Xbox CEO Says Current Margins 'Cannot Continue' in Public Letter to Staff

The problem is that the only thing distinguishing the AAA studios from the teaming masses of indies is their ability to invest massive amounts of money into development. But once you dump that much money into development, it becomes unacceptable to have it flop. Which leads to risk aversion, and attempting to appeal to the lowest common denominator, which leads to releasing the same game over and over again with slight tweaks, or worse, making slop that nobody loves, but enough people buy.

This situation was created by the industry growing beyond its means by capitalizing on untapped demographics for the last 30-odd years. Videogames went from being only for kids, to marketing to kids and men, to marketing to all adults, then expanding into the mobile market and then unlocking the whale economy with microtransactions.

They've run out of new market segments to sell to, and they've discovered the absolute limits of what people are willing to pay. All the AAAs know there's too many of them for the market, they're just all hoping to outlive the other ones.