Video Games: Its Beginnings and Future


It is already widely known that the first computers were big in size and with limited processing power. At that time, the Tech Model Railroad Club (TMRC) was quite captivating to the students who liked to build new and better systems and see how things worked. Programming was done for the fun it entails and not so much for the money and the program source code was a public domain for anybody to use (Background of Video Games). Then came the lure of the videogames.

Videogames’ mass appeal and its continuous popularity propelled the industry to new heights. From the humble beginnings in the 1960’s with Steve Russell’s “Space War” to the interactive nature and networking capabilities of contemporary gaming, the videogames industry see more potentials for future growth. However, Ip and Jacobs mentioned some threats to the industry such as lack of healthy competition, poor quality and non-interoperability of the gaming systems. To understand the development and dynamics of the industry better, it is noteworthy to review the history of the video games industry. The industry is relatively young and is often associated with the developments in information technology. The industry is also dependent on technological innovation and discriminating customers expect nothing less.

The video games industry traces its beginnings in the 60’s with the introduction of analog based game components. The industry figures will show that the video games industry is one of the most lucrative, even surpassing traditional entertainment typologies like movies and music. In 2003, the estimated earnings of the industry stood at $23.2 billion. By 2008, it could reach $33.4 billion worldwide (Johns 151). In 2006, the videogame industry posted19% gains in revenue to $12.9 billion (Chronis 5) Video games critics would often dismiss video games as merely child play with little educational or cultural value.

Academic exploration into the video games industry is scarce because the industry is often dismissed as a “niche industry, developing products for a minority group of ‘computer geeks’, denying both the size and cultural impact of the industry.” (Johns 152). Video games were also neglected in scholarly investigations because of the misconception that children’s games are trivial and could be outgrown therefore it required no further intellectual inquiry. Celia Pearce described the medium as “much maligned” despite its popularity. As a creative medium, video games were not taken seriously because of its temporal nature (71). Contrary to public perception, George Maciunas believed that “[g]ames provided a sort of “ludus populi,” a play of the people that provided the perfect platform for bringing art to a mass audience.”(cited in Pearce 72) Video games were also considered “‘low art’ carrying none of the weight, gravitas or credibility traditional media.”(Newman 5).

Judging from the popularity of video games, the industry players were in the right track when they considered going into the industry. Video games need mass appeal in order for companies engaged in the business to accumulate a wide mass base. Several industry players hotly contest the number one spot in the video games industry. RocSearch reported that there are four categories of companies in the industry. The first includes Sony, Nintendo, Microsoft and Electronic Arts. Second level companies include Japanese firms that had origins in the arcade business like Capcom, Konami, Namco and Sega. Third level companies include Activision, Take-Two Interactive and THQ. These companies have at least one successful product line. The Fourth level includes European companies like Eidos Interactive, Infogrames, Ubi Soft and Vivendi Universal Games (RocSearch). The video game industry is composed of hardware and software production and its peripherals. Current developments in information technology demand that video game consoles be Internet capable to allow networking game activities anytime, anywhere. Handhelds are also becoming popular especially when Sony and Nintendo introduced Wi-Fi enabled units to the market. The new models of handheld consoles break new grounds in video games industry.

It is noteworthy to review the history of the video games industry to understand further the dynamics and developments. The industry is relatively young and is often associated with the developments in information technology. The industry is also dependent on technological innovation and discriminating customers expect nothing less.

History of Video Game Industry

The video games industry traced its beginnings with the introduction of arcade games in the United States. Steve Russell developed the first computer game “Space War” in 1961 inspired by science fiction (Aoyama and Izushi 423). Nolan Bushnell, the Atari founder was the first to convert video games into a lucrative venture. He developed games without the need for complicated computing requisites and sold them to the public. A modest 1500 units were sold through a pinball company. In 1972, Atari introduced Pong and generated revenues ten times more than the pinball machine. Bushnell later designed a simpler machine for home use. By 1976, the industry players had grown to twenty and their combined earnings grew from $200 million in 1978 to $1 billion in 1981. The biggest players at that time include National Semiconductor, Fairchild, General Instrument, Coleco, and Magnavox (427). After several years of successful ventures, the market for video games crashed in 1983-1984. Aoyama and Izushi attributed the crash to oversupply and sub-standard designs of software (427).

