A lot of minds around the industry currently seem focused on one thing: the future. Whether it was Amir Satvat’s Gamescom Dev keynote, or the plethora of industry luminaries who lined up to discuss ongoing and impending turmoil for Edge magazine’s latest issue, the topic of the moment is what’s next – and the mood is apprehensive, to say the least.
While not everyone is catastrophising, nobody seems to be outright rejecting the framing of “Crash 2.0” either. The spectre of the 1983 videogame crash looms large, though we can’t read too much into its invocation in this particular moment. The industry does have an occasional flair for the dramatic and a habit of raising the spectre of desert pits full of E.T. cartridges at the first sign of market turbulence, after all.
Before talking about the future, in fact, let’s talk briefly about the past. 1983 wasn’t a downturn or a rebalancing; it was a near-collapse of industry revenues from over $3 billion in 1983 to a mere $100 million by 1985. Analysts justifiably wondered out loud whether video games themselves had been a passing fad that would now fade into obscurity.
We are not facing anything like that. This is cold comfort to anyone who has seen their job or company disappear, or watched their labour of love sink beneath the waves of discoverability on launch, but the industry’s headline revenue numbers are fine. Even if Sony was still going to let us have physical copies of anything, we wouldn’t be burying them in the desert. Games are a firmly established medium with a huge audience; at this point, wondering if there’s any future for video games is no more sensible than asking if people will soon get over this whole listening-to-music fad.
So if not a catastrophic crash, what exactly are we facing? Why is everyone so convinced that the industry’s fortunes are perched on a knife-edge right now?
“The woes of 2026 look more like an intersecting set of factors that are all coming to a head at once”
Unsurprisingly, given the size, complexity, and reach of the modern games business, there’s no one neat answer to that question. The roots of 1983’s crash make for a satisfactory elevator pitch: an immature market with narrow appeal was flooded with low-quality products and tipped over the edge by a price war in the neighbouring home computer market. By comparison, the woes of 2026 look more like an intersecting set of factors that are all coming to a head at once.
Some of those factors are obvious and often discussed. The wild rise in the price of hardware components that are crucial to every gaming device shows no sign of easing off in the near term, forcing console price hikes and making PC upgrades almost prohibitively expensive. Development costs for games have skyrocketed, with budgets of over $100 million now routine, and $300–400 million budgets being relatively common at the high end of AAA. And then there’s the concentration: more and more of the revenue and attention on every platform is being monopolised by a smaller and smaller set of gigantic games, the business models of which are often increasingly focused on extracting more revenue from existing players.
But there are other factors at play here, too. It’s no coincidence that the industry started to convulse with massive layoffs right around the time when interest rates – which had largely held close to zero since the 2008 financial crisis – shot upwards in 2022. Financing dried up across the board as investors reconsidered the risk profile of video game projects, and companies reeled in expensive speculative ventures they’d launched when money was practically free. The boom around generative AI delivered the coup de grace, sucking up any potential tech investment money for miles around, which was instead thrown at the very data centres that are making gaming hardware unaffordable.
Meanwhile, China has become a major force in game development and publishing; it’s often still overlooked in the West, but you could argue that Sony’s failed attempt to pivot to live service games was less about wanting the next Fortnite and more about wanting the next Genshin Impact. And alongside it all, there’s the foundational malaise that’s troubled the entire tech industry for the past decade – the failure of every attempt to introduce a new technology with the same transformational potential as smartphones in the late 2000s, or the internet a decade or so before that. Concepts like VR, AR, or the metaverse have largely failed to make a dent on the mass market.
Some of those factors are interrelated; some of them are internal to the industry and some are entirely out of its control. Nobody knows for sure how any one of them will play out in the end, let alone how the complex interactions between them will shape the coming years. “People will figure out how to make computers understand and output natural language, and it will make PlayStations really expensive” wasn’t on anyone’s bingo card for this decade.
