The Marketing of Video Games in the Economy

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Reflection: My overall general topic for this interdisciplinary project is the significance of the video game industry in our society. In general, this business essay shows that the video game industry has an important place in the world’s economy. Without it, the economy wouldn’t be nearly as big as it is today as it constantly raised the GDP. Also, the essay promotes the idea that video games are beneficial to families as it opened many employment opportunities. I plan to use this essay topic to show that video games not only affect us personally, but also on a grander scale such as the economy.

The purpose for my writing is to illustrate the importance of video games to the world on a financial level. For instance, although violent video games are promoted endlessly every day, the revenue earned from such games benefit the economy in the long run. My intended audiences, which are angry parents, politicians, and news media, don’t understand this concept and therefore encourage people that video games are bad.

 

The video game industry is a booming industry that is value at $86 billion dollars. Today, the video game industry is one of the most powerful and successful industries in the world. However, this wasn’t always the case as the video game crash of 1983 almost saw the end of commercialized games. It was this crash that help weaken the economy during the early 1980s. Also, violent video games sales have increased dramatically to the point where it raised the U.S. GDP.  Furthermore, ESRB rating systems have benefited the video game industry as they market suitable games for children. Lastly, mobile gaming is becoming the fastest growing (and profitable) industry in the world right now. In short, the video game industry has a significant and positive impact on the world’s economy.

The Video Game Industry has a history of high and low points in the economy. Notably, the lowest point was the video game crash of 1983. It was during this crash that some of the biggest gaming companies ceased to exist such as Atari (Ernkvist, 2006). There have been theories as to what caused the video game crash. Certain factors like poor management and marketing skills have been attributed to the decline of home consoles in the U.S. Other factors such as the negativity thrown at video games may have also contributed to the decline of the video game industry. In reality, the video game crash was most likely due to technological and entertainment competition. For example, during the early 1980s, computers steadily became a desired commodity. More people gradually began to buy home computers instead of video game consoles (A. Schilling, 2003). The entertainment industry also became a big competitor with the video game industry. Casinos, theme parks, and television took the attention away from video games in the early 1980s. This meant that video game companies had to constantly bring new ideas to the table. Sadly in this case, companies like Atari couldn’t compete at that level due to creating lackluster games. As of today, many business analysts argue what was the exact cause of the crash.

The effect that it had on the world’s economy however was staggering. At the peak of the video game industry, the combined revenue of both home consoles and arcades reached to $11.8 billion in 1982 alone (A. Schilling, 2003). An enormous amount of firms closed due to bankruptcy and millions of people lost their jobs. Additionally, mild inflation occurred in both American and Japan. In America for instance, coin machines in arcades increased from quarters to dollar coins to compensate losses (Jörnmark, Axelsson, & Ernkvist, 2005). Perhaps the biggest setback from the video game crash that affected the U.S was the fact that U.S retailers lost faith in electronic gaming. A thorough examination suggests that this was due to the heavy losses retailers sustained during the crash. When consumers stopped buying consoles, they were unable to make a profit and this in turn severely wounded retailers across the U.S. As a result, this initiated a mild recession in the toy and game industry.

Nowadays, the video game industry is an immense industry that has become a vital part to the economy. With this in mind, it is easy to consider video games as a high-grossing market in the business world. In fact, in 2009 the video game industry was one of the only industries to not be effected by the economic recession (Consalvo, 2006). This is contributed in large part to the fact that consumers strive for different genres of games which the video game industry have readily supplied. For example, violent video games such as the Call of Duty franchise have grossed over $4 million dollars in sales just from the year 2012 alone (Douglas, 2012). In spite of this, many people argue that these violent video games should be banned from retails across the U.S. In reality, the negativity receive from these games are greatly exaggerated. In economic terms, violent video games do more harm than good for the overall consumer. Ana Douglas, a business reporter, noted that the Call of Duty franchise help shaped our economy (Douglas, 2012). The amount of revenue that the franchise has earned collectively since its inception has totaled close to $3 billion dollars worldwide. As a result, this grew the U.S Gross Domestic Product (GDP) to 16% from 2005 – 2010 (Consalvo, 2006). Infinity Ward, the Call of Duty developers, also reported contributed large portions of their sales to the U.S army. All things considered, the economy significantly benefits from violent video game sales.

