Why Is Gaming Declining?

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Once considered one of the most prominent entertainment sectors, the video game industry is facing a significant downturn. After a period of explosive growth during COVID-19, the early to mid-2020s have been marked by sweeping layoffs, studio closures, and a restructuring across the entire industry. In 2023 alone, over 10,500 jobs were lost, followed by more than 14,600 in 2024. The industry has entered what some analysts call a “reset phase”—but what has caused such a dramatic shift?

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The Layoff Crisis

The scale of the layoffs is staggering. Major companies such as Microsoft Gaming, Electronic Arts, Sony Interactive Entertainment, Ubisoft, Epic Games, Unity Technologies, Sega, Riot Games, and Embracer Group have all significantly reduced their workforce. From Q1 2023 to Q1 2025, more than 20,000 jobs were lost, entire studios were shut down, projects canceled, and thousands of careers disrupted.

This is why we’ve seen numerous game release dates being pushed back—or canceled altogether. You might wonder why this is happening. One key reason is that many major companies already have successful titles and choose to focus only on updating features for those games. While that’s not necessarily bad—who hasn’t played a game abandoned by its developer and left without updates, becoming a ghost town?—the broader issue is that companies have slowed down their hiring of game developers, which harms future projects. In some cases, studios can no longer afford to maintain their games and are forced to cut staff.

But instead of guessing, let’s look at the actual reasons companies cite for the surge in layoffs in the game development sector.

These developments are the result of overlapping factors—including overexpansion, economic uncertainty, rising development costs, and a shifting consumer landscape. According to the International Game Developers Association (IGDA), the global unemployment rate in the gaming industry stood at 4.8% in 2023, and experts predicted it could double in the U.S. by 2024.

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From Pandemic Boom to Post-Pandemic Bust

COVID-19 created a short-term boom for the gaming world. People stuck at home turned to video games in record numbers, generating massive revenue and encouraging companies to invest aggressively. Mergers, acquisitions, and hiring sprees were common, under the assumption that this growth would not only continue but accelerate in the post-pandemic world.

But the growth proved unsustainable. Once the world reopened and pandemic restrictions were lifted, gaming revenue began to shrink. Mobile gaming revenue, for instance, dropped by around 15% in 2021 and continued declining in the years that followed. Companies that overextended themselves based on the assumption that the boom would last had to downsize, leading to increased layoffs and delays—or outright cancellations—of major projects.

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Soaring Development Costs

Game development, especially for AAA titles, has become increasingly expensive. Development budgets now commonly exceed $200 million, with franchises like Call of Duty and Grand Theft Auto costing more than $300 million to develop—without even including marketing costs, which can add another $100 million or more.

This economic pressure has led studios to cancel more ambitious projects in favor of safer investments—offering sequels and established IPs over innovation. Embracer Group alone canceled around 29 titles, and Microsoft axed Blizzard’s long-developed Project Odyssey. Meanwhile, newly founded studios like Ridgeline Games and Deviation Games shut down before releasing a single title.

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Changing Consumer Habits

Consumers have also shifted their preferences. The industry has seen a pivot toward mobile and live-service games, which are cheaper to produce and offer long-term revenue streams. But even these models are now under pressure. Live-service fatigue, monetization backlash, and technical debt have made it increasingly difficult for studios to maintain long-term engagement. Even major live-service titles have faced layoffs and closures—including projects from Epic Games and Bungie.

In fact, 68% of producers now say their pipelines are poorly equipped to support live-service models, and 88% of developers are preparing to adopt new tools to cope with rising development complexity.

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Global Geopolitical and Regulatory Challenges

Geopolitical and regulatory challenges have also destabilized the industry:

• Russia: The 2022 invasion of Ukraine disrupted the Russian gaming market, triggered an exodus of developers, and immediately shut down major trade shows. President Vladimir Putin’s push to create domestic alternatives to Western gaming giants has been widely mocked as unrealistic.
• China: The freeze on video game licenses in 2021–2022 had a major impact on companies like Tencent and NetEase. China’s gaming restrictions for minors further chilled the domestic market, leading to the closure of several companies.

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Mergers, Acquisitions, and Their Fallout

Believing in the massive revenue explosion during the pandemic, many companies saw huge potential in gaming and ramped up investment and projects—often promising titles that never materialized. They projected ambitious revenue numbers, fueling expectations for continued growth. This led to waves of mergers and acquisitions, which in hindsight, were not always wise. Some companies that avoided M&A activity remain afloat, while others shut down entirely—some with unreleased titles we may never see.

These numbers look grim due to the spike in industry unemployment. But in reality, what we’re seeing is companies trying to walk back many of the mistakes made during the pandemic and return to a more sustainable point—where they had fewer employees and could manage new projects without major concerns about economy or revenue.

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The Metaverse Misfire

The metaverse, once hyped as the future of gaming, failed to deliver. Companies like Meta and Microsoft poured billions into virtual worlds and hardware, only to face disappointing user engagement and massive financial losses. Meta’s Reality Labs division alone lost $13.72 billion in 2021, and its user adoption forecasts have been drastically scaled back. These miscalculations contributed to broader financial instability throughout the industry.

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The Road Ahead

The video game industry is entering a period of recalibration. With slower revenues, rising development costs, and evolving consumer preferences, companies are rethinking their strategies. Some are shifting focus to smaller, more sustainable projects. Others are doubling down on proven franchises. AI and automation are on the horizon, though they remain controversial and are not considered the primary cause of layoffs.

While the industry is far from dead, its golden era of unchecked growth has clearly ended. The path forward will likely be slower, more cautious, and shaped by financial pragmatism over rapid innovation.

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