Even within that tangled mess of probabilities, though, there are a few strands that look reasonably certain. Let’s do a little light prognostication, and hope it all turns out more Hari Seldon than Madame Web.
Budget growth is slowing – but won’t stop
Playable Worlds CEO (and MMORPG legend) Raph Koster cited some figures in the Edge article suggesting that inflation-adjusted budgets for games have risen from around $1 million in the mid-nineties to $10 million by 2005, and eventually to $100 million by 2015. By that growth rate, we’d expect to routinely see billion-dollar budgets at this point, but GTA 6’s budget allegedly breaking through that ceiling is instead considered an eye-popping outlier. Budget inflation has slowed somewhat, largely because it’s running into some mechanical limits – few companies can finance budgets at this scale, and even among those that can, the risk profile is unappealing. The idea that you could release a game that makes hundreds of millions of dollars and still lose money is enough to start putting a ceiling in place over all but the biggest, surest bets.
We have to acknowledge that there are market forces pushing in the opposite direction too, though. Few, if any, other games will ever justify a budget on the scale of GTA 6, but that game will establish player expectations nevertheless; on some level, every other game (but especially those in an adjacent genre or setting) will be compared to it for years to come. The arms races for graphical fidelity, environmental detail, or open world size don’t disappear just because the budget numbers start getting unpalatable, and will continue to drive inflation at the very top end.
“Teams that can deliver polished-looking titles at budgets in the tens rather than hundreds of millions will be greatly in demand”
The slow-down of the hardware upgrade cycle that will be forced by the component pricing crisis will offer some breathing room here – lots of companies are going to put off tooling up for the next generation for several years past their original plans. Figuring out creative ways to do more with less (in terms of both finance and hardware) is already a hugely valuable skill in the industry, and this will only become more prominent; teams that can deliver polished-looking titles at budgets in the tens rather than hundreds of millions will be greatly in demand. Short-cuts will prove disappointing in the end; generative AI tools will likely become a fixture of very specific, ringfenced parts of development (notably on the programming side), but will do little to reduce team sizes or cut budgets, and in the short term might actually have the opposite effect.
AI will make its mark, but perhaps not where you expect
It’s almost a certainty at this stage that the AI investment bubble – vastly over-inflated and driven on increasingly wild financial projections and impossible science fiction promises – is going to either pop or (hopefully) deflate in the coming months or years. Once we’re through that turmoil, though, the foundational technology of generative AI will continue to exist, and much of it will be usable on consumer-grade hardware (which you’ll even be able to buy at an affordable price again once the bubble is over). Once the desperate hope of a trillion-dollar IPO no longer rests on convincing the world that AI can do anything and everything, the more realistic set of things it can actually do will come into focus.
For the games business, AI’s biggest impact won’t be in development (where its uses will be quite limited), but in user generated content (UGC). The great barrier to UGC at present is that more powerful tools that can create more varied and interesting content tend to become exponentially harder to use, with a learning curve that’s more and more offputting for ordinary users. AI tools that can interpret a user’s natural language prompts to coordinate those tools and build levels, minigames, and other content are a natural and reasonably low-cost application for LLMs, and will spur a major boom in UGC-driven titles as adoption becomes more widespread.
“AI tools will spur a major boom in UGC-driven titles”
Existing titles like Roblox will have a platform advantage, but we’ll see a glut of new UGC games emerging to try to carve out a slice of this market. The real difficulty will lie in solving discoverability and ecosystem issues; LLM-driven creation will democratise content creation on these platforms, but at the cost of making it increasingly difficult for any user’s content to rise above the crowd. The real break-out titles of this kind will be those that take a different approach to UGC, stepping away from the “be your own game developer” concept and instead leaning into allowing players to create content aimed at customisation and personalisation of in-game appearances, experiences, and interactions.
The industry’s centre of gravity will shift
The past few years of mass layoffs in western countries (especially North America) and extensive hiring in China have already shifted the industry’s centre of gravity towards Asia to some degree, but the broader effects have been limited by the relatively closed nature of China’s own market. The global importance of Chinese games (and Chinese investments) has grown, but the importance of the Chinese market itself – despite its scale – remains muted.
