There is actually two types of game music out there in existance. They are differentiated by the developer's mindset when composing them.
1. Music that is designed as just a background track to thatever is going on screen at the time. Designed to blend in and not take over the main onscreen action. Blending in for a seamless experience.
2. Music that is designed to stand out and go past just simple background sounds. Music designed to be memorable really fitin with the theme of what's on the screen at the time as well as potentially be something people could listen to outside the game and still enjoy.
Neither types of game music are bad or wrong. They both have their purpose in video games. I enjoy both. Both are very important to me. Bad music in a game really gets to me a lot and it does hinder my enjoyment of the game.
What is good music in a game?
That is actually a very simple (though slightly subjective) question. It's well composed music. A good example of this is NES music vs Commodore 64 vs Sondblaster PC music.
The NES has 5 sound channels or voices.
1. Pulse square wave
2. Pulse square wave
3. Triangle Wave
4. Noise
5. PCM sample
The Commodore 64 had 3 channels or voices. However each voice is not limited to a single waveform. It could be one of a different number of wave forms.
1. Square or triangle or sawtooth or noise
2. Square or triangle or sawtooth or noise
3. Square or triangle or sawtooth or noise
You could have any combination of those. in the early days most left each channel with a single waveform type for the entire tune, but later on the developers changed to what waveform each channel was mid tune.
The Soundblaster chip (YM3812) on late 80's and early 90's PCs had 9 sound channels or voices.
1. Triangle wave
2. Square wave
3. Trangle wave
4. Sawtooth wave
5. Triangle wave
6. Square wave
7. Triangle wave
8. Sawtooth wave
9. Triangle wave
So which do you think produced the best music. If you think they rank in this order
1. Soundblaster
2. Commodore 64
3. NES
You would be correct from a technical standpoint . . . but that's only half the story.
The number of voices an old school sound chip has is only the potential of the chip. It takes a great composer to make great music from that chip. Sure there are a few great soundtracks from PC games from the 80's and 90, the majority are quite forgettable and not that good. The same with almost every Commodore 64 game soundtrack. Poorly composed, and not really worth listening to. Listening to some of that music, I wonder if the PC and Commodore game developers even understood what makes good game music. They new nothing about the theory of music to make this happen.
However people like Koji Kondo, David Wise, Grant Kirkhope and others who help develop NES games actually understood what a great track is from a technical musical point of view. Or in other words they could better compose a good piece of game music better than almost anyone else back in the day. That's why many NES music tracks are remembered to this very day while most from the Commodore 64 and Soundblaster chip are forgotton. This is proof that how good your sound hardware is, is only potential. You need an expert composer to max out that potential.
This is why NES music is for the most part better, even though the NES has worse sound hardware at the time when compared to it's rivals. This trend would also replicate itself with the SNES and N64. Two more consoles with inferior sound hardware but had amazing composers to really maximise the sound optential of those consoles.
Today however we have more than enough console memory to store entire premade tracks (MP3, FLAC OGG, etc etc) in memory and just play those. The days of on chip synthesised music is over. However the principle that good music composition trumps the quality of the sound hardware still applies to this very day . . . mostly. Poorly post produced music and poorly compressed music will still be very noticable today and if bad enough, no amount of good composition will save that. However game music that is put out today that is well composed and well produced, it's obvious and makes a real difference to their games. Take Mario Galaxy as an example. It's music had every reason to be terrible due to the Wii's lower power, low memory and only using a standard dvd for it's games. However the composers for that game went above and beyond with what they ahd to work with to make a masterpiece of a soundtrack.
A track we all know. The basic Super Mario Bros NES track from the above ground levels. It really set the standard for great game music of the future. It starts with a little into piece, only two seconds long but it gets you into the track. After that every voive used, voices 1-4 were used. Voice 5 was very rarely used at all (though SMB3 did use it for a few percussion sounds). Each of the 4 voices had a purpose to add to the track. Also the noise voice was used very well so no matter what the other voices were doing you always had a hook, a familar sound that told you, hey this is the overworld SMB1 track. Excellent use of the noise voice there.
Fast forward to something like Mario Galaxy and it's Wind Garden track. We also have here a short three second intro followed by each intrument (or track) having it's own purpose. Each track has to have it's own purpose and add something to the overall piece. In this piece we have the guitar track doing the same thing that the noise voice did for SMB1. One track grounding the entire piece, so it doesn't matter what the other tracks are doing that guitar track keeps reminding us that this is the Wind Garden piece. This allows the other tracks to ebb and flow up and down in intensity (similar to the SMB1 tune) without feeling out of place.
It's this level of musical understanding that many composers of the 1980's and 1990's didn't have and actually many modern game music composers don't have today either that lowers the quality of their work.
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On a personal note, this is why I always have perfered that second type of game music. The music where the developers went that extra mile not just to seemlessly insert their music into the game to make it agreat overall experience. They wanted the individual tracks to wow the player as well. Many of these tracks I have fond memories of. I've always liked the Dragon Quest Oveture. I've heard it in almost every way possible. Koichi Sugiyama who originally composed it actually followed the same core composition principles that Kondo, Wise, Kirkhope and others have. The track is still so good to listen to 30 years later because it was so well composed in the first place.
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If you want more info on how the NES, Commodore 64 and Soundblaster sound chips work here's a very good short overview video. I'm calling this my source for the information I shared above in this post.
https://www.youtube.com/watch?v=q_3d1x2VPxk