While this may hold true, many angry parents and politicians would argue that violent video games pose a great danger to underage children. Games such as the Grand Theft Auto and Battlefield franchise entice young audiences to murder and steal. Furthermore, violent video games encourage underage children to go on massacres such as the Newtown, Conn., massacre (Teitell, 2013). On the contrary however, the video game industry tries everything in their power in preventing such disasters. For instance, the video game industry employs a strict rating system for all video games sold in the U.S. and Canada (Entertainment Software Rating Board, 2014). This system, named the ESRB system, has been in use since 1994 and it assigns the age and content ratings for video games and mobile apps. Additionally, it also enforces advertising and marketing guidelines for the video game industry (Entertainment Software Rating Board, 2014).

The ESRB system contains rating categories that it deem suitable for children, teens, and adults.  Likewise, all U.S. retailers including companies like GameStop, Target, Walmart, and GameFly are subjected to this rating system. For this reason, U.S. retailers cannot sell underage children violent video games. The only way underage children can purchase violent video games is if their parent or guardian purchases it for them. Under these circumstances it is safe to assume that the video game industry is not to blame for children’s violent behavior. In fact, that honor belongs to the parents who knowingly (or unknowingly) promote violent behavior. As Beth Teitell states, “Blaming video games for ­violence in the real world is no more productive than blaming the news media for bringing ­violent crimes into our homes night after night, (Teitell, 2013). To clarify, this means that television and news media encourage just the same amount of violence as video games.

In addition to high product sales, the video game industry helps economists gauge the stability of the world’s economy. This can be seen in many Massively Multiplayer Online video games (MMOs). MMOs such as World of World Craft and Second Life for example, provide players with a complete virtual banking system (Plumer, 2012). Players buy virtual clothing, trade items, and earn money. It is here that economists believe that they can gain valuable information on our real economy by studying a virtual one. This is due to virtual banking systems on MMOs being just as complicated as a real economy. This idea is tremendously helpful in improving our economy. Before, economists had to rely mostly on the GDP of the U.S.  and unemployment rates to see where the economy is headed (Consalvo, 2006). Now, economists can predict where the economy is headed based on logical assertions from a complex virtual world. In short, this may boost the economy and help it prosper.

As a matter of fact, economists believe that video games and computers have increasingly become central to the economy. To illustrate, the continuing rise of new gaming companies demand for more game developers to step in. For this purpose, the video game industry provides more employment than any other software based industry. The Entertainment Software Association (ESA) estimates that between 2002 and 2006, the employment rate in gaming rose 4.4 percent; in contrast, the employment rate for the software industry as a whole declined (Entertainment Software Association, 2012). This means that without the video game industry, unemployment rates would rise and the economy as a whole would suffer. Also, this implies that the negativity that video games attract on news media is exaggerated exponentially. In the long run, the video game industry is continuing to do more good than harm to society.

In recent years, mobile gaming has increase dramatically. Mobile games such as Angry Birds, Candy Crush, and Flappy Bird have dominated the video game market and benefited the economy. In fact, mobile games had earned over $6 billion dollars in revenue of 2013 alone (Pham, 2013). This makes mobile gaming a growing business as it raised the national GDP by 1%. Similarly, we can also see a growing shift in the video game industry. Supercell (a Finnish mobile game) for example became the poster child of the mobile gaming industry in 2013. This mobile game earned a profit of $1.5 billion and its company is quickly becoming one of the most profitable gaming companies (Rogowsky, 2014). In view of this information, it is inferred that mobile gaming will become the next “video game industry”. More people seem to be playing games on tablets, IPods, and phones more because of the convenience it brings. For instance, if someone was standing outside and waiting for their friend, then mostly likely that person would be playing games on their phone to pass the time. Based on observations, this seems to be the case 90% of the time. Simply put, companies like Nintendo and Microsoft can’t compete with the versatility of mobile gaming.

