Gaming Industry Faces Economic Headwinds, Experts Warn
The video game industry is currently navigating a period of significant economic uncertainty, prompting market leaders to question its resilience against broader financial downturns. In a comprehensive interview with GameIndustry.biz, former Sony Worldwide Studios head Shawn Layden, Circana analyst Mat Piscatella, and Ampere Analysis market analyst Piers Harding-Rolls offered their insights into the current situation and the industry's future prospects.
American Gamers Spending Less
According to a Circana report, approximately a quarter of U.S. gamers intend to reduce their spending on games. This trend is largely attributed to rising costs for essentials like food and housing, coupled with economic uncertainties stemming from tariffs and the looming threat of a recession.
“In America right now, with the fear of recession, with inflationary factors—whether it’s tariffs or current industrial policy—everyone has this feeling of, 'I shouldn’t be spending as much as I was before,'” Layden noted. “And that applies to everything. So, of course, games will also take a hit.” Piscatella added that this uncertainty is causing people to defer purchases and meticulously plan their finances. He highlighted that twice as many Americans plan to decrease their spending as increase it, a worrying signal for the market. Circana projects a 4.7% decline in the U.S. gaming market by 2025, though fluctuations are possible.
Games No Longer 'Recession-Proof'
Historically, video games were considered resilient to economic crises. During downturns, consumers would cut back on movies and dining out but continue to buy games, which offered relatively affordable entertainment. However, with the proliferation of free-to-play (F2P) titles and subscription services, players can now access entertainment without significant upfront costs.
“I don’t know if games are recession-proof,” Piscatella stated. “I think the desire to play games is recession-proof, but the business models… I’m not sure they’re recession-proof, especially now. We'll have to find out.” Harding-Rolls echoed this, noting that unlike previous downturns, the gaming market has fundamentally changed. “The whole idea of 'recession-proof' is, I think, a bit misleading, because previously everything [in the industry] was mostly built around premium games,” he explained. “A lot has changed since then.”
Market Maturity and F2P's Complex Impact
After a period of rapid growth, the industry is now stabilizing. The COVID-19 pandemic temporarily boosted audience numbers, but most new players did not remain active. The market is now considered “mature,” with a greater focus on mobile and free-to-play games, while consoles are becoming less central. Piscatella noted that younger and less affluent gamers gravitate towards accessible projects on devices they already own. “If you compare spending now to 2021, the picture looks surprisingly stable. We literally went from a growing market to a mature one overnight,” he said.
There's a debate about whether free-to-play games have devalued video games, making players feel less compelled to spend money, especially during financial difficulties. However, Harding-Rolls argued that this segment has been crucial to the industry’s success. He believes that without the F2P audience, the gaming market would be significantly smaller, with in-game monetization now accounting for approximately 77% of total revenue. He added that the industry likely wouldn't have grown to its current scale of nearly $200 billion without free content.
Despite this growth, a significant portion of revenue is concentrated among a few giants like *Fortnite*, *Roblox*, and *Call of Duty*. These titles retain players through social mechanics and the time invested, becoming “default games” for their audiences. Simultaneously, there's an explosion in the number of new releases. Market revenues remain flat, meaning the average game earns less than a few years ago, with more money flowing to the biggest titles. Piscatella described this as a “survival crisis” for most studios.
The $80 Game Dilemma
Paradoxically, as free-to-play games surge in popularity, premium titles are becoming more expensive, with some, like *Mario Kart World*, selling for $80. Piscatella sees this price point as a barrier for many gamers: why pay so much when you can simply jump into *Fortnite*, where friends and progress already exist? He labeled such massive services “black holes” that drain both time and money from the market.
Layden and Piscatella discussed the paradox of gamers becoming accustomed to not paying for games while publishers attempt to raise premium game prices to $80. “It's a strange cognitive dissonance: on one hand, an entire generation is shown that they don't need to spend money on games, and on the other hand, publishers claim games should get more expensive,” Layden observed.
Layden believes the industry should have gradually increased game prices with each console generation. Instead, it focused solely on growth, believing, “As long as we're growing, even if we're not making money, we won't die.” Now, he says, the situation has reached a breaking point: game development is prohibitively expensive. For a project costing over $200 million, profitability requires sales of at least 25 million copies, a feat only realistic for a few companies like Rockstar.
To offset rising costs, publishers have adopted other methods: maintaining a base price while aggressively monetizing games with add-ons, microtransactions, battle passes, and other schemes. Simultaneously, they push deluxe editions priced at $100 or more, offering additional skins and weapons that cost developers almost nothing. Essentially, the average price of games has been increasing for a while, but the attempt to standardize $80 for premium projects has met strong player resistance. Microsoft’s decision not to implement an $80 price for *The Outer Worlds 2*, which was expected to be Xbox’s first title at that price, demonstrates that overly high prices can shrink the upper market segment as fewer people are willing to spend such sums.
