5 Leveraging local know-how to develop video game hubs

Introduction

The video game industry contributes significantly to economic activity in the hubs where it is located and to the leisure and relaxation activities of many people. Globally, the industry generated an estimated revenue of USD 184 billion in 2023.⁽¹⁾According to Newzoo (2023). Free Edition: Global Games Market Report, 2023. Available at: https://newzoo.com/resources/trend-reports/newzoo-global-games-market-report-2023-free-version. Revenue is distributed between mobile (49 percent), console (30 percent), personal computer (PC) (20 percent) and browser (one percent) games.⁽²⁾Tencent, Sony and Apple generate the most revenue from video games according to Newzoo (2023). Free Edition: Global Games Market Report, 2023. Available at: https://newzoo.com/resources/trend-reports/newzoo-global-games-market-report-2023-free-version. In comparison, the second largest entertainment industry, the movie industry, generated revenue of USD 99.7 billion dollars in 2021.⁽³⁾This represents 24 percent growth from 2020 and surpasses the pre-pandemic 2019 total. See Motion Picture Association (2021). Theme Report 2021. Available at: www.motionpictures.org/research-docs/2021-theme-report.

Big-budget video games now have budgets that rival big-budget movies. For example, in 2023, the video game Cyberpunk 2077 cost USD 441.9 million compared to Fast X, the most expensive film released that year and which cost USD 340 million. Apart from its overall contribution to economic activity, the video game industry also creates high-skilled, high paying jobs. Between 2018 and 2022, video game industry workers earned one to three times the average wage in Finland, Japan, Poland and the United States of America (US).⁽⁴⁾See Shrider, E.A., M. Kollar, F. Chen and J. Semega (2021). Income and Poverty in the United States: 2020. United States Census Bureau. Available at: www.census.gov/library/publications/2021/demo/p60-273.html; OECD (2023). OECD Data: Average wages. Organisation for Economic Co-operation and Development. Available at: https://data.oecd.org/earnwage/average-wages.htm; Glassdoor. (2023). How Much Does a Game Developer Make in Poland? Game Developer Salaries. Available at: https://www.glassdoor.com/Salaries/poland-game-developer-salary-SRCH_IL.0,6_IN193_KO7,21.htm; Game Makers of Finland. (2022). Finnish Game Industry Salary Survey 2022: Results and Conclusions. Available at: https://peliala.fi/wp-content/uploads/2023/03/Game_Makers_of_Finland_Salary_Survey_Results_2023.pdf; and, Salary Explorer. (2023). Game Developer Average Salary in Japan 2023. Salary Explorer. Available at: https://www.salaryexplorer.com/average-salary-wage-comparison-japan-game-developer-c107j10578#:~:text=Average%20Monthly%20Salary%0A%0A471%2C000%20JPY%0A%0A,735%2C000%20%20%20%0AJPY

Video games are being consumed by more and more people. It is estimated that over three billion people play video games every year. Players are also diverse. In Poland, 47 percent of video game consumers are women, while in the United States women account for 48 percent of gamers.⁽⁵⁾ESA (2022). Essential Facts about the Video Game Industry. Entertainment Software Association. Available at: www.theesa.com/resource/2022-essential-facts-about-the-video-game-industry. Most games are casual mobile games such as the hits Angry Birds and Candy Crush Saga, although PC and console games continue to be very popular. Despite the benefits of video game development hubs, they are still relatively rare, and many countries have little to no such economic activity. What explains why video game development and publishing hubs have appeared and clustered in certain regions?

This chapter uses four case studies to illustrate how economies accumulate, diversify and apply knowledge. The case studies are the video game industries of Japan, the United States, Finland and Poland. As shown in Figure 5.1, these four economies account for almost 43 percent of all game development studios, with the United States and Japan having the highest and third highest number of studios, respectively, the second highest being the United Kingdom (UK). These cases have been selected to represent a diversity of success stories in the leveraging of local capabilities to develop video game industries. This chapter describes the nature of the video game industry and presents the four case studies mentioned. It briefly discusses the industrial policy in video game hubs and concludes with recommendations for policymakers. Key takeaways include the need to leverage technological and cultural strengths, the value of adaptability, and the importance of fostering entrepreneurship and mobility.

Not just a game: the nature of the video game industry

The video game industry encompasses all economic activity related to developing, marketing and monetizing video games, and its stakeholders include developers, publishers, distributors, retailers, hardware manufacturers and consumers. The industry today spans consoles, PCs, mobile devices, and browser and cloud services. Key components of the industry include game development; publishing (both physical and digital); hardware (including consoles, headsets and other accessories); electronic sports (esports) and competitive gaming; and community and support services.

Within the video game industry two main players are key to bringing a game to market: the publisher and the developer. Publishers finance and promote the game, while developers, who can be either independent individuals or large companies, are tasked with the actual game creation. With games becoming more complex, the process of game development has also become more intricate and challenging.

Producing a video game involves significant risk, primarily due to the unpredictability of a game's popularity. This uncertainty is heightened by the increasing costs associated with game development, which have escalated in recent years. This change is evident in the growth of development teams. For example, in 1995 an average development team comprised about 26 people (see Figure 5.2). By 2015, this figure had risen to approximately 94 people, illustrating a substantial increase in staffing and, consequently, development costs.

