Video games grow up
California is the birthplace of such global pop-culture sensations as the Beach Boys and Mickey Mouse. But in the 21st century, it has become the driving force behind a new generation of entertainment heavyweights: The Sims, Guitar Hero and World of Warcraft.
In recent years, the state has witnessed an explosion of new jobs and global exports from the video game business, which is expected to deliver nearly $50 billion in sales this year despite the brutal economy.
Global financial woes have dragged down game makers’ stock prices and are dampening consumer spending heading into the holidays, when the industry typically generates 40% of its annual revenue. Still, analysts say that video games generally hold up well during economic slowdowns, and they expect 2008 sales to reach record highs.
So far, at least, game companies say they haven’t scaled back their hiring plans. The state that gave birth to Pong in 1972 has become home to more than 18,000 video game workers, nearly half of the industry’s domestic workforce. Tiny companies and giant corporations are braving high taxes and the soaring cost of living to tap into the state’s unique blend of engineers in the north and artists in the south.
The Los Angeles area is ever more essential to game development because of its collection of composers to score soundtracks, writers to script plots and dialogue, artists to bring characters and lush environments to life and actors to perform so their movements can be digitally captured.
“Southern California is built on the Hollywood dream factory, and games have become a part of that,” said Joseph Olin, president of the Los Angeles-based Academy of Interactive Arts and Sciences.
PricewaterhouseCoopers projects an annual growth rate of 9% for the next five years in global software sales for the video game industry, nearly double the rate that the consulting firm forecast for movies and theme parks, and about triple the rates projected for book and magazine publishing.
The game industry has traditionally thrived, even when consumers tighten their purse strings, because many players believe games provide more bang for the buck than other forms of entertainment, such as movies, sporting events and concerts. A $50 game can provide dozens if not hundreds of hours of amusement.
“We’re still going to spend the same amount of hours entertaining ourselves,” said Michael Pachter, an analyst with Wedbush Morgan Securities. “It’s just a matter of which entertainment we choose to buy, and games are still perceived to be a super value.”
Adam Noel is among the legion of consumers who drive game sales. The 28-year-old credit analyst says he doesn’t go to the movies as often as he might -- so he can spend more than $600 a year on video games.
“Games are obviously more expensive than movies,” the Koreatown resident said as he prepared to buy Fable, an action fantasy game for the Xbox console, at a GameStop store on Beverly Boulevard. “But you spend so many more hours playing a game. With a game like Final Fantasy, you can clock more than 60 hours playing. That averages out to less than a dollar an hour.”
As they pump out these games, Southern California companies such as Activision Blizzard Inc. and THQ Inc., along with Silicon Valley’s Electronic Arts Inc., claim most of the credit for having generated thousands of new jobs.
EA has hired about 2,500 people a year -- including some 300 new college grads -- for the last several years.
“We can’t get them into our studios fast enough,” said Cindy Nicola, vice president of talent acquisition for the game publisher, based in Redwood City. “Making games is very hard. It takes a lot of people who have both technical and artistic skills.”
They include Chance Glasco, a 27-year-old who is responsible for handcrafting hundreds of animations for Activision’s shoot-'em-up game franchise Call of Duty. His sole job is to animate the hands and arms of players as they pick up and fire weapons in the game. On a recent afternoon in the Encino studio where the game is made, Glasco deftly manipulated a pair of disembodied arms around an AK-74 assault rifle on a computer screen with a few clicks of his mouse.
“I decide what the hands will do and how they do it so they have personality,” he said. “I think of each finger as an individual actor.”
The attention that the animators lavish on such minute details explains part of the franchise’s success. The last Call of Duty installment sold 11 million copies, becoming one of the top-selling games for Activision. This year, analysts expect the Santa Monica company to rack up $4.8 billion in revenue and nearly $800 million in profit.
Almost two decades ago, Robert Kotick’s big bet helped revive Activision’s fortunes and anchor it among Southern California’s entertainment leaders. He paid $440,000 for a 25% stake in the game publisher -- then in bankruptcy -- and moved it from Silicon Valley’s Menlo Park to Los Angeles in hopes that the proximity to the show business industry would help bring games into the mainstream.
