The Video Game Industry’s Existential Crisis (with Jason Schreier)

Summary

---

The 404 Media Podcast

Episode: The Video Game Industry’s Existential Crisis (with Jason Schreier)

Date: November 17, 2025
Guests: Jason Schreier (Bloomberg journalist, author of Play Nice)

---

Episode Overview

In this illuminating episode, the 404 Media team (Emmanuel, Joseph, Sam) welcomes Jason Schreier, one of gaming's most respected investigative journalists, to unravel the seismic changes shaking the video game industry. They explore the implications of Microsoft's profit-driven shifts post-Activision-Blizzard acquisition, the fall of industry exclusivity, Electronic Arts' private equity buyout, and the long shadow of AI and consolidation. The conversation is a mix of industry-level business analysis and on-the-ground realities for game developers and players, with Schreier offering clear parallels to other creative industries.

---

Key Discussion Points & Insights

1. Microsoft, Xbox, and the Profit Mandate

• The 30% Profit Margin Target ([03:50]–[06:48])

  • Microsoft’s acquisition of Activision-Blizzard and internal shift to AI sparked pressure to deliver 30% profit margins from Xbox (well above previous single or low double-digit margins).
  • Schreier explains:

    “All of this was driven largely by this new target... which is hit 30% profit margins.” ([04:32], Schreier)

  • Strategies include cost-cutting (R&D, layoffs, axing experimental projects) and maximizing revenue, e.g., raising prices and shifting games to other platforms.

• Impact on Studios & Employees ([06:48]–[12:39])

  • Most rank-and-file employees weren’t aware of the margin mandate; information filtered to finance and higher management only.
  • The pressure manifests in pragmatic game development:

    “Ultimately, it just means cut costs, boost revenue. That's fundamentally the baseline of what this means.” ([10:54], Schreier)

  • Shift away from games as ecosystem drivers (no longer as many consoles sold), now focused on per-game profitability.

• Is Xbox on a PIP (Performance Improvement Plan)? ([11:19]–[19:49])

  • Emmanuel wonders if this is prelude to further cuts or divestment.
  • Schreier notes the 30% target isn’t unique for software, but complications arise with Game Pass supplanting individual game sales:

    “Game Pass... means they're not selling as much, because people can just subscribe to Game Pass to get them for much cheaper...” ([13:09], Schreier)

  • Once-experimental studios like Double Fine now face new mandates, risking the diversity of games.
  • Pressure leads to cancellation of new IPs and risk-taking projects—“shortsighted moves”:

    “When you are in a position where you have to think about... the next one to two years instead of the next five to ten years, then that leads you to make more short sighted decisions.” ([18:48], Schreier)

---

2. Innovation, R&D, and the Changing Face of Game Development

• Are We Seeing Less High-end “Blue Sky” Work? ([19:49]–[23:21])
  • Large-budget “research lab” style innovation is threatened by cost-cutting.
  • Schreier sees a tension: sometimes R&D runs inefficiently, but betting on innovation is where hits and breakthroughs stem from.
  • Corporate executives, especially from tech, struggle with game industry unpredictability:

    “I think some of the people who are at Microsoft... are just not used to the way the games are made in comparison to their more predictable software divisions.” ([22:06], Schreier)

---

3. Xbox’s Strategic Future: Game Pass & M&A

• Is Game Pass Still the Strategy? ([27:35]–[30:44])

  • Game Pass’s price hikes and plateaued subscriptions call sustainability into question.
  • Schreier speculates Microsoft may eventually stop releasing its biggest new games on Game Pass day-one:

    “That’s what I’m very curious to see... if they pivot in that direction.” ([29:06], Schreier)

• Acquisitions’ Mixed Results ([30:44]–[35:03])

  • Massive studio buyouts haven’t yet resulted in a deluge of major releases.
  • The cycle time for development is so long, strategy effectiveness is tough to judge:

    “…The biggest games are taking between five and seven years to develop... It's still way too soon to tell if [the Activision and Bethesda deals] were a good deal for them.” ([32:42], Schreier)

---

4. Exclusivity and the End of the Console “War” ([35:14]–[37:25])

• Xbox Games (Even Halo!) Going Multi-platform
  • Schreier sees Microsoft’s multi-platform shift (Halo coming to PlayStation) as clear capitulation:

    “Yeah, 100%. I mean I think they were forced to, like, it's just, they just lost that war.” ([35:40], Schreier)

  • The new Xbox console will likely be more PC-like, signaling the death of traditional hardware-driven exclusivity.

---

5. The Electronic Arts LBO: New Crisis, Old Playbook?

• EA’s Leveraged Buyout Explained ([37:25]–[41:45])

  • Schreier breaks down what a leveraged buyout is, why it’s risky, and what it signals:

    “You usually... are going to take out a loan from the bank... and then put that debt on the books of the company you just bought.” ([38:06], Schreier)

  • EA’s upcoming private equity ownership, led by Saudi Arabia’s wealth fund, means severe cost-cutting and likely layoffs—another sign of industry contraction.

• Industry-Wide Consequences

  • Both Microsoft's profit-first mandate and EA’s new debt load equate to more pressure and less room for risk.
  • Schreier warns of further layoffs and the end of transparency for EA as a private company:

    “It is almost certain that next year when this deal closes, EA will shed a lot of jobs and the carnage will continue in the games industry.” ([39:23], Schreier)

---

6. Industry Consolidation: Big Five Becomes Big One?

• How Widespread Consolidation Shrinks the Industry ([41:55]–[48:59])

  • EA’s deal signals stagnation: if they thought their stock would go higher, they’d wait to sell.
  • Fewer big companies means lost competition and transparency:

    “...Consolidation always leads to bad, bad things. And so, yeah... if you are someone trying to pursue a career... this is all pretty scary stuff.” ([44:13], Schreier)

  • The pyramid of power is crumbling—of the old giants, only Take-Two is left standing.

• Gaming Now: Book Publishing Parallels

  • Schreier argues gaming increasingly resembles book publishing: a handful of giants, plus a tsunami of indie/self-published content:

    “...The over saturation of video games is just so reminiscent of what has happened in the book world that it's hard not to draw the parallels there.” ([48:36], Schreier)

  • Big bets on blockbusters subsidize the rest; making a living as a creator is getting harder.

---

7. Innovation, Stagnation, and the Evolving Indie Scene

• Big Games: Stagnation vs. Innovation ([48:59]–[56:03])

  • Emmanuel reflects that truly ambitious, expensive games seem less and less feasible as risk tolerance decreases:

    “If people are not taking those huge bets... we're just gonna, we are gonna stagnate, right?” ([51:11], Emmanuel)

  • Schreier counters that innovation is booming among indies:

    “When I play the big budget games, I feel like this is so stagnant... When I play the indie games, I'm like, holy crap, this is blowing my mind.” ([51:11], Schreier)

  • Modern tools let small teams achieve impressive fidelity; major publishers still have value as a “bar for quality,” but have lost trust due to buggy launches.

• For Players: Best of Times. For Careers: Worst of Times

  • More cool, innovative games than ever—2025 cited as “one of the best years for games themselves of all time.”
  • But a sustainable, stable career in AAA gaming is harder than ever.

