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[Gamer's World] As the Western Gaming Industry Goes Up in Flames, Japan's Palworld is Making a Killing

Layoffs, a new Japanese videogame by Pocketpair, and how generative AI will affect the gaming industry's future are dominating the headlines. 

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Palworld by Pocketpair (©Pocketpair)

2024 has barely begun, and already the videogame world is a blaze of controversy. Two topics have dominated the gaming news cycle this month: One is a continued wave of downsizing, with around 6,000 layoffs at game companies reported in January 2024 alone. The other is the incredible success of the new game Palworld, whose "Pokémon with guns" aesthetic and accusations of plagiarism fueled an incredible 8 million sales in six days.

Both topics are related, of course, so let's take a look.

2023 was a really bad year for the game business. There were an estimated 9,000 or so layoffs reported at companies from Fortnight maker Epic Games to publishing giant Electronic Arts. And three game studios under the Embracer group were shuttered completely.

I wrote in my predictions for 2024 that this run of layoffs "seems likely to continue" into the new year. And indeed, this month Microsoft announced 1,900 job cuts across its gaming business. Along with it, there were 1,800 layoffs at Unity (a maker of game development tools), 500 at streaming platform Twitch, and 530 layoffs at League of Legends developer Riot Games. By the end of January, the total sits at over 6,000, according to Kotaku. That website has started a comprehensive tracker of all announced layoffs in 2024.

A person with a sword

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League of Legends developer Riot Games faced downsizing in January 2024, which it blamed on accelerated and unfocused growth. (©Riot Games)

Why Now?

So, what the heck is going on? Aren't game sales currently booming?

The reasons are complex, but I'll run you through the basics. The game industry was bubbling along nicely with healthy overall growth before the COVID-19 pandemic. Then, when everyone was suddenly stuck at home playing Animal Crossing, profits went through the roof. However, once everyone was allowed outside again, game sales fell most of the way back down. 

This all seems blindingly obvious with hindsight. To be honest I think most of us could have predicted it with foresight as well. But during the early days of the pandemic, many game companies instead predicted infinite growth. They began hiring more staff, greenlighting more projects, and making more mergers and acquisitions. Once the dust settled on COVID, and the overspending became apparent, it became time to make cuts.

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So, corporate greed and poor management are the main culprits behind the endless layoffs (as usual). But there are other trends at play too, such as the ever-rising cost of producing videogames. 

About These 'Other Factors'

Developing a triple-A game now comes with a price tag upward of $100 million USD. that's, similar to a blockbuster Hollywood movie. As games become bigger and require dozens or even hundreds of hours of commitment to beat, and as more games than ever are being released each week, players can only dedicate their time and money to so many of them. In short, making games is a risky business.

Sonic the Hedgehog publisher Sega raised the average salaries of its staff in Japan by 30% in 2023. (©Sega)

Mind you, for game companies here in Japan, the story has been very different. While companies across the West have been cutting jobs, in Japan we've seen wages actually go up at Nintendo, Sega, Capcom, and others. 

Meanwhile, Japanese games are selling better than ever all around the world. Also, the crushingly weak yen means global sales add even more to the bottom line. Finally, Japanese companies tend to be risk-averse. Things like overhiring, overspending, and high-cost business acquisitions are relatively rare in the gaming space. Japanese game companies are doing great.

Perfect Pals

And that leads us to Palworld. This is a brand new game from the relatively small Japanese developer, Pocketpair. It blends online survival, shooting, and crafting gameplay with collectible monsters ("Pals") that have been clearly inspired by the creatures in Pokémon. In Pokémon, players capture monsters and then pit them against one another in battle; Palworld takes this one step further by arming its creatures with guns. Players can even use them as shields. 

Palworld by Pocketpair (©Screenshot)

This amusing and irreverent parody of the inherent cruelty at the heart of Pokémon has proven appealing to players who grew up with Pikachu and friends. Since its "early access" release on January 19, the game has sold over 8 million copies and rising. It has become one of the all-time most concurrently played games on PC gaming platform Steam.

It's really, really hard for a brand-new game to sell this well. Palworld is not a sequel, a spinoff, or an adaptation of a famous IP. With no franchise to entice players, the game has grabbed all that attention on its own merits.

Of course, the controversy helped. While the survival-based gameplay is nothing like Pokémon, its central critters sure do look familiar.

Initial Accusations: AI or Plagiarism

At first, it was widely suspected that Pocketpair had created Palworld's 100 Pals using generative AI. These tools allow anyone to generate a piece of artwork or text instantly, for free or close enough, based on a simple prompt. However, the use of generative AI is itself extremely controversial right now. 

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These tools are usually "trained" on existing examples of artwork or literature from across the internet that may be copyrighted. In other words, they allow the user to create artworks without paying an artist. Meanwhile, they also potentially rip off that artist's work to do so.

