IBISWorld Video Games Industry Report

Video Games in the USSeptember 2014 1
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Level complete: Demand for video games will

increase as disposable income grows
IBISWorld Industry Report NN003
Video Games in the US

September 2014
Sarah Kahn
2 About this Industry
21 International Trade
39 Operating Conditions
Industry Definition
23 Business Locations
39 Capital Intensity
Main Activities
Similar Industries
25 Competitive Landscape
42 Revenue Volatility
Additional Resources
25 Market Share Concentration
43 Regulation & Policy
25 Key Success Factors
44 Industry Assistance
4 Industry at a Glance
40 Technology & Systems
26 Cost Structure Benchmarks

27 Basis of Competition
45 Key Statistics
5 Industry Performance
28 Barriers to Entry
45 Industry Data
Executive Summary
30 Industry Globalization
45 Annual Change
Key External Drivers
Current Performance
45 Key Ratios
31 Major Companies
10 Industry Outlook
31 GameStop Corporation
13 Industry Life Cycle
32 Microsoft Corporation
46 Jargon & Glossary
33 Activision Blizzard Inc.
15 Products & Markets
35 Nintendo Co. Ltd.
15 Supply Chain
36 Electronic Arts Inc.
15 Products & Services
37 Sony Corporation
19 Demand Determinants
20 Major Markets
www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com
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About this Industry

Industry Definition
The Video Games industry includes the

broader operations of all video games
components in the United States. Gaming
consoles, games made for those consoles
and games produced specifically for
personal computers make up the retail
Main Activities
The primary activities of this industry are
segment. The development and

manufacturing of games, consoles and
accessories also constitute a notable share
of the market. Moreover, growing revenue
from online gaming subscriptions
complements industry products.
Developing video game software

Publishing video game software
Retailing video game software
Manufacturing video game software
Retailing video game consoles
Developing video game accessories
Retailing video game accessories
Providing online game subscription services
The major products and services in this industry are

Accessories
Consoles
Online games and software
Physical games and software
Similar Industries
33431 Audio & Video Equipment Manufacturing in the US

The use of consoles is closely tied to the number of TVs and, increasingly, audio systems used in conjunction
with them.
42392 Toy & Craft Supplies Wholesaling in the US
While much of the industry avoids wholesaling, the manufacture of consoles and accessories overseas
ensures some need for wholesalers.
44311 Consumer Electronics Stores in the US
Consumers may purchase video games and equipment from consumer electronics stores, among many
other outlets.
45211 Department Stores in the US
Department stores are prominent retail outlets that sell video games and equipment.
53221 Consumer Electronics & Appliances Rental in the US
Consumers can rent equipment from this industry in lieu of purchase.
54142 Industrial Designers in the US
Industrial designers assist in developing consoles and accessories.
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About this Industry
Similar Industries
continued
51121e Video Game Software Publishing in the US

Video game software is the primary output of the video game industry.
Additional Resources
For additional information on this industry

gamedevmap.com
Gamedevmap
www.theesa.com
The Entertainment Software Association
www.census.gov
US Census Bureau
www.vgchartz.com
VGChartz
IBISWorld
writes over 700 US

industry reports, which are updated
up to four times a year. To see all
reports, go towww.ibisworld.com
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Video Games in the US September 2014
Industry at a Glance
Video Games in 2014
Key Statistics
Snapshot
Revenue
Annual Growth 09-14
Annual Growth 14-19
Profit
Exports
Businesses
$40.9bn
0.7%
$3.3bn
$7.1bn
Time spent on leisure and sports
Activision Blizzard
Inc. 5
.5%
Nintendo Co. Ltd.
4.1%
24
5.30
18
5.25
12
Units
Microsoft Corporation
11.6%
% change
Revenue vs. employment growth
Market Share
GameStop
Corporation 16.2%
6
0
12
Year 06
Sony Corporation 3.1%

p. 31
5.20
5.15
5.10
Electronic Arts Inc.

3.3%
3.0%
29,514
08
10
Revenue
12
14
16
18
20
5.05
Year 05
07
09
11
13
15
17
19
Employment
SOURCE: WWW.IBISWORLD.COM
Products and services segmentation (2014)
8.8%
Accessories
Per capita disposable

income
Time spent on
leisure and sports
17.2%
41.4%
Consumer
Confidence Index
Percentage of services
conducted online
Trade-weighted index
32.6%
p. 5
Consoles
Industry Structure
Life Cycle Stage

Revenue Volatility
Capital Intensity
SOURCE:
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SOURCE:
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Growth
Medium
Low
Industry Assistance
None
Concentration Level
Low
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 45
Regulation Level
Light
Technology Change
High
Barriers to Entry
Industry Globalization
Competition Level
High
Medium
High
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Industry Performance
Executive Summary | Key External Drivers | Current Performance

Industry Outlook | Life Cycle Stage
Executive
Summary
Following a dramatic pullback in

consumer spending as a result of the
financial crisis, the video Games industry
is slowly recovering some of the
momentum it accumulated earlier in the
decade. However, the emergence of
low-cost games for mobile devices has
slowed demand for other games and may
continue to temper growth opportunities
in the foreseeable future.
In the five years to 2014, industry
revenue increased at an average annual
rate of 0.7%. In 2014, revenue is expected
The
emergence of low-cost games for

mobile devices may temper future growth
opportunities
to total $40.9 billion, well below the
prerecessionary peak of $42.9 billion.
Due to the lengthy wait period between
new console releases, the industry has
long been dependent on add-ons and
accouterment to retain consumer
interest. The release of Kinect, a motion
sensor for the Xbox 360, partially offset
significant declines in industry revenue.
The growing library of games for each of
the major consoles has steered many
consumers toward low-cost, preowned
Per capita disposable income

Video games are considered discretionary
purchases. As disposable income rises,
consumers will be more likely to spend
their money on video games. Conversely,
consumers are more likely to withhold
purchases of video games when
disposable income falls. Per capita
disposable income is expected to increase
in 2014.
Traditionally, individuals with abundant
leisure time, such as children and
video games. However, growing

consumer incomes, the late-2012 release
of the Wii U and the 2013 release of Xbox
One and PlayStation 4 are anticipated to
lead to 4.3% revenue growth in 2014.
Future growth expectations for the
Video Games industry have been
significantly moderated, as the picture of
the market for gaming on mobile
platforms becomes clearer. Since mobile
games are sold at a much lower price
compared with traditional console and PC
games, their rise may foretell a slowdown
of the video game market in the United
States. While the recent launch of the next
generation video game consoles is
expected to rekindle interest in the more
expensive console gaming market, the rise
of the low-cost, low-margin mobile
gaming market may weigh on the overall
gaming market. Consequently, this is
expected to pull revenue downward as
consumers pay, in aggregate, less per hour
for gaming entertainment. Nonetheless,
IBISWorld anticipates future growth due
to an expanding population and an
increased percentage of Americans who
play video games, as the game-playing
generation ages. As a result, revenue is
expected to reach $47.4 billion in 2019,
representing average annual growth of
3.0% in the five-year period.
students, represent the primary

demographic for video games. While the
industry now serves a broader audience,
leisure time is a major restrictive factor
in consumers ability to play and spend
money on video game products. Time
spent on leisure and sports is expected to
decrease slowly in 2014, resulting in a
potential threat for the industry.
Consumer Confidence Index
The consumer sentiment index reflects
how consumers view the current
economy (i.e. positively or negatively)
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and their expectations over the next

several months. When consumers have a
generally positive view of the economy,
they are more likely to purchase
discretionary goods, such as video games.
The Consumer Confidence Index is
expected to increase over 2014.
Percentage of services conducted online
Video games commonly feature
enhanced content and features for
players with broadband internet
connections. These features include
multiplayer modes, downloadable
content and in-game chat functions,
which can be free or provided on a fee or
subscription basis. Consumers are
expected to increasingly use these online

features. The increasing percentage of
services conducted online throughout
2014 represents a potential opportunity
for the industry.
Trade-weighted index
The trade-weighted index represents the
value of the US dollar against the
currencies of other major trading
partners. The lower the value of the US
dollar against these currencies, the more
competitive US-produced goods are
relative to goods produced abroad. The
trade-weighted index is expected to
increase over 2014, representing a
potential threat to the industry.
Per capita disposable income

5.30
5.25
5.20
% change
Units

continued
5.15
5.10
5.05
Year 05
0
1
07
09
11
13
15
17
19
Year
08
10
12
14
16
18
20
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Current
Performance
The Video Games industry has yet to fully

recover from the financial crisis and
ensuing recession. Although revenue is
estimated to rise at an annualized rate of
0.7% to $40.9 billion over the five years
to 2014, this figure remains well below
the industrys prerecessionary peak of
$42.9 billion. Amid falling disposable
incomes and rising concerns about job
security, consumers were quick to cut
back their discretionary video gamerelated expenditures. Nonetheless, the
entertainment value offered by video
games in terms of cost per hour,
especially when compared with other
forms of leisure, continued to encourage
spending even during the downturn.
Many customers simply shifted their
habits toward less costly forms of video
Aging consoles
While the industrys slowdown can in part

be blamed on the financial crisis, another
likely culprit is the time that has elapsed
since the previous generation of home
video game consoles. For example, the
original Xbox was launched in late 2001
and its successor, the Xbox 360, was
launched in late 2005. Moreover, its
competitors, the Nintendo Wii and the
Sony PlayStation 3, were launched in late
2006. It took another six years for the
companies to launch the next generation.
Nintendos Wii U was released in 2012,
while Sonys PlayStation 4 and Microsofts
Xbox One were released in 2013. As more
time lapses between the production of
video games, foot traffic in retail stores
declines, pushing sales down.
Part of the reason for the delay is the
large cost incurred by each console
manufacturer in the initial offering of
their consoles. The PlayStation 3 was
initially offered to US consumers at a
high price of $499 or $599 (depending
game entertainment, such as used video

games and low-cost mobile games. In
2014 alone, revenue is expected to grow
4.3%, largely stimulated by low-cost
options and new consoles.
With consumers searching for low-cost
entertainment in a period of economic
uncertainty, the manufacturing of almost
all hardware in the industry has been
outsourced to low labor cost countries,
while imports from Asia have soared.
Overall, imports increased 7.9% over the
past five years to account for $13.4 billion
in 2014. Over the same period, industry
exports have increased at an average rate
of 5.7% to $7.1 billion, accounting for
17.4% of revenue in 2014. Most original
development of video games still takes
place in the United States and Japan.
Along
with the recession,

the lengthy time period
between console releases
hurt growth
on the hard drive size), yet was estimated
to have cost more than $800 to produce.
It was not until 2009, three years after
launch, that the costs of production
began to approach the selling price. In
the four years since the PlayStation 3s
launch, the division in which it operates
lost almost $4.5 billion, yet consumers
still found the price too high. The
PlayStation 4 cost a lower $399 upon
release. Manufacturers are still
recovering from the costly rollouts,
looking to extend the life of the current
generation of consoles; some have done
so by introducing new controllers to
expand the methods of play available.
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Input devices
While alternative input devices have a

long history with entertainment consoles,
from Nintendos NES Zapper for the
original Nintendo Entertainment System,
to a litany of joysticks and steering
wheels, the success of the Nintendo Wii
and its motion-sensing input wand
clearly demonstrated consumer demand
for novelty. In response, both Sony and
Microsoft released input devices intended

to capture full-body movement, rather
than mere button presses. While Sonys
implementation was not incredibly
successful, Microsofts Kinect has been
fairly well received by its broader base of
consumers. As a result, revenue for
Microsofts Xbox 360 platform jumped
49.0% in 2011 to $8.1 billion globally.
Used games
While new input devices staunched and

slightly reversed the receding tide of
video game spending in the United
States, the real success has been in used
video-game sales. GameStop, the United
States largest used-games retailer,
experienced a used-game revenue jump
of $1.8 billion in 2011. The age of
consoles and library of games that has
been amassed contributed to the
popularity of used games. As a result,
GameStop significantly increased its
number of locations, a major component
of the expansion in industry
establishments over the past five years.
However, the used-game business model
is not without controversy. Many game
publishers decry GameStop and other

retailers practice of selling used copies of
recent games next to new copies at a slight
discount, while capturing all of the revenue
of the used-copy sale. As a result, gross
profit for used games is typically near
46.0%, well above the 20.0% of gross profit
earned by new-game sales. While movie
retailers are prohibited from selling
second-hand copies of films in the same
retail space as new copies, no such
protection exists within the game industry.
Video game publishers are heavily
dependent upon retail sales, while stores
like GameStop would likely abandon new
game sales before their enormously
profitable used-game business.
Subscription model
and online content
In the PC game sales segment, the single