---

8. Artificial Intelligence: Hype vs. Usability ([56:03]–[63:02])

• Will Generative AI Solve Crunch or Make Life Harder?
  • Emmanuel wonders if AI could lighten game dev workload; Schreier shares his skepticism:

    “I have found in my own use that AI is just completely useless because it gets so much wrong all the time... If you're trying to make a video game... to use this generative AI that is just so flawed seems like it would cause a lot more problems than it fixes.” ([58:31], Schreier)

  • AI feels more like a hype-driven managerial fad than a transformative tool for developers.
  • Schreier remains open-minded, but so far sees little evidence of net benefit.

---

Notable Quotes & Memorable Moments

• “Fountain of scoops is why Bloomberg employs me.” ([01:42], Schreier)

• “When you are in a position where you have to think about... the next one to two years instead of the next five to ten years, then that leads you to make more short sighted decisions.” ([18:48], Schreier)

• “If you're trying to make a video game... to use this generative AI that is just so flawed seems like it would cause a lot more problems than it fixes.” ([58:31], Schreier)

• “When I play the big budget games, I feel like this is so stagnant... When I play the indie games, I'm like, holy crap, this is blowing my mind.” ([51:11], Schreier)

• “Consolidation always leads to bad, bad things... If you are someone trying to pursue a career at big companies in the games industry, this is all pretty scary stuff.” ([44:13], Schreier)

• “[On Game Pass releases:] ...what I'm very curious to see is if Xbox pivots on that strategy and is like, 'you know what, starting in 2027... we're actually not going to put Our Games Day 1 on Game Pass,' because we don't think that works anymore.” ([29:02], Schreier)

• “[About EA’s LBO:] ...This new privately owned EA is suddenly going to be responsible for paying the interest on that insane amount of debt which could come out to a billion dollars a year... which again, just like with Microsoft, means a whole lot of cost cutting.” ([39:11], Schreier)

---

Timestamps for Important Segments

• 00:32 – Jason Schreier joins, overview of his credentials.
• 03:50 – Microsoft's profit margin mandate and its knock-on effects.
• 06:48 – How employees are affected, decline of console as a strategy.
• 12:39 – Is Xbox entering a “PIP” phase? Ambitious targets, Game Pass complications.
• 19:49 – Innovation at risk; “research lab” style Blue Sky game dev under threat.
• 27:35 – Is Game Pass still the strategy? The risk of big launches on subscription.
• 30:44 – Acquisitions: why new releases aren’t flooding out.
• 35:14 – Xbox’s loss of exclusivity; “going third party.”
• 37:25 – Electronic Arts’ leveraged buyout, implications.
• 41:55 – EA’s deal as warning about industry growth.
• 45:45 – Schreier’s book publishing/games industry parallel.
• 48:59 – Stagnation at the top, innovation at the fringe, career instability.
• 56:03 – AI: from hope to hype, skepticism about productivity benefits.

---

Concluding Thoughts

The episode paints a clear portrait of an industry “at the end of an era”: enormous financial pressures, rapid consolidation, and the fallout of misaligned incentives are making game development riskier and less secure, especially at scale. Yet creatively, indie and smaller games are thriving, and for players, there's never been a better time to discover new titles. AI remains more of a managerial buzzword than a true workflow changer. For the corporations, survival means retreating to safe bets and cost control; for everyone else, it’s a time of daunting volatility and potential.

---

For more details and investigative reporting on these stories, subscribe to 404 Media at 404media.co.

---

Transcript

[Podcast Sponsor/Ad Host]

This episode is brought to you by Netflix from the creator of Homeland. Claire Danes and Matthew Rhys star in the new Netflix series the Beast in Me as ruthless rivals whose shared darkness will set them on a collision course with fatal consequences. The Beast in Me is a riveting psychological cat and mouse story about guilt, justice and doubt. You will not want to miss this. The Beast in Me is now playing only on Netflix Foreign.

[Emmanuel]

Welcome to the four four Media podcast where we bring you unparalleled access to hidden worlds, both online and IRL. Four4Media is a journalist founded company and needs your support. To subscribe, go to Four4Media Co as well as bonus content every single week. Subscribers also get access to additional episodes, but we we respond to their best comments and they get early access to our interview series too. Gain access to that content at four four media Co. This week we're joined by Jason Schreier. Jason covers the video game industry at Bloomberg and is also the author of several bestselling books, most recently Play Nice, the Rise Fall and Future of Blizzard Entertainment. Jason, thank you so much for coming on.

[Jason Schreier]

Hey Emmanuel, thanks so much for having me. I love what you guys are doing at 404 and yeah, I hope everyone out there is listening and subscrib when you tell them to subscribe.

[Emmanuel]

Yeah, we really love your work. We read Bloomberg a lot and we read you specifically. Joe and I especially talk about your scoops all the time. You're a fountain of scoops and a pleasure to read. So thank you so much. It's a real honor to have you on.

[Jason Schreier]

I appreciate that. Yeah, it's Fountain of Scoops is why Bloomberg employs me. That's what they like here. They love nothing more than just constant feeding the beast with science.

[Emmanuel]

Yeah, so we cover video games occasionally before I shifted to covering mostly tech actually started out and covering video games. These days. In order for us to cover games, which as you know very well is a huge beat, we need to have some sort of unique angle. But I wanted to have you on because I wanted to zoom out and take a look at how the industry is changing so we can kind of set the table for future stories that we do about games. And we're going to talk about a bunch of changes that have been happening for years, but I don't know how you feel, but I feel like in the past two years especially it feels like we're at the end of an era and a new era is emerging and I wonder how you feel about it personally. It's like as an elder gamer now, as a millennial, it's a lot of change and it's not very much like the thing I think we grew up with. And I just wanted to talk through some of that. And I think a really good place to start is what is happening at what I believe now is the biggest video game company in the world after the acquisition of Activision Blizzard, and that's at Microsoft. You reported that Microsoft is now aiming, hoping, expecting 30% profit margins from its Xbox gaming division. We know that businesses want profits. Could you explain why this number at this time is newsworthy?

[Jason Schreier]

Yeah, man, it's wild. So, a couple thoughts. First of all, as far as the broader macro changes, maybe we can get into this at some point, but I think there's some interesting things to be said there about how the industry has changed over the last two years, as you mentioned, but also over the last decade. And I actually think there's some interesting parallels to draw between the games industry and the book publishing industry in that the democratization of the form has just kind of like completely changed the way that games are made and sold to people. But we can, let's, let's shelf that for now. And to answer your question, yes. So we reported at Bloomberg, my colleague Dina Bass and I reported a couple weeks ago that the kind of the driving force behind all of Microsoft's and Xbox's decisions over the last two years, which for people who haven't been paying attention, involves laying off thousands of people, shutting down game studios, canceling games, putting their games on PlayStation, which had never been done at Xbox before, raising prices, raising the price of their subscription service, raising the prices of their consoles and their games. All of this was driven largely by this new target that they are having placed upon them by Microsoft, which is hit 30% profit margins. And this is happening for a couple reasons. One is that about two years ago, almost exactly two years ago, Microsoft and Xbox closed on the deal to buy Activision Blizzard, the maker of Call of Duty and World of Warcraft, for $69 billion, one of the biggest acquisitions in tech history. And that kind of coincided with Microsoft looking over and saying, hey, you guys just spent a lot of money. Let's see some returns, let's see some bigger profits. Because in the past there's profits have been far lower, their margins have been far lower than 30% single digit, maybe, maybe low double digit margins. The other thing that happened is that Microsoft turned into an AI company and since they are doubling down on those investments, they don't really want to spend as much Money in R and D, in games. And R and D is really where, if you're trying to boost profit margins, profit margin is essentially like you take the amount of money that you're spending on games and then the amount you're making and then you figure out the percent difference and that needs to be 30%. And so the way to get to that is either to boost the revenue, make more money from the games, or to lower the costs, or both, which is what Microsoft is trying to do. And so lowering the costs can also involve just slashing R and D, getting rid of experimental projects or like new franchises that might take years to develop. Because a lot of that R and D money that Microsoft has is getting thrown at the AI division. So all of those things are just kind of like there's this confluence of factors that is leading now the Xbox division to get a whole lot of pressure, which has all sorts of ripple effects for the broader Xbox organization.

