The AAA Video Game Studio is Dead. What Now?

The video game industry is going through a moment. Out of the ashes will arise a new type of game studio -- but what will it look like?

I got back from GDC last week and I couldn’t stop thinking about the industry. I didn’t go to the conference, but I did meet our investors, partners, other founders and friends. Last year, I would describe the mood of GDC as uneasy and uncertain, but still with a glimmer of hope. But this year, I would describe it as borderline nihilistic (complete with screaming sessions). In all of my conversations, the main topic was: what is going on and what does the future look like?

Much has been said about the record layoffs the industry has been facing the past couple years. According to the Game Industry Layoffs Project, we had 10,500 layoffs last year. This year we already have 8,500+ and we’re only in March. Its hard to pinpoint the exact cause for the downturn but what we know for sure is that revenues are down while costs continue to rise.

For players and analysts, the state of the industry may come to a surprise but for AAA gamedevs like myself (I spent 15 years at Blizzard) we’ve seen this coming for a long time. In our own circles and group chats we’ve predicted this as “the Reckoning” for at least 6 years. Quite simply: the way we make games (in particular, western AAA) is broken.

📉 The Rise (and Fall) of AAA

The AAA game studios we know (and sometimes despise) today like EA and Activision Blizzard were originally started by folks like Trip Hawkins in 1982, who came from Apple and wanted to create a company where gamedevs were treated as artists, with an emphasis on quality and creativity. Activision was founded by ex-Atari designers David Crane, Larry Kaplan, Alan Miller, and Bob Whitehead because they had enough of Atari not crediting them for their work and having all of the profit siphoned to the top.

Back then, gamedevs were not credited on titles in fear of them being poached by competitors. Activision was the first independent studio to change this but the practice was still a huge debate even as recent as the early 2000s when Naughty Dog founder Jason Rubin made headlines ranting about publishers refusing to credit gamedevs on the box during a talk at DICE.

"After several calls, lots of hassle, waiting in a long line, and a trip through the metal detector, Rubin was able to get in. Meanwhile, Hollywood darling Tara Reid simply strolled into the party. This got Rubin thinking about how much money and attention publishers garnish celebrities with. By contrast, the business does a really poor job of promoting its own talent."

But the modern AAA studio was not created by Trip Hawkins or Jason Rubin. EA, Activision and Naughty Dog were eventually sold. The actual engineers of the modern AAA studio were executives like John Riccitiello and Bobby Kotick. They may have had very different visions and business strategies than their original founders, they did share something in common with them: a yearning to create gaming blockbusters. For devs in the 70s/80s, the goal was to make games as cool and as big as Hollywood. In fact, another major AAA studio Ubisoft would describe its internal vision of the company as “Nintendo + Hollywood.”

Having games rival Hollywood was something new. Originally games were seen as something like toys or virtual board games that geeks were into, not mainstream media. To be like Hollywood would mean to focus on IPs, transmedia, and most important of all: huge budgets. The original Final Fantasy game in 1987 had a reported 7 developers. Just 10 years later, Final Fantasy VII had a peak dev team of 150 and the FFVII remake released two years ago in 2020 has 2,535 individual credits on Mobygames.

In the end, those that built the AAA studio model got what they wanted: blockbusters. By 2023, the video game industry was now bigger than the film industry and music industry combined. But for all of what they’ve accomplished, EA is somehow voted as the most hated company in America and Bobby Kotick’s legacy of taking Activision from near death to the behemoth it is today feels like he’ll be made a villain.

🚀 The Indie Horde

Three years ago I wrote an article on Valehim. Why was this game so popular, and why was this successful game dunking on the large, blockbuster AAA titles?

At the time, my suspicion is that we’d continue to see the phenomenon of low (relatively) budget games outperforming large AAA titles. And in 2024, I feel really good about that take. One of the biggest titles of 2024 so far is Palworld - a game made by a Japanese indie team of less than 50 with a budget of $6.75 MM. It has sold an eye watering 25M units. Helldivers 2’s entire studio has a team of around 100 has sold over 8M copies and is the biggest title of the year for Sony, outperforming both Starfield and Destiny 2 who have teams and budgets orders of magnitude larger.