most successful game of the past five
years has been Activision Blizzards
(formerly Blizzard) World of Warcraft
(WoW), which retained a user base of
more than 10 million users, seven years
after its release in late 2004. Despite its
currently shrinking user base, its business
model has been so successful that most
software publishers, particularly
enterprise and analytics developers, have
since reimagined their products as
subscription-based software as a service
(SaaS). However, charging a monthly fee
by itself is not a sufficient incentive to
entice consumers, and the game has been
slowly losing subscribers. In addition,
Downloadable
content
is allowing publishers
to forgo production and
distribution costs
compared with consumers of other types
of software, the SaaS model has not been
embraced by video game consumers due
to the low number of hours the average
game is active. Industries that use the
SaaS model heavily, such as security
software or business analytics software
publishers, publish software that run for
much longer and benefit from regular
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Subscription model
and online content
continued
incremental updates. The only games

expected to succeed with a SaaS model
are games that derive most of their
revenue from gamers who play
repeatedly. These games are typically only
massively multiplayer online games
(MMOG). MMOGs have increasingly used
the SaaS model, but this trend has yet to
cross over to other game types.
In addition, publishers are increasingly
turning to downloadable content (DLC)
to supplement their games. Especially for
AAA releases, publishers will develop
additional content for games, such as
maps, single-player missions or
Mobile gaming
The rise of smartphones has led to an

explosion of independent game
developers. Smartphone games can be
much simpler than their console and PC
counterparts; as a result, a single person or
a small group of people can develop
profitable games. These games are then
put on the Apple App Store or Google Play
for users to download, providing
developers with revenue through a
purchase fee or in-game advertisements.
The low barriers to entry, when compared
with console and PC game developers,
have caused the number of video game
publishing enterprises to explode over the
past five years, growing an estimated
annualized 37.2% to 29,514 in 2014. In
multiplayer modes, to be sold straight to

gamers for a small fee. Publishers offer
DLC over the games website (for PCs) or
console online markets (such as the Xbox
Live Arcade for Xbox 360 or the
PlayStation Network for the PS3).
Similarly, online distribution platforms
for PCs, namely Steam from Valve
Software and Origin from Electronic Arts,
allow consumers to purchase full games
on their release date for download
straight to their PCs. Publishers have
embraced DLC because it forgoes the cost
of physical media production,
distribution and retailing.
The
number of enterprises
has jumped due to
low entry barriers for
smartphone games
addition, total industry employment has
risen at an annualized rate of 7.6% over the
same period to reach 170,018. However,
due to the low retail price of these games
(most games are offered free and
supported through in-game ads, while the
rest retail for less than $5), smartphone
games have not yet had a significant effect
on total industry revenue.
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New consoles
Over the coming five years, the Video

Games industry is expected to grow at a
moderate pace, reflecting the release of
pent-up demand as consumers
disposable incomes improve. In addition,
new console releases are expected to help
reinvigorate the industry, bringing
consumers back into video game stores,
albeit at a heavy cost to hardware
manufacturers. Imports, largely
dominated by hardware from low labor
cost countries, are expected to continue
increasing at a 5.3% annual rate over the
next five years, accounting for $17.4
billion in 2019. Exports are expected to
increase at an annualized rate of 5.0% to
$9.1 billion over the same period, with
major design offices from the vast
majority of the worlds largest software
developers based in the United States. By
2019, industry revenue is anticipated to

reach $47.4 billion, representing an
average annual growth rate of 3.0% over
the coming five-year period.
While only a few major manufacturers

have debuted their next-generation
console, Nintendos Wii U, Microsofts
Xbox One and Sonys PlayStation 4 were
all released in time for the 2013 holiday
season. These releases should help boost
industry revenue significantly, while also
reducing the drag imposed on the
industry by used video game resellers.
However, as the launch of previous
generation consoles proved, new releases
can be incredibly expensive and risky
because consoles are sold for less than
their manufacturing costs with the hope
that high revenue sales and service
revenue will make up for these losses
over time. IBISWorld expects
manufacturers to be less audacious with
hardware configurations for their nextgeneration consoles, hoping instead that
technological advancements made since
the previous generation will entice
customers. While the Wii U features a
controller with integrated display, input
devices will likely remain novelties as
Xbox and PlayStation focus on core
technologies. Nintendo has openly

admitted concern that its focus on input
devices watered down its reputation
among core gamers. Manufacturers are
also focused on extending the life of the
current generation of consoles in order to
increase their profit margins.
The development of motion capture
software and its widespread use among
video game developers has the potential
to lower video game production costs by
cutting animation time. Motion capture
is the process of recording a live motion
event and translating it into data that
enables a 3D recreation of the
performance and alterations. Dramatic
improvements in character realism,
especially in facial movements and
full-body interaction with the
surrounding environment, have emerged
in large part due to motion capture. The
precision of data recorded and the
versatility of the systems render the
industry suited to serve many others, but
the video game production industry
remains the largest market for this
Revenue vs. exports

18
12
% change
Industry
Outlook
6
0
6
12
Year 06
Revenue
08
10
12
14
16
18
20
Exports
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New consoles
continued
software. Certain genres, such as sports

and role-playing games (RPGs), are
anticipated to demand motion capture
technology at greater rates due to their
reliance on humanoid characters. As the
software becomes more widespread and
decreases animation time, production
costs are expected to decrease, and new
consoles are expected to be produced and
released at a faster speed.
New games and consoles are expected
to reflect the changing demographic of
video game players as well as the
changing hardware on which the games
are played. According to the
Entertainment Software Association,
48.0% of all game players are women.
Decline of a giant and The performance of the subscription

gaming segment will depend on how
the subscription
operators adapt to the decline of World
model
of Warcraft (WoW). Many companies

have attempted to siphon some of the
games user base and attendant revenue,
but none have been successful. There is
also an expectation that the massively
multiplayer online game (MMOG) space,
having been opened by WoW, will
remain available for others to capitalize
on as WoW declines. However, very few
consumers need to spend money on
monthly subscriptions for video games.
Mobile gaming
The mobile gaming space is expected to

grow extensively over the next few years.
However, because 60.0% to 70.0% of
downloaded mobile games are free, users
increasingly hesitate before paying for a
mobile video game. Consumers are
unlikely to switch their purchase
preferences from free games to higherpriced mobile games. While the global
mobile gaming market may reasonably be
expected to grow as globalization and
inexpensive handsets increase accessibility
Even more surprisingly, women over the

age of 18 represent 36.0% of the game
playing population, while boys aged 18
and younger, traditionally considered the
industrys main target market, represent
a mere 17.0%. Consumers aged 36 and up
make up the largest group of game
players, followed by 18 to 35 year olds,
followed by people under the age of 18.
Additionally, 44.0% of gamers play on
their smartphone, while 33.0% of gamers
play on their wireless device. Video game
developers are expected to adapt to these
major changes in the coming years,
targeting women and an older population
and creating games that are easily played
on mobile devices.
Once players leave WoW, theres no

guarantee they will pay money
previously spent on WoW to other
subscription-based video games. It is
likely that WoWs successor will
integrate some mobile gaming
component to make the game accessible
everywhere. WoW already offers an
Android app with access to the games
auction house, enabling the buying and
selling of in-game items. The success of
this app will likely encourage software
companies to develop apps that perform
other gameplay tasks for WoW players.
The
number of firms will

rise as small mobile gaming
development firms enter
the industry
to the mobile game space, it is unlikely
that late adopters of smartphones in the
United States will spend increasing
amounts of money on games for their
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Mobile gaming
continued
mobile devices. IBISWorld anticipates

mobile gaming in the United States will
remain a small component of the total
Video Games industry, with several
successful outliers (e.g. Angry Birds) and a
vast number of far less successful
aspirants. Reduced potential for payoff
may lead major players to abandon efforts
to engage the mobile gaming industry,
leaving it wide open for smaller
independent firms seeking to establish

themselves. As a result, the number of
firms participating in the industry is
projected to grow to 40,502 in 2019,
representing a 6.5% annualized growth
rate. The increase in smaller firms will
result in a marginal increase in total
employees, which is expected to grow at
an annualized 0.8% over the period,
reaching 176,965 in 2019.
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Because players continue playing games as they
age, new gamers add to an existing market
Life Cycle Stage
The industrys share of GDP has grown over the

past five years and will continue to increase
New consoles ensure that interest in games
and accessories is renewed periodically
% Growth in share of economy
Female gamers represent a new market, and online

gaming is displaying extraordinary growth
20
Maturity
Quality Growth
Company
consolidation;
level of economic
importance stable
High growth in economic

importance; weaker companies
close down; developed
technology and markets
15
Key Features of a Growth Industry

Revenue grows faster than the economy
Many new companies enter the market
Rapid technology & process change
Growing customer acceptance of product
Rapid introduction of products & brands
10
Quantity Growth
Many new companies;

minor growth in economic
importance; substantial
technology change
Computer
Peripheral
Manufacturing
Toy & Craft Supplies Wholesaling
Video Games
Consumer Electronics Stores
Decline
-5
Shrinking economic
importance
Audio & Video Equipment Manufacturing

-10
-10
Computer Manufacturing
-5
10
15
20
% Growth in number of establishments

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Industry Life Cycle

This
industry
is G
rowing
The industry is in a position that other

industries must view with great envy. It
has a loyal client base that is regularly
expanded by a fresh generation of users,
and older users have not deserted their
favored toys at an age that they were
originally expected to. The average age of
a game purchaser today is about 35, and
it is rising as older players continue to
update their game consoles.
The Video Games industry is currently
in the growth phase of its life cycle, with
revenue increasing at close to double-digit
rates, new firms entering the market
despite high barriers to entry, and
customers unwilling to forego their
entertainment spending when times get
tough. Industry value added, a measure of
the industrys contribution to the overall
economy, is expected to grow at a 1.9%
annualized rate from 2009 to 2019,
compared with GDP growth of 2.7% over
the same 10-year period. The rate is
slower than that of GDP as consumers
hesitated before reopening their wallets
for discretionary games after the financial
downturn. Nevertheless, revenue has been
and is expected to continue increasing.
Women comprise about 48.0% of

game players, indicating the level of
growth available to the industry, as there
are very few titles designed specifically to
target this demographic. Offerings such
as Nintendos Wii Fit indicate the
attention that women can expect to
receive, as their dollars are actively
chased. Currently, about 42.0% of
households in America have a gaming
console, which allows for considerable
growth as video games become pervasive
as a means of entertainment. This
number is indeed growing: In 2006,
about 35.0% of households had a console,
suggesting that the broad popularity of
the Wii and DS gaming systems is already
having a marked effect on the industrys
previously untapped markets.
In the coming years, the growing
availability of games via online services
through consoles will open up more
new markets. Similar to apps on the
iPhone, small, easy to play, low-cost
games will likely become very popular
among older and female gamers,
further increasing potential
opportunities for industry growth.
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Products & Markets
Supply Chain | Products & Services | Demand Determinants

Major Markets | International Trade | Business Locations
Supply Chain
KEY BUYING INDUSTRIES

9901
Consumers in the US
The retail of games, consoles and accessories is universally to consumers, and it constitutes
about 50% of revenue.
KEY SELLING INDUSTRIES
Products & Services
33411a
Computer Manufacturing in the US

While manufacturing takes place offshore, some components are developed locally.
33411b
Computer Peripheral Manufacturing in the US

While manufacturing takes place offshore, some components are developed locally.
48411
Local Freight Trucking in the US

The distribution of goods, undertaken by publishers, is necessary, but it is becoming less so as
online delivery becomes more common.
54181
Advertising Agencies in the US

Software publishers and console manufacturers are intensely competitive, and they have
extensive advertising and marketing budgets.
While the industrys largest participants

are manufacturers of consoles like
Microsoft and Sony, it is not the focus of
the market. Consoles are merely vehicles
by which games and accessories can be
sold, making them a loss-making
enterprise. Therefore, games are the
inevitable focus of the industry.
This difference between revenuemaking and profit-making goods and
services is important, as the eventual
sales of games and accessories is the
pivotal driver of company profitability.
Console makers or major developers
license most games, and sales of marquee
games are the most important product to
the industry.
Not the only game in town
Money spent on games in the United
States filters through the various
sectors of the industry to different
operations involved in their release.
Retailing of games generates the largest
share of income for games-related
activities. IBISWorld estimates that the
sale of console games, PC games and
used games generate about 41.4% of
industry revenue.
Development is one of the fastestgrowing sectors for game-related revenue.