[Emmanuel]

Have you heard anything from rank and file employees about how their perceiving this goal?

[Jason Schreier]

Most, most rank and file employees don't know about this goal. In fact, I got some messages and heard about some, some conversations going on at Xbox where people being like, oh, this makes a lot of sense. This explains a lot behind what we've been doing on a. Kind of, on a. The way to think of Xbox is that it's this humongous organization. It's got tens of Thousands, I believe 20,000 people, if not more. It has. It now includes Activision and that whole division includes Bethesda, which is a big publisher behind Elder Scrolls and Fallout that got purchased by the xbox. Org in 2020. So those are kind of different divisions and each of those has different subsidiaries below that. And then even within Xbox, there's like Xbox Publishing, which is its own thing. There's like platforms and services, the hardware teams, the Game Pass team. Game Pass is their version of like Netflix, which is a subscription service for games, and then also their games studios, ones that it has bought, ones that it has cultivated. And so there's a lot of different hands, a lot of tentacles in the Xbox octopus. And so a lot of people don't have access to this information. It's really kind of on a. If you're in finance at one of these studios or like if you maybe are in the publisher sphere and you, you know, because you've had conversations with the higher ups there, there. It's, it's, it's a little bit more limited than kind of rank and file. But I think Rank and file are looking at that and be like, well, that makes a lot of sense. Ultimately, what this is going to mean is it's going to mean a few things. First and foremost, it's going to mean that Xbox needs to prioritize profitability. And I think what they could do before. Another factor, by the way I didn't mention, is that we used to live in a world where Xbox was competing with PlayStation and Nintendo in the console space. The console space, aka selling video game machines that you buy for 400, 500, 600 bucks. You can plop it in your living room and then you buy games for it. And Xbox used to be as big as PlayStation, but over the last 10 years, they've completely lost all market share estimates and PlayStation is now outselling them more than 2 to 1. And I think it's gotten even more dire in recent years. And when Xbox was releasing consoles, the math was a little bit different than it is at a traditional game studio. If you're a traditional game studio, you make a game, you spend x amount of money to make it, and then you sell it and you hope that you make way more money than it costs to make. By through, you hope the revenue is way greater than the cost. Right. Ideally a profit margin of 30% or higher. But when you're a hardware company, the math is different because every game you make is kind of is helping sell your console to people and that helps get them in your ecosystem, which allows you to make money in a bunch of different ways. For example, on Xbox, you can, if you buy a. If I, the customer, if I buy a game from the Xbox game store, Xbox, like online, through my Xbox, Xbox will take a 30% cut of that sale. So if I'm buying the new assassin's creed game or the new borderlands game, or games that are made by other companies, not Xbox, Xbox still makes money off of those sales if you buy it within their ecosystem. So the math was much different. And then so the other factor here that I should have mentioned earlier, that is contributing to this demand for new profit, for higher profit margins, is that Xbox is no longer selling consoles. And so there isn't as much of a benefit to bringing people into the ecosystem. It's just not happening anymore. So the math is very, very different. So, yeah, what all this means essentially for the rank and file is that a lot more focus on games that they know can be profitable. It's not like, I mean, not every single game in the Xbox. Org is going to be like, is going to have to deal with this margin, there's some games that they know are not going to be able to sell enough to be able to make up for. Maybe those games will have to get a little cheaper. And so there are all sorts of things that they could mean, but ultimately, I mean, it just means cut costs, boost revenue. That's fundamentally the baseline of what this means.

[Emmanuel]

I guess what I'm getting at is I've definitely had the experience of working at a company and in corporate media and a manager or a CEO announcing that there's some new goal.

[Podcast Sponsor/Ad Host]

And.

Taking.

[Emmanuel]

That in as being set up to fail and everybody knowing that the goals.

[Jason Schreier]

Are not realistic in digital media. Hard to imagine, right?

[Emmanuel]

Yeah. I know things are going well at Bloomberg, but I'm sure you're familiar with that dynamic where it's just like. It's not really a goal that is achievable. It's a pretext for further cuts down the road. And on a micro level, when you work at a corporate job and a manager wants to fire you, they put you in a performance improvement plan. And a lot of the time the plan is not really to improve your performance. It's to set the pretext for laying you off as the paperwork. Yeah. And I'm wondering, and I'm going to ask you a bunch of questions, by the way, and if you don't want to commit to. To an opinion to say, so, that's fine. But I'm wondering if you look at this and you're like, okay, well, there's AI and there's this huge acquisition. All these things are happening and, well, they got to make the money and this is a place where it makes sense to demand more revenue. Or they're like, enough of this bullshit. We've ran the Xbox experiment for decades now, I believe, and, you know, like, this is the PIP for Xbox. And then when it's over, we'll decide what to do with it.

[Jason Schreier]

