As 2024 comes to a close, one advisory firm forecasts a major rebound for the video game industry in 2025, following two years of declines.

San Diego-based DFC Intelligence released its 2024 Video Game Market Report and Forecast, predicting that 2025 will mark a reversal of fortunes for the gaming industry. The report specifically focuses on the PC and console markets, largely excluding the much larger mobile sector.

In recent years, the gaming industry has faced layoffs, studio closures, and canceled projects, with over 24,000 job cuts globally in the past two years alone. In Washington state, major companies such as Microsoft, Bungie, Epic Games, Hidden Path Entertainment, and Wizards of the Coast have all made significant layoffs, while local studios like Firewalk, Galvanic Games, and Ridgeline Games have shut down.

This downturn is part of a broader decline in gaming revenue that began in early 2023, despite a packed release schedule. DFC notes that the drop was only 4%, but it marked the first decline in “overall software revenue” since 2009.

The report attributes the 2023-2024 slump to several factors, including the end of the pandemic-driven revenue surge, delays in product releases as the industry adjusted to remote work, the disruptions caused by the pandemic to the console market (especially with the launches of Sony and Microsoft’s new systems in November 2020), and increased competition from other forms of entertainment, such as travel and outdoor activities.

However, DFC predicts that in 2025, several factors will reverse these trends, leading to a major upswing in the video game market:

1. Long-Term Growth Trend: DFC points out that the video game industry has been on an overall upward trajectory since around 1985, with previous downturns (such as the 2009 slump following the Great Recession) being brief and modest. The report suggests that the challenges of the past two years represent a temporary setback, rather than a permanent change in direction.
2. Nintendo’s New Console: According to reports, Nintendo plans to release a new console in 2025, likely a successor to the highly successful Switch. While details about the “Switch 2” are scarce, multiple product leaks suggest that the launch may happen sooner than expected. Given that the Switch has been Nintendo’s most popular console in decades, its follow-up is expected to be a top seller.
3. Grand Theft Auto VI: Rockstar Games’ highly anticipated Grand Theft Auto VI has no confirmed release date yet, but it’s expected to launch in Q4 2025. The success of its predecessor, Grand Theft Auto V, which remains one of the best-selling games of all time, indicates that GTA VI could be a massive event in the gaming world, driving both software and hardware sales, as fans flock to purchase new consoles to play it.
4. Cost-Conscious Consumers: DFC argues that inflation has made consumers more cost-conscious, but video games still offer good value for money. In a time when family outings or even trips to the movie theater can cost as much as a Nintendo Switch, video games are a cost-effective entertainment option, much like they were in the years following the Great Recession.
5. Stabilizing Industry Operations: The disruptions caused by COVID-19 and remote work have largely settled by now. While some companies have faced friction, game development teams have adapted to a more distributed model, making it easier to continue production despite challenges.
6. Console Wars Heating Up: DFC anticipates that the competition between consoles will intensify in 2025, as Nintendo’s new system competes with the aging PlayStation 5 and Xbox Series X|S. By 2028, when new consoles from Sony and Microsoft are expected, Nintendo is likely to be well-established in the market, making it harder for the new PlayStation and Xbox systems to capture a significant share of the market.

DFC forecasts that by 2027, the global audience for video games will reach 4 billion, or nearly half of the world’s population. However, there’s a challenge ahead, as the top 10% of the gaming audience in 2024 will account for 65% of overall industry revenue, while the bottom 90% will contribute only around $20 per user. This highlights the growing disparity between the “whales” (high-spending gamers) and the “minnows” (casual gamers).

One solution to this issue may lie in the aging of the average gamer. Generation X, which grew up with video games, is now older and generally has more disposable income to spend on gaming. This demographic trend is expected to lead to increased spending on gaming hardware, such as high-end gaming PCs.

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As the gaming market continues to evolve, DFC anticipates that the next console generation may see a distinct “loser,” as the market may no longer be able to sustain three major players. Despite Microsoft’s relatively lower hardware sales, it is still profitable in its gaming division and has expanded its role as a cross-platform game publisher.

In conclusion, DFC Intelligence predicts a strong recovery for the video game industry in 2025, driven by new hardware releases, the continued popularity of major franchises like Grand Theft Auto VI, and a growing, more financially stable consumer base. However, the industry will also face challenges, particularly with market concentration and the ongoing competition between console makers.