The state of video video games with Matthew Ball – Part One

Listen now on Apple, Spotify or YouTube

In This Edition
– Matthew Ball discusses his new report
– What can China and Roblox train us?
– Could AI maintain older avid gamers engaged?
– Is a lack of funding an issue?

Hello!

It’s Christmas for us nerdy recreation information sorts, as a result of business analyst and advisor Matthew Ball has launched his annual presentation.

This yr, Matthew asks (and solutions) the query: if video video games are at an all-time excessive, why are so many recreation corporations nonetheless struggling?

It’s a captivating dive into the place this progress is coming from, and who’s benefitting from it (i.e. not Western recreation publishers and builders). You should read it.

To have fun its launch, I had the privilege of welcoming Matthew onto this week’s version of The Game Business Show. We spoke for almost 90 minutes. So, I’ve accomplished the smart factor of splitting our interview in two, with the second half coming subsequent week.

In Part One, we talk about the China and Roblox drawback, the console problem, the lack of recreation funding, and the missed alternative with older gamers.

You can watch or hearken to the dialog above. Or try my key takeaways under.

Enjoy!

Reading a Matthew Ball report could be a sobering expertise. Last yr, the online game business reached a brand new all-time excessive. After three consecutive years of progress, 2025 is 5% larger than the earlier peak in 2021. That’s roughly $10 billion in client spend. All key market segments – PC, console and cell – grew. That reads like good news.

But Ball has a query.

“Why don’t things seem to be getting better? Where is the money actually going, because it does not seem to be going to developers, publishers, or new games?”

The reply is that the expansion is occurring in locations a whole lot of Western recreation builders and publishers can’t entry. It’s China, it’s Roblox, it’s console companies like PlayStation Network, Nintendo Switch Online and Xbox Game Pass.

I talked about these points, and a complete lot extra, with Ball within the newest version of The Game Business Show. And listed here are the seven key issues I took away from half one among our dialog.

Ball noticed that the funding in studios has fallen 85% because the highs of 2021, however critically it’s under 2019 ranges, too.

“That’s critical because revenues are up 30% to 40%,” he says. “And then in parallel, the costs of development per person, because of inflation, has gone up. So even though we’re talking about being roughly 2019, 2018 levels, on an adjusted to revenue basis, or an adjusted to personnel cost, we’re probably approaching a decade long low in venture funding into game studios.”

VCs aren’t the one problem. There’s been an unprecedented variety of recreation cancellations and studio closures. Budgets have been slashed. And an growing quantity of recreation content material funding goes to exterior improvement corporations… and these corporations aren’t sometimes those driving the brand new inventive ideas.

I prompt this was a key business drawback on social media, and different business commentators pushed again. They argued, fairly moderately, that there are such a lot of video games coming to market, it is sensible – and is even obligatory – that there’s a drop in funding.

But I am going again to that opening line of this piece. Video gaming is dropping the eye conflict. So, absolutely a drop in funding is limiting the business’s means to combat again?

“[Outside of the pandemic year] the industry now invests less in new game development than they have in recorded history [as a share of total net revenue],” Ball explains. “That is in one sense a big problem. How are we going to find the new great hits? On the other side, we still see a myriad other games coming out. Mewgenics just cae out. We see categories like Block Blast, which has, I think, 150 million monthly active users, tens of millions of daily active users. So, whether we’re talking about brand new ideas, or Arc Raiders going after some of the industry stalwarts, or someone just reinventing a Tetras spinoff, we definitely see new ideas coming into the forefront. And it’s not clear that the solve for more innovation would be more venture funding, more studio funding or a higher level of revenue reinvestment. It seems to be coming at the smaller scale, and that’s positive.”

One of the large matters in video video games has been round consoles, with a rising variety of publishers growing their deal with PC.

This might sound stunning. Last yr, $41.6 billion was spent on recreation content material and companies on consoles (that features full video games, microtransactions, DLC and subscriptions), which is half a billion greater than within the 2021 when the business was going by means of that pandemic surge.

“It sounds positive,” says Ball. “But what had actually happened was a transformation in those revenues. In 2020, PlayStation Network was doing roughly $3.4 billion per year in revenue. This year it’s going to be close to $5.1 billion. So, we’re talking about a $1.7 billion increase in PlayStation Network revenue. But the overall market grew only half a billion. That starts to illuminate the picture. Consumer spending went up, but where it’s going has changed.