Yes. So there's a lot to unpack there. I mean, I don't think that's what's happening. I mean, I don't know. Who knows what's going on in Satya, Nadella and Amy Hood's heads. That's the CEO and CFO of Microsoft. But I don't think that this is what's happening. And I think they think it's a realistic goal because they're looking at their other products, which are mostly software, service software like Azure and Windows, and they're seeing much higher margins. So it isn't like a super unrealistic goal. And I Also think that, like, 30% in a vacuum just isn't a totally unreasonable target for a lot of games. You just have to figure out how to lower costs and boost revenue and hopefully you hit it. And it's also not like Microsoft is telling Xbox or Xbox is telling their studios, if you don't hit this, we're going to shut you down. It's just like this is our target. To your point. Maybe they don't have to say that because maybe it's just going to hang over their heads regardless and like a pip. I don't know. I don't think that's what's happening. I think it's more that they're. Well, actually putting aside what they're trying to do, one important factor here that I should mention is that, like, in a vacuum, a game, let's say a game costs. If a game costs $100 million to make, it should be able to get to $130 million in revenue. Like, that is not an unreasonable goal. It's just what really complicates things for Xbox specifically is Xbox Game Pass, the service I mentioned earlier, which is their Netflix for games. And when these games are also put on Netflix Game Pass, that means they're not selling as much because people can just subscribe to Game Pass to get them for much cheaper than they would just buying them. So that. That complicates the math a little bit for some of these studios. And a lot of game studios are actually really thrilled that they now get to release their games on PlayStation, which is a recent phenomenon that's only been happening in the last year or so, that Xbox has become a fully multiplatform publisher, as opposed to the past when they were really just published games on their own platforms on Xbox and then personal computers. So that complicates the math a little bit. But yeah, it's really. It's not like an unrealistic target. It's just that, like, for a lot of games, and it's not something they had to think about before and it's not something that they had really planned out for, for example, a game. One of Xbox's more recent games, most recent games, is called Keeper from Double Fine. And it is not something that is ever going to sell a million copies. It is a very artsy kind of like almost like a walking simulator sort of game. It's like interactive art, basically. And it's made by a studio that is pretty niche and known for making these artsy games. And when Microsoft bought Double Fine, which was in 2019, they told them, hey, just make great games. And the idea was that Double Fine making their kind of weird artsy games, they might not make millions of dollars off of those products, but they can add value to the Xbox ecosystem. They can put those games on Xbox Game Pass and maybe they'll add value to the subscriptions of players who are paying for this Netflix like service. So, so there was a good rationale behind that. And then to suddenly turn around and be like, actually, now you need to hit 30% profit margin. Kava, here is. I don't know if Double Fine specifically has been told this. I know it's kind of like a universal group, but again, I don't know how many, like, if some studios, it hasn't really trickled down to or like it looks a little bit different because their priority, their goals are a little different. I don't know. But putting that aside, just as an example of like a studio that might be affected by this, if you're looking at a Double Fine and you're saying, hey, now you need to plan out your next game, oh, and let's think about hitting 30% profit margin. It completely changes the nature of that studio. That wasn't a studio that was trying to make games with big margins in the past. So in that way it could really impact the types of games that we see from some of these companies moving forward. And a lot of these companies that are looking at this margin and this goal, I think are. Are hoping that something changes with Game Pass because that will make the goal a little more feasible. But yeah, I mean, to get at your original question, no, I don't think it's totally unrealistic. It's higher than average video game company profit margins, that's for sure. So it's an ambitious goal. Absolutely, an ambitious goal. And again, I think if you're looking a lot of times these game companies have a whole portfolio. And so, like, it's okay for some of their games to not hit crazy margins because some of their games are hitting crazy margins margins. And so if Xbox is going to look at it through that lens, then that could be one thing. But I think having that goal for the overall organization is what's led to a ton of cost cutting and especially R and D costs. And R and D is one of the big things here, right? Like in game development, especially when you're trying to make new things, new franchises, new intellectual properties, new genres, new types of games, new that can be really expensive and that can take a lot of time. And I Think a company that really sacrifices that is doing itself a disservice and kind of looking at the short term instead of the long term. Because it's R and D that leads to you creating Halo, you creating the next billion dollar franchise. It's just you need to be willing to put in that time and that money in order to make that possible. And sometimes it doesn't work and sometimes it won't get you 30% profit margins, but sometimes it'll get you 400% profit margins and it'll be worth it in the long run. And I think that what this is going to lead to is some very short sighted moves. We're already seeing a lot of that. A lot of the games that have been canceled, especially this year, were games that were in development for a long time and maybe had some sort of like, if you look at the long term, horizon could be profitable in the long run, but like short term we're never going to be profitable. And so they had to go, um, for example, Zenimax Online Studios, the company behind the Elder Scrolls Online, which is a very popular online role playing game, they were making this new IP called Blackbird that was canceled. It had been in development for a really long time, but it was really promising and really cool. There's a game called Perfect Dark that had been in development for a long time and was kind of a disaster in various stages, but had been getting back on track a little bit. And that was canceled in part because it would never be profitable. But like, if you're thinking long term, you may be like, okay, well this first game isn't going to be profitable. But once we have that team together and they have their tech and they have their pipelines and their tools and their chemistry and they have this baseline of the first game, maybe they could then make a quicker turnaround sequel that itself is wildly popular and profitable and sells really well because it's so much better than the first game. But like, when you are in a position where you have to think about the, the near term, the next one to two years instead of the next five to 10 years, then that leads you to make more short sighted decisions. And I say that as I don't mean to say, like maybe Perfect Dark should have been canceled, I don't know. But this is the type of mandate that makes you think in the short term as opposed to the long term.

[Emmanuel]

Yeah, that's, that's fascinating. I, I'm trying to decide if we should go into this now or come back to it later. But I guess I. Back when Gears of War 4, I think, was coming out, I wrote a. Behind the scenes of the weeks leading up to them going gold and just being at the studio and spending time there, I got the feeling for this thing you're describing at the high end of game development. Really big budget. It almost feels like a research lab. It's like, obviously it's a business and the business needs to make back its money, but there's also this sense of like, hey, we're kind of like on the cutting edge. This is like our enterprise or like Blue sky program and we're like, doing science. Like, they're actually like, there's scientific papers that come out of game development and new technologies that come out of game development and things spin out where it's like. I think in Gears of War, they did some, like, 3D audio positioning stuff for the game that, like, just became a thing that Microsoft used later on. And it's like, do you think overall that type of work, like, work on that high end, there is less of it happening across the board? Like, do you think that's fair to say, or it just. It feels that way because there are so many other types of games of different scales?

[Jason Schreier]

It's hard to say. I don't know. Tech, R and D and iteration is certainly a big part of this whole conversation of, like, how much time you can actually have. And then the kind of. The other end of the extreme is that a lot of times you'll have a game company that just spends years working on something and then has nothing to show by four years. And it's just like, yeah, I don't. Who knows what we spent the last four years doing? So this can go in. In the opposite direction, too. Yeah. I mean, as far as the technological end, that's what makes games so fascinating, is that, like, you never know what's going to come out of, like, the R and D process and the iteration. And you're working with. A lot of these companies make their own technology for these games and that takes a lot of time and a lot of resources and. Yeah, and it's like you might be working on something with kind of a hypothesis in mind, only to find after two years of game development that, oh, actually it's not very fun and it's not working and we have to completely pivot in another direction, which maybe is inefficient, but at least for some game studios seems to be a normal part of the process. And I think when you're a tech company like Microsoft you're not used to that even after 25 years. I think some of the people who are at Microsoft who are executive level are just not used to the way the games are made in comparison to their more predictable software divisions. You don't have the Azure people giving them the same kinds of headaches and low profit margins and whatnot. So that's one part of it. And then the other thing is that I think Microsoft is just so all in on AI that that is where all of their thinking and resources are going when it comes to R and D and tech. And I'm sure they're doing a lot of R and D on AI stuff in the gaming space as well. But yeah, that's a big part of the equation too.

[Podcast Sponsor/Ad Host]

This show is sponsored by BetterHelp. The days are getting shorter, the nights are getting longer, and it's getting cold outside. A sad lamp can only do so much. But with the right mindset, this winter doesn't have to feel so lonely. The holiday season isn't always easy, but getting in touch with old friends and family can help and make you wonder, why didn't I reach out sooner? That applies to other things in life too, like therapy. When you try it, you'll probably think, why didn't I do this sooner? BetterHelp has been helping people connect with licensed Therapists for over 12 years. Their licensed therapists match commitment means you don't have to spend hours or days looking for a therapist you you vibe with better help. Does the initial matching work for you so you can focus on your therapy goals? A short questionnaire helps identify your needs and preferences and their 12 years of experience. Helping more than 5 million people means that you usually get it right the first try. If you aren't happy with your match, switch to a different therapist at any time from their tailored recommendations this month, don't wait to reach out. Whether you're checking in with a friend or reaching out to a therapist yourself, better help makes it easier to take that step. Our listeners get 10% off their first month at betterhelp.com 404 Media that's BetterHelp H E L P.com 404 Media Cold.

