Armageddon, As Expected

 

I find myself decreasingly motivated to write these days, and it's not for lack of drive. If anything, it's because I'm increasingly unwilling to digest the subject matter. The reaper has come to collect, and the gaming industry is being marched toward its grave.

The one thing we can say is that none of this is surprising. A few years ago, prominent industry insiders were already warning about the inevitable consequences of the COVID-era hiring spree and the unchecked growth that followed. If you want to go back about two centuries, there were entire schools of economic thought built around the idea that industries eventually collapse under the weight of their own excesses. I'm not particularly interested in turning this into a philosophical debate about economic systems, especially given how quickly those conversations derail into violent radioactivity online.

What matters is that we knew this was coming. We knew the correction would be agonizing. I don't think enough people appreciated just how fucking dark it would be upon realization.

There are a handful of examples worth dissecting. Among them are the unraveling of Xbox's current strategy under Asha Sharma, and the death rattles emanating from Sony's live-service ambitions.

Two weeks ago, the gaming community was enthralled by what was probably the most attractive Summer Games Fest season the industry has produced in years. The main showcase was good, Playstation and Nintendo both had strong showings, and yet all of them were thoroughly eclipsed by a juggernaut of an Xbox Games Showcase.

Xbox won Summer Games Fest. For a few days, the conversation shifted away from declining hardware sales, studio closures, and strategic confusion. Everyone got to enjoy the high and daydream about what Xbox, err, XBOX, could be.

In keeping with the analogy, I wonder if, in the future, the Showcase will read more as a defibrillator to a dying body, or rigor mortis from a company whose fate was sealed years ago.

One week. That's how long Xbox got to enjoy its victory lap before the paint from the landlord special started to peel and reveal the water damage.

Fresh off of a Showcase that showed off Gears of War, Halo, Fable, Metro, Senua, and the announcement of Persona 6, Xbox CEO Asha Sharma published an immediately concerning memo. The "Xbox Reset" initiative laid bare a reality that many had expected: despite spending over $20 billion in the last five years, Xbox's revenue has declined, profitability has collapsed, and hardware costs are spiraling out of control.

In lieu of this public letter, reports emerged that Ninja Theory, the studio behind Hellblade, was being shut down mere days after appearing on stage to announce the next entry in the franchise. We’d later learn that Ninja Theory was on the chopping block prior to the reveal, but that they requested an appearance at the Showcase to intrigue potential inventors, sickening. Compulsion Games (South of Midnight) and Double Fine (Psychonauts) also allegedly find themselves fighting for survival as rumors spread that multiple Xbox-owned studios are either being sold off, spun out, or quietly marched toward that same chopping block.

What's remarkable is the speed at which sentiment shifted. One week the conversation was about Gears, Clockwork Revolution, and the seemingly virile future of the platform. The next it was about layoffs, closures, executive departures, collapsing margins, and whether Xbox might actually meet its fate as the 21st century’s Sega.

More reporting would emerge that Microsoft's strategy was always to placate its core audience with a Showcase, only to drive the knife while they were distracted, and while that seems a bit too crude, the timeline supports that narrative. Xbox has buyers remorse, and to recoup its losses, it's going to do what businesses do best: take it out on the little guy while executives laugh their way to the bank.

A timely segue, then.

There is, undoubtedly, a special place in hell for the likes of Jim Ryan and Pete Parsons.

The recent news surrounding Bungie has been nothing short of apocalyptic. As Destiny 2 has entered maintenance mode, reports of additional layoffs (as much as 50%) continue to circulate, Destiny 3 remains nowhere to be found, and the studio's future appears increasingly tied to the success or failure of Marathon; but it might already be too late, short of a truly unprecedented and miraculous turn around (and I mean in GTAs weight class), it’s possible nothing will spare the studio. Horrendous decision after horrendous decision; this did not come out of left field. 

Historically, Bungie has been known to have a high burn rate, for the back of the class that means that Destiny 2 used, scientifically, a shit ton of its generated revenue to maintain its development, this was most famously cited by Activision and later echoed by Microsoft. The commercial underperformance of Forsaken in 2018 told us two things; Activision’s expectations were too high, and that development on Destiny was incredibly expensive. After going independent in 2019, however, Bungie would rally, and see roughly 5 years of unrestricted growth and expansion off the back of the Beyond Light and Witch Queen expansions. It’s also around this time that Parsons’ mismanagement would kick into overdrive.

As Destiny's player counts declined between major expansions and (apparently absurd) revenue targets were repeatedly missed, the studio found itself between the cost structure of a rapidly expanding corporation, and the output of a company struggling to maintain its flagship product. Former employees have since described severe resource mismanagement and leadership failures that left Bungie in a precarious financial position long before it was ever made public, which frames Sony's eventual acquisition as less of a strategic masterstroke and more a “break glass in case of emergency” situation so that Bungie’s suits could make out with a bigger payday with little to no regard for the long term survivability of the studio.

Parsons' multi-million-dollar classic car collection only made it worse. That story, and subsequent reporting that he’d frequently flaunt them around the office, became a symbol of everything employees and players believed was wrong with leadership. Every layoff was followed by another round of photos showing vintage collector cars, catastrophic optics.

But focusing exclusively on Parsons lets another architect of this utter shitshow escape responsibility.

Long before Bungie's problems became impossible to ignore, former PlayStation CEO Jim Ryan had already bet the future of Sony Interactive Entertainment on a massive live-service initiative. The plan was to acquire Bungie, leverage its expertise, and launch a portfolio of more than a dozen live-service titles capable of generating recurring revenue on a scale that traditional single-player releases simply could not match.