In this intricate landscape, the role of publishers has evolved. Many have taken on development roles, integrating vertically to better control production, distribution and marketing. This vertical integration that started in the 2000s reflects a strategic response to the economic realities of the industry, aiming to streamline operations and leverage synergies between development and distribution. Major publishers such as Activision and Electronic Arts have acquired several smaller development studios, a strategic move to create efficiencies and manage escalating costs. These consolidations reflect the increasing economic complexity of the global video game industry.

Multi-players: economic complexity and relatedness in the video game industry

The video game industry is a dynamic and multifaceted sector, with deep ties to and dependencies on other industrial sectors such as computing and entertainment. The industry not only mirrors these other sectors in terms of product diversity and expertise but also shares a complex network of skills, technological advancements and market strategies. Central to this interconnectedness are transferable skills such as graphic design, software development and storytelling. These skills are pivotal in driving innovation across various gaming segments, allowing for a seamless blend of elements from different genres and media forms. This fusion has given birth to a diverse entertainment ecosystem, enriching the gaming experience and expanding its audience reach.

Technological advancements, particularly in computing areas such as virtual reality (VR) and mobile technology, have had a profound impact on the video game industry. These innovations have not only enhanced gameplay but also broadened the industry's reach, making games more accessible and engaging. The trend toward cross-platform playability is a testament to this, both improving user experience and opening new markets.

The industry's market and audience overlap is significant, with gamers frequently engaging in various game types across multiple platforms. This overlap is a driving force within the industry’s ecosystem, where the success of one segment, such as video game development, can spur growth in related areas, such as hardware sales. This interdependence is complicated by the industry's extensive global supply chains, which encompass development, production and distribution across many countries. This global interconnectedness is a cornerstone of the industry's capacity for innovation and market expansion and a testament to its complexity. Evidence from patent filings in Figure 5.3 suggests that international collaboration in video game innovation is quite common but may have declined over recent years.⁽⁶⁾Balland and colleagues anticipated and proposed two explanations for this trend towards decreasing international collaboration. First, given the project-based and flexible nature of work within the industry, tasks and objectives are often more ad hoc and thus less easily communicated and appreciated remotely. Second, the increasing complexity of videogame development tends to favor having teams located in geographical proximity so that they can quickly experiment, tinker, and troubleshoot together. The decline in international collaboration on videogame patenting is further evidence of the growing economic complexity of this industry. See Balland, P.-A., De Vaan, M., & Boschma, R. (2013). The dynamics of interfirm networks along the industry life cycle: The case of the global video game industry, 1987–2007. Journal of Economic Geography, 13(5), 741–765. Available at: https://doi.org/10.1093/jeg/lbs023. More recently, Oguguo tracks innovation and complexity in the video game industry, highlighting the link between technological innovation and changing business models in the video game industry. See Oguguo, P. (2024). Innovation and Intellectual Property Use in the Global Video Game Industry. WIPO Economic Research Working Paper No. 85. World Intellectual Property Organization.

Moreover, the economic complexity of the video game industry is evident in its product diversity, ranging from large-scale AAA titles to indie games developed by smaller teams.⁽⁷⁾In the video game industry, AAA (pronounced 'Triple-A') titles refer to videogames that are of a high quality, have a high budget, and are produced and distributed by major publishers. It is also evident in the diversity of roles the industry encompasses. From game designers, programmers and artists to marketing, business development and user experience experts, each role brings specialized skills and contributes uniquely to the development and success of video games. The industry benefits from interdisciplinary collaboration whereby these varied roles work together to create a cohesive gaming experience. The diversity of roles and skill sets within this industry has grown over time as shown in Figure 5.4. This growth has largely been to accommodate consumer expectations for more sophisticated games that can be played on more platforms, as well as technological advances in related fields such as artificial intelligence (AI) and VR.

In summary, the video game industry's evolution is a tale of increasing economic complexity, spurred by technological advances in related industries, product diversification and strategic corporate responses. As the industry continues to grow and diversify, understanding these facets of economic complexity becomes increasingly important for policymakers and other stakeholders aiming to navigate the myriad challenges and opportunities that define this vibrant sector.

Global Gamedev: four case studies

The video game industry is multidisciplinary, building on a wide range of capabilities. The following sections discuss the crucial early know-how and development trajectories of the video game hubs in Japan, the United States, Finland and Poland.⁽⁸⁾For more details about the history and nature of the video game hubs in these countries, see Özalp, H. (2024). Heterogeneous development paths to growth and innovation: The evolution of the video game industry across four hubs. WIPO Economic Research Working Paper No. 84. World Intellectual Property Organization.

The aim of these case studies is to provide a historical perspective on the path-dependent development of industry know-how in each nation’s key hub. These four countries were chosen based on two dimensions. On the one hand, it was important to consider and compare countries that established a video game industry earlier rather than later. On the other hand, it was important to consider countries that represent different trajectories of capability development, as well as the eventual positioning of their industry, for example, local specialization in mobile versus PC and console games.

Notably, Japan and the United States were both early movers into the video game industry building primarily on world-leading know-how related to electro-mechanical devices and computing, respectively. Naturally, they also represented a very high share of the global gaming industry and continue to do so today. In 2000, the top three clusters were Tokyo (~200 developer or publisher firms), Los Angeles (~100 firms) and San Francisco (~70 firms), and among the top 10 clusters only London, Paris and Vancouver were neither Japanese nor American.⁽⁹⁾For an examination of clustering within the global video game industry between 1972 and 2007, see De Vaan, M., Boschma, R., & Frenken, K. (2013). Clustering and firm performance in project-based industries: the case of the global video game industry, 1972–2007. Journal of Economic Geography, 13(6), 965–991. Available at: https://doi.org/10.1093/jeg/lbs038 Although Japan and the United States remain hubs for the global gaming industry, many other countries have also grown significantly, with the Chinese market already ranking second after the US market in terms of revenue, having overtaken the Japanese market.

