Understanding the Great Video Game Recession. Or Not.
This has all happened before. This will all happen again.
The video game industry is seeing a big wave of layoffs and game company closures, and it may be that we have begun the long, slow, agonizing bleed of a recession. Alas, I feel compelled to write about it.
It's a hard thing to write about. It's painful. Lost jobs mean real suffering. Lost livelihoods. Lost homes. Failed marriages. Crying children. No shell of protective irony here ... That is the truth behind the numbers.
Such pain makes it very tempting to either ignore the topic or retreat into soft, easy homilies.
But I have a whole lot of my own personal skin in this game, and I've been writing and speaking on this exact topic for a long time. Plus, I'm an old crank. There is a lot that needs to be learned, and fast.
This post will be two parts. This week, what is going on? Next week, what will we learn? (Because we will be forced to.)
I've Been Writing About This For a Long Time
Who the hell am I anyway?
My name is Jeff Vogel. I've been writing indie (aka shareware) games as the nearly sole source of my family's income for 30 years. (Thirty!) We have survived multiple recessions (sometimes a close thing) and gained a certain amount of experience.
During those decades, I've written a ton about the indie business, for money and on my blog. My most popular article, written wayyy back in 2013, was about the creation of the Indie Bubble. Then I wrote a similarly heavily read follow-up.
Also I got to give a talk on the topic at GDC, which is probably not worth your time. My part is OK, but you're way better off watching this talk. It’s really good.
And then the Video Game Bubble grew, and grew, and grew. A lot of successes happened, which makes me happy. But, alas, every unsustainable process ends.
But First, a Word From Our Sponsor
I write these blog posts to get attention for our next indie game, because this is a very hard thing to do. Geneforge 2 - Infestation is coming out March 27th. It's a really cool, low-budget, story-heavy, turn-based RPG,
You gotta hustle in this business. We're begging for wishlists. We're not proud.
Let's See Where We're At Now.
As upsetting as recent events have been for people who make money in video games, it's important to remember that 99.9% of our customers have no idea what is going on. They don't read industry news. They just like to play games. If you understandably haven't been paying attention, here's what has been happening in the video game business.
There have been lots of layoffs lately. Lots of studio closures. It's still just a tiny portion of a gigantic industry, but the disaster curve is ramping up fast. Maybe things will be all better tomorrow. However, when Steam alone is getting over 14000 new games a year, I'm not betting on it.
This is because the video games business is super-bloated.
How many game subscription services are there now? Apple, Google, Netflix, Nintendo, Playstation, GamePass, EA Play? How many of the best games are just plain free? How many non-free games just get handed out on Epic?
Again, 14000 new games on Steam last year. Sure, most of them suck. Sturgeon's Law says "ninety percent of everything is crap". But that means there was still 1400 GOOD games. Just one year, just on Steam.
And this is just PC games. The enormous mobile side of the business has been churning out massive piles of product (and 80 ripoffs of every game that gets any traction) for years.
And there's more competition. There are now so, so many of those cutscene-only video game apps called streaming services. (Which have themselves grown massively bloated and saddled with debt. But I digress.)
Someone will tell me these things aren't competing with each other. Simply untrue. We are ALL competing with each other. We are all miners, and what we mine is peoples' leisure time. That is a hugely limited resource, a zero sum game. There is just too much entertainment out there fighting for too little free time.
Why did we ever think this was sustainable?
Our Friend, the Business Cycle
So what actually is going on here?
The video game industry is very young, as are most of the people working in it. This leaves old grumps like me with the unenviable job of teaching Business 101 basics to each new generation of cannon fodder.
This is a phenomenon, universal to all industries that are not monopolies/oligopolies, called the Business Cycle.
Almost all industries go through boom/bust cycles. Here's how it works:
Things get good and money is made. This results in lots of new investment and sales money pouring in and new product pouring out. Until suddenly there is too much product! The demand gets too low and businesses aren't making enough money for their bloated budgets. Which results in layoffs and closures. (You are here.) Then the industry overcorrects in the other direction, capacity gets too low for the demand, and the whole cycle begins again.
Note what I am NOT saying. A recession means a period of shrinkage, an industry getting a percentage smaller. There will still be video games! And indie games! And hits! It's not an apocalypse. It will be a time with tighter belts, and an honest reckoning of what is going on will help you and your business survive. You can probably survive!
Hope You Enjoyed the Happy Time!
Recently, we had a period of zero interest money and Covid trapping everyone in their homes. Great time to play (and invest in) video games! Zero interest rates meant companies didn't need to turn a profit. They could just roll their free debt over into fresh debt.
Those times are over. Businesses need to make money now or they explode.
