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[Thick Thighs Save Lives]

The $200bn video games industry is reckoning with its biggest slowdown in 30 years, as the huge growth driven by smartphone gaming and the latest generation of consoles reaches its limits.

Hardware sales are slowing, with Sony cutting its forecast for PlayStation 5 sales this week. Consumer spending on mobile gaming declined last year, down 2 per cent to $107.3bn according to Data.ai, which forecasts low single-digit growth in 2024.

The sense of crisis across the games sector is in sharp contrast to growth achieved during the Covid-19 pandemic, which allowed many locked-down consumers to spend their excess time and money on games. That peak marked the culmination of a winning streak for the digital entertainment business that began with the original PlayStation in the mid-1990s and was accelerated further by Apple’s iPhone.

Many in the gaming industry expected to bounce back quickly after 2022’s post-pandemic decline, last year did not deliver the growth initially hoped.

The latest quarterly numbers from some of the biggest publishers, including Electronic Arts and Take Two, has underwhelmed investors. Meanwhile, games developers have been forced to cut thousands more jobs this year after already slashing as many as 10,000 in 2023.

“There’s a lot of commercial anxiety: about growth, about profitability, about keeping budgets in check and about making an impact in the market when there are so many established products,” said Piers Harding-Rolls, games research director at Ampere Analysis, a market researcher. “We are in a much slower growth era.”

Concern surrounds the lack of new gaming devices being sold to expand the market. The uplift from the latest generation of PlayStation and Xbox consoles that were released in 2020 has waned and the global fall in smartphone sales means there are fewer new players coming online in what has become the most lucrative part of the industry in recent years.

After the PlayStation 5 surpassed 50mn units in December, Hiroki Totoki, Sony’s group president and interim head of its gaming unit, said this week that it was “entering the latter half of the console cycle . . . so we anticipate a gradual decline in unit sales from next fiscal year onwards”.

Heavy discounting of the PS5 in 2023 has already contributed to what Totoki called a “significant” drop in Sony’s gaming operating profits. He warned that Sony does “not plan to release any new major existing franchise titles” in the fiscal year starting in April, depriving it of any boost from bankable, big-budget games such as Spider-Man or God of War.

Microsoft, whose Xbox has been left a distant third behind Nintendo and Sony, said this week it was looking to sell more of its own games on rival consoles, as it looks to tap new sources of growth in an increasingly saturated market after paying $75bn for Activision Blizzard last year.

The widely anticipated launch of a new Nintendo console later this year may only accelerate the drop-off in PlayStation and Xbox sales, as players save up for the next new thing.

“There is a console-specific problem in the games industry: nobody is buying an Xbox, PS5 has peaked at the cost of significant discounting and everyone is waiting for Switch 2.0,” said Gareth Sutcliffe at Enders Analysis. “Consoles have proven that they are not a growth model for gaming — they top out at a very clear number.”

Phil Spencer, chief of Microsoft Gaming, pointed to a recent report by tech author and investor Matthew Ball, showing that the games industry grew by less than 1 per cent last year.

“That’s slower than inflation, slower than most GDP growth, which kind of means [gaming’s] relevance shrunk last year relative to what has happened in other [entertainment] categories,” Spencer said.

He added that the “fundamental opportunity” for the sector was finding new sources of growth among players who cannot afford a $500 console or a $70 packaged game. “How do we deliver games to people who don’t play and can’t play today?” Spencer said. “That’s as an industry where I think we should be focused.”

Cutting prices is a double-edged sword. The huge popularity of free-to-play online games such as Fortnite and Roblox consumes hours of playtime that had previously been spent on $70 titles. The strong network effects of multiplayer games, such as Call of Duty, also make it harder for new entrants to succeed. “Thousands of titles are hitting every month and the success rate is very low,” he said. “You’re faced with significant challenges in trying to break new product into the market.”

The rising costs of developing blockbuster games has also raised the stakes. “When you’re talking about a budget that’s $100mn plus, even for a big company, if you miss with two or three of those then commercially you’re on the ropes,” Harding-Rolls said.

That has driven a Hollywood-style dependence on rebooting the same big franchises by Sony, Microsoft, Electronic Arts and other big games companies. At the same time, entertainment giants are showing a renewed interest in gaming — adding new competition for existing players in a shrinking market.

