Cheap money and bad bets: How the games industry turned pandemic success into disaster

gamesindustry.biz:

By all estimations, the video game market was expected to contract once the COVID-19 lockdowns ended but even the worst-case scenarios for a return to normalcy predicted net growth when compared to pre-pandemic levels.

Instead, a perfect storm of global political and macroeconomic factors, along with executive hubris, left us in a state of disarray and despair.

So how did 2023 despite being arguably one of the best years for games, become one of the worst for those who make games happen at the same time? And why are we still feeling the pinch?

Beginning in the seventh generation, Microsoft and Sony began taking a page out of Nintendo's handheld hardware playbook. Mid-generation refreshes became a motivating force for living room consoles, in part out of necessity.

This has created a set of expectations in the market among executives and investors. For two generations we've seen a resurgence in hardware spending that requires a specific set of circumstances: component cost savings, realizing manufacturing efficiencies, and a global economy that allows for price cuts rather than hikes. A global pandemic, an escalation of armed conflict, and an inflation crisis have all worked in opposition to this pattern repeating in the current hardware generation.

"2024 in particular seems to be the year where pricing has become more of a challenge," Mat Piscatella, executive director and video game industry advisor at Circana, writes over e-mail. "Hardware spending in the US is down 30% for the year ending May when compared to the same period in 2023. That's not great! And while some of that decline can certainly be attributed to the aging Switch device nearing the end of its lifecycle, sales of PlayStation 5 and Xbox Series X/S have also declined sharply so far this year.

"Combined with a less commercially appealing slate of new games when compared to 2023 (yes, there have been some hits in 2024, but not at the scale the market experienced last year - at least thus far) it is