Staff Reductions Rocking the $180bn Gaming Realm

Staff Reductions Rocking the $180bn Gaming Realm: A lot of people think that 2023 will be a great year for video games. Alan Wake 2, Marvel’s Spider-Man 2, The Legend of Zelda: Tears of the Kingdom, and more Almost every week there was a big hit or a solo gem.

But behind these praises is a sadder and more worrying story: a lot of people lost their jobs in the industry that year, and this trend is still going strong in the first few weeks of 2024. There were 1,900 people let go by Microsoft after it bought Activision Blizzard for $69bn. The publisher Embracer Group fired at least 900 people across all of its companies and shut down the long-running UK developer Free Radical Design. Epic Games, which made Fortnite, one of the most popular games of the decade, fired 830 workers, and Electronic Arts let go of about 780 workers, which is 6% of its workforce. The same bad news has come from Ubisoft, Naughty Dog, Sega, and Unity. This is affecting both big publishers and smaller teams.

Staff Reductions Rocking the $180bn Gaming Realm: What’s going on here? How is it that a business that is said to be worth $180bn a year is letting people go at such a scary rate?

There are times when certain things cause people to be laid off. In the case of Activision Blizzard, it has to do with roles being played twice after the buy. “Microsoft obviously already had a publishing business, and then it bought another publishing business with ZeniMax Media, the parent of Bethesda,” says GamesIndustry.biz editor-in-chief James Batchelor. “It then bought 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.”

Embracer Group is a Swedish game developer that owns 135 studios around the world. Crystal Dynamics, the company that made Tomb Raider, is one of these studios. Following a time of rapid growth, it had to fire developers, cancel games, and lay off staff. “It had a really aggressive mergers and acquisitions strategy that we now know was reliant on external investment,” says Batchelor. “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.”

But there is one event that stands out: the COVID outbreak. A lot of people became very interested in computer games during lockdown. Strong sales of games like Animal Crossing and Call of Duty: Modern Warfare increased income and sent share prices skyrocketing, which caught the attention of outside investors who poured money into the industry. In answer, arrogant publishers asked for bigger projects and hired people to work on them.

The boom didn’t last long, though. While lockdowns were ending, people went about their daily lives and sales went down. “We’ve seen a number of games cancelled in recent months. I imagine a lot more were cancelled that we don’t know about,” says Batchelor. “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.”

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Colin Macdonald has been making games for a long time and is now the director of Games Jobs Live, a website that helps people move into the business. He thinks that many of the job losses are caused by three main things: changes to income projections, higher interest rates, and high inflation. Then he says, “These three are linked.” “While many of the revenue projection corrections came from the delayed realisation 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.”

For many companies, the answer has been to focus on “sure-fire” hits and cut back on riskier projects. However, this may just be making things worse. Macdonald says, “Publishers are at risk if they don’t have a full slate of promising games for the years ahead, even though they are signing fewer games at lower development costs and taking longer to do so.”

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.”

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 spectre looms on the horizon for staff: the rise of artificial intelligence in the development and production process. “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 utilise AI for content production,” says Macdonald.

If companies want to lower the cost of development, using AI in production more (which is already a small part of the process) might be appealing, especially for quality control and recording performance. The Sag-Aftra union was criticized in January for making a deal with an AI company that would let it make digital copies of actors’ voices. This led to angry reactions on social media. Sunil Malhotra, who plays Sunil in Starfield and Mortal Kombat, wrote on X, “I sacrificed to strike half of last yr to keep my profession alive, not shop around my AI replica.”

Because their jobs are at risk, more development workers want to join a union, and the business is under more and more pressure to regulate itself. Publishers who are already well-known are starting to see both of them as threats. In June of last year, Electronic Arts released a financial report that said unionization and rules on AI could hurt their business and results.

So how can people who are new to the games business keep themselves safe? Macdonald says, “In the end, people looking for work should always look out for themselves.” “Check to see if a company makes money, has a history of firing people, and if salaries seem fair.”

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That goes for video game companies too. They need to look back at the past year and learn from it. But what do you think they will learn?

“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.”