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Suppose a student (who is seeking to become a video game developer) is studying Computer Science at a state-level university, and is about to complete his or her bachelors degree.
Would the student stand a better chance to get hired as a game developer later if they proceeded to obtain their masters degree in Computer Science, or if they tried to instead obtain an internship or entry-level development position at a local software developer (not game development, but still software development)?
The answer is that it depends. Hiring practices, needs, and wants are different in every studio and even vary over time. Often they vary wildly. It may be a benefit, or it may even be disadvantage.
But, that said, generally your resume, which includes your degree, is only going to get you in the door for the part of the interview where you actually talk to a human. Once you get to talk to a human, what you can actually do is far more important than what the papers say you can.
The best answer you're going to find is that there is no answer. Right now I am going to persue a Computer Science degree to (hopefully) further my career. On the flip side I have a friend who got an internship and eventually a job working at Nintendo with no official college education. I have a few friends who have obtained some for of degree from a college specializing in game development who work at minimum wage because they're lazy.
tl;dr: Schooling doesn't guarantee you a job
So in all, not one solution is really going to be appropriate. It primarily depends on your luck and your skill in your field. The projects that you work on the side, and the portfolio you build is also going to matter.
Between those two choices I don't think either is better. I don't think either is bad precisely, but mostly irrelevant to the issue of getting a job as a game developer. Either way what matters is the games you've developed previously, ideally on the job but the next best thing is games you've developed on your own. Getting a master's degree or general software development experience each have different pros and cons so overall I would say they are about equally useful to getting a job as a game developer, but neither is nearly as important as the games you've made.
You will gain more skill and knowledge when you develop games than doing either of those things. Getting a masters might help you gain knowledge useful in resolving certain programming related challenges you may encounter as a game developer. The same can be said about working as an intern in a software firm. I think both paths are somewhat equal because they don't put emphasis on the domain of challenges that naturally occur in the process of game development. While some of these (game development challenges) do overlap with challenges you'll face in the University or at a "generic" software corporation, it will not be sufficient or as effective as developing games today. The differences between a masters and a job in a regular software firm exist but are somewhat perpendicular to the aspects that affect your chances of getting a paying job in the industry. Your chances as others said will increase dramatically if you have something of (great) value to offer and you can actually benefit the team in ways that are more relevant than any of the candidates competing for the position.
In my experience the person who can bring "it" to the table is the one who honed their skills in many (small) projects that were completed successfully.
From my experience (as someone who is finish up his master's degree) it is best to get a masters degree. During your master's degree there will be room for an internship so you get both. Also make sure to choose courses relevant to the game industry (like graphics, geometric algebra, calculus, etc...).
This is because unfortunately game industry related bachelors are 'tainted' these programmes have been creeping up everywhere and usually do not contain the knowledge at all that you need to program games. For example not much of these programmes include advanced calculus and linear algebra courses while most do include some sort of silly gamemake based course. Guess which of these two courses will come more in handy when you're trying to find an efficient algorithm to compute vision metric over a complicated graph structure ;).
Added bonus: people with a master's in CS are very scarce (at least here in the EU) so if you have a hard time finding a game related job you have a very easy time finding something else (that will probably pay a lot better ;) )
Sources: me and people I talked to at Nixxes (Tomb Raider) and Abbey Games (Reus) where I did internships) and Crytek where I had an in-house day.
Edit: the opinions here differ a lot. So why not call up a few of your favorite game companies and ask them what they think? Just find their phone number (best) or e-mail address (really only if you cant contact them by phone). Most HR people are actually quite nice and will love to give you some short advice.
