How it started
Precedent
1980s software crackers added custom introductory credits sequences (intros) to programs whose copy protection they had removed. Increasing computing power allowed for more complex intros, and the demoscene formed when focus shifted to the intros instead of the cracks. The goal became to create the best 3D demos in real-time with the least amount of software code. Disk storage was too slow for this, so graphics had to be calculated on the fly and without a pre-existing game engine.
In Disney Interactive Studios' 1992 computer game Stunt Island, users could stage, record, and play back stunts. As Nitsche stated, the game's goal was "not... a high score but a spectacle." Released the following year, id Software's Doom included the ability to record gameplay as sequences of events that the game engine could later replay in real-time. Because events and not video frames were saved, the resulting game demo files were small and easily shared among players. A culture of recording gameplay developed, as Henry Lowood of Stanford University said, "a context for spectatorship.... The result was nothing less than a metamorphosis of the player into a performer." Another important feature of Doom was that it allowed players to create their own modifications, maps, and software for the game, thus expanding the concept of game authorship. In machinima, there is a dual register of gestures: the trained motions of the player determine the in-game images of expressive motion.
In parallel of the video game approach, in the media art field, Maurice Benayoun's Virtual Reality artwork The Tunnel under the Atlantic (1995), often compared to video games, introduced a virtual film director, fully autonomous intelligent agent, to shoot and edit in real time a full video from the digging performance in the Pompidou Center in Paris and the Museum of Contemporary art in Montreal. The full movie, Inside the Tunnel under the Atlantic, 21h long, was followed in 1997 by Inside the Paris New-Delhi Tunnel (13h long). Only short excerpts were presented to the public. The complex behavior of the Tunnel's virtual director makes it a significant precursor of later application to video games based machinimas.
Doom's 1996 successor, Quake, offered new opportunities for both gameplay and customization, while retaining the ability to record demos. Multiplayer video games became popular, and demos of matches between teams of players (clans) were recorded and studied. Paul Marino, executive director of the AMAS, stated that deathmatches, a type of multiplayer game, became more "cinematic". At this point, however, they still documented gameplay without a narrative.
Quake movies
From Wikipedia’s article on ILL Clan, shared under CC BY-SA 4.0.2