Serious Do you believe the video game industry is heading towards another crash?

[ReddDreadtheLead]

I don’t think it’s going towards a crash, but I do think that it’s crashing for older video game enjoyers that grew up with a different landscape vs the new generation. We are literally seeing the effects in live right now, games like Roblox, Fortnite, Minecraft, etc are molding a whole generation and what their interests are and what it’ll lean to.

I’ve come to terms with it. Even if it isn’t what I typically enjoy.

 

[fourfourfun]

Part 3.5: What about Nintendo?

Also, where does Nintendo stand in all of this? While Nintendo has famously pursued a Blue Ocean strategy and largely avoided competing directly with Sony and Microsoft on their own terms, Nintendo is certainly a AAA developer and is bound by the same concerns I've outlined above. Tears of the Kingdom is a monster hit, but one that took 6 years of development. I am skeptical we see many more flagship EPD series (3D Mario, Mario Kart, Animal Crossing, etc) this generation. But they have a few factors working in their favor, most notably the absurd popularity of their IP, and traditional focus away from realistic graphics. I think Nintendo is going to face challenges like everyone else, but having somewhat side stepped the arena everyone else is competing in, I do think they are more insulated than others about a looming threat.

If Nintendo's next platform can take "impossible ports" to "ports" and retain a whole load of fidelity through AI, they're going to be a force to be reckoned with. They've already managed to walk the path between all tiers of games - genre and budget - and being able to tie down the likes of a Control or Resident Evil calibre title without needing Cloud or a massive hack job to get it native will be a real big thing.

 

[EggmaniMN]

No, gaming survived the mobile garbage wave and is now thriving even more than before. Even if AAA gaming has to slim down on scope and go back to being more like a really pretty 360 era game with better physics (which sounds perfect to me), indies and mid level budget games give me more than enough to play each and every year.

 

[Apopheniac]

Maybe some trends will reach more or less of a head, but concerns about trend-chasing seem overblown. Vast games with gargantuan budgets are supported by the video game market's continued expansion, which shows no signs of slowing. These games are made because they've been profitable, and unless mass audiences stop buying them, they'll keep getting made. Most publishers have relatively diverse catalogues and aren't overly exposed to genre-related risks. That's not to say no developer or publisher can or will fail, but it's hard to see the arguments for deviation from the status quo at this juncture.

 

[Terrell]

I've written about this a few times, so I'm going to try and synthesize all the bullet points I can from those past posts:

While gaming is growing from a revenue perspective, we won't see a crash, but there is a gaming industry "bubble", and that bubble is ready to pop at any moment.

Traditional packaged software and complete-experience gaming is likely quite secure, it has survived for as long as it has across varied development budgets (and continues to expand on a units-sold basis), but while that has been growing, the figure related to video games as an industry is not as much about console/PC gaming.

It’s the mobile/F2P//MTX space that has me worried. The more dependent the industry becomes on those revenue sources, the more drastic it will be when the bubble pops, as all revenue-extractive business models that offer little value to consumers tend to with enough time. Certain single-country markets are starting to see mobile spending attrition already, and the US market in particular is discovering that mobile gaming may be an entertainment business that is very sensitive to economic factors like inflation, moreso than others. And there's the constant looming threat that Skinner box pseudo-gambling designs are going to see some form of regulatory crackdown that would deflate those revenue sources in a heartbeat.

So much of this talk about gaming as the fastest-growing entertainment industry revolves around the environment that happening in staying precisely the same and that's reason enough to be concerned.

This is part of why I see the ABK purchase by MS as a broader industry trend, where big publishers who became very dependent on that F2P/MTX bubble are looking to get out while the getting's still good. If ABK doesn't get approved for sale, publishers are going to find there's no escape hatch, so the need to endlessly drive impossible growth and astronomically higher valuations to drive interest in acquisition diminishes almost immediately. In this way, Western publishers in particular (and a fair amount in Asia, as well) are being run no differently than most other tech businesses in the West, driving growth to attract a sale before profitability dips or the business craters from no long-term prospects for profitability; they get rich, other businesses grossly over-paid for a company based on a mirage. The circle of life for Wall St. right now, basically.
And because there's enough warning signals between the threat of IAP regulation, ballooning costs, unionization efforts, the failed attempt to drive revenue generation with NFTs, etc., publishers know they won't be able to drive profit growth the way they have been for that much longer. So they have 2 choices: sell the business at a high premium before the bottom falls out, or ride the wave just long enough that they hope for the biggest possible golden parachute before the bottom falls out and leave the austerity budgeting to whoever the unlucky one is to inherit their mess.

And I see this as a trend because ABK isn't the only one shopping around for an opportunity to "get off the ride", so to speak, they were just the first one to run into the kind of trouble that risked the big executive payday they were after and had to cash out early.