Nintendo saw a potential in the market. A Japanese toy maker since 1889, Nintendo took interest in electronic toy products beginning in the 1960’s. Their first forage into the video games business was gaining a license from Magnavox to produce a variant of Pong for the Japanese market in 1975. With the company continuously investing in research and development, they were able to produce their first home video game in 1983. Although considered a latecomer compared to industry rivals like Tommy and Bandai, Nintendo was able to edge out competitors through “price competitiveness, initial alliances with hit arcade video games, as well as its ability to deliver original mega-hit software such as “Super Mario Brothers” (1985).”(427) Other companies followed suit with entry of Sony and Sega in the US markets in the 1990’s. Market lead was a toss among the three dominant players. Their entry into the US markets revived the public’s interest in game consoles. However, the industry continued to experience volatility. Williams attributed this to the defects in “structure that evolved and partly due to management behavior.”(Williams 43) The structural defects were inherent in the business as the business strategy of these firms was to maintain non-interoperability. This created the condition where only a small number of firms were able to compete in the market. Moreover, the non-interoperability of the game software had induced oligopolistic tendencies. The consumers on the other hand had limited choices. The system dynamics still exist today with emerging leaders of the industry.

Nintendo, Microsoft and Sony still maintained status quo in terms of proprietary hardware requisites. This situation gave little room for the industry to expand. Typically, the three major players dominate the market. Competition is defined by how each company can outdo each other through captured market base. There are no existing standards to regulate competition in the industry. It is most unlikely that cooperation will be seen among the top performers of the industry in the near future. Nevertheless, the market had grown from $200 million in 1978 to projected earnings of $33.4 billion in 2008 worldwide.

The video game industry is typically divided into three segments namely console, handhelds and PC games. The console segment had higher profit margins and is the mainstream of the videogame industry (Williams 44). By 1999, previous formats were replaced with 32 to 64 bit machines capable of delivering better graphics and more power. The core strategy of the big three to accrue more profits was in software development. Their consoles were sold at relatively low prices to encourage customer base expansion. The market conditions prevented key industry players to work together because they were competing for the same customer base. They were not concerned with how each would fare in the industry. Their software was contracted out to other game developers. In essence, the company with the widest choice of software stood to wrestle the lead from its competitors. Among the big three, Nintendo and Sony had the widest array of titles to offer to the consumers with strong networks and licensing. Microsoft had in its arsenal a deep pocket, better technology and brand recognition.

The handheld segment has a different story. Nintendo’s Gameboy was able to capture majority of the market with its 90% market share. But with the entry of Sony into the handhelds segment, Nintendo’s lead could be slashed. Nintendo’s dominance in the segment was attributed to its differentiation strategy. They were able to ease out competitors through its pricing and their enviable array of game developers. Later, Nintendo would introduce Internet enabled and wireless applications into their handhelds. Sony introduced the Play Station Portable (PSP) in late March of 2005 to the global market.

The third segment of the video games industry is the PC games. The PC games market is smaller but with less restriction when it comes to proprietary hardware. It also costs lower to develop PC games compared to the console and handheld segments. This allowed more small players to enter the video games market. However, there are perceived barriers to this segment. The segment is plagued with non-standardized advances in personal computers. Frequently software bugs bog down software released into the market.

Video Game Hazards

Video gaming exists today as a symbiotic relationship among many self-preserving organisms. All must strike a gentle balance between exerting their will and killing their host. Even if others find it obsolete, the young must engage in values clarification to develop a decision-making process that fosters ethical behavior (Funk. 1993).

