With the console and gaming PC market at a standstill, gaming is facing one of its largest crises in a decade. Momentum the medium took for granted — new console generations, affordable hardware upgrades, and a growing player base — has hit a wall. The ripple effects could be devastating, leading to more layoffs and shuttered studios.
But before we can look ahead, we need to understand how we got here. Gradual shifts in demand over the last decade set the stage, and economic supply shocks locked them in place.
The first signs of a major shakeup appeared around 2018 with Fortnite’s massive success. The free to play “game as a service” (GAAS) drew massive player growth and revenues that rapidly outpaced full priced games from similar genres. Other GAAS like Roblox and Minecraft followed similar trajectories around the same period.
It’s exciting to see that most of my favorite games of the year came from smaller studios willing to take big risks with story and gameplay. They offer an essential counterbalance to tired franchises that rely on micro transactions and familiarity to stay relevant.
Yet as great as it was to play such creatively daring output, it was an especially tough year for the industry. Widespread layoffs, corporate consolidation, and rising costs from tariffs and AI have many questioning gaming’s sustainability heading into 2026. And as bleak the state of gaming was, the world beyond it often felt worse. Amidst an otherwise gloomy news year, I take comfort in several great selections that should stand the test of time.
The future of Xbox depends more on its software than its hardware. A strong update of Xbox’s Windows-based gaming app — let’s call it “XboxOS” — is essential for the Xbox brand to survive beyond its massive game publishing reach.
This is a sobering reality that contradicts many recent hardware-specific rumors. Microsoft could make the smartest handheld or console ever, but it will likely appeal only to a small segment of core enthusiasts. The main problem is shrinking market share. Xbox Series S and X sales are declining rapidly. The upcoming Switch 2 will only accelerate Microsoft’s hardware losses. Many previously loyal Xbox customers have already shifted to PC or PS5. History shows that third or fourth place hardware ecosystems rarely rebound in sales.
Additionally, because Microsoft can’t rely on the same volume of sales as Sony or Nintendo, which means the company likely has to seek higher profit margins per device. This suggests Microsoft hardware will cost more than a potentially than similarly powered alternatives. I expect any next-generation hardware will be more of an experiment for Microsoft — effectively a Surface device for gamers.
It’s unsurprising to see Xbox fully embrace a multi-platform strategy. Lagging behind Sony and Nintendo in hardware sales and user base, Microsoft can ensure far larger revenue streams by porting its first party games to PS5 and Switch. It’s a strategy that reflects broader industry trends, as escalating development costs and a stagnating console market push publishers like Square Enix and even PlayStation away from long term exclusivity.
However, Microsoft’s Xbox ecosystem — comprising Xbox hardware, Game Pass, and the Windows PC Xbox app — is where they generate maximal revenue and retain full editorial control. Intra ecosystem Xbox keeps the full share of revenue from their own products, while taking a 30% cut from every non-Microsoft purchase. It’s also for now the only space where Microsoft can sell Game Pass and have the technical leverage to integrate a cloud centric, cross platform solution to suit their needs.
Yet the Xbox ecosystem itself feels increasingly under threat. Game Pass subscribers have plateaued, and Xbox Series S and X hardware sales are dropping precipitously.
My time and energy spent on cutting edge, AAA gaming has plateaued. Four years into a console generation, the graphics, audio, and gameplay of most games I play are indistinguishable from the experience six years ago. Over 2024, I only spent a fraction of my gaming time with Hellblade II and Star Wars Jedi: Survivor, the two games that taxed my Xbox Series X this year. The rest of my play has been with small indie games (e.g., Balatro, Dungeons of Hinterberg, Star Trucker) or evergreen GAAS like Fortnite and EA FC that are generally playable on 2013-era console hardware, my aging MacBook Air, or even my smartphone.
I used to rationalize my shift away from tech heavy gaming as a personal outlier. As my tastes moved from mega AAA twitch action games and RPGs toward the quirkier indie space, my hardware needs lessened accordingly. Alternatively, one could argue high end hardware is “held back” by many new games still releasing on last gen consoles. But the more I look, the more I suspect I’m part of a trend towards smaller, less graphically intense games derived from indie studios.
When I listen to enthusiast gaming podcasts, among a crowd that may play hundreds of games a year and spends thousands on gaming hardware, the conversation focuses heavily on the PC indie space (e.g., Lethal Company, Phasmophobia) and small niche titles on the console. Across Reddit, ResetEra, and other gaming-focused social media, discussion for a tiny retro poker strategy game like Balatro may run as long as a big budget Black Myth: Wukong or Dragon’s Dogma 2.
I was torn watching Sony’s recent PS5 showcase. It’s always exciting to see Sony’s first party content given their studios’ strong track record. However, almost every game was predictable and safe in a way I wouldn’t expect from Sony in an earlier era. Overall the event reminded me of Disney’s recent filmmaking output: lucrative, fun, but creatively a bit hollow.
