There are many reasons, all layered, AI not being the decisive one.

1) Growth is gone and all expansion narratives have failed (VR/XR, NFT, etc) with no rescue in sight. That’s a death sentence in capitalism.

2) Demographic headwind - not only from age but also habits - short form video is attention intensive, highly addictive and doesn’t co-exist like a spotify or youtube clip in the background. And it’s wildly successful. New generations are not automatically gamers anymore, many just watch.

3) there’s plenty of cost competitive attention targets now all competing. A video subscription is easily competitive with most gaming options on price. It used to be games are THE cost effective way for people to be entertained.

4) The pacemaker is dead. Nvidia used to drive the industry forward with GPU expansion - new graphics capabilities offering better games and fantasies. By RDR2 this stalled, you can’t sell on “breathtaking graphics” driven by technicals anymore, all new experiences have to be gameplay based which is very very hard. 4k was already a bridge to far.

Worse, Nvidia abandoning the industry again (as with crypto) and the AI boom is massively increasing cost of entry for games as entertainment compared to other activities, cost of business (game studios do need a lot of GPU), kills attempts to shift the business model to streaming where you’d have expanded the audience by reducing hardware entry point (not a good use of GPU), murders new consoles whose marketing campaigns always provided strong market rejuvenation.

5) Competition with its own supply - especially because hardware stalled, 10-15 year old games look perfectly alright and run great. They cost 3.99$ in a sale and compete on time with new titles. Successful GaaS titles like PubG, Minecraft, Fortnite, Dota, Lol go strong and cannibalize a vast amount of attention.

Because Valve is privately owned and protective of their market, nobody can buy up the supply and remove it, which kills the proposition of game pass models.

6) There’s too much supply of games to allow all the companies in the space to make a living. It’s gonna get a lot worse with AI, which threatens to kill the artificially high entry cost to AAA by scaling down both talent and technical moats is another reason for investors to run away.

7) When supply goes up, GTM costs become the primary business problem. We already saw this in mobile which has zero barrier of entry, chinese and vietnamese shops will budget build your game to specs.

But like sneakers, anyone able to make a game doesn’t sell them because supply side auction costs go up trying to reach eyeballs.

Facebook killed and ate mobile gaming because app install ads became the primary way of user acquisition - the infamous fake game video trend was the result: The video sells the game, not the game itself and an entire industry jumped up making attention optimized videos to sell to game developers. CAC is extracting all profit from the industry and VCs abandoned it because the extraction makes their financial goals impossible.

Failure to enforce truth in advertising regulation means competition happens more and more on fakes and grifts which favors the grifter.

With AI commoditisation is going to move up the stack into the rest of gaming.

And crucially, any narrative of more games or cheaper games runs into simple physics - we maxed the available attention which is colonized by companies who have genetically engineered themselves to maximum addiction. Without new time (4 day work week), it’s a brutal red ocean game companies cannot hope to win in, given that the platforms own the attention algorithms.

More supply in a red ocean means less money for creators and publishers and their shareholders and more for the platform”, even if you cut creatives with AI

8) There is no credible future vision or narrative for gaming.

Yes AI will allow new experiences but nobody knows how they will look, IP protection is dead so even if you create one, there’s no way to do it at current economics.

Other uses like character.ai, again, A:B tested to maximum addictive/ sycophantic behavior seem like attention headwind.

All these PLUS AI investment having “better” bets (like betting on OpenAI to become a state sanctioned monopolist getting paid back by taxpayer money) means that there is no money, no lifeblood for the industry.

It’s going to burn down to a tiny shell before something can sprout from the ashes, in the tiny plot the attention platforms allow it to take.

AI adoption across the industry is anemic in effect. It’s impossible to build native AI studios because the ground and definition of native is shifting too fast. R&D risks and constantly shifting capabilities in the frontier are extreme, you can’t build a realistic financial projection. And even the cost savings that are there, theoretically, like voice over or asset generation are poison to an overwhelmingly negative to AI audience.

Yes, AI narrative is killing the industry by choking and diverting oxygen, but technically AI has, for all intends and purposes, zero effect on gaming yet.

Source: Industry veteran in AAA and Big Tech.