Minecraft Session 3 Notes

Industry Structure, Media Ownership & Funding

The History of the Industry

Video game technology has actually been around since the 1950s but the industry didn’t really peak until the 70s. The years between 1978 and 1983 were considered the golden age of video games where the industry peaked and was worth $11.8 billion in the US (which beat the figures for the film and music industry combined).

Key players in the industry during the golden era were Nintendo, Namco and Atari.

Because of rival consoles, poorly designed games and a lack of quality control, the market crashed heavily and by 1985, the games console industry in the US was estimated to be worth just $100 million.

Over three decades later, the industry is enjoying a resurgence with new types of ‘gamer’ and much tighter regulation, aided by key development in technology, internet speeds and accessibility. Thus, video games are culturally and financially significant across major territories (including Japan, Europe and the USA) with new console and games releases from popular franchises classed as major economic events.

Industry Structure

Developers

Games are created by development studios comprised of software engineers, artists and programmers. They will write the code, create the structure and design of the game and animate the game to make it playable for gamers. Ubisoft and GamersFirst are examples of developers.

Publishers

These companies are responsible for the marketing and distribution of the game. Some companies are large enough to have a developing and publishing department. Examples of publishers include EA and Sega.

Console Manufacturers

These companies make the machines that the games are played on such as consoles, computers and smartphones. Apple, Nintendo and Samsung are all examples of console manufacturers.

The industry is not as concentrated as it is in the film industry, there is not a ‘Big 6’ and it doesn’t operate as an oligopoly.

 Economic & Social Context

·        The industry is globalised and dominated by some of the world’s largest economies (USA, Japan and China) as gaming culture developed rapidly in these countries.

·        China has state censorship (called the Great Firewall) which is made up of laws to control and block information flows into the country. This has helped the games industry grow in China as they have not had to deal with competition from Facebook, Netflix or Google.

Vertical Integration

In the past, there were very few companies working in the new gaming industry, so all stages of game production would be done ‘in house’ in a vertically integrated structure (i.e. Nintendo would develop the games and publish them on their own consoles).

Horizontal Integration

Nowadays, the industry is structured in a more horizontally integrated fashion, large publishers want to work with young dynamic developers in order to get the best possible products made for their consoles. Often, they will eventually end up acquiring those developers so that they become part of the conglomerate.

Economic Context

Free market Capitalist economies (where anyone can set up a business and make a profit) means that there are constant challenges to this structure when new and more dynamic companies are driving competition towards the large publishers.

The influence of the internet

It’s quite hard to break into the console market without a publishing deal with a major publisher. The internet, smartphones and PCs have opened up the market for start-up companies in the indie game sector as developers can now publish their games directly to the app store without the need for a publisher or a console manufacturer.

Economic Context

Online gaming has led to a decrease in traditional physical sales, especially due to free online games. In 2017, just ¼ of market sales consisted of physical sales and the other ¾ was made up of digital sales.

Funding

Purchase Price: rentals to arcades and sales of physical copies of games.

Originally, games were funded by the revenue from their ‘purchase price’ but in the digital age, games have a wider variety of methods to create revenue. These include:

·        Subscription

·        Freemiums (games that are free but encourage you to pay for premium content)

·        Micro-transactions – selling virtual items to enhance gameplay like gems and virtual currency

·        Server leasing

·        Merchandising

·        Offer walls – from other partners who for this access

·        Donations from players

Economic & Social Context

Internet users resist paying for content mainly due to the fact that most gamers are young and expect the internet to be free. However, they usually do not mind paying for micro-transactions if they feel they have a choice. They are also happy to accept advertising in free games as they are used to advertising on TV.

Minecraft Ownership & Funding Facts

·        It was originally owned by Mojang which is a company developed as a result of the game.

·        Markus ‘Notch’ Persson had a direct influence on the game as he wanted to create a game that would instantly gratify audiences and reward them for their hard work.

·        Audience ownership of the game has been crucial for Minecraft; the players have become prosumers by helping to develop the game.

·        Minecraft is not a ‘top-down’ game in terms of ownership, as it has not been developed by just one person/company. Instead, the code has been used as a resource that can be used in a myriad of ways.

·        The company was acquired by Microsoft in 2014 (due to the success of Minecraft) as Microsoft anted to gain access to this large and successful audience of gamers.

·        Minecraft generates money from:

Ø  The sales of the game (£17.95 for Java Edition on Mac and PC).

Ø  Subscriptions to Minecraft Realms.

Ø  Tie-ins with Lego

Ø  Mods on Marketplace

Ø  Online merchandise shop

Ø  Deals with children’s’ books and magazines

·        A Minecraft film is in production to be released in 2022. This will bring more revenue.

·        One month after its release in 2011, the beta version had over 1 million purchases.

·        By April 2011, Persson estimated that it has made $33 million in revenue.

·        It is now considered the 2^nd most successful game of all time (behind Tetris) with over 144 million copies sold across all platforms as of 2018.

10 Questions

What period was named the golden age for videogames?

1978-1983

What are the 3 key components of the videogame industry?

Developers, Publishers and Console Manufacturers

What is the world’s largest videogame company?

Tencent

How has China avoided threats from competitors in the gaming industry?

State censorship-The Great Firewall

Nowadays, is it more common for companies in the video game industry to be vertically or horizontally integrated?

Horizontally integrated

What does a videogame’s ‘purchase price’ include?

Rentals to arcades and sales of physical copies of games.

What is a micro-transaction?

The selling of virtual items like gems or virtual currency to enhance gameplay.

Which programmer created and developed Minecraft?

Markus ‘Notch’ Persson

Which company acquired Minecraft from Mojang in 2014?

Microsoft

How many copies of Minecraft were sold across all platforms as of 2018?

144 million