Game over

The video game industry is currently navigating through troubled times. On paper, revenue is higher than it has ever been, with video games often challenging Hollywood in terms of cash generation. Unfortunately, under the surface, there are deep structural problems that may soon force an industry-wide reset.

Collapsing share prices

Ubisoft held its initial public offering on the Paris Stock Exchange back in July 1996 for around €2.30 per share. 22 years later, in July 2018, Ubisoft broke above €100 for the first time. Then the music stopped. Project cancellations, repeated financial failures and poor management caused the stock to haemorrhage over subsequent years, with astonishingly little relief on the way down. As of the time of writing, Ubisoft (UBI) is trading for €5 per share. IPO buyers are up 2X in 30 years.

July 2018 also marked the local top for Electronic Arts (EA), which established a record intra-day high of $151 per share. Stock in the company fell sharply after disappointing Battlefield V sales, then flat-lined for about five years. EA currently trades for $200 per share. Top buyers have seen a laughable 33% gain in 8 years.

Embracer Group (formerly Nordic Games and THQ Nordic) plummeted 95% between May 2021 and March 2026 after it became apparent that the company had amassed unsurmountable debts. Embracer still owns the rights to some huge IPs, including Lord of the Rings and Tomb Raider, but faith in the company remains shaken.

The list goes on. Roblox (RBLX) has fallen 65% since last October. CD Project Red fell 84% following the disastrous release of Cyberpunk 2077 and is still 40% down from its 2020 high today. GameStop (GME) deserves its own article, but remains 80% down from its short-squeeze high of $120 five years ago.

The cooldown in the video game industry also affected adjacent sectors. Unity Software (U), the software development company responsible for the Unity Engine, hit a record daily close of $201 per share in November 2021, before undergoing a brutal 93% correction. Earlier this year, Unity suffered the additional hit of the dreaded AI fear trade after Google released Project Genie, a tool capable of generating 3D worlds from text inputs. It now trades for $25.

Japan has the same problem. Sony surpassed $30 per share in March 2000, it currently trades for $22. Nintendo first broke ¥7,000 per share back in November 2007. Following a drastic 50% collapse over the last six months, it now trades for the same price.

Mass layoffs

Unfortunately, shareholders are not the only victims. According to some estimates, the video game industry has laid off 50,000 people over the last three years. The COVID lockdowns provided a lift to video games, because no one had anything better to do, leading companies to rapidly take on additional staff to accommodate the growing demand. Unfortunately, the boost proved to be short-lived, leading to an equally rapid reduction in payroll counts.

According to the 2026 state of the game industry report, a quarter of all survey respondents were laid of over the last two years. In the case of US workers, this figure rose to a third. It is worth repeating: one third of all workers reported losing their job. An insane statistic. The ongoing firing spree has been absolutely brutal, leaving thousands of people without a job. Design departments have been among the hardest hit, as have quality assurance and testing teams. HR and marketing departments also felt the pinch as they were simply no longer necessary given the general downsizing observed in many companies.

For those paying attention, the decline is nothing new. Video games were already showing worrying signs throughout much of the 2010s. Ballooning budgets became unsustainable and the old model of game development began to meet a number of insurmountable challenges. The industry is now reaping the consequences.

Bad economic models

The problem is with game development itself. Studios used to be able churn out major franchise titles year after year, granting companies a far greater degree of flexibility than they benefit from today. It seems unthinkable in the modern landscape, but Squaresoft published four Final Fantasy titles between 1997 and 2001. Capcom released four Resident Evil titles between 1996 and 2000. Eidos developed five Lara Croft games between 1996 and 2000. The first three Gran Turismo titles released within 4 years of each other. Grand Theft Auto, Crash Bandicoot, Spyro, Silent Hill, Tekken, Street Fighter, Tony Hawk’s Pro Skater and many other household names all boasted near yearly releases. The trend continued well into the 2000s with Ratchet and Clank, Jak and Daxter, Zelda, Medal of Honor and Assassin’s Creed, but eventually, development would slow down to a glacial pace. Popular franchises used to push out entire trilogies on one console; now a single game gets spread over three distinct console generations.

