So a lot of my friends watch movies and claim that its as important as playing games in the game industry...and how so?

You mean if watching movies is necessary to enter movie industry? If yes, then of course it is.

Or do you mean if watching movies is necessary to enter game industry? Well, then it depends. If you're going to make cinematic trailer of the game or work on some cutscenes, then it can be useful.

It's important if you work on the creative side of games. Games are increasingly replicating cinematic experiences as the technical limitations disappear.

When you say that your friends watch movies, are you implying that you don't ?

I'd ask your friends about their claims. They're your friends, and they're the only ones who are sure to know what it is that they meant.

If you are making certain types of games, in particular if you are a game designer who is designing features for a high-end game, then you need to be aware of what is going on within the industry. Since they're making the movie comparison, imagine being a life-long film maker in the black and white industry and then suddenly discovering that people had used color film for decades. Or imagine that your sales of silent movies had dropped to zero, only to look around and discover that everyone else had moved to talkies.

For all the workers this is less critical. If you are a programmer you don't need to know about all the little design tweaks other games have been making, your designers should tell you what you are supposed to implement and should provide references if they want to say "Just like they did in games X and Y or during that scene in Z".

Also it depends quite a lot on the game. If you're making a networked chess game you don't need to be aware of all the pop culture references. If you're a writer for an upcoming AAA blockbuster, you better be comfortable with many cultures and each of their current trends.

My opinion if you want to develop thought provoking cinematic and original content. Avoid the silver screen and head to your local book store. Literature is the source. Instead of replicating or tweaking the scenes in your favorite movies read the classics and find your own original vision. The inspiration you are likely to get while watching "Saving Private Ryan" is likely to result in a similar vision to other viewers. However, when reading Homers "The Odyssey" you are likely to see a unique vision and have an idiosyncratic inspiration.

I recently read Mary Shelly's Frankenstein the game idea it inspired for me would not be recognized by other readers of the text. The themes are relatable but I had a unique vision to explore the theme. This isn't impossible with film just less likely. Your brain works harder when you read. It has to create the audio and visuals...does this process sound familiar?

That's an interesting thought. I've never had that idea cross my mind before. Now I feel an urge to go read some books! I don't read as many books as I'd like...

If I may also give my opinion I think it might depend on what you take from the movies that you watch. Like may others have said before my post with games having cinematic cutscenes then sometimes movies could help influence or give inspiration to those. Especially when it comes to technique or style. I've even read how motion caption has been shared between the movie industry and the game industry as well.

Besides that, I personally watch movies because they help inspire me on what type of stories I think would be great transition into a video game style. This is from a game writer perspective since I am working towards becoming a game writer for video games. Sometimes when looking for inspiration I will find myself watching animated movies or even tv shows to find inspiration on what types of stories I would want to create for video games.