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The Economics of the video game industry are a key part of its existence. A vast majority of games are made by for-profit organizations, with the few exceptions mostly being low-budget affairs.
Methods of Revenue
The main source of revenue for the video game industry is a combination of hardware and software. Hardware companies, most notably Nintendo and Sega, sell game systems typically in the $100 to $400 range, depending on the age of the technology and its exact specifications. However, game consoles are usually sold for a minimal profit, or even sometimes at a loss. Therefore, the main source of profit for these companies, like most gaming companies, is software.
Traditionally, the cost of a retail console game on optical media has been approximately $50 for a new, high quality game. Lower budget games might be priced as low as $20. Cartridge-based games typically cost as much as $60, but after Nintendo switched to optical media in 2001, prices went down to $50. However, starting in late 2006, certain companies began charging $60 for what they considered "next-gen" games. These higher prices did not deter sales, so that by 2012, $60 has replaced $50 as the standard price of a high-budget console game. However, less expensive games are still released on consoles, for as low as $20.
Handheld games, meanwhile, typically cost $30 until the Nitro-era, with some games rising as high as $40. Even since 2006, however, $40 is widely seen as a top price for handheld games.
The price of software goes in several directions. First, a portion of the cost goes to the store or establishment selling the game. Some money goes to the game's publisher, some to the manufacturer, some is sent to the creator of the hardware hosting the game, and typically under 10% goes to the actual game developers.
Although the retail format remains the chief method of making revenue from games, a number of other methods have risen over the years. Most notable are digital downloads, which cut out many of the middlemen by forgoing manufacturing and shipping costs, as well as sometimes even publishing costs.
Other methods of revenue include: paying to play a game for a period of time, like in many online games; downloadable content, which adds to an already purchased game; micro-transactions, which grant players special bonuses or in-game items and effects; in-game advertisements, especially in licensed games; and simply asking for donations, via in-game links to developer websites.
Size of The Gaming Industry
The exact size of the video game industry is hard to gauge, especially outside of major countries such as the United States and Japan. However, it is known that the video game industry makes tens of millions of dollars a year, with many estimates saying that revenues should exceeded $50 billion in 2012.
Hardware Sold per Year
Video game consoles sell over years of time, with peak sales typically happening a few years into a system's life. Typically, Nintendo and Sega combined have sold about 19 million units of console hardware a year from 2007 to 2012, with exact figures going as high as 25 million and as low as 13 million. However, it should be noted that the years since 2006 have been abnormally high, as the console market remained relatively stable from the fourth to the sixth generations.
The Game Boy series, meanwhile, has enjoyed historic success since 2006. Over the past seven years, an average of about 30 million Game Boys of various models have been sold a year, a far larger number than video game consoles. However, it should be noted that Game Boys are usually sold at a lower price than consoles, meaning the revenue generated is similar to the console market's.
Software Sold per Year
In general, the average modern console sells an average of about nine units of retail software per unit of hardware. Therefore, despite the rapidly falling costs of some retail games, notably more money is spent on software than on hardware. The seventh generation of consoles alone has sold over a billion retail software units.
Typically, Game Boys sell a lot less software than consoles, about five units of retail games per unit of hardware. However, due to the far greater number of Game Boys, a similar number of retail games were sold during the seventh generation, about one billion.
Accessories Sold per Year
Accessories is a catch-all term for video game related items that are not classified as either hardware or software. They include specialized controllers, headsets, keyboards, cables, etc. The revenue generated by these items is by far the lowest of the three main sectors of the industry, as well as the most volatile.