Companies are investing increasing
amounts of money in the creation of their
games, particularly those with a
preexisting brand. Therefore, the fees that
developers charge publishers are rising
commensurately. Investment in game
development is becoming fundamental to
competitiveness among publishers, as new
console systems drive up demand, and
quality gaming experiences raise customer
expectations. Game development revenue
has been growing rapidly as a result of this
shift in industry emphasis.
Video game software publishing
(IBISWorld report 51121e) operates in a
similar manner to book publishing:
developers are the authors, but
publishing represents a larger slice of the
software pie than software authoring. As
gaming becomes more common, the
value of brand-name game titles, such as
Halo, Super Mario, Grand Theft Auto
and others are of greater value to the
industry. Their popularity allows
publishers to charge significant amounts
for their distribution, as retailers need
these marquee names on their shelves.
WWW.IBISWORLD.COM
Products & Markets
Products & Services

continued
Products and services segmentation (2014)
8.8%
Accessories
17.2%
41.4%
32.6%
Total $40.9bn
Consoles
These prominent brands are also a

strong driver of retail. Video game
retailing is the largest single segment in
the industry, but is also among the most
volatile, with the purchase of games
closely tied to the release of new console
systems. Historically, the two years
following new consoles emergence on
the shelves is when games are sold in
large quantities. There are various
reasons for this trend, but the prohibitive
cost of new consoles ensures that only
die-hard gamers buy them so early. Also,
programmers and developers require
time to perfect the new language and
styles inherent in making games for a
new system.
For retailers and publishers that
attempt to corner specific niches of the
gaming market, the genres of games that
they produce and sell is crucial. On PCs
(which male gamers are more inclined to
use than female), strategy and roleplaying games are far more popular. This
trend is not only due to demographic
differences, but the mechanics and
practicalities of using a mouse or
keyboard rather than a customized
controller. The point-and-click nature of
the mouse on the PC is perfectly suited to
strategic, real-time games; therefore,
35.4% of PC games are designed to play
that way, while only 2.7% of console

games fall into that category. Attempts to
bring real-time strategy games to console
systems have consistently disappointed
industry operators.
The prevalence of childrens games on
PC also indicates the predilection of
parents to favor the PC as a gaming and
educational offering. Also, since the PC
has been available for longer and boasts
greater penetration across the
population, older Americans are more
comfortable using it rather than a
console. Action games, which cover
everything from platform games to the
Wiis party games, are growing rapidly on
video game consoles, as developers
attempt to target female gamers.
The tendency of parents to favor
playing games with their children is
another factor that is driving growth of
the industry. According to NPD, 93.0% of
parents who play video games have
children who also play them. Nearly half
of the games sold in 2007 held an E
rating, which indicates that the game is
suitable for all ages. Furthermore, the
average age of the game buyer was 40
years old during the same year,
suggesting that many childrens games
are bought by their parents and then
played with them.
WWW.IBISWORLD.COM
Products & Markets
Products & Services

continued
Build it and they will come

To sell games, there needs to be a medium
on which to play them. While consoles are
loss-making enterprises, they also drive
gaming revenue towards those who hold
the rights to the products. And while
games sell in much higher unit volumes
than consoles, the consoles retail at a
much higher price, making them the
second highest product segment in this
industry. The retail, distribution and
development of consoles in the United
States is valued at about $12.5 billion, or
32.6% of all income in the industry. The
development of new console technology
represents about 25.0% of revenue, as
dominance of the console market leads to
the flow of gaming dollars toward that
consoles maker.
With the introduction of the Wii,
Nintendo has significantly altered the
complexion of the console market. In the
past, the console market has been
dominated by two players, such as Sega and
Nintendo during much of the 1990s. This
trend continued with Sony and Microsoft
until 2006 when Nintendo released the Wii,
which has surged to become the most
popular stationary console.
In recent years, Sony has dominated
the market, which is evidenced by the
number of sales of PlayStation 2 (PS2),
which still stands as the most popular
console ever. Sales have remained strong
ever since the release of the next

generation of consoles, since the console
is considered a cheaper alternative. Also,
there is a large stable of games already
made for that system, which are now
cheaper than in the past due to the
presence of newer competitors.
The sale of older games and
encouraging growth in new consoles is
made more appealing to those with older
consoles through backwards
compatibility of new platforms. For
example, this factor means that games
designed for the original Xbox can be
played on the Xbox 360, encouraging
existing Xbox owners to upgrade to the
new system. This technology applies in
different ways to the PS2 and PS3 also.
Handheld consoles have surged in
popularity, with the PlayStation Portable
and Nintendo DS selling in high volumes.
As parents become increasingly time
poor, consumers view handheld games as
an ideal way to keep the kids under
control in the backseat of the car. Also,
this trend ties in with the emergence of
enormous sales of iPods and other
portable music players. Portable
electronic entertainment has
demonstrated resurgent growth for an
increasingly mobile public. These units
and their games sell for considerably less
than their larger equivalents, not
contributing as greatly to overall revenue.
Share of console retail sales

Console
2009
(%)
2010
(%)
2011
(%)
2012
(%)
Wii
PS3
Xbox 360
PSP
DS
PS2
3DS
30.8
13.5
21.8
5.8
23.5
4.7
N/A
28.7
20.3
25.3
4.7
18.2
2.9
N/A
14.6
19.6
39.2
2.8
7.6
1.8
14.4
18.7
17.2
29.5
4.8
13.9
N/A
15.8
SOURCE: VGCHARTZ.COM
WWW.IBISWORLD.COM
Products & Markets
Products & Services

continued
Still, it is a market that the major

companies are focused on controlling.
Online games: the future
While game sales and development and
new consoles are still going strong, the
real story of industry growth is the
move of gamers online. Competitive
and co-operative gaming are simpler
when used in an online format, and
there are more options for gamers such
as expansion pack downloads for
existing games, and online universes
that are growing in popularity, notably
World of Warcraft.
However, above and beyond these
reasons lies the potential for game
publishers and console manufacturers to
corner a guaranteed market share
through online service delivery. For
example, Apples iTunes effect on iPod
sales through proprietary software
demonstrates the possible revenue
streams that can be generated from this
market. If Microsofts Xbox Live service
offered free downloads of games for a
month after purchase, it can encourage
families and friends to buy an Xbox 360,
since they can then share games and play
together. This factor would, in effect,
encourage the purchase of more games
later on.
However, PC games remain the
primary domain of online gaming, since
the infrastructure already exists to play
games via the internet. The use of online
services on consoles is still in its
beginnings, as consoles require a
connection to the internet and payment
of a subscription to a separate online
service on top of internet connection
fees. Revenue from online game
subscriptions is the hottest growth
segment, increasing at an annualized
rate of over 40.0% during the five years
to 2014. In 2009, World of Warcraft
accounted for about half of all online
game subscription revenue, a staggering
feat in a crowded marketplace.
In addition, publishers are

increasingly turning to downloadable
content (DLC) to supplement their
games. Especially for AAA releases,
publishers will develop additional
content for games, such as additional
maps, single-player missions or multiplayer modes, to be sold straight to
gamers for a small fee. Publishers offer
DLC typically over the games website
(for PCs) or console online markets
(such as the Xbox Live Arcade for Xbox
360 or the Playstation Network for the
PS3). Similarly, online distribution
platforms for PCs, namely Steam from
Valve Software and Origin from
Electronic Arts, allow consumers to
purchase full games on their release date
for download straight to their PCs.
Publishers have embraced DLC because
it forgoes the cost of physical media
production, distribution and retailing.
Gamers like to accessorize
The development of accessories is
emerging as a major part of profitability.
The rampant success of games that
incorporate extra equipment such as
SingStar (microphones) and Guitar Hero
(toy guitars) is encouraging greater
investment in this field. Accessory sales
are becoming a popular method of
propping up revenue during slow years,
leading up to the release of new
generation consoles (see Current
Performance section).
The introduction of the Wii, with its
emphasis on the use of the infrared
paddle will likely spur even greater
growth in accessory sales and
development. In particular, its success
with female gamers and the consoles
design lends itself to the development of
numerous accessories. Already, consoles
offer accessories such as DVD remote
controls, steering wheels, joysticks,
guns, the balance board for Wii Fit, the
Wii Fit Mat, covers for various
accessories, guitar controllers and the
WWW.IBISWORLD.COM
Products & Markets
Products & Services

continued
Nunchuk Controller. In 2012, Xbox

360s Kinect was successful at
generating additional revenue for
Microsoft. As more games are designed

specifically with accessory sales in mind,
this segment will continue to grow.
Demand
Determinants
An intuitive analysis of video games,

accessories and consoles would suggest
that it is an industry of luxury goods. This
factor assumes that if belts are tightened
and pennies are counted, people who
were once inclined to splash out money
on a state-of-the-art system may be
persuaded otherwise. However, this
factor does not appear to be the case, and
in its current incarnation, the industry
can weather a recession without too
much damage.
According to the ESAs 2011 report
some of the top reasons why gamers
purchase a computer or video game are
the quality of game graphics, an
interesting storyline, a sequel to a
favorite game, and word of mouth.
who have grown up with consoles are

generally more comfortable with buying
their offspring this form of
entertainment, and they offer more
support than they received themselves.
The tendency to buy children games is
boosted by higher disposable income
levels. Any reduction in disposable
income will likely affect an individuals
propensity to spend on video games.
Falling income levels during the
recession proved the negative effect
lowered disposable income has on the
industrys overall growth. Nevertheless,
the industry rebounded strongly due to
the aforementioned growth in the
potential market.
Customer loyalty to die for

The reason that there is so little volatility
in the industrys incredible growth is the
fact that it is not old enough to have lost
customers. The first commercially
accessible video game console was
released in 1972, and they did not
become commonplace until the early
1980s when Atari released Asteroids.
Those who took up these games as
children or teens are now likely to be in
their 40s.
Year after year, more children have
become new users of video games, and
their parents, who are now veteran
gamers, refuse to cease. Therefore, the
pool of potential game players continues
to grow. However, this factor is not
determining demand itself. Children are
driven to use computer games via a
considerable amount of peer pressure.
Games are still aimed overwhelmingly at
younger players, and children feel driven
to have the most recent consoles. Parents
Catch and release

First and foremost among the industrys
growth drivers is the release of new
consoles. The retail of games and consoles
is spurred by the release of new systems,
as improving technological capacity
improves the overall gaming experience.
Leading up to the release, developers
of games and consoles receive more
funding since there must be sufficient
software ready upon release to justify any
marketing hype. During the years leading
up to the release of a new console,
accessories sales begin to rise. Developers
and publishers work to ensure that
revenue remains buoyant during the lull,
as consumers hold off new purchases
until the product is available. In this
sense, the industry is able to generate its
own demand.
Another technological progression that
has spurred demand for video games has
been improvements in home
entertainment equipment, namely
televisions, stereos and home theater
WWW.IBISWORLD.COM
Products & Markets
Demand
Determinants
continued
systems. As the gaming experience has

become more immersive and cinema like,
the demand for games is enhanced.
Playtime
The availability of time to play games is a
key driver of customers willingness to part
with their cash for new games and
consoles. One of the main reasons that
people may find themselves with more time
to play is an increase in the price of other
Major Markets
alternative entertainments, such as

attending spectator sports, movies and
concerts or buying DVDs, CDs or music
and film online. The propensity to buy
these forms of entertainment, as well as
video games, is one that will be partly
pushed by the national birthrate. Any
noteworthy increase in the number of
younger Americans will likely result in
more spending on entertainment including,
but not exclusive to, video games.
Major market segmentation (2014)
2%
8%
Women older than 45
Women younger than 18 years old
36%
19%
Men 18 to 45 years old
Men younger than 18 years old
Total $40.9bn
6%
Men older than 45
29%
Women 18 to 45 years old
Younger male gamers have

predominantly been the lifeblood of the
industry. However, companies are
beginning to look for fresh markets
among aging gamers and women. Growth
in the womens market segment stalled
for a period during the late 1990s and
early 2000s, as the number of women
happy to play games designed primarily
for men reached a critical mass.
However, recent developments in game
design and marketing have opened up
female gamers as a potential growth
market in the industry.
A study conducted in February and
March of 2011 by market analysis firm
the NPD group shows the shifting tide of
the primary market in the industry.
According to its press release, the highest

number of gamers are still core gamers
those who spend at least 18 hours a
week playing games. However, the study
found that digital gamers, those who
spend more than 16 hours a week in play,
acquired more games over a three-month
period. This study indicates that the
industrys largest consumers may not
have the most spending power.
Female gamers
While existing game titles
comprehensively cater to the young male
(i.e. under 40) demographic, the female
market is currently the focal point. It is
one of the demographic groups that
remain readily available to the industry
WWW.IBISWORLD.COM
Products & Markets
Major Markets
continued
and operators are focusing on women

like never before. They represent 48.0%
of game players, 50.0% of game buyers
and about 39.0% of total revenue
generated by the industry, yet they are a
market segment that this industry was
long renowned for ignoring. A report
recently published by the Entertainment
Software Association showed that women
over 18-years-old now represent a larger
portion of the game-playing population
than boys under 18, previously
considered the main target of video game
developers. Couples play and mobile
gaming have both given female gamers a
boost in numbers. Historical efforts to
attract female gamers were often
considered half-hearted, but over the
past five years, this segment has
increased its contribution to revenue and
developers have been increasingly
focusing on this new target market.
Gamers older than 45
Until recently, individuals who were the
teenaged pioneers of video games 25
years ago were younger than 40 years
old. Today, those gamers are approaching
their mid- to late 40s, with 50 around the
corner. In order to retain those original
fans, games designed specifically to
appeal to older players are most likely the
next (and perhaps final) frontier for
International Trade
The rapid shift of the industry to provide

