KARL Hilton's office at Crytek has the air of a fantasy bachelor's pad. There's a huge flat-screen TV on one wall, shiny black seating and, behind his desk, a row of bright red model sports cars. They're Ferraris since, as it turns out, Hilton has always been a fan of them and now happens to drive one.

If all this gives the impression that there's money and success to be found in the video-gaming industry, well, it's because there is. Hilton, a boyish 39-year-old who is managing director of the UK development studio of international games producer Crytek, admits so himself, although only after a question about his beloved Ferrari.

"Like in any industry, with a lot of hard work and a lot of luck," he begins. "Well, certainly when I started in the industry, when there were small teams and shorter development budgets, if you did a big game there were some quite impressive bonuses handed out. That industry doesn't quite exist anymore but if you do well in the games industry, you can do well."

In an industry as young as video gaming, being 39 makes Hilton a veteran. After landing his first job with a developer called Rare, he and some colleagues went off to set up their own company called Free Radical Design. Based first in Lenton and latterly in Sandiacre, Free Radical created a very successful game called Time Splitters, plus a successful sequel, and then one less successful title called Haze.

And then, when the credit crunch struck, the business went into administration. It was quickly snapped up by the Frankfurt-based Crytek, which renamed the team Crytek UK and, at the start of this year, moved the expanded operation into the Southreef development in Canal Street, Nottingham.

The move was both an early vote of confidence in Nottingham's newly christened Southside business district and an ideal central location for a company whose workforce is mostly aged late 20s-early 30s. Crytek UK employs around 90 people but plans to expand to 110 or 120. The business was among those proudly shown off to visitors at the recent Invest in Nottingham event, emphasising that the city can now boast it has a new creative sector in its growing number of game developers. Other local companies are Monumental Games, in the Lace Market, and smaller developers such as Anthill, NuGeneration and Simple Life Forms. But the city captured a bigger fish in Crytek.

The company, which also has offices in Kiev, Sofia, Budapest and Seoul, was already well known to gamers for the titles Far Cry, Crysis and Crysis 2. The last two were sleek, hi-tech futuristic action games known as first person shooters (FPS), but designed only to be played on high-spec PCs. The main task for Hilton's team in Nottingham has been to help create the third title in the series, Crysis 3, which will be available for Sony's PlayStation 3 and Microsoft's X-Box consoles as well as PCs. This move into the vast console market should create a lucrative new awareness of the Crytek brand.

And with Crysis 3 set for a Christmas 2010 release, massive sales should be its reward for the serious investment of time and money required to bring the game to market. Hilton says that work on the new title began soon after the first Crysis came out, in 2007, while the budget for it runs into the "tens of millions of dollars, obviously" – a reminder that the bigger games today have development costs and associated employment levels on a par with some movies.

Indeed, for many gamers, buying a game represent a far better investment of their cash than going to the cinema – since £45 for a new title on the PlayStation 3 will get you many more hours of interactive entertainment than several tickets to sit impassively in front of a cinema screen. By adding an on-line competitive multiplayer element, developers have also extended the playability of their titles by months, if not years. It is this crucially important multiplayer aspect of the game that is being developed by Crytek UK in Nottingham.

So, with expectations on Crytek UK riding high, and a new game to be ready for Christmas, these are busy times for Hilton and his young team of programmers, artists, designers and animators. In fact, when a tour from the Invest in Nottingham was shown around the office in Southreef last month, Hilton told his visitors that the company was right in the middle of its "Alpha Crunch" stage. That sounded important, but what on earth did it mean?

"'Alpha' is the big gateway we work towards during development," he explains later, in his Ferrari-fied office. "A modern game can take anywhere between one and three years to make, depending on its scope, and Alpha is the stage where we lock down all of our content and say 'this game is now at the stage where all the major things in it work – it's got all the art assets, animation, sound, the game plays through from start to finish, it's a finished piece of work'.

"But there's a stage after that where we fix all the bugs, do all the fine tuning and try to play through the game as many times as possible to make sure it plays consistently well every time. Inevitably, with a complex piece of software there's a lot of bug chasing and that's what we do after Alpha. We focus entirely on turning it into a polished product."

Fundamental to the game's success is the underlying programming that allows the game to look, and play, like it does. Developers call this technology the engine and Crytek's latest patented engine is called CryENGINE 3. "A games engine is the real-time graphics, the physics and AI (artificial intelligence) and all the elements you need to make a game, whether it's a racing game or a first-person shooter," says Hilton.

"It's the underlying technology that moves everything around the screen, controls everything and allows the artists to create their assets and put them in to that space. It's the whole framework in which coders and artists and designers then put their elements to create specific games."

Crytek, he says, wants the new game to become the "definitive first-person shooter" and the one to which leading game competitors, including the immensely successful Modern Warfare series, will look to as the genre leader. The sense of competition in game development is underlined by Hilton's repeated insistence that you have to be a leader, not a follower, in this industry.

Hilton has seen success before; first at Rare, where he helped develop the genre-defining James Bond-themed Golden Eye, and then Perfect Dark, for the Nintendo 64 console; later at Free Radical Design in Sandiacre, where two Time Splitters games put the company on the map. But given that success, how did Free Radical go under?

"The games industry, for developers, is a difficult one because it's very hard to build the amount of money you need to develop a game, particularly these days when budgets run to tens of millions of dollars," he says.

"It was hard for a developer of Free Radical's size to build up those reserves of money, so we are always reliant on publishers to give us publishing deals. And with the credit crunch, we had a couple of big contracts that were cancelled.

"When you're that size your burn size per month, with the number of employees we had, is very high. Although Free Radical had good reserves, it takes months and months to talk to the publishers, show publishers the technology, to get them to buy in to the idea of a game, before they sign on the line and start giving you some money. And particularly with the credit crunch, publishers had reined in their spending.

"We were talking to lots of publishers and had a lot of respect in the industry, but no one was spending money and we as a company couldn't afford to run at that size. Unfortunately, UK employment law makes it a very slow process to downsize. If we could have downsized more quickly we could have kept the company running and bought ourselves more time to get a contract in time."

When Crytek bought the business, it was keen to move it into Nottingham city centre and Hilton believes that is the right location for a youthful business, where employees can socialise and go out together in the bars and restaurants of the city centre after work. A location near transport links offered by a motorway or airport is also important since most game publishers are based in the USA. London, as Hilton observes, is a very expensive alternative.

Just as the gaming industry is highly competitive, so it is competitive for its many prospective employees. "It is a great industry and I love it," says Hilton. "But it is a small industry and the competition for places is high. We're competing with the very best in Japan, the USA and other part of Europe. So you do have to be very, very good to get in."

His advice to would-be job applicants is to specialise in one area of the industry – programming, art, design, animation etc – and show you can excel in that area. He adds: "Show a passion for it and a knowledge of video games – what's out there, what do you like. Everyone needs to know what they like and don't like about video games, even if we disagree."

Who knows? You may end up owning a Ferrari.