More powerful consoles were initially welcomed with open arms, but they brought about permanent changes in the way video games were made. With more potent hardware came longer production times, bigger dev teams and inflated budgets. Suddenly there was much more at stake. Writing off a cheap failure is fine; writing off a massive budget, multi-year project is not. The stakes became far higher. The changing economic constraints pushed developers to place safer bets. Out of necessity, the industry moved to the centre to capture the middle 60%, resulting in more homogenised products.

If it takes 6 years and hundreds of people to make a video game, no one is going to take a gamble by producing something that does not fit a very narrow mould. Production falls into the trap of committee-driven decisions, box-ticking and an overly cautious approach to development. This is also why every studio seems hell bent on producing remakes. It’s safe. The market research has already been done. People will often spend money based on familiarity alone. Unfortunately, this kind of consumer behaviour only makes things worse, further cornering developers into churning out lazy, generic slop, or keeping decade-old franchises on life-support because they became bloated cash cows.

It is a vicious circle. Most of the money is concentrated in a small number of huge IPs, which is where companies, understandably, focus their efforts. This produces fewer and fewer options, leading to further consolidation of the player base. The video game industry is not alone in this. Media in general has rounded off the edges to maximise profit, leading to stagnation in music, television, film and even literature.

Solutions

Crowdfunding cuts straight to the heart of the financial problem. Instead of large companies allocating budgets to projects, small dev teams can advertise what they want to create and individual investors can participate directly. This model has a number of obvious success stories, including Hollow Knight, Pillars of Eternity and in the literary world, Brandon Sanderson’s "Secret Projects", which allowed the author to self-publish.

Of course, crowdsourcing has also hosted some truly spectacular failures, such as Chronicles of Elyria, which raised $1.3 million but produced absolutely nothing of value. The studio responsible for the project closed and all staff were laid off, leading to a class action lawsuit that would eventually be dismissed by the courts. This is far from an isolated case. Many teams honestly tried… but honestly failed to deliver on their promises, while others shamelessly vanished without a trace.

Artificial Intelligence is seen as the latest panacea for the video game industry, and partly explains the massive layoffs discussed above, but opinions within companies are divided. While a third of respondents in the game industry survey report using generative AI tools, over half of industry professionals think that such tools have a negative impact overall. In particular, almost two-thirds of people working specifically in graphic, design and programming fields hold unfavourable views. There is a clear disconnect between the decision makers at the top who assume AI will replace entire departments overnight and the rank-and-file who actually use such tools as part of their workflow.

Once again, the video game industry is far from alone in this. Software development in general has been complaining about overreliance on AI for a while. Programmers are being squeezed for quantity over quality, resulting in large, messy code bases that are increasingly troublesome to maintain. Refactoring has gone out the window, copy-pasted code blocks swell the surface area of attack, vulnerabilities proliferate and programmers spend more and more time correcting mistakes. Suffice to say, AI is not the silver bullet people thought it would be.

Creative destruction

Video games underwent a huge crash once before, back in the early 1980s. The fallout was bad enough that many people thought the industry was over for good. The reasons for the crash were completely different, as were the resulting solutions, but the fact of the matter is that the video game industry rose from the ashes stronger than ever. The 1983 crash is arguably responsible for Nintendo becoming the giant it is today.

From chaos emerges order. If the video game industry does indeed suffer another existential crash, the resulting field will likely emerge in a far healthier state. Signs are already emerging in this regard. Corporate, console-backed circles may be facing hard times, but PC gaming is looking far healthier in comparison. Unfortunately, PC gaming has its own issues, namely ridiculous hardware costs. Component manufacturers are now catering almost exclusively to their AI-focused customers, leaving the gaming market to pay top dollar for what scraps remain. A problem that would resolve itself overnight if the AI trade were to collapse.