Two Ways to Save a Video Game Industry on Fire

Polygon’s Editor’s Letter is a column by Editor-in-Chief Chris Plante reflecting on the video game and entertainment industries, their communities, and Polygon itself. New issues appear the first week of every month.

Let’s start with a spoonful of sugar: making a video game is faster, cheaper and easier today than ever before.

The internet’s belly is so generously filled with developer-friendly videos, podcasts, Discord channels, freely available academic courses, Github pages, and cheap e-books that it could hibernate for a long time. Video game engine licensors have all but removed the financial barrier to entry, charging their fees at the end. Skeptical of megacorps? Developers can also choose from a growing number of indie engines, some of which are completely free. And when it’s time to publish, Steam and Itch.io will host a game and provide everything needed to turn ludological art into cold hard cash for a nominal fee.

We live in an age of opportunity. Ironically, that’s part of the problem. The change is exponential, and at the worst possible time. Over the past decade, video game developers — exponentially in number — have flooded the market faster than the industry (from AAA publishers to independent studios) has been able to adapt.

Within that tidal wave, a nightmare economic scenario began to play out: The COVID-19 pandemic created a temporary spike in interest that attracted bad investments from video game outsiders and overspending from video game insiders. Venture capitalists were seduced by perceived high-ceiling opportunities in blockchain, esports, and VR, rather than more established (but arguably low-ceiling) studios making traditional single-player experiences. And then, with all those bubbles fully inflated, fears of a recession sent U.S. interest rates soaring. They now appear to be stuck in orbit, meaning the average game studio or investor is going to be very reluctant to borrow money to fund a new project.

Behold: the video game industry of 2024. Since January, industry leaders have been muttering the mantra, “Survive to ’25.” But I fear the long-term forecast is bleak, with a chance of failure.

If you can muster the sympathy, think of the AAA video game publisher. Where once a publisher’s individual games competed with a few dozen releases a year, they now compete with dozens a week. (Plus subscription services, constantly updated free-to-play games, and the latest patch or expansion to the greatest hits of the past few years.) These publishers grew large and comfortable thanks to a retail distribution system that cost a lot but prohibited newcomers from setting up camp on the shelves of GameStop and Walmart. With profits skyrocketing, publishers opened studios around the world to build games that grew more ambitious and expensive with each console cycle.

But things gradually changed. Valve launched Steam in 2003, creating an alternative route for a select group of established game publishers to reach fans without the upfront distribution costs. Microsoft launched Xbox Live Arcade a year later, a curated digital distribution service that celebrated hand-picked, smaller, often independently developed games. By 2017, the dams were broken, with all creators free to publish directly to platforms like Itch.io and Steam with minimal obstacles.

Do you have a game? Do you have no problem filling out tax forms? You’re all set!

In 2024, the AAA publishers that once had a massive hold on distribution and audience attention have been humiliated. They share the same space as every other game available on Steam, Game Pass, or another major digital storefront. The new Halo is crammed into the same promotional rectangle as the latest Vampire Survivors clone, hentai visual novel, or indie darling promising hundreds of hours of entertainment for the price of a cup of coffee. Imagine if the primary distribution model for the film industry was YouTube — its biggest movies swimming in the same algorithmic ocean as student films, wedding videos, four-hour video essays, one-minute gaffes, and viral goo that dares to ask, “Is it cake?”

AAA video game publishers have doubled down on what has worked in the past to differentiate themselves in this market, making their games bigger and more realistic. As development budgets rise, so do marketing budgets meant to provide some reassurance for these increasingly risky bets. Higher costs mean higher sales targets mean bigger games and more marketing to meet those targets, which in turn means higher costs. Snake meets tail.

This is just one result of this ridiculous spiral of overachieving: in May, Final Fantasy 7 Rebirth was the fourth best-selling game of the year in the U.S. Good news, right? Square Enix executives called the sales a disappointment, and the company’s stock fell by the most in 13 years. Simply put, a AAA game can no longer be a best-selling game; it has to the bestseller. That is not sustainable.

I understand that there is no love lost among many in the gaming community for publishers struggling to stay afloat in this new, more theoretically democratic era where everyone has access to distribution. But remember that a publisher is not just a bunch of rich executives; most of those affected by this paradigm shift are game makers.

In 2023, video game studios laid off more than 10,000 people. In 2024, the video game industry reached that grim milestone in less than six months.

If you’re an optimist (or an anarchist), this unrest may sound like a short-term pain that could lead to long-term gain. The old structures that consolidated capital are crumbling, and with the bricks that emerge from them, independent creators will build a better, fairer future. But that will only be true if independent creators can raise the funds to lay the foundation.

For years, indie game studios have benefited from readily available investments and upfront payments. New services like Epic Games Store, Xbox Game Pass and Apple Arcade competed for exclusive titles; venture capitalists were eager to throw money at anyone who said they liked NFTs; and interest rates were low.

Today, all that oil has been sucked out of the earth. As my former colleague Megan Farokhmanesh wrote at Wired, indie video game studios Also are struggling to survive in the current economic landscape. The same core problem that AAA publishers face – how do you get someone to care about your game when they have countless other options? – remains the same. And unlike publishers, most indie developers don’t have millions of dollars in savings to fund an umbrella to weather this economic shitstorm.

So we have a AAA industry in distress without a reasonable plan for the future, losing thousands of game creators every year. And we have an indie game investment ecosystem that is no longer prepared to provide an alternative.

I can’t let go of this quote from Farokhmanesh’s piece:

‘Survive till ’25’ assumes that we’re in for a long winter, rather than having burned our own crops for three years. Unless we plant differently, unless we change the way we work and think about making games, we’re going to continue to see the highest highs and lowest lows that games have ever seen. And it might even get worse.

So what does it mean to plan differently? I believe this problem is bigger than any one studio, let alone any one person. The industry that survives after ’25 will need to experiment with many different approaches from creators large and small to find a repeatable path forward.

I have a few ideas I’d like to contribute to the conversation.

For indie studios, I’m glad to see that there are funds out there to help indie studios get through this period, most notably Outersloth, a fund from Among us Developer Innersloth is taking a “recoup and share” approach — meaning it tries to recoup its investment and the equity income. Of course, that assumes the games earn back their investment — a feat most video games can’t accomplish.

To that point, expertise is just as important as money. With investment becoming harder to come by, it’s more important than ever that indie game studio heads learn the ropes of running a business. The industry needs better mentorship and training programs. And universities with expensive game development programs need to make business a mandatory part of the curriculum. We can’t keep telling artists that all they need is a great idea; that’s simply not true.

And to AAA publishers: Break the cycle of scale! If every publisher’s goal is to have the #1 game in the market, I have some terrible mathematical news. There are a lot of studios and only one #1 game. I can’t help but see the Marvel Cinematic Universe formula within the current AAA game development model, with executives addicted to past successes recreating facsimiles of facsimiles of exhausted franchises begging to be shipped off to some farm upstate. AAA publishers need to accept that the old dominance is not coming back. They need to operate as part of the crowded ecosystem now, rather than an exception to it. That means making more and smaller games, diversifying portfolios, launching new IP, and pursuing underserved audiences.

Things are bad. Things could be worse. The boat is sinking and on fire. Now somebody needs to get a damn bucket, somebody needs to get the fire extinguisher, and for all the good in the world, somebody needs to start thinking about where this thing is going to go. Because if the industry doesn’t find calm waters soon, this boat is going to go under.