The global gaming sector is encountering increasing obstacles, such as project setbacks, workforce reductions, and the closure of additional studios, according to recent findings from Boston Consulting Group (BCG).
The consulting firm’s newest report, Leveling Up: The 2024 Gaming Report, revealed that these elements are contributing to a decline in momentum, with growth now limited to single-digit percentages.
This marks a significant drop from the 13% annual growth experienced between 2016 and 2021, when the gaming industry’s revenue skyrocketed from $131 billion (£103.7 billion) to $211 billion (£167.1 billion).
As reported by BCG, factors such as rising interest rates, the return of gamers to workplaces and educational settings following the pandemic, and prominent games underperforming against expectations have fundamentally altered the gaming environment in recent years, resulting in a compound annual growth rate (CAGR) of merely 1% from 2021 to 2023.
BCG anticipates that single-digit growth will persist, with gaming industry revenues estimated to hit $221 billion (£175 billion) in 2024 and $266 billion (£210.7 billion) by 2028, reflecting a CAGR of 5%.
While the slowdown in growth raises concerns, the swift increase in game development budgets may have an even greater effect.
The report indicates that expenses for game development are now surpassing revenues, with budgets for PC and console AAA games rising at a 6% CAGR from 2017 to 2022, and expected to accelerate to an 8% CAGR from 2022 to 2028, with nearly all publishers surveyed believing that budgets will continue to increase in the near future.
BCG also identified that emerging trends, such as cloud gaming, along with augmented reality (AR) and virtual reality (VR) gaming, are on the rise, in addition to platforms driven by user-generated content. Nevertheless, none of these are currently competing with more established gaming platforms, including PC, console, and mobile.
For instance, the market for gaming AR and VR software is anticipated to expand from approximately $1.2 billion (£950 million) in 2024 to $1.75 billion (£1.3 billion) by 2028, a relatively small figure compared to the mobile gaming market, which is projected to reach $137 billion (£108.4 billion) by the same year.
Scotland’s games industry is characterised by many smaller studios. These may be more vulnerable to market fluctuations and may struggle to survive a prolonged downturn.
If job opportunities become scarce, Scotland may struggle to retain its talented workforce, potentially losing skilled developers to other industries or regions with more stable job markets.
Companies may need to pivot towards more sustainable business models or explore emerging technologies to remain competitive, which could lead to a restructuring of the Scottish games ecosystem.
Ernesto Pagano, a BCG managing director, and co-author of the report, commented: “The gaming industry is at a pivotal moment, with everyone asking the same question, ‘How do we regain momentum?’”
“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.
These include:
Utilizing AI, which can not only speed up the development of game assets, like level layouts and character dialogues, but can also streamline numerous repetitive tasks associated with game creation, including playtesting and quality control.
The implementation of subscription models, or ‘games as a service’ frameworks, that could enhance ongoing revenue streams for developers.
Another recommendation from the report is to explore the monetisation potential of emerging markets.
The survey revealed that 43% of gamers in developing economies intended to increase their gaming hours in the future, in comparison to 19% of gamers in advanced economies. If publishers can broaden payment options and adjust pricing accordingly, these markets could serve as a significant catalyst for future expansion.
The report stresses the necessity of adopting a careful and gradual strategy regarding any price hikes, ensuring that premium editions, in-game enhancements such as battle passes and skins, along with microtransactions, do not drive away players.
“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.”