Memes by gamers who are frustrated with the AAA establishment

Indies chipping away at the large tentpole publishers and established AAA studios is nothing new, but the growth (perceived or real) is raising alarm bells within the establishment. On the heels of the massive success of Helldivers 2, its publisher Sony shut down its London studio and laid off an 8% of its workforce. In the letter to employees, Jim Ryan (President & CEO) wrote that it was about the “evolving economic landscape, changes in the way we develop, distribute, and launch products, and ensuring our organization is future ready in this rapidly changing industry,”

Players, the press and the establishment AAA studios are all in agreement: something has to changed from within. But what?

🔮A Vision of the Future

As Founder/CEO of my own game studio (Notorious), I’m focused on our first game Project Honor. As a game designer by trade, working on the game is the part of my role I enjoy the most and gives me the most energy. But seemingly unlike most game studios, the game is about as important to me as the structure and vision of how the studio is operated. This is because just like the founders of Activision and Atari, I think once again the studio of tomorrow will be very different than the studio of today.

After working at Blizzard for 13 years, I witnessed the explosive growth and the effect that it had on the company. Scaling a company is incredibly challenging, but scaling a game development studio that is designer driven is something uniquely challenging. I thought a lot about what the magic was in those early years, what happened, and how to maintain the culture as you scale. This can be a whole article on its own, but in the end I concluded that it couldn’t be changed from within (and certainly not by me). So I left to create Notorious.

But before I did that, I thought a lot about how I’d want to structure the studio differently. What will come after AAA?

Here are my predictions of what the next great game studio* will be like (or at least, start from):

(*FYI - by “next great game studio” I’m saying, the next EA/Activision/Blizzard of the future. Multi-billion dollar, makes great games, etc.)

🏢 It Won’t be Full Remote

It was shocking how quickly Blizzard supported full remote when the pandemic struck when previously they said supporting remote work in any capacity was “impossible.” Working remotely gives employees a lot of personal comforts I’m sure we all know — no more long commutes (or commutes at all), eating lunch in your own dining room, more time with family etc.

But for all of the comforts working remote provides the employee, it does provide real challenges to the studio. Games are art, and making art in a full remote distributed manner puts strain on all parts of the development process. It is sort of like imagining George Lucas creating Star Wars with all of the actors and film crew at their homes on their PCs. Can it be done? Yea, but it creates a lot more challenges that are difficult to describe.

In a recent podcast, gamedev Jonathan Blow mentioned he is essentially bearish on full remote for studios: “My observation at my company is that we have to do a lot to try to make up for being remote […] so I think we take a quality hit and the question for me is since I’m aiming for the highest quality of thing that I could make, am I making a mistake allowing the team to be fully remote?” Blow isn’t the only one having this question right now: most larger AAA studios have requested their teams to come back to the office including Valve, Blizzard, Riot and most recently Rockstar games. Oh, and Pocketpair (Palworld) and Arrowhead (Helldivers 2) aren’t full remote either so it isn’t just the AAAs cramping our styles.

While employees will speculate it’s to use that office space those silly execs signed a lease for or to “quiet fire” employees by forcing RTO, many developers I spoke to privately echo Blow on the challenges of remote.

"In 2020 we were all onboard with full remote -- announced the permanent shift, some of our execs moved into their vacation homes out of California, and most of all we were excited to cancel our lease renewal and remove that line item from the P&L, allowing us to invest it in other areas like the team and outsourcing. But around 2022 we noticed that productivity was nosediving, managers were struggling and requesting more help, churn was at an all time high. We had to fly in leads from all over the US and Europe for offsites every few months to get alignment as a last resort. In the end, the game was cancelled and the studio shut down."
- Anonymous AAA Producer

For leads, producers and other middle-managers (very common in AAA), it can be miserable. Managers report more stress, more anxiety, less WLB and less job satisfaction with remote. And because full remote by nature requires extra coordination, more management and oversight becomes essential.