After a recent merger with the game division of French media conglomerate Vivendi, Activision has a market capitalization of about $17 billion and employs 7,700 people. That’s roughly the size of Warner Bros. Entertainment, which employs between 8,000 and 12,000 depending on the studio’s production schedule.
Other game companies are attracted by the engineering talent pool in Northern California. Ubisoft, the French company behind such titles as Tom Clancy’s Rainbow Six Vegas, has a San Francisco office with 225 employees. Nintendo Co., the Japanese game giant, this spring relocated its entire U.S. sales and marketing staff to Redwood City from Redmond, Wash.
The industry has grown so big so quickly that government statisticians are having trouble keeping up.
Unlike other entertainment mediums, the video game industry isn’t yet classified by the U.S. Bureau of Labor Statistics. Game developers are lumped in with database programmers under the category of Computer Systems Design and Related Services. Other game industry workers are grouped with toy makers and other professions. As a result, government economists have no way to tell how many are employed by the game industry.
In contrast, the music industry, which last year pulled in less revenue globally than the game industry did from selling software, has five job categories.
The video game sector is “no longer an interesting little industry -- it’s serious money,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp. “But to economists it’s like a lost industry. No one tracks it.”
The most comprehensive census of game industry employment comes from United Business Media, which publishes Game Developer magazine and runs the annual Game Developer Conference in San Francisco.
In its first census of the industry last year, the magazine counted 39,764 workers, with nearly half in California (it has not yet released 2008 data). An additional 15,000 people work for companies that assist the game industry with software tools or services such as marketing or public relations.
Although that’s small relative to the music and movie industries -- each of which employs more than 300,000 people, according to the county economic development agency -- game companies are growing rapidly.
And they pay well. Executives involved in business aspects such as marketing, sales, human resources and finance earned an average salary of $101,848 in 2007, plus $24,937 in bonuses and stock options, according to the magazine’s annual survey. Programmers pulled in nearly $99,000 in salary and other compensation.
By comparison, the median wage for all workers in California last year was $17.30 an hour, about $36,000 a year, according to the Bureau of Labor Statistics. Even the video game industry’s entry-level workers, whose job is to play games to find bugs in the software code, made more than that last year, an average of nearly $48,000 in total compensation.
In addition to jobs, the industry generates tax dollars for the state from a growing revenue base, as well as providing a source of U.S. exports.
Nearly all corners of entertainment now have a video game component, whether it’s a console game to go along with the release of a Harry Potter book, an online game coupled with a movie franchise such as “Pirates of the Caribbean” or a virtual world that draws in fans of television shows such as MTV’s “Pimp My Ride.”
Virtual worlds -- online environments that allow members to role-play, build and explore -- are particularly poised for growth, analysts say. Over the next 10 years, these online worlds will attract a billion users and generate some $8 billion in revenue from advertising, subscription fees and the sale of virtual items, according to research firm Strategy Analytics.
California is home to many of the companies building them, including Trilogy Studios in Sherman Oaks, Viacom Inc.'s NeoPets in Glendale and Linden Lab, the San Francisco-based creator of Second Life.
Southern California’s entertainment pedigree has made it a natural home for game companies, especially as technological improvements in both video games and moviemaking render the two art forms increasingly similar. Scenery and monsters digitally created for movies can also be used in games.
Perhaps the best example of the assimilation of games into the fabric of Hollywood is Digital Domain, the special-effects studio behind such blockbuster films as “Lord of the Rings: The Fellowship of the Ring,” “Transformers” and “Pirates of the Caribbean: At World’s End.” The Venice studio plunged into the game business in the spring of 2007 and is hiring veteran developers to help it simultaneously make movies and games.
“A good movie without a good game is a missed opportunity,” said Cliff Plumer, Digital Domain’s chief technical officer.
