success has yet to translate into the same kind of artistic respect or social acceptance that other sectors of the entertainment industry enjoy. It’s unavoidable however, that as the video game market continues to expand and dwarf its competition, the ‘Games as Art’ debate is only becoming more and more relevant. Regardless, there’s one thing that’s ever so clear; we are literally witnessing the early decades of a new entertainment medium in the history of our race, one that’s here to stay and one that has never been stronger.  

Article 1/3 I wrote for the totally awesome third issue of The Luchazine