Is the video game industry entering a recession, and what does that mean for developers?

The video game industry is worth more than the music and movie industries combined, and while the video game industry is generally considered “recession-proof” as games are generally seen as an inexpensive form of entertainment. However the current global economy has evidently been impacting many games businesses.

This makes sense, as while games are generally cheaper than other hobbies, many headline games cost upwards of $69. The current increases to costs of living directly affects disposable income, which in turn impacts consumer purchasing choices. So does this mean a game industry recession is inevitable (and perhaps already upon us?)…

Tentpole releases like Diablo IV and Zelda Tears of the Kingdom have made headlines with their sales figures, which may lead people to believe the games industry is doing great. With Zelda selling 10 million copies in its first three days of release, for example. These games are awesome and it’s no surprise they have done so well. However, these headlines promote a minority of games – when according to SteamSpy there were 1035 other games released on steam in May 2023.

There are also more game companies than ever before, from Jan – Oct 2023 there were 1462 new “Entertainment Software” companies registered at Companies House (UK).

In my opinion, gamers on a more limited budget will naturally be more selective on which titles they spend their money on. So while the overall spend on games is increasing according to Statista, logically the average spend per capita in the current economic climate would be reducing.

Another way to think of it:

• Scenario 1 – 1,000 people spending $100 each = total revenue to the games industry $100,000
• Scenario 2 – 2,500 spending $50 each. = total revenue to the games industry $125,000

You may say that the second one is better as more money is going into the industry overall, but the distribution of that wealth will be very different.

So, with a more discerning audience, this creates more competition in an already crowded market, as games fight for people’s attention. While competition should be a good thing for driving innovation and creativity, many developers still rely on publishing agreements and funding to bring a game to market and in this current economic climate many publishers may feel they can’t afford to take financial risks on titles. Not only do developers therefore have to struggle to get noticed in the first place (one publisher we work with mentioned receiving over 1000 game pitches in an average month month), but publishers also are looking for “safe bets” more than ever.

So what does that mean for existing studios? With less money making its way through to smaller titles, it means less revenue, and does this mean a game industry recession is underway? Or is this just a rebalancing?

On 9^th October 2023, GamesIndustry.biz reported that over 6,000 games industry jobs have been lost so far in 2023.

September saw the peak of layoffs, particularly affecting 17 companies. Analysts attribute this surge in job cuts to economic challenges like high interest rates and rising production costs. Notably, 80 gaming companies and media sites experienced layoffs, and 11 studios, including notable names like Volition Games and Mimimi Games, have shut down. High-profile companies like Unity and Epic Games have also conducted major layoffs, impacting 900 and 830 employees respectively. The crisis has extended to large-scale firms in various industries, with massive redundancies reported at companies like Microsoft, Meta, and Disney.

In our own experience as an insurance provider, we have a unique insight into the inner workings of many of these companies and see first-hand a lot of the less well-publicized struggles that games companies face behind closed doors. Over the past 12 months we have seen a marked increase in the number of layoffs, closures and financial struggles. The rate of growth for many companies has plateaued or shrunk.

We have also seen more publisher deals falling through, projects getting cancelled, less work for hire and more litigation than ever before. When financial resources are limited, companies tend to pursue litigation more swiftly. This causing a knock-on effect on insurance claims as insurers are paying out more than ever before on defending their policyholders, but this then also drives up the costs of insurance, which is why you need a good broker.

This may all sound negative, but the industry overall is still growing and offers an amazing environment for work and game creation with tons of amazing and passionate teams working on incredible games, with a wide variety of job opportunities cater to individuals with varied skills, fostering creativity and innovation.

And while securing funding is a challenge, digital distribution platforms and self-publishing avenues are providing indie developers with opportunities to gain recognition and build a vocal and passionate community without the sole reliance on a publisher, and I expect we will see more indie developers staying indie, and taking a leap of faith to self-publish with full creative freedom, and I hope that means we will see more awesome, innovative, creative (and weird) games.