Mornings holiday Plans this is when I just want my wardrobe to be simple. Stuff that looks sharp, feels good, and things I'll actually wear. For me, that's quints. And the bonus quint's pieces make great gifts too. This season's lineup is simple but smart and Easy with quints $50 Mongolian cashmere sweaters that feel like an everyday luxury and wool coats that are equal parts stylish and durable? How about high quality denim that nails the fit you want at a price that's a fraction of what you'd expect? By partnering directly with ethical factories and top artisans, Quint cuts out the middlemen to deliver premium quality at half the cost of other high end brands so you can give luxury quality pieces without the luxury price tag. I've been slowly replacing a lot of my wardrobe basics with Quince's staples. I love a linen button down. I got from Quince, a couple heavy high quality T shirts and just this week I picked up a pair of their Italian leather and suede lifestyle trainers which honestly I've been shocked at how low the price is compared to how high the quality is. This holiday season I'm going to be asking for more Quint staples and of course I'm going to be thinking of them when I give gifts too. Check out Quince's home goods and other essentials in addition to their clothing staples. Give and get timeless holiday staples that last the season with quince. Go to quince.com 404media for free shipping on your order and 365 day returns. Now available in Canada too. That's Q-U I N C E.com 404media free shipping and 365 day returns. Quince.com 404media Ever wonder how data centers work, what the cloud is, or how the physical world and the digital world intersect? Well, I have just the podcast for you. Interconnected is a video and podcast series by Equinix that reveals the underlying infrastructure that powers the tools and services we use every day. From data centers to cloud ecosystems and all the platforms we interact with for work and play, Interconnected's hosts take you behind the scenes, bringing tech leaders, industry experts and innovators together for candid conversations that demystify how global connectivity works. Their third episode is one of my favorites and highlights the digital infrastructure we need for food security worldwide. This is complex stuff that I honestly hadn't thought about too much, so I love how the hosts of Interconnected took me behind the curtain to help me understand emerging tech and the way it's changing our world. Discover the digital infrastructure powering today's biggest tech trends with Interconnected. Follow Interconnected on Apple, Spotify or wherever you get your podcasts.

[Emmanuel]

So while we've been talking, you've identified what I think are kind of the two primary prongs related strategies for Xbox, which is one is Game Pass and building a Subscription business. And then complementary to that is the acquisition wave over the last couple of years, which the acquisition of Activision kind of being the capstone for that spree. I am wondering, do you think that is still the strategy? Do you think Game Pass is still the strategy?

[Jason Schreier]

That's a good question. I don't know. They recently raised the price of game pass to $30 a month, which I imagine will turn some people off. But they also said this year that Game Pass is making, I believe they said $5 billion in revenue it made in the most recent fiscal year, which is not an insignificant amount of money. I think the belief they stopped sharing subscriber numbers, but I think the belief is that it's somewhere and 35 million subscribers that they have on Game Pass. So that is not. Nothing remains to be seen if that'll happen. I mean, I think the big question and the big tipping point for a lot of the game companies is are they still going to release their biggest games day one on Game Pass? Because that is the thing that really made a big difference, right? So Game Pass, I think when it was first announced and first envisioned, a lot of people talked about it as a tool for the back Cadillac, right? So you sign up for Game Pass, you whatever, it started at 10 bucks a month. I think there was like a sale for $1 a month at one point, which is pretty crazy. You get access to hundreds of games and most of them are older games. So this is like an opportunity to essentially play a bunch of games you haven't played before at a really big discount. Sort of like how on Steam, the PC platform, there are sales all the time on older games and you can get games for very cheap and rack up a backlog. This is the equivalent of that. But at some point Xbox decided, hey, to make this service more appealing and get that growth up, we're not just going to have older games on there, we're also going to have new games on there. And in fact, every single game published by Xbox is going to be day one on Game Pass, which means that you are saying bye bye to all of that revenue of selling a brand new game for 60 or $70 on the Xbox platform. Because instead customers can just pay the $10, $15, whatever it wound up being a month and get that game and play it and then just have a huge discount on it. So that I think was the turning point. And then I think what I'm very curious to see if Xbox pivots on that strategy and is like, you know what, starting in 2027 or whatever, we're actually not going to put Our Games Day 1 on Game Pass because we don't think that works anymore. And so we're going to say bye to that strategy. That's. That's what I'm very curious to see. I haven't heard any inklings one way or another that that's going to be the move. So we'll have to wait and see. But that I think is what I'm looking out for is if they pivot in that direction.

[Emmanuel]

Regarding the wave of acquisitions, obviously, and I think this is especially true about Activision, things continue to work as always. I think this is also true about Bethesda. Right. Like the Doom games are coming out. Bethesda put out Starfield. It seems like they're on their normal schedule, but overall, given the number of studios that they acquired, it doesn't feel like that has resulted in a huge boon of exclusive games for Microsoft or not even exclusive, because it seems like they're shifting away from that. But is that a fair read of it? Or again, does it just feel that way because of how long it takes these acquisitions to be fruitful in terms of games actually coming out?

[Jason Schreier]

That's a great question. Yeah, I mean, I think I was going to say yes, but then also your latter point is also true. It definitely takes a while. And you buy a company like Bethesda or Zenimax is the parent company of all that. Because it's not just Bethesda like the Fallout and Elder Scrolls and Starfield makers. It's also like Arcane and ID and some of these other studios. Arcane made Dishonored and Deathloop and it makes Doom and Quake and stuff. So all these other studios are part of that umbrella as well. And yeah, I mean, games take so long to make now these days the big biggest games are taking between five and seven years to develop that. Yeah, it's definitely a long term play. That said, yeah, considering how big Xbox Game Studios is, we've definitely seen a pretty paltry lineup of big releases over the last few years and certainly haven't seen a ton of huge hits from them other than Minecraft, which is maybe their smartest investment. They bought that 10, 11 years ago and it's still making a great deal of money to this day. And of course Call of Duty, which is still breaking records every single year. That game is just kind of like clockwork every single year. It's as reliable as it's like death, taxes and Call of Duty coming out every fall. So that also turned out to be, Well, I mean $69 billion, who knows what the math looks like there. But from a portfolio standpoint, having Call of Duty in there is pretty lucrative. So yeah, I mean Starfield certainly wasn't, I don't know about commercial success, but critically certainly was not what they wanted it to be. And we'll see what happens with the next Fallout game or the next Elder Scrolls game and see if that turns out to be worth it. But yeah, to your point, I mean some of these things like Activision that close two years ago, there's really, it's really still way too soon to tell if that was a good deal for them and what the long term effects of that were. Bethesda zenimax was five years ago and I think it's also pretty, pretty early to tell long term what that, what that means for them and like what those studios are going to come out with. But we have seen Microsoft shut down a couple of Studios within the ZeniMax umbrella. They've released some flops. Redfall a couple of years ago is a big flop from them. So yeah, man, I don't know. I think, I think it'll still be a few years before we can really go back and evaluate some of these moves.

[Emmanuel]

It also only takes because the projects are so big and the lead time is so long, it only takes a couple of things to fall through for it to feel like it's falling apart. Right. So you mentioned Perfect Dark. I don't know how long that was in the works in one form of another, but that, that's. Is that an eidos?

[Jason Schreier]

That was, it was a company called the Initiative that was started in 2018 to make it and then they wound up co developing with this company called Crystal Dynamics that was part of Eidos at one point. Now they're part of Embracer. But yeah, Crystal Dynamics was a big part of that as well.

[Emmanuel]

Right. So it's like you lose a couple of those and suddenly seems like nothing is happening, but in reality it's just like a couple of misses.

[Jason Schreier]

Yeah, that's true. Because if you're a game studio, chances that most game studios are just working on a single game. And yeah, if that game is canceled or that game flops, then that's potentially five or more years of that studio's history that is just evaporated.

