Can the video game industry snap out of its post-pandemic hangover?

Abubakar Salim, a British actor who starred in the HBO Max series Raised by Wolves, made his name in the video game business by providing the voice for a lead character in Assassin’s Creed: Origins.
A gaming enthusiast, Salim had long aspired to create a title of his own. And in March 2021, his dream came true. Electronic Arts (EA), a game publishing powerhouse, agreed to fund his Tales of Kenzera: Zau, which was released in April and made available for £17.99 on all major consoles as well as on Steam, the PC gaming platform.
Despite garnering largely positive reviews, Salim’s company, Surgent Studios, was forced last month to put gaming division “on hiatus while we secure funding for our next project”. Surgent had built up a workforce of about 35, and had already cut more than a dozen jobs over the summer.
“It’s happening everywhere,” said Salim, 31, with a sigh.
All told, the Game Industry Layoffs tracker counts that the sector — thought to employ more than 330,000 people across North America, Europe and Asia as of 2022 — has shed 32,000 jobs since a major expansion during the pandemic.
“During Covid, you had this massive boom,” said Salim. “We were all locked in. We were all forced to entertain ourselves.”
In 2020, media regulator Ofcom estimated that 62 per cent of British adults played a video game — on their phone, tablet, computer or television — up from 39 per cent the previous year. By 2023, that figure had fallen back to 52 per cent.
By many measures, video games have never been bigger. Industry bodies trumpet record sales and ever-growing forecasts for the number of gamers. Some of the sector’s biggest companies are flying, such as EA, which is currently trading near an all-time high.
But still, the cuts persist. And many in the industry are struggling to shake off the post-pandemic hangover.
Video gaming dates back to at least the 1950s, when Dr William Higinbotham, a physicist at the US government-owned Brookhaven National Laboratory in New York, invented Tennis for Two. Higinbotham, who worked with Robert Oppenheimer designing the world’s first atomic bomb, created a programme that could simulate a ball bounced across the screen of an analogue computer in his lab.
Over the years, gaming moved into arcades — where the Tennis for Two-inspired Pong sparred for attention with Pac-Man and Space Invaders — and then into homes with the development of consoles, handheld games and home computers. By 2019, smartphone games such as Candy Crush, faster home internet speeds and advances in graphic design had helped turn video gaming into a $150 billion industry, according to the data platform Newzoo.
Then came the pandemic. Video gaming exploded, with the global market being valued at $176 billion in 2021. UK Interactive Entertainment (Ukie), the industry body, estimated that Brits spent £7.5 billion on gaming in 2021, up from £5.4 billion in 2019.
In response, the world’s biggest publishers — the likes of Sony, China’s Tencent, Microsoft, Nintendo, EA and Epic Games — competed to buy up and make hit titles.
Ukie said the number of people working in the British video game sector increased from 14,500 in 2019 to 25,000 by 2023. In addition to London, other cities with large populations of gaming companies include Manchester, Dundee, Cambridge and Sheffield.
In the years since the pandemic-era splurge, growth has mainly continued — but at a slower pace than previously projected. Investors, meanwhile, have been spooked by some major flops.
Most notably, in September, Sony withdrew Concord, a multi-player shooting game on the PlayStation 5, from the market weeks after launch. The Japanese company is rumoured to have spent $400 million (£300 million) developing the title but it reportedly sold just 25,000 copies — not enough to make it sustainable. Publishers typically shift millions of copies of hit games.
Shares in the French video game company Ubisoft dropped to a ten-year low recently after Star Wars Outlaws fell short of expectations. Shares later recovered on reports of a potential buyout by Tencent and the firm’s founding family, the Guillemots.
Meanwhile, job losses have kept racking up in the global video games industry. Game Industry Layoffs estimates that 8,500 jobs went in 2022, 10,500 last year and 13,000 in 2024.
Ukie reckons that 900 British jobs were lost last year, and that up to 680 have gone so far this year. However, it is not known how many jobs have been created. Recent cuts have hit Scotland’s Merge Games, London’s Sharkmob and the Leeds-based XR Games, a developer of virtual-reality games that has announced plans to cut 72 roles from about 100.
“Constantly on my LinkedIn feed, I’m seeing people being made redundant,” said one industry insider of 20 years who recently lost their job.
Gareth Sutcliffe, head of video games at the research firm Enders Analysis, said a lack of investment in the sector was “having a negative impact, particularly on indies and mid-tier studios, and that’s where you’re seeing this real pain point”.
Matthew Ball, chief executive of venture capital firm Epyllion, which invests in the media and gaming sectors, believes that one of the reasons for the industry’s travails is that venture capital funding in start-ups or smaller companies has dried up. VC investment in the gaming sector peaked at $3.4 billion in the final three months of 2021, according to data from Konvoy Ventures. In the second quarter of this year, the figure was $492 million.
Ball thinks one of the issues is that it takes several years to produce a video game, and there is no guarantee it will sell. Venture capital investors are used to backing tech firms that get products to market faster. “It’s really a unique problem faced by this specific category,” said Ball.
Another challenge for independent game-makers is that hard-pressed consumers are gravitating towards tried-and-tested titles. A ranking by market intelligence company Circana of the ten highest-grossing video games of 2023 included no fewer than seven editions of pre-existing titles, including first-person shooter Call of Duty and FC 24, the flagship football game that has provided a recent boost to EA’s share price.
And the next year does not look much easier for developers hoping to break through with new games. In March, Nintendo is due to launch its Switch 2 handheld device, which could cost about £400. And later in the year, Rockstar Games is set to release the sixth edition of its hit game, Grand Theft Auto. Gamers may not have much spending power left for less established brands.
Still, Ball’s hope is that the success of Grand Theft Auto VI will help revive the sector and that big firms will “return to investment mode”. After that, all being well, it’s game on.