Consoles got more expensive because AI wanted the same chips

The worst July in years, and the cause sits outside the industry

US spending on games, hardware and accessories fell 10% year-on-year in July, to $4.5 billion [1]. Hardware took the worst of it. Spending on consoles dropped 29% to $282 million, the lowest July total since 2020, when the pandemic emptied shop shelves [3].

Unit sales fell 39%. The average price of a new console rose 16%, to $542 [1]. Both things at once is the tell: fewer machines, each one dearer.

The cause is a shortage of memory chips, and the buyers driving it are not making games. Companies building AI data centres are buying up the same RAM and storage that goes into consoles and gaming PCs [4]. Console makers have raised prices to cover it.

Xbox CEO Asha Sharma put a number on the squeeze. When she joined in February 2026, Microsoft was paying more than twice what it paid for console storage parts in autumn 2025. Costs then doubled again, and she expects another rise for the 2026 holiday season, taking the total past five times the price of two years earlier [5].

“We are currently unable to make as many consoles as players want to buy,” Sharma said [5]. The irony is not subtle: Microsoft, Xbox’s own parent company, is one of the largest builders of AI data centres [5].

The price ladder is running backwards

For thirty years, consoles got cheaper as they aged. Factories got better at making them, and the savings were passed on as price cuts, which widened the audience [5]. That formula has stopped.

The PlayStation 5 digital edition launched at $400 in 2020 and now costs $600 [5]. Xbox Series consoles have gone up by more than $200 [5]. The Switch 2 takes a $50 rise on 1 September [1]. Even the original Switch, released in 2017, costs $340 today against $300 at launch [5].

Sony has not set a launch date for the PlayStation 6. Chief executive Hiroki Totoki blamed the component shortage directly, telling the Wall Street Journal the company must act “otherwise, we cannot survive in this landscape” [6].

Ampere Analysis put a price on getting the next generation wrong. In an 18 August report, senior research director Piers Harding-Rolls modelled the next generation at two prices [7]. At $1,000 rather than $700, he forecasts roughly 39 million fewer PlayStation 6 and Xbox Project Helix consoles over five years [7]. That is an audience 38% smaller.

The report also predicts about 12% less player spending over the generation’s first three years, around $3.4 billion. Much of that, Ampere says, gets absorbed by AI-driven component prices rather than reaching the people who make and sell games [7].

Physical games are close to finished

New physical game sales in the US fell to $85 million in July, the lowest monthly total since the tracking firm Circana began counting in 1995 [1][2].

The split is lopsided. Nintendo platforms took 63% of physical spending this year, PlayStation 32%, and Xbox just over 4% [8]. Only seven PlayStation games have sold more than 100,000 physical copies in the US this year, and in the week ending 11 July only two passed 10,000 [2].

Sony stops producing discs for new PlayStation games in January 2028 [2]. Its own financials show an 82% digital rate for full-game software across PS4 and PS5 [2]. The UK’s Entertainment and Retail Association called the decision “a triumph of corporate convenience over consumer choice” [2].

The numbers themselves are going dark

Circana’s monthly report is the closest thing the US games market has to a public scoreboard. It works because publishers volunteer their digital sales figures. As of July, Xbox is no longer part of that panel, and EA has dropped out too, timed to its going private [9].

That matters more than it sounds. Physical sales are counted at the till, whether or not a publisher wants them counted. Digital sales exist only where the storefront owner or the publisher chooses to share them [9]. Xbox leaving removes visibility on Call of Duty, among others, and on any publisher whose numbers used to reach Circana through the Xbox store [9].

The remaining panel is Bandai Namco, Capcom, Crystal Dynamics, Disney Interactive Studios, Eidos, Konami, Plaion, Sega, Sony, Square Enix, Take-Two and Warner Bros [9]. With PlayStation ending discs in 2028, the public record increasingly depends on companies agreeing to keep it.

Always-online bets keep retreating

Riot Games will stop active development on its free-to-play fighting game 2XKO at the end of 2026, less than a year after its January console launch [10][11]. Riot said it had not seen “enough players stick with the game to get to a path toward sustainability” [10]. The game costs substantially more to run than it brings in, the company said [10].

Riot is unlocking every character, bundling most cosmetic items, and refunding money spent in the game on or before 20 August [11]. Servers stay on.

Bloomberg reported the same week that Sony’s Guerrilla Games is stripping the always-online component out of Horizon Hunters Gathering after poor playtest feedback [12][13]. It becomes a smaller multiplayer game with a story mode [13]. Staff were told they have until December to impress executives, and many will move to another project also under review at year end [13]. Almost all of Guerrilla has worked on the game for years [13].

Elsewhere: Highguard shut permanently less than two months after launch, Remedy wound down major updates to FBC: Firebreak, and Epic cut staff in March after a fall in Fortnite engagement [10]. Konami takes Castlevania: Grimoire of Souls offline on 3 September [14].

Bain & Company’s annual gaming report, drawn from a survey of more than 5,300 players, suggests why the safe bets keep failing. Two-thirds of players prefer familiar games or sequels, and only one in five actively seek new titles [15]. Of 100 games released since 2023, Bain found 83% of those aimed at a specific type of player succeeded commercially, against 50% of unfocused ones [15].

Who is carrying it

Xbox developers held rallies in nine cities across the US and Canada on 18 August, backed by the Bethesda Game Studios union and the Communications Workers of America [16]. Microsoft has cut roughly 1,600 games jobs, with a similar number planned before mid-2027 [16].

Bethesda lead character artist Alex Nguyen told Kotaku that cuts were rare under previous ownership. “We didn’t have layoffs before,” he said; now they come yearly [16]. Technical producer Nathan Hahn said the union submitted a proposal in February on how to run a fair reduction in force [16]. The company did not respond for four months, then cut [16].

At EA, workers are still absorbing the $55 billion take-private led by Saudi Arabia’s Public Investment Fund, with Jared Kushner’s Affinity Partners and Silver Lake [17]. One worker told Game Developer they would leave if they could, but “the jobs aren’t there, and I have bills to pay” [17]. Emmanuel Rosier, a former senior EA manager now at Newzoo, expects the new owners to focus on sports and esports. He called BioWare’s games “the biggest question mark” [18].

Money is still moving, just to smaller rooms

The venture firm Makers Fund closed a fourth fund of $250 million this week, taking it to $1.5 billion under management. It says it has returned 3.6 times invested capital, helped by an early stake in Turkish mobile developer Dream Games [19].

Smaller bets are landing too. Human: Fall Flat veterans Sitara Shefta and Will Dudley launched Pretty Cool Games with funding from Arknights developer Hypergryph. Shefta said raising money is hard right now, “but that doesn’t mean the demand for fresh new games has reduced” [20].

Harvey Smith, whose Arkane Austin was closed by Microsoft in May 2024 with 96 developers out of work, has started Black Pony Immersive with former colleague Ben Horne. “Ben and I chose the worst time in history,” Smith said [21]. Three Epic Games veterans are building a rival engine, Immens, aimed at small teams; Unity and Unreal were used for roughly 70% of Steam releases in 2025 [22].

And the small numbers still work. The Mesoamerican fantasy game Arco passed 100,000 sales and broke even, two years after launch [23]. Soul’s Remnant, a 2D online role-playing game built largely by one developer over eight years, came out free on Steam this month, with guilds, player-run shops and no pay-to-win [24].