I think this is the same thing streaming media companies are realizing. When it was just pretty much Netflix, media companies would license them their content and Netflix would get their subscription fees. Then the media companies decided that they could earn more by cutting out the middleman and producing their own content.

This created a headwind where companies established departments for producing content for streaming and funded them generously. However, the fragmentation on the consumer end ended up splitting the market such that it became unprofitable to run at those levels - everyone wanted $10 per month to subscribe to their dedicated service, and looked to in house productions to drive consumer loyalty. That, predictably, fell apart and now they’re increasing fees, cutting down on family accounts, and cutting productions.

I think that the massive layoffs we are seeing in the gaming industry is a similar reaction. Game budgets have become bloated to the point of being unsustainable. I feel badly for the devs and staff affected by the contraction, and I remain impressed by the size of the game market overall, but at some point, like streaming media companies, you have to realize there’s only so much pie to go around. The size of the pie does grow, but the expectation of demand has significantly outpaced demand.