Why a Second Video Game Crash isn't Happening Right Now

Why a Second Video Game Crash isn’t Happening Right Now

2023 was one of the biggest years in history for video games with amazing releases like Zelda: Tears of the Kingdom, Baldur’s Gate 3, Spider-Man 2, Sea of Stars, Resident Evil 4 Remake, and so many more, but it was also one of the darkest years for those working in the industry. In 2023, there were reportedly over 10,000 lay-offs in the video game industry affecting developers from all walks of life, and thus far in 2024, there have already been over 8,000. A significant contributor to this new number is Microsoft’s recent lay-offs, which affected 1,900 jobs. These events have caused a lot of heartbreak for the industry, with many online describing it as the beginning of a “Second Video Game Crash.” However, that’s not true.

For those unfamiliar, the Video Game Crash took place back in 1983. It was a dark time that threatened to undermine the burgeoning growth of the industry, as the United States industry went from revenue around $3.2 billion in 1983 to $100 million in 1985. This massive drop drastically changed the arcade video game market, impacted console gaming for years, and had direct influences on companies ranging from Atari to Nintendo. It would take a couple of years for the market to fully recover, but the circumstances that led to it and the current circumstances are not the same.

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Why Some Gamers Believe a Second Video Game Crash is Starting

At face value, it should be noted that language describing a “second video game crash” simply misuses the terminology “crash.” For a crash to be happening or starting, there would need to be reason to believe there will be a significant loss in video game sales over the next couple of years. The writing on the wall for the industry in 1983 all pointed toward a crash, and obviously, things are not looking good for work within the industry today. It is turbulent, heartbreaking, and devastating for all those affected; there is no mistaking that.

There is a lot of speculation about why so many video game developers are being laid off; none of them are good. The biggest contender is the COVID-19 pandemic; at the time, it felt like the industry was pandemic-proof. Sales increased dramatically across the industry, with some games like Animal Crossing: New Horizons offering escapes from the real-world lockdowns. Many studios, publishers, and the like began hiring to supplement this increase in sales further, and as the industry returns to normal, these lay-offs could be happening as a result of overhiring, as continued attempts to scale back to normal, and or attempts to reflect growth in the market, as pointed out by industry insider Jeff Grubb. Furthermore, several studios are calling for better hiring and growth practices, such as Baldur’s Gate 3 developer Larian Studios and Helldivers 2 studio Arrowhead, but the hiring/work crisis of the industry right now is not reflective of its continued existence or a forthcoming crash.

The Perfect Storm Caused the Video Game Crash of 1983

For comparison, several factors led to the Video Game Crash of 1983, including:

• Saturation of home consoles
• Bad games led to consumer distrust
• Minimal Publishing practices
• The “newness” of the market
• Waning interest in the console market as a result of the aforementioned saturation and rise of PCs.

All of this impacted the burgeoning industry in many ways. Too many home consoles impacted sales and had no real marketing or brand (at this time, it’s worth noting that consoles were marketed as toys and found in toy aisles in stores, not electronics). Consumers did not trust any of the video games coming out as games like E.T. were completely disinteresting and had no quality control, leading to over 700K copies of E.T. being buried because they could not be sold. That’s just one IP, too, as many games suffered from oversaturation and lack of quality control. There were not many third-party publishers, ensuring there was no real competition or quality assurance, and many analysts did not believe the industry had legs. It was a time when “video games are just a fad” was very much the thought-culture associated with the market.

It took all of these years, alongside other happenings, to set up, impact, and recover from the Crash.

Why a Second Video Game Crash is Unlikely Right Now

None of the conditions leading to the Video Game Crash of 1983 are currently present in the market. PC and consoles have their own spaces within the market, and there are only three major hardware manufacturers (Sony, Microsoft, and Nintendo) as opposed to the 8-10+ present at the time. There are plenty of publishers, ensuring the market has competition, and the belief that games are a fad is incredibly old-hat. It’s one of the most profitable entertainment industries in the world, with GTA 5 notably being the most profitable entertainment product of all time. Perhaps some could point to the growing distrust of game practices as evidence, but it’s worth noting that a lot of modern distrust is aimed at live-service development, not the industry as a whole then. Ultimately, the layoffs are not indicative of a crash, but a period of turbulence following huge growth, a “return to normal” phase, and various internal malpractices.

At the end of the day, a Second Video Game Crash, or the beginnings thereof, would need indications or evidence of a huge decrease in sales. The market is up in 2023, and while the jury is out on 2024 and its performance, 2025 is already looking amazing. The below are just a few things already rumored or announced for 2025 which will no doubt have a huge impact on the market.

This does not account for evergreen sales like sports franchises and Call of Duty, plans for the Switch 2’s launch line-up, forthcoming hardware refreshes, and releases from PlayStation, Xbox, third-party publishers, and indie games. Even if 2024 doesn’t live up to the huge expectations set by 2023, sales are not going to decrease by 97% like in 1983, and 2025 is already shaping up to be a boom, not a crash.

The truth is, the industry is bleak for those working within it right now. There have been plenty of calls to action and folks demanding change, and those will likely be good for its future. But a Second Crash isn’t happening; any suggestion it is comes down to fearmongering, plain and simple.