In the spirit of the world cup and in reference to Ryan’s home country, daft nonce.

Project after project was delayed, cancelled, rebooted, or quietly disappeared. Studios were reorganized and budgets ballooned while expectations became detached from reality. Bungie, the studio acquired to guide this transformation, spent much of the next several years demonstrating exactly how difficult sustaining a live-service business actually is.

Over the last several years, Sony's live-service initiative has resembled less of a business strategy and more of an uncontrolled demolition. The Last of Us Factions was cancelled after years of development. Concord detonated on release. The God of War live-service project never made it out alive. TeamLFG was spun out to continue work on Project Gummy Bears, a game the public has still barely seen. Fairgame$ remains trapped in a strange state of developmental purgatory. There’s about half a dozen more projects that never made it to announcement, let alone release, and that brings us back to Bungie.

To understand Bungie's current position, we need to acknowledge something that far too many players simply do not want to hear: Destiny 2 has always been risky. Even at its peak, Destiny generated unfathomable revenue while simultaneously requiring enormous development expenditure. The game was successful, but it was also extraordinarily expensive to build. Maintaining a live-service title at that scale requires a constant flow of content, infrastructure, staffing, marketing, and development resources. The margins were never as comfortable as some assumed and continue to allege.

Lightfall sold well, very well. The problem was everything that happened afterward. Player retention collapsed, engagement deteriorated, and it consequentially missed revenue targets by roughly 45%. Were those projections overly ambitious? Probably. But investors don't grade on a curve, and neither does SIE. That’s not to say that it was the nail in the coffin, as Sony would spend years continuing to fund the game in hopes of seeing substantial ROI.

When Lightfall underperformed, Sony gave them more time.

When The Final Shape underperformed, Sony gave them more time.

When The Edge of Fate underperformed, Sony gave them more time.

When Renegades underperformed… You get the idea.

Marathon was supposed to justify years of investment, acquisitions, restructuring, and strategic planning, and it didn’t, but it's still reportedly being given at least one more year of runway to take off.

At some point, the conversation stops being about individual failures and starts being about a pattern. This is where a lot of community discussion loses the plot. Every underperforming release is treated as an isolated event. Every missed projection is explained away by marketing failures, executive meddling, poor timing, or bad luck. Any one of those explanations can be true once. Maybe twice. Not for three years. Steam chart peaks also do not tell the full story of a franchise that's core playerbase is squarely on consoles. Enough of that shit too, please.

I have absolutely no interest in defending Sony. SIE is a multi-billion-dollar corporation that has spent the better part of a decade chasing trends and burning money in pursuit of recurring revenue at the expense of continued investment in their bread and butter. Waffling between wanting to compete with Xbox and Nintendo is psychotic considering those two business models couldn’t be further from one another. It is this waffling that has led Sony to have one foot in tepidly in live services while losing footing in their single player titles. The studios that were impacted by this initiative were being supported by a publisher that had no fucking idea what it was doing, and as a result routinely underperformed. 

Even though management should bear the responsibility here, they will not, but the bill arrives all the same and someone is going to have to pick up the tab.

That bill is arriving in the middle of Armageddon, and it could not possibly be coming at a worse time. This is it. The reckoning that investors and executives have spent years pretending could be postponed indefinitely. The ramifications will be felt everywhere.

This isn't based on rumors, leaks, or sourceless screenshots. It's based on the cyclical nature of speculative bubbles and the brutal mathematics that follow when they burst. Studios will close. Projects will be cancelled. Tens of thousands of jobs across the broader technology and entertainment sectors will continue to disappear. Capital that once flowed freely will become increasingly selective, and companies that spent years prioritizing growth over sustainability will discover that the market is suddenly interested in absolute profitability again. This is not unique to Xbox or SIE, the collapse is indiscriminate. The sacred thermodynamics of a bubble bursting.

And all of this is happening before we've even begun discussing the entire tech industry's own self-inflicted crisis.

Artificial intelligence remains the elephant in the room. As development costs continue to climb and executives search desperately for efficiencies, the temptation to replace artists, writers, designers, and support staff with increasingly sophisticated generative tools will only grow. Whether those tools ultimately reduce costs, improve productivity, or simply create new problems remains an open question.

For the better part of a decade, the gaming industry convinced itself that growth was a law of nature. Headcounts doubled, budgets tripled, and publishers went on acquisition sprees. Investors demanded infinite expansion, and executives promised infinite expansion.

The bill has arrived. It’s arriving for Xbox. It’s arriving for Sony's live-service ambitions and seemingly spilling into their single player rhythm as we hear reports about Sony’s disgruntlement with Naughty Dog’s lack-of-output during the PS5 generation despite what I imagine was sony asking them to invest money and years of development time into Factions, which never materialized. It’s arriving for countless studios whose names haven't yet appeared in insider tweets and whose employees are still being told by their executives that they have leeway before the axe swings.

Not to be bleak, but if we’re going to be adults about this we must have enough respect for one another to shoot straight; there is no escaping this, there is no mitigation tactic. As sure as the sun will set this evening, as sure as the dot com bubble burst, as sure as the housing market collapsed almost two decades ago. There might’ve been a world where Marathon was more successful, attracting the same audience as something like Arc Raiders, a world where the title wasn’t mired in controversy or problematic overdevelopment, where it wasn’t maligned by certain camps who wanted to watch Bungie burn for one reason or another.

My final two cents are to remind anyone that wants to see things burn that fire spreads quickly, and you’re standing so dangerously close to the drapes that you cannot be surprised when the house goes up too.

I yearn for a miracle, as I’m sure we all do, but the economist in me has seen this story far too many times to be delusionally optimistic.