Are we heading towards a second video game crash?
Over 1000 francs for new consoles, games with ever-increasing development times, mass layoffs, and hardly any growth. The industry is sick, yet developers remain unconcerned.
Hardly a week goes by without reports of layoffs and studio closures. Almost 11,000 cases have already occurred this year, and there is no end in sight. In addition, there are price hikes for consoles and PC hardware, which we primarily owe to the AI hype. While the gaming market is still growing, it is doing so sluggishly. The number of players is stagnating, especially in the console segment. Bleak prospects, one might think.
Before and during Gamescom, I checked in with various industry players and heard surprisingly little concern. This is despite industry veteran Brenda Romero speaking of a second video game crash. The first was triggered by Atari's collapse in the 1980s.
Everything is getting more expensive
A look at the numbers confirms Romero's bleak picture. Nintendo, Xbox, and Sony have all raised prices for their current consoles multiple times. In the past, something like this would have been unthinkable. The situation in the PC market is even worse. Components like SSDs, RAM, and graphics cards are becoming veritable investments. Who needs stocks if they bought an RTX 5090 at launch that costs twice as much today?
There is no improvement in sight. Analysts estimate that the PlayStation 6 will cost over 1,000 US dollars. As a result, sales in the first five years will be almost 40 percent lower than for the PS5. No wonder: who is going to buy such a device when you can play games like "Roblox" for free? Sony's decision to stop producing discs is also likely to make the hobby more expensive. It leads to less competition in sales, and the second-hand market disappears. Thus, Sony alone determines the price.
However, the high acquisition costs could also have a positive effect. If only a minority buys a new console, the old ones will inevitably be supported for longer. Development for the last generation already lasted longer than ever before. This should mean: less focus on flashy graphics and more on game design.
"You don't have to develop a 150-million-dollar game"
One person who has experienced many console and PC generations and thus many ups and downs in the industry is Tim Willits. He started at id Software 30 years ago and was involved in the development of "Quake", "Rage", and "Doom" (2016). He is now Chief Creative Officer at Saber Interactive. "At Saber, we developed for Xbox One and PS4 for a very long time – longer than Sony and Microsoft had actually recommended to us. I can imagine that many companies will stay on a high-performance generation for longer in the future. The current Series X and the PlayStation are really good consoles. You don't have to develop a 150-million-dollar game – a game with a reasonable budget that does one thing really well can be implemented on any platform. You just have to do it."
But many apparently do not. Meanwhile, raising game prices is no longer a taboo either. Currently visible with "GTA 6". This is not just because publishers and studios want to earn more. Development costs have risen significantly. Raph Koster of Playable Worlds has calculated that they increase tenfold every ten years, while we are still paying similar prices as in the 16-bit era. Revenue is not making the same leaps, as Epic CEO Tim Sweeney also confirms: "The first 'Gears of War' cost 12 million US dollars and generated 120 million US dollars in revenue. Gears 3 cost 100 million and earned about the same."
Willits, on the other hand, shows with "Space Marine 2", "World War Z", and "Snowrunner" that it can be done differently: "I firmly believe that there is still room for large console and PC games – and they don't have to have a budget of 150 million dollars. 'Snowrunner' cost six million, which corresponds to about three months of development time in a large American studio. That turned into hundreds of millions in revenue. You just have to proceed smartly."
Rising hardware and game prices could still make the transition from mobile and free-to-play games to classic games more difficult. This is especially true for younger people who are not growing up with consoles. This doesn't worry Willits either:
"I've been hearing my entire career that the PC is dead, the console is dead. In 2008, they said no one could afford video games anymore. If you develop something engaging and entertaining, people will play it."
"Creative minds are currently creating impressive things, and I firmly believe that this will continue," Willits continues. "For some, the situation may have changed uncomfortably, but creativity always prevails."
The market is shifting
Willits' optimism is countered by the fact that a few games rake in the majority of the money. In 2023, 43 games were responsible for 90 percent of revenue in the PC and console market. At the same time, the ten most-played games were seven years old or older. Little is likely to have changed in that regard since then.