WB was already trying to sell their games division in the worst way possible even before the AT&T selloff to Discovery, with no takers (and allegedly WBD was trying to offload WB Games as well). EA has been trying to sell outside of the games industry (like to Big Tech or Disney) and getting no takers, because most other media companies have already been through this cycle before with the dot-com bubble (among others) and recognize a bubble when they see one, or have already been on this particular ride in the games industry and got off.

What killing this deal represents is that, if media conglomerates want out or aren't biting, and the larger game companies are at high risk of having M&A attempts regulated into oblivion, all profitable exit strategies have been ruled out once this killed deal deflates a huge amount of value across the industry, so the rapacious ways that publishers have been generating revenue at the expense of the customer will not garner the desired result of a big payday that most were hoping for when they set out in that direction. And the current C-suites will have done all this horrid revenue-or-nothing behaviour for peanuts by comparison. And they'd deserve it. But the ABK sale going through doesn't avert the panic, it just slows it down.

Big names in the mobile space are cashing out, too, have been for the past several years (Rovio is just one very recent example), cuz most of them aren't quite as greedy as folks like Kotick, Wilson and no small number of shareholders, who want the absolute maximum they can squeeze from their stake in the gaming bubble and abandon ship just before it bursts.

TL;DR - the industry will contract when the MTX bubble pops and current publisher executives are squeezing as much juice from the orange as they can beforehand. The industry will survive, but its overall value will contract.

 

[MrBones]

Retaining staff is a huge part as well. Japanese publishers don't go through the huge layoffs and studio shutdowns that western ones do.

Good point. The Western industry feels like it's being run by Jr. Software Engineers

 

[BotenAnna]

Seems like a lot of overblown doomer feels. I get that AAA reaching a critical point where projects/timelines need to scale back is a bit scary, but I don't get a lot of the other things people are worried about. I play all kinds of games that exist outside of the western AAA market and things seem fine enough to me? There are some things I like not doing as well but it is what it is. Don't feel the need to be worried about anything gaming specific. Got plenty of other economic anxieties to keep me busy anyways.

 

[WestEgg]

So, I'm giving this thread a little bump. In the past few months we've had:

• Unity announce a new pricing model, apparently due to financial issues with the current model
• Unreal announce a new pricing model, apparently due to financial issues with the current model
• Sega canceling what is reportedly it's most expensive game ever.
• Layoffs across the industry
• Near 30% drop in Square Enix's valuation
• Some insight into the costs of subscription models (mostly Game Pass) via court documents from the Activision Merger FTC case

I'm not trying to doom or disregard other previously tough spots the industry has been in, in fact studio closures are a rather common story. However, I see all of this as the consequence of budget bloat as discussed in the OP and elsewhere in the thread, and some second thinking of the GAAS model. Hyenas being canceled in particular, which had been playable and was reportedly more or less done, seems like a massive red flag to me and a lack of faith in the model, despite the apparent massive investment.

Again, I don't believe we're heading to a video game Armageddon in the way North America experienced in the 80s, but mass contraction seems less like a worry and more like... what's just going on now. Even first parties among Sony and Microsoft seem to be even less encouraging than when I wrote the OP in May, given we've still seen really nothing from Sony beyond Spider-Man 2 and Microsoft doesn't seem to have a next big thing lined up after Starfield (which itself doesn't seem to have been a next big thing on the level of prior Bethesda RPGs).

Anyway, just wanted to kind of keep posting my ongoing thoughts as time goes on to see how things ended up progressing down the line.

 

[Tangerine_Cookie]

So, I'm giving this thread a little bump. In the past few months we've had:

• Unity announce a new pricing model, apparently due to financial issues with the current model
• Unreal announce a new pricing model, apparently due to financial issues with the current model
• Sega canceling what is reportedly it's most expensive game ever.
• Layoffs across the industry
• Near 30% drop in Square Enix's valuation
• Some insight into the costs of subscription models (mostly Game Pass) via court documents from the Activision Merger FTC case

I'm not trying to doom or disregard other previously tough spots the industry has been in, in fact studio closures are a rather common story. However, I see all of this as the consequence of budget bloat as discussed in the OP and elsewhere in the thread, and some second thinking of the GAAS model. Hyenas being canceled in particular, which had been playable and was reportedly more or less done, seems like a massive red flag to me and a lack of faith in the model, despite the apparent massive investment.

Again, I don't believe we're heading to a video game Armageddon in the way North America experienced in the 80s, but mass contraction seems less like a worry and more like... what's just going on now. Even first parties among Sony and Microsoft seem to be even less encouraging than when I wrote the OP in May, given we've still seen really nothing from Sony beyond Spider-Man 2 and Microsoft doesn't seem to have a next big thing lined up after Starfield (which itself doesn't seem to have been a next big thing on the level of prior Bethesda RPGs).