Disney made a $1.5bn investment in Fortnite’s creator Epic Games this month to create what the studio’s chief Bob Iger called “a huge Disney universe that will be for gaming and for play”, while Netflix is also expanding its games offering.

“Just as we take our IP from our movies and our television and have them expressed in our parks, this is a great way to do it in games,” Iger told analysts after the Epic deal was announced, pointing to demographic trends that showed younger consumers were spending just as much time on games as they do on TV and movies.

“The conclusion I reached was we have to be there, and we have to be there as soon as we possibly can in a very compelling way.”

Game over? Industry suffers slowdown after decades-long winning streak

Sales growth in consoles and mobile apps hit as a darkening mood spreads across $200bn video games sector

www.ft.com

 

[daclynk]

 

[DGrayson]

It's long past time for a correction IMO.

 

[Evolved1]

Maybe if dipshit, trend-chasing CEO's weren't regularly destroying their own companies with demonstrably stupid anti-consumer business practices, industry might be healthier. People are sick of the bullshit. See: Palworld, Helldivers, etc...

 

[IAmRei]

industry might be not too bright, but again, I'm tired to say if the trend is still keep doing big budget with longer development and long return, it won't be healthy in the long run. I'm aware if we don't push the limit, it won't be as big as now. but the limit is kind of seen these days. the stakes are too high to be failed. in the end, mobile and switch is kind of winner these days. low - medium budget but keep steady in releases are better than big but relatively high stakes in the long run. balance is kind of everything i supposed. anti-consumer moves and policy are also who is to blame these days as well.

 

[lh032]

lets go back to the ps2 era

Focus more on Smaller, fun AA games. AAA games can still exist .

Till today im not sure how spiderman 2 cost more than 300 million dev budget

 

[Laptop1991]

I can only speak for me on PC, but i haven't bought a new game since Cyberpunk 3 years ago now, the industry isn't making games i want to spend money on, to me they are not worth the higher prices they keep charging, where is the new TES, it might be 20 years after Skyrim, or new Fallout's, Dishonored 3, more Wolfenstein, Doom etc ,when GTA 6 finally comes out that will have been over 10 years since that last one, they have focused on gaas mtx and online services and i think people are tired of paying more for basic games,. if Avowed had stuck to Obsidians Skyrim i would of bought it day 1, i'm not buying the Avowed they have shown recently, i don't want to play it and they are now telling us we don't own them anyway. great games will sell hardware.

 

[Danjin44]

Focus more on Smaller, fun AA games.

We are still getting some great AA games but majority of people ignore them.

heck Unicorn Overlord is my most hype this year, even more than some AAA games out there.

 

[balls of snow]

"There is a console-specific problem in the games industry: nobody is buying an Xbox, PS5 has peaked at the cost of significant discounting and everyone is waiting for Switch 2.0,” said Gareth Sutcliffe at Enders Analysis. “Consoles have proven that they are not a growth model for gaming — they top out at a very clear number.”


Not if every screen is an xbox.

 

[Beer Baelly]

Switch 2 will reset the industry.

 

[Robb]

 

[Beer Baelly]

We are still getting some great AA games but majority of people ignore them.

heck Unicorn Overlord is my most hype this year, even more than some AAA games out there.

Jrpgs and tactical ones especially are niche.

 

[Fabieter]

Covid helped creating a fake bubble and reality is kicking in. In addition we are probably going straight into one of the biggest economic criysis ever so I don't think this is exclusive to games.

 

[analog_future]

Sure seems to contextualize all of these layoffs across the industry.

 

[chromatic9]

No price cuts to fuel the next wave of buyers, it's looking tough for consoles. With that said the first 30-40 million tend to be the ones buying the games.

 

[lh032]

We are still getting some great AA games but majority of people ignore them.

heck Unicorn Overlord is my most hype this year, even more than some AAA games out there.

i understand what you mean here.

AA games are in an awkward position, they either sells very well, like really well, or people dont even know they exist.

 

[Danjin44]

Jrpgs and tactical ones especially are niche.

So? Mecha games are niche and we saw how great Armored Core VI was….maybe more People should enjoy more AA “niche” and unique games like this instead of obsessing over AAAA high budget games.

 

[James Sawyer Ford]

Covid helped creating a fake bubble and reality is kicking in. In addition we are probably going straight into one of the biggest economic criysis ever so I don't think this is exclusive to games.

