How former PlayStation boss views gaming’s tumultuous time | Shawn Layden interview

I was able to catch up with Layden again as he joined Readygg as an adviser, and we talked about the situation in the broader game industry. This is one of the topics that we aim to address with our theme of Resilience and Adaptation at our GamesBeat Summit 2024 event, coming on May 20 and May 21 in Los Angeles.

For the sake of some brevity (yeah, it’s long), I edited out the part of the conversation where Layden and I talk about his new support of Readygg, a Web3 gaming company — which is part of this story. Our remaining interview starts with the topic of The Wheel of Time and AI, we moved on to the topic of blockchain games (a lighter version of the Readygg story) the stall in the game market, the mass layoffs in gaming, the possible opportunities, the need to control costs and structural changes in gaming.

Here’s an edited transcript of our interview.

GamesBeat: I wrote a story on AI and The Wheel of Time recently. They had this interesting notion that we’re going to use generative AI, and all we’re going to put into it is Wheel of Time. This is 14 books, 4 million words. Then you could ask this anything about Wheel of Time and get a quick answer. It would be handy for a writer who’s going to work on something like the Wheel of Time Amazon show. It’s the ultimate fan encyclopedia as well. But then those fans might do something like what you suggest. They want to be creators themselves. “What if I could write book 2.5 of Wheel of Time?” The AI might help them create that. At some point, if that work is good enough, maybe it gets reviewed by the owners of the IP and say, “We can publish this, and if readers buy it you’ll get a cut.” Once you start building on top of someone else’s creation like that, a lot of blockchain stuff makes sense in connection. An ecosystem like that, marrying user-generated content (UGC) and blockchain and large language models (LLMs), that starts to sound attractive.

Layden: Let’s take an old world problem. Let’s go back 10 years, 15 years. Remember when used games were such a hot button topic? In Japan platforms were fighting in court to stop the sale of used games, because they had different laws around it. In America it was pretty much a lost cause. If you can sell a used book, a used album, a used car, why can’t you sell a used game? The only difference is that a book, an album, a car, they degrade. The book gets torn. The car’s got dents. With digital media every copy is identical. There’s no wear and tear. Sony fought it and lost. GameStop made a fortune on the used games business. Part of the reason why publishers and developers were so aggrieved by it is that you can resell my game five times, but the developer or publisher only gets something from the original sale.

Blockchain has its own challenges, and I think scalability is the biggest one. It’s so precise as to be inefficient. Having to check millions of different ledgers to see if this transaction can occur or not. We have to find a way to streamline that. If there were a system where you could have “used” digital games, where I have an .exe of a game and I want to sell it on because I’m done playing it–in the current world of things I can’t sell my digital library. You can’t sell your iTunes library. But if there were a system where, if I were to sell you a digital copy of a game, and through that transaction the original creator could get X percent every time the game is resold, publishers and developers would have a different view toward the used market. “Please resell my game!”

GamesBeat: They get their cut.

Layden: Every time it gets resold. If you can make that real for a publisher, it takes the edge off. We can live with that. In a world where, if I can buy your bronze armor for a certain amount of money and the game developer gets a percentage because it works in their game, we’re creating a second economy. It creates ancillary revenue streams for the original developers and publishers. I don’t know how that’s a bad thing.

GamesBeat: You might also find a way to escape the platforms. They’re also saying, “Oh, you want to take your game, put up a website, and sell extra stuff there? Where’s our cut?”

Layden: In the initial instance, the transaction will have to occur within the platform architecture. The in-store game on the platform. You go in there, load up your helmet, I buy that. It sits on the platform. So yes, you don’t get 100 cents on the dollar. You get whatever it is, 80% or 90%. A slice goes to the wallet enabler. A slice has to go to the platform that hosts the transaction. It’s the number of mouths you have at the trough.

Over time maybe that shifts the burden, where the platform is not as important. The whole idea of platforms is going to change now. The platforms, aside from the Nintendo world, which we all accept is its own kind of subset living independently–with the two big AMD-based platforms, let’s say, the technology is becoming virtually indistinguishable. You could say the difference between what’s in an Xbox and what’s in a PlayStation, pretty much only dogs can hear it. In time the idea of battling platforms becomes an anachronism, I think.

