I doubt that it is. It's just that it's a global industry and it's competitive, and wages are high in the US.
I think that it's a lot easier than a number of other industries. If you're making T-shirts, you've got high labor costs, and you're going to have a really hard time massively increasing revenue. With video games, it's at least possible to have something like a Minecraft, where one person produces a tremendous amount of value. But with T-shirts, that isn't going to happen.
It's just that software has seen such an overwhelming boom that labor costs often haven't been that much of a factor. Only so many people who can do it, and it produced a lot of value. But it's ultimately subject to the same factors that anything else is: costs do matter. And that's probably, well, good. If some guy in Poland presently makes half as much and his output is just as good, well, he is probably should be the one you hire to do that game; you want the economics to reflect that. Like, that's the right resource allocation decision for an economy to be making.
All that being said, I don't think that the US video game industry is gonna vanish any time soon, for a number of reasons.
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I don't think that labor costs are really a terribly dominant factor, not in 2024, not yet. The dominant factor in whether a video game is a good product is whether it's a major hit. Video games have virtually no marginal costs, so if you make a really good video game, you can sell it to pretty much everyone in the world; the potential is very large. Now, in a world where we'd really figured out exactly what it is that players want and how to produce that, where it's a really mature industry, things would look pretty much like the T-shirt industry. You'd have a limited amount of room for any massive return to be made. What it costs to make product and the return one makes is pretty predictable and closely-linked. Every niche of any appreciable size would be filled by incumbents, and it'd be rare for a new game to come in and be popular. But we haven't really gotten there. We have things where where one guy goes out and does a Minecraft on basically no budget and it's a huge commercial success, and we have Suicide Squad: Kill the Justice League, which had a lot of expensive content and made very little revenue. One of the games that I played and enjoyed recently was Balatro. It's got pixel art, isn't terribly high-budget. Balatro reached profitability in its first hour of sales. As long as labor costs are a limited factor determining the commercial success, the US's largest weakness isn't really a factor.
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The technology on which it depends isn't mature yet, and that keeps the game industry from maturing. Basically, as the underlying technology changes, what you can do changes, and that decreases the relative value of incumbents, opens up new opportunities. It isn't, maybe, as drastic as it was in 1990; processors don't double in serial computation speed every 18 months, which was a colossally-disruptive effect that lasted a number of decades changed many industries tremendously. But...think of all the things that have changed in 20 years. The appearance and rise of the smartphone as the dominant gaming platform, along with the touchscreen and other new sensors, like accelerometers. Large increases in computational space and storage space, not to mention random-access times for secondary storage, which permits for a lot more potential for streaming content right off secondary storage. The (reasonable) expectation of Internet connectivity, and then always-available and high-bandwidth Internet connectivity. The continued increase in capabilities in parallel-processing hardware. All of those changes to the computing environment in which video games live permits for new opportunities that weren't previously available.
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One model that the US has done pretty well on in a number of industries is leveraging the combination of a large domestic market and easy ability to raise capital, and then just trying to leverage scale. I don't think that that's going to fundamentally go anywhere, and it remains an area that the US does well. It's more-competitive now, maybe -- random foreign game might not have a huge barrier to competing at scale. But in an industry where most of your costs are fixed rather than marginal, going big can be a pretty big benefit. Even after the market matures, I think that you're still going to see big, AAA US video game projects...because end of the day, that's an area that there's demand for that I don't think low-budget titles will ever displace, and it's an area where the fundamentals are solid for the US. Maybe some labor gets outsourced, dunno. But I don't see a lot of, say, AAA titles coming out of Indonesia or what-have-you today, and I'm betting that that's going to tend to be something where the US is a pretty significant player. Same thing as high-budget Hollywood movies. Obviously, that isn't an infinite guarantee, can't just sit on one's laurels. But I think that there are fundamentals that do favor US video game developers.
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Video games are a cultural good, the US has is a large and wealthy domestic market, and I think that it's easier to make content within a cultural context. If you want something to be funny, or to appeal to the fears or interests of someone in society, I think that that's easier for people who have experienced the same cultural context. Now, okay. Culture has spread, and the US isn't a closed society. And there have been plenty of successes...I think I remember reading about the dev studio that did the original Max Payne in Finland -- which had a very New York City-oriented environment. It was done by Finnish developers who had never been to NYC, had based their environment off postcard photos. And that doesn't affect all elements of video game production. Like, if you're a software engineer specializing in optimizing landscape rendering, you're not bringing a lot of cultural context to the table. But a lot of roles in the video game industry do do that.
That runs in reverse too -- there's also export revenue and that can be a drawback for US developers developing for a foreign market. I remember, oh, some Europeans thrown by the number of firearms in American action movies, had stuff like Hot Fuzz poking fun at it. But I think that on the net, it helps US developers more than hurts, because the US is a major consumer of video games.
Think of China -- China's got a lot of people. Big economy. Even got a fair bit of software development. But at least last I've looked, and I don't think that this has changed a whole lot, it isn't very dominant in video game development as an export to the US. Or movies. Or similar mass-market cultural works. China can put out steel just fine -- someone operating an arc furnace in China doesn't have to know or care much about a US cultural context to make a perfectly-fine product that will compete well in the US.