40 years ago the videogame market crashed. Could it happen again?

[MysticGon]

50 Years of Gaming History, by Revenue Stream (1970-2020)

Visualizing 50 years of gaming history, from the first wave of arcades and home consoles to a tsunami of mobile gaming.

www.visualcapitalist.com

The industry has proven resistant to economic recession, piracy, pandemics and inflation. What, if anything, could trigger another crash?

I think there have been different types of crashes going on in the industry throughout it's history. Trends and budgets impact the number and variety of games being produced. Indie scene has done much to improve the situation but the big investments are made chasing fads. If there were a drinking game based around the phrases, "rouge-like", "metroidvania", "souls-like" and "open-world" there would be no survivors.

(Pre-Switch/Covid)

Video Game Genres by Year: 1980-2016 – Savvy Statistics

The story of the post-crash game industry is the story of Nintendo and somehow being able to weather anything that comes their way to varying degrees of success. So I think as long as they are around the crash wouldn't be permanent. Just need to keep Miyamoto distracted.

PlayStation has settled into a groove that would be hard to dislodge them from. It would take Sony management letting Jim Ryan go unchecked long enough to dive into the deepest recesses of his excess for there to be a disaster that would put them at risk.

I don't think of Game Pass or even Xbox as untouchable in the grand scheme of things. Microsoft is making enough money to maintain several loss leaders but even if leadership changes and the blanks checks go away their association with PC gaming will always be their saving grace.

The lack of ownership and permanence hasn't hampered mobile gaming so I think GAAS and streaming are a match made in Wall Street. There are enough surface level consumers living moment to moment to make it a good business model once infrastructure catches up. In my opinion this segment is the most likely to crash due to it's over-dependence on large audiences and constant engagement. It is to interactive media what newspapers and social media websites are to the printed word.

Because of it's share of the overall pie if the GAAS bubble bursts it would clear out a whole room investors and make the market look like it would be headed towards oblivion.

 

[LordBy28]

I think it’s natural for there to be ebbs and flows as well as contractions and expansions. However, I think that videogames have been around for a long enough period of time occupying a growing mindshare of the general population that there won’t be a collapse at least at that scale. Certain mediums to play videogames may suffer collapse in the future and likely rebuild. The first market crash occurred when videogames were still a relatively new concept. At this point, videogames have been around for 50+ years and been enjoyed by hundreds of millions of people. The appeal isn’t going to collectively end anytime soon. I think the 2010’s, the traditional console gaming format along with dedicated portables did suffer heavy competition from the rise of smartphone gaming as well as PC gaming existing and had a moment of contraction as well as concern from competition from other big tech companies such as Apple, Google and Amazon. I believe that the major 3 players in the dedicated gaming device field have navigated around these challenges and have prevented complete collapse. Only major concerns I see is between Microsoft and Sony continually competing with providing similar experiences conjoined with the PC market. Sony and Microsoft seem to be trying to gobble up 3rd party developers in an effort to retain their market space which could cause the entire dedicated videogame device market to suffer as a collective. While Sony, Microsoft and a lot of major Japanese 3rd party developers went chasing after what they though western audiences wanted. Nintendo kept focused on what their strengths are rather than pursuing certain trends within the western audience. This has resulted in Nintendo dominating the Japanese market space including up and coming developers wanting to work solely for them. As well as audiences on a global level that still enjoy and find appeal towards Nintendo’s IPs that have been around for 30-40 years as well as other Japanese third party style of games that have been around for decades. Meanwhile there is heavy competition between Microsoft, Sony and some major Japanese 3rd party developers for the same audience which is resulting in suffering across the board. One can look no further than Final Fantasy as well as major developers such as Namco and Capcom that have had to significantly retract on developing for some of their flagship ips or pursuing the development of new ones.

 

[Aostia82]

I think that, considering all the tech-based aspects of our contemporary society, digital interactive products are you to stay: I voted that a particular aspect of this business could totally crash, but probably due to the raise/expansion of another side of the same medal: let's look at the portable devices contraction after the DS+PSP era, but also at the aligned growth of the mobile gaming for example

 

[ILikeFeet]

I don't think it's gonna crash per se, but I think we're reaching limits on what can be done per dollar spent. with games getting more expensive and sales needing to go up to sustain them, as well as the rampant burnout and lack of job security, this tower will eventually collapse on itself. it won't be the end of the industry, it'll just mean that more studios might not try to get so big and they'll spread the risks around more with cheaper games. studios going under because they can't survive one failure is a sign of an ill industry, I think

 

[BassForever]

Even the infamous 80's crash wasn't actually world/industry wide, it was hyper focused on console gaming in the US.