GamesBeat: With blockchain games, it seems like there’s a bit of a tradeoff now. If you want to get the advantages of blockchain for your game, that may mean you can’t be on Apple or Android. That might breach their rules, doing a Web3 game on those platforms. That could be the world we’re going to have. In some ways it does bypass those platforms. But we could also have a world where they allow blockchain in some form on iOS or Android. Some of that is being tested this year. Do you think either of those possibilities makes sense, or might be more likely?

Layden: Everything changes. There was a time when, to go transcontinental, you had to talk to the Union Pacific Railroad. You had to take their rails. The railroads had a monopoly on going east to west. And then they didn’t. Then there were cars and planes. Gatekeepers at stage one is a known. That’s always happened, in so many different areas. But the will to make changes, to create a new avenue, to establish new marketplaces–the big players will never do it, because it’s always against their interests. That’s why we love startups. That’s why we love small, innovative tech companies who can solve that problem differently. In time they’ll get traction. There was a time when we thought we’d all be on AOL for the rest of our lives. That didn’t happen either.

GamesBeat: If the market stalls, maybe the likes of iOS and Android could look at this and see a way to keep the market going. Welcoming these new technologies to their platform, learning to live with them, maybe their market won’t slow down. That might be attractive.

Layden: You have to decide, at what point do you murder your darlings? At what point does having this chokehold on everything that comes across your platform–it’s been a lucrative marketplace for you, but consumer minds are changing. Consumers aren’t buying a new mobile phone every nine months or whatever it used to be. They’re settling in. We’re having difficulty making these quantum leaps in cell phone capabilities. They’re plateauing. My thing with mobile phones, I wish they’d go back to concentrating on telephony. My call reception still sucks. But it has a better camera!

They won’t be able, I think, to continue to have that stranglehold. They’ll have to accept a future where people build things on their own, or they’re coming from other places. Android allowed sideloading. iOS kind of does, maybe in Europe, but it’s going to have to be more accepting. It’s the nature of the beast. You can’t keep a stranglehold on the marketplace forever.

GamesBeat: You hear similar things coming from the console guys. Phil Spencer talked about the decisions they’ve made to take some games to Sony’s platform, to other platforms. One thing he said was that what everyone needs is for the market to grow. When the market’s not growing, it explains a lot of the suffering going on, and the need to rethink.

Layden: Absolutely. When your costs for a game exceed $200 million, exclusivity is your Achilles’ heel. It reduces your addressable market. Particularly when you’re in the world of live service gaming or free-to-play. Another platform is just another way of opening the funnel, getting more people in. In a free-to-play world, as we know, 95% percent of those people will never spend a nickel. The business is all about conversion. You have to improve your odds by cracking the funnel open. Helldivers 2 has shown that for PlayStation, coming out on PC at the same time. Again, you get that funnel wider. You get more people in.

For single-player games it’s not the same exigency. But if you’re spending $250 million, you want to be able to sell it to as many people as possible, even if it’s just 10% more. The global installed base for consoles–if you go back to the PS1 and everything else stacked up there, wherever in time you look at it, the cumulative consoles out there never gets over 250 million. It just doesn’t. The dollars have gone up over time. But I look at that and see that we’re just taking more money from the same people. That happened during the pandemic, which made a lot of companies overinvest. Look at our numbers going up! We have to chase that rocket!

We’re not doing enough to get heretofore non-console people into console gaming. We’re not going to attract them by doing more of the shit we’re doing now. If 95% of the world doesn’t want to play Call of Duty, Fortnite, and Grand Theft Auto, is the industry just going to make more Call of Duty, Fortnite and Grand Theft Auto? That’s not going to get you anybody else.

GamesBeat: There was an interesting parallel in free-to-play games. As you say, 95% of people didn’t buy anything, but about 5% did, and then you had a smaller percentage of whales that bought everything. They were the people that made the whole thing profitable. They made up for the fact that most of the other folks weren’t paying. They liked that those other people were there, so they had lots of other people to play with.

