The game industry is broken – can we fix it?

This article was originally published in Edge 428 - buy it hereBy Alex SpencerAlmost 60,000 industry jobs lost over five years. Game budgets and schedules out of control. Hundreds of development studios closed. Console prices that have risen since launch. Despite analyst predictions of revenues growing for the videogame industry as a whole, the story behind the scenes is grim. In Edge 428’s cover story, we meet with nine industry experts to ask how we might carve out a brighter future. Where now during the second videogame crash?“This is the worst videogame crash, or disruption, that we’ve seen since the 1980s.” Tim Sweeney, Epic GamesBefore we can begin prescribing potential cures, we need a solid diagnosis of the problem, and of its scale. Enter Amir Satvat, who has been running the ASGC Games Industry Layoffs Tracker since 2022. “I don’t mean this immodestly,” Satvat says. “I think we may have more data on the games labour market than anybody in the world.”According to Satvat’s current projections, which add publicly disclosed numbers to data shared privately by affected individuals and organisations, more than 14,500 videogame workers will lose their jobs this year. That will put the five-year total, from 2022 to 2026, at over 58,000 people out of work. But, Satvat says, it’s not all bad news. “I also have hiring data, which suggests that something like 18,000 to 25,000 people are getting new jobs in games every year.” The videogame industry has actually grown over this period, albeit “very modestly, by a small number of thousands of people,” he explains. “The problem is comparing that to the five years before it – I believe the industry grew by 150,000 people in that period.”Even with this dramatic slowdown in growth, Satvat says, “it is hard for me to foresee a picture where the industry doesn’t eventually contract from its current size. If I’m being optimistic, there is some number that is not a ghastly decrease from where we are now, where things can stabilise out. But for it to stay exactly the same as when you had these very large firms that were relatively stable? It’s hard for me to visualise how that happens.”Proposal 1: Be more like Japan. When it comes to the layoffs situation, Amir Satvat says, “Japan is a completely different ballgame.” He acknowledges that the country isn’t entirely “a utopia”: there are still layoffs, and they are generally focused on contractors based outside the country, “to protect core staff in Japan”, but these have generally numbered in the hundreds rather than thousands. “Everyone calls out Nintendo, but you can look at Konami or Capcom – these companies all have staff retention of 97 per cent plus.” So, what can the west learn? “My understanding is that, generally, Japanese teams tend to be much smaller and leaner,” Satvat says. “They didn’t get swept up in the live-service trend, or into these mega-blockbusters with 500-person teams.” And perhaps most important of all? “The executive salaries. They still make great money, but it’s two or three million dollars, not 30 million.” Image source: Official GDC.So, what about the idea, as suggested by industry veteran Brenda Romero, that we are encountering a second videogame crash? Satvat caveats with the fact that his data shows the layoffs are very localised, to patches of the western world that have traditionally been considered hubs of game development. Most affected are the UK, northern and western Europe, and North America – and one US state in particular. “There was a 12-to-18-month period where I estimated that over half of layoffs, globally, were in California,” Satvat says. Other regions have been largely insulated from these effects. That includes countries just starting to build up a videogame industry – often those where wages are lower – but also more established areas such as eastern Europe, and one of the most storied development hubs of all: Japan. “I think this is as bad as the ’83 crash if you’re a game developer based in North America or western Europe, in a traditional triple-A studio,” Satvat says. “That is ground zero for the destruction.”When we put this to Epic Games CEO Tim Sweeney, his answer is immediate. Are we living through a videogame crash? “We absolutely are,” he says. “This is the worst videogame crash, or disruption, that we’ve seen since the 1980s, when Atari fell and was replaced by Nintendo. I was just a player back then – I only joined the industry as a programmer in the 1990s – but I’ve not seen anything this bad since then.” Despite making one of the biggest videogames in existence – as we type these words, over two million people are playing Fortnite – Epic has been far from exempt from these problems. As CEO, Sweeney oversaw more than 1,000 layoffs in March this year, on top of 830 redundancies in September 2023.Today he believes he has a clear view of the wider crisis, and how it compares to the problems in gaming’s history. “What happened in the ’80s was that Atari just made a lot of really bad games, and their hardware platform died,” he says. “Now, though, it’s multi-causal. And no patient going to their doctor wants to hear the problem is multi-causal. Those are the hardest problems to solve, because it means there’s not just one pivot you can make.” Those causes, as he sees it, are a combination of “a variety of outside challenges” – that is, macroeconomic factors beyond the control of videogame companies – and “internal industry dysfunctions”, the first of which is the persistently rising cost of making a triple-A game.