However, Nintendo, Sony and Microsoft also released a couple of “mobile games” in the form of handhelds. Nintendo’s 3DS and Sony’s PlayStation Vita (PS vita) has net a profit of $105 million in 2013 (Pham, 2013). In contrast to the mobile gaming industry, this is nowhere near close to the collected revenue of Angry Birds and Supercell for mobile devices. This means that Sony and Nintendo are expecting high losses for the coming years. Although these video game giants are still netting in profits worth in the billions, there have been a slow decline over the last 3 years. Peter Vesterbacka, creator of Angry Birds, stated that consoles are now becoming a dying breed (Levine, 2012). To clarify, this means that consoles such as Sony’s PlayStation series and Microsoft’s Xbox series will become extinct in the next few years. Indeed, it seems that the console gaming business will die off. For one thing, Microsoft’s new Xbox One consoles that released last November are suffering from massive losses (Plumer, 2012). Compared to their Xbox 360 sales, Microsoft’s Xbox One has seen a decline in the number of units sold. Sony’s PlayStation 4 haven’t seen as much trouble in the market as the Xbox one has but they have reported a moderate decline in sales compared to their previous console. Nevertheless, console sales are having a weak market value. This is most likely because the millennial generation is exposed more to mobile devices than previous generations. Younger audiences would rather have a cell phone and play Candy Crush instead of buying handheld consoles and playing Mario.

In a final analysis, the video game industry is one of the most powerful and successful industries in the world. This industry has proven to have a significant impact on the economy. For example, the video game crash of 1983 not only setback the video game industry, but other important ones as well. Retailers became reluctant to sell computer-based games in their stores and most of them sustained heavy losses because of it. It was this crash that help weaken the economy during the early 1980s. In spite of this, violent video games sales have increased dramatically to the point where it raised the U.S. GDP. The Call of Duty and Grand Theft Auto franchise have mostly contributed to this factor. If it wasn’t for violent video games then the job market would decline as they bring in numerous jobs to the economy. Furthermore, ESRB rating systems have benefited the video game industry as they market suitable games for children. Lastly, mobile gaming is becoming the fastest growing (and profitable) industry in the world right now. Sales for the industry have reached to over $6 billion last year and are expected to double in the next few years. In short, the video game industry has a significant and positive impact on the world’s economy.

 

 

References

  1. Schilling, M. (2003). Technological Leapfrogging:Lessons from the U.S. Video Game Console Industry. California Management Review.

Consalvo, M. (2006). Console video games and global corporations: Creating a hybrid culture. New Media & Society , 117-137.

Douglas, A. (2012, June). The 10 Highest Grossing Video Games Ever. Business Insider.

Entertainment Software Association. (2012). Games: Improving the Economy. Retrieved from Entertainment Software Association Web Site.

Entertainment Software Rating Board. (2014). About ESRB. Retrieved from Entertainment Software Rating Board Web site: http://www.esrb.org/about/index.jsp

Ernkvist, M. (2006). Down Many Times, but Still Playing the Game: Creative Destruction and Industry Crashes in the Early Video Game Industry.

Jörnmark, J., Axelsson, A.-S., & Ernkvist, M. (2005). Wherever Hardware, There’ll be Games: The Evolution of Hardware and Shifting Industrial Leadership in the Gaming Industry. Digital Games Research Association.

Levine, R. (2012). Consoles to Mobile: Game On, Dude. Bloomberg Businessweek.

Pham, A. (2013, June). Gaming Reset. Billboard.

Plumer, B. (2012, September). The Economics of Video Games . Retrieved from The Washington Post.

Rogowsky, M. (2014, February ). The Money’s In Mobile: Supercell And The Rise Of Gaming’s New Giants. Forbes.

Teitell, B. (2013, January ). Violent video games put parental judgment to test. The Boston Globe.

 

Pulls text: Kevin Tyson

WRT 225

Professor Waddell

March 19, 2014

 

 

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