Yes we are still meaningfully above trend line for pre-2020.

So I don't think growth has slowed over the longer term cycle. More like, reality hit and we are still digesting the growth of 2020.

 

[Bernoulli]

Finally we'll go back to normal GPU prices

 

[JimmyRustler]

Well, the industry has stagnated for years now. Years after year we are basically playing the same games just a bit better looking. Surprised the plateau didn’t come sooner.

 

[Beer Baelly]

So? Mecha games are niche and we saw how great Armored Core VI was….maybe more People should enjoy more AA “niche” and unique games like this instead of obsessing over AAAA high budget games.

Sure, we might enjoy them but they aren't doing AAA numbers. So less growth.

 

[AJUMP23]

Mobile is probably where growth is, there are kids more interested in a single game for a long time. 80s 90s and 2000s you played finished and moved on as your budget would allow. Not kids ask for Vbucks.

 

[Aces High]

You guys remember all the industry veterans who left the big corporations and founded their own small studios?

I hope they will kick ass with the new possibilities that AI has to offer.

Fuck the suits.

 

[Danjin44]

Sure, we might enjoy them but they aren't doing AAA numbers. So less growth.

AA games dont spend stupid amount money for development so they don’t need to make COD numbers to be successful.

I’m not even saying AAA should disappear, but if Sony release some fun and unique and diverse AA games in between AAA game then not only we get better variety of game selection and also people won’t have to wait forever to get their next “AAA games”.

More importantly with AA devs much more willing to take risk because there is no crazy amount of money on the line….that actually make game industry grow.

 

[rhodesianshepard]

AA games dont spend stupid amount money for development so they don’t need to make COD numbers to be successful.

I’m not even saying AAA should disappear, but if Sony release some fun and unique and diverse AA games in between AAA game then not only we get better variety of game selection and also people won’t have to wait forever to get their net “AAA games”.

More importantly with AA devs much more willing to take risk because there is no crazy amount of money on the line….that actually make game industry grow.

Big AAA releases really are not the problem. Those games are still selling well enough. It is the smaller AAA and AA games that are getting squeezed out. Games in the 10-80mil budget range

 

[ChorizoPicozo]

For some it will be and for some already is.

 

[ReBurn]

Finally we'll go back to normal GPU prices

No we won't. GPU manufacturers will prioritize AI chips, lowering GPU inventory and keeping prices high. Gamers aren't the priority right now.

 

[MikeM]

Any bean counter thinking the COVID gravy train growth was going to stay needs to be fired.

 

[Mr Hyde]

The AAA space is definitely about to implode with the ballooning costs. The pursuit of photo realistic graphics, expensive mo-cap, big Hollywood celebrities, all of it will crash sooner than later. There will probably only be a handful of devs even allowed to produce something of that scale, like Rockstar or Kojipro, because there is no way that shit is sustainable in this economy.

 

[gothmog]

I hate that my hobby has turned into big business.

 

[balls of snow]

AA games are great but they lack the marketting and wow factor. Visibility is too damn low for these games to be a hit. The constant push for better graphics, bigger worlds, more expensive shit in the AAA space seek to bury these more mid tier experience even more. Its freaking sad looking up steamstats for a lot of these games that I love. And then you have people say, well dont make mid games then. Easier said than done when you are on a shoestring budget.
Add in the gaas model of most mp games ( of which i partake in with overwatch 2 and apex legends before) wanting your attention everytime you log on and thats a recipe for disaster for any new up and coming ip without significant backing.

 

[kittoo]

lets go back to the ps2 era

Focus more on Smaller, fun AA games. AAA games can still exist .

Till today im not sure how spiderman 2 cost more than 300 million dev budget

Seriously. How? Why?
Sony couldve made 3-5 AA single-player games in that price and all wouldve covered their costs if they were halfway decent.

 

[RGB'D]

This is why I don't understand how people continue to argue that PS is going to stick to their traditional model. If they do they are dead in 10-15 years with the decline and shrinking margins. Obviously MS is further down this road but we have been told for over a decade that gaming is unsustainable as it is and would you look: sure looks like it will be unsustainable over the next decade if things don't change.

 

[lughnasadh123]

There's absolutely some readjustments happening/coming from inflation costs, post covid bubble on interest, and AI advancements. Personally I'm interested to see how GTA VI hits.