online content will likely be a main cause
of future reductions in the import level.
The manufacturing of almost all consoles,
games and accessories takes place
offshore and the eventual move to deliver
as many software titles as possible online
means that imports will drop.
Cost-effective manufacturing
The low cost of building consoles and
accessories in Asian countries and the
industrys close ties with Japan has led to
developers and publishers to cross. This

trend has already begun, with Nintendos
DS Brain Age games, and it is expected
to go on as the industry faces a
diminishing number of potential new
customers in the future. This segment is
expected to contribute an increasing
percentage of revenue to the industry as
the young men and women who grew up
playing video games bring their habits
into their adulthood.
Young males
However, despite all of the attention
currently being lavished on female
customers, the vast bulk of gamers
(55.0%) are male and aged younger than
45 years old. Regardless of moves made
by the industrys largest companies to
capture new markets, these male
customers make up the lifeblood of
industry revenue, and they will remain
so indefinitely, with women and adults
only slowly eating away at its
contribution to revenue.
The biggest selling games in the world
in recent years include Halo 3, Grand
Theft Auto IV, Grand Turismo 5 and
Metal Gear Solid 4, which are all
distinctly masculine in their focus. Thus,
video gaming is an industry that still
predominantly caters to the younger
male market.
a great deal of manufacturing taking

place in China, Vietnam and Japan.
While a move to online product delivery
will drop the need to manufacture the
physical media of game discs, the need to
build consoles as cheaply as possible
remains, since they continue to be a
loss-making enterprise.
On a design front, boutique game
design houses exist in nations around the
world, predominantly in Japan and
Europe, and the purchase of intellectual
property from these developers also
WWW.IBISWORLD.COM
Products & Markets
International Trade
continued
comprises part of the industrys imports.

In 2014, imports are expected to account
for about 28.4% of total domestic demand,
at $13.4 billion, up from 21.2% in 2009.
In terms of exports, the industry is
rapidly increasing the rate at which it is
exporting intellectual property. The vast
majority of the worlds largest software

developers, such as Electronic Arts,
Activision and Atari, have major design
offices in the United States, and they are
expected to export about $7.1 billion of
developments in 2014, once again,
primarily to Europe and Japan.
WWW.IBISWORLD.COM
Products & Markets

Business Locations 2014
West
New
England
AK
0.0
Great
Lakes
WA
ND
MT
1.5
Rocky
Mountains
ID
OR
1.2
West NV
0.5
3.3
SD
0.1
WY
0.3
MN
0.1
0.2
Plains
CO
1.4
KY
0.7
OK
0.6
NC
2.8
TN
AZ
NM
2.3
0.6
Southwest
TX
6.5
HI
0.2
Additional States (as marked on map)

1 VT
2 NH
3 MA
4 RI
5 CT
6 NJ
7 DE
8 MD
0.4
1.7
0.4
2.6
3.0
0.2
SC
Southeast
0.4
MS
AL
0.4
0.6
GA
3.8
0.1
LA
0.7
FL
6.0
Establishments (%)
0.6
2.1
AR
0.1
1.6
13.5
WV VA
3.2
0.8
1.8
CA
West
4.2
MO
KS
2.4
OH
1.3
6.4
2.9
IN
IL
0.4
UT
PA
2.8
0.8
0.4
1 2
3
NY
9.8
5 4
MI
1.8
IA
NE
0.1
WI
ME
MidAtlantic
9 DC
0.6
Less than 3%
3% to less than 10%
10% to less than 20%
20% or more
WWW.IBISWORLD.COM
Products & Markets
Distribution of establishments vs. population

30
20
10
Southwest
Southeast
Rocky Mountains
Plains
New England
Mid-Atlantic
Great Lakes
0
West
The West region of the United States

contains the headquarters of Microsoft
and EA and Sonys US base. Silicon
Valley, south of San Francisco, is home
to the greatest concentration of
software designers in the world, while
California has the highest per capita
number of game retail outlets.
GameStop, the nations largest video
games retailer, has more than 50
outlets in the greater Los Angeles area
alone, contributing to this factor.
Beyond the West, there is little by way
of developers or publishers, and retail
outlets are the predominant industry
establishment. The bulk of retail outlets
are GameStop, Electronics Boutique or
Toys R Us. Aside from these outlets,
many department stores, like Sears, also
stock video games.
Many retail industries tend to follow
disposable income trends. While there is
a close correlation between the number
of retailers and population, the ability of
the populace to spend more on luxury
goods such as video games varies with
income levels in different regions. Within
individual states, retail outlets
Business Locations
Establishments
Population
concentrate on urban areas with a high

proportion of young families. While the
demographics of cities are fluid, the
lifespan of an individual game outlet is
brief enough to allow retailers to focus
their operations on regions where
demand will be greatest.
WWW.IBISWORLD.COM
25
Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks

Basis of Competition | Barriers to Entry | Industry Globalization
Market Share
Concentration
Level
Concentration
in
this industry is L ow
Key Success Factors

IBISWorld
identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:
The Video Games industry has a low

market share concentration, with the
top four firms contributing about 36.3%
of total industry revenue in 2014.
Higher concentration exists within each
type of business, though, as GameStop
dominates the retail market; Microsoft,
Nintendo and Sony dominate the
hardware market and Activision
Blizzard and Electronic Arts (EA)
dominate the software market. When it
comes to producing and selling video
games and consoles, reputation and
brand recognition are essential (see
Barriers to Entry). Breaking into the
industry is extremely challenging when
faced with some of the behemoths that
sit astride the peak of the video games
world with strong consumer loyalty.
Activision Blizzard, the fourth-largest
major player, exemplifies the value and
importance of reputation; the Blizzard
division created and publishes the
World of Warcraft, Diablo and

StarCraft game franchises, which have
consistently received top marks from
critics and consumers in every version
to date.
While the development and production
of consoles is unprofitable, it allows firms
to control the licensing and publication of
software from developers and on-selling
it to retailers. The buying power they
wield, and the investment they have
made in producing consoles that sell in
the millions mean that gaining the rights
to develop a game for their systems can
be a major windfall for smaller
developers. The game developers
segment is the most highly fragmented,
with startup costs, operating costs and
required branding far lower. Retailers are
less fragmented than game developers,
profiting from the sale of secondhand
games, consoles and accessories, in
which they have clear dominance.
Ability to quickly adopt new technology

In such a technologically advanced
industry, the reliance on boasting the
highest quality hardware and software is
perhaps the most important selling point.
Having a quality console first to market can
deliver a major competitive advantage.
Economies of scale
Many participants in design, publishing
and retail possess significant economies
of scale, allowing greater investment in
product development.
Downstream ownership links

Companies like Sony, Microsoft and
Nintendo develop consoles and publish
software. This allows the consoles to
drive game revenue.
Establishment of brand names
In tandem with a focused marketing
campaign, brand loyalty to particular
consoles or game developers can boost
sales substantially.
Aggressive marketing/franchising
Given the high level of competition,
promotion is absolutely crucial in
retailing consoles, as consumers have
little means to test the different consoles
against each other.
Development of new products
New products are essential to
maintaining market share. A new product
with superior appeal to the market can
rapidly impinge on sales, such as the
introduction of the Wii.
WWW.IBISWORLD.COM
26
Cost Structure
Benchmarks
The area that industry companies spend

their money on varies greatly, depending
on which segment they operate in. At the
retail end of the supply chain, companies
spend most of their revenue on buying
games, consoles and accessories that they
sell, at low margins, to the consumer.
Meanwhile, developers have substantial
wage and R&D costs and often operate at
a loss.
Purchases are the overwhelming and
predominant cost that the retail segment
faces. Retailers are required to purchase
products that have already experienced
substantial value-adding via
development, publishing and
manufacture. Then, they attempt to sell
them in a highly competitive
marketplace. Since retail constitutes
about 50.0% of all industry revenue,
these high purchase costs are prominent.
However, the need to turn a profit on the
sale of these goods ensures that wages in
retail stores remain low. This factor
stands in opposition to much of the rest
of the industry, where the research and
development focus ensures that highskilled employees are well paid, and
operators spend considerable cash testing
and validating new technology.
The two exceptions to these examples
are the software publishing and online
games segments. Marketing and the
purchase of rights from developers
constitute the bulk of publishers costs,
taking into account that many major
publishers also have software development
operations under the same banner.
Development revenue
Software developers are having their
moment in the sun. The costs that
publishers and retailers face are expected
to go up, as they have been in recent
years. In an effort to maintain the
reputation of major titles, increasing
amounts are being invested in the
development of new releases. An
intensely competitive market means that
a sub-standard game can significantly

devalue the brand of a franchise.
The average cost of developing a game
ranges from $1.0 million to about $20.0
million, though marquee titles are now
commanding development budgets up to
$100.0 million. However, while the
development of hardware is still
increasing in the amounts spent (with
R&D budgets approaching 12.0% of
console segment revenue), it is not a
profitable exercise. Accessories are
increasingly profitable, but the production
of consoles is solely a driver of games
revenue; therefore, it runs at a loss.
Profit moving online
Online gaming services are undeniably
becoming a profitable operation. For the
development costs of one large game, an
initial investment in the requisite server
capacity and minimal staff, massive
multiplayer online games (MMOGs) can
charge a subscription fee to millions. They
generate ever-growing revenue and face
minimal increases in costs. This segment
is one of the most profitable areas in the
industry, particularly since many software
publishers have loss-making enterprises
in console design as well.
For PC-based online games, profit is
taken almost exclusively by the companies
that operate the online systems.
Fortuitously for game developers, these
are often the same company. For example,
Blizzard Software (now part of Activision
Blizzard), which designed Warcraft and its
online successor, World of Warcraft, also
operates the online operations, taking all
profit. Console producers also have a large
share of the online revenue, since they
often publish the software and operate the
online service, such as Xbox Live.
Console makers, rather than game
designers or publishers (though publishers
are often console makers), almost
exclusively take profit from online gaming.
Games are now expected to feature online,
multiplayer functions, and their rights are
WWW.IBISWORLD.COM
27
Cost Structure
Benchmarks
continued
correspondingly more valuable. Beyond

2014, online game providers are projected
to become even more profitable, as existing
titles now have established a loyal
following and regular updates are all that
is required, rather than a new program
entirely. While the specific cost of
producing the game is not public, costs
incurred during 2009 simply involved
maintenance and the development of
small-scale expansion packs. Growing

numbers of subscribers will not require a
commensurate increase in staff, making
each new gamer more profitable than the
last. As the industry becomes more
competitive with other established forms
of entertainment (TV and movies), the cost
of R&D and marketing will rise, limiting
profit growth. However, online firms will
keep reaping big dividends.
Sector vs. Industry Costs
100
Percentage of revenue
80
60
40
20
Average Costs of
all Industries in
sector (2014)
Industry Costs
(2014)
11.2
8.0
20.9
39.5
Profit
Wages
Purchases
Depreciation
Marketing
Rent & Utilities
Other
25.9
7.1
7.0
4.8
23.1
28.9
2.2
12.8
3.0
5.6
Basis of Competition
Level & Trend
ompetition
C
in this
industry is H
ighand
the trend is S
teady
The competitive intensity between Sony,

