Unraveling the Paradox of the Video Game Industry

The video game industry is experiencing a contradictory phenomenon, with two distinct narratives unfolding. On one hand, there have been unprecedented sales figures, with titles like Hogwarts Legacy, The Legend of Zelda: Tears of the Kingdom, and Diablo 4 achieving remarkable milestones. Furthermore, the success of games like Baldur's Gate 3, Star Wars Jedi: Survivor, and Resident Evil 4 Remake, as well as the Super Mario Bros movie and The Last of Us TV show, has been noteworthy. On the other hand, the industry is witnessing a wave of layoffs, job cuts, and studio closures, with over 6,000 jobs lost in 2023 alone. Companies like Ubisoft, Volition, Epic, and Bungie have been affected, and the number of available jobs in the UK has decreased by 1,000 compared to the previous year. Share prices have also taken a hit, with companies like Team17, Frontier, Devolver Digital, and Keywords experiencing significant declines. Despite this, the UK and US game sales are up, and the PS5 is performing well in terms of console sales. The global mobile games business is also expected to return to growth this year. To understand the current state of the industry, it is essential to examine the past five years. In 2019, the PC and console games business experienced a decline in sales, while the mobile games market grew exponentially. The COVID-19 pandemic transformed the market in 2020, with PC and console game sales rising by 52% and console hardware sales increasing by 33%. The digital/physical split also shifted in favor of digital, with 70% of sales being digital. In 2021, the industry continued to grow, with digital sales accounting for 70% of the market. The games industry attracted significant investment during this period, with major deals like EA acquiring Codemasters, Embracer purchasing Gearbox, and Xbox acquiring Bethesda. However, the industry is now facing challenges like hiring and retention, with many studios competing for limited talent. The post-lockdown comedown in 2022 led to a decline in PC and console game sales, as well as a drop in console hardware sales. The market is still heavily digital, but new games are taking a larger share of sales, and the Top Ten games are accounting for a more significant percentage of sales. The industry is expected to return to growth in 2023, but it will be an inconsistent market, with big games performing well while others struggle. The future of the industry is uncertain, with many studios building ambitious games in a market that may not be able to sustain them all. Publishers and developers will need to work harder to convince players that their titles are worth spending time with, as the industry corrects itself after a period of excess.