This is why there is a disconnect between the gaming industry and gamers

With layoffs and persistently poor AAA game sales, it’s worth seeing how this happens and why the game feels out of touch with the players.

So far, I've been writing about the dangers of layoffs and big budget AAA games. And it's very clear that these huge games just can't work on a massive scale, but things did change after the Xbox 360 era.

Gamers are not really paying games

What I see online is that the budget of the game is irrelevant. If the game is good, people will buy it. That's how the business works.

This is a compelling argument, but only if the gaming industry works. The reality is that gamers spend their hard-earned cash on the game just a return on investment and has nothing to do with the initial investment itself.

To explain, the game budget is important for two reasons: the first is how much it costs, the second time, and the often overlooked reason is the source of this investment.

Most gamers think their money goes into the vault of a money-filled game publisher where executives dive into the mountains of gold coins and use the money to develop new games.

The reality is that by a decade ago, publishers were increasingly looking at external investment. This means that investors in new games are not gamers, but external and often invisible organizations, sometimes wealthy people, who are paying.

These external investors act as the publisher’s monetary layer, often close to zero public visibility or accountability. A good example is what happened to Ambracer Group when major investors exited, leading to massive layoffs.

As Japan and Asia are also affected, this kind of thing is happening around the world. The main difference is that in Asia, these layoffs are mostly secrets, except for some examples, as explained by gaming industry analyst Serkan Toto.

“Contrary to popular belief, this wave also flocks to Asia. The layoff data often mentioned by Western media reflects only a small percentage of the impacts in places like Japan, South Korea and China. In Japan, where labor laws strongly protect employees, some studios are trying to force employees to force them, fewer college graduates or silently engage in recruitment freezes by driving people to retire or bully them directly.”

This is where budget size becomes a problem. In the PlayStation 2 era, most game publishers tend to be more self-funded and have a more direct relationship with customers on lower budgets. Once the AAA's madness begins with the following Xbox 360 era, budgets surge and disconnection with customers begins.

Most of the storage capital of the last PlayStation 2 ERA was paid for AAA stupidity, but it still resulted in the closure of hundreds of game studios.

When I started writing this ten years ago, I hoped that publishers would be able to return to a more reasonable financial position and realize that AAA was not feasible. Instead, they doubled on AAA games, but by then they had already spent most of the stored capital, so more external investment had to be sought.

Layouts, layoffs, and even more layoffs

Now that these decade-long game development bets have not yet been paid off, these outside investors understandably hope their money will come back. As a result, the money used by publishers is often paid to developers to repay these investors.

The result is that the development studio either goes bankrupt or keeps many people alive, while the publisher ardently accumulates the remaining cash and tries to reduce the size, despite much fewer degrees.

That's why we've seen about 25,000 layoffs so far between 2023 and 2024, and things could get worse. And, these are the only layoffs we know, and the numbers are likely to be higher. In Japan, this kind of thing has been handled more quietly, but it also happens on a large scale.

To give some background of 25,000 numbers, the Xbox 360-erse studio is closed with hundreds of measurements. At the time, most decent studios had about 100-150 people. This means that these new layoffs are equivalent to thousands of studios. What we are seeing now is an order of magnitude greater than the last AAA game failed, and that's where the real danger in the long run is.

Another major problem is that many of these layoffs have not been carefully planned. Instead, those with the highest paycheck tend to cut off first. These salaries are high because these people are the most capable and experienced. As Swen Vincke, head of Larian Studios, pointed out, this loss of institutional knowledge is not a trivial issue, especially in the industry today.

Indie games are not even indie games

Some people think that indie games are a self-sustaining backup after AAA, but unfortunately, this is not the case.

Many modern indie games are not funded independently, meaning they still need external investment. Publishers are once again falling into these games as external investors are exiting games widely around the world.

These are the publishers who have first got us into AAA chaos and are now trying to survive by hoarding their remaining cash.

Yes, there are games made by one or two people and then published by themselves. These do exist, but there isn't enough to keep the game on your own.

Our current situation is also exaggerated, which is equivalent to the collapse of the large-scale gaming industry in the 1980s, and then the game rebounds well. The difference at the time was that most games had very little cost and therefore could rebound.

Now, the game is a more complex landscape, and “small” games usually cost more, so this rebound is not that simple.

The game needs more diversity, just what you think

With all these layoffs and the hollowness of game development teams around the world, the future of gaming looks bleak.

To learn more about why, I'm in ExtendedI've been re-watching it lately. In one plot, a character specializing in botany tries to explain the situation after partial destruction of the agricultural station in Ganymede.

Nature has a great deal of biodiversity and many pathways for the thriving of complex systems. If some of these pathways fail, the rest occupy slackness. It works because it is naturally an open, huge, complex system with a lot of redundancy.

However, this partially damaged agricultural station is a simpler and more complex system with a much reduced number of redundant pathways. When these pathways fail, they are not enough to withstand the slack, and then these pathways fail, resulting in a complete ecological collapse.

The gaming industry is in a similar state. From a broader economic perspective, it is a relatively small system with a structure that lacks many built-in layoffs.

Massive developer layoffs are the first path to failure, and now publishers are feeling the tension and hoarding resources to survive the next step. However, if no developers make games to generate revenue for the above-mentioned publishers, this pathway will also fail at the right time.

In short, instead of spending $100 million on a game, we need to go back to spend $10 million on 10 games. This way, you have a better chance to make money. You will also learn 10 times the way this approach, so this is not a direct profit either.

The demand and revenue generation of games are still large, but publishers need to diversify their bet size and number of bets.

Gaming will always be a hot business, so instead of relying on an over-pressure avenue, diversify and build more. In this way, when one or more pathways fail, others can occupy slackness.

This setup works in the PlayStation 2 era and can work again, especially since the Switch is driving most of the mid-term game development now.

This is also related to my theory, which believes that games are a cognitive firmware. No one has such a game, it only applies to every game. PlayStation 2's software library to illustrate this, and your game collection may be completely different from mine.

In short, spending less on the game alone, making cheaper diversified games is the way out.

The change of the guard

Apart from the source of investment, one of the other reasons for being disconnected from the gaming audience at the game level is that many executives at big publishers just don’t play or like games.

This means they don’t understand what they are selling, which is equivalent to people who can’t read the jobs of literary publishers.

Publishers do need to reorganize and reorganize. What is needed are smaller, leaner, more agile publishers who focus on the mid-sized budget of the PlayStation 2 era before the AAA nightmare derailed.

Not to mention one of the main reasons for cost overruns in the current publishing model is that publishers’ executives require top-down changes to games they have not played, which can disrupt the production process and create expensive delays and calorie budgets.

Smaller publishers by people who actually play the game and focus more on distribution and backend submission support, such as certification testing and localization, will negate many of these expensive top-down decisions.

The good news is that we are starting to see more of these types of publishers pop up. But what happens next really depends on the current publisher, leading to all these layoffs being developed.

If they end up giving up on this obvious AAA madness and go back to something that has proven to work, we might have a chance to save the game. Otherwise, the future of the media will definitely be unstable.

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