Last year will go down in history as the point at which the UK videogames industry pulled decisively away from cinema, recorded music and DVD sales to become the country's most valuable purchased entertainment market, with combined software and hardware sales topping the £4bn mark for the first time: more than DVD and music sales combined, and more than four times cinema box office takings.

Industry insiders agree that the last few years have been something of a golden age for the videogame, with titles setting new records almost every other month for both sales and critical acclaim. On Thursday, the Tokyo Game Show, billed as the world's largest computer entertainment fest, kicked off, offering a glimpse into the future of entertainment. Meanwhile, the biggest gaming release of this month, Halo 3: Orbital Drop Shock Troopers, sold 2m copies worldwide on its day of release.

Yet if videogames now self-evidently demand to be taken seriously as an industry, they still have a long way to go before they are also taken seriously as a medium. When critics look for an insult to throw at a film such as Transformers: Revenge of the Fallen, one of the first phrases on many lips is "it's like a videogame".

Videogames may be economically formidable, but they remain a byword for crass, shallow thrills. A game, it's understood, can look spectacular, but it will have little to offer its audience in the way of values, insights or craftsmanship. It's a curious and increasingly untenable situation, given that, to the increasingly large percentage of the population who play them, games are rapidly establishing themselves as the single most exciting and vigorous creative industry around: a sector able to boast not only booming revenues and growing audiences, but a melting pot of talents and new ideas that is increasingly attracting some of the biggest-hitting figures in film, television and the other arts.

Perhaps the biggest global headlines of all were made in 2008 by a British-produced game, Grand Theft Auto IV, which on 29 April took the title of the most successful entertainment release in history. Within 24 hours, GTA IV had grossed $310m (£157m) – comfortably more than history's most successful book (Harry Potter & The Deathly Hallows, at $220m in 24 hours) and its most successful film (Spider-Man 3 at $117m).

Despite this jaw-dropping success, however, few commentators paused to consider the kind of production that had made such a game possible. With a budget of around $100m, the game credited a production team of more than 550 people, plus almost double that number again of voice actors and performers used for motion-capturing virtual citizens. The result was anything but disposable: a product retailing at £50 intended to occupy players for up to 100 hours of open-ended exploration through a highly detailed virtual world. The scripted incidentals, some reviewers noted, wouldn't have been out of place in a primetime television slot, and they were almost right; if the in-game scenes didn't quite fit the TV mould, it's because they were fresher, funnier and braver.

Grand Theft Auto IV may have marked a watershed in the public profile of games, but its level of sophistication and production values – albeit not quite its budget – has increasingly become the rule rather than the exception.

The videogame industry is an area in which consumers are voting with their wallets and their eyeballs: audiences, according to recent surveys such as the Pew Internet & American Life Project, are increasingly switching off their televisions and abandoning passive media for the kind of interactive experience that games are able to offer. Games consoles, too, are becoming not only a favourite device for play, but fully fledged media hubs that are used by the whole family, thanks to their ability to stream television services, play music and DVDs, offer social networking services and even record sound, video and motion. We've come a long way since the old days of teenage boys hunched over flickering screens in their bedrooms; and it's time that public perceptions caught up.

It's not just money that is flowing into the games industry: it's talent and a sense of possibility, a combination that is rapidly tipping on its head the old media pecking orders. Take the hit game Ghostbusters, a product whose relationship with the two 1980s Ghostbusters films is rather more complex than the tacky spin-off fare that was standard for games even a decade ago. For a start, the game itself is based around an original script part-written by Dan Aykroyd and Harold Ramis, the writers and stars of the original films, and features the vocal talents of the entire original cast, not to mention motion-captured computer recreations of their 1980s appearances. The banter and visuals, in fact, are of a standard that comfortably exceed many beloved movies of the 1980s, much like the game's budget of more than $15m.

What's perhaps most difficult to grasp from outside the games industry is the sheer complexity of the world-building process that modern titles require. Turning a major game from concept into reality demands thousands of hours of work by artists, animators, musicians, actors, writers and directors, as well as computer programmers and technicians. In a virtual world, everything must be created from scratch, from the tiniest sound effect or musical note to the light glinting off a virtual office building.

There is no reality beyond the fiction the game itself generates, and this must be maintained at all costs. Yet the actual process of creating a virtual world is only the beginning for a game – and it's here, in the fact of their interactivity, that they begin to move beyond much of what takes place in other media.

There is, in the games industry at the moment, a sense that boundaries are being broken every year. Take the increasingly important phenomenon of massively multiplayer online gaming, embodied above all in the phenomenally successful World of Warcraft. Such games involve not only the construction of online virtual worlds used by thousands of people simultaneously but, more crucially, the maintenance and development of these worlds: something that can approach the complexity of running a city, or even a small country. WoW now boasts more than 11 million paying players, and revenues in excess of $1bn per year.

The science and the art of running a world like Warcraft in such a way as to keep players happily playing, and paying, is boggling in its complexity. Running a modern online game can involve employing professional economists and community architects dedicated to maintaining the balance and integrity of the game world and the billions of virtual goods earned, traded and sold within it every week.

What's perhaps most staggering, though, is just how much growth the videogames industry has yet to come. Like the early days of cinema or television, gaming is a young medium, and one that is still growing. It will be another half-century before gaming is truly as "native" to almost everyone alive as cinema, television and recorded music are today.

It has existed in a commercial form for less than four decades and is only just beginning to come into its own, expanding conceptually as well as commercially to answer both the increasing sophistication of its consumers (the average British gamer is now aged in their 30s) and the increasingly formidable aspirations of the people drawn to work within it.

These are not only gamers or computer programmers: television producers, writers, actors, directors, musicians, even performance artists are flocking towards the medium. In 2008, for instance, Steven Spielberg was credited as lead designer on a game, Boom Blox, for the Nintendo Wii. This wasn't just a title he had been paid to dignify with his name; it was a game he had devised himself from first principles, and that was aimed at creating an interactive version of the kind of cinematic space he made his own – somewhere where parents and children come together to share a creative experience.

Gaming increasingly has its own auteurs: creative directors and designers whose latest titles create much the same waves as Spielberg's or George Lucas's films did in the 1970s and 1980s. The name of Shigeru Miyamoto, creator of some of the best-selling games of all time, serves on its own as a promise of excellence.

So, too, do names such as Will Wright – the creator of the Sims, the best-selling games series in history – or Cliff Bleszinski, who merited the unusual distinction of a profile in the New Yorker thanks to his role as lead designer on the "sensually overwhelming" title Gears of War. It's perhaps unsurprising that, in a recent MTV survey of teens in America, "videogames designer" came out as the top professional aspiration, ahead of the more traditional astronaut and movie star.

Although the analogy may sound fanciful, there is an element of the Elizabethan stage about the games industry today: a coincidence of public taste with critical excellence in a young, booming medium where much is being done for the first time and is being reinvented on an annual basis. Not everything is excellent. But it's a peculiarity of the games industry and its high-cost products – retailing at an average of £35 each – that top-notch production values are not so much a bonus as an absolute requisite. Among the coming generation, it's a quality that already speaks for itself.

Tom Chatfield is arts and books editor at Prospect magazine. His book Fun Inc: Why Games are the 21st Century's Most Serious Business (Virgin Books) is published on 14 January 2010 @ £12.99