Finland and Poland are newer entrants into this industry, building primarily on computer art and programming hobbyist culture and translation/video game localization know-how, respectively. Poland developed its local video game industry mostly by focusing on PC and console games, and already has many AAA successes, which is rare for a newer hub. Finland has a long history of mobile games and is still a leading hub in this segment. In addition, these two countries followed a separate developmental trajectory, showcasing different yet eventually successful paths for video game hub development.

Japan: pioneering video game development

According to gamedevmap, a catalogue of game development organizations, there were 242 video companies in Japan in 2023, including developers and/or publishers.⁽¹⁰⁾Based on data from gamedevmap. Almost 70 percent of these companies were in the Tokyo region, with roughly 15 percent in the Kyoto and Osaka regions, respectively. The big five companies alone (Sony, Nintendo, Square Enix, Sega and Capsicum) employ around 30,000 people.⁽¹¹⁾Based on filings from Sony, Nintendo, Square Enix, Sega and Capsicum. The share of women employees within the gaming industry in Japan was 25.85 percent in 2017.⁽¹²⁾Based on analysis of Mobygames data using WIPO’s World Gender Name Dictionary.

The current structure of the industry has been greatly affected by mergers and acquisitions, with Bandai Namco, Sega Sammy and Square and all being the product of mergers in 2003–2005. Japanese developers/publishers have been acquiring overseas firms over the last two decades, with a large recent example being the 2023 acquisition of Rovio Entertainment by Sega Sammy Holdings for EUR 706 million.

Japanese developers were pioneers within the global video game industry. The start of the industry can be traced back to Nakamura Seisakusho, a leading manufacturer of coin-operated amusement rides. In the 1960s, Nakamura Seisakusho, later known as Namco, partnered with Walt Disney Productions, thereby obtaining the resources it needed to start manufacturing electromechanical games such as the hit Periscope. The two important early video game successes within the industry were Space Invaders by Taito (1978) and Pac-Man by Namco (1980), which together ushered in the Golden Age of the Arcades and a boom for many Japanese arcade game developers in the years that followed.

That was until the video game crash of 1983 (known as “Atari Crash” in Japan), which happened due to the market becoming oversaturated with dubious quality games and a lack of quality control. In the same year, Nintendo released its Family Computer (Famicom) in Japan, later redesigned and released in the United States (in 1985) and Europe (in 1986) under the name of Nintendo Entertainment System (NES). NES became a big success, partly due to Nintendo’s use of security chip access to control which games could be released and played on its platform.⁽¹³⁾This also allowed Nintendo to have very tough business terms, for which it was later fined USD 25 million by the US Federal Trade Commission. As the NES succeeded greatly worldwide, it proved to be a boon for many Japanese developers that released games for the NES. Tokyo and the wider Kanto region was and remains the main hub of the industry by far. That said, Kyoto and Osaka host key companies such as Nintendo (Kyoto) and Capcom (Osaka).

Sony’s release of PlayStation in 1994 in Japan had a big impact on the console market by bringing both 3D gaming and CD-ROMs to mainstream gaming, with the CD-ROM technology building largely on Sony’s own R&D and proprietary knowledge. This period saw Sony become the global market leader ahead of Nintendo, Sega and others, despite being a later entrant, solidifying the dominance of Japanese consoles globally.

The period shortly after Sony’s entry represents Japan’s peak market power within the industry, with Japan dominant in the global console hardware and software market. However, this dominance did not extend to the PC market where the Japanese video game industry was already mature and not showing much growth.⁽¹⁴⁾For a detailed history of the Japanese video game industry, see Koyama, Y. (2023). History of the Japanese Video Game Industry. Springer Nature, 2023; and, Özalp, H. (2024). Heterogeneous development paths to growth and innovation: The evolution of the video game industry across four hubs. WIPO Economic Research Working Paper No. 84. World Intellectual Property Organization.

Following the release of PlayStation 3, console architecture had become so complex that many developers were finding it difficult and expensive to develop games for that platform. It was during this period that handheld games consoles had their second major boom (the first was 1996–1998 with the release of Pokémon for Gameboy) in Japan, with Nintendo DS and PlayStation Portable (PSP) having a high number of game releases. This is because handhelds were cheaper and easier to develop.

The latter half of the 2010s saw a comeback for Japanese video game developers. This was for several reasons. First, by leveraging those niches in which Japanese developers were successful, they created new global hits, culminating in the global multiple award-winning hit game Elden Ring. Second, Nintendo Switch, the innovative hybrid stationary and mobile gaming console released in 2017, became a success, creating opportunities for many local developers and working equally well with small or big-budget titles. Third, both new and established Japanese developers embraced mobile games, which occupied a rapidly growing segment. Finally, Japanese developers had begun to adopt outsourced technology. In particular they increased the use of licensed game engines, something that Japanese developers were hesitant to do compared to their counterparts in the United States and Europe.

Nowadays, the Japanese gaming industry is vibrant, both in leading advances in technologies such as AR/XR/VR and having significant market shares across all video game segments. In addition, the largest hub, Tokyo, is benefiting from a booming start-up scene, with new gaming firms betting on new technologies such as Web 3.0. Finally, the convergence of the console market with the PC market has helped Japanese developers that have traditionally focused on consoles, since PC is an important segment for selling games to global audiences. As such, sales of major Japanese developers have again become competitive worldwide, with many games becoming global hits.