[Emmanuel]

So we talked a little bit about exclusivity. We learned recently that Halo is coming to PlayStation.

[Jason Schreier]

Crazy, man.

[Emmanuel]

Cats and dogs living together. Madness. But I mean that seems to that seems to be the old, like there's no bigger franchise for them to allow to go multi platform. So again, going back to strategy, do you think that they're just giving up on, they're just bowing out of the competition with PlayStation, is that it?

[Jason Schreier]

Yeah, 100%. I mean I think they were forced to like it's just, they just lost that war. And I think they're saying, look, if we want these games to make hit that. I mean them starting to put games on PlayStation lines up with them being told you need to hit 30% profit margins. And I think they rightly recognize that the profits that you're getting by releasing other consoles because that is like a lever you can pull that boosts your revenue in a significant way without much in the way of costs. Like there might be long term costs in terms of Xbox console sales and the brand damage and whatnot. But like if you are saying, hey, we're going to put all of our Xbox games on PlayStation from now on, that is a nominal cost because like porting a game to another, you're still making the same game. You're not paying for a new game to be released. Porting it is a very insignificant amount of money. And then you are just seeing sales increase a great deal because you're suddenly on a new platform that is reaching tens of millions of players. So that is lever you can pull to really cut costs or not cut costs, but like at a very cheap cost, boost revenue at a very cheap cost. So of course if you're trying to get those margin percentages up, that's one way to do it. And so yeah, this is definitely, I mean they've said that essentially that this is their future, like they are going third party. They've also signaled very strongly that the next Xbox console is essentially going to be like a PC. So I think the era of Xbox as a kind of first party console maker that is making exclusive games for its consoles, that era is gone.

[Emmanuel]

So the other, I wouldn't call it an earthquake. I wonder if you think it's that big of news. But the other huge piece of news recently in the video game industry is that Electronic Arts, which publishes Madden, FIFA, the Sims, another huge, huge publisher, is going private via what's called a leverage buyout. I was wondering if first, can you explain what that is?

[Jason Schreier]

Absolutely seismic. Yeah, one of the biggest pieces of news of the year for sure. Yeah. And lbo, I mean this is kind of one of those finance mechanisms that like when you explain it to people, they're Just like what? How is that legal? Most notably captured by the iconic nonfiction book Barbarians at the Gate, about one of, I believe one of the first LBOs or one of the first high profile LBOs, RJR and Nabisco. And so associate, what this means is you usually a private equity company or like a group of firms are saying, we are going to buy this company and we to do so we are going to take out a loan from the bank. We're going to say, hey JP Morgan, we want to buy this company. We're going to put up X percentage in our own cash, but we also want to buy it with Y percentage of debt. And so we're going to take out a loan from you and then we are going to put that debt on the books of the company that we just bought. And so in this case you have a purchase that is about $55 million and they are taking out $20 billion in debt. I believe 18 billion or so is going on the company's books. And then there's some 2 billion and kind of other, other kind of assorted debt mechanisms. It's a very complicated financial transaction, but something like 18 million is going to be in the company's 18 billion is going to be on the company's books. So what that means is that this new privately owned EA is suddenly going to be responsible for paying the interest on that insane amount of debt which could come out to a billion dollars a year. And so a large part of EA's revenue is going to paying off debt, which again, just like with Microsoft, means a whole lot of cost cutting. And it is almost certain because every single LBO leads to layoffs. It is almost certain that next year when this deal closes, EA will shed a lot of jobs and the carnage will continue in the games industry, which has really seen tens of thousands of jobs be lost over the last three years.

[Emmanuel]

Yeah, I was going to ask, how would you compare the 30% profit margin goal to this burden of the debt that EA is carrying now? Like, are they pressuring the companies in similar ways?

[Jason Schreier]

Yeah, kind of. Yeah. I mean, at the end of the day it's just like more pressure on you to like do things cheaper, cut costs and make more money and in whatever way you can. And yeah, I mean we'll see those manifest in different ways. I think the pressure on EA is going to be a little bit different because now they're a privately owned company and so they, first of all, they don't have to be transparent like they did before. We're not going to see earnings calls from them anymore. We're not going to see transparent bookings, revenues, not revenue numbers from them anymore. And also, I mean, who knows what Saudi with Saudi, Saudi Arabia, which is the largest, which will be the largest shareholder in this new ea, is such an X factor because they have a trillion dollars in their sovereign wealth fund. And like if, if they really wanted, they could also swoop in and be like, oh, actually we're gonna just like pay for this and swoop in with our own money. So who knows what they have in mind here or what they want to do with ea. I don't know. I don't know if this is like a purely profit play or a cultural play. I have no idea. So that's a big X factor. But like traditionally what we've seen in cases like this is just a whole lot of cost cutting, whole lot of job shedding. I certainly would be worried if I were an EA employee when this deal closes, which I believe they had said at the beginning of the next fiscal year, which is June or July of next year, something like that.

[Emmanuel]

You mentioned in your piece about this that you think that this is a signal for trouble in the video game business more broadly. Can you explain why that is?

[Jason Schreier]

Yeah, if you are ea, which had been looking for some sort of merger or deal for the last couple of years, if you are ea, you don't do a deal like this unless you believe that $55 billion is your peak valuation, that you're not going to get higher than that in the next couple of years. Which means that most likely you are looking at the market and saying, hey, this is a mature market. We are not going to see the kind of double digit growth rates that maybe we saw a few years ago when it seemed like the games industry was just exploding and finding all these new markets like mobile was such a huge boon to the games industry's revenue because suddenly people could reach, like people could sell games to build a billion new players who just like play games on their phone. And EA took advantage of that. All the big companies took advantage of that. So we're not seeing that growth return anymore, at least in EA's mind. And so they're saying, yep, we want out of here. That's a big part of this. Another big part of it, I mean, of course is that consolidation is always bad for these industries. It always leads to layoffs and like worse prices. And I don't know this this week, I don't know if you're a football fan, but I was trying to watch Monday night football on YouTube TV and couldn't because YouTube and Disney are having a dispute. And so Disney's channels are no longer available on YouTube TV. And I was just thinking, this is like millions of people cannot just turn on the TV and watch football because these two, like companies that are each worth many, many hundreds of billions of dollars cannot agree on something. And like, this is what media consolidation looks like. It looks like millions of people not being able to watch Monday Night Football. So that's the type of thing I think about. Or like, you look at what's been happening with Warner and Discovery and AT and T over the last decade and how miserable that was for everybody involved. This consolidation always leads to bad, bad things. And so, yeah, I mean, I think that like the games industry, if you are a big company or if you are someone trying to pursue a career at big companies in the games industry, a professional career in the games industry, this is all pretty scary stuff. All this M and A, all this consolidation. Xbox buying everything. EA now going private. I mean, it used to be that you had a bunch of publicly traded game companies that were all competing and all fighting for talent and all reporting and earnings calls and being transparent about what they were doing. And now it's just one. Like, Take two is the last one standing out of all the old, like, kind of traditional gaming giants. It's really crazy. EA is gone, Activision's gone. THQ throwback is long gone. Ubisoft is in its own kind of misery world. Yeah, it's really crazy. Yeah.

[Emmanuel]

First of all, not a football fan, but you're not allowed to be apathetic about football in Philly. So go Birds.

