while the overall industry is number go up, the vast majority of that money is live service and mobile
the raised cost of living has an exponential impact on the cost of games to where $80 games selling millions of copies is still not profit
some napkin math:
$80,000 yearly wage (low end, ie. Japan) * 500 developers (fairly standard amount of in-house development staff at this point) = $40,000,000 per year
4 years of development = $160,000,000
$100,000 wage = $200,000,000 etc.
you sell a game for $80, unless you are Sony, Nintendo, Valve, Microsoft, or have the sale on your own storefront somehow, around 30% of the game's profit is immediately taken away, at minumum: actually $56/unit
5 million copies sold for $56/unit = $280,000,000
that means all you have done in profit is fund the next project, which means you are always at risk of just killing your company if any single one game fails without large previous capital
which is why companies like Ubisoft that have a shit ton of staff (10,000!!!!) are resisting bankruptcy and investor takeovers. Xbox's profit margin, despite owning Call of Duty. Fallout, Skyrim, Candy Crush, etc. is 3% right now. Still profit but basically nothing, and almost all of that is from the few games carrying them
that cost is also not the real final cost, since most games also contract out a lot of work for cheap, but that still adds up, and then you have marketing, and etc. sometimes if there are important voice actors, they may get a % cut of the final game which also decreases the margin
this is why we are at a point where if a game doesn't sell like 5 million copies at $70 it's deemed a failure: because it probably barely covers the cost of making another game, and these estimates are conservative: a lot of games are taking at minimum of 5 years to develop
therefore, everyone is itching to increase the per unit profit as the actual total number of people *buying games* (the premium market) is *not* increasing; again, most of the increase in the gaming market is F2P/live service
GTA6 was always going to make a shit ton of profit, but analysts wanted it to be very high priced to make it acceptable for everyone else to also leap up
"If the game costs more less will buy it", Catch 22: the lower the margin per unit, the more people you need to convince to get it. While there are plenty of examples of games going very low and selling millions, unless you are indie and only have a few mouths to feed a $5-30 game isn't going to cut it, so when the entire "selling games to make money" business is gambling for the majority of companies making the games, they want to gamble on at least maintaining a solid base of buyers and just getting more out of them
this is also why DLC has been so common for singleplayer games, and why some may be feeling like AAA companies are squeezing them: they are
"Why don't they make games with lower budgets"
well they do and that's called laying off most of their staff and nobody likes it, nor should anybody like it. since almost all of the cost of game development is in fact almost all labor cost, the two real ways to decrease the cost is to either have less developers or take less time to make games
"Why don't they do either of those things"
well some try, but it's still all gambling. You have companies making lower cost entries and seeing if they stick, sometimes they don't, but in general the premium game industry has an over supply right now and not enough demand. While this explanation is framed through AAA, indie and AA are just as unstable despite some claiming that they are the future: you just never hear of the indie failures, which is 99% of indie games. For every one of my favorite indie games of all time, there are many with just as much effort that don't hit the mark and are sub-minimum wage returns to the creator.
Whereas it used to be that there are a few big games a month, now it's basically impossible to strategically position your game to get out of the way of some other big release, and this was also true before GTA6 was scheduled to release. Getting success right now requires cutting through the noise of many many many competitors, and if you try to make more games with lower scope with each, you are still taking a risk.
Decreasing the time it takes to make games is hard because managing people is hard, and a lot of games' development isn't linear. Something like Call of Duty is a well-oiled machine because they have done it so many times and have a conveyor belt development approach, but even they in recent years have had disasters, and almost skipped a year recently before taking planned DLC and turning it into a full calendar release.
There is a lot of mismanagement in the industry, but long development isn't always mismanagement, a lot of games do just take a while. A big part of this is obviously fidelity, but as much as a lot online resist it, a lot of consumers do care about fidelity. Not to the point that having more fidelity than another game is a selling point, but that the base line is really high
Layoffs also makes this issue harder: When you layoff game developers, the team has to recover and relearn dynamics and usually replace them with newer staff later, who have to be retrained and brought up to speed with the project and their work culture. It makes making games harder. You also create a work environment where people are scared which... beyond just, you know, being cruel, is also going to make them less productive.
Where live service is in all of this:
I said that live service is the gains of the industry, and that is true. We hear a lot about how there are massive live service flops, which is correct, but the premium game markets' biggest players keep gambling on it. Why? Because one massive live service hit can make almost none of this true.
Square Enix is the Lebron James of mismanagement and having bad ideas. FF7 Rebirth undoubtedly was expensive to make, and while the game sold around 2 million copies it absolutely didn't make its money back. Yet there were no layoffs and FF7 Revelations is scheduled for next year, just 3 years later. How?
Well, FF14 money of course! Square can afford to fuck up and gamble on their singleplayer releases basically as many times as they want as long as FF14 is successful, because it is reoccurring revenue.
Having a successful live service game is like being a land owner. You have property that continuously brings in revenue. Selling games is like the gig economy, Platinum Games is on the brink as they had a string of making games that "only" sold around a million copies, and that isn't really enough.
I think that while people are fairly hyper critical of capital right now and companies as a whole, we forget that before Fortnite proved how massive live service games could be, and subsequently COVID boom, the games industry was not actually a big Investing Industry.
Think about it: You a product once every half a decade make in usually just enough money to make the next product with some reinvestment, maybe a bit extra. Activision Blizzard before the buyout's stock graph looks like this:
Call of Duty, one of the most successful series ever, reoccurring *yearly* massive sales, Candy Crush, Guitar Hero, whatever? No.
This industry from the premium games market perspective has never actually been that friendly for investing or capital. We are now in an economic downturn and I expect we will see a massive "shake up" in the industry similar to the late 2000s when, combining a recession and the 7th generation, a lot of AA/AAA/indie developers all disappeared and died out, after a great period of variety.
If someone tells you that they know "the solution" to fixing the industry, they really don't have one. But the argument for GTA6 to be $100- while not a "fix", makes more sense from this perspective
edit/disclaimer:
I am not making the claim that AAA/premium games are not "profitable", and that all situations are the same. Mario Kart World doesn't need to be $80, Nintendo is just extremely greedy, easy example. But on the other end: The new Fire Emblem would likely need to sell basically around the best numbers in the series' history to make a profit even at $80. Still, Nintendo has a shit ton of money in the bank! If Fire Emblem doesn't make money they are soooo fine it literally barely makes a dent. This is more about the smaller AAA companies with a few larger in turmoil such as Ubisoft, and AA. Indie is also included, but indie has always been basically entirely gambling so I don't think people recognize it. This post is not defending companies, because companies aren't people or your friends, and even if they made $5bn in profit per game they likely would not be paying their workers fairly for that. But it is objectively true that the industry is in a rougher patch and making a profitable game is harder than ever, even at $70. Some companies will not Survive the Winter in these conditions.
extra note!!!!: If you want inforned game industry takes, Jason Schreier, the Lebron James of western games journalism, is making a ton of youtube videos lately explaining things, and he explains a lot of the stuff I talked about in more detail. I also basically stole his "napkin math" example.