“In 2025. video gamers spent $30.5 billion on package games and mictrotransactions, down from $34.2 billion. So no, the industry didn’t grow a half billion. It shrunk by $3.7 billion if you are a publisher trying to access those monies. Now, some portion of Game Pass revenues go outside of the Xbox Game Studios. We don’t know what the discount is. Some of the PlayStation Network money is reallocated to their internal studios.”

As a consequence, corporations are wanting past console. But it’s nonetheless difficult. PC is rising, however it’s saturated.

“Right now it’s tough, but certainly if you’re going to make a bet, it looks like PC, not console.”

Ball says that 70% of market progress outdoors of China final yr went to Roblox.

Roblox has develop into the online game business’s model of YouTube. A person generated recreation platform that’s taking over participant money and time, however conventional corporations can’t simply take part in. But Ball feels there is a chance for builders if they give the impression of being to what’s engaged on Roblox.

“I do think that there’s reason for positivity there,” Ball says. “When you take a look at [hit Roblox game] Steal A Brain Rot, that general mechanic is definitely innovative. It’s demonstrably sticky. Will it continue to permutate and gyrate into what we used to call HD gaming? Probably. But yes, by and large, when you take a look at these game designs, how they monetize, how they stimulate, what they reward, it is tough to flex anything from the traditional system down there. You can do it. The Sonic titles seem reasonably popular, but it’s not clear that the strength doesn’t really come from platform native opportunities, which by and large means that they’re not accessible to most traditional developers.”

Advertisement

Plenty of the expansion in video video games is in China, and it is a drawback for Western corporations as a result of it’s arduous to totally take part within the Chinese market. 84% of Chinese recreation income goes to video games made in China.

What’s extra, we’re now seeing a few of these Chinese-made video games take an even bigger share of the worldwide market, too. According to Ball, out of the $10 billion improve the online game business made in 2025 (vs 2021), $4 billion of that was in China, and one other $1.5 billion of it went to China-made video games being offered in international markets (titles like Last War and Black Myth: Wukong).

China has just a few key benefits. It has a working tradition the place workers typically work longer, it has home protections that assist the native business, and improvement prices are typically decrease.

All of it is a problem for Western recreation corporations, however like with Roblox, Ball feels there’s innovation taking place in China that builders can capitalise on.

“I write in the report about Love And Deepspace, which is the strangest title,” Ball begins. “It’s a genre mashup that goes after themes that no-one has ever mashed up before and goes after an audience that almost no-one targets. And it deploys that through themes and monetization mechanics that most in the West don’t.

“It’s a 3D space fairing action, sci-fi, adventure, sometimes hack and slash, that’s going after the otome genre for romance. It primarily targets women and gay men, not exclusively, but that’s clearly the focal audience. And they’ve done about $2 billion in gross bookings over the last two years. A quarter of that comes from outside of China. There’s $150 million in Europe, another $150 million that took place in North America. It’s a segment that no one goes after and would’ve been completely challenging to imagine is a real market opportunity.”

Ball’s report observes that the ‘core’ online game markets – US, UK, Germany, Japan, Korea, Canada, Italy, France – have declined in combination since 2020.

Ball suspects there’s restricted progress in these markets, subsequently progress turns into about Brazil, Mexico, Spain, Southeast Asia, Middle East and North Africa.

However, a whole lot of these markets are pre-monetization, which suggests individuals are enjoying video games, however they’re not essentially spending on them.

“If you want to operate in markets where the average gamer is spending not $250 a year on content as Americans do, not $600 per person per year as Koreans do, not even a $100 a year as a Brit or Frenchman might do, but you want to succeed in dozens of dollars or less, you need a fundamentally different cost structure,” Ball says.

Some have figured it out, however it includes making video games very in another way, and that may alienate the normal participant base.

“Garena does $3 billion a year in bookings. The average customer spends only $4 per year [on that game],” Ball says. “They make it work. And by the way, they’re not just having a huge top line by targeting those customers, they have an enormous bottom.

