Video games are a huge business — even bigger than Hollywood by some measures.
But if you dig into the numbers, you'll see the video game industry is in trouble.
Big-budget titles dominate, and it's hard for new games to break through — just like in Hollywood.
Even if you don't play video games, you probably know that video games are a really big business. And if you pay attention to the media business, you may also know that by some measures, the video game industry dwarfs Hollywood in terms of revenue.
But unless you're very deep into the games business, you may not know that the industry has hit a real rough patch in the last couple of years: Sales are down, usage is down, and layoffs are spiking. And there isn't an obvious solution showing up anytime soon.
That's the picture painted by investor and analyst Matthew Ball in a 16,000-word industry deep-dive, which you can read for yourself. But if you want a summary, I'm happy to oblige.
First, the symptoms:
Sales are slumping: Game sales shot up during the pandemic. But since then, after factoring in inflation, game revenues have been falling off. In 2023, US gaming revenue fell 2.3% over the previous year.
Gaming usage is down, too: In 2021, the average gamer was spending 16.5 hours a week on games. A year later, that number fell to 13 hours.
Meanwhile, the share of the population that plays games has shrunk as well.
Which leads to layoffs: The games industry shed 8,500 jobs in 2022 and a record 10,500 in 2023, Ball reports. That record could easily get eclipsed in 2024, which saw 6,200 layoffs in January alone.
This is all a bit counterintuitive. If you know any kids, you know that gaming and gaming culture is a huge deal, even if you can't understand what they're doing or talking about.
And even if the adults in your life don't identify as gamers, there's a good chance at least some of them are taking out their phone and playing some kind of Candy Crush-style timewaster when they're bored.
So why the shrinkage? Ball has a couple of suggestions.
It's a post-pandemic slump: This one is the easiest to understand and, in some ways, the most hopeful argument the industry could make: Gaming, like lots of other online activities — notably e-commerce — spiked a lot in the early days of the pandemic and is now falling back to a more normal rate.
Apple blew up the mobile ad industry — and games along with it. In 2021, Apple introduced new rules for its phones that made it incredibly difficult for app-makers to track user behavior as they moved around the web. That change has had a huge impact on the mobile ad business — just ask Meta, which said it lost $10 billion in revenue because of the change in 2022. And that also affects the mobile games business, since game-makers use mobile ads to distribute their apps, and to advertise to players once they've downloaded the apps. Now, mobile game ads are more expensive and less precise, which makes it harder to find new customers and harder to make money from the customers they do have.
Games are getting more expensive to make, which makes it harder for new games to break through. We're used to the idea that in a digital world, costs decline as technology improves. But Ball argues that as games get more complex and sophisticated, costs are ballooning.
For example, Ball explains: The original Spider-Man game for the PlayStation, released in 2018, cost $100 million to build. A 2020 sequel cost $156 million. The newest version of the game, released last year, cost $315 million, and the next one coming down the line has a reported budget of $385 million. Meanwhile, the cost of building "live" games like Fortnite, which require huge staffs to build and maintain, is so prohibitive many developers bail on the games they've created or decide not to make them at all.
All of which means that a handful of big-budget titles and sequels dominate the sales rankings year after year, and it's incredibly hard for new entrants to break through. The list of top-performing games in 2023 looks a lot like the list from the year before and the year before that.
Ball: "Gaming's ossification creates a vicious cycle — studios don't take (or are sometimes punished for) risk-taking, which means less innovation … and less likelihood of expanding the market by appealing to new gamers or increasing engagement from occasional ones."
Does that sound familiar? It does to me: It sounds a lot like most people's critique of Hollywood, which is going through its own upheaval and consolidation — and often points to the games business as its future.
Maybe the media moguls will need a better idea.
Read the original article on Business Insider