 

[onQ123]

History with a twist

Business - Activision becoming a 3rd party sparked the Video Game Crash of 1983

Loss of publishing control[edit] Prior to 1979, there were no third-party developers, with console manufacturers like Atari publishing all the games for their respective platforms. This changed with the formation of Activision in 1979. Activision was founded by four Atari programmers who left...

www.neogaf.com

 

[ungalo]

industry might be not too bright, but again, I'm tired to say if the trend is still keep doing big budget with longer development and long return, it won't be healthy in the long run. I'm aware if we don't push the limit, it won't be as big as now. but the limit is kind of seen these days. the stakes are too high to be failed. in the end, mobile and switch is kind of winner these days. low - medium budget but keep steady in releases are better than big but relatively high stakes in the long run. balance is kind of everything i supposed. anti-consumer moves and policy are also who is to blame these days as well.

Where does the rising costs even come from at this point ?

Video games production scale reached its peak 6 or 7 years ago. If it takes longer and more people to develop a game it's because they suck at it, i don't see other objective reasons, i'm not trolling. Or because wages are going up in the industry i don't know.

And why are they in a hurry to release new hardware, if they don't make money on hardware, if it's bothersome for studios to work on many different supports. Just stop this nonsense, visuals are improving at a very slow pace anyway, and games are releasing across generations of hardware. And yet, i feel the console space is leaning towards a PC market approach of hardware, why is that ?

 

[thicc_girls_are_teh_best]

Maybe the 10th-gen consoles should offer something unique instead of just more power.

Just a thought.

 

[Mibu no ookami]

Seriously. How? Why?
Sony couldve made 3-5 AA single-player games in that price and all wouldve covered their costs if they were halfway decent.

Can you give examples of 3-5 AA Sony games that have historically added up to the sales of Spider-Man 2?

 

[Beer Baelly]

Where does the rising costs even come from at this point ?

Video games production scale reached its peak 6 or 7 years ago. If it takes longer and more people to develop a game it's because they suck at it, i don't see other objective reasons, i'm not trolling. Or because wages are going up in the industry i don't know.

 

[DrDamn]

Why does it always have to be about growth? What about making nice things that people enjoy and you make a profit on?

Besides, ignore the covid bump and aftermath and 2023 looks exactly where you'd have expected it to be if you were predicting continued growth from 2019.

 

[Banjo64]

Sony are a lost puppy. Agree re time for a reset. Get sweet baby out of gaming.

MGGA. Make gaming great again.

 

[MikeM]

Seriously. How? Why?
Sony couldve made 3-5 AA single-player games in that price and all wouldve covered their costs if they were halfway decent.

More games like Returnal would be amazing.

 

[Esppiral]

Nothing can be endlesly growing.

 

[DirtyBast8rd]

Nothing can be endlesly growing.

This. And slowdown is no decline. Even if it was a decline, it's still a multi billion dollar business.

 

[THE:MILKMAN]

Can't say I'm too surprised.

This has been the first gen of console I've skipped. Initially mainly because of the relatively large bump in Sony's game SRP but today because the games I really want (original Sony first party primarily) just haven't materialised outside of GT7/H:FW. Was hoping to jump in with the PS5 Pro but with no sign of an original single player ND game for example, I'm done waiting.

Seriously looking at going all in on a gaming PC now where even a lot of first party console games are coming day 1 or close behind anyway.

 

[Elysium44]

Nothing can be endlesly growing.

True, however the global population keeps rising and only a tiny percentage of the world has an Xbox or PS5. You'd think there should be plenty of scope for growth, if the product (games) was compelling enough. IIRC more people bought previous gens of console even 20 years ago when there was about two billion fewer people in the world.

 

[NEbeast]

Sony are a lost puppy. Agree re time for a reset. Get sweet baby out of gaming.

MGGA. Make gaming great again.

 

[Dacvak]

Don’t worry guys, AI will save us all.

 

[DonF]

$70 price tags, Online only games that will be left unusable if devs/pubs decide they don't want to spend more money on them, buggy games at launch, cut content later sold as dlc, and a long list of minor etc...

CEOs: Hhmmmm why are sales dropping??
Consumers must have changed!

 

[Represent.]

Switch 2 will reset the industry.

GTA 6 will do it first.