‘Worst Crash We’ve Seen Since the 1980s,’ Warns Epic Games CEO

The video game industry has seen better days. Between a nonstop wave of layoffs over the last few years and a worsening hardware crisis that is flatlining console sales, things are a bit bleak at the moment. Epic Games CEO Tim Sweeney described the situation as the biggest crash the industry has seen since the infamous 1980s recession. For context, that crash saw game console revenue drop by 97% from 1983 to 1985.

Hardware component shortages are a big factor

As per GameIndustry.biz, Edge magazine’s Alex Spencer spoke with nine experts for issue 428, asking whether the current situation can be described as a “Crash 2.0.” Sweeney described the ongoing hardware component shortage as a key reason things are so bad right now. He said the following:

There’s an unprecedented wave of investment in building AI systems and data centres, based on the belief that they’re going to have a really transformational role in the economy, and the scale of the economic opportunity there means they can outbid the entire entertainment industry for all the components. So we’re getting the short end of the stick, and the prices of RAM and storage are quadrupling, and not necessarily stopping there.

We should expect there’s just going to be a continual supply crisis for all gaming-relevant hardware for the next three years. The only solution, I think, is going to be building massive new factories to meet the world’s capacity demands – and that will happen.

Video game console sales have been down across the board, with July proving the lowest month for gaming hardware spending since the COVID-19 pandemic caused supply chain shortages. Prices for the PlayStation 5, Xbox Series X, and Nintendo Switch 2 have gone up due to RAM shortages.

AAA game budgets have ballooned in recent years

Sweeney added that there are also “internal dysfunctions” that are contributing to the industry’s woes, such as the ballooning cost of AAA game development. Playable Worlds CEO Raph Koster argued the same. “I think the first time I spoke about, ‘Hey, cost is going to kill us’ was in 2005,” he said. He previously said the cost of AAA game development goes up about tenfold each decade. According to his analysis, when adjusted for inflation, it cost around $1 million to make a big-budget game in the mid ‘90s, $10 million in 2005, and $100 million in 2015.

While that rate has slowed down a bit, with Sweeney saying higher-end games cost between $250 million and $400 million, these budgets are arguably unsustainable because financial resources are “the great constraint that never gets expanded,” as former PlayStation boss Shawn Layden put it. He argues that games need to shrink in scope. “Do you need to model an entire world that takes 45 minutes to walk across? If there’s not a reason for that – if it’s not pushing the experience or story forward – that’s just a party trick. You’ve spent a bunch of time – which means money – on something that doesn’t mean anything.”

Both Koster and former Tencent business development director Amir Satvat argued that AI won’t solve these problems. “AI is not a platform reset, where costs get lower. AI is just a computer getting bigger, and so the gas will keep filling it,” Koster said. “It is actually incredibly expensive, in the end, so most of the benefit flows upwards. AI is changing things very rapidly, and it also doesn’t matter.”

“Are you actually getting a measurable productive gain in what you’re doing because you’re using these tools?” Satvat added. “I’ve seen firms that made staff reductions because they thought they could, due to AI, and are now realising that they cut too many people and are hiring back.” Satvat put the massive cuts to the game industry in perspective, saying, “I think this is as bad as the ’83 crash if you’re a game developer based in North America or Western Europe, in a traditional AAA studio. That is ground zero for destruction.”

In July, Xbox announced that it was laying off 3,200 employees over the next quarter while cutting ties with four of its studios. AlthoughStar Wars: Zero Companylaunched to widespread acclaim and performed well on Steam’s charts, it was revealed a few days ago that the game’s developer, Bit Reactor, had furloughed up to 80% of its staff. Stories like that have unfortunately become the norm.