Microsoft and the resurgent challenger,
Nintendo, is immense. Console sales are
fiercely fought over, in the knowledge
that most gamers will only buy one
console and that every console purchase
represents a near-guarantee of future
game sales. Attaining a competitive
advantage in this all-important battle for
gamers hearts and minds depends on
successfully combining the myriad of

factors that influence a customers choice.
Research and development of new
console technology is the frontline in
winning over potential buyers. Having a
product that can support superior games,
particularly with outstanding graphics
capabilities, can win over undecided
shoppers. In addition, gamers compare
the available game libraries of the various
WWW.IBISWORLD.COM
28
Basis of Competition
continued
Barriers to Entry
Level & Trend
arriers to Entry
B
in this industry
are H
ighand
Increasing
systems before making a purchase, so a

console needs to have a competitive
stable of critically acclaimed games
available in order to claim a significant
share of the market.
Having a product first-to-market is of
equal importance, and a balance must be
struck between spending time refining a
console and releasing it. Once a
consumer has purchased a console, they
will not likely purchase a second, with the
exception of a small proportion of
dedicated gamers. As these loyal gamers
are expected to buy the console anyway,
their dollar is not fought for as bitterly.
Therefore, much of the struggle for
market share is conducted via marketing
campaigns. Informing a potential
customer of the benefits of a certain
gaming system is equally important to
actually having the benefits.
Specialization and name recognition
are also important advantages. A gamer
knows that they can purchase anything
they may need for their console at one
place, so they are automatically inclined
to shop there. There is strong
competition for contracts with the major

publishers, which finance the
development of games. A reputation for
successful and profitable games is
invaluable for smaller developers;
however, a short succession of failed
titles will likely severely hamper efforts to
gain future contracts.
Those assessing the feasibility of starting

up a new venture producing video game
consoles may reconsider the investment
after a closer look at the cost. The
barriers preventing new entrants are
prohibitive. The most recent entrant into
the console segment was Microsoft,
whose Xbox (released in 2001) was able
to claw out a market share due to the
massive financial support that tech giant
Microsoft could put behind it. The cost of
exposing the new technology to a global
marketplace is enormous. Existing
brands of consoles tend to elicit
considerable loyalty from gamers.
The costs of design and manufacture
alone are prohibitive. Microsofts
Entertainment and Devices division had
operating costs of nearly $7.6 billion in
2011. The entry of a company without

substantial experience in electronics and
gaming is unlikely. New developers face
spiraling costs of software development,
with major titles costing between $10
million and $100 million to create.
Meanwhile, a retail outlet such as
GameStop stocks about 4,500 units of
games and 300 units of accessories,
which collectively retail for about
$390,000, not including costs of the
stores rent and design.
Since the inception of the industry
nearly 30 years ago, there have been only
five console manufacturers to achieve
noteworthy market share. These
manufacturers are Atari, Sega, Nintendo,
Sony and Microsoft. While the first three
were pioneers of the technology, Sony
External competition
Among retailers, competition is not so
strident. With the exception of
GameStop/EB, which dominate specialty
retailers, department stores and major
toy stores consider video games to be a
growing sector but still only a fraction of
their total sales offering. Therefore, they
only occasionally use discounted games
to lure customers.
Meanwhile, video game developers
must always compete with other forms
of entertainment. As luxury time
becomes more scarce, consumers must
choose between an increasing number of
ways to spend the time, such as reading,
watching movies, seeing friends, and
playing video games.
WWW.IBISWORLD.COM
29
Barriers to Entry
continued
and Microsoft entered the industry later

on the back of long histories in similar
industries. Similarly, retailers are in the
position to prevent new players from
eating into their market share. The bulk
of retail revenue is earned by large sellers
such as Walmart, Toys R Us or
GameStop. The economies of scale they
possess due to their size allows them to
effectively price new opponents out of the
market and have widely acknowledged
brand awareness in the market.
There is some room in the developers
market for new blood as the demand from
consumers and publishers grows. In order
for a new design house to gain prominence,
they often need to produce a quality game
without any backing from the big names
like Sony or Nintendo, and then they sell
the finished product. This factor requires
an investment that may be beyond new
companies, as the costs of developing
increasingly advanced software on
increasingly advanced hardware grows.
The increasingly widespread use of
motion capture technology in the making
of video games has decreased the cost of
creating the games, and thus, the
barriers. Motion capture is the process of
recording a live motion event and
translating it into actionable data that
allows for a 3D recreation of the
performance. Uniting human and
technological elements, video game
developers compete to produce games of
higher quality with detailed and perfected
aesthetic qualities. For example,
Electronic Arts Inc.s Madden NFL
thrives on the realistic nature of the
game, thanks to technical experts,
Barriers to Entry checklist

Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance
Level
High
Low
Growth
Low
High
Light
None
athletes and stunt players that enact

elements of the game. Creating the video
game using mocap rather than computer
animations saves the company time and
money while expanding on the realistic
features of the game and players.
There are big competitors in software
design as well. Electronic Arts earned
$4.2 billion in 2009, through a
combination of development, publishing
and distribution operations. That kind of
influence allows its games to receive
vigorous promotion, crowding smaller
titles out of the market, unless they are
truly exceptional. Therefore, in order for
small developers to succeed, they need to
find talented designers, programmers,
artists, sound engineers and testers, all of
which drives up the costs of starting out
in this highly competitive marketplace.
Finally, with the rise of smartphones,
games can be made cheaply for the Apple
App Store or Google Android Market by a
small team of developers. Barriers to
entry for the smartphone market are
significantly lower, but the market itself
is substantially smaller as well, in
addition to being highly competitive.
WWW.IBISWORLD.COM
30
in
this industry is
Mediumand the
trend is I ncreasing
International trade is a
major determinant of
an industrys level of
globalization.
Exports offer growth
opportunities for firms.
However there are legal,
economic and political risks
associated with dealing in
foreign countries.
Import competition can
bring a greater risk for
companies as foreign
producers satisfy domestic
demand that local firms
would otherwise supply.
Trade Globalization
200
Going Global: Video Games 2000-2014

Global
Export
150
100
50
0 Local
0
has long established itself as a leader in

the design of award-winning games. The
software development sector is the most
active globally, with domestic game
designers contributing markedly to the
industrys level of exports.
The level of globalization is significant
for developers. Since the United States is
the largest market, there is demand to
design games specifically for the market
(i.e. with American accents and
geographic locations). Alternatively, some
designers are requested to alter games
that are not geographically specific and
tailor them to the appropriate market.
200 Export
Exports/Revenue
Level & Trend

lobalization
G
While the original development of video

games took place in various locations all
over the world, Japan and the United
States have dominated the industry
almost since its inception. All of the large
companies involved in the design of
hardware and software are in those two
countries; these companies include EA,
Sony, Microsoft, Atari, Activision,
Nintendo and Sega. The manufacturing
of almost all hardware in the industry
takes place in Asia, then it is exported.
However, there is a vibrant software
development industry around the world,
particularly in Europe, where Germany
Exports/Revenue
Industry
Globalization
Video Games
40
80
120
Imports/Domestic Demand
Import
160
Global
150
100
50
2000
0 Local
0
2014
40
Import
80
120
160
Imports/Domestic Demand
WWW.IBISWORLD.COM
Major Companies
GameStop Corporation | Microsoft Corporation | Activision Blizzard Inc.

Nintendo Co. Ltd. | Electronic Arts Inc. | Sony Corporation | Other Companies
Major players
(Market share)
Nintendo Co. Ltd. 4.1%

Sony Corporation 3.1%
Microsoft Corporation 11.6%
56.2%
Other
Activision Blizzard Inc. 5.5%

Electronic Arts Inc. 3.3%
Player Performance
GameStop
Corporation
Market share: 16.2%
Industry Brand Names
EB Games
GameStop Corporation 16.2%
Texas-based GameStop Corp., the worlds

largest multichannel video game retailer
and employer of 17,000 people, sells new
and preowned video game hardware,
physical and digital video game software,
video game accessories, mobile and
consumer electronics and other
merchandise. The company operates in a
technology brand segment and four video
game brand segments: United States,
Canada, Australia and Europe. Each of
the segments consists primarily of retail
operations, with all stores engaged in the
sale of new and preowned video game
systems, software and accessories.
Digital products include downloadable
content, network points cards, prepaid
digital and online timecards and digitally
downloadable software. The company
network operates 6,675 stores in the
United States, Australia, Canada and
Europe, primarily under the names
GameStop, EB Games and Micromania.

The United States has 4,249 of those
stores. GameStop also operates Game
Informer magazine, a digital PC game
distribution platform, and an online
consumer electronics marketplace.
Since GameStop and Electronics
Boutique (or EB Games) merged in 2005,
later acquiring Micromania, Frances
Leading Video Game Retailer, the entity
has been successful. The growing video
games industry has created greater
awareness of the benefits of shopping at a
specialty video games retailer, which has
helped GameStop advance at an
extraordinary rate, beyond growth from
the merger. Over the past five years, the
company has made other significant
acquisitions, including the 2010 purchase
of Kongregate Inc., the operator of an
online video gaming site that offers
free-to-play video games and the 2012
GameStop Corporation (US video games segment) financial

performance*
Revenue
($ million)
(% change)
Operating Income
($ million)
(% change)
2009-10
6,233.6
-3.6
437.4
-17.5
2010-11
6,681.2
7.2
530.8
21.4
2011-12
6,637.0
-0.7
501.9
-5.4
2012-13
6,192.4
-6.7
501.9
0.0
2013-14
6,160.4
-0.5
465.3
-7.3
2014-15
6,607.6
7.3
466.3
0.2
Year**
*Estimates, **Year-end February

SOURCE: ANNUAL REPORT AND IBISWORLD
WWW.IBISWORLD.COM
Major Companies
Player Performance
continued
purchase of BuyMyTronics, an online

consumer electronics marketplace.
Financial performance
The release of the previous generation of
consoles (Xbox 360, Wii and PS3)
delivered strong sales growth, selling in
record numbers. The sale of accessories
is also a growth sector, as a specialty
store can stock a wide variety of goods.
The primary reason behind GameStops
dominance is its control of the
secondhand market. The continued
viability of older consoles despite the
release of newer generations, is a
contributing factor to the sale of used
games and consoles.
Player Performance
Microsoft
Corporation
Market share: 11.6%
Xbox 360
Kinect
Halo
Founded by Bill Gates in 1975, Microsoft

Corporation boasts overall revenue of
about $77.9 billion in fiscal 2013.
Headquartered in Seattle, Washington,
the company employs 99,000 people on a
full-time basis, 58,000 of them in the
United States. Microsoft operates in five
segments: the Windows division, which
develops and markets operating systems;
server and tools, focused on software and
cloud-based services; online services,
with offerings such as Bing and MSN; the
Microsoft business division, which
develops and markets the Microsoft
Office system; and the entertainment and
devices division (EDD), which develops
video games (the Xbox) as well as Skype
and Windows phone.
Prior to 2008, Microsoft had yet to
convert the success of the Xbox 360 into
a profitable operation, since the costs of
developing products overshadowed
income derived from sales and licensing.
Increasing costs of manufacturing Xbox
consoles also counteracted some of
Microsofts revenue growth. Microsoft
expected to dominate the console
market with the Xbox 360, but the
unexpected success of Nintendos Wii
Although net sales for fiscal 2014

decreased 0.5% compared with fiscal
2013, the decrease was primarily due to a
decrease in the number of domestic
stores. The increase in comparable store
sales was primarily due to a significant
increase in hardware units sold due to
the launches of the Microsoft Xbox One
and the Sony PlayStation 4 in November
2013. Over the five years to fiscal 2015,
revenue is expected to increase an
average annual 1.2% to $6.6 billion. The
slow growth is partly due to the
companys decision to abandon its Spawn
Labs business in 2013, as well as a
decline in sales prior to the launch of the
next generation consoles.
caused a loss for the EDD segment of

nearly $1.9 billion globally in 2007.
Nevertheless, the Xbox 360 surged in
popularity in fiscal 2008, leading to a
33.7% revenue increase for Microsofts
video game segment.
In fiscal 2014, Microsoft released its
next generation console, the Xbox One.
This new console faces fierce competition
from Microsoft traditional competitors
Nintendo and Sony, but also from Apple
and Google in the area of content
products and services to the customer.
Most of manufacturing activities for the
Xbox 360 and related games are
contracted to third parties such as IBM.
Microsofts overall entertainment and
devices division (EDD) generated $10.2
billion in 2013. EDD revenue increased in
fiscal 2013 but this success was driven by
Windows phone and Skype, while Xbox
360 revenue decreased significantly.
Video game revenue was already in
decline in fiscal 2012. Revenue declined
over 2009 and 2010 due to falling
disposable income and increased
competition. However, the increasing use
WWW.IBISWORLD.COM
Major Companies
Player Performance
continued
of Xbox Live to download content

increased the divisions profitability, due
to the low costs of distributing software
over the internet. In fiscal 2011, industry
revenue jumped as a result of the
successful Kinect peripheral device for
the Xbox 360, released in November
2010, Kinect game software and the

release of a major proprietary title under
the Halo franchise. Over the five years to
2014, revenue is expected to increase
10.2% to $4.7 billion, with the release of
the Xbox One in the second quarter of
fiscal 2014.
Microsoft Corporation (US video games segment) financial

performance*
Revenue
($ million)
(% change)
Operating Income
($ million)
2008-09
2,903.1
N/C
158.8
N/C
2009-10
2,815.4
-3.0
239.4
50.8
2010-11
3,875.6
37.7
548.2
129.0
2011-12
3,641.7
-6.0
144.2
-73.7
2012-13
3,239.1
-11.1
270.2
87.4
2013-14*
4,728.5
46.0
370.5
37.1
Year**
(% change)
*Estimates, **Year-end June