With blockchain games, what I was thinking at first–there weren’t that many players at the beginning, but the crypto folks who came in were crypto rich. They were willing to spend, and they did. Some of these early games were making money and doing fine off of 50,000 or 100,000 users. I wondered if this was the thing that would carry them long enough to eventually find a way to reach a mass audience. But it seems like the road has been longer for the blockchain games to find that audience. That’s given me pause about the strategy of counting on the whales to get you there.

Layden: Yeah, that’s a bad strategy. That’s like saying you’re going to go fishing and you’re counting on a hurricane to throw a bunch of fish your way. It could happen, but it’s not a good plan. Anyone who comes into the gaming world saying that they’re going to exploit blockchain to make their game more something, they’re coming at it the wrong way. You can’t build a game based on–the core meaning of your game can’t be leveraging a new monetization technology. From a gamer’s perspective, why should I play that game? How is it fun? If it’s not fun I don’t care.

What I like are people who make games, who are thinking, “How does smart contract technology, a unified ledger, the transparency of a transaction augment my game, make my game broader or bigger or more participatory for the players?” In the beginning is the game. If the game’s no good, I don’t care what NFT thing you’re running against it, what kind of crypto applications you have, whether it sits on the blockchain or the block lattice or whatever you call it. If the game’s not compelling then I don’t care.

I like what the READYgg guys are doing, because they’re talking not about how to forcefeed a new mechanism into the gaming world, but how a game can come to these abilities we set forward – the ability to see, the ability to trace, the ability to verify – and augment the game experience? Let’s have that conversation.

GamesBeat: There was another argument that timing matters. Three years ago all these blockchain games got started. They got a lot of funding two years ago. That was maybe a bad time to say, “I believe in blockchain.” But three to five years in maybe it makes more sense. Now a lot of the chaff has blown away. The folks who are still there, still making good stuff, are getting closer to ship. Maybe now it’s worth believing.

Layden: Three to five years ago, when this conversation was kicking around, it was too wrapped up in the crypto conversation. It was too dependent on the NFT exploitation. Crypto, NFT, that’s more visible to the user. Here’s a Bored Ape. Here’s my ethereum wallet. The blockchain is the enabling structure, which people didn’t really understand. It’s there because it enables the crypto thing. That’s how it works.

That’s all blown through, I think. A lot of the NFT craze is gone now. Crypto is where it is. But we’re looking at the enabling technology. There were the get rich quick schemes three to five years ago. But do these underlying technologies have a greater purpose? Are they solving problems? I look at READYgg and say, “Can you solve the problem of used digital games? Can we create a marketplace where everyone who added to the value of that game, largely the developer and publisher, can reap rewards through the reselling of that IP?” If so, we have a more vibrant buy-in. It’s like residuals. Every time it happens you get a cut.

GamesBeat: Do we want to solve some of that accounting nightmare by saying, at some point, let’s cut this off? When you’re getting 1/1000th of a game’s proceeds, is that taking it too far?

Layden: You can make floors and ceilings against that. Doing a transaction for 25 cents that only occurs once every six weeks, you can not get too bunched up about that. We can find ways to create parameters around these transactions. Spotify does essentially the same thing. Maybe it’s not a lot, but you’d rather have it than not.

GamesBeat: Do you think there are more good games that logically should arrive? This week the mobile version of Gods Unchained debuted in early access after four years of development. Monopoly Go, the big hit of last year, took six years to make. Wildcard Alliance is many years in the making. Space Nation Online is getting toward six years. These blockchain games are a long time in the making now. Maybe those are the ones that will convince people that this is a real thing.

Layden: Maybe. Again, it’s simple. Do you have a game that’s compelling, that people want to play, regardless of what the mechanic is or what the story is? Is there a way that I can participate in furthering my relationship with that? Back in the days of LittleBigPlanet, people were making stuff all the time for that. If there were a marketplace where I could sell levels that I made and other people could play them, and I get 90 cents on the dollar while the platform and the publisher each get five cents, that would be a vibrant cottage industry.

GamesBeat: It could still be going like Second Life is today.

Layden: The problem with Second Life is there’s no game there. It’s just a society.

GamesBeat: But the creators are still there and still actively making money.

