I grew up loving videogames, and now my sons do too. One recent weekend, my son, his college roommate, and I jumped on Discord to try two new titles from major AAA publishers. Both were stale: minimal upgrades, no innovation, $50 price tags. Frustrated, we returned to two favorites—R.E.P.O. and The Finals—made by newer, hungrier studios. We had far more fun with those than with the big-budget offerings.
We’re not the only customers who feel this way. YouTubers like MoDen31 and Self Deficient (warning: NSFW) reflect a growing genre of creators who love games but are angry at the AAA games industry. Whether or not you agree with their points, what’s important is how many paying customers are articulating thoughtful, detailed critiques that reflect a deep disappointment in the entertainment form they love. The view counts and comments indicate they have struck a nerve.
Major Western publishers are failing their customers — and increasingly, their shareholders. And as with most fallen empires, the story isn’t invasion from outside. It’s internal decay, economic overstretch, and failure to adapt. Bloated cost structures, outdated development models, and risk-averse leadership have created a paradox: the more they spend, the less fun their games are. That’s not just bad design. It’s a solid investment thesis their stocks are headed for a big fall.
Let’s start with some of the many structural problems plaguing the industry:
The $300M No-Fun Problem: Not too long ago, costs to develop a AAA game were no more than $30 mil. The CEO of a $20B company could afford creative risks and absorb inevitable failures. Today, development costs in AAA regularly exceed $300M—and are rising fast. Let’s say you greenlight something new and innovative and it doesn’t work…try explaining to your board and shareholders how you blew a $300M hole in your P&L – it will be an ugly discussion. Do it twice and you’ll attract at least one activist investor ridiculing your lousy capital allocation skills. Do it three times and you’ve lost your job. In that environment, how much time are you going to spend thinking about taking creative risks?
The End of Distribution as a Moat: In the days of physical distribution of boxes through the retail channel, a company like EA had huge channel leverage. It could launch a completely new and strange title like The Sims because major retailers like BestBuy and WalMart were clamoring for Madden and FIFA. Today, Steam, Microsoft and Sony stores (not to mention Apple and Google in casual) have captured the channel leverage from publishers, and they now set the terms. What’s left for the AAA publisher is to throw money into acquiring customers, but that has been on a sharp diminishing returns curve for years. It’s not an exaggeration to assert that indy developers have few, if any, marketing disadvantages – and some important competitive advantages – over the former AAA titans.
Those are tough structural issues for even the best management teams. But several of the biggest publishers have compounded these structural issues.
Graphics Over Gameplay -- A Billion-Dollar Distraction: Over the last two decades, the industry turned "cinematic graphics and sound" into a mantra — repeated at every greenlight meeting, industry demo, and trailer rollout. But the real problem is simple: fun, not graphics, is what matters most to gamers — and graphics are what cost the most to build. Yes, there are successful games with expensive, state-of-the-art visuals. But there’s a substantial wave of "AAA" hits with relatively low-fi graphics — Minecraft and DOTA 2 are just two examples.
Building Software like it's 1999: The games industry is thought of as a high tech business but in many ways it is shockingly low-tech. Most AAA publishers still operate like 20th-century factories — or worse, 20th-century movie studios: more people, more money, more bloat -- and even more hostile to innovation. (See here for a deep dive of this problem by my friend and former EA and Nexon colleague Patrick Soderlund. Start at 23:18 for his part). This decay has left players hungry for something the old machine can no longer produce: games that delight and surprise.
Mass Production, Minimal Innovation: As costs rose unchecked, AAA publishers transformed game development from a creative process into an industrial process. After greenlight, a team gets spun up that often exceeds 300-500 people, usually immediately after shipping that team’s previous game. An organization that big has little time to iterate on new and interesting gameplay ideas. And, factory-like work conditions tend to create labor problems. The games industry is beginning to resemble older, assembly-line-driven sectors, including the rise of labor unions that are increasingly vocal about work hours, pay, layoffs, and the threat posed by new technologies like AI.
Live Services – They Learned the Wrong Lessons: Every major Western AAA publisher was built before the Internet — and it shows. When online-native companies from Korea and China pioneered the secrets of live-service games, Western publishers misread the playbook. They saw online not as a way to build Forever Franchises, but as a way to extract more money from players. That mistake has proven highly damaging. Instead of building long-term loyalty, they found new ways to alienate their customers — and in doing so, made their once-powerful IPs significantly more exposed and brittle, as several have found out to their horror.
Billions Burned in Botched Acquisitions: Publishers' drive to acquire game developers has largely stemmed from a desperate search for innovation (no longer happening internally) and growth (no longer happening organically). But when nimble teams are forced into the soul-crushing machinery of internal studios, creativity collapses, talent leaves, and value is destroyed. There are some exceptions — Tencent/Riot, Nexon/Embark, and Activision/King — usually the result of patient, product-focused acquirers. But in recent years the industry's M&A history reads less like a strategy for growth — and more like a handbook for destroying shareholder value.
Corporate Governance in Name Only: Exec teams in Western AAA companies command top-quartile compensation — yet deliver bottom-quartile shareholder performance. It’s not just bad optics — it’s a case study in misaligned incentives between management teams and their owners, and that’s a governance issue. They often have compliant boards who bring limited management experience, and little understanding of game development and publishing. Without such experience or inclination, these boards are in no position to ensure management teams perform for owners.
All this has led to low ROI, sub-par shareholder performance, and a value proposition laden with asymmetric downside risk. Breakout returns, meanwhile, come from creating breakout hits — and nearly all of the breakout games of the last generation — titles like Minecraft, League of Legends, and Rocket League — have come from outside the traditional studio system. Some savvy companies, like Activision, likely seeing the writing on the wall, have sold to much larger platform players with highly capable management teams and strong technology ecosystems.
These challenges reflect a much more fundamental and depressing problem. The people who lead the biggest Western game publishers are no longer in touch with the people who play games. The leadership of major publishers is optimized for financial engineering, not creative breakthrough. Making fun is a second-tier priority. While there’s never been more professionalism in the games industry there’s never been less heart.
Who’s Next?
If you want a glimpse of where many Western publishers seem to be headed, Ubisoft is the blueprint. Every problem listed above – from a broken development model, to customer-alienating live services, to absent corporate governance – has been at work for at least five years. The experience of that company’s long-suffering shareholders begs the question: how different are the other publishers from Ubisoft?
The old artifice of the traditional games business is built on scarcity: scarcity of development talent combined with scarcity of distribution access. That scarcity covered product sins for many years. Game publishers could charge more for products while delivering less fun. But those points of scarcity are now gone, and legacy AAA publishers are laden with a massive cost structure.
Will they be able to retain their valuations — or even survive? Some management teams are smarter and better equipped than others. But unless they can address the structural issues and fundamentally rethink their approach — the classic Innovator’s Dilemma — the future will grow increasingly bleak. That translates to becoming prime targets for shorts and activists with a clearer view of the changing world of videogames — and of the incumbent publishers' fading role within it.
That begs a much more fundamental question: what would replace them? Reasonable people can disagree, but my money is on a new generation of developers. Unburdened by the antiquated workflows and industrial processes of the past, the builder generation sees the old studio hierarchies not as a benefit, but as an albatross. They are emerging everywhere — and they bring brains, taste, playfulness, and a deep sense of adventure.
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