2023 was a rocky year for video games. 2024 could be worse - especially for PC.

2022 and 2023 were very difficult years for video games. Layoffs were sky high. Some estimates have put the layoff figures at over 10,000. And there were a wide range of disappointing releases.

So what happened?

In my opinion; developers, publishers, and vendors alike have put the industry in a difficult place and there are now clear signs that a paradigm shift is incoming.

The problem? Quantity over Quality - and short term thinking.

Why Video games revenue doesn't tell the whole story.

Visual Capitalist recently released the following graphic for video games industry revenues (inflation adjusted) since the 1970s.

The industry really has shown some spectacular revenue growth over the decades. Mobile games especially.

But these figures obscure some data points that I personally find quite concerning. Whilst this particular article focuses on the PC market it is worth highlighting that between 2015-2022 the mobile market saw revenue climb by 150% but the number of smartphone users climb by 31% - and during a period when average wage growth among OECD countries was 0.9% per annum.

That kind of growth isn't sustainable in the long term.

Quantity.

In 2013, in total, 435 titles were released onto Valve's distribution platform - Steam.

In 2023 14,530 titles were released onto the platform. Up 15.6% from 2022 and 3,240% since 2013.

If you've done the numbers in your head already you'll already know that this is almost three times as many games being released per month than were released across an entire year ten years ago.

The increase in the number of releases between 2015-2022 was 344% - the increase in steam users increased by 257% (https://www.statista.com/statistics/1330211/steam-peak-concurrent-players/) and the overall revenue on PC increased 60%. The indication is that steam's user growth and revenues have partly been fuelled by an increase in market share - rather than any substantial growth across the PC platform. With a 75% estimated market share (up from 15% in 2015) this is hardly surprising but my concern is that the number of games being released onto the platform has been outpacing the size of the market substantially - and appears to be accelerating.

Why is this happening? The barrier to entry for producing and releasing games has steadily become lower and lower. I've actually seen people submit entirely Chat GPT written games to agencies for consideration.

This puts a larger responsibility onto distribution platforms and publishers to publicise quality titles and to potentially limit access to their store fronts - in order to protect consumers.

But distribution platforms like Steam are shying away from this approach - and appear to have completely lost interest in quality control which leads us to...

Games Quality is in question

By failing to curate their marketplace properly Valve have created a monster that is causing significant damage to the industry as a whole. A huge proportion (if not a majority) of titles coming onto steam are low-quality.

When a former colleague of mine showed me that he'd stumbled across SHIRIME: Curse of the Butt Eye - yes "Curse of the Butt Eye" I originally thought it was a joke. Visual Novels, in particular, have become a wasteland of low quality content - making it more challenging for high quality titles in the genre (and beyond) to get noticed.

This is causing some consternation among some developers who have previously released titles with a strong reception and success only to be more-or-less ignored by the media and consumers alike with follow-up titles.

Major publishers are not helping this equation either as they so frequently launch titles before they are fully ready, or release titles that they know are going to have a poor reception.

Publishers act like this because of the combination of the classic sunk-cost fallacy and the need to hit quarterly (or monthly) targets for their shareholders. Publishers need to show a return on investment - so they'd rather release a title early and unfinished for a return now rather than waiting for it to be finished or axing it. I've heard a number of developers and marketers reference No Man's Sky (2016) as how a game can have a poor launch and recover - as if it is a model to emulate.

What proponents of this approach fail to understand is the damage this has caused. Many consumers have ceased pre-ordering or buying on launch-day because of the risk that a new game will have significant problems. Those same proponents don't seem to have noticed that it took an absolutely monumental effort from Hello Games to turn that image around - it literally took five years for No Man's Sky to go from Negative to "Mostly Positive" on Steam and one that was only possible due to a sizeable amount of investment.

This approach has led to a huge amount of wasted opportunity. One such IP is Elite: Dangerous. Whilst the original launch back in 2014 went well - subsequent updates through DLC and expansions have proven to be underwhelming, buggy or worse - and a game that had such tremendous potential on its launch has become a footnote.

Recent examples of underwhelming launches include Cities Skylines 2, PayDay 3 and KSP2 are all examples of launches that were met with widespread criticism. Cities Skylines 2 is the most puzzling of the three. The first Cities Skylines was a solid title that effectively saved the city-sim genre after the launch-day debacle that was SimCity (2013). They know how important a launch day is. And whilst KSP2 benefits somewhat from the "early access" tag it still launched at a price tag of ￡45.

And, when I say underwhelming, I mean - the game didn't work, was a straight downgrade, or worse.

Reviewers aren't helping either.

Consumers are finding it difficult to trust reviews as these so frequently miss the mark - Metacritic is littered with high profile launches that have received strong scores from reviewers and been given low scores by gamers.

This year, for example, Diablo IV got a 86% score among reviewers - PCGamer gave it 85%, ScreenRant, Forbes and IGN Italia all gave it 90%, GameSpew gave it 100%! Metacritic didn't record a single negative review from any publication.

