Earlier this month, gaming giant Electronic Arts closed its $55 billion deal to go private, led by Saudi Arabia’s Public Investment Fund. Last month, Microsoft said it was cutting 3,200 jobs at Xbox and divesting studios. Ubisoft, earlier this year, announced it is closing down studios even as it pushed major productions into 2028–29. These moves signal the end of the gaming industry's expansionist phase, driven by the covid-19 pandemic.
Now, rising hardware costs and investor pressure for profitability are forcing publishers to shift into a reset phase. Many are slashing costs and changing their operating models. India has also been a growing market for the industry, but being a mobile-first market, the country may navigate the downturn differently.
Boom yearsDuring the covid lockdowns, demand for video games surged, boosting revenues across the industry. Global video game revenues rose from $131.7 billion in 2019 to $147.7 billion in 2020, before jumping to $214.2 billion in 2021, according to a 2022 PwC report.
Many in the industry believed the growth would continue. Fuelled by low interest rates, major publishers and technology giants acquired established studios and gaming portfolios. Over 1,300 deals were announced or completed in 2022 alone, representing $127 billion in deal value, according to the Drake Star Global Gaming Report. About half of all billion-dollar gaming deals to date took place between 2020 and 2023, including Microsoft's $68.7 billion acquisition of Activision Blizzard.
The consolidation was not limited to the US. Sweden's Embracer Group acquired more than a dozen companies in a bid to dominate the mid-market segment. However, as pandemic restrictions eased, player engagement declined and revenue growth slowed. The recent moves by Microsoft, EA and others reflect that shift.
The pressure is forcing companies to rethink their cost structures. In January, Ubisoft announced a sweeping restructuring programme that included cancelling several unreleased games, closing studios and consolidating development teams around its most established franchises. It has reported losses in three of the past five years, and its shares have fallen 89% during that period.
Against this backdrop, analysts see EA's decision to go private as a bet on flexibility. Free from the scrutiny of quarterly earnings expectations, the company may have more room to invest in long development cycles and experiment with new business models. Joost van Dreunen, a games industry researcher, told the Associated Press that the move could give EA “a little bit more breathing room to do what they do”.
AI-induced inflationExternal pressures have intensified in another way too. In the recent quarters, memory prices have risen sharply, squeezing both gaming companies and consumers. “We are in a hardware component crisis. When I joined as CEO in February, the price we paid for console storage components was over 2 times as high as we paid last fall,” Xbox CEO Asha Sharma wrote in June.
A key driver is demand from AI data centres. Major memory manufacturers, including Samsung, SK Hynix and Micron, have shifted capacity toward higher-margin products such as high-bandwidth memory (HBM) and enterprise-grade memory used by hyperscalers and AI systems. That has tightened supply for consumer devices, including gaming consoles and handhelds.
The shift has caught the gaming industry off guard. For decades, memory prices generally trended downward due to innovation and economies of scale. Console makers already operate on thin hardware margins and often sell devices at or below cost. Rising memory and storage costs make that model harder to sustain, leaving companies no other option but to raise prices.
Digital channelsCompanies have largely responded by raising prices, as they face pressure on topline and bottomline. Microsoft, which faces shrinking revenues, announced multiple increases for the Xbox Series X/S, including a significant global hike in June 2026. Nintendo followed with price increases for the Switch 2, citing “changes in market conditions” and warning that the pressures were likely to persist. The company said maintaining earlier price levels would have materially hurt hardware profitability. Sony has also raised PlayStation 5 prices several times in response to similar cost pressures.
At the same time, platform owners cutting costs where they can. Sony has announced that new PlayStation titles will move to digital-only distribution from January 2028. The decision reflects a broader industry trend toward digital channels, which offer higher margins and greater control over distribution. Sony said digital downloads accounted for about 78% of full-game unit purchases in its most recent financial year.
Physical game sales involve manufacturing, packaging, shipping, retailer commissions and inventory risk. Together, these costs can absorb more than a fifth of the retail price. Digital distribution eliminates most of those expenses, allowing publishers and platform owners to retain a larger share of every sale.
India's gameIndia’s gaming industry remains structurally different from its Western counterparts. Unlike markets dominated by consoles and big-budget game development, India is overwhelmingly mobile-first and built around free-to-play business models.
According to Niko Partners, India’s video games market (excluding real-money gaming) crossed the $1 billion mark for the first time in 2025, reaching $1.04 billion, and is expected to grow to nearly $1.2 billion in 2026. The market could reach $1.77 billion by 2030, implying annual growth of about 11%. The player base crossed 500 million in 2025. A majority of these users access the games on their mobile—95% according to Niko Partners estimates.