Like most technologies, video game technology has changed drastically in the last few years. Arcades may look much the same on the surface as they did a decade or two ago, but the games have become far more violent, sophisticated and addictive. Pac-Man, they are not. When one visits the video arcade, or peered over you’re your child’s shoulder while he is standing in front of the television, pointing and shooting something that looks suspiciously like a real weapon, then one should. If Pong – or, for that matter, Pac-Man and Super Mario Brothers – is one’s point of reference, one needs to think again. What one assumes about the benign, outdated games of the 1970s and the 1980s, even of the early 1990s, and the research regarding them, cannot be considered valid for the games that have been put in the market in the last five years. It is a whole new world, and it is evolving at a rate that is hard for parents to keep pace with (Funk, 1993).

How fast a rate? Consider this: During the last two decades interactive video games have emerged as one of the most popular forms of entertainment, particularly among teens. According to the non-profit organization, Mediascope, “Globally, annual video games revenues now exceed $18 billion. In the United States alone, video game revenues now exceed $10 billion annually, nearly double the amount Americans spend going to the movies. On average, American children who have home video game systems play with them about ninety minutes a day.

The kids are changing with the technology – how could they not be? They are riding technology curve in a way we are not and never can. On many levels, it’s wonderful to have them exposed to this brave new cyberworld: the opportunities for them to learn, the resources at their fingertips, are tremendous and hard to fathom. The World Wide Web is like a vast, almost limitless encyclopedia, and unlike Encyclopedia Britannica, kids can talk to it and it talks back. So it’s especially disconcerting to see armies of these very kids wandering through cyberspace mutilating and killing everything in their path – and having a great time doing it. It’s the dark side of heightened technology, but one to which we ought to be paying much closer attention (The First Fighting Game That Let You Just Be Friends).

More than any other aspect of these new video games, it’s the accuracy of the simulations – the carnage, the blood, the guts – that is so advanced. Realism is the Holy Grail of the video game industry. And the latest technology leaves little to the imagination – the simulations seem less fake, and therefore more effective.

Add to this the fact that in the last few years, video game manufacturers have chosen to amplify gruesome violence (note that 49 percent of young teens indicate a preference for violent games, while only 2 percent prefer educational ones). (Funk, Jeanne 1993) to make it a mainstay in their products, seems a direct result of where the television and movie industry have taken their content. What worries most parents and educators here is the desensitizing effect on-screen violence has on kids, and how it fosters a need for more graphic real-life displays of carnage and mayhem to keep kids interested. Graphically violent video games like Doom, Postal, Duke Nukem, and Mortal Kombat are games way past the curve.

In terms of the educational principles related to this issue, any teacher or coach of young people will tell you that hands-on experience is what teaches best. Repetition of movements and the hand-eye connection are invaluable for learning most skills. And especially with children, hands-on learning is usually a lot more fun and interesting than the alternatives. It is precisely this that makes interactive video games so potent a learning tool. As researcher Patricia Greenfield points out, “Video games are the first medium to combine visual dynamism with an active participatory role for the child. (Provenzo, Eugene. 1991). Video games has the distinct advantage between itself, the television and the movies – it lets you put your hands on it, aim and fire.

Thus, it is really no surprise that violent games are very habit-forming. Parents we have spoken to are alarmed at not just the violent images in the games, but the amount of time their children spend playing them. It proves how effective these things are. More than 60 percent of children report that they play video games longer than they intend to play. The interactive quality, the intensity of the violence, the physiological reactions, all serve to connect the player’s feelings of exhilaration and accomplishment directly to the violent images. And “good feelings keep the player wanting to play. Countless parents try desperate to keep video game play within certain time limits, but it’s a huge challenge … a parental battle we often lose. Once kids get hooked, it’s difficult to unhook them. Both home and arcade games make extensive use of reinforcement schedules for both the acquisition and maintenance of the habit (Provenzo, Eugene. 1991).

The Future of Videogames

In the last decade, the video games industry in the United States is considered as one of the fastest growing segments of the entertainment industry. It is expected to grow 15 to 25 percent annually (Williams 41). Although the video game medium is aligned with the entertainment industry, it has features that are unique to the industry. Williams identified three aspects where video game industry differs:

  1. The industry’s revenues are not dependent on advertisers;
  2. Mostly, video games are operated using proprietary hardware and lacks interoperability among competitors (this is where they derive their competitive advantage);
  3. The development lifecycle is similar to motion pictures – successful titles are referred to as “killer aps” (killer applications) or “AAA games” instead of the term “box office hits” commonly used in the motion picture industry (42).

