It’s 2024 and games are more expensive than ever, publishers are taking fewer risks, and layoffs are rampant. As the most front-facing of the big three gaming executives, Xbox CEO Phil Spencer sat down for an interview to lament the current state of the video game space. “How does this industry get back to growth?” was the resounding question he left us with in a recent interview with Polygon.
It’s clear that console sales aren’t seeing the growth that even leaders in this regard would like. PlayStation is porting games to PC via Steam. Xbox is expanding its release strategy to include Steam, PlayStation, and Nintendo, and it’s becoming clear that there’s seemingly a consensus between both Playstation and Xbox that the entire industry is going through a recalibration. Starting with console “exclusives.”
The recalibration has been accelerated thanks to a massive wave of layoffs that has roiled the video game industry. We covered the impact these layoffs have on those who create games before and as thousands of applications flood the inboxes of the few companies looking to hire, it’s likely many of the displaced will move onto new industries in the future. “The entire industry is resetting to the commercial reality with some companies realizing they have over-expanded, become unfocused in their strategies, or become over-stretched financially,” Piers Harding-Rolls of Amphere Analytics tells IGN.
By now, it’s widely known there are two primary culprits for the recent wave of layoffs. Covid is one according to Michael Pachter of Wedbush Securities and Dr. Serkhan Toto of Kantan highlighted another wave hitting the industry. “…high interest rates, slowed down growth, inflation, and overall negative sentiment are clearly weighing on the game industry and gamers alike.”
As a result Spencer says it’s clear we’ll be seeing a shift in the coming years away from console exclusives to mitigate the losses in revenue everyone has been reporting. The impact of the revenue needed to break even on $300 million dollar budgets has had devastating consequences in the form of mass layoffs. “Going forward, I believe the industry is not done yet seeing layoffs. We will see further bad news through 2024.” The reply from Dr. Serkhan Toto of Kantan Games is a concerning prediction that proves more true as the days pass in 2024. PlayStation, Xbox, and EA have drastically reduced their staff making headlines at every major gaming publication. Embracer not only saw layoffs but also started spinning out their recent acquisitions, like Gearbox, to new owners.
While Spencer is the latest to lament the negative impact the budgets and layoffs have on the entire games industry, highlighting a risk-averse publisher market, rising AAA game creation costs, and a flatlining console business, it’s clear to him that things need to drastically change. PlayStation seems to agree as they’ve slashed console sales predictions for 2024, from 25 million to 21 million, and highlighted plans to be more aggressive with PlayStation game releases on PC. All of this has an effect on the games industry as we know it and more specifically, the console business.
While PlayStation still champions the value of exclusive releases on its consoles, they’ve slowly but surely adopted a more aggressive PC release strategy as well.. In a notable statement during Sony’s Q3 earnings, PlayStation CEO Hiroki Totoki said “In the past, as you all know, we wanted to popularize console and the first-party titles main purpose was to make the console popular,” he also adds, “ [T]here is a synergy to it. So if you have strong first-party content, not only with our console but also other platforms like computers, first-party [content] can be grown with multiplatforms, and that can help operating profit to improve. So that is another one we want to proactively work on.”
here’s Sony President Hiroki Totoki discussing the opportunity to grow PlayStation games on PC / multiplatform
“In the past, we wanted to popularize console… but there is a synergy to it. So if you have strong first-party content, not only with our console but also other… pic.twitter.com/FblyzQNL8D
— Tom Warren (@tomwarren) February 14, 2024
But this isn’t the first time PlayStation has brought up its shifting perspective on console exclusives. Head of PlayStation Studios Hermen Hulst also discussed the importance of the PC in May of 2023 calling it a “Substantial part’ of the PlayStation business. Jim Ryan echoed those sentiments on the same call saying “Our PC business is a significant profit contributor.”
Harding-Rolls of Amphere Analytics dives in a bit deeper. “Clearly, the macroeconomic backdrop will have contributed to companies looking to streamline their operations, cut their costs, reduce commercial risk and cut investments. This is inevitable in the current climate and is relevant to all industries.” He continues to cite wage inflation, and increasing costs of game design as reasons many studios have started looking into the safest route forward. Which will also mean a more risk-averse market for a few years. One big-budget game getting canceled can lead to “100s of layoffs” according to Piers.