This is the down part of the curve. There will again be a great time to start a new game company. That time will be 2040.
As for now, things aren't so great.
Honestly, at this point, you can stop reading. That was the big punch line. This has all happened before. This will all happen again.
Panic Is Starting To Set In
Because this is an industry of young people (old people get driven out about the time they figure out to ask for decent wages and working conditions), they haven't experienced any of this before.
And I feel really bad for them. It's SCARY. Losing your job is one of the most stressful things that can happen in your life. It destroys marriages and lives. I've seen it.
Desperation is making people weird. Recently people were yelling at Geoff Keighly, host of The Game Awards, for not helping. Really!? People, he's making giant infomercials to get people excited about playing video games, thus helping us keep our jobs. He's doing EXACTLY what he's supposed to be doing.
But It's Never a Good Idea To Panic.
It won't do any good to get mad at any company that lays people off. Are some of the layoffs unfair suffering caused by idiot executives? Yeah, sure. But some of the layoffs will also be at companies that are struggling to stay afloat (Unity), which are losing people who just don't have anything to do in their jobs.
When times are good, nobody watches the employees that closely. When times are tough, eventually your boss is going to ask you, "So what do you DO, exactly?" You better have a good answer.
More importantly, what if a company doesn't make enough money to pay for the headcount they have? Or if they are turning a profit now but earnings are dropping? Any project that seems risky will be cut loose, as, in the current environment, profitability MUST be regained.
Getting really angry about this won't make it less true. If a company believes (rightly or not) its profitability is at stake, it will cut costs, no matter what you think. It's not your money on the line. (Watching the struggles of Unity is a good way to watch this whole mechanic play out.)
I apologize to everyone I've angered by saying this. If yelling about the Evils of Capitalism gives you a therapeutic moment of release, by all means do that too. No, it won't make anything better.
And That Is Where We Are
I normally really enjoy writing blog posts. This one, not so much.
My tiny company is still a going concern, but it's harder every year. In the last 30 years, we've had lots of lucky breaks. The first Dot Com boom. Steam. Bundles. Promotionals. Selling out to Epic. Whenever things got tough, we could always hustle and find a way to grab a few extra bucks and get through.
Every year, there are fewer parachutes and more people fighting for them. I think we'll make it to retirement, but we're all two bad years from disaster.
I'm not complaining. I have been an incredibly fortunate person, and I'm so much better off than others. This is just what life as an artist is like. It's the truth.
So that is what I think is going on, and will be going on for some time. It's always interesting writing things I hope are wrong.
Next week, I'll provide some thoughts for how to react and what to learn, based on disasters we've survived in the past. If you need something to relieve stress, can I interest you in an inexpensive indie RPG? (Sequel coming March 27.)
Subscribing is free, and you get all these nice posts in your in-box. If you’d like to support us, consider wishlisting our upcoming indie role-playing epic, Geneforge 2 - Infestation, out March 27.
Spiderweb Software makes fun role-playing games and also has a mailing list and a Twitter and a Facebook if you want to learn when we do something big. Extra thanks to people who actually pay for this Substack. It helps my self-esteem.
These blog posts tend to take on huge issues and be already overlong, which means I tend to forget to address things I should. Like this big question: Is the game industry in recession at all?
Here's a chart of our gross sales: https://www.statista.com/outlook/dmo/digital-media/video-games/worldwide#revenue
(Note that 2023 in this chart is still just a very rosy estimate.)
Here's inflation at the same time: https://www.usinflationcalculator.com/inflation/current-inflation-rates/
(In our normal life, these numbers are way too low for what we're living. But stick with them for now.)
Once the covid surge was done, the industry shrank, while inflation was huge. In real dollars, our sales took a huge hit. I believe we're seeing the consequences of this now.
In my personal live, or sales have gone down, but nothing we haven't survived before. But they prices we have to pay for literally everything have gone up a lot. Inflation was too huge and contentious a topic for me to address in the blog above, but it is a VERY important factor in what's been happening.
I dont fully understand what "Limited Games" is but it sounds like it is what Steam calls unsuccessful games. Which really compliments your argument. The number of published games is skyrocketing while the number of minimally successful games is only increasing minimally (~6.5% per year).
Do you think there may be more market forces at work here? This last year really seems like customers has just rejected AAA studios. All the biggest most successful most praised releases were indie games. I am not sure if AAA studios are releasing worse games, indies are releasing better games, or with the fall of TV and the ascendance of independent content creators the marketing landscape has simply been leveled. But it really feels to me like a significant portion of the market no longer respects AAA developers and that they have lost their monopoly on most of the customers.