Seniors and above thrive the best with remote since they had ample time in their career to understand gamedev while in an office. But for associates and entry level employees, it can be difficult:

“I think for most Seniors and above, remote is a blessing since a lot of us have families and are "house poor." This allows us to move to lower COL areas. But as a lead, it is a nightmare for juniors, especially, who haven't shipped a game yet or ever worked in an office. Training and getting alignment even on the simplest things takes significantly longer. In my 4 years prior as a lead, I never had a report cry in a 1:1 but it is a normal occurance now with juniors. They are struggling mentally. A lot have requested to RTO, and were scheduled to do so, but we shut the office down.”

Q: Do you share that with the directors?

“Sort of, everyone is experiencing the same thing on their teams. But we don't make too much noise because we don't want full remote to go away. I guess selfishly.”

Q: For the juniors what do you think the solution is?

“I think it's hard, they probably shouldn't do full remote until they get more in-office experience. Or we have to figure out different onboarding pipelines. I don't know. I will say for some of them (that aren't Americans), I don't notice it as much.”
- Anonymous AAA Lead

Despite the challenges with remote, I don’t think the answer is fully in-office, or even having no remote employees. Remote has too many other benefits for the company to completely discount, but most importantly: (1) access to talent globally and (2) access to talent in lower cost-of-living areas (more on this later).

Studios will need to know which of their teams are most important to have in-office with rapid communication. For us, this is the game designers and gameplay engineers as it is the heart of our game. But I think having most Vision Holders on-site is ideal. The less impactful to your project or studio can be remote (but within the same-ish time zone), and the least impactful can be distributed (global).

🙎‍♂️ The Core Team will be Significantly Smaller

For the modern AAA studio, large headcounts have traditionally been a sign of strength. The more workers you have, the bigger you are, the more money you are making - right? Maybe not. Recently large corporations, gaming and otherwise, have begun second guessing the strategy of growth at all costs. This strategy of “going lean” in tough times is typical, but it does feel like there has been a real long-lasting shift in philosophy. Mark Zuckerberg, CEO of Meta, wrote in his letter to the company in 2023 branding it the “Year of Efficiency.” Phrases like “Leaner is better” and “Flatter is faster” were thrown about. In an interview, Zuck said: “I think across the economy, a lot of companies just kind of overbuilt. And then when things went back to pretty close exactly the way they were before it, I think a lot of companies realized, hey, we’re kind of not in a good financial place.”

Epic games like God of War, Elden Ring and Breath of the Wild will still be made in the future with equally epically large teams behind them. They are our modern day wonders of the world, the peak of artistic achievement. But even these studios have been and will continue to shift more of the work out of headquarters, utilizing the rapidly maturing outsourcing and co-development solutions.

Having a lean HQ means you can have less middle-management, a tighter culture and most importantly a low burn-rate (so less layoffs when things go south). For Emberlab’s Kena a Bridge of Spirits, Gamedeveloper.com reported in an interview that there were more staff working on the game from the outsourcing giant Virtuos than Emberlab’s own studio. I’ve heard in backchannels other similar stories of games being produced today. This will become a lot more common, especially in the West.

For next-gen game studios, the days of having every texture artist and QA on-site inhouse will be a thing of the past. Instead, high performing studios will challenge themselves to keep their headquarters as lean as possible while utilizing outsourcing, co-development, contract work ideally in low cost of living areas such as the UK, China and the Philippines. This will give them an advantage against other fatter, more expensive-to-run studios.

🧠 It Will Be Structured for Creative Freedom and Autonomy

The modern day corporation has changed slowly from its original inception during the American Industrial Revolution. During that time, companies grew tremendously in size and complexity requiring a more systemic approach to management and the organization. In came the hierarchical model, with clear roles, responsibilities, leads and reports. This model crushed for many decades and is really what made the industrial revolution possible. But in 2024, organizations like tech companies and video game studios aren’t factories anymore — but they’re still run like one.

The first Functional Organizational Chart

The best games (in terms of artistic achievement) are made by studios that are designer-driven — where the player experience is paramount above all. Studios such as Nintendo, Blizzard and Riot are all led (or were led, at least) by designers. This is in contrast to engineer-driven studios (Valve, Roblox), data-driven studios (Supercell, Scopley) or production-driven studios (EA, Ubisoft). For designer-driven studios, the best idea must win. And for those ideas to surface and be supported, the culture of these studios must index on creativity and autonomy.

