The global gaming industry faces mounting challenges, including project delays, layoffs, and the shuttering of more studios, according to new research from Boston Consulting Group (BCG).
The consulting firm’s latest report, Leveling Up: The 2024 Gaming Reportfound that these factors are contributing to slowing momentum, with growth now reduced to single figures.
That’s a dramatic fall from the 13% annual growth seen between 2016 and 2021, when gaming industry revenue surged from $131 billion (£103.7 bn) to $211 billion (£167.1 bn).
According to BCG, rising interest rates, the return of players to offices and classrooms post-pandemic, and high-profile games failing to meet expectations, have fundamentally reshaped the gaming landscape in the last few years, resulting in a compound annual growth rate (CAGR) of just 1% between 2021 and 2023.
BCG expects that single-digit growth will continue, with gaming industry revenues projected to reach $221 billion (£175 bn) in 2024 and $266 billion (£210.7 bn) by 2028, representing a CAGR of 5%.
While slowing growth is concerning, the rapid rise in game development budgets could have more of an impact.
The report shows that game development costs are now outpacing revenues, with budgets for PC and console AAA games growing at a 6% CAGR from 2017 to 2022, and projected to accelerate to 8% CAGR from 2022 to 2028, with nearly all publishers interviewed believing budgets will rise in the foreseeable future.
BCG found that emerging trends, such as cloud-based gaming, as well as AR and VR gaming, are growing, alongside platforms fuelled by user-generated content. However, none are yet to rival more established gaming platforms, like PC, console, and mobile.
Gaming AR and VR software, for example, is expected to grow from a market of about $1.2 billion (£950m) in 2024 to a market of $1.75 billion (£1.3 bn) in 2028, a small sum compared with the mobile gaming market, estimated to reach $137 billion (£108.4 bn) by the same year.
“The gaming industry is at a pivotal moment, with everyone asking the same question, ‘How do we regain momentum?’” said Ernesto Pagano, a BCG managing director, and co-author of the report.
“While a ground-breaking innovation may shape the long-term future, the near-term path to growth lies in embracing new monetization strategies and reaching untapped markets and demographics.
“Although returning to pre-pandemic growth rates may be challenging, gaming remains the most immersive and enduring entertainment medium.”
To capitalise on new trends, and hopefully increase growth, the report recommends several steps that developers should consider.
Recommended reading
These include turning to AI, which can not only accelerate the creation of game assets, such as level designs and character dialogue, but can automate many of the repetitive tasks involved in game development, including playtesting and quality assurance.
Developers should also look to introduce subscription strategies, or ‘games as a service’ models, that could increase recurring revenues.
The report emphasises, however, that it’s important they also take a nuanced and gradual approach to any price increases, ensuring that premium versions, in-game add-ons like battle passes and skins, as well as microtransactions don’t alienate audiences.
Another of the report’s suggestions is to consider the monetisation of emerging markets.
According to the survey, 43% of gamers in emerging economies planned to increase their playing time in the future, compared with 19% of gamers in developed economies, and if publishers can expand payment options and align pricing accordingly, these markets could be a key driver of future growth.
“The gaming industry is navigating a new playing field with shifting rules,” said Giorgo Paizanis, a BCG partner, and another author of the report.
“The levers for growth are still there but they’ve evolved. Companies that think creatively and move swiftly will discover that success remains achievable.”