Revolutionizing the $200 Billion Video Game Industry with Artificial Intelligence

The revolution has already commenced in the $200 billion games sector, causing concern among executives and politicians worldwide regarding the potential disruption that next-generation artificial intelligence could bring to various industries, including finance and health-care.

From San Francisco to Tokyo to Hong Kong, numerous digital entertainment companies are responding to decades of rising costs and stagnant prices by feverishly adopting and developing new AI tools. Hundreds of thousands of jobs are in the queue. Still, company executives and studio heads told Bloomberg News that the changes, while inevitable and painful, could strengthen smaller studios, increase creativity and ultimately benefit gamers around the world.

The head of a major Japanese studio is preparing for a future where half of his company’s programmers and designers will be redundant within five years. Executives at Hong Kong-listed Gala Sports have rejected non-AI research projects, forced department heads to study machine learning and offered rewards of up to $7,000 for new AI ideas. They fear that they might already be late.

“Basically, every week we feel like we’re being eliminated,” Jia Xiaodong, the 36-year-old chief executive of Gala Technology Holding Ltd., told Bloomberg News. “The impact of artificial intelligence on the gaming industry in the last three or four months could be as dramatic as the changes in the last thirty or forty years.”

The video game industry is among the first to feel the full brunt of AI because it is largely digital—coded in an AI-readable language and created by software engineers well-equipped to use, adapt, and improve new computational tools. Before OpenAI took the world by storm in November with ChatGPT, it used Valve Corp.’s Dota 2 as a testing ground for its bots.

The advent of artificial intelligence offers the industry a rare opportunity to revamp a business model that has in some cases grown bloated and formulaic – not unlike the criticism leveled at risk-averse Hollywood today. Game production costs have risen faster than sales, with recent hit franchises The Last of Us Part II and Horizon Forbidden West reportedly costing Sony Group Corp. more than $200 million each and requiring years of work from hundreds of employees. According to UBS Securities analyst Kenji Fukuyama, artificial intelligence can cut the investment of money and time in such projects in half.

“Nothing can reverse, stop or slow down the current AI trend,” said Masaaki Fukuda, who helped build the PlayStation Network while at Sony. Fukuda, 48, who is now executive vice president of Preferred Networks Inc., Japan’s largest artificial intelligence startup, sees a wave of change in digital content creation, and his company is involved with an anime creator called Crypko.

Character images, which typically cost more than ¥100,000 ($720) to outsource, can be obtained from Crypko for a flat monthly fee of ¥4,980 and a commercial license of ¥980 per image. It still needs human artists to finish the AI’s work, but the company is improving the tool daily and should be able to address most of its flaws within a few years, Fukuda said.

Demand for such content has grown over the years, with mobile games that cost around ¥40 million to produce 15 years ago now require at least ¥500 million, mostly for graphics, according to former Touken Ranbu producer Yuta Hanazawa.

For the 25-year industry veteran, the new technology was attractive enough to start a new company, AI Works Inc., to sell machine-drawn game graphics. Like Crypko, it requires a human hand to finish the product, but it’s much faster and cheaper than hiring an artist. The company has already supplied art to several unannounced projects, charging half the industry standard price, he said.

“Artificial intelligence is the game changer I’ve been waiting for,” Hanazawa, 48, said. By freeing developers from the burden of mass-produced graphics, it promises to revitalize the entire industry. “Publishers can take more risks, content creators can get creative again, and users can choose from a much wider range of games as a result.”

Artificial intelligence is also becoming a powerful internal tool. Gala Sports used publicly available AI services – image generators Stable Diffusion and Midjourney – to build in-house toolkits for making realistic 3D head models, reducing the cost of a previously two-week task and up to 200,000 yuan ($28,000) when outsourced. Now it only takes half a day’s work. The company has a team dedicated to building more tools to help with coding, design, and even customer service.

The downside of all this automation is the corresponding loss of jobs. Industry leaders, who decline to speak publicly, expect many workers to lose their jobs as they know them. “Artificial intelligence may eventually wipe out entire gaming categories, such as quality control, debugging, customer support or translation,” said industry analyst Serkan Toto.

That future was showcased this month when Tokyo-based Morikatron Inc. unveiled a game made entirely by artificial intelligence. Murder mystery simulator Red Ram uses Stable Diffusion and ChatGPT to generate content based on player prompts. “This is a game that would be impossible to develop without the power of artificial intelligence because you need an infinite amount of art and text,” company founder Yukihito Morikawa said. It took four engineers three months to put it together.

Tsubasa Himeno, a voice actress with many gaming credits, said the new technology makes it difficult for young people to start in the business. “AI is a pure threat,” he said.

Jiro Ishii, known for creating the live-action novel 428: Shibuya Scramble, expects that in ten years, everyone will be able to create their own games. It’s a threat to the “freemium” model of the likes of Dota 2 and Epic’s Fortnite, which are free to play but charge for in-game cosmetics and add-ons.

Most see an opportunity. Yosuke Shiokawa has been on both ends of the spectrum, former producer of Sony’s hit mobile game Fate/Grand Order and founder of the two-year-old Fahrenheit 213 Inc. He started creating AI in the creation of video trailers before using it as a tool to create in-game objects and backgrounds. In the past, he thought his team had experimented with limited resources.

“Soon, the value of games will be determined by your creativity, not your budget,” Shiokawa said.