United States of America: two hubs dominate

The video game industry in the United States emerged simultaneously on two fronts. The arcade segment represented the more commercial effort, which got a boost when newly founded Atari released Pong in 1972. Arcades reached the zenith of their technological development and cultural influence during the 1980s and 1990s, a period today known as the Golden Age of Arcades. However, the earliest computer games were developed for mainframes and minicomputers, with the very first one being Spacewar! developed at MIT in 1962.

Since mainframes were only available in universities and large corporations, and minicomputers (despite being relatively smaller and cheaper) were still more suited to organizations than individual consumer adoption, video games for computers were a small niche focusing largely on microcomputer users. This tradition of making video games for general-purpose computers is a major difference between the US video game industry and that of Japan.

While Japanese video game producers are known to have found success by building highly successful consoles, the only major recent US console success is the Xbox manufactured by Microsoft, a major PC company. Unlike other major consoles, its architecture makes many of its games PC-compatible. Nonetheless, the US and Japanese video game industries were linked early on, most notably with the acquisition of the Japanese division of US game developer Atari by Japanese company Namco in 1974.

Early on, two hubs stood out in the United States: California – with Silicon Valley and to some degree Hollywood – and the Seattle metropolitan area, which includes Seattle, Redmond and Bellevue. At the start of the video game industry, Silicon Valley and Hollywood were already renowned as hotbeds of technology and entertainment industry talent. The Seattle metro area, however, rose to prominence as companies such as Nintendo of America and Microsoft made it the location of their respective headquarters and DigiPen Institute of Technology, the first university to offer training specifically for careers within the video game industry, started operating in the region during the 1980s. This inevitably created a concentration of capabilities and talent in key fields relevant for video game production. Following the Video Game Crash of 1983, many developers moved from console to PC development. Some developers founded during this period such as Electronic Arts (EA) went on to become among the most influential and important within the industry.

The launch of Windows 95 in 1995 and Microsoft’s presence in Bellevue, Washington, encouraged the founding of new game developer firms in that state. Valve is one particularly important developer, founded by ex-Microsoft employees in 1996 in Kirkland, Washington. It became famous for its debut title, Half-Life, considered a major milestone in the first-person shooter genre. But it was the launch of Steam, the digital distribution platform of Valve, that changed the industry fundamentally.

Around the mid-2000s, PC gaming was declining relative to the console market, and unlicensed consumption was contributing to this decline. It was increasingly difficult to justify quickly rising PC games’ budgets when consoles were similarly capable and had less unlicensed consumption. Digital distribution through Steam helped reduce unlicensed consumption, though it also reduced the power of retailers and opened a new avenue for indie developers. Together with the availability of free or cheaply licensed game engines and crowdfunding, thousands of smaller developers could now distribute games at a lower upfront cost. Console manufacturers have since created their own digital distribution platforms with an eye on growing their own base of indie developers. These console manufacturers have actively supported indie developers with programs such as Xbox Live Arcade, which introduced many indie games to console gamers.

The late 2000s also saw an expansion of the industry thanks to the dual growth of social and mobile gaming. Social gaming grew virally with Zynga’s games on Facebook such as Farmville launched on Facebook in 2009. Nowadays, social gaming is in decline, whereas mobile gaming has continued to grow. In combination, these segments have created a new demand for games and opportunities for many new and existing game developers.

In recent years, the industry has been consolidating. On the one hand, many of the social and mobile gaming companies have been acquired by large incumbents. For example, Zynga was acquired by Take-Two software in 2022 (for USD 12.7 billion), King (Candy Crush) was acquired in 2016 by Activision Blizzard (for USD 5.9 billion), and Activision Blizzard itself was acquired by Microsoft in 2023 for USD 68.7 billion. In parallel, cloud gaming, cross-play and other innovations have accelerated convergence across different hardware, with industry actors such as Microsoft, Google and Epic Games pushing the industry forward on this front. In addition, established developers and venture capital-backed start-ups are already exploring the use of generative AI-based game development tools.⁽¹⁵⁾San Francisco-based tech company Scenario raised USD 6 million ahead of the early access launch of its generative AI engine according to, Dealessandri, M. (2023). Scenario raises $6m ahead of AI-powered art engine early access. Games Industry.biz. Available at: www.gamesindustry.biz/scenario-raises-6m-ahead-of-ai-powered-art-engine-early-access. The US video game industry is home to the most important digital game distribution platforms such as Steam, App Store and Play Store. Along with Japan, it is a leading source of innovation in video game technologies as already shown in Figure 5.5.

According to the Entertainment Software Association’s 2020 Economic Impact Report, the US video game hub supports over 143,000 direct jobs. Although there is no authoritative data on the share of women within this industry, numbers from a few major gaming firms suggest it was around 24 percent, in 2020.⁽¹⁶⁾The percentage of women globally at Activision Blizzard, Unity and Electronic Arts was around 24 percent, in 2020 and 2021, according to Burton and Carson. Most Big Tech companies, including Facebook and Google, are above 30 percent. See Burton, A. and B. Carson. (2022). The gaming industry is only just beginning to address its diversity problem. Protocol. Available at: www.protocol.com/workplace/gaming-industry-diversity-reports.

