The History and Structure of the Video Game Industry – Modern Era - Part 2

Posted by Dmitri Williams

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Jan 24, 2014 12:32:00 PM

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The Modern Era (2004-2010)

During the first decade of the twenty-first century, the percentage of American adults with access to the Internet increased from 37 in 2000 to 71 in 2010. Fast, broadband connections rose as well, with slower dial-up connections beginning to decline in 2001 (Pew Internet & American Life Project, 2010). Meanwhile, by the end of the decade, video games had become commonplace in the American household, cutting across age and gender demographics. In 2010, estimates had 53 percent of all American adults and 67 percent of American households playing some form of video games (Entertainment Software Association, 2010; Lenhart, Kahne, et al., 2008). And despite the long-held stereotype of the young male gamer, both independent and university research (Griffiths, Davies, & Chappell, 2003; Williams, Yee, & Caplan, 2008; Yee, 2006) found this stereotype not to be true. In fact, according to the Entertainment Software Association (ESA; 2010), women age 18 or older represented more of the game playing population (33%) than boys age 17 or younger (20%).

In addition to broadband surpassing dial-up for the first time, 2004 and 2005 saw three other important developments: the release of the most popular massively multiplayer online game (MMO) of all time, the first of a new generation of video game consoles, and the rise of social network sites.

MMO's Level Up

World of Warcraft (WoW) was released during the holiday season of 2004 and became the best-selling computer game of 2005 (Entertainment Software Association, 2006). It (or one of its subsequent expansions packs) was the best selling computer game of 2005, 2006, 2007, and 2008 (Entertainment Software Association), and would go on to be the best-selling MMO of all time—with more than 11.5 million monthly subscribers at its peak—and the third best-selling computer game of all time (Blizzard Entertainment, 2008; Guiness World Records, 2010). As of June 2010, Nielsen (2010) estimated that 9 percent of all game players play WoW, and almost 40 percent of all minutes spent playing non-casual PC games is spent on WoW, more than any other game. As a reference point, the game Dark Messiah of Might & Magic ranks number two on the list, yet only occupies four percent of all minutes spent playing PC games.

Consoles Evolve

The next year, in 2005, a new generation of consoles was launched, starting with Microsoft’s Xbox 360, and subsequently followed by Sony’s PlayStation 3, and Nintendo’s Wii, both released in late 2006 (Shippy & Phipps, 2009; Takahashi, 2006). These new boxes featured several novel advances in features: the Xbox Live online gaming system created the largest online community and storefront for consoles; the PlayStation 3’s powerful processor advanced graphics technology to impressive levels and doubled as a Blu-ray disc player (at a time when standalone Blu-ray players were more expensive); and the Wii emphasized casual games and a popular motion-sensor controller (since copied by the other two companies in late 2010). As a result of this competition and innovation, the game industry saw a 60 percent increase in annual computer and video game sales between 2005 and 2008 (from 6.9 billion dollars to 11.7 billion dollars), after having held steady for most of the earlier part of the decade (Entertainment Software Association, 2010).

This was not the first generation of game consoles to have integrated Internet access, but was the first mainstream adoption: the previous generation’s Sega Dreamcast (released in 1998) and Microsoft Xbox (released in 2001) had a built in modem and Ethernet port, respectively, and Nintendo’s GameCube (released in 2001) and Sony’s PlayStation 2 (released in 2000) had optional accessories for online connectivity (Hagiwara & Oliver, 1999; Takahashi, 2002). Such a connection not only allowed for the playing of network games, but for the download and/or streaming of digital media. More importantly, the connection enables these increasingly powerful digital boxes to fulfill other roles within the household and to compete with other hardware categories. For instance, all three of these latest generation consoles allow for the streaming of movies using Netflix’s proprietary Watch Instantly service. In addition, these consoles have some form of integrated web browser. In many ways, game systems are approaching the mythical convergence of set-top boxes prophesized in the 1990s (Negroponte, 1996), and can be viewed as a Trojan Horse in the vicious corporate competition to get such a box into homes.

