If you’ve been following the video game industry lately, you may have noticed a pattern that would’ve been unthinkable even five years ago: The “untouchable” AAA sector is starting to bleed out. Consecutive years of failed blockbusters, high-profile layoffs, and corporate belt-tightening have peeled away the carefully crafted image of an unstoppable entertainment juggernaut.

YouTube channel Legendary Drops recently laid out the situation with a clarity that the gaming press avoids like it’s hard mode. The big publishers are losing their grip; not because gaming as a whole is shrinking, but because their business model has drifted so far from reality as to be unsustainable.

The signs are impossible to ignore. Ubisoft, EA, and Activision have slashed their portfolios to the bone, relying on sequels and remakes to limp from one quarter to the next. Square Enix sold off entire Western studios for pennies. Even Microsoft’s gaming arm, flush with Game Pass subscription revenue, is shuttering studios it bought in headline-grabbing acquisitions just a couple years ago.

The message behind all of these moves is the same: the old AAA formula doesn’t work anymore.

In the aughts and early 2010s, AAA publishers were still pretending they could maintain yearly blockbuster schedules like clockwork. That meant chasing better graphics, bigger teams, and, inevitably, longer delays. Budgets ballooned past $100 million per title, making each release a gamble that could cripple a studio if it didn’t hit expectations.

Now the cracks are yawning open.

That same bigger, better, faster operation demands photorealistic assets, endless QA, and marketing campaigns that cost as much as the game itself. The pressure for cinematic production values has turned game development into a slow-motion arms race where every step forward costs more than the last.

And when the games do release? They’re often technically broken or creatively bankrupt. Or, increasingly often, both.

And consumers are finally noticing.

AAA publishing is stuck in a deadly feedback loop …

Costs go up: Publishers double down on “sure things” like sequels and brand-safe IPs
Innovation dies: Gameplay gets stale, audiences drift, and new players stop caring
Sales disappoint: Executives demand more safe bets, tightening the noose even further.

This spiral mirrors the decline of Hollywood’s blockbuster model, in which all that matters is brand recognition, even if it means burning the brand to the ground. You don’t need a palantir to see how it ends.

While AAA flails, smaller developers are delivering games that players actually want.

Indie studios can’t compete with the big guys head-to-head, but they can take more creative risks. And they can ship a complete, polished game without five years of feature creep. Plus, indies can target underserved niches instead of pretending to chase the elusive Modern Audience™. Because they need to please customers instead of shareholders.

That’s how we get surprise successes like Shovel Knight, Cuphead, and Bloodstained: Ritual of the Night. None of these titles were supposed to succeed by AAA logic. All of them not only turned a profit but built loyal audiences, long-tail sales, and brand goodwill that major publishers would kill for.

The success of those games and others since proves that retro-style 2D and 2.5D titles can still dominate the charts. And contra the haters, their appeal isn’t limited to nostalgia. They just deliver gameplay that is, mirabile dictu, fun.

Legendary Drops makes another important point that goes beyond business strategy: The AAA sector has lost touch with its own medium.

Games were once about player agency: letting gamers explore, fail, learn, and succeed on their own terms.

But AAA has spent the last decade chasing Hollywood prestige, warping games into interactive movies wherein the player’s job is to push the “go” button between cutscenes.

In a time when Hollywood’s cultural cachet is nearing all-time lows, that approach is ironic at best and tone deaf without question.

Whatever the cause, big studios see themselves less as game developers and more as multimedia content providers. They’re not making games anymore; they’re making experiences designed to extract as much money as possible before the next title launches.

And it shows. Players can tell when a game is designed for love of the craft versus fiat of the quarterly report.

Now, bringing back 2D sprite design won’t solve AAA’s problems. You can’t just slap pixel art on a soulless grindfest and expect the audience to swoon.

But the fact that many smaller studios have succeeded in that medium should at least make the majors consider it.

Because 2D games are less expensive to produce, which means lower risk. And working in 2D forces a studio to think in terms of gameplay first, since spectacle alone can’t carry the game. They can also be developed faster, allowing for shorter cycles and less punishing crunch. $80 price point driving customers away? Refocusing on games that cost $1 million to make instead of 100x that amount would allow a return to a $70, or even $60 MSRP without ruffling stockholder feathers.

If AAA were willing to humble itself and learn from indie hits, we could see a revival of robust platformers, tactical RPGs, and isometric adventure games. These aren’t relics, they’re proven winners that AAA simply abandoned to chase after cinematic glory.

The sad truth is that even with all the warning signs, we all know AAA publishers won’t make that pivot. Their corporate cultures are too entrenched; their marketing departments too wedded to the idea that more polygons is always the answer.

Switching to a smaller-scale, gameplay-driven production model would mean dismantling the same structure that supports their bloated budgets and headcounts. It would mean admitting they’ve been wrong for the better part of two decades.

That kind of humility doesn’t come easy; especially for companies that still believe they can manifest profitability through brand loyalty alone.

If the AAA sector continues down its current path, we’ll see more consolidation, more studio closures, and more mid-tier franchises sold off to whoever’s willing to take a chance on them.

Meanwhile, the audience will keep migrating toward smaller, nimbler developers who treat games as an art form rather than a delivery vector for DLC and microtransactions.

But AAA won’t disappear entirely. It will contract into a handful of mega-IPs, much like Hollywood has with done cape franchises. But the center of creative gravity will keep moving toward independent and mid-sized studios.

The video game industry isn’t dying; it’s breaking free from the grip of a dying business model.

Contrary to online doomers, vidya isn’t dying. But it is changing.

The real winners will be the developers who remember why people play games in the first place: not for prestige cinematics or predatory monetization schemes, but for the sheer joy of play.

Watch the whole Legendary Drops video here:

Brian Niemeier is a best-selling novelist, editor, and Dragon Award winner with over a decade in newpub. For direct, in-person writing and editing insights, join his Patreon.

Game Over for AAA

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Game Over for AAA

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