“Top Gaming Executive Calls Current Crash the Worst Since the 1980s”

The gaming industry is currently facing some tough times. A relentless wave of layoffs over the past few years, combined with a worsening hardware crisis, has led to a significant slump in console sales. Epic Games’ CEO Tim Sweeney has characterized this period as the most severe downturn since the notorious crash of the 1980s, which saw console revenue plummet by 97% from 1983 to 1985.

In a recent discussion, experts were asked if we are witnessing a “Crash 2.0.” Sweeney pointed to the ongoing shortage of hardware components as a major factor contributing to the industry’s struggles. He noted:

“There’s an unprecedented wave of investment in building AI systems and data centers, driven by the belief that they will play a transformative role in the economy. The scale of this opportunity allows them to outbid the entire entertainment sector for components. As a result, we’re left with the short end of the stick, and prices for RAM and storage are skyrocketing, with no signs of stopping.”

Sweeney anticipates a continuous supply crisis for all gaming-related hardware over the next three years, suggesting that the only viable solution will be the construction of large new factories to meet global demand.

Sales of video game consoles have declined across the board, with July marking the lowest month for gaming hardware spending since the COVID-19 pandemic triggered supply chain issues. The prices of the PlayStation 5, Xbox Series X, and Nintendo Switch 2 have risen due to RAM shortages.

Sweeney also highlighted “internal dysfunctions” that are exacerbating the industry’s challenges, particularly the soaring costs of AAA game development. Playable Worlds CEO Raph Koster echoed this sentiment, recalling that he first warned about the unsustainable costs back in 2005. He noted that the expense of developing a big-budget game has increased tenfold each decade. Adjusted for inflation, it cost around $1 million to create a major game in the mid-’90s, $10 million in 2005, and $100 million in 2015.

While the rate of increase has slowed somewhat, with Sweeney estimating that high-end games now cost between $250 million and $400 million, these budgets are still seen as unsustainable. As former PlayStation head Shawn Layden put it, financial resources are “the great constraint that never gets expanded.” He argues that games should consider scaling back their scope. “Do you really need to model an entire world that takes 45 minutes to traverse? If it doesn’t enhance the experience or story, it’s just a gimmick. You’re wasting time and money on something that doesn’t add value.”

Both Koster and former Tencent business development director Amir Satvat contend that AI won’t resolve these issues. “AI isn’t a reset for costs; it’s just a bigger computer, and the expenses will keep rising,” Koster stated. “In the end, it’s incredibly costly, and most of the benefits flow to the top. AI is rapidly changing things, but it doesn’t necessarily help.”

“Are you actually seeing a measurable productivity gain from these tools?” Satvat added. “I’ve seen companies reduce staff under the assumption that AI would allow them to do so, only to realize they cut too many and had to rehire.” He compared the massive layoffs in the gaming industry to the 1983 crash, saying, “For game developers in North America or Western Europe, especially in traditional AAA studios, this is ground zero for destruction.”

In July, Xbox announced plans to lay off 3,200 employees over the next quarter and sever ties with four of its studios. Despite the successful launch of Star Wars: Zero Company, which received widespread acclaim and performed well on Steam, it was recently revealed that its developer, Bit Reactor, had furloughed up to 80% of its staff. Unfortunately, stories like this have become all too common.

Video game console prices are rising while sales continue to decline.