Video game makers scramble to innovate as growth stalls
The global video game industry, which experienced explosive, pandemic-driven growth, is now grappling with stagnation, forcing companies to shift their focus from market expansion to efficiency and innovation, according to new analysis from consulting firm Altman Solon.
Gaming is a favorite pastime for a wide range of consumers in the US and around the world. Take for example India, where internet access and mobile phone usage has skyrocketed in recent years. More access to phones and internet means that more people are playing games.
And it is not just younger generations – aging millennials, some nostalgic for the games they grew up with, are still gaming. Even seniors are playing: A survey from Entertainment Software Association (ESA) showed that half of Americans in their 60s and 70s play some form of video game every week, and 36% of people over 80 years old do too. That often includes mobile games.
The pandemic, with its lockdowns and stay-at-home orders, saw the video game market grow from $170 billion to $244 billion (from 2019 to 2021) as people looked for ways to entertain themselves. But since then, growth has largely stagnated and the market is projected to barely muster $259 billion in 2024.
“The video games industry, once defined by exponential growth, is now entering a phase where efficiency, innovation, and consumer alignment will determine who thrives,” said Jon Wakelin, partner at Altman Solon and expert in digital infrastructure and digital media.
Near-term pathways to growth
There are several ways for video game makers to achieve growth in the near-term. That might include, for example, leveraging AI to reduce the cost of game development (a move already taken by some). The game has now shifted from expansion to consolidation, with many hoping to make the lengthy and costly development phase more efficient.
Among the options on the table: Publishers can also look to raising prices. $60 was the typical price point for years for premium games, though more recently, AAA games like Starfield or Mario Kart: World Tour sold well at the increased price of $80.
Optimizing monetization is another channel for quick growth. Better integration of ads has been made possible by innovative ad tech players, meaning that there is new potential for monetization beyond microtransactions.
Some video game makers have moved to integrate e-commerce into games, allowing purchases of real-life goods and services. That could include selling things in game lobbies or boosting merchandise, as games like Roblox and Fortnite have done successfully.
“To succeed in this new environment, industry players must adapt,” said Laurence Wong, partner at Altman Solon’s Boston office.
“That includes finding ways to increase revenue for legacy games and using AI to reduce the cost and complexity of game development. Beyond short-term efficiency gains, companies also need to explore how changing consumer behavior – particularly among Gen Z and Gen Alpha – will shape the next wave of demand.”
The main takeaway from the report is that emerging technologies and changing consumer preferences are set to open up new pathways to growth in the video game industry. Consumer demand is still strong, despite the downturn in revenue post-pandemic.
“The video game industry is at an inflection point,” said Philip Butler, partner at Altman Solon in London.
“While the explosive growth of the pandemic era has subsided, a new era is emerging with promising new game experiences and an emerging cohort of engaged players. Industry participants across the ecosystem should take advantage of this transformation by adapting their strategy and go-to-market plan today.”