“Figuring it out isn’t just how do we appeal to those customers, it’s what do we build and how do we build it differently? And here’s the tough part, who in our core markets are we excluding? There’s a lot of talk right now about high-fidelity graphics. If you are going to say, we are going to run on low to mid-level phones, which by the way are about two thirds of all mobile revenue on Android globally, you have to talk about making something that your core customers may actually reject.”

My favourite a part of my dialog with Ball was round single participant story video games.

“Single player narrative games are having a tough time meeting historical expectations,” Ball notes. “Tears of the Kingdom drastically underperformed relative to Breath of the Wild, despite Switch being larger. God of War Ragnarok versus God of War, Spider-Man 2 versus Spiderman 1.

“A successful hit here might sell 15 to 30 million units of the high end. And the game completion rates… the [game complete] trophies for The Last of Us Part Two sit at the 40 to 50% mark. So 40 to 50% of people will finish a 30-hour story. If you mash that up with other data, we see that the older you get, the more likely you are to have disengaged over time, which is to say a man or a woman 45-plus plays games less today than they did five years ago.”

This is an often-discussed problem of older individuals having much less time to play video games. But it’s not purely about time.

“Video does $650 to $700 billion globally. It’s way bigger than video games. One of the reasons why is it packages a much wider variety of content overall. But it’s hitting multiple different things. Your session length is more flexible. Do you want two hours? Five minutes? Do you want 20?

“There’s also around placement. Where are you? Are you at the office? Are you at the bar? At at home ironing in the kitchen? In the living room?

“There’s another thing that they have is mind state. What are you in the mood for? One of the challenges, especially for single player narrative games is you are usually stuck into one thing. You pick up Resident Evil… if you have 15 minutes, or you’re just not in the mood for a specific type of play, or you’re on the go with your Steam Deck and it’s not an environment for immersive horror, you kind-of get forced out.”

Older video games ought to be a possibility for the business, particularly as technology X approaches retirement age. But proper now, the sport business – outdoors of the cell informal area – will not be doing an important job of participating them.

“We are definitely losing that cohort,” Ball observes.

Part of the problem, Ball suspects, is that older gamers may need to take massive breaks between play periods, and most video games aren’t nice at re-onboarding people.

“There is a mismatch between the general investment in tutorials for the first few minutes, relative to where actually the player loss happens,” Ball observers.

“Most games don’t lose players after 30 minutes, they lose them much later. You put the controller down and you don’t come back. And that’s partly because the map has expanded, the tools have expanded. You’re like, ‘holy crap, the skill tree, what did I have to prioritize?’ That, I suspect, is going to be a lot more important for that older game demo. Partly because, when there’s user testing, it’s usually not asking: ‘how hard is boss nine for a 58-year-old who hasn’t touched a controller in over two weeks?’

Is this something AI could help with?

“That’s actually a really interesting area where we can talk about AI in less of a threatening aspect,” Ball says. “We can clearly imagine an area in which a voice actor is providing thousands of lines of dialogues, fairly compensated, in response to specific prompts from the player who returns and says: “I’m lost. What do I do?”

“It is astonishing to me that some of the greatest creative achievements of this medium, that only 30 million people have played the game and only 15 million have completed the narrative. That is suggestive of a retention problem. I am vocal there are different solutions, AI and non-AI, that can remedy that, which aren’t just about making the game easier or faster or shorter.”

• Scopely is to accumulate a majority stake in Istanbul-based developer Loom Games, the developer behind the hit cell title Pixel Flow. Financial phrases weren’t disclosed, however the deal values the enterprise at $1 billion. Pixel Flow already has 10 million gamers and is without doubt one of the Top 20 Grossing cell video games within the US.

• Roguelike hit Mewgenics has now offered a million copies in only one week

• Circana expects US recreation spending to rise 3% to $62.8 billion in 2026, pushed by Nintendo Switch 2, Grand Theft Auto 6 and subscriptions.

• UK PR company Bastion has employed Rebekah Nicodemus to steer its new North American workplace.

• Valve says that its Steam Deck OLED could also be briefly offered out in some areas because of the on-going RAM and storage disaster.

That was an enormous one! Join us again on Monday for our paid subscriber-only version of The Game Business Micro (paid subscribers can even anticipate our market report subsequent week). We even have our traditional interview on Tuesday, and on Thursday we may have extra from our chat with Matthew Ball.

Until then, thanks for studying.