Palworld by Pocketpair (Screenshot)

The unregulated use of generative AI was one of the key issues in the strikes that held up Hollywood for several months in 2023. Furthermore, game industry workers fear the use of these tools may fuel even more layoffs. The debate often gets toxic.

Why did people think Pocketpair may have used AI? The company has previously made a game called AI: Art Imposter based around generative AI. Its CEO Takuro Mizobe has posted on Twitter about how "AI has evolved to the point where it's hard to tell the difference" between real and AI-generated Pokémon. 

Mizobe has also written in a blog post that all 100 of Palworld's Pals were designed by just one member of staff with one other staff member overseeing the creation of all of their 3D models and animations. These are highly ambitious tasks that would usually take a team of humans several months or more.

But while internet sleuths initially accused Pocketpair of using generative AI, these gradually turned to accusations of old-fashioned plagiarism. 

'High-Risk, High-Reward' Nature of the Industry

Claims were that Pocketpair not only borrowed liberally from Pokémon designs but even copied the 3D models from recent games to trace for their monsters. Game news site VGC reported in depth on these accusations. Meanwhile, IGN published a detailed breakdown of specific Pals and the Pokémon that seem to have "inspired" them. 

(©Pocketpair)

Mizobe has emphatically denied accusations of plagiarism, while The Pokémon Company has stated that it is investigating the situation. 

It seems the creation of some of these 3D assets may have been outsourced. This is common in modern game development. But if the accusations are true, it makes it that much harder to track who is at fault. Of course, with generations having grown up with Pokémon, it's entirely possible the staff were simply drawing on their inspirations.

Regardless of whether Palworld's monster designs are simply inspired by Pokémon or deliberately ripped off, and whether they were generated by AI or by humans, the whole affair is intrinsically linked with the high-risk, high-reward nature of the game industry. It is the same industry feature that is leading to all those layoffs.

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As Mizobe himself has alluded to on his blog, a game of triple-A scale is expected to have a high volume of content. (Feeling the pressure to deliver, Mizobe decided to increase his originally planned 25 monsters to 100.) It must also have high visual fidelity, and games like this take time and money to create. 

Marvel's Spider-Man 2 huge $300 million budget means it needs to sell 7 million copies at full price just to recoup. (©Sony)

The Cost of Making Games

Marvel's Spider-Man 2, released in October 2023 by Sony on PlayStation 5, reportedly cost a whopping $300 million to make. In other words, it required over 7 million sales just to break even. 

Super popular games like Fortnight and League of Legends are making money hand over fist. Yet, their developers still are laying people off. Sony's star development studio Naughty Dog spent several years creating a multiplayer spinoff from hit series The Last of Us. However, it officially wrote off the whole project when it became clear it could not meet player expectations. And so on. 

The overwhelming message is that big-budget game development comes with a huge financial risk that may no longer be sustainable.

No wonder, then, that game companies are interested in tools like generative AI, which can potentially make the process faster and cheaper, bringing games to market more quickly and reducing risk. It's a necessary evil. 

Also in January 2024, Square Enix admitted that it used generative AI to create a small number of assets for its upcoming game Foamstars. Presumably, it was testing the waters both in terms of technical application and audience reaction. We'll see the results when the game is released in February.

Finding Ways to Make AI Acceptable

AI is not going away, so we'll need to find ways to make it more morally acceptable. (That might be by training it on original reference material instead of copyrighted content.) But even if the copyright issues are circumvented, tons of human jobs being replaced by an algorithm is a horrific thought.

A piece of AI art we generated at Hotpot using the prompt "Create an image of an AI exploiting artists and stealing their copyright."

And indeed, AI will only ever be capable of creating generic, derivative output. Unless we teach AI to create things from scratch, that is. In which case humanity will face bigger existential threats than copyright fraud!

Finally, I'd point out that Palworld has innovated in its own ways. From Fortnight to Call of Duty, shooting games are the dominant genre in the West. Nevertheless, except for games like Splatoon and the Resident Evil series (at a stretch), there have been almost zero globally successful FPS or TPS games from Japan. 

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There were two other extremely highly rated Japanese games released in January. They are Like a Dragon: Infinite Wealth and Tekken 8. However, Palworld, a shooting-based survival game, has earned its place alongside them.

Yes, the controversy has helped. But controversy alone cannot fuel 8 million sales. Hopefully going forward, Pocketpair can focus on its obvious skill for making appealing games without needing to wear its influences quite so prominently on its sleeve.

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Author: Daniel Robson

Daniel Robson is the chief editor of videogame news site IGN Japan. Read his series Gamer's World on JAPAN Forward, and find him on X (formerly Twitter).

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