How free games and streaming services sparked a video game boom that changed pop culture

Key Points
  • Research firm Newzoo predicts the video game industry will bring in over $152 billion this year.
  • Behind the surge is an industry that has shifted away from a console and title-based business to an ecosystem driven by the expansion of digital and social.
  • The transition has not only changed how games are made but also expanded the consumer base and revolutionized how users interact with games.
(L-R) Gamers 'Ninja' and 'Marshmello' pose together during the Epic Games Fortnite E3 Tournament at the Banc of California Stadium on June 12, 2018 in Los Angeles, California.
Christian Petersen | Getty Images

If you were a gamer about 10 years ago, you likely spent your time running to GameStop to pony up $60 for the hottest new title on the market.

You may have tried a PC game that was free to play, or StarCraft 2, after being inspired by videos of professional players from South Korea. Nintendo, Microsoft and Sony were at each other's throats in the battle for console supremacy, so you were on high alert for the successors to the Xbox 360, the PlayStation 3 and, of course, the Wii.

Oh, and superstar streamers such as Ninja didn't exist either.

The gaming industry headed into 2010 having generated about $20 billion in revenue. Game sales had declined after setting a record by topping $21 billion the year before. Today's estimates put the value of the global games market at over seven times that, with research firm Newzoo predicting that the industry will bring in over $152 billion this year.

Behind the surge is an industry that has shifted away from a console and title-based business to an ecosystem driven by the expansion of digital and social. It's a transition that has not only changed how games are made but has also expanded the consumer base and revolutionized how users interact with games.

Among the first games that drove this new wave was FarmVille, according to Loup Ventures partner Doug Clinton. Zynga's social sensation took the internet by storm thanks to its base on Facebook, so much so that it hit about 83 million users in March 2010, just nine months after its release.

By early 2013, the game had made Zynga $1 billion in revenue, according to then-CEO Mark Pincus, speaking on an earnings call.

"They really introduced the social mechanism into gaming and showed how effective it could be," Clinton said. "Fortnite is the more modern example, but I think FarmVille showed that social had a powerful distribution mechanism where you talk to your friends on social channels about what they're doing. It's a great way to get people exposed."

Shift to free-to-play games

But secondly, said Clinton, FarmVille's success also hinged on a free-to-play model. And just months after FarmVille's release in 2009, a small start-up based in Los Angeles launched a game that went on to become the most-played PC game in the world even 10 years on: Riot Games' League of Legends.

Players participate in a League of Legends tournament in Manhattan Beach, Calif.
Robyn Beck | AFP | Getty Images

Riot's creation was part of a string of free-to-play, or F2P, successes. The late 1990s and early 2000s saw the gradual rise of free-to-play massive multiplayer online games, or MMOs, that coincided with a penchant for PC gaming as the internet provided game developers with another platform. By the late 2000s, many publishers had even transitioned their MMOs from subscription-based models to F2P, making money primarily through user-purchased in-game cosmetics and add-ons.

Users essentially could play a game infinitely and only pay if they liked the game enough.

This change was key given that even subscription-based games added to a "misalignment" that didn't fit with consumer wants and demands, according to Riot Games co-founder Marc Merrill. Namely, while subscription models were positive for publishers as it gave them incentive to continue investing in a game, the paywall effectively limited the size of the user base. Secondly, the subscription model also meant that while users were paying, they weren't necessarily having their demands met, added Merrill.

By adopting the F2P model, a company such as Riot was removing a key barrier to user entry, while also making sure that users were being heard and developers would be held accountable to those users.

"[Games as a service came out and] removed that barrier upfront for people to try a game, and provided a business model where the end user and developers are aligned," said Merrill. "We only win when we're doing a good job of providing for our players and they love our content; [that's when they will] want to spend money on it."

Visitors stream online computer games on the Twitch Interactive stand at Gamescom video games trade fair in Cologne, Germany.
Krisztian Bocsi | Bloomberg | Getty Images

But new ways of distribution also fueled gaming's popularity, embodying the digitization and socialization of entertainment as a whole. While YouTube had already tapped into consumer demand for games-related content through video on demand, Twitch, which began as Justin.tv in 2011, added another layer. It provided an entire platform dedicated to livestreaming, particularly games livestreaming.

Superstar streamers

And the interactivity offered by Twitch gave way to the advent of superstar content creators and streamers. They effectively served as another means for content distribution, and one that let creators directly engage with and build their audience, needing only a camera and perhaps some other basic equipment.

It's a factor that now influences how publishers market games, according to Michael Sepso. The former Activision Blizzard executive, esports league founder and CEO of esports infrastructure company Vindex said platforms essentially offer a more direct-to-consumer look at games.

"In 2010, you'd spend money on TV ads to market a big game and you might invite some influential people [to promote it]," he said. "Now, [users] can go to YouTube and just [watch before they play]. In the last decade, the way that you market games has flipped on its head and it has disrupted the entire retail and games component of the industry."

But one of the most telling things about the industry, said Sepso, is also many publishers' willingness to embrace the livestreamers, content creators and ultimately the online distribution of games in a way that other entertainment industries have not. And that helped grow the esports industry.

Kyle "Bugha" Giersdorf celebrates his win as the first solo World Champion at the Fortnite World Cup Finals esports event at Arthur Ashe Stadium, July 28, 2019.
Dennis Schneidler | USA TODAY Sports | Reuters

Closing out the decade, Newzoo predicts esports will bring in more than $1 billion in revenue this year.

2019 saw not only massive viewership numbers for esports events around the world, but also the likes of 16-year-old Kyle "Bugha" Giersdorf taking home $3 million in Fortnite's World Cup. The International — one of the esports world's flagship events, featuring Defense of the Ancients 2 — set yet another record this year with a crowdfunded prize pool that exceeded $34 million.

A longer life for games

Ariel Horn, former Riot Games head of esports content and upcoming VENN gaming network co-founder, said esports is contributing to the longevity of games.

"Video games have historically come and gone. Some will attain incredible popularity and just as quickly lose that whereas sports are much more eternal," Horn said in an interview. "I would argue that esports creates that continuity and creates a lore of its own, and as time goes on there's history. You take a game that's incredibly popular, and you see if you can extend its lifetime indefinitely."

Not all games will become popular esports titles. It's a "narrow slice of the overall gaming market," Horn said.

Esports ETF creator talks the state of the gaming industry
Esports ETF creator talks the state of the gaming industry

Meanwhile, there is an ever-deepening crossover between gaming and popular culture, which Horn expects is a trend to watch going into the next decade. Tyler "Ninja" Blevins' Fortnite stream with Drake, which became the most-watched stream on record in March 2018, was a turning point for the gaming world that encouraged it to merge with other entertainment industries.

Since then, DJ Marshmello held a virtual concert in Fortnite in February, which brought in 10 million players as in-game concert attendees. Riot Games has created its own music groups featuring well-known stars like Korean pop group K/DA and the newly minted True Damage.

The truth is that gaming has transformed and gone beyond its initial definition.

Merrill described gaming as an intersection between tech, entertainment, media and now sports, while Clinton pointed to Fortnite as an example of a "third space" that is digital but also the modern iteration of a social space.

All of these factors, along with technological developments behind gaming — which have driven the exploration into cloud gaming, augmented reality (Pokemon GO and Minecraft Earth are recent examples) as well as virtual reality and brought about the rise of mobile games — mean that the next games will have differing success criteria that are often unpredictable as the space rapidly evolves.

But one thing's for sure: Gaming is bigger than ever, and it's just on the cusp of something greater.