Layden: Right. It’s its own niche. But I think greater games are out there that could benefit. If you can get that, if you can get the community to build the add-ons – a modding community, but in a way that the modders can take some reward from their labor – for the publisher you kinda lean back and say, “Hey, you guys keep my IP alive. Keep adding to it and building it out. That’s fine.” The publisher gets tribute every time a transaction occurs, so they’re good. If they’ve run out of stories to tell in this world, but the gamers are building their own, that’s a good place to be.

GamesBeat: It also may convince developers–hey, let the fans take this over and you can go make the game you want to do next.

Layden: You do the next one, and over here there’s basically a sandbox. “I love these characters, I love this world, but I wish we could play hide and seek in this world. I’ll build a mod that lets us do that.” Why not? Knock yourself out.

GamesBeat: Do you see developers coming around, or do you think they’re still also thinking that the only place for them is platforms that don’t have blockchain?

Layden: The big developers aren’t going to change their trajectory any time soon. That’s just the nature of the beast. That’s why innovation comes from the fast movers. It comes from the little companies that have nothing to lose. They’ll try something new and different, and others will align with that, see their own opportunity within that, and become part of the journey. You just try to see if you can get to critical mass.

I think it’s there. We all would like to be part of these worlds that we play in. We play in all these different worlds, and sometimes you just think, “Wow, I have this great idea for something that would work in that. I have some skills. I could build this thing.” If there were a world where all my buddies would give me five bucks to go play my level, I’d feel great. It incentivizes me to do more of that. If the platform says, “Yeah, knock yourself out, because I get X percent every time you sell your thing,” it’s hard for me to find a downside to that kind of equilibrium.

GamesBeat: When we get to the subject of why we’re having such a tough time in games, there are things that go way beyond blockchain. I felt like last year, all the layoffs–they were bigger than normal, but it just meant it was a bad year. The layoffs that are continuing this year make me think this is an unusual catastrophe. What’s going wrong here? Why are we in such a funk?

Layden: We’ve been around this tree for a very long time. There are some dynamics that we haven’t seen before. It’s the biggest thing in the world. It’s a $240 billion industry. It employs more people now than it ever did before. During the pandemic, particularly here in Silicon Valley, we saw the Googles, the Amazons, the Facebooks, the Apples just sucking up engineering resources left and right. They were in lockdown, but they were hiring. Nothing fuels this industry like FOMO. If you look around and see that all your competitors are hiring engineering talent, you want to make sure you get some too before it all evaporates.

There was a huge hiring spree, and because of the pandemic, it’s not like you needed to find them a desk or an office or a chair or anything. You just hired them and they sat at home and wrote code or made marketing plans. That exploded. There was the metaverse thing going on. Chief metaverse officer was a job for a hot minute. Money was essentially free. All this money sloshed into the system. All the excitement about what we could do. At the same time, revenues increased across the interactive space because we had a captured audience. They couldn’t leave the living room. They spent more time online. They spent more money in the stores. All indicators, the numbers go up.

Then it was over. Or we called a timeout on the pandemic, anyway. People went back into the world. Consumption dipped to normal levels. It’s dropped, but it’s not lower than 2018. It’s normalized. The big companies laid off tens of thousands of people, whether Amazon or Netflix or whatever.

GamesBeat: It seems like at least those big guys are in a boat where they have to hire them all back, because AI is creating another boom again.

Layden: It’s crazy how you can lay off 900 people and have 300 open recs on your website. There’s a mismatch between what companies think they need and what they actually have. What did they say, 12,000 or 13,000 last year and we’re already up to 7,000 just in February of this year?

GamesBeat: I think it was 10,500 by one set of numbers and then 8,000 already this year.

Layden: Does it stop tomorrow? No. I think we’ll see more. Today was EA, right? Yesterday was Sony. It’s going to continue to occur. What’s remarkable, when you look at the bottom line of these companies, some of them are hitting record revenues, record profitability, and laying off 8% of their workforce. Other than a mad chase for profitability, I don’t understand it.

GamesBeat: It’s maybe made people more suspicious about AI. Is AI causing this? It doesn’t seem like it’s ready yet, though.

