Paris —Ubisoft has announced the postponement of the release of Assassin’s Creed Shadows, scheduled for late 2024, this decision illustrates the many challenges facing the video game industry. Between rising interest rates, production delays, mass layoffs and commercial failures, the video game industry is facing an avalanche of challenges. Long synonymous with double-digit growth, this industry is now experiencing a serious setback.
While it reached 13% per year between 2017 and 2021, annual growth has dropped to just 1% between 2021 and 2023. Faced with this unprecedented slowdown, how can the video game industry regain its momentum? What innovative strategies can game publishers adopt to adapt to a constantly evolving sector? What role for generative AI? This is the subject of the latest BCG report entitled Leveling Up: The 2024 Gaming Report.
Key lessons from the report include:
Costs exceeding revenues:
- Between 2017 and 2021, global video game industry revenues grew significantly, from $131 billion to $211 billion. They are expected to reach $221 billion by 2024 and $266 billion by 2028, representing a compound annual growth rate of 5%.
- However, this growth has been slowing down post-covid since 2022. For example, global revenues generated by mobile games increased from $64 billion to $114 billion between 2017 and 2021, before decreasing to $108 billion in 2023.
- Beyond the slowdown in growth, the industry is facing a significant increase in development budgets (longer cycles, increasingly saturated market). The development of a big-budget AAA game often exceeds $100 million. These costs, which are growing faster than revenues, have recorded a compound annual growth rate of 6% for AAA games on PC and consoles between 2017 and 2022. This increase is expected to accelerate to 8% between 2022 and 2028.
Faced with these challenges, what strategies should publishers adopt?
- Further leveraging generative AI: Many publishers plan to increase revenue by investing in more immersive and differentiated games thanks to the efficiencies generated by generative AI in game development.
- Develop subscriptions: the subscription model, which already represents a quarter of the revenues of console games and services, has the advantage of generating recurring revenues, beyond the initial sales of games. The emergence of cloud gaming will also promote the development of subscriptions via a better user experience.
- Diversify your pricing strategy by offering less elaborate games at a standard price ($70 for a AAA game in the United States) with additional paid content for the most engaged players. Another approach is to adapt pricing strategies according to the markets. For example, Chinese players are those who are willing to spend the most for a AAA single-player game (up to $82 compared to $53 for the global average).
- Explore advertising opportunities: Only 30% of regular gamers object to advertising. Advertising could generate an estimated $2-3 billion in additional revenue by 2028 for PC and console gaming.
- Investing in emerging markets: 43% of gamers in emerging economies (China or Latin America) plan to increase their gaming time in the future, compared to only 19% in developed economies.
- Targeting untapped segments: Older generations and children represent two promising segments for the industry, particularly with multi-generational games (e.g. Minecraft, Roblox).
