Senua Saga: Hellblade 2 recently came out to glowing reviews and… well, not so glowing concurrent player counts on Steam. Specifically, it peaked at about 4000 players, compared to 5600 for the original game back in 2017, and compared to ~6000 for Hi-Fi Rush and Redfall. The Reddit post where I found this information has the typical excuses, e.g. it’s all Game Pass’s fault (it was a Day 1 release):

They really don’t get that gamepass is unsustainable. It works for Netflix because movies and tv shows can be made in a year or less so they can keep pumping out content each year. Games take years to make and they can’t keep the same stream of new content releasing the same way streaming services do.

Gamepass subs are already stagnating, they would make more money if they held off putting new exclusives on gamepass like movies do with putting them in theatres first before putting them on streaming. (source)

Now, it’s worth pointing out that concurrent player counts is not precisely the best way to measure the relative success of a single-player game. Unless, I suppose, you are Baldur’s Gate 3. Also, Hellblade 2 is a story-based sequel to an artistic game that, as established, only hit a peak of 5600 concurrent players. According to Wikipedia, the original game sold about 1,000,000 copies by June 2018. Thus, one would likely presume that the sequel would sell roughly the same amount or less.

The thing that piqued my interest though, was the reply that came next:

Yeah, even “small” games like Hellblade and Hi-Fi Rush, which are both under 10h to complete, took 5/6 years to develop. It’s impossible to justify developing games like these with gigantic budgets if you’re going to have them on your subscription service.

I mean… sure. But there’s an unspoken assumption here that these small games with gigantic, 5-6 year budgets would be justified even without being on a subscription service. See hot take:

Hellblade 2 really is the ultimate example of the flaw of Xbox’s “hands off” approach to game dev.

How has a studio been able to take 5 years making a tiny game that is basically identical to the first?

How did Rare get away with farting out trailers for Everwild despite the game literlaly not existing?

Reddit may constantly slag off strict management and studio control, but sometimes it’s needed to reign studios in and actually create games…

Gaming’s “sustainability problem” has long been forecast, but it does feel like things have more recently come to a head. It is easy to villainize Microsoft for closing down, say, the Hi-Fi Rush devs a year after soaking up their accolades… but good reviews don’t always equate to profit. Did the game even make back its production costs? Would it be fiduciarily responsible to make the bet in 2024, that Hi-Fi Rush 2 would outperform the original in 2030?

To be clear, I’m not in favor of Microsoft shutting down the studio. Nor do I want fewer of these kind of games. Games are commercial products, but that is not all they can be. Things like Journey can be transformative experiences, and we would all be worse off for them not existing.

Last post, I mentioned that Square Enix is shifting priorities of their entire company based on poor numbers for their mainline Final Fantasy PS5 timed-exclusive releases. But the fundamental problem is a bit deeper. At Square Enix, we’ve heard for years about how one of their games will sell millions of copies but still be considered “underperforming.” For example, the original Tomb Raider reboot sold 3.4 million copies in the first month, but the execs thought that made it a failure. Well, there was a recent Reddit thread about an ex-Square Enix executive explaining the thought process. In short:

There’s a misunderstanding that has been repeated for nearly a decade and a half that Square Enix sets arbitrarily high sales requirements then gets upset when its arbitrarily high sales requirements fail to be met. […]

If a game costs $100m to make, and takes 5 years, then you have to beat, as an example, what the business could have returned investing $100m into the stock market over that period.

For the 5 years prior to Feb 2024, the stock market averaged a rate of return of 14.5%. Investing that $100m in the stock market would net you a return of $201m, so this is our ROI baseline. Can the game net a return higher than this after marketing, platform fees, and discounts are factored in?

That… makes sense. One might even say it’s basic economics.

However, that heuristic also seems outrageously unsustainable in of itself. Almost by definition, very few companies beat “the market.” Especially when the market is, by weight, Microsoft (7.16%), Apple (6.12%), Nvidia (5.79%), Amazon (3.74%), and Meta (2.31%). And 495 other companies, of course. As an investor, sure, why pick a videogame stock over SPY if the latter has the better return? But how exactly does one run a company this way?

Out of curiosity, I found a site to compare some game stocks vs SPY over the last 10 years:

I’ll be goddamned. They do usually beat the market. In case something happens to the picture:

• Square Enix – 75.89%
• EA – 276.53%
• Ubisoft – 30.56%
• Take Two – 595.14%
• S&P 500 – 170.51%

And it’s worth pointing out that Square Enix was beating the market in August 2023 before a big decline, followed by the even worse decline that we talked about recently. Indeed, every game company in this comparison was beating SPY, before Ubisoft started declining in 2022. Probably why they finally got around to “breaking the glass” when it comes to Assassin’s Creed: Japan.

Huh. This was not the direction I thought this post was going as I was writing it.

Fundamentally, I suppose the question remains as to how sustainable the videogame market is. The ex-Square Enix executive Reddit post I linked earlier has a lot more things to say on the topic, actually, and I absolutely recommend reading through it. One of the biggest takeaways is that major studios are struggling to adjust to the new reality that F2P juggernauts like Fortnite and Genshin Impact (etc) exist. Before, they could throw some more production value and/or marketing into their games and be relatively certain to achieve a certain amount of sales as long as a competitor wasn’t also releasing a major game the same month. Now, they have to worry about that and the fact that Fortnite and Genshin are still siphoning up both money and gamer time.

Which… feels kind of obvious when you write it out loud. There was never a time when I played fewer other games than when I was the in the throes of WoW (or MMOs in general). And while MMOs are niche, things like Fortnite no longer are. So not only do they have to beat out similar titles, they have to beat out a F2P title that gets huge updates every 6 weeks and has been refined to a razor edge over almost a decade. Sorta like how Rift or Warhammer or other MMOs had to debut into WoW’s shadow.

So, is gaming – or even AAA specifically – really unsustainable? Possibly.

What I think is unsustainable are production times. I have thought about this for a while, but it’s wild hearing about some of the sausage-making reporting on game development. My go-to example is always Mass Effect: Andromeda. The game spent five years in development, but it was pretty much stitched together in 18 months, and not just because of crunch. Perhaps it is unreasonable to assume the “spaghetti against the wall” phase of development can be shortened or removed, or I am not appreciating the iteration necessary to get gameplay just right. But the Production Time lever is the only one these companies can realistically pull – raising prices just makes the F2P juggernaut comparisons worse, gamer ire notwithstanding. And are any of these games even worth $80, $90, $100 in the first place?

Perversely, even if Square Enix and others were able to achieve shorter production times, that means they will be pumping out more games (assuming they don’t fire thousands of devs). Which means more competition, more overlap, and still facing down the Fortnite gun. Pivoting to live service games to more directly counter Fortnite doesn’t seem to be working either; none of us seem to want that.

I suppose we will have to see how this plays out over time. The game industry at large is clearly profitable and growing besides. We will also probably have the AAA spectacles of Call of Duty and the like that can easily justify the production values. Similarly, the indie scene will likely always be popping, as small team/solo devs shoot their shot in a crowded market, while keeping their day jobs to get by.

But the artistic AA games? Those may be in trouble. The only path for viability I see there is, ironically, something like Game Pass. Microsoft is closing (now internal) studios, yes, but it’s clearly supporting a lot of smaller titles from independent teams and giving them visibility they may not otherwise have achieved. And Game Pass needs these sort of games to pad out the catalog in-between major releases. There are conflicting stories about whether the Faustian Game Pass Bargain is worth it, but I imagine most of that is based on a post-hoc analysis of popularity. Curation and signal-boosting is only going to become increasingly required to succeed for medium-sized studios.