Depending on what you actually count as a  video game, the industry is now generating  

somewhere between 200 and $350 billion a year  in annual revenue, making it by far the largest  

entertainment sector in the world. Regardless  of whatever your exact definitions may be, more  

people are playing video games than ever before.  They are playing them for longer. And the notso  

secret reality is that video game companies have  gotten a lot better at getting money out of them  

while they are. The vast vast majority of revenue  in this industry now comes from in-game purchases  

in advertising, even amongst games that already  have an upfront purchase cost or a recurring  

subscription. Now, obviously, this hasn't been  great for gamers. But at least a growing user  

base of people playing longer, spending more, and  getting advertised to all across more platforms  

has been good for the shareholders, right? Wrong.  Some of the largest companies in the industry have  

experienced huge stock declines, multiple rounds  of restructuring, narrowly avoided bankruptcy,  

mass layoffs, and divevestatures. Over what should  have been the best half decade in the history of  

the industry, the overall market is down by as  much as 30% from its peak. In the same time that  

the broader market has more than doubled. So,  how is it possible that even with record sales,  

record new revenue streams, record numbers of  new players, and record new opportunities to  

monetize that new audience, video game companies  have still managed to screw this up so badly.  

Video game maker Electronic Arts announcing a  $55 billion deal to go private and what is set  

to be the largest leverage buyout deal in Wall  Street history. More than 150 million Americans  

are estimated to play video games. 60% of them do  so every [music] day. Xbox is playing with fire,  

putting ads, a mobile gaming tactic, into  their platform. Electronic Arts and Take 2  

Interactive both make a staggering 75% of their  money from what's called microtransactions.  

Microsoft announcing it is cutting about 4,800  jobs or roughly 2.1% of the company's global  

workforce. The layoffs include 1,600 Xbox workers  [music] with more expected later this year. So,  

like every good shameless business video essaist,  I am going to try and make what should be a pretty  

basic industry analysis into something bigger  and more grandiose than it probably actually is,  

including the standard issue commentary on  society itself. So, you've been warned, I guess.  

But in this case, there genuinely are a few  factors beyond just a handful of companies making  

a long list of dumb decisions to create the worst  of times in what should be the best of times.  

So uh the logical place to start is that long list  of dumb decisions. Video game companies have seen  

that their product involves software people coding  and development cycles and concluded that they are  

basically just tech companies. They have also  seen that they have IP storylines and fans and  

have concluded that they are media companies.  Conveniently tech companies are worth lots of  

money. So a lot of the businesses in this space  were happy to go in this direction thinking it  

would translate into tech level valuations and for  a while it did. But in the end, what they actually  

ended up doing was combining the worst lessons  of the tech industry with the worst lessons of  

the media industry. The first was that they  overhired in 2020 and 2021 during lockdowns,  

assuming that the pandemic boom in new gamers  would go on forever. Examples like Epic Games  

swelled to around 5,000 employees along the  way. This led to the current wave of layoffs,  

especially since layoffs are contagious in tech.  Nobody's stock gets punished for cutting staff in  

the same quarter that everybody else is cutting  staff. Industry trackers count around 45,000  

gaming jobs cut between 2022 and the middle  of last year, 14,600 of them in 2024 alone,  

and the rounds have kept coming through this  year. The second problem with trying to emulate  

tech companies was the obsession with making  acquisitions. Microsoft, in particular, has  

gone on a massive spending spree acquiring studios  to create the Netflix of gaming. They spent $7.5  

billion for Zenax and then $68.7 billion for  Activision Blizzard, the largest acquisition  

in the history of the industry alongside a bunch  of smaller studios to build out their Game Pass  

offering. Now, even regular streaming services  outside of Netflix have struggled with financial  

viability. And the same kind of model applied  to video games struggled particularly hard for  

reasons we will get into soon. The point for now  is that by the time this shopping spree wrapped  

up, Microsoft's gaming division alone stood at  22,000 people as they started struggling with  

returns and questions from their corporate  overlords. They also followed the same model  

of product and shitification, especially amongst  games with a lockedin audience. Game Pass Ultimate  

got a 50% price hike in a single announcement late  last year, and Xbox itself has now announced three  

separate console price rises in 15 months, which  I am told will be devastating for the three people  

still looking to buy one. Beyond just Microsoft,  the whole industry is playing a game of eat or be  

eaten with 189 M&A deals in the industry in 2025  alone, according to the investment bank Drake,  

worth a record 161 billion, around 14 times  the deal value of the year before. To be fair,  

this was pushed up considerably by the $55 billion  electronic arts buyout led by the Saudi public  

investment fund, which is the largest allcash  leverage buyout ever recorded in any industry,  

assuming regulators actually let it close,  which uh [music] well, they probably will.  

