The video game industry is running out of extra lives
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The video game industry is facing a existential crisis — and it's unclear when it ends and what gaming looks like when it's over.
Why it matters: The industry has faced bust and boom cycles before. But the current shifting demands — along with the advent of AI — are changing what video games look like, how they're made and if people can afford to play them anymore.
The big picture: Gaming companies can no longer rely on selling someone a $70 game every few years to make money. Those days are over.
- Instead, gaming is shifting into an entirely different frontier that appeals to various audiences across multiple platforms — and trying to hook gamers for the long haul to keep revenue coming in.
What they're saying: "The games industry today feels a lot like what happened in the film industry when television came around," says Joost van Dreunen, a games industry researcher and teacher at the NYU Stern School of Business.
- TV gave advertisers access to more audiences across multiple platforms, he says. And the same is going to happen with gaming.
- "They will start copying their distribution and revenue models accordingly," Van Dreunen says.
Catch up quick: Gaming is surviving — but not necessarily thriving.
- Sony is cutting physical disc production to cut costs.
- Microsoft's Xbox unit recently laid off thousands of workers, dashing the dreams of developers. "Our business today is not healthy," CEO Asha Sharma told staff.
- Companies are canceling video game production left and right over development costs and organization resets.
Much of this is thanks to a handful of converging pressures, experts say.
- Wall Street expects steady growth, while tentpole games have become more expensive to build. ("Grand Theft Auto VI," for example, reportedly cost $2 billion to develop.)
- At the same time, the AI boom is driving up hardware costs, while mobile gaming has intensified competition for consumers' attention.
Zoom in: The clearest sign of where gaming is headed may be "Grand Theft Auto VI."
- The game comes in two versions — "standard" ($79.99) or "ultimate" ($99.99), which comes with add-ons, cosmetics, extra cars and more perks for gamers.
- EA Sports debuted a subscription service called the "MVP+ Membership," which costs $150 per year and gives fans full ownership "Madden NFL 27" and "College Football 27," as well as extra perks and in-game items.
- Activision Blizzard's "World of Warcraft" partnered with Zillow for customizable player housing.
What we're watching: How consumers respond.
- Eventually, there's a breaking point when the costs, subscriptions, add-ons and perks become too much. 72% of gamers say microtransactions negatively impact their gaming experience, per a 2023 YouGov poll.
- "A lot of the anger gamers are feeling is towards how these microtransactions are becoming inescapable," Otis East, member of the EA protest coalition Players Alliance, tells Axios.
- "It used to be that these purchases were purely cosmetic, but now it's either pay more or lose out on the full experience that the game promised."
Reality check: Demand for games isn't disappearing.
- More than 200 million people played video games last year. And many of the top-selling titles — "Call of Duty," "Madden NFL" and "Battlefield 6" — all sell these extra goodies.
The bottom line: Gamers aren't walking away yet.
- But it's unclear if they're willing to pay a higher price as the industry grapples with its harsh new reality.
Go deeper: Take-Two CEO's big microtransaction bonus
