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Loading times 
Loading screens that disguise the length of time that a program takes to load were common when computer games were loaded from cassette tape, a process which could take 5 minutes or more. Nowadays, most games are loaded from optical disc, faster than previous magnetic media, but still include loading screens to disguise the amount of time taken to initialize the game in RAM.
Because the loading screen data itself needs to be read from the media, it actually increases the overall loading time. For example, with a ZX Spectrum game, the screen data takes up 6 kilobytes, representing an increase in loading time of about 13% over the same game without a loading screen.
In early video games, the loading screen was also a chance for graphic artists to be creative without the technical limitations often required for the in-game graphics. Drawing utilities were also limited during this period. Melbourne Draw, one of the only 8-bit screen utilities with a zoom function, was one program of choice for artists.
Loading screen variations 
The Metroid Prime games disguised loading screens as elevator sequences when Samus moved between major areas. The Ratchet & Clank series uses a similar method. Much more recently, Mass Effect uses exactly the same technique to hide loading time.
Loading screens sometimes double as briefing screens, providing the user with information to read. This information may only be there for storytelling and/or entertainment or it can give the user information that is usable when the loading is complete, for example the mission goals in a game.
Namco has used playable mini-games during a loading screen. Examples include variations of their old arcade games (Galaxian or Rally-X for example) as loading screens when first booting up many of their early PlayStation releases. Even to this day, their PlayStation 2 games, like Tekken 5, still use the games to keep people busy while the game initially boots up.
Recent EA Sports Games have "warm up" sessions, for example Fifa 11 has the player shooting free-kicks solo, NBA Live 10 has 2-player shootouts, while the game loads. NBA Live 08 features a 4-player general knowledge quiz.
Some games like Call of Duty: World at War have videos that give an introduction to the level while the game loads in the background. Normally, when the level is fully loaded, the remaining video can be skipped. It should be noted that the video doesn't necessarily apply to what is happening in the level, as Red Faction: Guerrilla sometimes shows news reports foreshadowing events that will become important later on, or that give tidbits about the game's universe.
See also