The economics of the games industry haven’t made sense for some time now.
That’s not necessarily new information; people have been discussing this for almost a decade, but it’s becoming increasingly common to see this coming not from social media commentary or smaller studios, but some of the titans of the tech space.
“You’ve got an industry that’s finally returning to revenue growth, but at the same time, operating profits have decreased 7% every year on average since 2021,” points out Jack Buser, Google Cloud’s global director for games, who formerly served as games lead for the company’s Stadia platform. “How can revenue be growing and yet these companies are still struggling?”
“You’re still seeing layoffs and game cancellations due to belt tightening. It’s the tale of two industries, in a way.”
The marginal growth that the games industry is seeing isn’t coming from “traditional” areas like AAA games, but rather from newer areas like Roblox and the Chinese market.
“If you’re not based in China or you’re not Roblox, odds are you’re struggling to some extent,” Buser says. “This is quite existential for our games industry. There’s been stats floating around the industry now for some time where well over half of playtime is in games over six years old. You combine that with development costs rising 90% since 2017. You’re basically spending double to build a video game and fighting for less than half the playtime.”
The way Buser sees it, these are all symptoms of a bigger problem that the games market is facing.
“Once you start to look underneath the surface of what’s going on in the industry, you realize like, oh my gosh, we are in trouble. This is not a sustainable business model. We have to transform as an industry to meet this moment so that we can drive into the future. And so that frames up why this is such an important time in the industry.”
The magic bullet, as far as Buser and Google sees it, is artificial intelligence. At GDC this year, Google Cloud showcased a number of use cases for its AI tech within games, ranging from Capcom using Vertex and Gemini to generate ideas during development to Nunu.ai employing the tech for quality assurance using Gemini.
AI as saviour
Google isn’t the only company saying that AI will improve game development, but they are perhaps the largest tech company selling pickaxes during this particular goldrush, at least in games. The tech has been slowly creeping into the games industry for some time now, but how effective it is in development varies on who you speak to. Some say in the future that gamers will be able to create entire games from a prompt, something that Google is dabbling in with its world model tool Project Genie, while others say that there are marginal gains to be made in areas like coding.
“Spending hundreds of millions of dollars is just not sustainable”
Buser believes it will bring down development times and even costs.
“You can see a massive transformation going on behind the walls of these games companies starting in game development, trying to get that iteration time down,” Buser says. “You have to get the time from you having an idea to it being in a production game down. Time in a development pipeline is highly, if not linearly, correlated, with cost. The days of spending five, seven, 10 years to build a video game and spending hundreds of millions of dollars is just not sustainable. Can we return to an industry that’s much healthier where we can spend potentially tens of millions on a game and get it out in a few years?”
Development isn’t the only area where Buser believes that AI can help in games; the Google Cloud games chief also thinks the tech can help in the areas surrounding development, too.
“Divisions like marketing, business strategy, and analytics, all of these departments that support that development team are being accelerated radically with AI,” he says. “Obviously marketing has a significant impact on your operating profit. So making sure that you’re more effective in your marketing communications, making sure that you can actually communicate with your audience at the pace at which the community is moving is very difficult using traditional manual processes.”
“You’re going to see innovations across just about every genre of gameplay”
Finally, Buser is adamant that AI will allow for the creation of new kinds of games.
“If you look at the evolution of gameplay over a number of years, in recent years, we’ve been in a bit of a loop where the graphics have become marginally better, but the core gameplay is largely the same as what we’ve experienced over the years,” he says. “And we are in the precipice of that transforming dramatically, where you’re going to see innovations across just about every genre of gameplay you can imagine over the next three to five years, such that games will be quite different a few years from now because of what’s happening at this fundamental gameplay level.”
The backlash
Broadly speaking, there has been a lot of resistance to generative AI in video games. Much of this stems from the use of the tech to create “slop” assets. Pushback within development also appears to largely come from smaller studios. But according to Buser, these developers are also getting on board with AI.
“A general trend we’re seeing is the very large game companies are thinking about their development pipelines, reducing iteration time,” he explains. “But we’re seeing the long tail, as well as the sort of torso of the industry start to realize that with AI, they can punch way above their weight, way above their weight, and they can actually compete with some of these larger budget games by leveraging AI.” One example Buser gives is Series Entertainment, a studio that has worked on projects for Netflix Games, which, he says, reduced their iteration and development time by 90% using AI.
“You had a relatively small games team that was able to just massively accelerate their development pipeline,” he says. “Now, not every small team can do that, but it sort of shows you to the extent at which you can accelerate your development pipeline to get games to market faster or to just build a bigger game than you could otherwise. So I think this is another big trend we’re going to start to see over the next year or two are that small independent teams and midsize game companies are suddenly going to start becoming the next big game companies.”
Superpowers
Buser explicitly postions the technology as a means to address the ongoing waves of layoffs that have afflicted the sector . “The games industry has seen tremendous job loss over the past few years,” he says, “because the business of video games is broken. And there aren’t many tools that can help mitigate those threats to our industry and those threats to the games that we love that are as powerful as AI.”
“One of our messages to the industry is to embrace AI like Iron Man’s suit. It’s right there. It’s for you to put on and put it on and see what types of superpowers it’s able to grant you,” Buser explains.
“The pattern we see more than anything else is this idea of just removing friction so you can focus on creativity. I mean, we just see that over and over and over again. So for somebody who’s in a studio worried about their job, the existential nature of the games industry right now is putting a lot of pressure on these studios, and that is outside of anything to do with AI.
“If anything, AI is going to help us right size these business models. It’s going to help us create a healthier industry, not just for the big players, but for small players as well. And I think if we have a more nuanced understanding of how it’s actually being used and refine our language a little bit about how we discuss these things, it’s easily one of the most important things we can do as an industry right now.”
“AI is going to help us right size these business models”
Buser is unsurprisingly bullish about what lies ahead for AI in game dev. “At next year’s GDC, I expect the conversation to have matured,” he says. “I expect as an industry, we’ve innovated in terms of the language we’re using, and we’re able to have more nuanced conversations with ourselves and with our players.
“That’s going to happen over the next year. And we’re also going to see not just a technology focus here, but we’re also going to see a focus on how this is practically transforming the business of some of our favourite companies, as well as some up-and-coming new ones. I think we’re going to start to see that pop over the next year, and that’ll be a big topic of conversation next year.”