Anyway, just wanted to kind of keep posting my ongoing thoughts as time goes on to see how things ended up progressing down the line.

At this point I think it's very clear we're on a huge contraction period, yeah.

I'm also going to add: a lot of companies seemed to take the growth during the pandemic as some sort of permanent thing that was gonna just get bigger, and not a temporary peak from people being stuck home and needing entertainment. I don't think that has helped this situation either.

 

[Deleted member 1978]

A crash at its most basic level requires a reduction of revenue to such a degree that the market is no longer financially viable. In other words, people need to stop spending money on video games. The thread has been discussing factors that primarily affect the supply side of this equation (the industry) rather than the demand, but a crash is defined by the latter rather than the former. If people are still willing to spend money but the industry is unable to meet demand, then that's a shortage and not a crash.

I don't particularly see any indication that people are slowing down their gaming purchases, so any of the industry trends or news being mentioned in this thread needs to materially affect demand in order to result in a crash. However, I don't think that such a situation is actually plausible since there's just too many independent and self sufficient actors in the market that all have a vested interest in keeping the overall market healthy and sustainable. The video game crash of the 80s was due to proportion of unplayable garbage far exceeding the number of games that were remotely decent, but can you imagine that happening with the broad diversity of developers operating today?

Extrapolating the trends affecting a significant portion of the industry isn't sufficient to conclude that a crash is plausible. These trends may indicate that a contraction might happen, but a full blown crash requires these trends to be much more prevalent and widespread than what we're actually seeing at the moment. I'd be more willing to entertain the prospect if the average quality of releases drops significantly and consistently across the board, but 2023 isn't that year yet.

 

[GamerJM]

No but I think we're in for a longer 2014-esque period where we reach an absolute nadir in terms of AAA releases because of bad decisions the major publishers have made, but they'll still come back anyways.

 

[meatbag]

mass contraction seems less like a worry and more like... what's just going on now

You pretty much said it. Mass contraction is happening, and we'll see more cancellations and layoffs and whatnot because of "financial difficulties" that only really came about because, as @Tangerine_Cookie has mentioned, tech companies thought they were going to go uphill all the way.

Extrapolating the trends affecting a significant portion of the industry isn't sufficient to conclude that a crash is plausible. These trends may indicate that a contraction might happen, but a full blown crash requires these trends to be much more prevalent and widespread than what we're actually seeing at the moment

Yep, as I've mentioned way earlier in the thread, if there is a "crash" it will probably be confined to the AAA portion of the industry. Everything else will do just fine, and AA titles might even thrive more.

 

[Goblin_knight]

You pretty much said it. Mass contraction is happening, and we'll see more cancellations and layoffs and whatnot because of "financial difficulties" that only really came about because, as @Tangerine_Cookie has mentioned, tech companies thought they were going to go uphill all the way.


Yep, as I've mentioned way earlier in the thread, if there is a "crash" it will probably be confined to the AAA portion of the industry. Everything else will do just fine, and AA titles might even thrive more.

I'm honestly terrified for the future of AAA games. Games that basically fill an entire SSD in one go and game prices slowly creeping up to +$100 on the consumer side then insane budgets and sales expectations on the dev side. I wonder what gives first.

 

[Suswave]

AA titles might even thrive more

that would be nice but there have been a lot of smaller titles lately not selling what publishers / IP-holders / devs wanted lately

granted, I don’t think it’s quite pure doom and gloom, but the current situation is very much in line with what I pictured when I said “Yes, and soon” back in May

 

[meatbag]

that would be nice but there have been a lot of smaller titles lately not selling what publishers / IP-holders / devs wanted lately

True, but sometimes it's tough to say. We know companies like Square have strangely high expectations for a lot of their projects.

 

[Shadow]

It reminds me of the late seventh generation where, specifically '''''AAA''''' had some insane budgets and insane expectations which were never going to be matched. I can totally see some companies go through a similar situation where layoffs are going to be massive, projects get cancelled left, right and centre, but they will pull through. Just for the thing to happen again in some ten years and zero lessons to have been learned.

 

[Deleted member 2258]

that would be nice but there have been a lot of smaller titles lately not selling what publishers / IP-holders / devs wanted lately

granted, I don’t think it’s quite pure doom and gloom, but the current situation is very much in line with what I pictured when I said “Yes, and soon” back in May

And a lot of new indie games are releasing at higher price points. When No Straight Roads was sold for $25 a few years ago, it was thought of as absurd. Now, most indie games tend to be between $25 and $40.

 

[shoptroll]

Yep, as I've mentioned way earlier in the thread, if there is a "crash" it will probably be confined to the AAA portion of the industry. Everything else will do just fine, and AA titles might even thrive more.