Steve Jobs once said that “It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.” Clearly AAA studios haven’t heard that line. Talk to any AAA veteran and they will lament that in AAA, good ideas go to die. This is because in AAA, like all modern corporations, decision making power is typically reserved for a very small minority of the creatives. Trust is low, so everyone must have a lead, a director, a producer and a manager. Any idea must go through the dreaded bureaucracy of stakeholder approvals. I once had a feature for World of Warcraft approved by 3 directors (including the game director) and 2 leads in a meeting, only for it to be killed later by a director who was absent that meeting. What a waste of everyones time.

I’m a fan of the book Reinventing Organizations because it brings to the table new ideas to shakeup the modern org (known as a “teal” org). Many of these ideas I adapted for Notorious:

1. Self-management - We manage our own lives, families and lifestyles — why can’t we manage our own work? Instead of producers and PMs, we self-manage our own work at Notorious. Like Valve, we don’t have any producers by title and that responsibility is distributed among the team.

2. Distributed decision making - In a traditional org, decision making happens from a very small group of Directors or Leads. In modern orgs, decision making power (or Vision Holder status) is broken apart and distributed to more on the team, reducing the burden and letting others make an impact.

3. Roles, not Titles - Roles (or as we call them “hats”) shift constantly in an information-age organization. That’s why you see so many “reorgs” (that are costly and exhausting, btw). Instead of bundling them in a title like Lead or Director, project assignments (DRI) and Vision Holder responsibilities are distributed among many different individuals. The roles are also fluid, and shift from time to time naturally without a whole reorg (because there is no org chart that breaks).

4. Frequent feedback and peer-reviews instead of the annual performance review. Feedback needs to happen every day, not once per year. Instead of your career being in the hands of one (your Lead/Manager), modern orgs will also take in account peer assessments in an equal measure or in the example of Valve, be the sole metric for performance.

It sounds dubious and I tell everyone at Notorious that it is an experiment. But at the end of the day we are united in agreement that trying to improve on the way we make games is a worthwhile cause.

Organizational design is one of my favorite interests and I could say a lot on this topic alone. But in summary, next-gen studios will rethink the way they design their organizations in a way that promotes creativity and autonomy. This will allow them to produce the best games quicker without layers of bureaucracy and bubbling great ideas upward with distributed decision making and vision holder roles.

⚔️ Games will be Crossplatform and Crossplay

It used to be all games were on arcades, then came consoles, then PC and most recently mobile. In the past, studios would focus and specialize in a specific platform but more and more studios are opting to publish their games on as many platforms as they can. It took a while for traditional studios to publish and put their games on mobile (letting Zynga, Supercell and Scopley get there first) but they’re quickly catching up. Activision now has a Call of Duty on mobile, Capcom has Monster Hunter Now, Blizzard has Diablo Immortal etc. Today, Supercell is pivoting to enter other platforms instead of just mobile because they, too, believe crossplatform is the future.

PUBG Mobile reportedly has grossed over $10B in revenue alone

Developers have also noticed that if you don’t put your hit PC/Console game on mobile first, someone else will. Riot took so long to put League on mobile that its own parent company Tencent developed Arena of Kings, reportedly grossing over $18 billion in lifetime revenue. Mediatonic was rumored to be hamstrung by Epic from developing a mobile port, and instead an indie studio created Stumble Guys grossing over $80M in lifetime revenue (later to be acquired by Scopley).

Developing games on all platforms requires unique experience, skill and strategy. They don’t all have to be done at once, and all don’t have to be done solely by the Core Team (PUBG, for example, wasn’t even built by Krafton but instead Tencent) but its key for the studio heads to create projects that can be crossplatform, and to create the necessary vision and plan on how to achieve it.