Short of a major policy reform in China, that won’t change much in the coming years, but companies from all around the world, China included, will find themselves in heated competition for stakes in major emerging markets. As audience sizes in mature markets stagnate, developing markets in Southeast Asia, Latin America, and elsewhere, which are tipping over into having a sizeable middle class, will be the industry’s best source of growth. Local tastes and engagement patterns will require significant adaptation, however, and western companies won’t have a special head start; for young people in those regions, games from Chinese companies like MiHoYo and NetEase are as relevant and hold as much cachet as western or Japanese IPs.
“Developing markets will be the industry’s best source of growth”
Don’t overestimate the market’s geographical shift, though. Whatever geopolitical and economic strife we may see in the coming years (let’s conservatively predict “a lot”), the sheer market sizes of North America and Europe will remain dominant for the foreseeable future. The cachet of the United States as the world’s cultural centre also won’t be toppled easily. Companies will want to retain a foothold in the US, even if the cost of developing games there means the actual work is increasingly being done overseas. Consequently, we will end up in a situation where many of the industry’s most high-profile creators are US-based, but few full-scale AAA development studios exist there any more.
Concentration will get worse…
In his Gamescom Dev keynote, Amir Satvat noted that 50–60% of the industry’s revenue is going to just the top 20 games. I’d love to say that will become more fragmented and equitable, but it’s hard to think of a scenario where that actually happens.
A few years ago, former Xbox head Phil Spencer lamented that losing the PS4/Xbox One generation was a near-unrecoverable blow, because that was the generation where people built up large digital game libraries – creating a massively powerful platform lock-in effect when they were choosing their next console. That’s increasingly the case not just for platforms, but for individual games.
Gacha games are a straightforward example of this. How much of the repeat playing of gacha-style games is down to the fact that players have already invested a lot of time and money on their in-game accounts? Moving from a gacha game, where you’ve expended considerable resources on getting high-level characters and desirable customisations, to one where you’re starting from zero creates an incredible level of friction that ordinary games have never had to overcome.
Now consider the boom in UGC I expect to arise from LLMs being integrated into creative tools, and ask yourself how hard it would be for a user to step away from a game which is filled not only with things that they bought, but things that they made (or at least, feel like they made). These kinds of mechanisms will concentrate attention and revenue in a shrinking pool of games that have locked players deep in their ecosystems.
…but indie breakouts will get bigger
At the other end of the scale and budgetary spectrum, however, the potential for independently developed games to skyrocket to massive success will also grow. Indie-style titles (the definition has become a bit blurred in recent years) already occupy most of the various tiers that used to exist under AAA, and big, breakout hits that recoup massive multiples of their budgets will be very prominent on the landscape.
That will create some false hopes – discoverability will be as tough as ever, and the median indie success will still look more like a well-executed genre title that pulls in predictable revenues from its niche market, rather than a runaway hit. Any kind of hopes, however, will help to attract investment to the sector, and big commercial successes will spur the logic of grassroots venture capital; in other words, invest relatively small amounts in lots of things on the hope that one of them will be the unicorn hit, earning mountains of money that more than make up for your losses elsewhere.
“Major indie breakthroughs will increasingly set the patterns that will be followed by massive AAA titles”
Those indie hits will also start being the prevailing winds of the industry’s creative direction. We already see this to some extent, but major indie breakthroughs will increasingly set the patterns that will be followed by massive AAA titles a few years down the line. Hollywood has followed this playbook for years (expect lots of movies in years to come taking cues from Obsession or Backrooms), and games will follow suit, treating the indie scene as a creative incubator where risk is not only possible, but encouraged.
Five predictions. Drop a note in your calendar to check back in in five years’ time and see how I did. If I’ve really missed the mark, I solemnly promise to watch all of Madame Web again in penance.