Video Games: The Dominant Form of Electronic Entertainment

Published - Dec 2001| Analyst - Mark Walker| Code - IFT029A
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Report Highlights

  • The cyclical nature of the market will drive sales downward to about $28 billion in 2006, at an average annual growth rate (AAGR) of -0.4% from 2001.
  • Software sales dominate the market throughout (more than 60% by 2006) and will maintain a rising AAGR of 2.8% through 2006, but sales will decline from its own peak in 2004.
  • New console introductions are likely to reinvigorate the market beyond the forecast period.



The first wave of home video games was launched nearly 30 years ago. By the early 1980s, this electronic entertainment medium had emerged as a cultural phenomenon, thanks to classics such as Asteroids, Centipede, Donkey Kong, and Pac-Man. The world of video games has, of course, changed drastically since then. For starters, Microsoft, Nintendo, and Sony are now the key players in the console industry, having replaced Atari, Coleco, and Mattel for that top spot. Advances in technology are making game worlds more realistic and interactive than ever before. The result is a new breed of fresh and exciting game genres that people in the early 1980s could only dream about. Audiences have also expanded. Once a pastime dominated by American and Japanese adolescent boys, as was the case 20 years ago, more men and women of all ages, worldwide, are now playing video games.

And the 'game' is far from over. Despite an economic downturn, the global video game industry remained strong during 2000, managing to bring in over $18 billion in total revenue. The future looks even brighter. With five next-generation systems (Dreamcast, Xbox, PlayStation 2, GameCube, and GameBoy Advance) on the market this year, the industry expects a strong retail holiday season. The excitement lies in the latest technologies behind these gaming machines. Faster processing speeds, greater memory, online capabilities, and DVD media formats offer new and exciting opportunities to electronic entertainment software companies. This report is designed to help industry professionals and associates understand how the next wave of console systems will impact the domestic and international markets from 2001 to 2006.


The video game industry is a cyclical traditionally impacted by new hardware. As an influx of next-generation systems fills the market, consumers will adopt the latest technology because of the noticeable impact it has on the quality of available games. Communications Co., Inc. (BCC) believes that the video game console and software markets will post significant gains over the next couple of years. Technological innovations should play a crucial role in the direction that this industry takes. For example, Sony, Sega, Microsoft, and Nintendo are interested in the online console gaming market. Other console game applications, as we shall see, are also possible.

With Microsoft's entry into the console manufacturing sector and Sega's departure, some important questions have arisen. Many industry insiders and analysts believe that the video game industry will continue to thrive, but a number of them have expressed doubts as to whether the market can support more than two 128-bit next-generation consoles. This report will offer predictions on how the GameCube, PlayStation 2, and Xbox will fare, and examine the critical factors that should ultimately determine which of the systems gains mainstream acceptance. Profiles of the major console manufacturers, including financial data, corporate leadership listings, and company histories are also included.


This report is intended for corporate leaders who either work in or have affiliation with the video game software and hardware industries. Professionals involved in these two fields' development, manufacturing, and marketing sectors will particularly find BCC's market information and forecasts of interest. The following is a list, though not all-inclusive, of those professionals that will benefit from this report:

  • entrepreneurs
  • corporate officials
  • production managers
  • development team directors
  • merger, acquisition, and investment executives.


Video games, by combining technology and fun, have become a formidable in today's entertainment-savvy culture. This report will help readers understand all aspects of the industry so that they can better grasp current market conditions and the opportunities available. Included in this report is a history of video games, a detailed look at video game genres, analyses of the current and upcoming console systems, and perspectives on piracy and game ratings. Of course, sales forecasts are presented for console units and video game software sales, as well as for other sectors, such as the online gaming market. Data is often listed in tables and figures with accompanying commentary. The report also includes contact information for companies and organizations involved in various aspects of the industry, from studio development to retail.


Information in this report comes from a number of sources. Personal contacts with major video game publishers and developers provided insights on various aspects of the industry. Organizations such as the Interactive Digital Software Association (IDSA) permitted inclusion of statistics from their websites. Additional data was gathered from company press releases, online periodicals, and other industry-related literature. Based on a consensus of information and a variety of economic formulas, the BCC was then able to calculate market projections for key sectors of the video game industry.

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