More acquisitions have also furthered the trend  of layoffs as a lot of the time these companies  

are just interested in the IP, not the development  teams themselves. Embracer Group, an investment  

and holding company, rolled up more than 130  studios before their money ran out. The resulting  

unwind involved cutting around 4,500 employees and  closing 44 studios. Around 80 projects just got  

cancelled outright, while the surviving franchises  got packaged into a new company for a fresh stock  

listing. In such a rapidly growing space, they  assumed the Silicon Valley spend money and they  

will come up mindset would work here as well. In  hindsight, it clearly hasn't worked out. But well,  

why were they wrong? Well, a few reasons. The  first is that a lot of gamers aren't actually  

gamers. They are just people who happen to play  a video game, which might sound like the world's  

sweatiest gatekeeping, but I am certainly in this  category as well. In the early 2000s, gaming was  

still a fairly niche hobby, particularly  focused on younger people, primarily men,  

on gaming consoles, and an even more niche  group that played on their PCs. In this time,  

online gaming was still in its infancy. And most  people had a drawer full of titles they would  

play through depending on what they felt like. The  primary content of these games was a campaign or a  

simple gameplay loop. That has obviously changed  over the past 20 years. Even though the number of  

titles and players kept going up, the number  of games people actually spend their time in  

went down. While making this video, I looked back  through my old binder, and there were at least 20  

games that I would play on any given year in  rotation. Today, I play two games. And while  

I would like to make an excuse like I am getting  old and just have more responsibility these days,  

the truth is I probably spend longer playing these  games in any given week than I did playing all of  

these. Beyond the personal anecdote, this is  a documented trend across the wider industry.  

Unlike other media like music or movies, people  can commit far far more time to consuming a video  

game. And live service games and a multiplayer  focus can extend that time commitment to basically  

infinite. The only real limitation is the number  of hours people have in a day. And an increasing  

share of those hours are being spent on forever  games. Despite recent trends and understandable  

complaints, video gaming is still largely a very  cost-effective form of entertainment. But the  

limit new games are running into is not that their  customers are running out of money to spend. It's  

that they are running out of time to spend as  most of their hours are already accounted for.  

According to Nuzu's Playtime Tracking, in 2024,  57% of total play time was spent on games 6 or  

more years old, a further 32% on games 1 to 5  years old, and only 12% on games released that  

year. Back in 2021, those older games were only  taking 39% of play time. That share has climbed  

18 points in three years. For PC, this trend  is even more concentrated amongst older gamers  

with 67% of play time going to six-year-old  games, even though they theoretically have a  

wider selection of independent new releases at  significantly lower prices than console games.  

An extreme example of this is that one of the  writers here at Works Media, not pointing any  

fingers, has over 10,000 hours playing League of  Legends and an otherwise totally neglected library  

full of Steam games. The top five titles on PC  accounted for 30.4% of all hours on their own,  

and Fortnite by itself was 9.3% of all track  play time across PC and console combined. So,  

while in theory the total addressable market  is better than ever, most of these studios are  

actually just fighting over a shrinking pile of  scraps. Industry analyst Matthew Ball estimated  

that outside of annualized franchises, thousands  of games backed by tens of billions of dollars  

were competing for around 5.6% 6% of total player  hours and four titles won half of it. So yeah,  

the industry has basically broken into studios  that have managed to create a hit game and they  

are just milking it and studios taking huge risks  on the hope that they can produce the next one.  

It's just simply much much harder to sell a  casual $70 game these days which has created  

some much more serious downstream problems.  So it's time to learn how many works to find  

out how the gaming industry is imploding  under the weight of its best years ever.  

