Games are produced through the software development process. Games are developed as a creative outlet and to generate profit. Development is normally funded by a publisher. Well-made games bring profit more readily. However, it is important to estimate a game's financial requirements, such as development costs of individual features. Failing to provide clear implications of game's expectations may result in exceeding allocated budget. In fact, the majority of commercial games do not produce profit. Most developers cannot afford changing development schedule and require estimating their capabilities with available resources before production.
The game industry requires innovations, as publishers cannot profit from constant release of repetitive sequels and imitations. Every year new independent development companies open and some manage to develop hit titles. Similarly, many developers close down because they cannot find a publishing contract or their production is not profitable. It is difficult to start a new company due to high initial investment required. Nevertheless, growth of casual and mobile game market has allowed developers with smaller teams to enter the market. Once the companies become financially stable, they may expand to develop larger games. Most developers start small and gradually expand their business. A developer receiving profit from a successful title may store up a capital to expand and re-factor their company, as well as tolerate more failed deadlines.
An average development budget for a multiplatform game is US$18-28M, with high-profile games often exceeding $40M.
In the early era of home computers and video game consoles in the early 1980s, a single programmer could handle almost all the tasks of developing a game — programming, graphical design, sound effects, etc. It could take as little as six weeks to develop a game. However, the high user expectations and requirements of modern commercial games far exceed the capabilities of a single developer and require the splitting of responsibilities. A team of over a hundred people can be employed full-time for a single project.
Game development, production, or design is a process that starts from an idea or concept. Often the idea is based on a modification of an existing game concept. The game idea may fall within one or several genres. Designers often experiment with different combinations of genres. A game designer generally writes an initial game proposal document, that describes the basic concept, gameplay, feature list, setting and story, target audience, requirements and schedule, and finally staff and budget estimates. Different companies have different formal procedures and philosophies regarding game design and development. There is no standardized development method; however commonalities exist.
A game developer may range from a single individual to a large multinational company. There are both independent and publisher-owned studios. Independent developers rely on financial support from a game publisher. They usually have to develop a game from concept to prototype without external funding. The formal game proposal is then submitted to publishers, who may finance the game development from several months to years. The publisher would retain exclusive rights to distribute and market the game and would often own the intellectual property rights for the game franchise. Publisher's company may also own the developer's company, or it may have internal development studio(s). Generally the publisher is the one who owns the game's intellectual property rights.
All but the smallest developer companies work on several titles at once. This is necessary because of the time taken between shipping a game and receiving royalty payments, which may be between 6 and 18 months. Small companies may structure contracts, ask for advances on royalties, use shareware distribution, employ part-time workers and use other methods to meet payroll demands.
Console manufacturers, such as Microsoft, Nintendo, or Sony, have a standard set of technical requirements that a game must conform to in order to be approved. Additionally, the game concept must be approved by the manufacturer, who may refuse to approve certain titles.
Most modern PC or console games take from one to three years to complete. The length of development is influenced by a number of factors, such as genre, scale, development platform and number of assets.
, where as a mobile game can be developed in a few months.
Some games can take much longer than the average time frame to complete. An infamous example is 3D Realms' Duke Nukem Forever, announced to be in production in April 1997 and released fourteen years later in June 2011. Planning for Maxis' game Spore began in late 1999; the game was released nine years later in September 2008. The game Prey was briefly profiled in a 1997 issue of PC Gamer, but was not released until 2006, and only then in highly altered form. Finally, Team Fortress 2 was in development from 1998 until its 2007 release, and emerged from a convoluted development process involving "probably three or four different games", according to Gabe Newell.
The game revenue from retails is divided among the parties along the distribution chain, such as — developer, publisher, retail, manufacturer and console royalty. Many developers fail to profit from this and go bankrupt. Many developers seek alternative economic models through Internet marketing and distribution channels to improve returns., as through a mobile distribution channel the share of a developer can be up to 70% of the total revenue  and through an online distribution channel almost 100%.