Indies aren’t entirely immune either, although the impact to workers will be less. There’s only so much time for so many Vampire Survivor clones.

 

[Vookatos]

It's too big to fail in the same manner as it did back in '83, but it's clearly unsustainable.
If it wasn't all falling on poor workers, I'd say "bring it in", but it's pretty clear that any companies that fail will just bleed talented people while executives will skitter around to other studios like roaches.
Obviously the indie scene is as healthy as ever, and various tools seem to only get easier to use. I mean, 5+ years ago a "PS2 style" indie game was unheard of, not to mention something even bigger.

I do wonder how much this will affect the next generation of consoles. Dev costs are already sky-high and any other dumb "ray-tracing"-like gimmick will just push game costs further with barely any noticable difference to the consumer.

Like, honestly, From Soft is the GOAT in this regard. Those fellows didn't animate mouths moving for years because who the hell cares. A talking crow? fucking make it invisible we don't give a shit. It's hilarious but also shows right priorities.

 

[hologram]

I'm also going to add: a lot of companies seemed to take the growth during the pandemic as some sort of permanent thing that was gonna just get bigger, and not a temporary peak from people being stuck home and needing entertainment. I don't think that has helped this situation either.

This is kind of off-topic, but I wanted to add that this isn't exclusive to video game companies. I was on a company-wide quarterly earnings call at work sometime in 2021, and one of the executives speaking was in full-blown panic mode. Revenue was down X% from last quarter, profit was down Y%, etc etc. The next executive to speak paused for a second, and then said "...yeah it's true we're down from last quarter, but ah, last quarter was our most successful quarter ever... if you compare to the previous quarter we're actually slightly up... so I'm not sure we need to be panicking just yet".

Capitalism's obsession with growth with no other considerations is just extremely idiotic

 

[Deleted member 3433]

There's definitely a bubble that's bursting, but it won't affect everything/every company.

And, there's a ceiling when it comes to the productions of the larger scope. I can see a radical change in the foreseeable future where big franchises get entries of a much smaller scope. These large and unsustainable projects are bad for both employees and fans; the former become overworked, and the latter see fewer and fewer games appear over the years.

 

[Octavian]

i hope so, the western AAA industry is fucked and largely creatively bankrupt. Not everything needs a hundred million dollar budget to make something that was probably already better done during the 6th generation

nintendo is in a great position so long as they don't succumb to budget/dev bloat (TOTK taking 6 years as an incremental sequel isn't a great sign, but that might be the exception). most of their games are modestly budgeted and don't take 5+ years to create. that should be the industry standard.

 

[WestEgg]

I hadn’t even realized until the most recent Delayed Input how dicey The Last of Us multiplayer is looking.

 

[Octavian]

It reminds me of the late seventh generation where, specifically '''''AAA''''' had some insane budgets and insane expectations which were never going to be matched. I can totally see some companies go through a similar situation where layoffs are going to be massive, projects get cancelled left, right and centre, but they will pull through. Just for the thing to happen again in some ten years and zero lessons to have been learned.

that trend never stopped

 

[Spork4000]

Video games today are kind of too big too cheap and too popular to crash. The video game happened because consumers started to see them as junk, unless that happens again I doubt we’ll see anything similar.

 

[shoptroll]

Video games today are kind of too big too cheap and too popular to crash. The video game happened because consumers started to see them as junk, unless that happens again I doubt we’ll see anything similar.

Not just consumers, but also retailers which were a major hurdle that Nintendo and Sega had to overcome in the 80s. No one wants to stock shelves and warehouses full of product they can’t sell.

 

[Djehuty]

So, I'm giving this thread a little bump. In the past few months we've had:

• Unity announce a new pricing model, apparently due to financial issues with the current model
• Unreal announce a new pricing model, apparently due to financial issues with the current model
• Sega canceling what is reportedly it's most expensive game ever.
• Layoffs across the industry
• Near 30% drop in Square Enix's valuation
• Some insight into the costs of subscription models (mostly Game Pass) via court documents from the Activision Merger FTC case

I'm not trying to doom or disregard other previously tough spots the industry has been in, in fact studio closures are a rather common story. However, I see all of this as the consequence of budget bloat as discussed in the OP and elsewhere in the thread, and some second thinking of the GAAS model. Hyenas being canceled in particular, which had been playable and was reportedly more or less done, seems like a massive red flag to me and a lack of faith in the model, despite the apparent massive investment.

Again, I don't believe we're heading to a video game Armageddon in the way North America experienced in the 80s, but mass contraction seems less like a worry and more like... what's just going on now. Even first parties among Sony and Microsoft seem to be even less encouraging than when I wrote the OP in May, given we've still seen really nothing from Sony beyond Spider-Man 2 and Microsoft doesn't seem to have a next big thing lined up after Starfield (which itself doesn't seem to have been a next big thing on the level of prior Bethesda RPGs).