[Jason Schreier]

Nice. Well, it was your hated cowboys who were playing on Monday night. So maybe it's good news that Philly couldn't watch that.

[Emmanuel]

Yeah, that was going to be my next thing I was going to say when I reported on video games more closely. It was like if you were to imagine a pyramid of the biggest players in the space, it's like maybe you have the console manufacturers at the top and there is a lot of trouble there, as we've discussed with Microsoft. And then under them you had these gigantic publishers, Activision, I would say the Big three. It's like Activision, Ubisoft, ea. Right. Or like the Giant one.

[Jason Schreier]

Take two and Take two. Right.

[Emmanuel]

So out of all of those, it's like Take two is sort of like last man standing and it just like it's unrecognizable as an industry.

[Jason Schreier]

Yeah, well, so let me actually, let me tie this back to the thing I mentioned at the beginning of this show, which is that I see games moving a lot toward a lot more like book publishing. And there are a lot of parallels there. Book publishing is really interesting, right? Like you have just like games, very small group of big companies and two of them tried to emerge or have merged. Penguin Random houses emerge. So I believe it's four left, four or five massive book houses. And those are the ones that are responsible for most of the books you see in Barnes and Noble at your local bookstore or whatever, because they control most of the market, the big guys. And those book publishers are releasing a lot of books every single year. Most of them flop. Most of them don't sell a lot of copies. And then there are a few humongous hits that help subsidize everything else. The kind of the court of. What is it? Court of Roses and Thorns or whatever, or Fifth Dragon, all these big romantic books like that, like the humongous hits, right? The Housemaid is a good example. Freedom McFadden's the Housemaid. Those are the books that just subsidize it for everything else. The kind of the Call of Duties and Grand Theft Autos of the world. And then you have the self publishing world, which is what a lot of the games world looks like too, where because anyone can just write a book and put it up on Amazon, there are more books released every week than anyone could possibly read. And we're seeing a similar effect in games where, because Steam, the largest gaming platform, the PC gaming platform, has become this platform where anyone can release a game. And because the tools have gotten so good and so accessible and approachable that anyone can just download Unity or Game Maker and just make a game on their own if they have the talent and the wherewithal and then put it up on Steam. It's kind of like the self publishing market where like, you probably won't get noticed, but you can put your thing out there and see if people like it. And occasionally there's a big viral hit that nobody saw coming. And you could even point to Roblox as an even more democratized example of that. Because Roblox is this tool that a lot of people, many millions of people, mostly children, use to make games and then release them and play them, right? So that's. That's kind of a similar thing to what we're seeing. And then what we see in the book world is that like, it's very hard to make a living writing books unless you are the author of one of these million unit sellers or unless you're, I don't know, married to a doctor or something like that, it's very hard to like sustain yourself writing books. And I think we're going to see a similar phenomena happen with games where it's like, you want to make games, sure, have a good time and you, you might even be able to reach people. But like trying to make the next hit game is kind of like trying to win the lottery in the same way that trying to write the next hit book is trying to win the lottery. So I think that's the model that we're moving more towards where maybe it's a little bit, it's a little bit harder to actually have a sustainable career. Maybe not. I mean, games, to be fair, still make a lot more money than the book's business does. But like the over saturation of video games is just so reminiscent of what has happened in the book world that it's hard not to draw the parallels there.

[Emmanuel]

I can definitely see the parallels when it comes to like the quantity and like what we sometimes call the discoverability problem, which is definitely true for books. But I think it gets complicated because I suppose as a reader I can't tell the difference. When I am reading a book, if it came from someone, if I'm reading it on an E reader, whether it came from somebody who self published on Amazon or it came from Random House. And with video games, which I think they're more like movies in this way where it's like, yeah, it's like I could pick up an iPhone and shoot an indie movie. But if you want to bring like the vision of Oppenheimer to life, right? It's like somebody needs to get behind it with like a giant check, right? It's like if you want to make Lawrence of Arabia, right? It's like somebody has to like accept your crazy vision and fund it. And the video games that I love, indie games, I love all kinds of games, right? But it's like the thing I think we grew up with is like a lot of that, right? It's like the we. And that's what made it so exciting. I think in the period that like we grew up, along with games where it's like there's this feeling that it's being pushed forward. And it's like every year it's like, oh my God, it's like, I can't believe that, that this is possible now, right? And what was driving that is companies investing millions of dollars into These giant bets and being like, let's take a swing with a halo, let's take a swing with a half, let's take these huge expensive bets. And in the process, like we said, we will discover new technologies and so on. And I feel like there's less of that happening. And it's like, I don't know, it's like eventually somebody, it's like it feels unless we kind of stagnate and level off in a way or the industry does, it's like if somebody is not, if people are not taking those huge bets, we're just gonna, we are gonna stagnate, right? It's like we're gonna, it's gonna become a less exciting space in my opinion.

[Jason Schreier]

Right. It's funny you say that because when I play the big budget games, I feel like this is so stagnant. This is like everything else I've played before. And when I play the indie games, I'm like, holy crap, this is blowing my mind. Because the big budget games, because their budgets have gotten so humongous, they have to like hit the checklist and appeal to as many people as possible. Because if you're making a $200 million game, you have to reach tens of millions of people to make a profit or hit that 30% profit margin. And you can't do that unless you, or you think you can't do that if you're a big publisher, unless you do endless, endless focus testing and market research and make sure that this appeals to all people. Possible. That's where we're seeing a lot of the kind of the stagnancy. I think in my opinion, as someone who plays a lot of new games, and to your point also, I mean, I think that like we're seeing a lot of high end looking games from the indie space. One of this year's best rated games is a game called Claire Obscure Expedition 33, which I mean, if you looked at that compared to like some high end game from EA or whatever, I don't think you'd be able to tell much of a difference. At least from a graphical perspective. Maybe from a scope perspective, maybe those games are much, much bigger, have a huge open world or something, but graphically it's harder to tell. And then also, I mean, you have a lot of indie games that despite the fact that they're just made by a couple people and maybe they look 2d or they're not super fancy graphically, they're still selling many millions of copies. One of the most popular games of this year was Silksong, which is a 2D animated 2D game that looks like a cartoon. So yeah, I mean, I think it's a different world. I think to your point, one important role that the big companies play in the same way that the book publishers do is as a bar for quality. And so I think that the thing that you're often worried about if you are interested in checking out self published books is like, well, I mean this could just be crap. And there's no one kind of reading this, there's nobody editing this and deciding okay, this, this is good enough. Which also, I mean the kind of, the flip side of that is that it's also people gatekeeping other people's creativity. So there is kind of like a dual double edged sword there. But yes, let's say that like the quality bar is there. Big companies have over the last few years have lost so much trust with their players by releasing games that are like full of bugs and broken and flawed in so many ways that you can't even trust EA or Activision or Take Two to have that kind of, that quality bar the way that maybe they did in the past. And so that I think has had a huge impact too. Like you're, you're gambling just as much when you buy the latest EA game that it's going to be like high quality and not full of glitches as you are when you buy a new indie game made by two people on Steam. So like, why not check out the indie game? Especially when the indie game is going to be $5 and that big game is going to be $70. So yeah, there's a lot of factors here. I think the, the tools I mentioned earlier like Unity and Gamemaker and all these other tools that are out there, I think really have democratized game making to the point where a lot of these smaller companies really can get in high end graphics despite the fact that they're really small teams. It's easier than it ever has been to make a game that looks just as good as anything on the market, even if you're not a humongous team. It's just that the bigger companies I think are filling their games more with more things. Checklists and open worlds and 400 hours of gameplay. And I'm not even sure if that's what people want. I don't know. There's still going to be major hits. Don't get me wrong. Battlefield, the new Battlefield was a massive hit. Grand Theft Auto next year is going to be probably the biggest entertainment launch in History, but in the same way that, like, I don't know, the new Dan Brown book is always going to be hit. New Stephen King book is always going to be a hit. It's like you have your heavy hitters, but a lot of the stuff below that is not quite where it was where like, your options are limited. You go to GameStop and you just buy whatever new game EA has just released because there aren't a lot of other things to get and they're the gatekeepers and they've decided that this is what we're going to put in stores. Nowadays you can go on Steam and find dozens of new games every single week, all of which look really cool. So, yeah, I mean, it's from a player's point of view, I think things are better than they've ever been. There are more cool games released. I've been playing more cool games, more interesting games, more unique games, more innovative games. To your point about R and D, more technologically interesting or gameplay wise, mechanically interesting than ever before. 2025 is one of the best years for games themselves of all time. It's just the problem is if you want a career in the video game industry, working on bigger projects, getting health insurance, getting a paycheck, it is harder than it's ever been to make that feasible.