In terms of esports revenues according to Statista, the United States comes second after China.⁽¹⁷⁾Esports has grown into a global industry, with players, sponsors and spectators contributing to its popularity and economic significance. Esports competitions often attract both online and offline audiences. For more information on market sizes, see Statista (2023). Revenue of the esports market in selected countries worldwide in 2023. Statista. Available at: www.statista.com/forecasts/1130696/esports-revenue-share-country.The United States has a very lively and developed esports scene, with well-developed leagues, esports organizers and organizations.  Many of the esports teams in the United States are essentially companies, some of which, such as FaZe Holdings, are publicly listed.

Finland: impact of the demoscene

The Finnish video game industry is today considered to be a mobile games pioneer. But it did not start out that way. The early adoption of video game-oriented PCs from developers such as Amiga and Atari ST gave rise to many teenage hobbyists in the late 1980s and early 1990s. These teenagers then started spending the cold, dark winters tinkering with their PCs ultimately laying the foundation of “demoscene” subculture.⁽¹⁸⁾As of April 2020, Finland added the demoscene to its national UNESCO list of intangible cultural heritage of humanity. This is a subculture in which programmers and artists come together and try to do impressive computer audiovisual demos with limited hardware.

Although the Finnish video game industry did not bloom immediately, the local pool of capable programmers and artists that flourished in the demoscene, together with the largest demoscene event, “Assembly,” eventually came to play crucial roles in the development and evolution of the Finnish mobile games industry. The history of Finland’s video game industry exemplifies how video game technologies are related and how skills developed for one platform can often be transferred to another. Figure 5.6 visualizes how video game contributors may take know-how developed on one platform to projects on another. Video game development skills are transferrable across platforms; however, for contributors that switch platforms, PC and mobile are the most common destinations.

By the early 1980s, individual programmers were publishing games for Commodore 64 through Amersoft. But these were mostly one-off, individually authored games. The first professional video game development firms were not established until 1993. They included Bloodhouse and Terramarque, which went on to merge in 1995 to become Housemarque. The Greater Helsinki Region was and is the main hub for video game development in the country.

In 2001, Remedy Entertainment, founded in 1995 by members of various demoscene groups, scored the first big international success by a Finnish game developer, Max Payne, which inspired the foundation of other game development firms in Finland. Around the same period, Nokia, the Finnish global leader in mobile phones, was increasingly interested in mobile games. In 2003, Nokia launched the N-Gage, a hybrid of a handheld game console and a mobile phone, something that was unique at the time. Around the launch of N-Gage, many mobile developers got funding from Nokia to start their own mobile game development firms, with many of the founders coming from the demoscene. Since mobile phones at that time – including N-Gage – had limited hardware compared to PCs and consoles, the expertise that demoscene programmers and artists had gained from working with limited hardware was a perfect fit. For example, Rovio Entertainment (known for Angry Birds) was founded in 2003 as Relude, after the three founders competed in and won an award at the Assembly mobile game jam sponsored by Nokia and Hewlett-Packard. That victory gave them the necessary resources and visibility (which eventually resulted in them having a publisher to work with) to found the company.

Nokia ended up scrapping N-Gage in early 2006, as it failed to meet sales targets. However, Nokia’s push for mobile games had been key in the formation and support of the mobile gaming developer ecosystem, which became even more successful with the advent of modern iOS and Android smartphones. The launch of the widely adopted iPhone 3GS in 2009 was an important turning point, as, in addition to popular adoption, iPhone’s hardware, together with the App Store, proved to be well suited for gaming. It was also in 2009 that Rovio released Angry Birds, which became a big hit worldwide.⁽¹⁹⁾Angry Birds was Rovio’s 52nd game release. Despite the collapse of Nokia’s mobile technology division in the early 2010s, the company continued to play a major role in the development of the video game industry by offering funding and training that enabled laid-off employees to start hugely successful video game development companies. According to Finnish industry association Neogames, there were 232 active studios in Finland in 2022, 48 percent of them located in the Helsinki metropolitan area. They employed 4,100 people, 20 percent of them women, with a total turnover of EUR 3.2 billion, which is ten times the turnover in 2012.⁽²⁰⁾For more information about the current state of the Finnish video game industry, see Neogames (2023). The Game Industry of Finland: Report 2022. Available at: https://neogames.fi/wp-content/uploads/2023/05/FGIR2022report.pdf. To put the size and growth of the industry into context, there were 70 active studios in 2010, and 180 studios just two years later in 2012. Finland now also has a developed esports scene, which has received a boost from institutional developments, including the official recognition of esports players as athletes in 2017. This gives tax benefits to players at the end of their playing careers, which is often in their 30s. These tax benefits incentivize more esports talent to take up esports as a career. In addition, in 2019, the Finnish Esports Federation (SEUL) became a full member of the Finland Olympic Committee. Esports growth in Finland has also led to an increase in esports betting.

Lately, Finnish development companies have attracted international acquirers, as global industry consolidation has increased. Major deals include the acquisition of 80 percent of Supercell by Chinese video game giant Tencent in 2016, and Housemarque being acquired by Sony Interactive Entertainment in 2021. In total, there were seven acquisitions between 2021 and 2022.

Poland: development through localization

The first notable video game developers based in Poland’s capital Warsaw appeared in the early 1990s around the time the country was transitioning to a market economy. Developers such as Mirage Media (founded as Studio Komputerowe AS in 1988) and Metropolis Software (founded in 1992) quickly achieved national and sometimes European success. Mirage Media was set up to create hardware such as tape-recording systems and custom disk drives for 8-bit computers. Eventually, Mirage Media started developing its own video games and distributing third-party games for 8- and 16-bit computers in Poland.⁽²¹⁾Mobygames gives a brief history of Mirage Media, see Mobygames (n.d.). Mirage Media S. C. Available at: www.mobygames.com/company/1109/mirage-media-s-c. Accessed March 12, 2024.

