No winners in post-pandemic gaming market as industry-wide struggles continue

Jen-chih Fan, Taipei; Jack Wu, DIGITIMES Asia 0


The three major gaming console manufacturers, Nintendo, Sony, and Microsoft, have seen their gaming businesses face numerous challenges in the post-pandemic era. One of the contributing factors could be that modern video games are costing too much and taking too long to make.

According to a report from Bloomberg, one example that highlighted the increased costs is the comparison between the original Final Fantasy VII, released in January 1997, to the ongoing remake trilogy of the same game.

Games are getting too expensive to make

The original Final Fantasy VII was one of the most expensive games to produce at that time, costing US$40 million and two years to complete development. In contrast, Part 1 of the remake trilogy, Final Fantasy VII Remake, was released in 2020 and cost around US$140 million and over four years of development. Part 2 of the trilogy, Final Fantasy VII Rebirth, was recently launched at the end of February 2024, four years after part 1, with the budget undisclosed.

Assuming similar development costs and time for the entire trilogy, the remake will likely cost over US$400 million and take over 10 years of development. Even after adjusting for inflation, the remake trilogy is still much more expensive as US$40 million in 1997 would be around US$78 million in 2024.

Haruhiro Tsujimoto, president of Japanese video game giant Capcom, stated in 2023 that it has been over 40 years since the company launched its first video game in 1983. During this time, game development budgets have increased by 100 times but game prices have barely increased. Games have become so cheap that they are threatening the survival of game developers.

Once again, using Final Fantasy VII as an example; the original game was US$49.99 at full price back in 1997. Part 1 of the remake trilogy was sold at US$69.99 at full price in 2020. When adjusted for inflation, the remake can even be considered cheaper as US$49.99 in 1997 would be worth around US$80 in 2020.

Whether games are too cheap or not is subjective, but Sony's financial report for the third quarter of the fiscal year 2023 (October - December 2023) showed that while the gaming business saw significant revenue growth, its profits had also clearly declined. This was mainly due to the high development costs and long development time for games, which resulted in insufficient game output, which is undoubtedly the main reason why Sony Group president and CFO Hiroki Totoki decided to make adjustments to the company's gaming business.

Gaming console manufacturers face similar struggles

On the other hand, the latest game consoles, such as Sony's PlayStation 5 (PS5) and Microsoft's Xbox X/S, were launched in 2020. With the typical product life cycle of a gaming console being 6-8 years, 2024 marks the halfway point of their lifespan. Before the launch of new consoles, the performance of the gaming business will only continue to decline, necessitating organizational restructuring.

Therefore, Sony has decided to lay off employees to reduce costs, while Microsoft has decided to open up previous Xbox-exclusive games to cooperate with competitors to increase revenue and help partnered game developers.

As for Nintendo Switch, which was released in 2017 and theoretically should already be launching the next-generation console in 2024, Bloomberg reported that due to the need to focus on game development first, it is unlikely to release the next-generation console before March 2025, a sign that the company is also affected by the high costs and long time of game development.

With the gaming console industry entering a bottleneck period, finding a new business model has become urgent.