The gaming community freaked out last week when Seamus Blackley, the original creator of Xbox, claimed the console was sunsetting in an interview with Gamesbeat.
However, if you read the interview or his comments on Bluesky, you’ll realize he meant that something at the core of Xbox feels off: The console he built is in “distress.” Blackley speculated that the February shuffle of Asha Sharma from AI executive to executive vice president and CEO of Microsoft Gaming means the product is in “palliative care.”
Xbox is not shutting down, but many were quick to believe the headlines, as there’s a dark cloud over the industry right now. What happened?
While gaming experienced an unprecedented high during the pandemic, artificial intelligence crept up behind it. AI’s proliferation in the gaming industry is already accelerating job loss and cheapening the work of developers at studios now scrutinized by anti-AI gamers. Data centers have siphoned RAM from the industry, resulting in a global memory shortage. This has driven up the costs of hardware required for consoles, stalling releases and rendering at-home PC building—once a rite of passage for entry-level gamers—a luxury.
In December, Valve announced it was discontinuing its Steam Deck LCD 256GB model, released in 2022, and the 2023 upgrade has all but disappeared. This is the first discontinuation of a major console before the launch of a worthy upgrade; Valve’s Steam Machine, a box six times more powerful than the Steam Deck, is meant to be released this year, but its exact timing and cost remain unknown. Meanwhile, prices have gone up on Xbox and PS5. Per Bloomberg, Sony has yet to confirm or deny that the successor to the PS5, originally slated for release in late 2027, is delayed another year. And Nintendo, having narrowly avoided new tariffs to the Switch 2 launch in 2025, which they are now suing the US government over, is not ruling out price hikes.
Six years ago, while the world was in lockdown, the gaming industry was thriving.
Animal Crossing: New Horizons sold 13.4 million units within just six weeks of its launch date in March 2020, the most digital units of a console game ever sold in a single month. That same year, global gaming revenue increased by 23 percent, and millions who would not have previously labeled themselves gamers picked up controllers and booted up PCs.
When the Playstation 5 launched in November 2020, seven years after its predecessor, it felt like a promise that the gaming industry would be fine, even while other industries struggled to adjust to the pandemic. In July of 2021, Valve revealed the Steam Deck, a handheld console that would make it possible to play Steam games anywhere. Preorders sold out within hours.
Meanwhile, YouTubers and Twitch streamers rose in popularity with millions at home watching gamers stream in place of other on-screen entertainment. The power centers of the game industry began to bulge. Microsoft acquired Activision Blizzard and ZeniMax Media. Sony responded by acquiring Bungie in 2022 while making a $1.45 billion investment in Epic Games. Job postings in the gaming space rose by 40 percent during the pandemic.
But the rise of AI has prompted a random-access memory shortage now being referred to as RAMaggedon—and it’s bringing all of this progress to a grinding halt.
The rapid rise of artificial intelligence has upended every corner of the tech industry. Nearly a third of adults and most teens in the US use AI on a daily basis, according to Pew Research. Data centers have doubled in the US since 2022, raising electricity costs up to 267 percent more than they were five years ago for households near those warehouses, according to Bloomberg. Reports show the US accounts for more than half of “hyperscale facilities,” centers built specifically for AI, many of which are multibillion-dollar investments.
