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Why is the gaming industry, worth $180 billion, laying off thousands of employees?
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Why is the gaming industry, worth $180 billion, laying off thousands of employees?


Many people believe that 2023 was an exceptional year for video games. There were numerous highly anticipated releases such as The Legend of Zelda: Tears of the Kingdom, Baldur’s Gate 3, Alan Wake 2, and Marvel’s Spider-Man 2. It seemed like every week there was a new blockbuster hit or hidden gem to discover.

However, beyond these praises lies a more disheartening and concerning truth: it was also a year marked by widespread layoffs in the industry, and this trend is continuing into the early weeks of 2024. Following its acquisition of the company for $69 billion, Microsoft cut 1,900 jobs at Activision Blizzard. Publisher Embracer Group also let go of at least 900 employees across its various studios and closed veteran UK developer Free Radical Design. Epic Games, the company behind Fortnite, one of the most successful games of the decade, laid off 830 employees. Electronic Arts also downsized its workforce by 6%, resulting in approximately 780 job losses. Similar unfortunate stories have emerged from Ubisoft, Naughty Dog, Sega, and Unity, affecting both major publishers and smaller studios.

What is the reason for this? Why is a sector known for its $180 billion annual value experiencing a rapid decline in its workforce?

In certain instances, there are specific reasons behind the redundancies. For Activision Blizzard, part of the issue is the overlap of roles after the acquisition. James Batchelor, editor-in-chief of GamesIndustry.biz, explains, “Microsoft already had a publishing business and then acquired ZeniMax Media, the parent company of Bethesda. It then acquired two more publishing businesses with Activision and Blizzard, which operated somewhat independently. This resulted in a duplication of departments such as HR, PR, marketing, and accounting within the same company. This is why streamlining is necessary.”

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Embracer Group, a games publisher based in Sweden, currently owns 135 studios globally, including Crystal Dynamics – the creator of Tomb Raider. However, due to a period of rapid expansion, the company has been forced to shut down developers, scrap game projects, and lay off employees. According to Batchelor, this is a result of their aggressive strategy of mergers and acquisitions, which heavily relied on external investments. Last year, a deal worth $2 billion from Saudi investors fell through, causing major adjustments to be made. This situation highlights the issue of companies becoming too large to support themselves. Despite having thousands of employees working on their games, Embracer lacks the necessary blockbuster hits to sustain such a massive workforce.

However, one major event has been dominating the scene: the Covid pandemic. With the implementation of lockdown measures, there has been a significant increase in people’s interest in video games. This had a dual impact: popular titles like Animal Crossing and Call of Duty: Modern Warfare saw a surge in sales, leading to higher revenue and a rise in share prices. This caught the attention of external investors, who then poured funds into the industry. In turn, overconfident publishers took on more ambitious projects and expanded their hiring.

However, the temporary success did not continue. As restrictions were lifted, there was a decrease in sales as individuals resumed their normal routines. Batchelor notes, “There have been several game cancellations in the past few months. I believe there are even more that we are unaware of.” He adds, “When a project is cancelled and a studio decides to focus on a select few games that they know will be successful, it unfortunately puts jobs in jeopardy for those who were involved in the scrapped projects.”

Colin Macdonald, a seasoned game developer and current director of Games Jobs Live, an online platform for industry recruitment, identifies three main factors contributing to the recent job losses: adjustments in revenue projections, increased interest rates, and high inflation. According to him, these factors are interconnected. The delayed realization that the Covid bubble was not sustainable led to many companies revising their revenue projections. Additionally, the high inflation rates have surpassed industry growth, resulting in higher costs for companies. This has also caused interest rates to rise, adding pressure on those who were used to financing options when traditional forms of investment were not yielding good returns.

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Many publishers have chosen to reduce their investments in high-risk projects and instead focus on guaranteed successes. However, this approach may only continue the cycle of uncertainty. As Macdonald points out, while publishers are signing fewer games at a lower cost and taking more time to do so, they are still at risk if they do not have a strong lineup of promising games for the future.

Macdonald also predicts a potential trend of following the crowd. He believes that due to the numerous layoffs in various studios, some companies are taking advantage of the situation to make cuts for their own specific reasons. They know that in a few days, other studios will also be in the spotlight for job losses. What is especially disheartening is that companies with large amounts of cash are also joining in and laying off a significant number of employees. The interest earned on that cash alone could have possibly covered all the salaries of those who were let go.

Given the discouraging beginning to the year 2024, it is probable that the consequences of Covid and the numerous company takeovers in the industry will persistently impact the gaming business. Additionally, as the industry recovers, employees face a potential threat: the increasing presence of artificial intelligence in the development and production of games. Macdonald states, “While we are unsure of the extent to which AI tools have been implemented, there are discussions about potential job cuts in preparation for utilizing AI in content creation.”

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For those in the publishing industry seeking to reduce expenses, increasing the implementation of artificial intelligence during production (which is currently only used in a limited capacity) may be an enticing option, particularly in aspects like quality control and capturing performances. In January, the Sag-Aftra union faced backlash for making a deal with an AI company that would enable them to generate digital versions of actors’ voices, leading to angry reactions on social media. Actor Sunil Malhotra, known for his roles in Starfield and Mortal Kombat, expressed on X: “I gave up half of last year to fight for my profession, not to have an AI clone of myself marketed.”

Due to the potential harm to their livelihood, a larger group of development employees are seeking to form unions, putting pressure on the industry to take responsibility for their actions. Established publishers are starting to view this as a threat. In a financial report released last June, Electronic Arts acknowledged that unionization and regulation of artificial intelligence could have adverse effects on their business and outcomes.

How can individuals new to the gaming industry ensure their own safety? According to Macdonald, “Ultimately, job seekers must prioritize their own well-being.” He suggests checking a company’s financial stability, past layoffs, and sustainable salaries.

Gaming companies also have an obligation to reflect on the previous year and gain insight from it. What insights are they expected to gain?

According to Batchelor, the industry will likely prioritize established successes and safer options. This is unfortunate because we still need the industry to take chances. However, it is necessary for companies to sustain and finance these risks internally rather than relying on outside investments.

“Hopefully, with increased efficiency and sustainability in companies, we can expect a more prudent industry to emerge from this.”

Source: theguardian.com