With the introduction of 3D and multimedia in the 1990’s, it had revolutionized gaming to include network gaming. By the late 1990’s, the MUD or multi-user domain protocol became a requisite in most videogames to allow multiple players for online gaming (Newman 115). The trend in online gaming is changing so rapidly that what is in vogue today may be obsolete in a few months. In online gaming, the players are allowed to pit against each other despite geographic and spatial distance. The Internet also allows online chat while players are competing against each other. The ubiquitous technology of the Internet had extended videogames from an individual’s living room into a global domain.

Shuker also foresees that video games would become a “major cultural form, and may well soon replace cinema, cable and broadcast television as the dominant popular medium.”(Cited in Newman 2) Today’s video game formats are considered the best form of integrating technology with art, as they have assumed the task of entertaining, educating and even innovating contemporary lifestyles. Many Hollywood movies were offshoots from video games and they have created a cult following among children and adults.


Taking the video games industry as a whole, competition is limited among the big three players namely Nintendo, Sony and Microsoft. The lack of healthy competition tends to produce mediocre products. Ip and Jacob’s study Quality in the Games Industry: An Analysis of Customer Perceptions revealed that customers’ perceptions on video game quality were quite low. This is a threat to the future of the video game industry. This supported the assumption that the absence of healthy competition among the players makes companies relax its policies regarding quality. The big three is also guilty of the shortcoming as results obtained from game rankings showed that “a large percentage of titles on these platforms feature in the all-time worst list.”(Ip and Jacobs 544).

Finally, the lack of interoperability on consoles from different manufacturers was validated by another article from Ip and Jacob. The territorial lock-out advocated by video games companies as a strategy had two main justifications – “market-related issues (such as piracy protection and localisation), and to enhance software quality.”(Ip and Jacob (b) 519) Territorial lockout is difficult to maintain in this changing technological environment. The ubiquitous personal computer technology continues to demolish previous perceived barriers to technology. Therefore, the justification of companies maintaining it policy of non-interoperability is incompatible with globalization and standardization business practices. Ip and Jacob’s study is an important revelation for industry players. They may have to rethink their strategies to keep up with the times.

Works Cited

Aoyama, Yuko and Izushi, Hiro, “Hardware Gimmick or Cultural Innovation? Technological, Cultural, and Social Foundations of the Japanese Video Game Industry.” Research Policy, 32 (2003), 423-444.

Background of Video Games. 2008. Web.

Chronis, George T., “Videogame Biz Sets New Revenue Record.” Video Business, 27(4) (2007), 5.

Funk. Jeanne. “Reevaluating the Impact of Video Games.” Clinical Pediatrics, vol. 32. no. 2, 86-90. 1993.

Ip, Barry and Jacobs, Gabriel, “Quality in the Games Industry: An Analysis of Customer Perceptions,” International Journal of Quality & Reliability Management, 23(5) (2006), 531-546.

Ip, Barry and Jacobs, Gabriel (b) “Territorial Lockout – An International Issue in the Videogames Industry,” European Business Review, 16(5)(2004), 511-521.

Johns, Jennifer, “Video Games Production Networks: Value Capture, Power Relations and Embeddedness.” Journal of Economic Geography, 6(2006),151–180.

Newman, James, Videogames. London: Routledge, 2004.

Pearce, Celia, “Games as Art: The Aesthetics of Play,” Visible Language; 40.1(2006), 66-89.

Provenzo, Eugene. Video Kids. Cambridge: Harvard University Press, 1991 47-48.

RocSearch Ltd. “Video Game Industry,” , 2004-2005, 2008. Web.

The First Fighting Game That Let You Just Be Friends. Take Greatest Games of All Times. Mortal Kombat II. Midway 1993. 2008. Web.

Williams, Dmitri, “Structure and Competition in the U.S. Home Video Game Industry” The International Journal on Media Management, 4(1)(2002), 41-54.

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