Anyway, just wanted to kind of keep posting my ongoing thoughts as time goes on to see how things ended up progressing down the line.

I genuially think it’s just some companies being stupid, becuase while you can look at that there are tons of companies hitting it out the park as well.

I don’t doubt that one day sega and quads enix might be brands of the past but it’s here is a future for the market yet.

Xbox might stop being a serious competitor as well.

 

[spekkeh]

Like many others I don't think it's going to crash, but I do think we're going to get a AAA correction. In fact, we're already in one as you can see the big third parties floundering. I won't say I have my fingers on the worldwide gaming pulse, but I've been a professor of game design for 12 years now, and I regularly poll the favorite games and inspirations of my students, and I'm clearly seeing shifting perspectives on games as the years go by.

It starts with the little things of course, blank stares when I talk about Tomb Raider is understandable, but in general the discourse around reference games is shifting away from AAA. Initially talking about violent games like Call of Duty or Assassin's Creed was a safe bet to engage my students, but more and more people grow up playing Minecraft and Roblox as their main game of reference. And of course mobile puzzle and platform games. Suddenly killing as an action is not a given anymore. I'm sure they all played Fortnite, but very few list it as their favorite game. In fact, action games seem to be in the minority nowadays. It's funny for me, because until recently most of my courses consisted of deprogramming the audience. They need to make a game and it isn't going to be a AAAA open world, so how are you going to stand out with a small indie game? But I don't need to deprogram them anymore, because they don't think of these games in the first place.

 

[RoyalGoldenFES]

I think there's been a bit of a course correction surrounding the recent decline in the popularity of live service/gacha titles. This sort of thing has happened before - look at the failed mascot platformers during the 90's, the failures to make a "WOW killer" back in the 2000's, or all the failed attempts to compete with Call of Duty during the 360/PS3 generation - and will happen again once the next big thing turns into a golden goose for a company. It doesn't help that live service games are also enormously expensive; just look at Genshin, which apparently has cost over $700 million for Hoyoverse to develop and continue work on.

Furthermore, there's also the increase in interest rates in general impacting the entire tech industry, which the gaming industry has not been exempt from. VC money is a lot harder to come by at the moment, and now investors will be wanting to look for "safer" returns. I don't think this'll impact publicly-traded companies as much, but it'll definitely affect smaller private companies.

With all that said, the biggest question I believe will be if subscription services like Game Pass and PS+ Premium wind up taking precedence over traditional boxed/digital sales over the next decade. If it does, that happening would have all sorts of repercussions. Streaming services like Spotify and Netflix/Disney+ generate significantly less revenue than traditional boxed sales, and it already significantly impacted the music and film/TV industries. It's already very well known that MS (and likely Sony) pay massive amounts of money to publishers to get titles on their services, and if either company continues to engage in M&As to get games on their services and/or this reorientation happens, this can fundamentally change how games are developed, how they're budgeted, how their success is measured, and how they seek to gain revenue from them.

While it doesn't seem especially likely at the moment (as box sales remain strong and the growth of services like Game Pass hasn't been as strong as it used to be), if this reorientation does wind up happening to the gaming industry, it would potentially fundamentally change the economics of the industry forever.

 

[Adulfzen]

well ultimately something has to give when you're constantly seeking higher profits, how it will affect the game industry at large is kinda hard to predict.
I'm certainly hoping there are more and more efforts to unionize as it's pretty clear at this point (and honestly for awhile now) that studios and publishers simply don't give a flying fuck about a big part of their employees so you might as well try to improve your wages and working conditions when the job security is highly volatile.

 

[Mister Gideon]

I honestly think we went through a kind of crash with the 360/Wii/PS3 generation and just kind of didn’t realise it. The industry was an absolute bloodbath for small and mid level developers, and those that survived through the generation got absorbed by Microsoft/Ubisoft/EA… and then mostly shitcanned in the following years anyway. It’s only in the last few years that indies and smaller developers have reached a point where they were able to fill the gap left by those studios.

 

[AngryAlchemist]

Honestly I'm not even sure there will be course correction from big publishers, either. Of course I'd love if the AAA industry course corrected and Western publishers started making more interesting games again, but I'm just not sure.