The score from consumers? 2.2/10 and "Mixed" user reviews on steam

So a game from a trusted publisher, and rated highly by reviewers, didn't meet consumer expectations.

The FIFA series hasn't had a positive user score on Metacritic in over 10 years, actually hitting 1.0 in 2020. Way back in 2017, Fifa 18 was awarded Best Sports Game at the Game Critic Awards, Best Sports game of the year at the DICE Awards. Forbes, Hardcore Gamer, GamesRadar+, Hardcore gamer, Polygon, and more gave the game 90% reviews. User score? 3.7/10.

It has become normal in the video games industry to release faulty products with misleading advertising; with reviewers unable to leverage real criticism.

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The famous video games crash is remembered because of how the market became saturated and declining product standards, the botched E.T. launch famously leading to a dramatic fall in consumer confidence. These are exactly the markers we are seeing in the market today.

At an anecdotal level: As an avid gamer myself my spending on games has dropped significantly in recent years - not due to affordability or anything like that but because it is so hard to trust a release. In 2023 I purchased just three games: Trombone Champ, The Master's Pupil and Humankind. With the latter being, as far as I'm concerned, a mistake.

All this reminds me of one of my favourite lines from The Big Short (2015):

"one of the hallmarks of mania is the rapid rise in complexity and the rates of fraud. And did you know that they're going up?"

Whilst "Dr. Michael Burry" was talking about a different type of fraud. We've seen a very real rise of questionable releases that could be considered fraudulent (if not necessarily in the strict-legal sense).

Steam

A puzzling aspect about all of this is that Valve (Steam's owners) understand the importance of quality over quantity. Valve's catalogue of released games have an absolutely stellar reputation. Half-life, Portal, Left4Dead & Team Fortress 2 are some of the most celebrated games of all time.

Indeed Valve are famous for taking their time to release a game. Half-Life 3 has been in the offing for 19 years.

So what does this mean for the future?

If we look at pre-pandemic trends the industry was already showing some early signs of severe problems. Some commentators e.g. S. Stirling were warning about the degradation of quality in games being listed on the Steam platform several years ago.

Should too many high profile releases turn out to be disappointments in 2024 it could see an unravelling of an already struggling industry.

The pandemic gave the industry a short-term boost - as video games suddenly faced less competition from other entertainment industries (particularly in-person recreation activities) which has since returned. And controversial products like loot-boxes have helped increase revenues by eating into other markets (i.e. gambling). But none of this is sustainable.

Why are there so many layoffs?

It would be tempting to treat the layoffs and market saturation as separate issues or problems that are an impact of wider market forces. Many of theses problems are symptoms of the exact same short-term thinking. So many people in 2020 got carried away thinking that the increase in interest in video games was going to be a permanent thing despite all of the signs that the growth was more like a sugar rush.

The drop in revenues combined with the tendency for publishers to hire-and-fire as it suits them has created an incredibly unstable situation in the industry. It means that video games are losing some of the best talent to other sectors as even excellent work, and record high profits, are not any kind of guarantee that you'll keep your job. As revenues are unlikely to climb much in 2024 I fear that we will need to expect more layoffs over the next 12-24 months.

So what changes will developers need to make? And how does this impact indie developers?

There are, sadly, no easy solutions. However there is still some good news.

There will continue to be demand for video games and developers/publishers that can develop and/or maintain a reputation for high quality and high standard titles are likely to do well.

The implications on the indie space are, however, significant. Whilst 2023 has seen a handful of indie successes e.g. Pat Naoum's The Master's Pupil. The likelihood that we'll see any more "bedroom" successes like Super Meat Boy, Fez or Minecraft are rapidly diminishing.

Marketing budgets will also continue to rise with market saturation making it harder for even quality titles to survive.

What should Steam do?

Steam have likely created a dilemma for themselves. With a 75% market share Steam is now de facto the place to launch PC titles with a near monopoly. Restricting access to the store front is likely to undermine this position. However there is now a very real problem that the platform may become associated with low-quality releases pushing people away from Steam and PC as a whole. It may also undermine Valve's brand as a whole.

My suggestion would be that Steam should introduce a "Seal of Quality" scheme - a little like the Nintendo Seal - with a highly selective process. So that gamers can have stronger confidence that the game is going to be good upon purchase. And, by selective, I mean super selective.

These things are time consuming and costly - but the benefits far outweigh the negatives. Nintendo

What should other publishers and developers do?

Finishing their games before release. "Early Access" and "Beta" programmes were a good idea when first introduced - but they've become excuses for why games are being released in an unfinished state. Undermining consumer confidence is always a bad idea - and it is time to start having some standards.

Investing in a long-term workforce. It is expensive to keep hiring and firing and then hiring again. Investing in your workforce and developing it is far more valuable. Not burning out your employees. Talent is leaving the industry in droves as it has become so unstable and so toxic.

These were lessons learned in the 19th century - and it is time that we relearn them.

Until underlying issues associated with Quality Control in the industry are resolved video games are going to continue to have a rough time.