The gaming industry is in crisis, and it’s not just about a few bad titles.
This is an industry that has grown stale, focusing more on squeezing gamers through microtransactions and churning out sequels that lack true innovation.
Year after year, it feels like we’re playing the same game repackaged with slightly better graphics and new skins. But there’s new hope—AI is set to reboot, reset, and transform gaming in ways we could only dream of.
Consumer spending on mobile gaming declined last year, dropping by 2% to $107.3 billion, according to Data.ai, which forecasts low single-digit growth in 2024.
The sense of crisis across the gaming sector is in sharp contrast to the boom during the Covid-19 pandemic, which saw many locked-down consumers pouring their time and money into games.
The pandemic marked the peak of a winning streak that began with the original PlayStation in the mid-1990s and was accelerated by Apple’s iPhone.
Source: Financial Times
Many in the gaming industry expected a quick rebound after 2022’s post-pandemic decline, but last year did not deliver the growth they had hoped for.
Quarterly earnings from major publishers like Electronic Arts and Take-Two Interactive have underwhelmed investors.
Meanwhile, game developers have been forced to cut thousands more jobs in 2024, following the loss of 10,000 positions in 2023.
“There’s a lot of commercial anxiety about growth, profitability, and staying within budget,” says Piers Harding-Rolls, games research director at Ampere Analysis, a market researcher. “We are in a much slower growth era.”
Microtransactions and lack of innovation
At the core of the industry’s decline is its obsession with microtransactions. Once, you paid for a game and that was it—you owned it.
But now, studios are milking players dry with in-game purchases, battle passes, and add-ons that often feel essential just to get the full experience.
Major titles like FIFA (now EA Sports FC) and Call of Duty have shifted their focus to monetization rather than innovation in gameplay.
For example, Call of Duty: Modern Warfare III saw a 41% drop in launch sales compared to its predecessor, while EA Sports FC 24 saw a 10.2% decline in first-month sales versus FIFA 23.
These declining sales figures highlight a larger issue: the gaming industry is losing sight of what made it great—engaging, immersive, and fun experiences.
According to market data from EY, the top gaming companies saw their combined market capitalization drop by an average of 29% in 2023.
This reflects the growing concern about traditional game development’s future and its struggle to adapt to AI-driven innovation.
Companies that thrived during the pandemic are now struggling to maintain profitability, with margins shrinking to 18.1%—a sharp drop from 24.9% in 2020.
Traditional gaming simply isn’t working anymore.
Stock performance signals investor uncertainty
Stock performance highlights the growing uncertainty within the industry.
Major players like Electronic Arts (NASDAQ: EA) and Take-Two Interactive (NASDAQ: TTWO) have both seen declines in stock value, with market capitalizations falling by 4.6% and 1.3%, respectively, according to data from companiesmarketcap.
This signals that investors are becoming increasingly concerned about the viability of traditional gaming companies.
With rising development costs and longer production timelines, the traditional business model is struggling to keep pace with evolving market demands.
In 2023 alone, it’s estimated that 11,250 workers in the gaming industry were laid off. In January 2024, more than 6,000 employees lost their jobs across the industry, with Electronic Arts and Sony making significant cuts.
Take-Two Interactive laid off an additional 5% of its workforce in April 2024, a stark contrast to the rapid expansion the industry had enjoyed in recent years.
The AI revolution: A much-needed reboot
Enter artificial intelligence. AI is set to revolutionize the gaming world in ways no amount of flashy trailers or loot boxes ever could.
AI will not just make NPCs smarter or reduce load times—it’s about to fundamentally change how games are created, played, and experienced.
With AI-driven game creation, players will be able to imagine, design, and play almost any game they can think of within minutes.
No longer will players have to wait years for the next Grand Theft Auto or The Elder Scrolls VI (which, by the way, are still not out). AI is already reshaping the industry by making development faster, cheaper, and more innovative.
Games like No Man’s Sky and Minecraft have embraced procedural generation, a form of AI that allows developers to create vast, ever-evolving worlds that would be impossible to build manually.
In No Man’s Sky, AI created 18 quintillion planets—an unfathomable number that keeps players coming back.
Lower costs and shorter development times
Traditional game development is slow and expensive. The average AAA game now costs $234 million and takes over five years to develop.
In contrast, AI-assisted game creation reduces development costs by 62%, bringing the average cost down to $89 million and shortening timelines to just over two years.
AI can handle tasks that once required large teams, from generating lifelike environments to designing characters.
Take AI Dungeon, for example. This game allows players to create their own stories in real-time, using AI to generate new content on the fly.
With over 1.8 million active players and 234% year-over-year revenue growth, AI Dungeon demonstrates AI’s potential to create endless, personalized gaming experiences at a fraction of the traditional cost.
Development costs for AI Dungeon are just $0.13 per content hour.
Why AI will revolutionize gaming?
The beauty of AI is its ability to generate content, environments, and gameplay features on a virtually infinite scale.
Players won’t have to wait years for new content—they’ll be able to create and customize their experiences in ways that were previously unimaginable.
AI-generated content will offer unparalleled realism and customization, and it won’t come with the hefty price tag we’ve come to expect.
More importantly, AI will shift the power away from greedy executives and large studios, placing it directly in the hands of gamers.
Rather than paying for microtransactions or overpriced DLCs, players will have the tools to create their own worlds and gameplay experiences.
Games that got it right
Games like No Man’s Sky and Minecraft have already shown how AI can lead to more immersive, expansive experiences.
No Man’s Sky initially launched to lukewarm reviews, but through AI-powered updates and expansions, it has become one of the most dynamic games on the market.
Similarly, Minecraft uses AI to generate infinite, unique worlds that have kept players engaged for years.
Then there’s Latitude Games, an AI-driven startup that’s revolutionizing how games are made.
With 93% of its content generation automated, Latitude runs a development team of just 28 employees—far fewer than industry norms.
This kind of efficiency allows smaller studios to compete with industry giants and push the boundaries of gaming.
The future of gaming: what’s next?
So, what does this mean for the future of gaming? The traditional model is on its last legs.
Games like Call of Duty and EA Sports FC will likely continue to see declining sales unless they adopt innovative technologies reshaping the industry. AI is no longer just an option—it’s the future.
Studios that fail to embrace AI will likely suffer the same fate as many indie studios that were forced to shut down due to a lack of funding and innovation.
On the other hand, AI-powered startups are thriving. In 2023 alone, these startups secured $4.3 billion in venture capital funding.
The shift is already underway—AI is propelling the gaming industry forward, while traditional studios are being left behind.
The reset gaming needs
The gaming industry stands at a crossroads. The current model of microtransactions, stale content, and long development cycles is unsustainable.
AI offers the reset the industry desperately needs—a revolution that restores creativity, innovation, and customization to the players.
While traditional gaming may be in decline, the future looks incredibly bright for AI-driven experiences.
With lower costs, shorter development times, and infinite possibilities, AI is poised to redefine the gaming landscape.
The only question remaining is: Will the traditional giants adapt in time, or will they be left behind by the new generation of AI-powered gaming?
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