 

[fiendcode]

Maybe a regional segment crash, like the US 1980s console crash. It'll have a lot of asterisks though.

 

[Blue Monty]

Maybe a regional segment crash, like the US 1980s console crash. It'll have a lot of asterisks though.

I think the market is now too mature for that to even happen outside either a general crash of the economy of the region or governmental intervention on the videogames industry of the region. Videogames have become part of the general culture and entertainment just like Movies/Music (especially mobile games)

 

[storres]

I don't think it's gonna crash per se, but I think we're reaching limits on what can be done per dollar spent. with games getting more expensive and sales needing to go up to sustain them, as well as the rampant burnout and lack of job security, this tower will eventually collapse on itself. it won't be the end of the industry, it'll just mean that more studios might not try to get so big and they'll spread the risks around more with cheaper games. studios going under because they can't survive one failure is a sign of an ill industry, I think

Another thing is the people that are receiving a piece of the pie is shrinking as well. Maybe not the pie, per se.

 

[Fularu]

I’m surprised the narrative of « the videogames market crashed in 1983-4 » is alive here.

It was mostly a US phenomenon and only concerning a small part of the console segment (Atari still sold a lot of systems all the way to 1986) but more than that, the personal computer space was thriving and the « crash » never reached Europe and its very dynamic videogames industry (backed by national computing for everyone programs).

 

[Koti]

I doubt we will ever see a videogame market crash. The only reason why it did 40 years ago was because the market was still very small and new. Now that its mainstream, it will need a lot for it to crash. However, I do think we are going to see stagnation. So far the market has been growing at a rapid pace, but it's safe to say that won't continue for too long.

 

[Shadow of the Void]

The Crash of '83 was limited to the U.S. and mainly affected home consoles. Arcades survived, and the Famicom was released in Japan in 1983, becoming that market's first major console. The circumstances that led to the crash were also very specific to that time. Consoles were still not very well established, and could have been dismissed as a fad. There was a glut of hardware, and while the Atari 2600 had a supermajority market share, there was a lot of systems around at the time, which made for a complicated market. There were also several high-profile software failures, most notably E.T.: The Video Game. Once Atari failed, it took all the also-rans with them. It was just a perfect storm of factors that could have only happened then and there.

There are three strong console brands right now, with Nintendo doing their own thing different from Sony & MS. If Nintendo somehow fails, goes third-party, then MS exits because they don't want to compete against Sony anymore, then Sony somehow bungles a future PlayStation, and then everybody decides PC gaming isn't worth it anymore, then maybe we could see a big crash where the industry loses 90%+ of its value, but I really doubt that or any other catastrophic chain of events could happen like that anytime soon.

 

[salesguy]

I honestly dont think so. the market is very mature and known quantity.

it's almost part of human nature that if their are computers with displays, people will create or play some sort of games even if just simple ones on them.

 

[Terrell]

I’ve had a lot to say on this subject, won’t repeat myself so I’ll just quote myself from other threads, but it mostly boils down to: no crash, but the revenue extraction the industry has enjoyed is not going to be enjoyed forever and a market contraction is on the horizon that the current people in the C-suites can see coming from miles away and are attempting to prepare for accordingly, and such a contraction will not be felt evenly across the industry, depending on how wedded some companies are to particular methods of revenue extraction.