In 1994, CD Projekt was established to import CD-ROM games for Polish consumers. In response to a widespread consumption of unlicensed video games, CD Projekt started offering Polish translations of game manuals, as an incentive for consumers to buy genuine versions of video games. In those years, game manuals of over a hundred pages in length were not uncommon. The scope of CD Projekt’s localization efforts grew, moving beyond translating only the game manual. CD Projekt’s first big success came from its fully localized release of Baldur’s Gate, a text-heavy role-playing game released by BioWare in the United States in 1999. Baldur’s Gate was a global hit, for which CD Projekt translated not only hundreds of pages of in-game text and dialogue, but also hired famous Polish actors to voiceover the in-game speeches made by the game’s cast of characters. The game became the biggest success for the firm at that time, providing enough funds and vital connections for it to start developing the first game in the Witcher series, which transformed the Polish gaming industry into one of the main global players and made it a key financial and cultural export for the country.⁽²²⁾The game sold 18,000 units on its first day of release in Poland, compared to sales of 1,000 to 2,000 for past releases of CD Projekt according to, Pitts, R. (2014). How the team behind The Witcher conquered Poland. Polygon. Available at: www.polygon.com/features/2014/7/16/5884227/cd-projekt-the-witcher-3. Witcher’s development had troubles, and BioWare – the developer of the Baldur’s Gate series – ultimately had to provide CD Projekt with a license to BioWare's Aurora 3D game engine. BioWare also provided CD Projekt with a space at the E3 convention in the United States, which helped CD Projekt to secure a global publisher for Witcher.

The initial success of the Witcher release in 2007 kickstarted the growth of the video game industry in Poland, as many employees of CD Projekt began to spin-off their own development studios in the Warsaw area and in Poland more broadly over the years that followed. However, it was the global hit Witcher 3, released in 2015, that proved to be a turning point for the industry both in terms of institutional support and the size of the industry, making it one of Poland’s key export industries.

Polish game developers continue to be highly active in the traditional AAA industry segment with PC and console games, competing with counterparts in more established hubs in the United States, Japan and other countries. According to the European Games Developer Federation’s report in 2021, among the games under development by Polish developers, 71.8 percent of games targeted PCs, whereas only 11.8 percent targeted mobile devices, the lowest among the countries surveyed.⁽²³⁾EGDF (2021). 2021 European Video Games Industry Insight Report. European Game Developers Federation. Available at: 2021 report:https://www.egdf.eu/video-game-industry-report2021.

According to the Polish Agency for Enterprise Development’s 2023 report, there were 494 development studios (including publishers) in Poland at that time, employing 15,290 employees, 24 percent of whom were women. The industry had an estimated total revenue of EUR 1.2 billion, 2.5 times the revenue in 2018.⁽²⁴⁾For more details, see Marszałkowski, J., S. Biedermann and E. Rutkowski (2023). The Game Industry of Poland – Report 2023. Polish Agency for Enterprise Development. Available at: https://en.parp.gov.pl/storage/publications/pdf/The_Game_Industry_Poland_2023_12_07.pdf. There were three hubs: the Warsaw region, accounting for 30 percent of firms in Poland, with the regions around the two southern cities of Krakow and Katowice representing 19 and 14 percent of firms, respectively. This likely means that Poland’s video game industry is less spatially concentrated than hubs in Japan, the United States and Finland, which may have implications for collaboration and the overall trajectory of the industry. 

Reaching the next level: video game industry development strategies

The evolution of the video game industry across various regions shows a dynamic interplay between local capabilities and global influences. While each region charts a distinctive path in developing its video game industry, there are underlying commonalities that thread these diverse experiences together.

In regions such as the United States and Japan, the genesis of the video game industry was driven by established world-leading sectors. The United States, with its robust computing industry, saw the birth of video games on mainframes and minicomputers. This industry later flourished alongside the PC revolution, exemplified by brands such as Atari and Apple. A significant boost came from an influx of creative talents from interactive art and animation, originally cultivated for Hollywood, who enriched the video game industry with high-quality content and storytelling.

Japan’s journey was similar. The country’s strong electromechanical amusement device manufacturing base initially focused on arcade games for public entertainment. With time and an influx of consumer electronics industry talent, this focus shifted toward home console gaming; a transition that broadened the industry’s reach. Additionally, the infusion of artistic talent from the anime and manga industries significantly enhanced the artistic depth and appeal of Japanese video games.

Conversely, some economies have taken a more grassroots approach to building their video game sectors. Finland, for example, witnessed the rise of its video game industry alongside demoscene culture, marked by a strong emphasis on hobbyist computer programming and art. The Assembly demoparty, a demoscene and gaming event, played a pivotal role in this development. The growth of Nokia and the subsequent demand for mobile games on its platform catalyzed the Finnish video game industry. This environment fostered a skills transfer from Nokia to the gaming sector, with many former Nokia employees founding game development companies.

In a case such as Poland’s, the video game industry’s development was more unconventional. CD Projekt, a leading Polish video game producer, initially began by translating game manuals. This humble beginning gradually evolved into localizing video games and, ultimately, developing original titles. This progression underlines the potential for growth and innovation, even with limited initial technical expertise.

