Presented by Room 8 Group
Games companies have been rocked by challenges in the last couple of years.
The number of titles published is growing each year while consumer spending growth is modest. Meanwhile, consumer expectations are growing, development budgets are increasing while interest rates go up and investors are becoming more cautious.
All of this means a significant share of developers and publishers are looking for ways to optimize production costs while keeping quality and increasing flexibility. The industry is changing — and companies are adapting accordingly.
How intense competition is affecting devs and publishers
More games were released on Steam in 2023 than any other year (the number of games released has been rising steadily for decades), as the barrier to entry drops as low as it’s ever been. Engines like Unity and Unreal Engine 5 are intuitive and increasingly simple to use. Some of the most popular games of the past year, like Palworld, have been made by small development teams (Pocket Pair, Inc.); Lethal Company, the smash hit released last October, was made by a single person (a dev known as Zeekerss). It is no longer essential for indie teams to have massive development budgets to make a game a hit, as long as they bet on gameplay innovation.
On the other hand — and while it may sound contradictory — big-budget releases will remain a dominant strategy for those with globally recognized IP. This is because as competition increases, marketing familiar game worlds and characters is the most effective way for such titles to stand out.
Thus, an interesting contrast has developed: Almost anybody can now make a game with relative ease, and so any talented developer can launch a success; yet the increased competition makes standing out from the crowd incredibly difficult — meaning big-budget games still have the advantage in terms of user acquisition.
People are playing fewer games — for longer
While heightened competition is a challenge for game-makers, user preferences are changing. Despite the increased number of games available, people are actually playing fewer games than they used to –instead they’re spending more time in the games they do play. In response, some companies may shorten their dev-cycle timeframes.
This is risky: while games like Lethal Company and Palworld show that multi-million-dollar budgets are not essential, if companies release undercooked games, they risk alienating their audience and damaging their reputation. Players still expect high quality and a certain level of innovation. Owners of globally recognizable game franchises might make the development process more iterative internally as their appetite for risk lessens.
AI is, of course, a potential solution. Developers the world over are turning over every rock, looking for ways to use AI in their workflows. It will become — is already becoming — part of the art production and VFX pipelines. It will transform in-game dialogue. AI will never replace people, but it is clear that companies will continue to leverage it for its ability to save massively on time and effort.
Rising costs and diminished workforces
Ultimately, the challenges that developers and publishers face are dampening their appetite for risk.
Game development costs have risen dramatically. What was once called a AAA budget is now just a AA budget, and what is now a AAA budget is so high that it was non-existent 10 years ago. AAAA games are already here.
At the same time, it is hard to create a team that can deliver that amount of content and also retain the team after peak production needs. This, combined with investor pressure and lay-offs, is likely to make developers reluctant to grow their internal teams, opting instead to keep things lean.
As such, I expect companies to work with external solutions providers like Room 8 Group more often — companies that, by offering external solutions across the game-dev spectrum, fit seamlessly into existing workflows and provide strategic support. We offer full-dev and co-dev solutions, while also providing support in areas such as engineering, art production and quality-assurance solutions. This means we can save developers time, money and resources, which is especially valuable during tough market conditions. External companies are already an important part of the game-making process; I anticipate we will become an even bigger part.
Looking ahead
As publishers and devs change their approach to suit a new, less forgiving industry, how might the space change further in the near future?
Clearly the premium release model is here to stay, but subscription-based gaming is also on the rise. In both cases, there will be an expectation from players for devs to offer more value by, for example, adding more gameplay time, necessitating a bigger budget.
Platforms like Roblox and Fortnite are more popular than ever, in large part because they have fostered good conditions for user-generated content (UGC). In fact, Zeekerss, the aforementioned developer of Lethal Company, was originally a Roblox creator. Moreover, Unreal Editor for Fortnite (UEFN) has made high-level game development much easier for UGC creators. This trend is only going one way.
Free-to-play PC games are still a minority, and it’s hard to tell whether they will grow in popularity. Still, there is no dominant monetization strategy anymore. While the premium model won’t be rendered obsolete anytime soon, this business-model diversity will only increase in the near future, especially given there likely won’t be a new console released in 2024 (a new console launch may lead publishers to release more AAA games).
Industry reset
Growth in the games industry is there, but not to the same degree as during the COVID pandemic. This means the industry will need to adapt to keep players excited with new content, new IP, and by continually innovating, while keeping an eye out for optimization in the production process. To that end, utilizing solutions providers can benefit companies massively.
Learn more about the game industry’s future and explore Room 8 Group’s approaches in my interview at GDC 2024.
Anna Kozlova is CEO at Room 8 Group.
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