Konami’s “game over” on its most popular franchises is symptomatic of a sea change across the board for video games

Anyone who follows gaming news has been watching with bated breath during this past week as Japanese video game developer and publisher Konami’s apparent fallout with game creator Hideo Kojima came to a head. After a long period of uncertainty and vague statements, Konami confirmed it’s canceling the long awaited Silent Hills project, which involved Kojima, director Guillermo del Toro and The Walking Dead star Norman Reedus. The company issued a statement effectively saying the project is no more, but that it will continue developing the fan-favorite series.

So what’s happening, and why? The word on the street is that Konami is pivoting away from AAA games, being unable to justify the swelling development costs. It would seem it makes more sense for the company to focus on its other businesses involving fitness centers and pachinko machines, as GamesIndustry.biz reports.

It’s still sitting on some valuable gaming IP, namely the Metal Gear Solid franchise (whose latest chapter, Metal Gear Solid V, is still expected to come out in September; presumably too big an investment to just drop outright), the Silent Hill series, and a successful sports games lineup including Pro Evolution Soccer. Not to mention older success stories like Castlevania and Contra. But anyone who remembers the Konami logo slowly materialize on their GameBoy screen in the 90s should probably prepare to see more of it on a smartphone screen, if anywhere.

It’s no secret that the current AAA games market is not what it used to be, and nowhere is that clearer than Japan. The one-time industry giant that spawned legendary developers and publishers like Capcom, Square Enix, and Konami, has been in a slow and steady decline for years. Consumers, primarily in the country and secondarily around the world, either failed to embrace new dedicated gaming hardware or turned towards mobile devices that include games as part of their features.

At the same time, ballooning development costs worldwide have made the entire games industry more wary and risk-averse than ever. This has led to a market crowded with repetitive, iterative franchises that play it as safe as possible, such as Call of Duty, Assassin’s Creed, and FIFA. It has also created a stifling creative environment where game developers are forced to work within extremely defined parameters in order for publishers to appeal to the widest possible audience.

So creators are fleeing towards either independent projects or the more lucrative mobile market. Mega Man creator Keiji Inafune famously left Capcom, feeling burnt out and creatively bankrupt. Now his own new project, Mighty No. 9, which raised a total of US$3,845,170 on Kickstarter, is expected this September. Square Enix stalwarts Ryuji Ikeda, Shouta Shimoda, and Takeshi Arakawa left the company in late 2011. Their destinations? Social and mobile companies DeNA and Gree.

Square Enix, meanwhile, has been trying to recreate past successes of the Final Fantasy franchise and not getting very far, relying instead on the purchase of British company Eidos Interactive and its western-facing franchises like Tomb Raider and Deus Ex for added revenue. And even the great Nintendo, faced with dwindling sales and failed hardware in the Wii U, broke down and teamed up with DeNA to bring its treasured IP to third party mobile devices (even though it rushed to curtail fears of it abandoning the traditional games market by announcing it’s working on new gaming hardware, codenamed N-X).

It’s no wonder Konami seems to be heading the same way. No one in the company has officially announced anything of the sort, and its statements vaguely speak of continuing to work with is existing franchises. But Konami is now clearing house in one of their most beloved studios and booting one of the most recognizable faces of game development in Kojima. That and its increasingly sparse release schedule indicate that any such work will most likely be digital-only “remakes” for sale through Sony’s PlayStation Network and Microsoft’s Xbox Live, or mobile versions that will try to ride on the current wave of microtransactions and free-to-play games.

Such a drastic change was never going to be easy. Konami has been in the games space in one form or another since 1978 and its logo is on some of the industry’s most high-profile titles. The Konami code is part of the geek popular culture. And gamers all over the world have watched in frustration as several heroes of their youth have succumbed to the inexorable pressures of the market. Konami might well try to ride both horses for a while, but an increasingly tough market and the company’s sudden scorched earth attitude are likely signaling another significant loss for traditional video games.