The incendiary combat shooter game Call of Duty: Modern Warfare 2 recorded sales figures of over $500m in its first five days on sale, dwarfing the opening weeks of blockbuster movies such as The Dark Knight ($203.8m) and Harry Potter and the Half-Blood Prince ($394m). Having now made over $1bn, it competes with just four movies: Titantic, Lord of the Rings: the Return of the King, Pirates of the Caribbean: Dead Man's Chest and Avatar. James Cameron's movie has eclipsed the game, but then, it cost four times more money to make – and Activision can churn out a new Call of Duty game every year.

Such statistics helped to convince the government to offer support to the growing industry in last week's budget, just a year after it did not even get a mention in the Digital Britain report. The government has agreed to work out a range of tax breaks for UK games companies after months of persistent lobbying by the industry's trade body Tiga. The sector, worth £1bn a year to the British economy, has never benefited from the kind of tax relief enjoyed by the film industry, even though it generates greater revenues.

Richard Wilson, the chief executive of the trade association Tiga, which is only 10 years old, says the decision "will more than pay for itself. We predict over the next five years tax relief should result in the creation of 3,500 graduate level jobs, another £457m of investment into the sector, and £415m in tax receipts for the Treasury."

But is there more to the news than economics? Industry analysts believe the successful lobbying marks a sort of coming of age for an industry long demonised as social scourge but which is increasingly attracting interest from other content companies – be they from television, film or publishers.

Games consoles

Certainly, videogames are much more visible than they were even five years ago. "Nintendo has helped to make games socially acceptable," says Ian Livingstone, the life president of Eidos, the UK games publisher which is now owned by the Japanese gaming giant, Square Enix.

"They brought the Wii into the living room whereas historically games consoles have been in bedrooms. Now grandparents can play with their grandchildren, girls can play, boys can play. People are thinking, hang on, maybe this is a good thing after all."

Add in other popular party-style games like Rockband and the quiz series, Buzz, and the idea that games are for everyone is gaining ground. According to the 2009 UK National Gamers Survey, carried out by the market research firm TNS Technology, 73% of the British public play games regularly, including two-fifths of the over-50s.

Later this year both Sony and Microsoft will launch motion control systems for their consoles designed to compete directly with Wii. Playing without traditional joypads on PlayStation Move and the Xbox Natal helps engage the whole family, rather than the teenager with the quickest trigger finger.

Tied into this increased interest is the inexorable rise of social network games. It is estimated that around 200 million people worldwide play titles like Farmville and Pet Society on Facebook every month. What is interesting is the way these games seamlessly assimilate into peoples' lives, allowing users to swap in-game objects, share game creations and talk about their experience – all within the familiar Facebook framework.

"Instead of trying to draw the person into the game, via puzzles and narrative, we're trying to draw the person out of the game, to get the player to think 'wouldn't this be more fun with friends'," says Kristian Segerstrale, the chief executive of the British-based social gaming giant Playfish. "We consider a game successful when people talk about it and message each other about it outside of the game, as much as possible."

From Facebook users who occasionally drop in to plant a carrot in their online farm to poker addicts and grandparents who play Pokemon games with their grandchildren, people are becoming gamers without even knowing it. There is also a continued blurring of the lines between games and other entertainment media.

"With devices like [the Xbox] Natal [which is expected to be launched this Christmas] we're really talking about a converged interactive media industry," says Jon Kingsbury, who runs the Creative Economy Innovation Programme at the independent National Endowment for Science, Technology and the Arts (Nesta). "There's an increasing interplay between gaming, online, TV and films – it's all coming together."

Several Hollywood movie studios, including Warner Bros and Disney, have game development and publishing arms, while the rest use online and social games to market cinema releases. Last year, Warner Bros commissioned a groundbreaking Facebook detective game, entitled 221b, to publicise its Sherlock Holmes movie – players could team up to solve a series of murders which linked with the plot and there was even a Twitter feed from Holmes's housekeeper, Mrs Hudson.

Cult superhero

Meanwhile, Channel 4 has the E4 games portal, and its cross-platform team commissions simple web-based games to accompany shows, like the cult superhero comedy, Misfits. Channel 4 Education has an annual budget of £6m to spend on games – web-based interactive dramas like Bow Street Runners and the recent Smokescreen. The latter, all about personal privacy and identity on social networking sites, won the Best Game award at the SXSW festival in Austin, Texas. In January the BBC announced plans to start developing games based around its key brands.

This trend to add ludic elements to communication is not just a feature of the media landscape. Two weeks ago, for example, the World Bank launched a multiplayer challenge called Evoke, in which gamers compete to solve world crises such as disease, conflict and climate change.

Game elements are also creeping into other areas such as GPS applications. Sites like Foursquare and Gowalla are social location services which let users tag cool bars and hotels visited and then share their whereabouts with friends, with points for finding new places.

"The next big step will be brands using location-based services to affect consumer behaviour," says Matt Muir, a digital consultant at the communications agency, Hill & Knowlton. "Applications like Foursquare and Gowalla may be niche now, but the principles behind them are something that I think we will see more of over the coming years."

The tax initiatives could not have come at a better time for British games companies. The industry has suffered a damaging brain drain over the past five years as some of its most creative staff have been tempted abroad. Between July 2008 and March 2010 the number of employees at British video games studios fell by 7%, and 15% of British video games firms went out of business. The UK has fallen from third to fifth place in the global sales charts between 2006 and 2009, overtaken by Canada and South Korea, whose studios are heavily government supported. The UK still produces successful and innovative game brands – think Grand Theft Auto, LittleBigPlanet and Burnout – but to compete in this evolving marketplace and to create intellectual property, the industry insists that it needs the sort of external financial investment that comes with tax breaks. Although the government said it will consult before deciding what form support will take, it is expected to offer tax relief on any profits made by a development company and a cash tax credit which would reduce any losses. Tiga suggests that levels of relief should be 20-30%, depending on the size and budget of the game.

With the budget announcement, industry lobbyists hope the message has broken through. "It's an important part of how the UK economy should be characterised and promoted in the future," says Wilson. "We've been arguing this non-stop, possibly to the point that we bored the government into it!"