A lot of the "downfall" of the current business model has less to do with just AAAA budgets, and more to do with companies making tons of money, and then turning around and betting it on the biggest gambles ever. Just as an example - Epic Games. Epic Games isn't losing money because Fortnite is too expensive or because live service isn't sustainable. Epic Games is losing money because even with all the revenue they get from Fortnite and the Unreal Engine they still somehow ended up spending it all on the Epic Game Store. The lesson here wouldn't be "move away from live service games", it would just be to abandon their store. That's an extreme example as Epic Games only real output is Fortnite so let me go to another one. Ubisoft isn't in the red just because AAA gaming is so unsustainable. Ubisoft is in the red because they lost so much goodwill with two of some of the biggest IPs of the last gen - Watch Dogs and The Division - as well as Far Cry that by the time they actually started giving Assassin's Creed a break, they didn't really have major sellers to fill in the gaps in their release schedule, along with these games taking so long. Embracer ... doesn't even really make AAA games, and their size wouldn't be sustainable in basically any industry given how little they have to show for it. And Sony's biggest problem (which essentially is a Western publisher at this point) is not that their AAA games aren't profitable, it's that they took one of their only productive studios - Naughty Dog - and greenlit a GaaS and some remakes, which has meant their production pipeline has slowed wayyyy down.

Now granted, the fact that the AAA machine is so risk-averse is inherently a problem with such big budgets. But I guess I'm saying, so much of the recent failings are circumstantial enough that I can imagine the walk back from companies won't be that big. Maybe we'll still see insane budgets but less of a focus on GaaS, like the industry was around 2017. These companies have been making money hand over fist on ridiculous budget games for so long, that I just can't imagine a real course correction.

 

[BassForever]

I think there's been a bit of a course correction surrounding the recent decline in the popularity of live service/gacha titles. This sort of thing has happened before - look at the failed mascot platformers during the 90's, the failures to make a "WOW killer" back in the 2000's, or all the failed attempts to compete with Call of Duty during the 360/PS3 generation - and will happen again once the next big thing turns into a golden goose for a company. It doesn't help that live service games are also enormously expensive; just look at Genshin, which apparently has cost over $700 million for Hoyoverse to develop and continue work on.

Furthermore, there's also the increase in interest rates in general impacting the entire tech industry, which the gaming industry has not been exempt from. VC money is a lot harder to come by at the moment, and now investors will be wanting to look for "safer" returns. I don't think this'll impact publicly-traded companies as much, but it'll definitely affect smaller private companies.

With all that said, the biggest question I believe will be if subscription services like Game Pass and PS+ Premium wind up taking precedence over traditional boxed/digital sales over the next decade. If it does, that happening would have all sorts of repercussions. Streaming services like Spotify and Netflix/Disney+ generate significantly less revenue than traditional boxed sales, and it already significantly impacted the music and film/TV industries. It's already very well known that MS (and likely Sony) pay massive amounts of money to publishers to get titles on their services, and if either company continues to engage in M&As to get games on their services and/or this reorientation happens, this can fundamentally change how games are developed, how they're budgeted, how their success is measured, and how they seek to gain revenue from them.

While it doesn't seem especially likely at the moment (as box sales remain strong and the growth of services like Game Pass hasn't been as strong as it used to be), if this reorientation does wind up happening to the gaming industry, it would potentially fundamentally change the economics of the industry forever.

The entire entertainment industry is having a coming to Jesus moment over the pandora's box that is subscription services. You can't put the lid back on it, it's too good of a deal for consumers, it's not an infinite money fountain, and now there's so many competitors that it's easy to price/content yourself out of the market.

 

[AerialAir]

Not really. Despite the growing number of platforms you can play on (cloud, x86 handhelds, tv boxes), the big 3 are doing pretty well and console sales are just as big as they've always been. Just this year, we've had countless quality releases, e.g. The Legend of Zelda: Tears of the Kingdom, Baldur's Gate 3, Resident Evil 4, Street Fighter 6, Cocoon, Diablo IV, Cyberpunk 2077: Phantom Liberty, Sea of Stars, and the list goes on...

 

[Terrell]

So, I'm giving this thread a little bump. In the past few months we've had:

• Unity announce a new pricing model, apparently due to financial issues with the current model
• Unreal announce a new pricing model, apparently due to financial issues with the current model
• Sega canceling what is reportedly it's most expensive game ever.
• Layoffs across the industry
• Near 30% drop in Square Enix's valuation
• Some insight into the costs of subscription models (mostly Game Pass) via court documents from the Activision Merger FTC case

I'm not trying to doom or disregard other previously tough spots the industry has been in, in fact studio closures are a rather common story. However, I see all of this as the consequence of budget bloat as discussed in the OP and elsewhere in the thread, and some second thinking of the GAAS model. Hyenas being canceled in particular, which had been playable and was reportedly more or less done, seems like a massive red flag to me and a lack of faith in the model, despite the apparent massive investment.

