Video Games Impact the Economy More Than You Think

It’s hardly a secret that video games are a growing force in the entertainment industry, but they might be bigger than many people think.

Halo Reach
Source: Microsoft
Halo Reach

A new study from Economists Incorporatedreports that the video game industry added $4.95 billion to the U.S. Gross Domestic Product last year—and the entertainment side of the software world is growing considerably faster than other segments of the economy. (The Entertainment Software Association, the video game industry’s trade group commissioned the study.)

Real annual growth among game makers topped 10 percent between 2005 and 2009, according to the study. That’s seven times the growth rate of the U.S. economy.

The report does underscore how devastating last year was for the game industry, however. Real annual growth between 2005 and 2008 was 16.7 percent. In 2009, the game industry saw its first negative growth since 2002, as sales fell 8 percent from the 2008 figures.

On the employment front, while other industries have been cutting back their payrolls, there’s a hiring boom going on in the video game world. Since 2005, the total number of people working in games has increased by nearly 9 percent annually. Today, there are more than 32,000 people directly employed by publishers and developers in 34 states.

They’re pretty well paid, too. On average, industry employees receive an annual compensation of $89,781, with the industry total hitting $2.9 billion. (A note to jobseekers, salaries were much higher at publishing companies—averaging over $112,000 versus roughly $76,000 at smaller game development studios.)

There’s a lot more to the gaming world than those who simply produce the product, of course. Fold in indirect employees who are dependent on the industry for their livelihood (such as workers at retailer GameStop or rent-by-mail company GameFly), and the number it employs exceeds 120,000.

"On average, industry employees receive an annual compensation of $89,781, with the industry total hitting $2.9 billion."

"Despite a challenging economic environment, the entertainment software industry continues to grow and create new jobs at a rapid pace," said Michael D. Gallagher, president and CEO of the ESA in a statement. "The entertainment software industry is well positioned to sustain these economic and social contributions well into the future."

California has seen the most benefits from gaming’s growth – not surprising since so many companies, including Electronic Arts and Activision are based there. Entertainment software companies added roughly $2.1 billion to the state's economy and grew by a real annual rate of 11.4 percent from 2005 to 2009, according to the report. During that same period, the state’s overall economy had negative growth.

(Ironically, it’s California that is leading the charge to regulate game sales, which could have a devastating effect on the industry. The Supreme Court is scheduled to hear arguments on the case in its October session.)

Texas has the second highest amount of gaming personnel (the state is a favorite home for development studios, including id Software, Gearbox and Disney property Junction Point Studios). Washington, home of Microsoft and Nintendo of America ( , is the third most popular state for game employers.

The numbers could shift in years to come, though, as many states have started to offer economic incentives to lure game makers. Virginia, for instance, has seen game-related employment jump 77 percent from 2005 to 2009.

Recent incentives are proving to be quite effective, too. 38 Studios recently announced plans to relocate from Boston to Rhode Island, after officials in that state agreed to provide the developer with a $75 million loan guarantee.

A burgeoning game developer moving to another state might not sound like much at first – but when that company is owned and operated by former Red Sox ace pitcher Curt Schilling, it shows just how big a draw those incentives can be.

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