The Games Industry is Downsizing: What’s Behind the $180bn layoff wave?

It is largely acknowledged that 2023 was an outstanding year for video games. Tears of the Kingdom, Baldur’s Gate 3, Alan Wake 2, Marvel’s Spider-Man 2 … hardly a week went by without some outstanding hit or unaffiliated jewel.

Meanwhile, below these commendations is a more somber and disquieting tale: it was also a year of widespread industry layoffs, and the pattern persists into the opening weeks of 2024. Microsoft terminated 1,900 staff following its $69bn purchase of Activision Blizzard. Publisher Embracer Group dismissed a minimum of 900 staff across its many studios, and also shut down veteran UK developer Free Radical Design. The creator of Fortnite, Epic Games, terminated 830 workers; Electronic Arts shed 6% of its workforce, totaling about 780 jobs. Similar negative stories have emerged from Ubisoft, Naughty Dog, Sega and Unity; major publishers and smaller studios alike are being impacted.

What is the cause of this? How is an entertainment industry worth $180bn yearly getting rid of staff at such a worrying pace?

There are particular factors driving the layoffs. As for Activision Blizzard, it’s partly due to the duplication of roles after the purchase was finalized. Observes James Batchelor, editor-in-chief of “Microsoft evidently already had a publishing business, and then it bought another publishing business with ZeniMax Media, the parent of Bethesda. It then acquired two publishing businesses with Activision and Blizzard, which operated somewhat separately. If you think about the number of departments that they’ve doubled up here – HR, PR, marketing, accounting – you’ve got a lot of people doing the same jobs within the same company. This is a case of streamlining.”

Fortnite has been a huge success, but its publisher is trimming its head count nonetheless. Photograph: Zuma Press/Alamy

In Sweden, Embracer Group is a games publisher that owns 135 studios globally, which includes Tomb Raider creator Crystal Dynamics. After an era of accelerated growth, it had to close developers, cancel games and make staff redundant. States Batchelor: “It had a really aggressive mergers and acquisitions strategy that we now know was reliant on external investment. Last year, a deal that was worth at least $2bn, reportedly from Saudi investors, was cancelled, meaning that its plans had to be adjusted dramatically. Embracer is a prime example of a company that is too big to sustain itself. There are thousands and thousands of people working on Embracer games, but they didn’t have the big sellers to sustain that number of people.”

In the background, however, one event looms large: the Covid pandemic. Under lockdown, there was a surge of interest in video games. This had a twofold effect: robust sales for titles such as Animal Crossing and Call of Duty: Modern Warfare increased revenue and sent share prices soaring, thereby drawing the attention of external investors who injected the industry with funds. In response, overconfident publishers commissioned more ambitious projects, hiring accordingly.

But the bubble didn’t last. With lockdowns easing, sales declined as people resumed their regular routines. As Batchelor puts it: “We’ve seen a number of games cancelled in recent months. I imagine a lot more were cancelled that we don’t know about.

If you’re cancelling a project and focusing on a handful of games that you know are going to do well for your studio, unfortunately that puts jobs at risk for the people attached to those projects that are getting scrapped.”

Colin Macdonald is a veteran game developer and now director of Games Jobs Live, an industry recruitment platform. He sees a combination of three key factors behind many of the job losses: revenue projection corrections, raised interest rates and high inflation. “These three… themselves are linked,” he says. “While many of the revenue projection corrections came from the delayed realization that the Covid bubble was just a bubble, recent inflation levels have outstripped industry growth (and pushed costs up), as well as forcing interest rate increases, which put pressure on everyone accustomed to the financing available when more traditional forms of investment weren’t providing good returns.”

Hyenas, one of many games to be cancelled in 2023. Photograph: Sega

The solution for many publishers has been to cut back on riskier projects and concentrate on “sure-fire” hits – but this may simply be perpetuating the cycle. As Macdonald explains: “Although publishers are signing fewer games, at lower development costs, and taking longer to do so, they themselves are at risk if they leave themselves without a full slate of promising games for the years ahead.”

Macdonald also sees a possible bandwagon effect taking place. “We’re now at a point where there have been so many layoffs, across so many studios, that some of the companies are seeing it as an opportune time to make some cuts for more specific reasons, knowing that within a couple of days there’ll be a number of other studios in the spotlight for job losses instead. What’s particularly disappointing is the companies with billions of dollars in cash holdings then jumping on the bandwagon and making swathes of layoffs – the increased interest on that cash alone would likely have covered all those salaries.”

Considering this depressing start to 2024, it’s likely the fallout from Covid, and the various company acquisitions throughout the industry, will continue to affect the games business. And even as it recovers, another specter looms on the horizon for staff: the rise of artificial intelligence in the development and production process. Macdonald points out: “Although we don’t understand just how widely AI tools have been adopted, there’s talk that some cutbacks are in anticipation of being able to utilize AI for content production.”

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Using AI may be a tempting prospect for publishers looking to cut costs, such as creating digital likenesses of actors’ voices. Photograph: David O’Donnell/the Guardian

For publishers aiming to minimize development costs, bolstering the use of AI in production (already a restricted part of the process) may be an attractive prospect, especially in areas like quality assurance and performance capture. Martin Greenberg, legal adviser at SAG-AFTRA, laments this approach: “I sacrificed to strike half of last yr to keep my profession alive, not shop around my AI replica.wrote on X

With this threat to their livelihood, more development staff is looking to unionize, and pressure is mounting on the industry to self-regulate. Veteran Actors’ Union Executive Phil Collins is worried about this trend, noting that: “Last June, an Electronic Arts financial report identified unionization and AI regulation as having potential negative impacts on their business and results.”

So how can beginners in the games industry shield themselves? “Ultimately, job seekers have to always look out for themselves,” says Macdonald. “Check to see if a company is profitable, has a history of layoffs, that salaries seem sustainable.”

Video game companies, too, have a duty to scrutinize the past year and learn from it. But what lessons are they prone to take?

“I think the industry is going to focus a lot more and concentrate on known hits and safer bets,” says Batchelor. “That’s a shame, because we still need the industry to take risks. But ultimately you need your company to sustain and fund those risks rather than relying on external investment.”

“Hopefully, if companies become a lot more streamlined, a lot more sustainable, we will see a much wiser industry come out of this.”

This article was amended on 8 February 2024 to clarify that redundancies made by Microsoft in 2023 were across its games businesses, not restricted to Activision Blizzard.

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