Layden: AI is a convenient throwaway line. I think it has nothing to do with what’s happening at all. Maybe around the margins, around places where private equity is getting skittish and VC doesn’t want to go because they don’t know about the AI component. But deep down in the companies that have been building stuff for decades, that are experiencing layoffs, it’s not an AI thing. It’s just, “We took on a lot of capacity because we thought we were going to build all these things for a population that was stuck in their living rooms.” Then that growth curve dropped when the world came back.

Look at live service gaming. I can’t imagine a game industry where you have 20 live service games, all of them incredibly successful. There’s just not enough energy around that. Remember back in the day when we played Ultima? Then Everquest came, and everyone left Ultima to play Everquest. Then everyone left Everquest for World of Warcraft. It’s difficult for multiple titles in a service or a persistent world category to be successful.

GamesBeat: I don’t know whether I’ve become overly optimistic, but I feel the need to remind people that it’s not going to be a complete disaster. Things are going to get better after we hit bottom. For a lot of people, they seem to think this is bottomless, that it will go on forever. But every week I write about companies raising money. Amir Satvat is one of the people who’s been monitoring jobs. He’s tracking 2,000 companies now, and they do have job openings. I think he thinks that hiring is going to exceed layoffs by September. At some point in the pipeline it will make sense to have an improvement in the overall situation. Do you think people have been overly pessimistic? At some point do we have a recovery?

Layden: Layoffs are always a lagging indicator. Layoffs occur trying to solve a problem that happened a year ago. You had this plan and it didn’t work out. You feel you have people now who aren’t in line with the new course correction. Layoffs don’t address today’s problem. They address decisions made in the past that may not have been the right decision. Let’s understand it’s not taking the temperature of today.

I agree with Amir’s point. We talked about this earlier. All these thousands of layoffs over here, all these open recs over there across the industry. It’s a mismatch of talent to requirements. That will level out over time. The demise of the industry has been predicted so many times in the last 20 years that it’s almost a joke. We’re fine. I don’t want to sound like a broken record, because I’ve been saying this for five years, but it’s the rising cost of development. That’s the existential threat. It’s not “live service gaming is tricky” or anything else. When we’re in the $250-300 million to make a game world…

I’m giving a talk about this tomorrow at Stanford. Gaming is reaching its cathedral moment. There was a world hundreds of years ago where they built cathedrals, massive edifices to God, throughout Europe and around the world. Eventually, indentured labor only takes you so far. Then it stopped. It became prohibitively time-consuming and expensive. They were wonderful and beautiful. You can look at any of them across Europe and think, “That’s a marvel.” But we don’t make them anymore. We don’t make them because the math doesn’t work. If you have four walls and a roof, you can call it a church, and God will come visit. You don’t need the cathedral anymore.

I’m afraid that we’ve bought into the triple-A, 80 hours of gameplay, 50 gigabytes of game, and if we can’t reach that then we can’t do anything. I’m hoping for a return of double-A gaming. I’m all for that.

GamesBeat: Matthew Ball’s most recent essay had a few good points that helped paint a picture for people. We have 10% inflation. We have larger teams than we used to. We want to put all these cool new things in games and make them bigger, 100 hours of gameplay or more. But we’re still selling them for $60.

Layden: Crash Bandicoot, back in 1998, cost $49.99. But it probably cost less than $7 million to make. It sells 10-15 million units? Well hey. In today’s world, God of War costs more than $100 million to make, and yet you can only charge $59.99. What happens to your break-even point? That’s why, back in the late ‘90s, there were a lot more Ferraris in the parking lot at game developers. The profit sharing explodes. Price elasticity has been a huge problem in gaming.

GamesBeat: I remember people saying, many years ago, that the games business is better than movies, because you could make a game for $10 million and get $100 million back. At the same time Hollywood was making movies for $90 million to get the same $100 million. Now games have caught up.

Layden: Right. Profit sharing ain’t what it used to be.

GamesBeat: What do you see as the solutions to drive for?