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Okay, so gamers are basically barricaded inside  the same five games they have been playing for  

a decade, which has led many studios to  conclude that the only logical move is to  

create the next big live service game or die  trying. This has created a trend of massive  

games with limitless features put together by  huge teams with enormous budgets. The problem  

is that if these games fail to break through,  they become extremely expensive dead weights.  

This also means that even at full price, a lot  of these titles can't make their money back on  

unit sales alone. So, they are leaning more  on in-game purchases and in-game advertising.  

If these never eventuate because nobody ends up  spending that much time in the game, losses can  

be devastating even with decent upfront sales.  And of course, it's a lot worse without them.  

Sony spent eight years and a reported $200  million on developing Concord, their big hero  

shooter answer to Overwatch. It sold an estimated  25,000 copies, and the servers were switched off 2  

weeks after launch with full refunds all around.  Warner Brothers did the same thing with their  

Suicide Squad game, which missed so badly that the  company disclosed a $200 million hit to earnings.  

And then they did it again a few months later with  a hund00 million dollar writedown mostly pinned  

on multiveres. Now I know it's fun to point  and laugh, but it's going to keep happening.  

Because of the network effect of these games,  the results are increasingly polarized. They  

are either a smash hit or a monumental failure.  People want to play games with their friends,  

so they play the games their friends are playing.  And if their friends aren't playing a given game,  

they probably won't either. Hell Divers 2 are a  Marvel rivals or even something like Among Us and  

Mecca Chameleon have broken through and they are  printing money from people who want something to  

play with their friends. But that self-reinforcing  concentration means everything else is running a  

greater risk of becoming another Concord. But the  problem is now even if they do find a cash cow,  

there is an incentive to milk it until it  curdles to find the next mega development.  

Sony paid $3.6 $6 billion for Bungie in 2022, then  tapped Destiny as hard as they could to fund the  

development of Marathon, and then Marathon flopped  as well. Sony has now written down around $766  

million on that studio in a single fiscal year.  Destiny 2 got its final content update last month,  

and about half of Bungie has been laid off. Even  the biggest winner of them all is slowing down.  

Fortnite engagement has been falling since  2025. Epic laid off over 1,000 people this year,  

saying that they were spending significantly more  than they were making, and we have to make major  

cuts to keep the company funded. This heavy push  towards live service games that dominate people's  

time and drive recurring spending also means  that people are increasingly treating games as  

a social outlet, potentially, you might even say,  some modern version of a third place. As such,  

and hot take alert, a lot of people don't really  want something new. They want something familiar.  

Friends like to hang out in common environments,  and especially as the average gamer gets older,  

now 36 years old in America, that becomes even  stronger. This trend of playing fewer games,  

but playing them for much longer, also explains  the challenges that came with the subscription  

services like Game Pass. In theory, a modest  monthly subscription for access to a massive  

library of games was a great deal and probably  more cost-effective than getting a similar  

selection of content through something like Steam.  The problem was that people were only playing a  

small selection of games anyway. So having access  to hundreds of titles didn't really mean much when  

they were only actually playing two of them.  Microsoft reportedly set itself an internal  

target of 77 million Game Pass subscribers by this  year. Again, assuming that this was just another  

streaming service or tech offering, this wasn't  completely unreasonable. In reality, it got to  

34 million. tried that 50% price hike from earlier  to squeeze more out of the subscribers it did have  

and promptly lost around 4 million of them. Now,  of course, this is a generalization. Everybody  

spends their time differently. And if you are  personally someone that likes to try a new title  

every month, congratulations. You are probably  having a lot more fun than everybody else.  

But for everybody else, there is one place left to  actually find extra hours in people's day. Mobile.  

People just spend more time on their phones  than sitting down at a dedicated PC or console  

to do gaming. This becomes particularly true for  the filthy washed masses of more casual gamers.  

The share of direct mobile game revenue is now  bigger than PC and console combined, $13 billion  

last year against 86 billion for the other two put  together. Now, you probably already knew all this,  

but the point is that this can be a lot more  lucrative because mobile games are generally  

much simpler in design and development and  also have a system more naturally conducive to  

microtransactions. Often, payment can be handled  through the same phone that people are playing on,  

which strips out the transaction friction that  games on other platforms have to fight through.  