Across these varied narratives certain common threads emerge. The video game industry’s growth often relies on leveraging existing local capabilities and industries, be they computing, electronics or entertainment. In general, entrepreneurship, labor mobility, collaboration and acquisitions have played a significant role in the development of the video game industry by enabling the transfer and adaptation of skills from related industries.

In summary, these four elements have collectively contributed to the vibrancy and continued evolution of the video game industry, driving innovation, expanding market reach and enhancing the overall gaming experience. Whether by spinning off from other established sectors or through grassroots approaches, the development trajectories of the video game industry in different regions reflects a blend of local innovation, global trends and cross-sectoral collaboration. Understanding these diverse yet interconnected paths provides valuable insights into the global dynamics of the video game industry and its future potential.

At the same time, the ability to exploit video game IP in diverse ways mitigates the risk associated with video game development by providing multiple revenue streams for developers. Movies based on video game IP had a record year at the North American cinema box office in 2022, thanks to the success of films such as Paramount’s Sonic the Hedgehog 2 and Sony’s Uncharted. In 2023, The Super Mario Bros. Movie became the first film based on gaming IP to gross over USD 1 billion (about USD 3 per person in the United States) worldwide and ranked among the 20 highest grossing films of all time. Meanwhile, Netflix has at least five movies based on video game IP in either the planning or production stages, while HBO Max's series The Last of Us, based on the eponymous video game, has further cemented the power of games as assets. ⁽²⁵⁾According to, PwC (2023). Perspectives from the Global Entertainment and Media Outlook 2023–2027. Available at: www.pwc.com/gx/en/industries/tmt/media/outlook/insights-and-perspectives.html. Notably, the highly successful Mario Bros. and Pokémon games have spawned numerous spinoff games and non-game merchandise. Overall, this trend indicates that gaming IP is increasingly valuable for rights holders. Figure 5.7 shows how global video game-related filings have grown, while Figure 5.8 shows how such filings are becoming increasingly diverse, as the top five filing categories come to represent a smaller share of total filings.

Finally, for many game developers and publishers, the ability to build on existing IP in new products is crucial. While it is difficult to predict the extent of any game's success in the market, games built on existing IP are lower risk ventures, as they can draw upon an established fan base more willing to spend money to acquire the new game. IP is important because, although most consumers expect novelty in a game, they also want some familiarity to be present, meaning there is a need to balance the two.⁽²⁶⁾Lampel and colleagues examine how managers within creative industries are typically faced with the problem of reconciling artistic values, on one hand, which are the basis for value creation within these industries, with economic considerations, on the other. See Lampel, J., T. Lant and J. Shamsie (2000). Balancing act: Learning from organizing practices in cultural industries. Organization Science, 11(3), 263–269. DOI: https://doi.org/10.1287/orsc.11.3.263.12503. Overall, 11.6 to 14.6 percent of new video games – excluding sequels – are based on prior IP, including movies, novels, comic books and other sources.⁽²⁷⁾Based on WIPO analysis of Mobygames data spanning 1950 - 2018.

Owing to customer expectations and rising development costs, publishers have increasingly focused on sequels, spin-offs of existing IP and more mainstream genres as a means of managing risk.⁽²⁸⁾In the video game industry (and the movie industry), the term ‘IP’ is often used as shorthand for a franchise rather than the broader set of intellectual property (although still referring to intellectual property). This usage can probably be attributed to the fact that a franchise (generally represented by a trademark) is the key type of intellectual property within this industry. According to Tschang, developers prefer to create completely new products not only for artistic reasons, but also because by creating original IP they can increase their bargaining power with publishers. See Tschang, F.T. (2007). Balancing the tensions between rationalization and creativity in the video games industry. Organization Science, 18(6), 989–1005. DOI: https://doi.org/10.1287/orsc.1070.0299. Often this clashes with the main priorities of development firms, which tend to want to focus on the artistic value of developing novel games with completely new IP. Moreover, when overdone, sequels and spinoffs based on existing IP can create franchise fatigue in gamers.

Controllers and creators: industrial policy in video game hubs

Seeing the evident benefits of video game industries to local economies, policymakers have made strategic moves in support of their development. They have done so by providing subsidies to the industry, as well as non-financial support for video game companies, particularly start-ups, and by investing in education that prepares people for careers within the video game industry.

Subsidies for R&D and cultural industries

Video game developers in Finland and Poland benefit from the European Union’s (EU) Horizon Europe program, which subsidizes research and development (R&D), and its Creative Europe MEDIA program, which has a sub-program dedicated to supporting video game developers in the EU. In addition, developers in these two countries may also benefit from national and local subsidy programs.

In Finland, Business Finland (formerly Tekes and Finpro), a government agency that funds R&D and game development, played a crucial role the initial years of many game developers, such as the highly successful Supercell, since the early 2000s. There is also limited support for video game companies through a cultural fund known as the DigiDemo grant.

Similarly, as Poland’s video game hub has grown and become a strategic priority for the country, there has been strong governmental support at multiple levels. Video games are seen as important cultural exports that are highly valued in Poland. Cultural state aid in the form of grants for video game developer firms is provided by the Ministry of Culture & National Heritage’s Development of Creative Industries program. R&D subsidies for video game developers also exist in Poland, most notably GAMEINN, a program implemented by the National Center for Research and Development.⁽²⁹⁾According to Gałuszka, D., M. Bobrowski, A. Krampus-Siepielak, P. Rodzińska-Szary and M. Śliwiński (2020). The State of Polish Video Games Industry 2020 Report. Kraków Technology Park with Polish Gamers Observatory and Partners.

