Value Creation in the Video Games Industry

The video game industry is an enormously successful one. Over a 25 year period it has grown annually by between 9% and 15%. Once a niche industry, it can now be described as a blockbuster business, matching even Hollywood for revenue. It is an industry known for its high level of innovation across multiple platforms, such as consoles and mobile devices. It often bridges into and spurs innovation in other entertainment industries. Video games not only provide entertainment; some can be used for educational purposes, training or to tackle social issues. Technology pioneered by the video games industry has even been applied to military and biotechnology innovations. Yet despite the industry's ever increasing importance, it receives far less academic attention than other entertainment fields. This report aims to spur further research on games by offering a conceptual framework which identifies the industry's main business models, the relationships among players, and the means for value creation. This report also provides a review of existing research and highlights the areas for research that our framework suggests could interest and excite academics, practitioners and consumers alike.

The conceptual framework details industry constituents and their relationships. Constituents include content providers, platform providers and consumers. The framework demonstrates their interrelationships, and also refers to the channels of distribution and communication that link these parties.

The framework also considers other revenue streams for games, such as in-game advertising, and addresses the spread of innovative platforms, such as smartphones, that are critical for encourating ubiquitous gaming formats. The report then investigates producer-initiated communication, such as through traditional media, links as part of the game or through the game platform, and bi- and multidirectional communication via social media channels.

The framework further acknowledges the important roles of three additional institutions that assist value creation. Firstly, the video games industry has close links to other entertainment industries, such as motion pictures. These industries can inspire games, and indeed be inspired by them, Secondly, the games industry relies on technological infrastructure, such as automated recommender systems that direct consumers to an appropriate game. Thirdly, consumers influence each other in their purchasing choices and the value they in turn derive.

The success of the video games industry has resulted in a growing number of exciting possible strategies for managers. Through the diffusion of technological innovations (e.g., smartphones), new players are entering the market and increasing the competitive intensity. Established companies need to continue to refine their business models, including their marketing processes and strategies, quickly and flexibly. The conceptual framework in this paper enabled the researchers to review the current state of games-related research and to identify challenges and research opportunities in the industry. We argue that the high level of creativity and innovation that is inherent to this field will continue to breed an ever-expanding range of game types, formats, and business models-and thus topics for further research.

The full research article, Value Creation in the Video Game Industry: Industry Economics, Consumer Benefits and Research Opportunities was published in the Journal of Interactive Marketing (2013).