The Three Game Industry Trends to Watch in 2024
In recent years, the gaming industry has undergone significant transformations, grappling with challenges that have reshaped its trajectory and forced key players to adapt rapidly. From economic fluctuations to shifts in consumer behavior and technological advancements, the landscape is evolving in ways that demand keen insight and strategic foresight.
Amidst this backdrop, three compelling trends have emerged, each signaling a pivotal moment in the industry's narrative. In this blog post, I delve into these trends, dissecting their implications and exploring the broader implications for stakeholders—from seasoned developers to aspiring entrepreneurs.
If market trends, especially on PC and Console, are something you want to hear more about, I highly suggest you check out my conversation with Newzoo’s Head of Consulting, Ben Porter below.
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Trend #1 The Industry is ‘Rightsizing‘
During lockdown and low interest rates, period companies staffed up to seize growth. For the past two years, the game industry at large is not seeing growth. Companies are rightsizing to the present reality.
On the surface level, layoffs are the most fitting word to describe the current climate. Last year the industry lost 10,000 jobs. This year the industry has lost the same amount of jobs in half of the time.
Worst of all, these numbers do not account for all of the startups, that received funding during the lockdown boom, going out of business. Investors have drastically pulled back on investing in gaming - especially when it comes to investing in later rounds.
Despite projected growth, the game industry is still lagging behind the lockdown era. If you adjust against inflation, which is projected at 3% in the US, the industry declines at a 2% compound annual rate. Source: Newzoo
While many data and research companies are providing graphs showing modest growth, further analysis proves otherwise. These graphs are not only inaccurate but also problematic, because they paint a picture that the industry is growing while at the same time, unprecedented layoffs continue.
The current compound annual growth rate of the gaming industry is just above 1%. The US inflation rate is around 3%. In other words, the game industry continues to shrink when adjusted against inflation. And that means that the rightsizing has to continue.
What is causing the layoffs is the contraction of the gaming industry in terms of revenue. During the lockdown years companies grew in headcount to supply content against the massive surge of demand.
Post-lockdown, the demand for games dropped due to two key factors:
Firstly, people are spending more time on outdoor activities and consuming more media on platforms like social media and streaming services, affecting gaming engagement, especially on mobile devices.
Secondly, consumers' disposable income was wiped out by the combination of inflation (everything cost more than just a couple of years ago) and higher interest rates (house, credit card, and car payments).
When will the rightsizing stop?
I believe that when the pendulum swings, it always swings further than needed. When the game industry boomed during lockdowns, we hired way more than needed creating massive inefficiencies.
Now the pendulum swings in the opposite direction and the industry will lay off way more people than needed causing significant supply issues down the line as there won’t be enough new games to accommodate the demand.
In other words, the rightsizing will reverse in 2027 (barring WW3) when the release slates are empty and publishers rush to hire talent to get their games onto the market faster.
Trend #2 Gamers Play Fewer Titles for Less Time
Playtime has significantly decreased from the lockdown years, which is expected. But what is truly alarming for anyone developing new games is how little time players spend playing new games versus enjoying the incumbent franchises.
The average playtime has shrunk since its peak in 2021 and is trending downward. Yet again, almost any gaming-related number will look bleak when compared to the lockdown period. So I wouldn’t be worried about this.
What I’d worry about is the concentration of the market. Players are spending more time on games that came out six or more years ago. The time spent on these accounts for over 60% of the time spent in games in 2023.
What makes me worried about the concentration is how closed the market seems to be to new game releases. Just consider last year. Given how incredibly solid 2023 was for new game releases, the share of new game playtime rose only by 4% ( from 19% in 2022 to 23% in 2023).
In 2023, the top five titles out of all six-year-old games captured 27% of all playtime. The longevity of these titles and their supremacy over playtime, combined with the finding that playtime hours are shrinking overall, indicates how entrenched these hours are. Simply put, these hours are not part of the addressable market for other games. Source: Newzoo
Out of that 23% share of total playtime that went to new games (released fewer than two years ago), yearly franchise titles accounted for 60%. That means that annual releases snagged around 15% of total playtime. Studios hoping to release a new title will find it challenging to include these playtime hours in their addressable market, as they nearly always go to these games that engage players on a reliable annual basis. Source: Newzoo
What does this all mean in practice? Well, it shows how difficult it’s become to create a game that can take an audience from the incumbent titles.
In other words, when you’re looking at the market sizes of various genres on different platforms, you have to first exclude the players who are playing the key franchises. For example, if you’re targeting a Battle Royale genre, only look at the size of the market after excluding Fortnite, APEX, and PUBG. If what is left after that is mice nuts, well, that is very likely what you can achieve even after a flawless execution.
Trend #3 AI Will Unlock Productivity and Lead to Further Job Losses
AI presents many over exaggerated opportunities and suppressed challenges. Discussing these openly is important for efficient adaptation.
The gaming industry is reshaping to become more efficient and durable during lean times, with companies focusing on core competencies and leveraging third-party vendors for non-core tasks. Advancements in AI and tech tools are expected as part of this macro trend driving industry changes as companies focus more on profitability over growth.
Tools, tech and platforms (aka. the picks and showels) are drawing investments in gaming. This is a signal of future adaptation that is further enhances with adaptation of AI.
The streamlining of game production processes is a blessing for the longevity of the industry. Most AAA simply cannot afford the team sizes of today. At the same time, I believe that AI will lead to even more job losses. This is incredibly unfortunate, as the industry is already being hammered by an endless onslaught of layoffs aka. “rightsizing”.
But while AI tools offer a lot of efficiencies, they can also lead to the overall market experiencing a massive drop in the quality of games in the short term.
The bull case: AI will supercharge indie developers allowing them to challenge large AAA by removing production constraints. Albeit the marketing constraints would remain.
The bear case: the market will be flooded with low-quality throwaway games. A hypercasualisation for the market, if you will. This in turn would give more power to quality developers that hold IPs while killing the indie scene with a flood of copycat products.
I’m inclined to share the sentiment of Mitch and Blake. Looking at the pitches, there’s a high likelihood of made-by-AI games trashing the market.
What can and should we do about all of this? Fighting against the AI revolution is not the answer. It feels as foolish as embracing everything AI.
What’s left is being diligent, strategic, and focused on the long term. In practice, this means constantly evaluating various AI tools and working transparently with the staff when doing these evaluations.
In my opinion, the goal should be for AI to help the existing team to complete tasks faster, and with better quality. I think that involving the team in the evaluation of AI-enhanced solutions is a better way than top-down mandates.
Despite It All, The Long-Term View Remains Positive
For the longest time, gaming remained safe from the economic cycles. People continued to play games whether the economy was doing well or not. In fact, People played even more during the economic downturns.
As long as the amount of players is increasing, the game industry is being pushed forward by the secular tailwinds. Source: Newzoo
When before gaming offered unrivaled entertainment value that is not so today. Streaming, dating, and social media apps are the new necessity. Game spending falls in the discretionary category, meaning that it can be hit hard by a bad economy as consumers prioritize necessities.
Yet economic downturns are few and often far between. Throughout history, the periods of growth vastly outpace the periods of decline. And when the current downturn is over, we can expect gaming to reach new heights once more.