Again, I don't believe we're heading to a video game Armageddon in the way North America experienced in the 80s, but mass contraction seems less like a worry and more like... what's just going on now. Even first parties among Sony and Microsoft seem to be even less encouraging than when I wrote the OP in May, given we've still seen really nothing from Sony beyond Spider-Man 2 and Microsoft doesn't seem to have a next big thing lined up after Starfield (which itself doesn't seem to have been a next big thing on the level of prior Bethesda RPGs).

Anyway, just wanted to kind of keep posting my ongoing thoughts as time goes on to see how things ended up progressing down the line.

I read this and I’m reminded that the companies that are not investing in a service model all that heavily are currently doing alright. Nintendo in particular, the last remaining “old-hat” purveyors of packaged software, are not just surviving, they’re actively expanding, with enough money found in their couch cushions to open a MUSEUM FFS. Capcom is, to a lesser extent, enjoying the same (but with its unique challenges on the horizon).

As I suggested, recurrent revenue extraction activities seem to be the businesses feeling the brunt of contraction, while companies that are opting for the stable tried-and-true revenue generation models are largely either unaffected or booming. It’s not that cut and dry, obviously, because there are other factors that can inhibit success (see example: Square Enix), but as a general rule, it seems that such a standard business model is proving to be lower risk with reasonable reward.

It’s a shame that won‘t likely be the takeaway for the rest of the industry.

 

[robertman2]

Honestly I'm not even sure there will be course correction from big publishers, either. Of course I'd love if the AAA industry course corrected and Western publishers started making more interesting games again, but I'm just not sure.

A lot of the "downfall" of the current business model has less to do with just AAAA budgets, and more to do with companies making tons of money, and then turning around and betting it on the biggest gambles ever. Just as an example - Epic Games. Epic Games isn't losing money because Fortnite is too expensive or because live service isn't sustainable. Epic Games is losing money because even with all the revenue they get from Fortnite and the Unreal Engine they still somehow ended up spending it all on the Epic Game Store. The lesson here wouldn't be "move away from live service games", it would just be to abandon their store. That's an extreme example as Epic Games only real output is Fortnite so let me go to another one. Ubisoft isn't in the red just because AAA gaming is so unsustainable. Ubisoft is in the red because they lost so much goodwill with two of some of the biggest IPs of the last gen - Watch Dogs and The Division - as well as Far Cry that by the time they actually started giving Assassin's Creed a break, they didn't really have major sellers to fill in the gaps in their release schedule, along with these games taking so long. Embracer ... doesn't even really make AAA games, and their size wouldn't be sustainable in basically any industry given how little they have to show for it. And Sony's biggest problem (which essentially is a Western publisher at this point) is not that their AAA games aren't profitable, it's that they took one of their only productive studios - Naughty Dog - and greenlit a GaaS and some remakes, which has meant their production pipeline has slowed wayyyy down.

Now granted, the fact that the AAA machine is so risk-averse is inherently a problem with such big budgets. But I guess I'm saying, so much of the recent failings are circumstantial enough that I can imagine the walk back from companies won't be that big. Maybe we'll still see insane budgets but less of a focus on GaaS, like the industry was around 2017. These companies have been making money hand over fist on ridiculous budget games for so long, that I just can't imagine a real course correction.

We've already seen some of the bold part happening with EA, since they've released a number of single player AAA games this year alone, and had Dragon Age 4 drop all it's GAAS elements.

 

[Koren Lesthe]

Feel like we all forgot the 2008 era of financial crisis where lots and lots of studios closed and hundreds and hundreds lost their jobs.

Today's video game industry is going to be ""fine""

 

[WestEgg]

New video from Moon Channel talking about basically all of this, and if recent layoffs are a harbinger of a collapse.



The argument the video makes is that the recent layoffs we’ve seen in the last year correspond what is traditionally seen in big tech, and a lot of companies are now engaging in boom and bust hype cycles that can be played and manipulated rather cynically to maximize overall growth. Not all companies are doing it (there’s a sizable section about how Nintendo has a fairly successful and more traditional model that eschews layoffs as a tool of investment manipulation in favor of long term quality control), but it’s definitely something that gives insight into what we’ve seen the last year.

 

[Beanstar40]

I don’t know about a crash, but I do think that the business of triple a games has become unsustainable. 6 plus year development times, insane development costs which means any financial failure could potentially kill an entire studio…I just don’t see how this path is sustainable.

 

[Concernt]

If anything, as pointed out by others and yourself, I think we've already seen a contraction begin, but I don't think there will be a crash. With consolidation, extended development times and the situation where technology is stuck serving diminishing returns, we're sort of seeing an industry slowdown. Even "live services" are broadly dead as a concept with the surviving "winners" being the only ones about, and few if any new ones planned.

One thing I think stands out to me is people saying a true "crash" would come from a spending crisis, a rapid contraction of consumer spending on any and all luxury times.