Layden: Granted, I’m an old man. We have our own nostalgia. But I look back at the PS2 era, and there was so much variety. You had God of War and Assassin’s Creed. But you also had Loco Roco and SingStar and Dance Dance Revolution. You had this entire spectrum of entertainment opportunities. At $7-12 million a throw, why not make a bet and see what happens? Katamari Damacy, for Christ’s sake, you couldn’t get that built today because you can’t even explain what it is. But now, when every bet is triple-digit millions, risk tolerance is super low. You end up with copycats and sequels and not much more.

GamesBeat: I look at what’s structurally different about the industry now. We have these big co-development companies, like Streamline and Keywords. Keywords is more than 10,000 people. There are 3,700 people at Virtuos. Those didn’t exist before. Maybe game companies should make use of them. I think they are making use of them, but the big companies still seem caught in a hire-then-fire cycle. Perhaps not as much as they used to, but they’re still doing it.

Layden: Less, actually. If you look at the growth of Keywords or Streamline or Virtuos, getting more business all the time–if you look at the credits at the end of an Assassin’s Creed or The Last of Us or any of these big games, you used to be able to get through the credits in about 30 seconds in the PS2 days. Now there are thousands of people in the credits, and you’ll see all of these outsource companies, supplemental VFX houses, supplemental graphics houses. They’re outsourcing a lot of it. That happens more and more. For a company that’s great. It’s talent that doesn’t sit on their P&L. It’s not an FTE. You don’t have long-term employee liability. That has expanded, and those sectors are growing dramatically.

There’s going to come a time, in my lifetime, where game development becomes more like movie development. When you make a movie, you hire all the components in. You create the Fast and Furious company. All these people come together. You make the movie. Then everyone disperses. I think that’s the only way to work in the future. The idea of having 300 people sat in a massive warehouse waiting for the workflow to come by them is just not going to be efficient anymore.

GamesBeat: Waiting for Neil Druckmann to say, “This is the next game.”

Layden: There’s always going to be the creative core. You can’t get away from the creative core. But it’s like movie studios. Movie studios used to have screenwriters, actors, musicians, composers, carpenters, electricians, all on salary. They’d punch in every day at MGM and wait to build the set. In the meantime they’re having coffee.

GamesBeat: There’s a role for another structural difference now, too, which is VC. The game VCs are here. They still have money. But they’re getting gunshy. They’re investing 75% less than they did last year.

Layden: And they want to go late round. I talked to a lot of VCs at DICE. They’d rather come in late. Guys, private equity is supposed to come in late. VC is supposed to come in first. That’s not venture capital.

GamesBeat: They should be funding the original IP.

Layden: Absolutely. That’s why you come in early. You get a better back end. But they say, “We’d rather come in late and get a smaller back end with more predictability.” Aha, okay. Then you’re private equity now. You’re no longer VC.

Some of the VCs are telling me they’re getting pressure from their LPs. “We gave you a bunch of money in January. It’s November now. Have you invested it?” “Well, we’re still looking for opportunities.” “Then I could have just put that money in T-bills.” There’s pressure coming from the LP community. They want their money put to work. They’re paying fees, but the money isn’t going to work.

GamesBeat: One problem I’ve heard about, maybe they’ve started funding things in tranches. Maybe three rounds will get you to finishing your game, but now we won’t give you the second and third round because we’re afraid. All you get is that first round. That’s not going to work.

Layden: No. We have to scale back the ambition. Not the creative ambition, not the entertainment ambition. Again, I want 15-20 hour games. As the average age of the gamer has increased over time, from early 20s to early 30s, we’ve seen the swap between people who are time rich and money poor to people who are time poor and money rich. That person can’t fit an 80-hour game into their lifestyle. I still have Red Dead Redemption 2 in shrink wrap on my shelf. It’s way too much.

GamesBeat: We have Palworld and we have Helldivers 2 right now, though.

Layden: The big change isn’t going to come from the big franchises. The change will come from the outsiders. The change will come from a place we’re not even looking at right now.

GamesBeat: The Pokemon Company might not be happy about Palworld right now, but all the fans seem to be.

Layden: The Pokemon Company hasn’t, from what I’ve seen, taken any action against it.

GamesBeat: Their action should be, “We’re going to do something better than Palworld.”

Layden: They’re never going to give Pikachu a rifle, if that’s what you’re thinking.