Something isn’t adding up in the video game industry. In 2025, global video game sales hit $195.6 billion, growing 5% year-on-year. That’s great news - except when you look at the larger picture. In that same time, 10 major studios including Monolith Productions and The Initiative were shuttered in addition to over 25 studios slashing their staff numbers. These were studios working on huge AAA titles including the Perfect Dark remake, a brand-new entry in the Titanfall universe, and superhero titles like Wonder Woman and Black Panther. How is it possible that an industry beating its previous peak year-on-year is also one where one third of its workers were laid off in the last two years? The industry is deeply unwell, with no singular cause to identify but a myriad of symptoms creating a slow-spreading, but severe threat.
It used to be that if players had any free time, they were gaming. Now, the call of video games is being drowned out by many other, immediately accessible distractions. Installations of A.I. assistant apps like ChatGPT and Grok rose to 1 billion in Q4 2025, a statistic that initially seems unrelated to video games until you read industry analyst Matthew Ball’s latest report, which found that American men aged 18-35 – the classic video game demographic – were twice as likely than the average U.S. adult to use AI assistants... the same level of likelihood that they would play console video games.
In short, gamers are also probably using AI apps. So what? Well, further stats make it clear the smartphone is an increasing threat to traditional console gaming. Those same American men are also up to 3.6x as likely to subscribe to OnlyFans creators and use prediction markets. The gamification of prediction markets like Polymarket and Kalshi is set to increase with the integration of AI engines to provide live “culturally relevant” markets to “play” in. The playability of these sports betting markets, combined with on-the-go live access through your smart phone, scratches that same itch as gacha pulls or opening a pack in FIFA Ultimate Team to the nth degree. It’s something Microsoft CEO Satya Nadella touched on during an internal Q&A session at Microsoft: “The level of hijacking of our attention that’s going on … I want us to reverse that.”
The video game industry appears to be in the early stages of a slow-but-alarming bleed of players, with their attention – and consequently money – drawn to other avenues of entertainment that, unlike traditional gaming, can distract them wherever they are, whenever they want.
Price Hike
This bleed of consumers has become a compounding problem for those in the console business - especially if you’re Microsoft. Xbox’s content & services revenue is down 5% year on year, damaged by Black Ops 7 being the worst-selling Call of Duty since 2008’s World at War. Bloomberg reported Microsoft suffered up to $300 million in losses from its Day One Game Pass gamble with its predecessor, Black Ops 6, and the fact that 82% of all full-price, launch month sales of the shooter came from PlayStation added to the injury. The consequential Game Pass price hike (over 50% in the case of the Ultimate tier, from $19.99 to $29.99) was so badly received that traffic to Microsoft’s website caused it to temporarily buckle.
It was these factors, and most importantly, the 32% decline in hardware sales in the last quarter of 2025 that likely led to Phil Spencer’s retirement and the shock installation of Asha Sharma over Sarah Bond. This seems to be Microsoft’s first big play into restructuring Xbox as a software-first, hardware-second company. Project Helix’s recent unveiling and Sharma’s focus on its third-party-friendly capabilities, alongside Nadella openly questioning what gaming looks like “in its most expansive form going forward”, seems to support the rumors this new console will align more like a plug-and-play gaming PC than a traditional Xbox console. With Newzoo’s 2025 PC & Console Gaming Report predicting PC revenue to surpass console by 2028, it’s not hard to see why this change in direction has emerged.
PlayStation on the other hand is knocking it out of the park. Or is it? At the 2025 Tokyo Game Show, Sony announced the PS5 was its most successful generation yet with over $136b in sales-to-date. However, Sony’s Game & Network services reported a $400m loss between Q3 2024 and Q3 2025, likely from the same issue plaguing Xbox: the decline of hardware sales. The PS5 has yet to outsell the PS4 in pure console sales: 80.3m PS5s have been shipped as of June 2025 compared to 117.2m PS4 sales in totality. Sony’s shift away from PC ports of its first-party titles are a noticeable sign of a change in strategy, with PlayStation insiders citing a worry over diluting the PlayStation brand like Microsoft did with Xbox. When $50+ games make up 79% of your business model’s revenue distribution, console manufacturers can no longer afford to play nice with the PC market. This hardware crisis is casting an ever-increasing shadow that looms over every company. Sony is considering delaying the PS6’s debut to 2028 or even 2029, has already hiked the price of the PS5, and even Nintendo is mulling over a Switch 2 price increase thanks to investors worried about sustaining the console’s momentum due to potential DRAM shortages.
The Roblox Problem
This decline in hardware sales is also partially led by Xbox and PlayStation’s difficulty in recruiting younger generations to the console cause. In 2025, free-to-play MMORPG Roblox accounted for 40% of the industry’s total net growth outside of China. Its monthly hours of engagement surpass Steam, PlayStation and Fortnite combined at 10.2 billion, and are fast approaching Netflix’s global hours of engagement. Just 3% of that playerbase is on consoles. Roblox mega-hit sensation Grow a Garden broke concurrent user records in October last year at 25 million concurrent players, surpassing the likes of PUBG and Fortnite. Meanwhile, Highguard developer Wildlight Entertainment recently shuttered its debut game as the result of failing to build a sustainable player base. Newzoo’s 2026 PC & Console Gaming Report revealed that AAA games are of little interest to the sandbox crowd - its data suggests Roblox fans have almost zero interest in games like Borderlands and Battlefield. It’s not hard to see why 9-17 year olds love it - it’s the ultimate sandbox where your creations can literally get you paid; Roblox shelled out $1.5 billion to player developers in 2025. When players can recreate (admittedly often crude facsimiles of) the gameplay of everything from Half-Life 2, Grand Theft Auto and even Fortnite’s gargantuan celebratory events, why would young gamers want to play anything else - let alone buy an expensive new console?
Roblox's monthly hours of engagement surpass Steam, PlayStation and Fortnite combined.“
This struggle to maintain players’ attention and cultivate younger generations is even affecting the mobile game industry - conglomerates like Embracer and ByteDance are selling off once-lucrative publishers to the likes of Miniclip and Savvy Games, U.S. mobile game installations sit at a 12-year low of 3.5 billion, and global mobile gaming spend has remained flat for the last five years.
So if hardware sales are down, player counts are declining, and publishers are considering prolonged generations - how has the industry hit that $195.6 billion number? Instead of capturing new players, publishers are squeezing those that are left. Microtransactions and subscriptions have eclipsed hardware sales to become the main revenue driver: in the U.S., in-game purchases account for 50% of PC revenue and 48% of consoles; in Europe, it’s even higher. Publishers now focus efforts on subtle-but-significant microtransaction and service hikes. Xbox’s eye-watering Game Pass hike is the most egregious example, but no publisher is exempt from subtly pushing up its prices. In 2023, 13,500 Fortnite V-Bucks cost $80, but now sit at $90 for a thousand less. Another increase could be on the horizon: Epic Games’ recent layoffs suggest that this band-aid may be slowly peeling off. Sony increased PlayStation Plus subscription revenue by $1 billion between 2022 and 2024 merely by adding a $120 ‘Premium’ tier, upping it to $160 just one year later, as well as raising the price of the ‘Extra’ tier by $35 and Essential by $20. Gamers have become the frog in the pot of water - and many haven’t noticed publishers have been turning up the heat.
