A developer may specialize in a certain video game console (such as Nintendo's Nintendo Switch, Microsoft's Xbox One, Sony's PlayStation 4), or may develop for a number of systems (including personal computers and mobile devices). Video-game developers specialize in certain types of games (such as role-playing video games or first-person shooters). Some focus on porting games from one system to another, or translating games from one language to another. Less commonly, some do software-development work in addition to games.
Most video game publishers maintain development studios (such as Electronic Arts's EA Canada, Square Enix's studios, Activision's Radical Entertainment, Nintendo EAD and Sony's Polyphony Digital and Naughty Dog). However, since publishing is still their primary activity they are generally described as "publishers" rather than "developers". Developers may be private as well (such as how Bungie was, the company which developed the Halo series exclusive to Microsoft's Xbox).
In the 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 Sony's Polyphony Digital) or have been an independent studio before being acquired by the console manufacturer (such as Rare or Naughty Dog).
Second-party developer is a colloquial term often used by gaming enthusiasts and media to describe game studios who take development contracts from platform holders and produce games exclusive to that platform. These studios may have exclusive publishing agreements (or other business relationships) with the platform holder, but maintain independence so upon completion or termination of their contracts are able to continue developing games. Examples are Insomniac Games (originally a 2nd party for Sony), Bungie (originally a 2nd party for Microsoft) and Rareware (originally a 2nd party for Nintendo).
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.