Understanding the Job Cuts in the $180 Billion Gaming Industry

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It's widely agreed that 2023 was a great year for video games. The Legend of Zelda: Tears of the Kingdom, Baldur's Gate 3, Alan Wake 2, Marvel's Spider-Man 2… Barely a week has passed without a blockbuster or independent masterpiece appearing.

But behind these accolades there is a sadder and more worrying story. This year also saw widespread layoffs in the industry, a trend that continues into the first weeks of 2024. Microsoft laid off 1,900 employees after acquiring Activision Blizzard for $69 billion. .Publisher Embracer Group
lay off at least 900 staff
In addition to shutting down veteran British developer Free Radical Design, it has ended activity across many of the company’s studios. Epic Games, the creator of Fortnite, one of his most successful titles of this decade, has laid off 830 employees.electronic arts
6% reduction in workforce, which equates to approximately 780 jobs. There were similar harrowing stories from Ubisoft, Naughty Dog, Sega, and Unity.Big publishers and small studios alike
is affected

Why did this happen? Why is the entertainment industry, said to be worth $180 billion a year, cutting staff at such an alarming rate?

In some cases, there are certain factors that promote redundancy. In the case of Activision Blizzard, one of the reasons is the duplication of roles after the purchase is completed. “Microsoft obviously already had a publishing business, but they bought ZeniMax Media, Bethesda's parent company, and another publishing business,” said James Batchelor, editor-in-chief of GamesIndustry.biz. “The company then acquired two publishing businesses, Activision and Blizzard, which operated somewhat separately. Think about the number of departments that have doubled here, including human resources, public relations, marketing, and accounting. So you end up with a lot of people doing the same job within the same company. This is a case of rationalization.”

Sweden's Embracer Group is a game publisher that owns 135 studios around the world, including Tomb Raider creator Crystal Dynamics. After a period of accelerated expansion, the company was forced to close developers, cancel games, and make staff redundant. “The company had a very aggressive merger and acquisition strategy, but we now know that it was dependent on outside investment,” Batchelor said. “But last year, deals worth at least $2 billion were reportedly struck by Saudi investors.
was canceledThis meant we had to make major adjustments to our plans. Embracer is a classic example of a company that is too big to survive. There are thousands of people working on the Embracer game, but we didn’t have a big seller to sustain that number. ”

However, one event looms large in the background: the new coronavirus pandemic. Interest in video games exploded during lockdown. He had two effects. For one thing, strong sales of titles like “Animal Crossing” and “Call of Duty: Modern Warfare” have boosted revenues and sent stock prices soaring, attracting the attention of outside investors and flooding the industry with money. That means I did it. In response, arrogant publishers commissioned more ambitious projects and hired accordingly.

But the bubble didn't last. Sales declined as lockdowns eased and people continued to live their lives. “We've seen a lot of games canceled over the last few months. I think there are more that we just don't know about,” Batchelor says. “If we cancel a project and focus on a few games that we know will do well for the studio, we will unfortunately be putting the jobs of the people working on the projects that are being scrapped at risk.”

The solution for many publishers has been to cut back on riskier projects and focus on “sure-fire” hits, but this may just be perpetuating the cycle. McDonald explains: “Publishers are signing fewer games, development costs are lower, and it takes longer to sign deals, but if you leave them without all the promising games for the next few years, You put yourself at risk.”

Macdonald believes there may be a bandwagon effect. “We're at a stage now where so many studios are having so many layoffs that some companies think it's an opportunity to make layoffs for more specific reasons. , many other studios will be in the spotlight for job losses. It's especially unfortunate that companies with billions of dollars in cash jumped on the bandwagon and made mass layoffs, and that cash It is likely that the interest increase alone could have covered all of these salaries.

Given the gloomy start to 2024, the effects of coronavirus and various acquisitions across the industry are likely to continue to impact the gaming business. And even if it recovers, another threat looms over staff: the rise of artificial intelligence in development and production processes. “We don't know how widely AI tools are being deployed, but there is talk that some reductions are being made in hopes of leveraging AI for content creation.” McDonald says.

For publishers looking to reduce development costs, the use of AI can be attractive, especially in areas such as quality assurance and performance capture. In January, the Sag-Aftra union
criticized An agreement reached with an AI company that will allow actors to create digital images that resemble their voices has sparked an uproar on social media.Starfield and Mortal Kombat actor Sunil Malhotra
I wrote to X: “I sacrificed going on strike for half of the last year to keep my profession instead of hoarding AI replicas.”

With their livelihoods threatened, more development staff are seeking to unionize, increasing pressure on the industry to self-regulate. Incumbent publishers are starting to see both as threats. Last June,
Electronic Arts Financial Report We have identified unionization and AI regulation as having the potential to negatively impact our business and performance.

So how can newcomers to the gaming industry protect themselves? “At the end of the day, job seekers always have to look out for themselves,” McDonald says. “Check if the company is profitable, has a history of layoffs, and if salaries are sustainable.”

Video game companies also have a responsibility to reflect on the past year and learn from it. But what lessons might they learn?

“I think the industry is going to get more attention and focus on known hits and safer bets,” Batchelor said. “This is unfortunate because the industry still needs to take risks. But ultimately those risks need to be maintained and funded by companies, rather than relying on external investment.”

“As companies become more streamlined and more sustainable, we hope to create a smarter industry.”