Player Performance
Activision Blizzard
Inc.
Market share: 5.5%
Warcraft
StarCraft
Diablo
Guitar Hero
Call of Duty
World of Warcraft
Activision Blizzard is a worldwide

publisher of online, PC, video game
console, handheld, mobile and tablet
games that employs about 6,900 people.
Activision Blizzard operates its business
in three distinct operating segments:
Activision Publishing, Inc., which
publishes interactive entertainment
software products and downloadable
content; Blizzard Entertainment, Inc.,
which publishes real-time strategy
games, role-playing games and online
subscription-based games; and Activision
Blizzard Distribution, Inc., which handles
logistics and licensing of Activision
Blizzard titles in Europe. Activision
Blizzard was formed July 9, 2008, with
the merger of Activision and Vivendi
Games, of which Blizzard Entertainment
was the largest asset. Each division
continues to operate in a largely
independent manner.
The two publishers have different

business models. Activision licenses and
publishes the Call of Duty and Skylanders
franchises. A substantial portion of
Activisions development efforts are
invested in the development of sequels,
expansions and special editions of these
popular franchises, although further
expansions of the Guitar Hero franchise
have been canceled. In October 2013,
Activision launched Skylanders SWAP
Force, the third title of the franchise
which now includes smart toys. This
strategy is very similar to Activisions
rival, Electronic Arts (EA), which
publishes the Madden series of football
games for console systems. Activision
and EA frequently license and publish
games developed by small independent
development studios in hopes of finding
the next big thing. This strategy results in
very stable revenue streams overall,
WWW.IBISWORLD.COM
Major Companies
Player Performance
continued
though many games do not sell well or

receive critical acclaim. Blizzard, on the
other hand, has fewer overall releases
that are generally met with high
commercial and critical success. The
merger combined Activisions regular
succession of familiar titles and Blizzards
massively multiplayer online games
(MMOG) business providing internal
financing for more speculative projects.
World of Warcraft is the most
financially successful example of the
massively multiplayer online role-playing
game (MMORPG) genre exploited by
Blizzard, which uses a highly unorthodox
business model. In September 2013,
Blizzard released Diablo III for the PS3
and Xbox 360, and confirmed plans to
adapt the game to the PS4. In addition, it
also maintains a proprietary online
gaming service, Battle.net, of which it
provided a new version in 2010.
Traditionally, video game publishers earn
revenue on their games through licensing
fees and in-store sales. With MMO
games, players pay a monthly fee for
access to the game, which is partially
used to fund ongoing additions to the
game and server maintenance. This new
business model can significantly improve
profitability for publishers because
players play and pay for these games for
much longer periods of time than

traditional single-player games; the
constant stream of new content,
combined with the social aspect of
playing in a game populated largely by
other players, has spurred MMO games
popularity. Furthermore, the periodic
updates of games are far less laborintensive and less costly than developing
a game from scratch.
Financial performace
Activision Blizzard is one of the largest
US-based video game and PC game
publisher. Activisions headquarters and
main studio are in Santa Monica, CA,
while Blizzards studio is located in
Irvine, CA. Since the company does not
release video game software sales in the
US, industry-specific data is estimated. In
2013, Activision Blizzard brought in
global revenue of $4.6 billion, with North
America accounting for 52.7% of sales. As
of December 2013, the Call of Duty,
Skylanders and World of Warcrafts
franchises combined accounted for
80.0% of overall revenue, 8.0% more
than in 2012.
In November 2012, the company
achieved the largest entertainment launch
in history with the release of Call of Duty:
Black Ops II, which earned $5,000 million
Activision Blizzard Inc. (US video game software publishing segment)

financial performance
Year
Revenue
($ million)
(% change)
Net Income
($ million)
2009
1,995.3
N/C
-12.1
N/C
2010
2,168.1
8.7
228.7
N/C
2011
2,164.5
-0.2
604.5
164.3
2012
2,192.4
1.3
655.1
8.4
2013
2,172.6
-0.9
650.4
-0.7
2014*
2,232.8
2.8
473.1
-27.3
(% change)
*Estimates
WWW.IBISWORLD.COM
Major Companies
Player Performance
continued
worldwide in revenue within 24 hours.

This broke the previous record, held by its
predecessor, Call of Duty: Modern
Warfare 3. The strong performance of the
Call of Duty franchise gave a significant
boost to the companys profit margin. In

the five years to 2014, Activision Blizzards
industry-specific revenue is expected to
increase an annualized growth rate of
2.3% to $2.2 billion.
Player Performance
The Nintendo Wii and DS represent a

seismic shift in the makeup of console
and game sales. Nintendo, the once
undisputed market leader in console
sales and games publishing, retreated
from the US market when Sony and
Microsoft upset the established Sega
versus Nintendo dynamic of the 1990s.
The Nintendo Entertainment System,
Super Nintendo Entertainment System
and Nintendo 64 were the preeminent
gaming consoles for a decade, across
three generations of gaming systems.
However, when the PlayStation 2 (PS2)
and Xbox emerged, consumers loyalty
shifted and Nintendo focused on its
Japanese operations for several years
before reemerging with the successor to
the GameBoy, the DS, in late 2004. It
sold more than 21 million units by
mid-2008 and has since passed the
GameBoy as the second-most popular
console, selling more than 150 million
units worldwide and trailing only the PS2
in all-time popularity. The DS
reestablished the Nintendo brand in
preparation for the arrival of the Wii.

Sporting a revolutionary controller
system vastly different from the twohanded, joystick-based controllers of
other consoles, the Wii approached
gaming from an entirely new direction,
positioning the Wii as a communal party
console in the traditionally individualfocused video game market.
The Wii threatened the accepted
paradigm of console gaming, where there
were only two major systems available.
Wii games are less sophisticated than
their competitors, but their simplicity has
broadened the audience for video games,
substantially expanding the industry and
the companys growth. Not only did the
Wii console boost hardware sales for
Nintendo, but it also bolstered the
companys presence in the video game
software publishing industry. Nintendo
publishes a number of video game titles
for the Wii and its other consoles,
including six of 2010s top 10 titles in the
United States: Wii Sports, Wii Sports
Resort, New Super Mario Brothers, Wii
Nintendo Co. Ltd.

Market share: 4.1%
Nintendo Wii
Nintendo Wii U
Nintendo DS
Nintendo DSi
Nintendo DS Lite
Nintendo 3DS
Nintendo Co. Ltd. (US video games segment) financial performance*

Revenue
($ million)
(% change)
Operating Income
($ million)
(% change)
2008-09
7,361.3
21.7
2,223.1
-2.9
Year**
2009-10
6,222.3
-15.5
1,546.8
-30.4
2010-11
4,326.3
-30.5
729.7
-52.8
2011-12
2,745.2
-36.5
-183.1
N/C
2012-13
2,259.9
-17.7
-25.2
-86.2
2013-14
1,693.9
-25.0
-6.7
-73.4
*Estimates, **Year-end March
WWW.IBISWORLD.COM
Major Companies
Player Performance
continued
Player Performance
Electronic Arts Inc.
Market share: 3.3%
Madden NFL
Battlefield
The Sims
BioShock
Fit Plus, Pokemon Heart Gold and Super

Mario Galaxy.
In the years since the Wiis release,
Nintendos US video game segment
dropped in both total revenue and
operating income, as the Wii console
became outdated and the market
reached saturation. Revenue dropped
again over fiscal 2013, as the Wii

slipped further out of date and Wii U
sales remained weak. Nintendo
resisted the advance of the smartphone
and refused to license popular games
like the Mario franchise for mobile
use. This expected drop is expected to
lead to an annualized revenue decline
of 25.5% to $1.7 billion in the five
years to fiscal 2014.
Founded in 1982 as an early pioneer of

home gaming, Electronic Arts Inc. (EA)
has grown to become one of the largest
developers and third-party publishers of
gaming software in the world. EA owns
the rights to numerous valuable gaming
brands, including wholly-owned brands,
such as Battlefield, and brands based on
licensed intellectual property.
EAs US video game software
publishing revenue closely depends on
the success of the games they develop or
release. Weak years in fiscal 2010 and
2011 caused revenue declines of 15.4%
and 10.0%, respectively. In fiscal 2012,
popular games such as Madden NFL 12,
Battlefield 3 and Need for Speed: The
Run buoyed the company to a relatively
strong year, as revenue grew 8.5%.
However, this growth does not accurately

indicate the health of the company.
Deferred costs relating to packaged goods
and digital content had a notable effect
on overall costs for the year, indicating
the companys continued focus on
gaining a share of the online market. This
trend has continued in 2013 as the
companys net revenue declined again. As
of March 2014, total net revenue
amounted to $3.6 billion, supported by
FIFA 13, Battlefield 3 and FIFA 12.
The release of the Wii U by Nintendo
and the announced release of the PS4
and Xbox One will require the
development of adequate technologies
and accurate prediction of which
platforms will be successful. The
increasing appetite for interactive
Electronic Arts Inc. (US video game software publishing segment)

financial performance*
Year**
Revenue
($ million)
(% change)
Net Income
($ million)
(% change)
2008-09
2,170.8
24.2
-426.2
83.7
2009-10
1,836.0
-15.4
-344.7
-19.1
2010-11
1,652.4
-10.0
-143.6
-58.3
2011-12
1,791.9
8.4
15.1
N/C
2012-13
1,530.9
-14.6
48.8
223.2
2013-14
1,359.0
-11.2
12.5
-74.4

WWW.IBISWORLD.COM
Major Companies
Player Performance
continued
Player Performance
Sony Corporation
Market share: 3.1%
PlayStation
PlayStation 2
PlayStation 3
PlayStation Portable (PSP)
PlayStation Network
(PSN)
PlayStation Vita (PS Vita)
entertainment available online has

significantly increased the revenue
derived from Internet-derived products
and services.
In response to a growing concentration of
sales among the most popular games in
the industry, EA has reduced the number
of games it produces in order to focus on
its most promising intellectual
properties. EA produced 11 titles for
consoles in fiscal 2014, compared with 30
in 2011. The company has been engaged
in an aggressive campaign of acquisition
and consolidation since 2008.
Acquisitions include Playfish, a leading
creator of social network games;
Chillingo Ltd., a leading independent

games publisher; KlickNation, developer
of free-to-play social role-playing games;
Firemint Pty Ltd., the leading
independent mobile development studio;
and PopCap Games, a leading provider of
games for mobile phones, tablets, PCs
and social network sites. Over the five
years to fiscal 2014, IBISWorld expects
EAs industry-specific revenue declined
an average 8.9% per year to reach $1.4
billion. Deferred net revenue associated
with sales of online-enabled games
directly decreased the amount of
reported net revenue during the fiscal
year ended March 31, 2014. Net revenue
for fiscal year 2014 was driven by FIFA
14, FIFA 13 and Battlefield 4.
Sony is engaged in the development,

design, manufacture and sale of various
kinds of electronic equipment,
instruments and devices, as well as game
hardware and software. The company
operates under five segments: imaging
products & solutions (IP&S), game,
mobile products & communications
(MP&C), home entertainment & sound
(HE&S) and devices segments, as well as
all other. Sony Computer Entertainment
is Sonys subsidiary focused on research
and development, production and sales
of video game hardware and software.

Sony Computer Entertainment America
LLC markets and distributes the products
in the United States.
Since the US release of the original
PlayStation console in 1995, Sony has
established itself as a leader in the highly
competitive console market. The company
has concurrently generated massive sales
through the publishing of game titles such
as the Gran Turismo, Grand Theft Auto
and Final Fantasy series. Sony faced the
risk of other consoles matching the
Sony Corporation (US video games segment) financial performance*

Revenue
($ million)
(% change)
Operating Income
($ million)
(% change)
2008-09
2,310
-12.9
-114
28.1
2009-10
1,999
-13.5
110
N/C
2010-11
1,872
-6.4
45
-59.1
2011-12
1,839
-1.8
36
-20.0
2012-13
1,178
-35.9
2.0
-94.4
2013-14
1,256
6.6
-13.1
N/C
Year**
WWW.IBISWORLD.COM
Major Companies
Player Performance
continued
Other Companies
PlayStations popularity and its

competitive advantage diminishing. After
the PS3s release was delayed due to
finalizing design and technical
specifications, it was a year behind the
release of major competitor Microsofts
Xbox 360. As a result, Microsoft gained a
substantial advantage in building brand
awareness, customer loyalty and a
repertoire of games. However, strong
demand for specific PlayStation 3 games
has allowed the console to catch up.
The release of the PlayStation 4, Sonys
next generation computer entertainment
system in November 2013 makes it the

direct competitor of Nintendos Wii U
and Microsofts Xbox One. The new PS4
includes cloud technology which enables
users to stream video content on the
Internet. The launch has been successful,
with 7 million units sold worldwide as of
April 2014, boosting Sonys games sales
significantly in 2014. Industry specific
revenue is expected to decrease an
average annual 11.5% in the five years to
2014. A 6.6% increase in 2014, however,
will bring revenue back to an estimated
$1.3 billion, primarily due to the launch
of the PS4 as well as the favorable impact
of foreign exchange rates.
Gaming revenue for large stores with a

variety of goods is expected to be robust
in the future, as accessory sales, in
particular, prove to be a valuable profitmaking endeavor, with higher margins
than most retail offerings. Stores like
Toys R Us and Walmart have been selling

video games, consoles and accessories,
although their electronic games segments
have suffered from gamers switching to
digital purchases in the form of
streaming or downloadable games.
WWW.IBISWORLD.COM
Operating Conditions
Capital Intensity | Technology & Systems | Revenue Volatility

