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In This Edition
- Matthew Ball discusses his new report
- What can China and Roblox teach us?
- Could AI keep older gamers engaged?
- Is a loss of investment a problem?
Hello!
It’s Christmas for us nerdy game data types, because industry analyst and advisor Matthew Ball has released his annual presentation.
This year, Matthew asks (and answers) the question: if video games are at an all-time high, why are so many game companies still struggling?
It’s a fascinating dive into where this growth is coming from, and who is benefitting from it (i.e. not Western game publishers and developers). You should read it.
To celebrate its release, I had the privilege of welcoming Matthew onto this week’s edition of The Game Business Show. We spoke for nearly 90 minutes. So, I’ve done the sensible thing of splitting our interview in two, with the second part coming next week.
In Part One, we discuss the China and Roblox problem, the console challenge, the loss of game funding, and the missed opportunity with older players.
You can watch or listen to the conversation above. Or check out my key takeaways below.
Enjoy!
“Video gaming has been a loser in the attention wars over the last half decade”
Reading a Matthew Ball report can be a sobering experience. Last year, the video game industry reached a new all-time high. After three consecutive years of growth, 2025 is 5% higher than the previous peak in 2021. That’s roughly $10 billion in consumer spend. All key market segments – PC, console and mobile – grew. That reads like excellent news.
But Ball has a question.
“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 answer is that the growth is happening in places a lot of Western game developers and publishers can’t access. It’s China, it’s Roblox, it’s console services like PlayStation Network, Nintendo Switch Online and Xbox Game Pass.
I talked about these issues, and a whole lot more, with Ball in the latest edition of The Game Business Show. And here are the seven key things I took away from part one of our conversation.
The industry is investing less in new game development than they have in recorded history
Ball observed that the investment in studios has fallen 85% since the highs of 2021, but critically it is below 2019 levels, 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 only challenge. There’s been an unprecedented number of game cancellations and studio closures. Budgets have been slashed. And an increasing amount of game content investment is going to external development companies… and these companies aren’t typically the ones driving the new creative concepts.
I suggested this was a key industry problem on social media, and other industry commentators pushed back. They argued, quite reasonably, that there are so many games coming to market, it makes sense – and is even necessary – that there is a drop in investment.
But I go back to that opening line of this piece. Video gaming is losing the attention war. So, surely a drop in investment is limiting the industry’s ability to fight back?
“[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.”
Console growth is not hitting developers and publishers
One of the big topics in video games has been around consoles, with a rising number of publishers increasing their focus on PC.
This might seem surprising. Last year, $41.6 billion was spent on game content and services on consoles (that includes full games, microtransactions, DLC and subscriptions), which is half a billion more than in the 2021 when the industry was going through 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 result, companies are looking beyond console. But it’s still challenging. PC is growing, but it’s saturated.
“Right now it’s tough, but certainly if you’re going to make a bet, it looks like PC, not console.”
Roblox might be where the innovation comes from
Ball says that 70% of market growth outside of China last year went to Roblox.
Roblox has become the video game industry’s version of YouTube. A user generated game platform that is taking up player time and money, but traditional companies can’t easily participate in. But Ball feels there is an opportunity for developers if they look to what is working 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.”
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… and there’s innovation from China
A lot of the growth in video games is in China, and this is a problem for Western companies because it’s hard to fully participate in the Chinese market. 84% of Chinese game revenue is going to games made in China.
What’s more, we’re now seeing some of these Chinese-made games take a bigger share of the global market, too. According to Ball, out of the $10 billion increase the video game industry made in 2025 (vs 2021), $4 billion of that was in China, and another $1.5 billion of it went to China-made games being sold in global markets (titles like Last War and Black Myth: Wukong).
China has a few key advantages. It has a working culture where employees often work longer, it has domestic protections that support the local industry, and development costs are generally lower.
All of this is a challenge for Western game companies, but like with Roblox, Ball feels there is innovation happening in China that developers 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.”
Targeting new markets might require making games your core player-base rejects
Ball’s report observes that the ‘core’ video game markets - US, UK, Germany, Japan, Korea, Canada, Italy, France - have declined in aggregate since 2020.
Ball suspects there is limited growth in these markets, therefore growth becomes about Brazil, Mexico, Spain, Southeast Asia, Middle East and North Africa.
However, a lot of these markets are pre-monetization, which means people are playing games, but they’re not necessarily 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, but it involves making games very differently, and that might alienate the traditional player 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.”
Older gamers are disengaging with story games
My favorite part of my conversation with Ball was around single player story 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 challenge of older people having less time to play 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.”
Could AI help retain older players?
Older games should be an opportunity for the industry, especially as generation X approaches retirement age. But right now, the game industry – outside of the mobile casual space – is not doing a great job of engaging them.
“We are definitely losing that cohort,” Ball observes.
Part of the issue, Ball suspects, is that older players might have to take big breaks between play sessions, and most games aren’t great at re-onboarding folks.
“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.”
Meanwhile…
Scopely is to acquire a majority stake in Istanbul-based developer Loom Games, the developer behind the hit mobile title Pixel Flow. Financial terms were not disclosed, but the deal values the business at $1 billion. Pixel Flow already has 10 million players and is one of the Top 20 Grossing mobile games in the US.
Roguelike hit Mewgenics has now sold one million copies in just one week
Circana expects US game spending to rise 3% to $62.8 billion in 2026, driven by Nintendo Switch 2, Grand Theft Auto 6 and subscriptions.
UK PR agency Bastion has hired Rebekah Nicodemus to lead its new North American office.
Valve says that its Steam Deck OLED may be temporarily sold out in some regions due to the on-going RAM and storage crisis.
That was a big one! Join us back on Monday for our paid subscriber-only edition of The Game Business Micro (paid subscribers can also expect our market report next week). We also have our usual interview on Tuesday, and on Thursday we will have more from our chat with Matthew Ball.
Until then, thank you for reading.