Again, this is well documented. But if studios  are going to choose a proper game for real gamers,  

there needs to be a very good commercial reason  why they wouldn't spend the same resources on  

building dozens of games for a much larger, more  lucrative market. The only real justification is  

the chance at making the next big live services  game. On the other end of the development  

spectrum, it's never been easier for independent  studios or even individual people to create their  

own game and publish it thanks to robust game  engines in platforms like Steam or even Roblox.  

But this means that basic indie games are an  incredibly crowded space with immense competition.  

More than 19,000 games were released on Steam last  year alone, and nearly half of them got fewer than  

10 user reviews. To differentiate themselves,  game companies have felt the need to create  

significantly higher-end titles that wouldn't  be possible for smaller teams to put together.  

This has created a missing middle of games that  are a cut above the indie selection in terms of  

features, but aren't monster AAA titles that cost  more than Avatar to make. Court documents filed by  

Activision revealed that Black Ops Cold War cost  around $700 million to develop before marketing.  

Despite, well, let's be honest, not really  being that much different from any other COD  

games released in the last 10 years. In the past,  studios could try to create a consistent roster  

of decent games. If one of them did well, that was  great. If one of them flopped, that wasn't ideal,  

but it wasn't crippling. Today, even the biggest  studios are kind of going all in on the success  

of their next release with very little margin of  error if it doesn't work out. Now, to play devil's  

advocate a bit here, betting big is not totally  irrational when one Fortnite can pay for 20 flops.  

But the problem is that everybody is making  that same bet at the same time into the same  

fixed pool of player hours. The frustrating part  is that when anybody actually funds the middle, it  

can still work. Expedition 33 was made by a core  team of around 30 people for under $10 million,  

sold 5 million copies in its first 6 months, and  swept the game awards. It obviously can work,  

but I guess you also need to actually make a  good game, which capital investment alone can't  

guarantee, and even if it does, it's probably  going to get ripped off anyway. So yeah,  

the third big issue is clearly one that is not  unique to gaming. If you ever see a YouTube video  

that does well, you can be pretty sure that there  will be 20 other videos that copy it in the coming  

months. Because making an original YouTube video  normally takes a fair amount of time and effort,  

and if it doesn't do well, it can cause  serious problems. Copying a video is easy.  

It comes with some guarantee of success. That's  the exact reason why I've decided to mix things up  

and steal the Smoothie King's talking points and  thumbnail for this video. Now, hopefully it goes  

without saying that I am joking. I will always  leave a link in the description below and we  

mostly discuss different things. But the point  is this clearly happens everywhere on YouTube  

as people just naturally follow basic incentives.  The same is true 10 times over for video games.  

Any game that does well is going to be copied  by dozens of people with tools that make basic  

game design relatively simple. This is  especially the case with people porting  

paid indie games into Roblox for free with  inbuilt microtransactions. Last summer,  

Peak, one of Steam's bestselling games of the  month, got cloned on Roblox almost immediately.  

The copy pulled in 6 million visits in about two  weeks, monetized with Roblox own microtransaction  

system, while the studio that actually made the  game got nothing. The game developers said that  

they would rather you pirate their game than play  the microtransaction riddled Roblox slop ripoff,  

which is a sentence an actual game studio felt  the need to post in 2025. Roblox is running  

132 million daily users and 31 billion hours of  engagement every quarter, which the same Matthew  

Ball from earlier estimates is about the same  engagement as Steam, PlayStation, and Fortnite  

combined. Now, obviously, this is bad. But the  point is for large studios, it further means that  

they need to make games with some kind of mode  around them to defend against obvious ripoffs.  

And the easiest one is to make something too  complex to copy and then integrate recognizable  

IP in addition to some guarantee of players  being around for consistent online multiplayer.  

Now, it sounds bad, but it gets worse because  this has literally already happened before.  

The last time this industry drowned itself  in cheap copies of whatever it was selling,  

it was 1983 and the American home video game  market fell by around 97% in 2 years. So, yeah,  

I'm not exactly going to feel bad for the big  gaming companies. They have made plenty of their  

own mistakes and have leaned into anti-consumer  practices to compensate for their own failing.  

But it's not been an easy time to be a game studio  either. Now, if you want to see this whole dynamic  

play out on a wider scale, go and watch this video  next to unpack the uh financial reasons we keep  

on making so much junk. And don't forget to like  and subscribe to keep on learning how money works.