Harding-Rolls, however, believes that the market is constrained not by price, but by development costs. AAA projects require teams of hundreds, even thousands, and few companies can afford this. As a result, high costs reduce publishers’ willingness to take risks, stifling innovation and leading to fewer dynamic and interesting new titles.
Layden agreed: with budgets of $200–250 million, studios take almost no risks, leading to $80 games often being sequels or similar to other successful projects. “Unfortunately, for anyone trying to launch a new intellectual property at that price point and with that budget… I’m not saying it’s impossible, but there will be many long and hard nights during development if you want to launch a new franchise for $200 million. That's called working without a safety net.”
Despite this, the top end of the market appears to be moving towards higher prices. Piscatella drew an analogy to the gaming controller market: once dominated by affordable devices, it’s now led by premium, expensive models. The same applies to $80 games. The average console buyer is older and more affluent, hence willing to pay more. Other gamers will eventually catch up through discounts or promotions. Expensive deluxe editions are already showing strong initial sales, as a segment of the audience is less price-sensitive. If a game doesn't gain traction, the price drops quickly, but initial sales still capture paying customers.
Flexible Pricing and Subscription Models
$80 games are only part of the story. Overall, pricing strategies in the industry have become much more flexible. “I think we're seeing a greater diversity of launch prices and post-release promotions than ever before,” Piscatella said. “Games are being released at all price points, and developers set prices based on what they think they can get.”
He believes this experimental approach to pricing will continue. Developers will try different strategies, optimizing them over time—much like Steam sales, which were once a “wild west” of prices but are now more predictable. Today, setting a game's launch price often relies on subjective feelings. “Of course, there are very smart people behind this with lots of graphs and charts, but due to market instability and many approaches, it often boils down to something like: 'I don't know, this feels like a $50 game, and this one feels like a $70 game'—which isn’t the best way, but it's done quite often.”
Shawn Layden noted that subscriptions also influence pricing, changing traditional perceptions of game value. He expressed skepticism about the “Netflix for games” idea, deeming it dangerous, as it teaches consumers to expect content for free, much like Spotify did for music. The problem, he argued, is that games lack a “neighboring market” like concerts and merchandise for musicians. “Nobody will pay to come to a studio and watch programmers code,” Layden quipped. Thus, he believes launching AAA games directly into subscriptions like Game Pass is “bad for business.”
He cited Strauss Zelnik’s (Take-Two Interactive CEO) statement that *Grand Theft Auto* would never launch day-one on a subscription service. While subscriptions can benefit indie developers by opening up new audiences, launching major projects directly into Game Pass raises questions for Layden. He voiced concerns not just about the financial implications of offering new games “for free” at launch, but also about the impact on development approaches. He suggested the more crucial question isn't Game Pass's profitability, but its benefit to developers. In his view, the subscription model transforms creators into “wage earners,” receiving payment for labor rather than building value through market success.
New Audiences and Growth Opportunities
Despite market maturity, unexplored segments remain. For example, women comprise almost half of Switch players but tend to spend less and less frequently identify as gamers. Harding-Rolls emphasized that growth can be achieved not by lowering prices, but by more precisely adapting content to different audiences and utilizing effective promotional tools. “It's not so much about the price of content as it is about its relevance and engagement—making it suitable for diverse audiences. Are we providing these people with the right mechanisms to discover such content? Are we engaging them with games?”
The Future Without Platforms
The era of exclusive content appears to be waning. Piscatella believes the industry is moving towards a model where games are accessible anywhere, anytime, with anyone. Boundaries between platforms are gradually blurring, with content being published universally. “We are already seeing this with Xbox and PlayStation launching their games on each other's platforms. The younger generation particularly demands this flexibility: 'I want to play anywhere—if that’s not possible, I’m not interested.'”
PC offers the greatest freedom and, along with mobile devices, is becoming the preferred platform for young players. Harding-Rolls noted that Steam excels at elevating and promoting interesting content that might otherwise go unnoticed. Piscatella cited the unexpected success of *Schedule I*, largely attributed to its low price and Steam's refund policy. Many platform users follow such viral projects and trust streamers who showcase new and interesting games.
Consoles Under Pressure
While the PC platform continues to gain popularity, the outlook for consoles is less rosy. As early as 2013, some predicted the Xbox One/PS4 generation would be the last, but these forecasts proved inaccurate. However, the future might be different. Shawn Layden believes a new console generation will emerge but doubts all players will adopt it. He compared Xbox’s current strategy to the Dreamcast era, suggesting Microsoft might be at a crossroads similar to Sega, with their current hardware not compensating for market position loss.