Newer figures from the market research company Newzoo do show slight growth from PC to console to mobile, with the PC leading the field. Also, the mass layoffs mentioned at the beginning are offset by 18,000 to 25,000 new hires annually, says Amir Satvat of the Game Industry Layoffs Tracker. However, the industry grew by a whopping 150,000 people five years earlier. Another important detail: the majority of layoffs affect Great Britain, Northern and Western Europe, and the USA.
Asia now makes up the largest part of the market. There, the tendency is to rely more on free-to-play than on classic AAA single-player games. Newzoo also assumes that player spending will decline slightly by 2028. Business journalist Jason Schreier shares this forecast and points to Sony. The Japanese company speaks of a "Mature Market". Unlike in the past, it is no longer growing exponentially, but at most in the single-digit range. The result: Sony will no longer aggressively try to sell the PS5 and will instead squeeze the existing market harder.
Speaking of Asia: The Opening Night Live at Gamescom impressively showed that the Asian region dominates not only in terms of the player base – but increasingly also in terms of the games.
"Waste the Fallen" could soon be among them. The extraction shooter from the South Korean studio Royal Crow was playable for the first time at the game fair. According to Anton Olshvang, who was on-site on behalf of the Chinese parent company Tencent, the mature market offers more options than ever. "The extraction shooter genre is underserved, which is why we chose this game. We are not worried about the industry. The market has always been in constant flux."
Despite increasing competition, Willits, on the other side of the globe, is not afraid that the USA will soon be replaced by China. "I think the market will rather expand. I am American and therefore certainly biased, but the USA still has enormous creative talent."
"The problem is that many American developers and publishers are stuck in old patterns of thinking. With us, the creative team and the publishing team are based in the USA, but we no longer have any development studios there."
"Our studio in Spain is just as good as any US studio, our studio in Serbia is developing 'Hellraiser' at a level that is equal to any Californian studio."
The market remains huge
The Schaffhausen-based studio Urban Games is releasing what is arguably the biggest Swiss game of the year at the end of the month with "Transport Fever 3" – at full price. "Free-to-play games are not a new invention and already had their heyday in the 2010s," says Publishing Manager Nicolas Heini. "That is a valid business model and an easy entry into the world of games for many players."
"However, there will always be a market for high-quality games at full price and without microtransactions."
"Not all target groups are looking for the same experience. That is precisely why different models can coexist in the future. The gaming market is huge. Even if it stagnates or shrinks slightly, it is still gigantic."
Heini is convinced of their own continued existence. For AAA games, however, he sees a high concentration risk. "The reason for the problems and layoffs is, among other things, that players' expectations are rising, making productions larger and more complex. This makes them unpredictable. Almost all large projects fall behind schedule and over budget. A production that is twice as complex does not cost twice as much, but four times as much, as costs do not grow linearly."
Even the Nintendo corporation, which usually manages its resources very thriftily, states that development is becoming longer, more complex, and more challenging. In other words: more expensive.
AI as a savior?
According to the consulting firm McKinsey, the industry should counteract the negative trend with greater use of generative AI and new advertising models. Epic is also focusing on AI tools like Claude and Gemini for the new Unreal Engine 6. Probably not what gamers want to hear.
At Saber, where CEO Matt Karch recently did not cover himself in glory with his comments on AI, they are not averse to generative AI: "We are currently experimenting with smaller projects. We are trying to figure out how to use it sensibly. But we don't know exactly ourselves yet. Players are also trying to find their way right now. I believe someone will create such an impressive experience that it will change the way the entire industry thinks and set the direction."
Willits, however, is not afraid that AI will replace the people behind the games. "I think that will be difficult because creativity is about something fundamentally different. We humans can imagine things, believe in them, visualize them."
"Many AI systems are based on mathematical probability. That has nothing to do with dreams, visions, and true creativity. That's why I have faith in humanity."
As someone who also works in an industry that is in danger of being replaced by AI, Willits' last answer gives me hope: "Talking to you is more fun than talking to ChatGPT, in any case." Hopefully, it stays that way for a long time.
Even the best AI won't be able to answer what the gaming industry will look like in ten years.
Teaser image; Wikipedia/taylorhatmaker
As a child, I wasn't allowed to have any consoles. It was only with the arrival of the family's 486 PC that the magical world of gaming opened up to me. Today, I'm overcompensating accordingly. Only a lack of time and money prevents me from trying out every game there is and decorating my shelf with rare retro consoles.
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