Games industry leaders braced 'for up to two years of pain'

The current turmoil in the video games industry will continue all year and likely into 2025, games industry leaders have told GamesIndustry.biz.

Speaking to us privately, publishing, development and investment heads have said that continued high interest rates, oversaturated video game stores and cautious investors will result in more restructures, layoffs and closures.

One CEO of a public company told us: "If 2023 was the year of layoffs, 2024 will be the year of closures. Not just developers, but publishers, media, service companies... There are just too many unprofitable businesses in video games. We're looking at up to two years of pain."

Some investors we spoke to expect interest rates to come down, which will likely stimulate more investment, but not until later this year. Until then, there are simply "far safer ways to invest your money than video games. Although it's not the only industry facing this issue," said one angel investor.

A leading VC added: "Why take a gamble with a games company when you can just stick the money in the bank and earn 5%?"

Interest rates put pressure on costs, and not just wages, but also insurance, travel, rent and other business costs. Meanwhile, there is no room to raise video game prices to compensate. "There is simply no tolerance of any further price moves," said one MD.

"If 2023 was the year of layoffs, 2024 will be the year of closures"

But a growing concern for the publishers we spoke to is the abundance of games being released across all platforms.

"Too many games were green lit in 2020 and 2021," one publisher boss said. "We need to get to pre-pandemic levels in terms of the release schedule, and that's probably going to take two years. You can already see publishers signing fewer games. That's happening everywhere. The stores are saturated, not just Steam, and the games just aren't delivering the levels they were. "

Another said: "The expansion and investment over COVID has left engagement-based businesses, not just video games, spread too thin. We're doing too many things that aren't delivering."

The VC added: "Competition isn't the biggest factor [in this current situation], but it is a challenge, especially when you consider how much disposable income people have at the moment. It's also not just the number of new games you're competing with, but all the old games and live service games that are there and doing huge numbers."

The solution is for companies to divest or cut areas of the business that are unprofitable, or a distraction from their core offering, and to focus on what they do best. "Focus isn't exciting, but getting back to basics, back to those foundations, and building back up is needed in a lot of cases," said another prominent business leader.

Yet that's not advice that will suit everyone. Our public company CEO believes that, for some companies, survival during this period requires being brave. "It's all about sustainability. For those who aren't profitable, and can't get that funding, it's a case of being brave... and getting tough."

One thing everyone stressed was that although video games face unique challenges, there are global issues at play that games businesses have no control over. "Government over-spending during the pandemic, and on wars, and on things like Brexit in the UK... it's going to take years before that normalises," said the investor.

Our VC added: "COVID did serious damage, and recovery will take some time."

The reports have been bleak, but the head of a major studio stressed that the games industry remains in a good place. "If you look at gamers, they're happy. They're playing these fantastic games, and they're playing them in their hundreds of millions. And they're playing more than they were five years ago… and buying more. The industry graph is trending upwards. The games industry is in an odd place right now. But to those on the outside, it doesn't look that way."

And our CEO concludes on a hopeful note: "Investment hasn't stopped entirely. You're still going to see money coming into games, you're still going to see established people with a good business plan setting up new teams. There is opportunity. Lots of successful businesses are born during moments like this.

"And the situation is temporary. The games business is built on very solid foundations. And when things do start to grow again, we would hope to see a more sustainable and wiser games industry emerge on the other side."