It will all depend on how companies and their investors respond to any contraction. The likelihood is no, not a “crash”, but the current valuation game companies have been enjoying will diminish when growth reaches a plateau.
The part of the industry most at risk is mobile gaming, with the dedicated hardware and PC markets being far more insulated so long as they don’t go too in on the F2P/MTX earnings method.
When 5% of all F2P game users represent 100% of IAP sales (the #1 source of F2P revenue by a wide margin) and that figure hasn’t moved much since 2017, it exposes a weakness on both ends. Grow the number of people spending on IAP and the industry draws more scrutiny from regulators if those new paying customers happen to be more addiction-prone “whales” being exploited by IAP Skinner-box mechanics, as the industry’s current cover story to avoid regulation is that the low number of paying customers make any issues there a “super-minority” of users that would exhibit compulsive spending regardless of payment structure. But even a 0.5% reduction in IAP paying customers represents a major reduction in revenue, so they also have to keep pushing existing paying customers to spend more.
Any corporate entity engaged in this balancing act and depending too much on F2P earnings is literally dancing on the edge of a knife, trying to mine more money from existing customers while also not expanding the paying customer base too widely as a means to avoid regulatory constraints, and even the status quo is not guaranteed to prevent market contraction via regulation, as the status quo has created enough scrutiny as is and led to a few countries regulating F2P monetization mechanics.
Those who aren’t in that business model in any significant way should be more than secure and it’s why you see Asian companies like Nexon, Netease, Tencent and others with huge F2P cashflows re-investing that money in the PC and console market, they’re looking for secure investments within the game industry in case the F2P party’s over. This is also why Nintendo seems to be winding down its mobile offerings bit by bit or using their investment in it to cross benefit with their dedicated hardware and software business (ex. Tour tracks in MK8DX Booster Pass).

This is part of what I see as a broader industry trend, where big Western publishers are looking to get out while the getting's still good. If this transaction doesn't go through, publishers are going to find there's no escape hatch, so the need to endlessly drive impossible growth and astronomically higher valuations to drive interest in acquisition diminishes almost immediately as has been suggested earlier. In this way, Western publishers in particular (and a fair amount in Asia, as well) are being run no differently than most other tech businesses in the West, driving growth to attract a sale before profitability dips or the business craters from no long-term prospects for profitability; they get rich, other businesses grossly over-paid for a company based on a mirage. The circle of life for Wall St. right now.
And because there's enough warning signals between the threat of IAP regulation, ballooning costs, unionization efforts, the failed attempt to drive revenue generation with NFTs, etc., publishers know they won't be able to drive profit growth the way they have been for that much longer. So they have 2 choices: sell the business at a high premium before the bottom falls out, or ride the wave just long enough that they hope for the biggest possible golden parachute before the bottom falls out and leave the austerity budgeting to whoever the unlucky one is to inherit their mess.

And I see this as a trend because ABK isn't the only one shopping around for an opportunity to "get off the ride", so to speak, they were just the first one to run into the kind of trouble that risked the big executive payday they were after and had to cash out early.

WB was already trying to sell their games division in the worst way possible even before the AT&T selloff to Discovery, with no takers. EA has been trying to sell outside of the games industry and getting no takers, because most other media companies have already been through this cycle before with the dot-com bubble (among others) and recognize a bubble when they see one, or have already been on this particular ride and got off.

What killing this deal represents is that, if media conglomerates want out or aren't biting, and the larger game companies are at high risk of having M&A attempts regulated into oblivion, all profitable exit strategies have been ruled out once this killed deal deflates a huge amount of value across the industry, so the rapacious ways that publishers have been generating revenue at the expense of the customer will not garner the desired result of a big payday that most were hoping for when they set out in that direction. And the current C-suites will have done all this horrid revenue-or-nothing behaviour for peanuts by comparison. And they'd deserve it. But it's clear to see why ABK would fight alongside MS tooth and nail.

Big names in the mobile space are cashing out, have been for the past several years (Rovio is just one very recent example), cuz most of them aren't quite as greedy as folks like Kotick, Wilson and no small number of shareholders, who want the absolute maximum they can squeeze from their stake in the gaming bubble and abandon ship just before it bursts.

 

[Zaimokuza]

It's really difficult. The PC market alone is made up of a thousand niches that almost don't interact with one another.
I could see regulators changing the mobile landscape by enacting laws that further tank ad revenue and limit the potential for microtransactions by adding hard spending caps and equating them to gambling.
The console market is the easiest to destroy. A wrong generation could do untold damage: imagine regulators declaring paid online services as abuse of dominant position + Nintendo and Sony making a "wrong" console + big publishers doubling down on unfinished games.

 

[Mekanos]

Put me in the "no crash but contraction" camp

These constant acquisitions, ever-ballooning dev cycles and rent seeking behavior are going nowhere good

 

[Smelly]

An outright crash is pretty much impossible with the way Nintendo operates. More likely to see contractions in companies that rely heavily on blockbuster releases with giant budgets.