The video gaming industry operates on diverse revenue models that have shifted from traditional one-time purchases to engagement-driven ecosystems. In 2024, the global gaming market generated approximately $187 billion in revenue. Mobile gaming dominates with a 49% market share, primarily through free-to-play models supported by in-app purchases and advertising. Console gaming generated $51 billion revenue (28% market share) while PC gaming contributed $43 billion (23% market share). On PC platforms, microtransactions have become the dominant revenue source, accounting for 58% of all PC gaming revenue with games like Call of Duty: Black Ops 6, Roblox, and Fortnite leading this growth. Traditional premium game sales, while still significant, are declining. Gaming subscription services like Xbox Game Pass and PlayStation Plus, which offer players access to large game libraries for a monthly fee, have shown stagnant growth, suggesting the "Netflix of gaming" model may not be the industry's future. Cloud gaming, which streams games directly to devices without requiring powerful hardware, represents a smaller but rapidly growing segment projected to reach $10.46 billion in 2025 with an expected annual growth rate of 25%.

Over the past decade, the industry has pivoted toward “evergreen” games, designed as “living ecosystems” that evolve continuously through regular content updates, and seasonal events. Success is no longer measured by units sold but by active user metrics, session duration, and long-term participation rates. User-generated content becomes central to this strategy. Platforms like Grand Theft Auto (GTA), Roblox, Fortnite Creative, and Dreams have turned players from passive consumers into content creators, who design levels, characters, and entire game experiences. Epic Games exemplifies this transformation through Fortnite. The company paid $352 million to 70,000 creators on Fortnite in 2024. Epic allocates 40% of Fortnite's monthly net revenue from item shop purchases to eligible creators based on player engagement metrics. 58 creators earned over $1 million.

Source: Fortnite

Virtual reality (VR) creates fully immersive digital environments where players interact with simulated 3D worlds that closely replicate real-world experiences. Major technology firms including Meta, Valve, PlayStation, Samsung, and Apple have made substantial investments in VR development over recent years, recognising its potential across multiple industries. While VR adoption is growing across healthcare, retail, and automotive sectors, gaming has emerged as the primary driver of VR hardware advancement. VR gaming faces persistent challenges including expensive hardware, ergonomic discomfort, and limited content libraries. These obstacles have spurred intensive innovation efforts from gaming companies focused on developing more comfortable, affordable hardware solutions, pushing innovations in controllers, displays, headsets, audio systems, and processing units that enhance user experiences. These gaming-focused improvements ultimately benefit other industries adopting VR technologies. 

The rise of generative AI tools like ChatGPT owes much to the gaming industry’s demand for realism and immersion. For years, Nvidia was best known for its powerful GPUs, which were originally designed to handle high-speed, high-quality gaming visuals. Unlike traditional CPUs that excel at solving complex tasks one at a time, GPUs can perform thousands of smaller tasks simultaneously, a structure that turned out to be ideal for training and running AI models. Today, Nvidia’s AI chips are the industry’s standard for AI data centres globally. Once a niche chipmaker focused on gaming, Nvidia became one of the most valuable companies in the world.

Source: App Economy Insights

The relationship between gaming and AI is now mutual. AI isn’t just powered by gaming; it is also reshaping how games are developed and played. Developers use AI to generate environments, animate characters, test code, and even write branching storylines that evolve based on a player’s decisions. Smaller design studios can now prototype games faster and produce content that were once exclusive to major developers and required years of development. Many companies harness AI to personalise user experiences, adjust difficulty in real time or alter narratives based on player behaviour. Procedural content generation has become standard industry practice, using AI to automatically create game assets like trees. This allows designers to focus on creative direction instead of repetitive tasks. 

The gaming industry is certainly not dying, but it is currently undergoing significant challenges. The industry faced record layoffs in 2024, with nearly 15,000 known job losses in 2024 alone. Major players like Sony, Unity, and Embracer Group downsizing or shutting down entire teams. Multiple studios were permanently closed, including Arkane Austin, Ready at Dawn, Volition, London Studio, and Firewalk Studios.

Source: Reuters

At the beginning, many blamed the industry's troubles on COVID-19 disruptions and post-lockdown adjustments, as gamers returned to classrooms, offices, and outdoor activities. Gaming spending and time trail their all-time highs set in 2021. Industry revenue growth slowed dramatically from 13% annually between 2017 and 2021, to merely 1% between 2021 and 2023. Development costs continue rising at an unsustainable pace, with AAA game budgets growing at 6% annually from 2017 and 2022 and projected to accelerate to 8% through 2028. 

Furthermore, gaming stocks are inherently volatile due to their business model structure. Studio revenues are highly sensitive to release timing, with many AAA titles sell most copies within the first weeks of launch. When release dates shift between quarters, it disrupts investor forecasts and can trigger steep share price selloffs. A game's long-term value remains similar regardless of launch timing. However, the timing makes a difference to the P&L and Cash Flow in the fiscal year, which creates market volatility. Despite this volatility, gaming stocks have delivered strong performance over the long term.