“I think the first time I spoke about, ‘Hey, cost is going to kill us’ was 2005.”Raph Koster, Playable Worlds“Since around the year 2000, game budgets have literally doubled every few years,” Sweeney says. “The first Gears Of War, in 2006, cost us $12 million to make, and because we sold six million copies on Xbox, we made $100 million. It was immensely profitable. But, by the end of that generation, as we were making [2011’s] Gears Of War 3, it cost about $100 million to make – and our revenue projection was still about $120 million, because the audience wasn’t growing.”It’s a situation Raph Koster, now CEO of Stars Reach developer Playable Worlds, has been warning about for two decades. “I think the first time I spoke about, ‘Hey, cost is going to kill us’ was 2005,” he says. That was when Koster gave a talk titled ‘Moore’s Wall’ – a reference to Intel co-founder Gordon Moore’s eponymous law, which states that processing capacity doubles roughly every two years without a significant cost increase. More relevant to Koster’s thinking, though, was another maxim, named after a different tech co-founder: Nathan Myhrvold, of Intellectual Ventures, later Microsoft’s first CTO. “Myhrvold’s Law says that software is a gas – it expands to fill whatever computer you have,” Koster says. As hardware overheads grow, software engineers stop worrying about optimising for their previous limitations. “The place that shows up the most in games, for better or worse, is in content costs.” Take the example of that most quintessential of game items, the crate. “What used to be a single 128x128 texture is now multiple 4K textures with shaders and all this stuff,” Koster says. “And, yes, tools have improved along the way. You don’t handpaint that texture pixel by pixel any more – you can use procedural tools like Substance, or just purchase it from a texture library or whatever. But there’s still downstream cost, even if it’s just testing how those umpteen textures and shaders interact. It all adds up.”*When it comes to the layoffs situation, Amir Satvat says, “Japan is a completely different ballgame.” He acknowledges that the country isn’t entirely “a utopia”: there are still layoffs, and they are generally focused on contractors based outside the country, “to protect core staff in Japan”, but these have generally numbered in the hundreds rather than thousands. “Everyone calls out Nintendo, but you can look at Konami or Capcom – these companies all have staff retention of 97 per cent plus.” So, what can the west learn? “My understanding is that, generally, Japanese teams tend to be much smaller and leaner,” Satvat says. “They didn’t get swept up in the live-service trend, or into these mega-blockbusters with 500-person teams.” And perhaps most important of all? “The executive salaries. They still make great money, but it’s two or three million dollars, not 30 million.”Proposal 2. Make smaller games. Shawn Layden remembers when PlayStation games had to be designed around the 660MB storage of a CD-ROM. While that’s not something anyone is keen to return to, “these constraints focused the mind,” he says. He encourages more developers to make games with “small, tight environments” that can be completed within 20 hours. “Money is the great constraint that never gets expanded. Do you need to model an entire world that takes 45 minutes to walk across? If there’s not a reason for that – if it’s not pushing the experience or story forward – that’s just a party trick. You’ve spent a bunch of time – which means money – on something that doesn’t mean anything.” Image source: Shawn LaydenIn 2005, Koster studied the previous decade or so of game budgets, and came to a startling conclusion: “The cost of game development goes up about 10x every decade.” In 2017, he repeated the experiment, this time tapping industry contacts to gather numbers on 250 releases spanning over three decades. This larger data set showed him the very same thing. The cost of making a triple-A console or PC game (accounting for inflation) grew from around $1 million in the mid-’90s to $10 million by 2005, and $100 million by 2015. In the blog post accompanying this research, Koster wrote: “We’re talking one-terabyte games that cost $250 million to develop by the early 2020s”. Today, Sweeney talks about “budgets beginning to hit the $250–400 million level” – figures that line up with those in internal documents that