The original Xbox creator's comments about the console being in "distress" were misinterpreted as an announcement of its shutdown, highlighting current industry anxieties. The gaming industry is facing significant headwinds, including a global memory shortage driven by AI data center demand, which is increasing hardware costs and stalling console releases.
Major topics include the misinterpretation of Xbox's status, the pandemic-era boom in gaming, and the current pressures from AI infrastructure. The article details how AI's growth is causing a RAM shortage ("RAMaggedon"), raising production costs, and contributing to job losses and studio scrutiny within the gaming sector.
It also covers specific impacts on major companies: Valve discontinuing a Steam Deck model, uncertainty around Sony's PS5 successor, and Nintendo's legal challenges over tariffs for the Switch 2. The contrast is drawn between the industry's peak during pandemic lockdowns and its current strained state due to these external technological and economic pressures.
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—one 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 considering 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.
Those massive computing stacks require gobs of RAM, the short-term memory of any device. RAM is the green, black, and gold brain of electronics. Data centers, both AI-specific and not, are expected to consume around 70 percent of global RAM production in 2026, according to The Wall Street Journal. The shortage in available chips has caused mass delays and price hikes of electronics worldwide, rendering the gaming industry one of its biggest casualties so far.
Gaming is “the only mass media entertainment where the creative ceiling is limited by consumer hardware,” Washington Post game critic Gene Park tells me. “So, if consumers can't afford or access higher grade tech like sufficient RAM, the innovation will slow down.” This happens because RAM is what dictates how minute or vast world-building within a game can be.
Park argues that developers could be forced to compromise stories, art, non-player characters, battles, worlds—all of which are already at risk of being automated by new AI tools. Park says those tools still have substantial limitations. “None of it is even close to replacing handcrafted video games.”
Close or not, the impact that these tools are having on games—and the push within game studios to use them to speed up development through automation—is turning up noses.
None of the developers I spoke with want to use AI, and most gamers won’t have it, even in limited quantities. Alec Robbins, narrative director at Squanch Games, was told to use generative AI in a project, a decision he "fought against and lost.” For gamers, it “didn’t matter” that the AI became “localized to a very specific and small part of the game,” though. Its mere presence diluted the entire experience and caused the company “reputational damage,” Robbins says.
There was similar backlash against Divinity last year when Larian Studios’ CEO admitted the game used generative AI. Gamers didn’t care that it was used for workflow; just the mention of AI forced the company to walk it back. Larian Studios declined a request for comment.
There’s a fear among the staff of major studios that make AAA games (like Playstation, Xbox, and Rockstar) that CEOs will continue to fall for the potential of AI rather than the reality, and thus gut workplaces. About 45,000 gaming employees lost their jobs from 2022 to the end of 2025, with up to 10,000 layoffs predicted for 2026.
I spoke with several longtime AAA employees, all of whom requested anonymity over fear of retribution in an already volatile industry. A veteran game developer at Xbox says layoffs and fewer job postings have disproportionately impacted junior staffers, and now “everyone is just having seniors do the work.” That work is often supplemented with AI. “There was this myth” the developer tells me, that AI is “going to allow devs to focus on, you know, the good stuff, the hard stuff. But the problem is, OK, then who does the basic stuff? And the answer is … no one.”
A senior sound designer for one AAA studio says employees go along with AI because they’re doing “whatever they can to stay hirable.” If they’re not “keeping up with the times,” or are outwardly anti-AI, they risk their jobs. “Many of my peers are already looking for work in other sectors just to more reliably provide for themselves and their families.” Studios have already begun implementing generative AI to speedrun or even bypass character speech, avoiding hiring voice actors.
The only industry workers who could benefit from AI are streamers. Spencer Agnew, director of programming for Smosh Games, thinks cost increases driven by the RAM shortage could mean that gamers unable to play might tune into streams more. “Some streamers could see it as advantageous for their audience to not have access to these games … so they become dependent on the streamer to provide that experience.”
In the aftermath of the sunsetting rumors, Xbox announced its next-gen console under the name Project Helix. The company has been running behind in console sales since the release of the Xbox Series X in 2020, selling less than even the original Nintendo Switch in 2025. Project Helix, due within a couple of years, will be an open-platform hybrid PC-console, reportedly with no exclusive titles.
If RAMaggedon continues at its current pace, experts are predicting the cost for this next console will land somewhere between $900 and $1,200, double the price of the last Series X.
A source familiar with Xbox’s new strategy assured me the brand is “definitely not in distress” and that, while the latest project may look and feel different, the company is still committed to innovation. As far as AI use, the source claims Xbox will continue “using AI responsibly and transparently” to “both player and dev benefit.”
A longtime AAA video game company executive tells me he believes the CEOs insisting AI be integrated into the gaming industry will eventually fail when gaming fans ultimately reject the results. “Because we will not buy their shit. And we will not give them explosive growth. We will not, you know, do cosplay. We will not go to cons. We will not generate merch. We will not make fan fiction. We will not make fan games. Like, we will do none of the things they want, because it sucks.”
While employees at major studios feel buckled under AI, consumers can still help dictate where the next 10 years of gaming go. Gamers, rise up.
Meridiano