Of course, being crossplay and crossplatform isn’t essential to create a great game, or great art. But it is critical in becoming a leading next-gen multibillion studio. Leadership and gamers alike, especially in a west, have a distaste for mobile that I’m sympathetic to (predatory gambling mechanics, low quality etc) but ultimately gamers create games for players to enjoy, and not every gamer worldwide has the luxury of a PC or Console. Porting a game to phones in a way that honors the original vision of the game simply unlocks a much wider audience to experience all the work the team produced. We should embrace that.

🤏Production Values Won’t be King

AAA studios have an obsession with quality. And when I say quality, what I really mean is fidelity. Check out that detail on Spidey’s suit? G’damn. But all of these extras add incredible amount of time to the total scope of the project. And when a project becomes a certain type of fidelity, it makes doing anything so much harder. Want Spidey to catch fire? Well now we have to figure out how to make that work with our new fancy material system — it’s we not do that whole fire mechanic. Lame!

Spidey’s suit looks awesome — but is this attention to detail worth an extra year of development and $10M?

For a long time in Battlefield players requested a way to carry allies while they were downed, so they could raise them out of line of sight. But it never was added — most likely because it would be too much of a challenge with the high fidelity models and rigs. But BattleBit just, well, added it. Their models and rigs are simpler, so the feature probably took a good gameplay engineer a day to do.

Its uncertain how important production values in games are to the younger generation - they do grow up playing Minecraft and Roblox, after all. Popular games for them have been Among Us, Lethal Company, Valheim, BattleBit and Palworld. All good looking games, but are not “AAA production value” quality. In the end, a less pretty game can be still be good but a beautiful game can’t be bad.

Next-gen studios will focus on art direction but not harp on art fidelity, reducing their budgets, speeding up dev time and maximizing creative options in design.

🕊️ Marketing will be Authentic, and Player Centric

The AAA studios pioneered the “AAA Game Trailer,” one-upping Hollywood yet again by pouring millions of dollars into internal or contracted art houses to make a 2-minute masterpiece to catch the eye of the gamer. I once heard the World of Warcraft original cinematic cost more to make than the actual development of the game. Sounds crazy, but marketing for games start at minimum 30% of the total cost of the project and for larger AAA games greatly exceed the cost of development.

But marketing for games is changing. Players are less interested in fancy cinematics as they’ve been hoodwinked all too often before, disappointed that the game looked or felt nothing like it. They instead want to see gameplay — something they can easily find with a quick YouTube search. If you don’t believe me, go read the top comment for the trailer of Amy Hennig’s latest game Marvel 1943: Rise of Hydra.

Players also learn about and trust influencers for what games they should play. And because influencers survive off of their trust from their viewers, they are often authentic with how much they like (or don’t like) the game.

Gamers are a unique consumer in that they really care about the community and creators of their games. It is not “just a game” to them, especially multiplayer online games like MMOs. Players want to hear from the developer directly, not from a charming community manager or actor. And unlike in the 80s, players know exactly who the gamedevs are and often can interact with them directly on social media.

Lulu Cheng Meservey, former Head of Comms at Activision Blizzard, says that traditional PR is dead and that founders/developers need to talk to their customers directly. I believe this helped make Blizzard the studio it was through chatting to the players directly on the forums and then even meeting them IRL at BlizzCon. It elevates the player as just a customer to a fan.

https://twitter.com/lulumeservey/status/1770111243174527264

Having authentic marketing opting over showcasing gameplay directly to the player from the developers through creators/streamers will be at the heart of marketing for next-gen studios.

🤝 The Player will be Part of the Development Process

One of the most cherished moments for a developer at Blizzard is experiencing BlizzCon. BlizzCon is a sort of pilgrimage for the players where they meet their friends and guildmates face-to-face, but perhaps more importantly the developers of their favorite games. Several times I would sit on stage and answer questions from players about the thinking being design decisions that puzzled them or ask us about what we were planning for the future. Seeing our players in-person and feeling their passion and gratitude would juice up the team afterwards for a few months at least. It gave us a sense of meaning and duty and I also suspect it deepened the bond for the player with us, even when they didn’t like everything we said.

BlizzCon 2010

The idea of integrating the player into the development process was cornerstone to Blizzard. The infamous “blue poster” on the forums were real developers (usually designers, including the game directors) who had direct conversations about the reasoning behind decisions being made or trying to get feedback. I have vivid memories of the devs reading the forums while eating lunch at their desk, discussing feedback and making changes throughout the day.