[Emmanuel]

I definitely agree that it's been a fantastic year. Especially like the past couple of months have been really fun. I want to make a hard pivot to talk about AI, because it's all we talk about, it's all everybody talks about. And it's something that is working its way through the industry as it's working its way through all industries. Something I really appreciate about your reporting is that it really gets down in the trenches with game developers. And by reading your articles over the years, you get a real feeling for what is difficult about the job and what kind of challenges people face. Pretty technical details. I learned a lot about workflows and certain developers by reading your stories. And naturally a lot of what you covered is about crunch culture and video games and the amount of work that it takes to ship a game and how that can really break people and break companies in some cases. And when companies, especially in tech, started to adopt generative AI, that reporting often came to mind. Where I was like, well, we're very critical of AI. I see all the problems with it. I wouldn't want to use AI to generate my articles or anything. But as an outsider, it seems to me like, I don't know if you need to generate a ton of 3D assets for a background of a video game. It's like, maybe this is something that could really help with game development and maybe help with crunch and help with all these logistical problems of just like, how do we produce the massive amount of labor that it takes to ship these games? But not only have I not seen anyone in the industry talk about it in that fashion, other than, like, executives that are very high up and are not in the trenches, there was a story that came out in Business Insider recently about how EA is very aggressively pushing its employees to use it and not everybody being thrilled about it and not working perfectly. And I guess all of that is in order to ask you, as somebody who is like, very familiar with development and the issue with crunch. It's like, do you think this is applicable or helpful at all to developers? Are you seeing or hearing any of that?

[Jason Schreier]

So when AI started popping up and everyone started talking about AI, I tried to keep an open mind. And I still to this day try to keep an open mind despite a lot of the vitriol that is online, on Blue sky, on podcast and stuff about AI. And so therefore I wanted to experiment with it. And I've played around with ChatGPT. We have tools at Bloomberg. Bloomberg encourages reporters to use ChatGPT, not to write things, but like, to help them in whatever way possible. And I would never use it to write anything for myself. But I decided, okay, you know what, maybe I can use it for, like, I don't know, something as simple as creating a budget. And so the other day I was like, hey, chatgpt, I want to put together some financial planning. I'm going to plug in some numbers for you. Help me piece this together. And it started doing it and I was like, wow, great. This is awesome. It's saving me a lot of work. Like, it's making like this database for me. I don't need to go to Excel and spend an hour plugging in numbers. And then I realized that it had just like flubbed the math so badly that it just like made up an extra $30,000, like in my budgeting. And I was like, wait a minute, like, you just fucked that up, like, what's, what's going on here? And it made me realize that, like, not only is this just completely filling, like Google search results and all sorts of other like new AI tools with just complete hallucinations and made up nonsense, it is also incapable of getting just basic functions right without filling them with incorrect things, without getting things wrong. It can't even do Math without getting things wrong. At one point I was really curious. There's a test in the NFL not to get bring up sports again, but like, there's a test called the Wonderlic test. And I was like, hey, ChatGPT, generate the Wonderlic test for me. And it's like 50 questions, like trying to measure your football IQ or whatever, or like your IQ in general, basic math questions and whatever. And at a certain point I was doing this test through ChatGPT, it would start being like, I would hit. I would type in A as the the answer because it was correct. And it would be like, no, A wasn't the correct answer. The correct answer was B. And then it would say the value that A was, except pretend that it was in B and just like, get that completely wrong. It would be like, if I were to say the answer is a 60, it would be like, no, the answer was b 60. So I have found in my own use that AI is just completely useless because it gets so much wrong all the time. And no matter how many versions of ChatGPT have been released, it still just keeps getting things wrong. If you're trying to make a video game, which is one of the most complicated possible pieces of software, whether you're trying to generate art or like write code or do design or whatever else, to use this generative AI that is just so flawed, seems like it would cause a lot more problems than it fixes. It seems like it would create. It would be like a time loss for you in the net. So I'm a parent. I have two small kids. And one of the things about parenting that's really interesting is that a lot of times you'll be watching your kid do something and you'll want to step in and do it yourself because you can do it so much quicker and more efficiently than they can, like emptying the dishwasher or like cleaning up their toys. But as a parent, you have to find a balance. And maybe sometimes you can do that, but a lot of times you have to let them do it because the only way they learn is by learning, you're not going to be coming behind them and like making things faster. They. They have to do it themselves. And AI kind of reminds me of that, where you're like, watching something slower and worse and less efficiently doing something, and you know you're going to have to do a better job afterwards. You know you're gonna have to clean up after that toddler tries to clean up that. That spell. But you let them do it anyway because they're learning. Except the difference is that you don't need to teach the AI. The A is AI is not a child that you are raising and trying to trying to teach how to live in this world. It's just a useless like tool. It's just like a something that is like doing a worse job than anybody could. And again, like I don't want to go all full ed Zitron here because I really have tried to be open minded and will continue to like I'm still open to. Just the other day I got a pitch from someone who was like, here's how I'm using AI in this really positive in game development. And I was like, sure, tell me about it. I want to hear more. I want. As a reporter, I believe very much in just like listening to people and trying to be as open minded as possible, even about things that are controversial. But in my experience and the experience of the people that I've talked to about this, it seems like it causes more problems than it solves.

[Emmanuel]

Yeah, I'm really fascinated by how hard the video game industry is going to try to adopt this and I look.

[Jason Schreier]

Forward to, well, every industry. Right. It's like I haven't seen a single industry that isn't talking about their AI plan on earnings calls. That's the latest fad. That's how I mean, that's what's propping up the entire US Stock market. The entire economy is propped up by this.

[Emmanuel]

Yeah. So yeah, looking forward to your exposes about that happening at various video game companies. Jason, thank you so much for coming on. I'm going to leave that there. As a reminder, Four4Media is a journalist founded and supported by subscribers. If you wish to subscribe to four four Media and directly support our work, please go to four four media Co. You'll get unlimited access to our articles and ad free versions of this podcast. You'll also get to listen to the subscribers only section where we talk about a bonus story each week. This podcast is made in partnership with Kaleidoscope. Another way to support us is by leaving a five star rating and review for the podcast. That stuff really helps us out. This has been four four Media. We'll see you again next.