Soon, the game industry will implode upon itself. There are a whole bunch of signs occurring now that point towards this very event (note: these do not apply to Nintendo, more on that later):

1.) Development studios are closing left and right. While the small fish have always been bought out by the bigger fish, these times are completely different in that all the fish in the pond are in danger of collapse, big or small. I don't need to provide any proof on this. It seems that every week, another studio is closing down.

2.) Publishers are losing money. Even with gigantic releases like Grand Theft Auto 4, 2k still lost money on the quarter. Electronic Arts is the most massive conglomerate of games, and they reported 31 games selling at least a million for the year, and they still lost a whopping 1 billion dollars. Hardly anyone is making any money nowadays.

3.) Console makers are losing money. Sony and Microsoft's game divisions are still in the red (though the 360 did pull of a very small profit last quarter), and the justification for keeping these divisions is wearing thin. If the 3rd party publishers continue to lose money and go out of business, Sony and Microsoft would have no choice but to pull out of gaming, since most of their games are made by third parties.

4.) Most new IPs aren't selling well enough. While it can be argued that games like Littlebigplanet sold pretty well, the cost to advertise new IPs nowadays may well be far more than what sales they make, and most of the time they don't meet that cost.

5.) Established franchises are on the decline. Grand Theft Auto, Devil May Cry, Metal Gear Solid, and most of the other big name 3rd party franchises seem to be losing steam compared to their previous iterations.

Now the reasons for these things are quite simple. They are:

1.) Competition is unbelievably fierce. For the first time in this generation, we have three consoles that actually have decent comparative market share, and that is forcing each company to spend more on advertising. Game publishers too are receiving a lot of pressure to make bigger and bigger games, which results in:

2.) Game development costs are now ridiculously high. Nowadays, to hire a decent team to make a AAA title requires a whole lot of funding, a whole lot of advertising, and a whole lot of luck. Most of the time, the cost of making a game is higher than can ever be recovered.

1.) + 2.) Because of these two things, developers refuse to think outside the box, and when they do, the people don't respond. A lot of games are in danger of losing fans because of the lack of innovation brought from successive iterations of each game. Resident Evil 5, for example, received a lot of heat for its last generation controls, and may possibly lose sales when they start selling Resident Evil 6. Unfortunately, when developers do try something new, the public doesn't respond well enough to justify the risk. Littlebigplanet was hyped to hell, and sales were supposed to spike to Wii-like levels, but it failed to deliver on that promise.

It's a vicious cycle.

This is a problem that has risen due to costs and competition, and may well bring about the crash I'm talking about. Eventually, people will tire of the same old games, with each iteration of Call of Duty, for example, losing steam with every sequel until it dries up completely. Unfortunately, the developers won't be willing to refresh the mechanics because people don't seem to respond to change.

About Nintendo:

A lot of people will argue that Nintendo is actually preventing this crash from happening. I argue that even if Nintendo continues to do well, it will not prevent a gaming crash.

We all know that Ninty only controls less than 50% of the games market, which primarily consists of casual gamers. The other 50 something % of the market isn't really in tune with Mario, Zelda, and the rest of Ninty's game style.

In other words, sure, Nintendo will stay in the market and probably will gobble up every gamer in the planet when Sony and Microsoft decide to cut up their game divisions. But that will be a market that would be substantially smaller than today's market, as the other 50% that bought a 360 or a PS3 probably aren't fans of Mario.

To make things clearer, if today's market consisted of 10 people and Ninty controlled 5, tomorrow's market could consist of just those 5. If you think about it that way, a 50% crash is possible even if Ninty is still doing incredible business.

In conclusion:

When are Sony and Microsoft going to leave the gaming division? It depends on when third party games plummet to a level of overwhelming crap. If:

DEV COSTS KEEP GOING UP + COMPETITION KEEPS UP =

MORE STUDIOS CLOSE =

PUBLISHERS LOSE MORE MONEY =

LESS GOOD GAMES ARE MADE =

LESS SALES =

CRASH (Sony and Microsoft leave the business altogether).

thoughts?

I doubt it. After the media stops making this recession seem alot worse than it is then we will see more poeples wallets open up and it will all be fine. This "recession" has played a HUGE role in this (especially the companies closing).

Nintendo will still save it.

Nintendo is the best thing that happened to this world.

Nintendo will cure cancer, unlike the PS3.

Im just waiting for it happen.

I know, the recession is doing a big part in destroying the business.

But the biggest factors of studio closure are huge dev costs and overwhelming competition. This is the first generation wherein dev costs of a lot of games can be even more than a Hollywood AAA movie. This is also the first generation wherein all three players in the business are with respectable market shares.

Even when the recession is over, if dev costs aren't put down and competition is still as fierce, we're still going to see a lot of studio closures.

Hardcore gamers will get their fix wherever they can find it. If it's only on a Nintendo platform, that is where they will go.

take this for example:

5 years ago, GTA3 sold 13 million copies and it was a massive success.

now, GTA4 sold 13 million copies but 2k lost money.

See, people are still buying even in the recession. The problem is that the dev cost is so high that even with the same or higher sales, the company still doesn't make a profit.

...? if 3rd parties close then Sony and Nintendo are safe due to third parties. And Sony may lose 40 bucks on every console sold but they make up the lost from Software and DLC (Home, LBP, PSN, Qore). MS makes tons of money from XBLA and their big games.

The market is far from crashing again just look at the 2008 record breaking sales.

-ShadowSoldier AKA Captain Bravo

 yes but these companies are learning not to invest quite that much money in now. When people start buying more games again we will see that it will all be fine.

look at my example a few posts back.

5 years ago, GTA3 sold 13 million copies and made a huge profit.

now, GTA4 sold 13 million copies but 2k posted a loss.

people are still buying even in recession. it's just that the dev cost is too high to cover even with the same or higher sales.

Don't worry, my friend. The Sega of old will return and bring order back to order with the release of Sonic X-Treme! And then, they will somehow get exclusive rights to Duke Nukem Forever, from the now dearly departed publisher, 3D Realms. It will be a glorious revival that only Segata Sanshiro could bring about.