In fact, the way I got my job at Blizzard was in result of my feedback I sent them directly. Over time they resonated so much they thought I should apply for an entry role and, well, the rest is history. This was not uncommon. The current game director, Ion Hozzikostas was hired the same way. As was Jeff Kaplan who became Game Director of World of Warcraft and then Overwatch.

In recent years, this custom has been carried forth by many indie studios often on Discords instead of forums or in the case of the Helldivers 2 CEO, tweets directly to players (sometimes regrettably) which players have found refreshing.

In order to capture players feedback earlier (to pivot and not invest too much on systems or designs that don’t work), devs have increasingly been releasing games in Early Access. In particular, indie titles seem to do this more often — games like PUBG, Subnautica, Hades, Valheim, Factorio, Slay the Spire, Deadcells and even once-upon-a-time Mincraft were all released early access for several years before release. Releasing games early access allows the developer to build a culture and relationship with their playerbase, avoiding the “grand reveal” of a release. It still feels like AAA is mostly allergic to releasing something early access, still perhaps fearing copycats, spoilers, or more likely their self consciousness of unfinished work. AAA devs need to get over themselves, their perfectionism and release something fast and learn from their communities.

🎯 It Will be Designer Driven

In tech, it is said that the best companies are led with strong technical backgrounds. Tech companies like Microsoft, Google or Facebook all had technical CEO/founders who directly contributed to the product by writing code in the very early days, had a technical vision that they could articulate to the other engineers and could attract, select and hire great technical talent.

While technical vision and leadership is critical for games as well, more importantly is creating a great player experience. Unlike Silicon Valley, games must be driven by design. And to do that, the leadership (in my opinion) must be designers. All decisions at a small company have to take the players experience (the design) in consideration — who to hire, what to spend production budget on, what feedback to listen to from players, and so on. Designers constantly have to sell their ideas to so many different audiences: artists to make assets for their ideas, engineers to make them a reality, producers to make budget for them, players to understand their vision etc.

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Troubled as Hollywood is today, there is some interesting studio strategies emerging. One such rising star is A24, the studio behind hits like Midsommar, Ex Machina, The Lighthouse, Hereditary and Aftersun. Their strategy is spookily parallel to what I think the new model of game studio is:

• Focus on Storytelling (aka Designer driven): A24 prioritizes unique, daring stories that push boundaries of conventional cinema. This includes giving a platform to indie films and first-time directors.

• Director-Driven Projects (aka structured for creative freedom): The company often collaborates with visionary directors, offering them creative freedom to bring their unique visions to life, a stark contrast to the more controlled environments of larger studios.

• Smaller Budgets (aka AA not AAA): A24 often works with smaller budgets compared to larger studios, allowing for greater financial flexibility and reducing the pressure for massive box office returns. This approach enables the studio to take risks on more unconventional projects and creative visions that larger studios might shy away from due to financial constraints.

• Focus on Community (aka player part of the process): Through its unique offerings and consistent quality, A24 has managed to cultivate a dedicated community of fans who eagerly anticipate its new releases and support its ventures.

• Strategic Marketing Campaigns (aka authentic marketing): A24 has mastered the art of creating buzz through innovative marketing strategies, leveraging social media, viral campaigns, and targeted promotions to engage audiences.

At the 96th Academy Awards a few weeks ago, I heard one of the presenters remark how young the industry is — it hasn’t even had 100 award shows! So young~ In comparison though, video games have only had 10 “The Game Awards” shows, and only 19 BAFTA award shows. If the film industry thinks they’re young, we’re practically zygotes in comparison.

Cinema, too, had its ups and downs. After its golden age in the 30s and 40s, it had a slump then resurged again in the 70s with hits like The Godfather, Star Wars, Taxi Driver, Jaws, etc. Compared to the timeline of the film industry, we’re on track for boom.

But similar to how the studio model shifted drastically from the past century, the game studio too will evolve. While certainly filled with uncertainty, its a thrilling time to be a new studio.