A more flexible approach for Xbox could be the solution, such as launching on Windows and accessing other storefronts. Layden would welcome hardware standardization, akin to Blu-ray or CD formats, which could be licensed to third-party manufacturers. This, he suggested, could expand the audience by integrating other electronics manufacturers, like Toshiba or Samsung, into the ecosystem by adding gaming features to televisions.
The 1990s 3DO experience showed that expensive hardware hinders growth, but today, generational differences between consoles are almost imperceptible. Layden believes technical progress has plateaued, and it’s time to focus on accessibility and standardization: “Let's make it cheaper and simpler. And let’s allow more manufacturers to participate.”
Free-to-Play as the Standard
Console purchases and paid projects remain the domain of older generations, Mat Piscatella noted. Younger gamers more often choose free-to-play titles on mobile devices or PC—convenience and existing gadgets make this choice natural. He believes that over time, F2P will become the default game format, a shift that could occur within the next 20-30 years. The younger generation, accustomed to free titles, may maintain these habits into adulthood, weakening the premium entertainment market. Piscatella emphasized that an $80 paid RPG struggles to compete with massive games like *Fortnite*, where gamers spend a significant portion of their time.
Layden, however, doubted that the habit of not paying for games would last a lifetime. With age, people might return to more traditional gaming and premium projects when they have more time, finances, and comfort. So, proclaiming the “death of consoles” and premium games might be premature—the future will tell who is right.
New Approaches to Development
Harding-Rolls noted that major publishers are increasingly considering Early Access as a valid option. Previously the domain of indie and mid-budget games, Early Access might soon extend to AAA projects. This allows for mitigating multi-year development cycles and gathering player feedback, rather than risking hundreds of millions on a single launch. Layden observed market fatigue with unoriginal content. Games don’t need to be entirely new; old genres can be reinterpreted, as *Astro Bot* did with platformers or *Clair Obscur: Expedition 33* with turn-based RPGs.
He believes mid-budget projects are best suited for experimentation, as smaller studios can adapt more quickly to market changes than AAA giants. This paves the way for a resurgence of AA games with diverse content. Most importantly, Layden emphasized, a good story, interesting setting, and compelling characters are key. And there's no need to chase photorealism: “We’re not going to get there anyway.”
Changes in the Video Game Market
Layden believes the upper echelons of the industry will shrink. Large companies like Electronic Arts, Sony, Microsoft, and Ubisoft grew to unsustainable sizes, especially during the pandemic when game revenues rose by 22% annually. Mass hiring led to significant salary increases. Now, these companies are trying to adjust their structures, resulting in widespread layoffs. Often, projects are canceled not due to product issues, but due to unbalanced cost structures.
Layden was skeptical of AI's role in reducing personnel costs or accelerating development, comparing its impact to Excel’s effect on accountants: a tool that helps but doesn’t replace knowledge and control. “I see many predictions about how AI will supposedly revolutionize the gaming industry, mostly from people who don't work in it themselves, who say: 'I think there are ways it can speed up some processes,'” Layden said. He also noted that outsourcing has significantly improved: communication between core teams and external resources in places like Taiwan or Malaysia is increasingly optimized. “Sometimes, in the early years, it would have been cheaper to do everything ourselves than to rework something nine times because we simply couldn't reach a common understanding with an outsourcing company abroad and developers here.” While a combination of outsourcing and AI might partially curb rising development costs, Layden doubted it would truly lead to overall expense reduction.
The Future of the Entire Industry
Layden believes the future of game development will resemble the film industry: studios will maintain only a small core team of creative directors and producers, rather than hiring full 200-person teams. Instead, after pre-production and concept approval, contractors or co-development studios will be brought in. He noted that at various stages of game development, “some specialists are not needed or have already finished their work and are waiting for the next project.” Therefore, it’s more logical to “bring in separate groups at the right time.” At the outset, only a core team might be needed to refine key mechanics and understand what players find interesting. The former head of Sony Worldwide Studios believes the industry is already halfway to this model.
The main challenge for future games is competing with existing projects that continue to retain players. “Look at something like *Fortnite*. How long has that game been the most popular in the world now, seven or eight years? Or *Minecraft*. And *Grand Theft Auto V* came out in 2013 and is still in the top 20 best-selling games every month,” Piscatella highlighted. “The main competitor for *Grand Theft Auto VI* will be *Grand Theft Auto V*. It’s truly a crazy time to try to create new video games right now.”
However, Layden is confident that with the resurgence of AA games, offering moderate budgets that allow for risk-taking, a wave of fresh and interesting projects will emerge. “I think there will be much more diversity in games in the future,” he stated. “I’m not worried about the future.”
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