Comparing Disney films to PlayStation games may sound like a stretch, but consider the parallels through the lens of PS5 first party games from the showcase. Disney loves remakes of beloved hits (The Lion King, Aladdin). Sony will release two remastered Uncharted games in a new collection. Disney leans on sequels of well tested hits like Toy Story and Cars. Sony showcased God of War Ragnarok and Gran Turismo 7. Also, Disney loves cranking out all things Marvel and Star Wars. Sony revealed teasers for Spider Man 2 and Wolverine. Stretching beyond first party content, Sony also gave prominent placement for a Star Wars: Knights of the Old Republic remake and a new Guardians of the Galaxy game.
Opinions around Microsoft’s 90 minute Xbox & Bethesda E3 showcase are positive, a highlight alongside Nintendo’s outing in an otherwise quiet E3 year. But there have been pockets of criticism around the show’s lack of depth and “wow factor.” VG247 argued there were not enough “next-gen show stoppers”. Threads on Resetera, social media, and Digital Foundry knocked the Xbox presentation for having too many CGI trailers.
I’m sympathetic to missing more hands on time with Microsoft’s upcoming lineup. However, much of this “depth” criticism is myopic, relevant to an earlier era where Microsoft’s core focus was on the number of games and consoles sold. Thirty trailers in ninety minutes may not be an optimal pitch for $70 games and $500 consoles. However, it is a very sound approach to push Game Pass.
E3 2021 has made it abundantly clear that Microsoft has bet Xbox’s future on subscriptions. Keeping gamers hooked on Game Pass is a different, tricker pitch than buying high profile games. Variety is a must, with enough titles and genres to attract a wide variety of subscribers. Quantity can also help. Not every game will interest a potential subscriber, but the feeling that many more games are coming to the service over time adds to its sense of value.
Xbox has been on a news tear lately. In early March, Xbox head Phil Spencer confirmed future Bethesda titles would only appear on platforms that offer Game Pass (read, not the PS5.) Days later, Square Enix revealed that the high profile action game Outriders would release on Game Pass in parallel with a full price retail rollout on other platforms. This one two punch crystalizes the biggest challenge to PlayStation’s market leader status. Sony has built a strong reputation on its platform exclusives, but the next Fallout or Elder Scrolls absent on PS5 will push many to Xbox this generation. Also, as Sony continues to press on with its $70 first party titles, Xbox Game Pass offering tentpole games at $15 a month looks increasingly tempting.
I hope this flood of recent Xbox news serves as a wake-up call to Sony. As Xbox differentiates itself from Game Pass, Nintendo on portability, and evergreen first party IP, Sony has some work to define its future direction.
In many ways that hook is a continuation of what Sony has done from the PS4 era: a curated collection of high caliber games that run exclusively, earlier, or best on PlayStation hardware. But that doesn’t mean a repeat of the same strategy from seven years ago. In 2013, well timed big budget exclusives could be the deciding factor, marketed through traditional channels on enthusiast websites, social media, and the occasional TV spot. Today we’re looking at an audience expecting more genre diversity, variety of price points, all while being fragmented across the internet.
I expect the gaming landscape for console games will be radically reshaped in a few years. The existing $60 AAA game market will mostly collapse. Indies, stifled by saturation across every market, will turn to subscription services as their only viable path forward. Everyone will still chase Fortnite (or its successor) to become the next free-to-play hit.
Gaming trends today portend significant changes on the horizon. For years we’ve seen the same $60 titles — mostly first person shooters (Call of Duty, Destiny) and big sports franchises (FIFA, Madden, NBA2K) — dominate NPD and digital sales charts. But more recently, these perennial best sellers have shifted into effectively “games as a service” platforms. Studios increasingly focus on new functionality at a core fan base that readily laps up micro-transactions. This ensures revenue stays flowing in well past the upfront sticker price. Look at FIFA and how so many improvements lead back to Ultimate Team. The Call of Duty: Modern Warfare reboot added a Fortnite-inspired battle pass and a prominent shop rotating in and out costly cosmetic gear. This is rampant speculation, but I could see the anticipated Halo Infinite moving in a similar DLC-heavy direction, reliant on a narrowing core base to push the game’s initial investment into the black.
Stadia looks like a flop out of the gate, and its meager, overpriced game selection is a significant factor why. Google overestimated the console market’s appetite for experimental moonshots. Most gamers aren’t making purchasing decisions based on streaming quality, teraflops, 4K, or fast SSDs. Instead, as I wrote about earlier this year, it’s the games themselves — both selection and quality — that matter most. It was a crucial differentiator in the battle between PS4 and Xbox One, essential to the Nintendo Switch’s breakout success, and it will continue to be important for next generation hardware.
Games matter more for reasons beyond their historically strong track record. It’s also because across other facets — hardware, marketing, third party integrations — Sony and Microsoft will be on similar footing next generation, at least to your average consumer. I don’t foresee the major stumbles that marked previous console generations. Price and power, two factors that solidified PS4 as the clear victor this generation, I expect to be a moot point in 2020. Microsoft learned its lesson launching a console $100 more expensive and less powerful than Sony’s. Sony hopefully still remembers the $600 launch PS3 debacle and how undercutting on price helped secure their win for the PS4. Speculation from Digital Foundry and other sources posit the PS5 and Xbox Series X will rely on similar internal components. The result for consumers should be two boxes with similar specs and no more than a $50 gap in price differential.