Regulation & Policy | Industry Assistance
Capital Intensity
Level
The level
of capital
intensity is L ow
Investing in the Video Games industry is

a variable proposition. Retailers have
little in the way of capital investment,
and even less when it comes to video
game-specific capital costs. Software
publishers also have negligible capital
investment, with no production costs, but
the distribution and marketing of games
take up the bulk of revenue. For every
dollar spent on salaries and wages, about
$0.08 is spent on capital.
Online game providers need to
maintain substantial server networks
that allow millions of players to
participate without experiencing poor
performance. Server banks are typically
kept in relatively remote areas, since
they consume considerable energy and
Capital intensity
Capital units per labor unit

0.5
0.4
0.3
0.2
0.1
0.0
Economy
Information
Video Games
Dotted line shows a high level of capital intensity

space. Rapidly improving technology

forces companies to regularly update
Tools of the Trade: Growth Strategies for Success

Investment Economy
Recreation, Personal Services,

Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labor skills are key to
product differentiation.
Information, Communications,
Mining, Finance and Real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.
Video Games
Traditional Service Economy

Wholesale and Retail. Reliant
on labor rather than capital to
sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.
Capital Intensive
Labor Intensive
New Age Economy
Computer Peripheral Manufacturing

Toy & Craft Supplies Wholesaling
Old Economy
Consumer Electronics Stores
Agriculture and Manufacturing.
Audio & Video
Equipment
Traded goods can be produced
Manufacturing
Computer
using cheap labor abroad.
Manufacturing
To expand firms must merge
or acquire others to exploit
economies of scale, or specialize
in niche, high-value products.
Change in Share of the Economy
WWW.IBISWORLD.COM
Capital Intensity
continued
their servers as well. While not needing

the same investment, developers have a
greater need for capital expenditure.
State of the art computing equipment is

required for the design and testing of
new software.
Technology
& Systems
The Video Games industry encompasses

the production and distribution of video
games, but important technological
advances also occur in the medium itself.
This section describes the state of the art
in each of these segments.
programmer or two, a sound designer,

and a number of artists drawing the
sprites (2-dimensional entities) that
would be included in the game, the 3D
production process allows for the deskilling and compartmentalizing of every
aspect of a game. Programming now
consists of engine programmers, who
write the code that translates the abstract
data into its visual representation;
network programmers, who enable
games to communicate with one another;
gameplay programmers, who determine
how the game is represented within the
engine; tools engineers, who write the
programs which enable other workers to
do their jobs; and scripters, who may
program artificial intelligences or other
in-game elements such as in-engine
cut-scenes. Elements of the engine, such
as physics or particles or procedural
vegetation generation, can be purchased
and integrated into a proprietary engine
or one licensed from another game
development company.
Visual production has been broken
down into a number of specialties as a
result of the transition to 3D gamemaking. Assets, the industry term for any
3D element such as a character or object,
are developed by modelers, texture
artists, riggers (who prepare models for
animation,) and animators. Works in
process are referred to as being in the
pipeline, the digital equivalent of Henry
Fords assembly line, but one in which
multiple workers can work on different
phases of the same asset simultaneously.
At smaller scales of production,
mid-sized games tend to utilize advanced
production pipeline processes, but are
less prone to shop out production to
scores of workers, instead employing
Level
The level
of
Technology
Change is H
igh
Production
These last ten years have ushered in the
age of the mega-game; video games with
budgets of $100 million and massive
marketing pushes designed to break
single-week sales records. Call of Duty:
Black Ops is a recent example of this
phenomenon, selling 8.4 million copies
in its first month, and eventually earning
$1 billion in sales. Not incidentally, the
onslaught of the mega-game coincided
with the rise of the dedicated 3D graphics
processor, a piece of hardware
independent of the central processing
unit with its own processor and memory,
whose only purpose is to rapidly render
3D scenes usually between 30 and 60
times per second. First popularized by
the Voodoo line of graphics cards in the
late 90s, dedicated 3D processors
(nowadays routinely referred to as
graphical processing units, or GPUs) are
now standard for any system designed to
play video games, and even new mobile
devices for whom gaming is not their
target niche.
Early gaming was not threedimensional for the most part but once
the hardware became feasible the
industry quickly adopted it, to the
exclusion of almost anything else. The
reason is economic; 3D games, as
opposed to 2D games, can be developed
at a far more distributed level of
assembly. Whereas with 2D games, a
production team might consist of a
WWW.IBISWORLD.COM
Technology
& Systems
continued
smaller teams with more individual

responsibility. Smaller teams generally
allow for more creative expression, as
artistic vision does not have to be shared
across so large and disparate a group.
However, the final quality is more heavily
dependent upon a single or small group
of individuals, which can create the
perception that the enterprise is more
risky. They often lack the marketing
muscle to guarantee a minimal return on
investment the way blockbuster games
and movies can.
Next are the independent developers.
Independent development has blossomed
in recent years thanks to the development
of low-cost or free tools, internet-based
distribution systems, and new mobile
platforms such as smart phones and
tablets which lend themselves to lowbudget casual-gaming. Most germane to
this section are those development tools,
such as Unity 3D, and managed
frameworks designed to encourage
development for nascent platforms or
markets, such as the Android or Xbox
Live marketplace.
Distribution
Distribution has adapted to the internet,
though not overwhelmingly so. Game
publishers have been reticent to fully
embrace online distribution out of fear
that bundling their product in a manner
that is easily distributed via the public
network will in turn create a product that
will lend itself to piracy, a major concern
of the industry. Digital rights
management (DRM) software has been
developed which is designed to preclude
piracy, but often results in a diminished
quality for the final product. Pirated
games with the DRM removed often
perform better than their encumbered,
legal counterparts.
Online distribution of PC games is
largely concentrated in the Steam
platform, developed by Valve Software,
the developers of the Half Life series of
video games. Steam was estimated in

2009 to control 70% of the online PC
game distribution market, and sells
games from Activision, Take Two, and
Electronic Arts, among other major and
independent producers.
Each of the major consoles offers its
own marketplace for the purchase of
downloadable content typically addons for purchased games or original
independent games. Sony does so via its
PlayStation Network, Microsoft via Xbox
Live, and Nintendo via its Wii Shop
Channel. Similarly, the mobile device
market has implemented its own
distribution hubs, albeit segmented by
operating system. Apple devices have
access to the iTunes App Store, Android
devices can access the Android
Marketplace, and BlackBerry devices can
access the BlackBerry App World.
Distribution of console games, which
makes up most of industry revenue, is still
primarily done via the retail distribution
of physical game discs. Of the current
generation of consoles, both the Nintendo
Wii and the Microsoft Xbox use DVDs as
their disc media, while Sonys Playstation
3 uses Sonys proprietary Blu-ray discs,
which can contain significantly more data
than DVDs.
Gameplay
In response to a staid market and public
claims of links between video game
playing and childhood obesity, input
devices which interpret full-body
movement have become more prominent.
The first to market was Nintendos
Wiimote, which utilized a gyroscope and
accelerometer to measure movement, as
well as a sensor bar designed to track
infrared light emitted by the Wiimote for
precise aiming. Sony emulated this with
the Playstation Move, which featured
almost identical functionality, albeit with
a multi-purpose digital camera instead of
the simpler sensor bar. Microsoft
responded most recently with the Kinect,
WWW.IBISWORLD.COM
Technology
& Systems
continued
which dispenses with the hand-held

device and instead relies entirely upon its
binocular sensor which tracks movement
via a standard camera and a second depthfinding camera. While these devices have
sold well, they have not gained significant
traction with game-makers. The games
that do make use of the devices are
generally simplistic, arcade-type games,
with the physical movement designed to
directly translate to the action of an
on-screen avatar, albeit less reliably than
standard input devices.
Another emerging technology with the
potential to dramatically affect game
development is 3D. Not 3D images
projected on a 2-dimensional surface like
a TV screen, but sending unique
information to each eye so that the viewer
perceives the game as fully
3-dimensional. Three-dimensional
televisions already exist, although many
require special glasses which can be
expensive and painful to wear for
extended periods. Nintendos newest
handheld device, the Nintendo 3DS,
features autostereoscopy it does not
require any glasses to perceive its 3D
images. Titles such as Super Mario 3D
Land have received glowing reviews,
though the technology has not yet
received the fanfare or emulation that its
Wiimote did.
Online connectivity has continued to

be a major technological component of
gaming. Online gaming against other
humans is more engaging than gaming
against computer-driven artificial
intelligences, and can build communities
which can themselves act as attractive
elements, if not outright marketing
engines. Subscription-based online
games also have the benefit of generating
consistent revenue streams rather than
lump payments, making cash
management for publishers much easier,
while generating significantly more
revenue overall. Online games are
typically hosted on one of the players
computers, a dedicated server which may
accept payments for guaranteed slots on
the server, or the publishers servers. The
latter case is most prevalent when the
game requires a persistent world or more
simultaneous users than a single
customers computer could be expected
to host. Both of these are the case in
massively multiplayer online role playing
games (MMORPGs) such as
Blizzard|Activisions World of Warcraft.
Dedicated servers are more prevalent
among team-based first-person shooters,
where they can typically handle up to 40
simultaneous users. Client/servers are
more common in one-on-one games such
as console-based fighting games.
Revenue Volatility
Industry revenue is moderately volatile and

closely tied to technological advances; new
console releases cause a surge in growth as
early adopters, then other consumers,
upgrade to improved products. At the same
time, a raft of new game software is
released onto the market in the year after a
consoles release, further boosting revenue
growth. In the two years leading up to the
release of a new generation of consoles
(which are released around the same time
in order to lock in market share), sales
begin to slow, as secondhand game sales
gain popularity and many gamers hold off

on major purchases in anticipation of a
new console. Accessories sales have
mitigated this somewhat, since they can
provide a new dimension for existing
games, but the industry still retains a
distinct four- to six-year cycle.
Developers have less volatility, because
investment in new technology is ongoing.
Indeed, the years leading up to the
release of a new console are furiously
innovative for developers, which devise
the new systems. However, game
Level
The level
of
Volatility is M
edium
WWW.IBISWORLD.COM
developers are often busy working in

tandem with the console companies
(which often double as game publishers)
to ensure that there is a library of
compatible games ready for release with
A higher level of revenue
volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilized
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.
the console. Since retail is such a

significant slice of revenue in the
industry, this cyclical nature ensures
some measure of volatility for all those
involved in interactive gaming.
Volatility vs Growth
1000
Revenue volatility* (%)
Revenue Volatility
continued
Hazardous
Rollercoaster
100
10
Video Games
1
0.1
Stagnant
30
10
Blue Chip
10
30
50
70
Five year annualized revenue growth (%)

* Axis is in logarithmic scale
Regulation & Policy

Level & Trend
he level of
T
Regulation is
Lightand the
trend is S
teady
Overall, the industry faces minimal

regulation. It subscribes to a voluntary
ratings system, much like the movie
ratings system. These ratings are
instituted by the Entertainment Software
Ratings Board, which was created in 1994.
The ratings are geared for several age
groups. Early Childhood (EC) is used for
content suitable for young children who
are three years old and older. These games
have no material that parents would find
inappropriate. They are often educational
and aimed specifically at that age group.
Everyone (E) is a rating for games with
content suitable for children over five
years old. Everyone 10 and up (E10+)
includes some content considered
unsuitable for children under 10 years
old. There may be mild language,
occasional blood or some suggestiveness.
The Teen (T) rating is for children over 12
years old. There may be some violence,
language or gambling. Before the
introduction of E10+, this was the default
for games over E. Games that are

considered inappropriate for those under
17 years old are rated Mature (M). These
games may contain explicit and intense
violence, gore, sex, language or drug use.
Finally, Adults Only (AO) is for those
over 18 years old. Games rated AO may
include pornographic games or have
extreme violence or language.
Online games are exempt from these
ratings, since online characters are
controlled by other gamers; therefore,
cannot be rated. These games often come
with a disclaimer warning that the game
has not been rated. Ratings were
introduced for games as a result of
growing consumer backlash against
perceived violence in games. The fact that
games are interactive has raised concerns
concerning their effect on society. While
there are no conclusive studies to prove
or disprove that theory, game ratings will
likely become an increasingly important
part of the Video Games industry.
WWW.IBISWORLD.COM
Industry Assistance
Level & Trend
he level of
T
Industry Assistance
is N
oneand the
trend is S
teady
The industry receives no assistance from