All of these changes will reshape the industry and games we play for years to come. Gamers want more access in more places, and both Xbox and Playstation are ready to appease that request to meet their ballooning budgets, albeit in different ways. For Xbox, it’s releasing former console exclusives on rival hardware, while PlayStation is ramping up its PC porting business. That could mean fewer console exclusives as hardware sales forecasts are reduced, but more ways to play the games we love.
“While pure console exclusives still go some way towards driving console sales, more so for Nintendo than others, it has become clear that gamers now expect to be able to play games on a variety of devices.” Daniel Ahmad, Niko’s Director of Research and Insights tells us. “Even in Japan, where [the] console has traditionally been dominant and 41% of gamers played a console game in the past year, only 14% of all gamers exclusively play on console according to our 2023 survey of Japanese gamers.”
Players getting more access and more options for how to play is amazing news for customers. While porting to PC and mobile isn’t a new strategy, it’s happening at a much faster rate. And it will have a drastic impact on the console market and how we consume games in the future. “Console platform holders have embraced a broader strategy over the past few years, and will continue doing so, with the aim of reaching gamers on non-console platforms,” Ahmad tells IGN.
And recent comments from Phil Spencer seem to indicate an incredibly aggressive approach in this respect. Rumors are swirling of an Xbox handheld that will be more open to services like Epic Games having a place on it, and hopefully services like Steam. A strategy that aims to tear down the walled garden approach the industry has used in the console business for years.
Harding-Rolls adds “All console players now have strategies in place to reach broader audiences with their services, games and IP. Out of the three companies, Microsoft has been the quickest and most active in evolving its strategy largely because it has had a more acute need to look for growth beyond its console business.”
Even Nintendo is branching away, albeit in a different way through theme parks and movies. Think of it this way, you don’t need to own a Nintendo Switch to go to the Universal Studios or watch the upcoming Legend of Zelda live-action movie.
And to his point, Toto points out that console sales have remained flat for everyone. “Looking back at the last several years, it is easy to see that the Xbox and PlayStation console audience is not growing.” The data backs it up. No console, not even the highly successful Nintendo Switch has managed to surpass the 155 million units the PS2 sold as of 2012. In over 20 years, the closest was the Nintendo DS which capped out around 154 million units. Even the Nintendo Switch that everyone points at as the bar for success seems to be gearing up for a successor is currently sitting just shy of 140 million sold.
And how will this impact you? “If you have poured a purported US$300 million into developing Spider-Man 2, it makes sense to invest a comparably modest sum to port it over to the PC to address a bigger audience and drastically improve the bottom line.” Toto says. A win for the customer in my opinion.
“There are two main factors driving the expansion to PC and mobile.” Ahmad elaborates. “The first is the opportunity in terms of audience size and player spending, especially in Asian markets where these platforms are dominant. The second factor is that AAA game development budgets have continued to grow over the past decade, which pushed many publishers to increase the price of console games from $60 to $70. Free to play games also need a large and engaged audience to succeed over the long term, which may be limited by a capped console install base. Therefore, launching the games on PC or bringing first party IP to mobile is a way to address these two points.
Change can be scary for some, but take comfort in knowing that there’s still a massive drive for spending on the console which seems to indicate that console and hardware fans have nothing to worry about. A handheld strategy, like the one Xbox is hinting at, is a sound one according to Rolls. “Hardware-wise, there’s been a lot of innovation in the console market in recent years focused largely on the handheld sector. I’m expecting that to continue on over the next few years.
And revenue-wise, there will always be a place for the console. “Console represents around 1/3 of total global spend on video game software and services, which shows the opportunity for console platform holders when expanding to mobile and PC. In fact, the contrast is even more pronounced in Asia & MENA where over 90% of player spending is generated on non-console platforms.” Daniel Ahmad tells us. And Rolls backs him up “None of the companies can afford to exit the console market as a platform holder without significantly reducing their games revenue, so I expect them all to remain committed to the console market for years to come.“
“There is a chance we will have Microsoft and Sony focusing a lot more on handheld and the cloud, especially after how the Steam Deck revealed there is high demand for high-fidelity gaming on the go.” Toto says.
For today, however, one thing is clear. Change is coming. Change is here. More games in more places and a better value for the gamer is a huge win. Console exclusives may become less and less common, but if that means these companies are going to create more options for you, I’m all for it.
Destin Legarie is director of video production at IGN.