But that's exactly what we're seeing. Gaming is big, really big, it can weather the storm, but I don't think the drop in consumer spending on non-essentials is immaterial to the gaming industry, I think it's likely one of the biggest contributors to the contraction we're seeing.

 

[grobla123]

There's not much stopping devs from dropping budgets a tad, not using celebrity likenesses, dropping open world, not risking live service investments etc. And tonnes of way to make money with micro transactions and battle passes and whatnot. Things could easily be reigned in. And gamepass/subscriptions can be good for guaranteed cashflow if a deal can be made, and maybe shorter games with later dlc or expansions.

If anything I am very confident in the future of the industry. Except for maybe Microsoft fumbling their market share and maybe resulting in less competition. And maybe a race to buy studios for exclusives popping off.

Consumer expectations might be rough, people have been trained to expect open worlds. High fidelity and ongoing content. But I feel could easily be untrained overtime, live service and open world world may become more like boogie men descriptors as time goes on.

The studios going under aren't making products to their strengths.
Gaming demand has been consistent even through recessions and tough times. There just isn't enough room for similar open and live service games to compete directly.

 

[Mekanos]

I think we’re definitely seeing a crash of GAAS games, it’s clearly not a viable model with a few exceptions.

 

[Josh5890]

I don't think that the recent layoffs are the warning of an impending collapse as much as the entire tech industry is correcting itself after two years of over-hiring.

Now is the industry heading toward a crash? Possibly. It doesn't feel like game development in its current form is sustainable.

 

[Pillydillsy]

No, gaming is too big to just completely crash as an industry. Now will the current ideology of “bigger games, better graphics, little dev time” eventually crash? I’d say it already has begun to, I mean look at the reputation companies like EA, Activision, and Ubisoft have gained over the years as terrible places to work AND to buy games from. Combine this with more and more games following this model completely crumbling (MW3, Balan, Gollum, cyberpunk, fallout 76, the list goes on really) and I think it’s safe to say this kind of rhetoric in development is, at least slowly, becoming unattainable

 

[BlackthornOrion]

I don't think the industry as a whole is gonna crash outright, but I do think the current approach to AAA development, as well as the chasing of certain trends like live-services/GaaS, is going to go through a major contraction/correction because it's just not sustainable at the current scale.

Scope and budget are both gonna have to come down to a more reasonable place at some point, and I think some developers/publishers are gonna have a rough time figuring out how to make that happen while others will generally be fine (if they aren't there already).

 

[Famicrono]

If the industry continues like it is today then yes. I would say in about 15 or 20 years.

 

[ziggyrivers]

Like a fellow member suggested: we're seeing the crash of the Games as a Service (GaaS) model. I think we could fit Triple A in there as well. Games taking more than four, five years to make and finish, plus high costs, is unsustainable. I think the future of gaming is faster dev times, less costs, less bloated software sizes and portabilty

 

[Magic-Man]

5+ year development times are only sustainable when it's an in-demand IP or an acclaimed company, and even then it's not guaranteed. Publishers need to stop giving new IP insane budgets/timeframes and concentrate on smaller hits with the occasional big game. 99% of titles won't make it big. The industry needs to stop acting like they will.

 

[SammyJ9]

I don't think that the recent layoffs are the warning of an impending collapse as much as the entire tech industry is correcting itself after two years of over-hiring.

Now is the industry heading toward a crash? Possibly. It doesn't feel like game development in its current form is sustainable.

I’m not someone who has much financial or economic knowledge or honestly even thinks about them a whole lot, but one thing Jason Schreier brought up on the latest episode of Triple Click makes a lot of sense: Interest rates. Interest rates were super low 3-4 years ago, so companies spent money all over the place and were eager to take risks and even make iffy investments since they could basically borrow money for free (Embracer group…), whereas now that interest rates are way up and they actually have to pay money back at a higher rate, companies are cutting costs, doing more and more layoffs, and trimming wherever they can. And being far more risk-averse.

 

[ziggyrivers]

I’m not someone who has much financial or economic knowledge or honestly even thinks about them a whole lot, but one thing Jason Schreier brought up on the latest episode of Triple Click makes a lot of sense: Interest rates. Interest rates were super low 3-4 years ago, so companies spent money all over the place and were eager to take risks and even make iffy investments since they could basically borrow money for free (Embracer group…), whereas now that interest rates are way up and they actually have to pay money back at a higher rate, companies are cutting costs, doing more and more layoffs, and trimming wherever they can. And being far more risk-averse.

Oh, yes. Definitely. This macro-economic aspect of the Federal Reserve raising interest rates since the Covid days has contributed to this. I'd say the gaming industry's situation is a mix of elements, one of them obviously being the over-estimation of revenues and profits from GaaS business models that don't work as well as they did.