Unraveling the Paradox in the Video Game Industry

The video game industry is experiencing a contradictory crisis, with two dominant narratives emerging. On one hand, there have been unprecedented sales records, such as Hogwarts Legacy selling 15 million copies in under two months, The Legend of Zelda: Tears of the Kingdom achieving record-breaking sales, and Diablo 4 generating $666 million in five days. Additionally, titles like Baldur's Gate 3, Star Wars Jedi: Survivor, and Resident Evil 4 Remake have also achieved significant success. On the other hand, the industry has seen a wave of layoffs, job cuts, and studio closures, resulting in approximately 6,000 job losses in 2023. Companies like Ubisoft, Volition, Epic, and Bungie have been affected, and the number of available jobs in the industry has decreased. The UK stock market has also seen a decline in share prices for companies like Team17, Frontier, and Devolver Digital. To understand this paradox, it's essential to examine the industry's performance over the last five years, using data from GSD, GfK, Sensor Tower, and Newzoo. In 2019, the industry experienced a quiet year, with console sales down 30% and video game sales down 10% year-over-year. However, the mobile games market saw exponential growth, with a 13% increase in revenue worldwide. The digital/physical split also shifted in favor of digital, with 51% of sales being digital. The following year, 2020, saw a significant transformation due to the COVID-19 lockdowns. PC and console game sales rose 52% year-over-year, console hardware sales jumped 33%, and the mobile games market grew 26%. Engagement levels increased substantially, with people turning to games for entertainment and social connection. The digital/physical split became even more skewed, with 70% of sales being digital. In 2021, the industry continued to grow, albeit at a slower pace, with PC and console game sales falling 14% but remaining higher than in 2019. The mobile games market saw a 7.3% growth, and the digital/physical split remained at 70%. The industry attracted significant investment, with major deals like EA's acquisition of Codemasters, Embracer's purchase of Gearbox, and Microsoft's acquisition of Activision Blizzard. The pandemic also led to an increase in AAA talent leaving their companies to start their own studios, resulting in a challenge for the industry in terms of hiring and retention. In 2022, the industry experienced a post-lockdown comedown, with PC and console game sales falling 8% and console hardware sales declining 29%. The global mobile market also dropped 7%. The market trends started to resemble those of 2019, with new games taking a larger share of sales and the Top Ten accounting for 26% of all games sold. The industry is expected to return to growth in 2023, but the current market remains inconsistent, with investment slowing down and outgoings increasing. The future of the industry looks promising, with the release of new consoles and games, but it will be challenging for studios to sustain themselves in a market with increasingly high expectations.