The Gaming Industry's Pandemic Boom and Bust: How Cheap Money and Bad Bets Led to Disaster

The video game market was expected to decline after the COVID-19 lockdowns ended, but the worst-case scenarios predicted growth compared to pre-pandemic levels. However, a combination of global political and macroeconomic factors, along with executive hubris, has left the industry in disarray. In 2023, despite being a great year for games, the industry experienced significant challenges. The market had expected a decline, but the actual situation was worse than anticipated. The global pandemic, armed conflict, and inflation crisis have all contributed to the current state of the industry. The hardware market is facing significant challenges, with pricing being a major issue. The lack of launch model price downward movement means there is less room for more powerful Pro models at an accessible entry fee. The announcement of the PlayStation 5 Pro at $699.99 exemplifies the challenge the hardware market is facing. The industry's reliance on Games-as-a-Service (GAAS) has also become a problem. While GAAS can be lucrative, it has led to a situation where players are unable to keep up with the constant stream of new games and updates. The switching costs for players are high, making it difficult for them to move to new games. The post-lockdown correction has been more severe than anticipated, with publishers over-indexing on service games that are no longer uniformly profitable. The wave of acquisitions that dominated the news for five years has also come to an end. The good times for the industry came to a crashing halt in 2022, with investors making unreasonable demands on corporations. Shareholders and institutional investors are like looter-shooter players, always looking for growth and an increase in the rate of growth. As the economy started to sour and growth slowed, executives began to worry. They pulled their favorite lever: layoffs. Job losses since 2022 are nearing 30,000, with many companies closing studios and displacing employees. The brain drain will be felt for years to come, with talented senior and mid-level developers leaving the industry. The cost of capital has increased, and venture capitalists and private equity have been burned by fad technologies. However, there are glimmers of hope. In a year that has seen multiple smaller titles dominate player engagement, large publishers are still choosing to eschew experimentation and smaller investments. Instead, they are making bigger bets on fewer titles. The industry will eventually stabilize and improve, but it is dependent on executives investing in people rather than chasing trends. The industry must continue to expand efforts to reach as many players as possible, lifting up underserved voices, leaning into representation, and fostering teams of all sizes. The future of the industry is uncertain, but one thing is clear: the cycles of unexpected "perfect storms" are not as rare as we might think. The industry will need to adapt to these changes and find new ways to thrive in a rapidly changing world.