Microsoft and Sony Experiment With AI Gaming While Industry Layoffs Hit Developers

Key Takeaways

• Microsoft and Sony are developing new AI tools for game development.
• Applications of the technology in gaming include AI non-player characters and automatically generated game environments.
• Game developers continue to experience widespread layoffs.

The operators of two of the world’s largest game ecosystems, Microsoft and Sony, are now at the frontier of the burgeoning AI gaming movement. Yet amid ongoing experiments with language model-powered characters and automatically generated graphics, game developers are experiencing wave after wave of layoffs.

Sony’s AI Game Characters

In a video posted to YouTube in March that has since been removed, Sharwin Raghoebardajal, a director of software engineering at Sony Interactive Entertainment, showcased a prototype AI character for the game Horizon Forbidden West.

The character uses GPT-4 and Llama 3 to generate conversation. Meanwhile, OpenAI’s Whisper recognizes user voice inputs and Sony’s proprietary Emotional Voice Synthesis (EVS) technology generates speech.

Sony isn’t the only company experimenting with conversational AI to create less formulaic interactions with non-player characters (NPCs).

Ubisoft’s Project NEO NPC is exploring the same concept, paving the way for in-game interactions that go beyond traditional dialogue trees.

AI-Generated Gameplay

While language models are being used to improve NPC conversations, an emerging roster of specialized models can generate entire gameplay sequences.

Microsoft’s MUSE is designed to understand and generate entire digital environments by learning from game data.

As such tools grow in sophistication, they could significantly streamline the game development process, making it easier to build complex scenes and worlds.

Doing More With Less

Considering the time and effort required for traditional game design, generative AI opens up new possibilities for small studios that may not previously have had the resources to pursue more ambitious concepts.

“You’re basically allowing people to do larger worlds and more intricate and diverse worlds,” explained Ben James, who develops AI tools for 3D model generation.

By taking the grunt work out of 3D design, platforms, like 404 and Atlas, which James founded, mean even game developers with small teams can build open-world games with thousands of individual components.

Game Developers Face Layoffs

As is often the case with AI automation, the emergence of powerful new tools for game developers may be a double-edged sword.

AI tools that streamline development could help small studios remain viable in a challenging business environment by automating tasks traditionally performed by human designers, writers and programmers.

Emerging AI development platforms could reduce overall employment in the sector. The industry continues to experience widespread layoffs, with indie studios and giant game developers equally afflicted.

Since the start of 2025, Bioware, Ubisoft and Microsoft’s gaming division have all reduced their headcount.

Small developers, like Iron Galaxy, Huuuge Games and Cyan Worlds, have also been forced to cut staff just to survive.