video game industry, a first-party developer is part of a company which manufactures a
video game console and develops exclusively for it. First-party developers may use the name of the company itself (such as
Nintendo), have a specific division name (such as
Polyphony Digital) or have been an independent studio before being acquired by the console manufacturer (such as
Second-party developer is a colloquial term often used by gaming enthusiasts and media to describe three different forms of game development studios:
- Independently owned studios who take development contracts from the platform holders and produce games exclusive to that platform.
- Studios that are partially or wholly owned by the platform holder (also known as a
subsidiary) and produce games exclusive to that platform.
- Companies that make video game consoles, but also make games on other platforms.
In reality, the resulting game is first party (since it is funded by the platform holder, who usually owns the resulting IP), but the term helps to distinguish independent studios from those directly owned by the platform holder. These studios may have exclusive publishing agreements (or other business relationships) with the platform holder, while maintaining independence. Examples are
Insomniac Games (which previously developed games solely for Sony's PlayStation platforms as an independent studio),
Rareware for Nintendo, and
Game Freak (which primarily develops the
Pokémon game series).
In the hardware business, companies that make gaming hardware also makes games on other platforms, such as
Hudson Soft (in association with
NEC), SNK and
Bandai, companies who have done this previously.
Activision in 1979 became the first third-party video game developer,
 where the term "second-party" originally referred to the consumers. A third-party developer may also publish games, or work for a video game publisher to develop a title. Both publisher and developer have considerable input in the game's
design and content. However, the publisher's wishes generally override those of the developer.
The business arrangement between the developer and publisher is governed by a
contract, which specifies a list of
milestones intended to be delivered over a period of time. By updating its milestones, the publisher verifies that work is progressing quickly enough to meet its deadline and can direct the developer if the game is not meeting expectations. When each milestone is completed (and accepted), the publisher pays the developer an advance on
royalties. Successful developers may maintain several teams working on different games for different publishers. Generally, however, third-party developers tend to be small, close-knit teams. Third-party game development is a volatile sector, since small developers may be dependent on income from a single publisher; one canceled game may be devastating to a small developer. Because of this, many small development companies are short-lived.
exit strategy for a successful video-game developer is to sell the company to a publisher, becoming an in-house developer. In-house development teams tend to have more freedom in the design and content of a game compared to third-party developers. One reason is that since the developers are employees of the publisher, their interests are aligned with those of the publisher; the publisher may spend less effort ensuring that the developer's decisions do not enrich the developer at the publisher's expense.
In recent years, larger publishers have acquired several third-party developers. While these development teams are now technically "in-house", they often continue to operate in an autonomous manner (with their own culture and work practices). For example, Activision acquired
Neversoft (1999), which merged with
Infinity Ward in 2014;
Infinity Ward (2003) and
Vicarious Visions (2005). All these developers continue operating much as they did before acquisition, the primary differences being exclusivity and financial details. Publishers tend to be more forgiving of their own development teams going over budget (or missing deadlines) than third-party developers.
A developer may not be the primary entity creating a piece of software, usually providing an external software tool which helps organize (or use) information for the primary software product. Such tools may be a
Voice over IP, or add-in
interface software; this is also known as
middleware. A good example of this is
SpeedTree developed by Interactive Data Visualization Inc.
In addition, accessories like
headsets may be known as third-party headsets; the company manufacturing the headset may be different from the console company. For example,
Turtle Beach is a third-party headset manufacturer for the
PlayStation 3 and
Xbox 360. Also now including the
Xbox One and
Independents are software developers which are not owned by (or dependent on) a single publisher. Some of these developers self-publish their games, relying on the
Internet and word of mouth for publicity. Without the large marketing budgets of mainstream publishers, their products may receive less recognition than those of larger publishers such as Sony, Microsoft or Nintendo. With the advent of digital distribution of inexpensive games on game consoles, it is now possible for independent developers to forge agreements with console manufacturers for broad distribution of their games.
Other independent developers create game software for a number of video-game publishers on several gaming platforms.
In recent years this model has been in decline; larger publishers, such as Electronic Arts and Activision, increasingly turn to internal studios (usually former independent developers acquired for their development needs).