This layer of the value chain is primarily responsible for the ideation and development of video games for consoles. Similar to the Hollywood model, small studios typically develop a game concept and then seek funding from a major producer called a software publisher. There are roughly one hundred independent studios that are contracted to produce “third party” titles, while wholly-owned subsidiaries of either a software publisher or console manufacturer produce “first party” titles. In most cases, first party software remains “exclusive” to a parent-company’s hardware platform of choice. Third party publishers have a greater incentive to translate or “port” video games to competing consoles.
Twenty large publishing houses, such as Electronic Arts, exist in the second level of this value chain. These players are responsible for funding and distributing most major game titles. Software publishers bear the brunt of the project risks, as they must pay their software developers the full research and development cost regardless of how well the