Cycles & Survival (Ep. 17)

Key takeaways

The video game industry is experiencing a period of stagnation influenced by the interplay of content, distribution, and technology innovation.
Historical patterns of innovation reveal that the industry does not operate in simple cycles; rather, multiple forces are at play.
Current market consolidation and rising customer acquisition costs are contributing to the lack of new and innovative content.
Despite challenges, there are emerging opportunities driven by AI and new distribution platforms that may rejuvenate the gaming landscape.
Innovation should be considered in terms of how it interrelates between content, distribution, and technology, rather than in isolation.

Summary

The Current State of the Video Game Business

Mitch and Blake open Season 3 of the GameCraft podcast by addressing the current state of the video game industry. They emphasize that rather than simply cataloging the industry's recent struggles, it's critical to understand the deeper reasons behind them. The hosts challenge the notion that the industry is cyclical, asserting instead that we are experiencing a period of low growth driven by an interplay of technological stagnation, consolidation, and a lack of innovation.

The Three Forces of Innovation

The main thesis presented suggests that the video game industry's dynamics are significantly influenced by three interrelated forces: content innovation, distribution innovation, and technology innovation. They argue that these forces do not operate in isolation, but rather interrelate and contribute to the industry's overall health, leading to periods of growth or stagnation. The podcast further elaborates historical examples of innovation and how each of these forces has shaped the game industry, providing insight into their cyclical nature.

Current Challenges and Stagnation

The discussion emphasizes the current stagnation in content and technological innovation due to rising customer acquisition costs and market consolidation. Major gaming companies are focused on existing IP rather than taking risks on new content, creating a retrenchment in creativity. The hosts argue this environment discourages new indie games and innovation in favor of safer, more established franchises, citing the IP licensing trend as a symptom of a maturing market.

Optimism Amidst Challenges

Despite the grim outlook, Mitch and Blake offer a note of optimism regarding potential new developments that could revitalize the industry. They specifically highlight the role of AI in driving future content innovation and the rise of platforms like Discord that enable new distribution methods, offering hope for breaking the cycle of stagnation. The conversation ends on a cautiously hopeful note, considering potential avenues for future growth and innovation.

Show notes

Mitch and Blake kick off Season 3 of the podcast with a high-level look at the current moment in the video game business, critiquing both the idea that the business is cyclical and we are in a downward phase of the cycle (and the naïve notion of "survive 'till '25"), as well as the idea that the business has simply matured, suggesting we are in a new phase of low growth and consolidation.

Instead, they propose a framework for thinking about the games business that argues for the continuous interplay of three innovation forces: content, distribution, and technology. They outline how each of the three forces have played out historically, and offer some examples of the discontinuous inflections that have occured along these three vectors of innovation. They also try to explain why innovation is currently stalled, and how that creates a downward spiral that affects valuations, risk-taking, and ultimately what kinds of games get made.

Show Notes:

Matthew Ball's state-of-the-games-business deck

Joost van Dreunen's newsletter

Live Service Games

The Demise of Mid-Budget Cinema

Sideloading apps on IOS

Discord's new ad units