By contrast, the video game hub in Japan did not receive many subsidies during its formative years. However, the Creative Industries Promotion Office, founded in 2010, acting in partnership with the Visual Industry Promotion Organization, now offers the Localization and Promotion Support grant (J-LOD), through which, for example, a Japan Games Pavilion is funded at key international video game industry trade fairs. Furthermore, in 2013, the Creative Industries Promotion Office established the Cool Japan Fund for which video game companies are eligible.

In the United States, there were no tax benefits or subsidies directed specifically toward the video game industry in the older California and Seattle hubs, spurring some newer hubs such as Texas into attempting to use such benefits to lure away video game developers. Nonetheless, video game developers have always been eligible to benefit from R&D tax credits just like any other company.

Non-financial business support

Helsinki City provides a wide range of support to the Helsinki hub, ranging from support for foreign workers to start-up incubators and cultural events to promote the industry. For example, the City’s youth services organize video game industry-related events, including game development camps, for young people. Overall, Helsinki City not only formally recognizes and supports the industry, but it also actively works with the main industry associations and organizations to promote it.

In Poland, the Polish Agency for Enterprise Development’s Creative Industries Development Center (founded in 2022) and the Polish Investment & Trade Agency all support video game developers in different aspects of business development, aiming to help developers successfully grow their market globally. In Krakow, the Krakow Technology Park supports the industry through the Digital Dragons hub that serves as a start-up accelerator and incubator, housing many developers, as well as the Digital Dragons Conference, which is one of the two major conferences for developers in Poland. In addition, Krakow Technology Park offers workshops and undertakes research regarding the video game industry in Poland. The city of Katowice hosts and supports the international esports competition Intel Extreme Masters and other esports events, as well as the Esports Association, while the city of Poznan hosts and supports the Poznan Game Arena Expo and the Game Industry Conference.

Education for video game industry careers

To ensure the continued development of their local video game industry, policymakers are investing in education for video game-related careers. In Finland, for example, higher education attainment related to the video game industry is one of the highest per capita in the world. This has provided the industry with a steady talent stream, as it has grown over time. Thirty-seven higher education institutions offer formal education directly targeted at careers within the video game industry. That is about 6.7 institutions per million citizens – far above the European average.⁽³⁰⁾For more details, see Marszałkowski, J., S. Biedermann and E. Rutkowski (2023). The Game Industry of Poland – Report 2023. Polish Agency for Enterprise Development. Available at: https://en.parp.gov.pl/storage/publications/pdf/The_Game_Industry_Poland_2023_12_07.pdf.

In Poland, there were an estimated 65 degree courses in 52 universities targeted at careers within the video game industry in 2022. Most of these courses were for developing programming (26 courses) and art skills (23 courses). The number of universities offering programs targeted at careers within the video game industry ranks among the top four in Europe. Poland has 1.4 institutions offering video game-related degrees per million inhabitants, which is more than Germany (1.2 institutions) but less than France (2.2 institutions). In addition, the video game industry is also embraced culturally within the overall education system, with the This War of Mine (a unique game that helps players imagine civilians’ lives during wartime) being added to the official reading list for children in schools, in 2020.

In the United States, specialized educational programs for game design and video game industry careers in general started to appear in 1998, with the opening of the DigiPen Institute of Technology’s Redmond campus. Traditional universities soon after started to also offer programs that are now considered to be the premier programs to study for a career within the industry. These programs include the University of Southern California’s programs on game design, interactive design, animation, and an interdisciplinary program on computer science and games. In total, there are 57 college programs in California and eight more in Washington (which includes the Seattle metropolitan area).

Conclusion: how industry hubs can foster growth and competitiveness

The development of the global video game industry has seen regional hubs navigating unique challenges and capitalizing on local strengths. The four video game industry hubs discussed exemplify the concept of relatedness, demonstrating how local expertise, cultural capital and interconnected industries collectively have influenced the industry's evolution and offer strategic insights for policymakers.

Japan, the United States, Finland and Poland showcase distinct but effective strategies in bolstering their respective presences within the global video game industry. Japan's industry, known for iconic console brands such as PlayStation and Nintendo Switch, has demonstrated adaptability and innovation by integrating consumer electronics, mobile technology and anime, ensuring sustained competitiveness in a dynamic market. In the United States, the industry's growth has been driven by a robust technological infrastructure, a skilled workforce, and an environment conducive to research and entrepreneurship, particularly in regions such as Silicon Valley and Seattle. Finland's rise in mobile gaming, led by companies such as Rovio and Supercell, capitalized on its strong telecommunications infrastructure and Nokia's legacy, illustrating the power of leveraging related industries and hobbyist cultures. Poland, with CD Projekt’s success, highlights the importance of cultural relatedness and localization, utilizing its cultural heritage to develop globally recognized games such as the Witcher series. In summary, while each of these four hubs has its challenges, together they provide insight into how economic complexity and relatedness may be leveraged to foster growth, innovation and competitiveness within an evolving video game industry.

Implications for policymakers

For policymakers aiming to bolster the growth and sustainability of video game hubs, a strategic approach should consider the following six key actions.

By embracing these six strategies policymakers can significantly influence the development of robust video game hubs, address the unique challenges and capitalize on the opportunities within what is a dynamic and rapidly evolving industry.