Social Networks Enter the Scene

Another important event was the mid-decade launch and diffusion of social network sites (SNS). While initially SNS had little relevance to gaming, as they matured and added more features, the social connections afforded by the sites allowed for the development of casual games users could play with their friends in a persistent environment (Kirkpatrick, 2010; Taylor, 2010). A driving force of SNS games was Facebook, which initially was restricted to university students at elite universities, but by 2005 was open to all university and high school students worldwide. In late 2006, it became open to everyone (Kirkpatrick, 2010). In 2007, the site introduced the Facebook Platform, which allowed third-parties to develop applications that could take advantage of the social connections between friends. Despite the fact that Facebook thought games would not be viral enough to be widely adopted among its users, some of the early games, such as Texas HoldEm' Poker and Scrabulous (a Scrabble-like game), became quite popular very quickly.

Entering a Transition Period

The state of the industry may be in a transition period, but the wide-spread adoption of the Internet and social network sites has changed gaming. Networked gaming gives people more choices as to what games they can play and with whom they can play them. New games are often expected to be networked as a common feature, and much of the industry is interested in moving toward online gaming for both control and profiteering. Games that require connectivity to a centralized server system are more difficult to pirate, and piracy has been a particular challenge to the industry, especially from China. And, in addition to the social connectivity and networking of SNS sites, online gaming also offers the possibility of streaming services, meaning that the graphics processing formerly done by PCs or consoles might increasingly be moved to cloud-based server farms.

Look for part-3 of this 5-part series next week.

Part 1 of this series available here.


The material is excerpted, compiled and condensed from several longer published works:

Entertainment Software Association. (2010). ‘Essential Facts About the Computer and Video Game Industry’. Retrieved from

Griffiths, M., Davies, M., & Chappell, D. (2003). ‘Breaking the Stereotype: The Case of Online Gaming’. CyberPsychology & Behavior, 6/1: 81-91.

Hagiwara, S., & Oliver, I. (1999). ‘Sega Dreamcast: Creating a Unified Entertainment World’. IEEE Micro, 19/6: 29-35.

Kirkpatrick, D. (2010). The Facebook Effect: The Inside Story of the Company That is Connecting the World. New York, NY: Simon & Schuster.

Lenhart, A., Kahne, J., Middaugh, E., Macgill, A., Evans, C., & Vitak, J. (2008). Teens, Video Games, and Civics. Washington, D.C.: Pew Internet & American Life Project.

Negroponte, N. (1996). Being Digital. New York, NY: Vintage.

Pew Internet & American Life Project. (2010). ‘Home Broadband 2010’. Retrieved from

Shippy, D., & Phipps, M. (2009). The Race for a New Game Machine: Creating the Chips Inside the XBox 360 and the Playstation 3 New York, NY: Citadel Press.

Takahashi, D. (2002). Opening the Xbox: Inside Microsoft's Plan to Unleash an Entertainment Revolution. Roseville, CA: Prima Lifestyles.

Takahashi, D. (2006). The Xbox 360 Uncloaked: The Real Story Behind Microsoft's Next-Generation Video Game Console Arlington, VA: Spiderworks.

Taylor, J. (2010). 2009-2010 Home Interactive Entertainment Market Update. Portland, Oregon: Arcadia Investment Corp.

Williams, D., Yee, N., & Caplan, S. (2008). ‘Who Plays, How Much, and Why? A Behavioral Player Census of a Virtual World’. Journal of Computer Mediated Communication, 13/4: 993-1018.

Yee, N. (2006). ‘The Demographics, Motivations and Derived Experiences of Users of Massively-Multiuser Online Graphical Environments’. PRESENCE: Teleoperators and Virtual Environments, 15/3: 309-29 Social Value White Paper Ninja Matrics

Topics: Video Games, History and Structure of Video Game Industry

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