the government or its agencies. It does,
however, have a US association dedicated
to serving the business and public affairs
needs of video game publishers. The
Entertainment Software Association (ESA)
offers services such as a global content
protection program, business and
consumer research, government relations
and intellectual property protection efforts.
The Video Games industry faces
several federal issues such as copyright
protection, regulation of violence in the
media, trade and internet regulation.
Industry operators depend upon the
enforcement of copyright laws to protect
their work. The ESA is actively involved
in policy debates on relevant issues. For
example, the ESA opposed the Copyright
Acts First Sale doctrine that allows the
owner of a particular lawful copy of a
work to sell or dispose of that copy
without the permission of the copyright
owner, allowing wholesalers, libraries

and individuals to see or lend their own
copies. The ESA also opposes the Fair
Use doctrine of the Act that allows
limited uses of copyrighted materials in
ways that would otherwise be an
infringement of copyright.
The ESA opposes efforts to regulate
the content of video games, including
their sales, rating systems and marketing.
It also attempts to work with
congressional staff to obtain intellectual
property protection and enforcement
from foreign countries. In 2011, the
Supreme Court ruled in the case Brown v.
EMA/ESA, striking down a 2005
California law that regulated the sale and
rental of computer and video games,
barring the sale or rental of violent video
games to people under the age of 18.
Several Federal Courts have agreed that
video games are a form of art, entitled to
First Amendment protection.
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Key Statistics
Industry Data
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank
Industry
Revenue Value Added Establish($m)
($m)
ments
30,696.7
15,164.1
20,808
34,540.2
17,062.8
21,970
38,737.2
19,136.1
23,287
42,950.7
21,217.6
24,612
39,399.6
19,463.5
26,662
35,944.6
17,756.6
39,700
35,776.7
17,673.7
52,871
35,602.9
17,587.9
63,255
39,206.7
19,368.1
84,419
40,877.4
20,193.4
98,715
42,103.7
20,799.2
104,394
43,408.9
21,444.0
115,348
44,667.8
22,065.9
121,717
46,365.2
22,904.4
126,708
47,385.2
23,408.3
131,523
10/91
8/91
2/91
242/1288
146/1288
99/1287
Enterprises Employment
4,060
72,539
4,462
83,523
4,886
100,359
5,363
113,601
6,060
118,032
9,564
124,403
14,570
134,541
16,483
144,797
26,318
156,539
29,514
170,018
31,710
168,210
36,192
157,788
38,162
162,678
39,284
170,487
40,502
176,965
4/91
9/91
196/1287
238/1288
Exports
($m)
3,856.2
4,393.9
4,868.4
5,238.8
5,407.5
5,509.1
5,787.7
6,168.6
6,689.7
7,118.9
7,639.3
8,139.6
8,672.8
8,898.3
9,085.2
1/8
56/397
Imports
($m)
6,979.0
7,479.0
8,288.9
9,236.8
9,162.9
10,386.8
10,884.9
11,601.2
12,581.2
13,388.3
14,367.0
15,308.0
16,310.7
16,816.3
17,371.3
1/8
44/398
Wages
($m)
6,562.6
7,476.7
9,031.6
10,298.2
10,974.5
11,786.1
12,678.2
13,721.6
14,942.6
16,164.3
15,942.2
15,976.8
16,882.3
18,553.6
20,056.5
5/91
112/1288
Domestic
Demand
33,819.5
37,625.3
42,157.7
46,948.7
43,155.0
40,822.3
40,873.9
41,035.5
45,098.2
47,146.8
48,831.4
50,577.3
52,305.7
54,283.2
55,671.3
1/8
40/397

100.3
105.7
103.4
58.0
45.2
54.5
58.2
67.1
72.5
77.0
79.0
82.2
86.0
93.6
101.3
N/A
N/A
Enterprises Employment
(%)
(%)
9.9
15.1
9.5
20.2
9.8
13.2
13.0
3.9
57.8
5.4
52.3
8.1
13.1
7.6
59.7
8.1
12.1
8.6
7.4
-1.1
14.1
-6.2
5.4
3.1
2.9
4.8
3.1
3.8
11/91
17/91
24/1287
58/1288
Exports
(%)
13.9
10.8
7.6
3.2
1.9
5.1
6.6
8.4
6.4
7.3
6.5
6.6
2.6
2.1
4/8
98/397
Imports
(%)
7.2
10.8
11.4
-0.8
13.4
4.8
6.6
8.4
6.4
7.3
6.5
6.6
3.1
3.3
2/8
94/398
Wages
(%)
13.9
20.8
14.0
6.6
7.4
7.6
8.2
8.9
8.2
-1.4
0.2
5.7
9.9
8.1
17/91
87/1288
Domestic
Demand
(%)
11.3
12.0
11.4
-8.1
-5.4
0.1
0.4
9.9
4.5
3.6
3.6
3.4
3.8
2.6
3/8
108/397

(%)
5.4
-2.2
-43.9
-22.1
20.6
6.8
15.3
8.0
6.2
2.6
4.1
4.6
8.8
8.2
N/A
N/A
Annual Change
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank
Industry
EstablishRevenue Value Added
ments
(%)
(%)
(%)
12.5
12.5
5.6
12.2
12.2
6.0
10.9
10.9
5.7
-8.3
-8.3
8.3
-8.8
-8.8
48.9
-0.5
-0.5
33.2
-0.5
-0.5
19.6
10.1
10.1
33.5
4.3
4.3
16.9
3.0
3.0
5.8
3.1
3.1
10.5
2.9
2.9
5.5
3.8
3.8
4.1
2.2
2.2
3.8
37/91
37/91
7/91
352/1288
400/1288
16/1287
Key Ratios
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank
IVA/Revenue
(%)
49.40
49.40
49.40
49.40
49.40
49.40
49.40
49.40
49.40
49.40
49.40
49.40
49.40
49.40
49.40
30/91
266/1288
Imports/
Demand
(%)
20.64
19.88
19.66
19.67
21.23
25.44
26.63
28.27
27.90
28.40
29.42
30.27
31.18
30.98
31.20
2/8
147/397
Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.
Exports/
Revenue
(%)
12.56
12.72
12.57
12.20
13.72
15.33
16.18
17.33
17.06
17.42
18.14
18.75
19.42
19.19
19.17
2/8
187/397
Revenue per
Employee
($000)
423.18
413.54
385.99
378.08
333.80
288.94
265.92
245.88
250.46
240.43
250.30
275.11
274.58
271.96
267.77
61/91
672/1288
Wages/Revenue
(%)
21.38
21.65
23.32
23.98
27.85
32.79
35.44
38.54
38.11
39.54
37.86
36.81
37.80
40.02
42.33
16/91
172/1288
Employees
per Est.
3.49
3.80
4.31
4.62
4.43
3.13
2.54
2.29
1.85
1.72
1.61
1.37
1.34
1.35
1.35
88/91
1180/1287
Average Wage
($)
90,469.95
89,516.66
89,992.93
90,652.37
92,979.02
94,741.28
94,232.98
94,764.39
95,456.08
95,074.05
94,775.58
101,254.85
103,777.40
108,827.07
113,335.97
24/91
90/1288
Share of the
Economy
(%)
0.11
0.12
0.13
0.14
0.13
0.12
0.12
0.11
0.12
0.13
0.13
0.13
0.13
0.13
0.13
8/91
146/1288
WWW.IBISWORLD.COM
Jargon & Glossary
Industry Jargon
AAA (TRIPLE-A) GAMEGame released by a major

publisher that has the full funding of the publisher
behind its development, marketing and distribution;
typically the next entry in a long-running, highly
successful series.
CONSOLEA machine developed as a mini-computer
with the express purpose of playing games programmed
and developed solely for that platform.
DOWNLOADABLE CONTENT (DLC)Add-ons to games

that can be purchased and downloaded directly to
consoles or computers.
MASSIVELY MULTIPLAYER ONLINE GAME (MMOG)
The major new growth market for gaming, played via an
online server where gamers around the world play with
and against each other in real time.
CONTROLLERThe primary means of operating video

games since the inception of the industry; however, Wii
and Xbox Kinect technology could make direct human
interaction the norm.
IBISWorld Glossary
BARRIERS TO ENTRYHigh barriers to entry mean that

new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITYCompares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labor. IBISWorld uses the ratio of
depreciation to wages as a proxy for capital intensity.
High capital intensity is more than $0.333 of capital to
$1 of labor; medium is $0.125 to $0.333 of capital to $1
of labor; low is less than $0.125 of capital for every $1 of
labor.
CONSTANT PRICESThe dollar figures in the Key
Statistics table, including forecasts, are adjusted for
inflation using the current year (i.e. year published) as
the base year. This removes the impact of changes in
the purchasing power of the dollar, leaving only the
real growth or decline in industry metrics. The inflation
adjustments in IBISWorlds reports are made using the
US Bureau of Economic Analysis implicit GDP price
deflator.
DOMESTIC DEMANDSpending on industry goods and
services within the United States, regardless of their
country of origin. It is derived by adding imports to
industry revenue, and then subtracting exports.
EMPLOYMENTThe number of permanent, part-time,
temporary and seasonal employees, working proprietors,
partners, managers and executives within the industry.
ENTERPRISEA division that is separately managed and
keeps management accounts. Each enterprise consists
of one or more establishments that are under common
ownership or control.
ESTABLISHMENTThe smallest type of accounting unit
within an enterprise, an establishment is a single
physical location where business is conducted or where
services or industrial operations are performed. Multiple
establishments under common control make up an
enterprise.
EXPORTSTotal value of industry goods and services sold
by US companies to customers abroad.
IMPORTSTotal value of industry goods and services

brought in from foreign countries to be sold in the
United States.
INDUSTRY CONCENTRATIONAn indicator of the
dominance of the top four players in an industry.
Concentration is considered high if the top players
account for more than 70% of industry revenue.
Medium is 40% to 70% of industry revenue. Low is less
than 40%.
INDUSTRY REVENUEThe total sales of industry goods
and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside
the firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and
capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA)The market value of
goods and services produced by the industry minus the
cost of goods and services used in production. IVA is
also described as the industrys contribution to GDP, or
profit plus wages and depreciation.
INTERNATIONAL TRADEThe level of international
trade is determined by ratios of exports to revenue and
imports to domestic demand. For exports/revenue: low is
less than 5%, medium is 5% to 20%, and high is more
than 20%. Imports/domestic demand: low is less than
5%, medium is 5% to 35%, and high is more than
35%.
LIFE CYCLEAll industries go through periods of growth,
maturity and decline. IBISWorld determines an
industrys life cycle by considering its growth rate
(measured by IVA) compared with GDP; the growth rate
of the number of establishments; the amount of change
the industrys products are undergoing; the rate of
technological change; and the level of customer
acceptance of industry products and services.
WWW.IBISWORLD.COM
Jargon & Glossary
IBISWorld Glossary
continued
NONEMPLOYING ESTABLISHMENTBusinesses with

no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.
PROFITIBISWorld uses earnings before interest and tax
(EBIT) as an indicator of a companys profitability. It is
calculated as revenue minus expenses, excluding
interest and tax.
VOLATILITYThe level of volatility is determined by
averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
20%; high volatility is 10% to 20%; moderate
volatility is 3% to 10%; and low volatility is less than
3%.
WAGESThe gross total wages and salaries of all

employees in the industry. The cost of benefits is also
included in this figure.
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IBISWorld Video Games Industry Report

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Video Games in the USSeptember 2014 1

Level complete: Demand for video games will

IBISWorld Industry Report NN003

Video Games in the US

2 About this Industry

25 Market Share Concentration

43 Regulation & Policy

25 Key Success Factors

40 Technology & Systems

26 Cost Structure Benchmarks

Key External Drivers

13 Industry Life Cycle

46 Jargon & Glossary

33 Activision Blizzard Inc.

15 Products & Markets

35 Nintendo Co. Ltd.

36 Electronic Arts Inc.

15 Products & Services

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com

Video Games in the USSeptember 2014 2

About this Industry

The Video Games industry includes the

The primary activities of this industry are

segment. The development and

Developing video game software

The major products and services in this industry are

33431 Audio & Video Equipment Manufacturing in the US

Video Games in the USSeptember 2014 3

About this Industry

51121e Video Game Software Publishing in the US

For additional information on this industry

writes over 700 US

Video Games in the US September 2014

Annual Growth 09-14

Annual Growth 14-19

Time spent on leisure and sports

Revenue vs. employment growth

Sony Corporation 3.1%

Electronic Arts Inc.

Products and services segmentation (2014)

Key External Drivers

Per capita disposable

Online games and software

Physical games and software

Life Cycle Stage

Video Games in the USSeptember 2014 5

Executive Summary | Key External Drivers | Current Performance

Following a dramatic pullback in

emergence of low-cost games for

Key External Drivers

Per capita disposable income

video games. However, growing

students, represent the primary

Video Games in the USSeptember 2014 6

and their expectations over the next

expected to increasingly use these online

Time spent on leisure and sports

Key External Drivers

Video Games in the USSeptember 2014 7

The Video Games industry has yet to fully

While the industrys slowdown can in part

game entertainment, such as used video

with the recession,

Video Games in the USSeptember 2014 8