There are costs to doing business in California. Activision’s Kotick said he had decided to keep the company in the state even though “the tax burden is among the highest in the country.” The nonpartisan Tax Foundation, a conservative research and advocacy group in Washington, this year ranked California’s business tax climate as the country’s third-worst because of its high corporate and individual income tax rates.
The cost of living is also high. Although game developers in California were the nation’s highest paid last year, with an average salary of $81,502, they ranked at the very bottom when it came to owning their homes -- 33% versus 40% to 50% in most other states, according to Game Developer magazine.
California’s vague rules on overtime pay also have dogged the industry, which is known for its long hours and intense round-the-clock work marathons that occur as games approach their ship dates. Game companies often reward employees with bonuses, royalties, profit-sharing and stock options.
The problem is that although the law says that highly skilled tech workers who make less than $75,000 a year should receive overtime pay, it doesn’t specify whether perks count toward that figure.
Fed up with the long hours, some workers have sued their employers demanding extra compensation. In 2005, EA settled a lawsuit with its graphic artists for $15.6 million in back pay. The next year, the company’s programmers filed a similar lawsuit and received a $14.9-million settlement.
The uncertainty causes some consternation in the industry.
“The state can do much better in terms of making itself more appealing to businesses like ours,” Kotick said.
That hasn’t deterred some companies from coming.
“Yes, it has one of the highest tax rates among the states,” said Laurent Detoc, president of Ubisoft North America. “It is worth it. I think a number of people are willing to make sacrifices to come here because it really is a magical place.”
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A brief history of video games
1961: Massachusetts Institute of Technology student Steve Russell creates Spacewar, considered the first interactive computer game.
1972: Magnavox sells the first home video game system, a TV console invented by Ralph Baer called Odyssey.
1972: Nolan Bushnell and Ted Dabney start Atari Inc. and hire Al Alcorn, who creates Pong. Their first arcade machine, set up in a bar in Sunnyvale, Calif., shuts down within days because its coin box is stuffed full of quarters.
1976: Bushnell sells Atari to Warner Communications Inc. for $28 million.
1978: Space Invaders invades America. Created in Japan, the arcade game is imported to the U.S. by Midway, then a division of Bally Technologies Inc.
1980: Namco releases Pac-Man.
1981: Nintendo creates Donkey Kong. The game, designed by Shigeru Miyamoto, features a protagonist who saves his girlfriend from a gorilla. Nintendo’s American employees name the mustachioed character Mario, after their office landlord.
1984: Major companies including Mattel exit the industry after suffering heavy losses. Warner sells Atari after reporting an annual loss of $586 million, largely from the games business.
1985: Russian programmer Alex Pajitnov creates Tetris.
1989: Nintendo invents the Game Boy hand-held system.
1993: Id Software releases Doom, created by John Carmack, a developer who pioneered the use of a nearly three-dimensional perspective in first-person shooter games.
1994: Sony Corp. sells its first PlayStation in Japan and introduces the game console in the United States a year later.
1997: Dave Jones develops Grand Theft Auto, which spawns a billion-dollar franchise and public controversy over violence and sex in video games.
2000: Will Wright creates The Sims, in which players create virtual worlds and fill them with virtual inhabitants. The franchise goes on to sell more than 100 million copies worldwide.
2001: Microsoft Inc., which makes computer games, challenges the console market with its Xbox system.
2002: Microsoft launches Xbox Live, an online gaming service connected to its console.
2006: Nintendo launches the Wii console, which lets players move their characters by waving controllers in the air. It becomes a hit with teenage boys and senior citizens alike.
2007: Annual video game sales surpass those of the music industry for the first time.
Sources: GameSpot, Times research
About this series
Despite the slow economy, the video game business is booming, especially in California.
Video game design has become a hot major at hundreds of colleges across the country.
The boom in video game jobs has largely bypassed women, which could stunt the industry’s growth.
The Work of Play will explore in a series of occasional stories some of the fascinating jobs created by the video game industry.
To watch an illustrated history of video games and see behind-the-scenes footage of the creation of the shooter game Call of Duty, go to latimes.com/workofplay.