Layoffs in the gaming industry. What’s going on?

Among other things, we remember 2023 for large-scale layoffs in the IT and gaming industries and the closure of many game development studios. The trend continued and even intensified in 2024. The game development industry no longer looks like the most attractive place to work. But how did it come to this?

Beginning of the fall

The year 2023 started quite well for the video game industry. The gaming industry pleased us with at least the remake of Resident Evil 4, which showed that even time-tested classics can be brought to a fundamentally new level of quality, and Hogwarts Legacy, which became a gift for all Harry Potter fans. And these are just the most high-profile titles.

If you delve deeper into niche projects, you will find even more noteworthy ones. Monster Hunter Rise, Hi-Fi Rush, Pizza Tower, Valiant Hearts: Coming Home – all these games were released during the first month of 2023. And each of them is worthy of attention.

Скріншот з гри Hi-Fi Rush

However, in January 2023, the first alarm bells began to ring. The first news about layoffs in the gaming industry appeared on January 3, 2023. It concerned Wizards of the Coast, which is known primarily for Magic: The Gathering and Dungeons & Dragons. The company planned to expand its video game business, but eventually abandoned these plans due to several unsuccessful projects in 2019-2022. At least five games were canceled.

At the time, this news did not seem to be part of a large and unpleasant trend. However, on January 17, 2023, Unity Technologies announced that it would lay off about 300 employees.

«We reassessed our objectives, strategies, goals and priorities in light of the current economic environment. While we are still focused on the same ideas, we have decided that we need to be more selective in our investments to become stronger as a company.”, – said the company’s then CEO John Ricitello.

Since then, news of layoffs in the gaming industry has been coming out almost every week. More and more experts in the field, journalists, and simply interested players began to say that something had gone wrong with video game development.

Interestingly, this did not particularly affect the quality and variety of projects. 2023 gave us Baldur’s Gate 3, The Legend of Zelda: Tears of the Kingdom, Alan Wake II, which will definitely be remembered and loved for many years to come. However, it should be understood that the development of these games began in 2019-2020, and the problems of 2023, when the projects were already at the final stage before release, did not affect them.
Indie games were also not far behind, so among the stream of unusual projects like Lethal Company, Viewfinder, and Cocoon, everyone will definitely find something to their liking. However, this did not make the number of cuts any smaller.

Screenshot from Lethal Company game

Frankly speaking, the crisis in the gaming industry began to emerge in 2022, but, as is often the case, it was noticed too late. For example, Perfect World Games laid off about 1000 people, and Garena laid off about 700.

And here we can touch a little on the topic of the Asian gaming industry, which is often overlooked, except for absolutely gigantic projects like Genshin Impact. After all, no one was in a hurry to draw conclusions from the cases of Perfect World Games, Garena, and other Asian studios in 2022.

However, companies more familiar to the average player were also affected. Sony laid off 93 people working in the North American PlayStation office. Hangar 13 (developers of Mafia III) lost 87 specialists during the next round of layoffs. Unity Technologies also laid off people (in recent years, the company has been “fond” of doing so), even if only 150 people lost their jobs in 2022.

Perhaps it is also the fact that the cuts in the gaming industry in 2022 were mainly in the mobile and online segments. Yes, this area brings in a lot of money and affects a large number of people, but in terms of prestige and media exposure, it is somewhere in the background.

2023 has already had a direct impact on the vanguard of the video game industry.

Wobbly giants

A few years ago, when Fortnite was being talked about, players liked to joke about the endless flow of money to Epic Games. After all, who else can afford virtual concerts by stars like Eminem, Travis Scott, and Ariana Grande right inside their game? It seemed like Fortnite would always be doing well. The year 2023 showed that this is not the case.

In September 2023, Epic Games announced large-scale layoffs. 16% of all employees, or about 830 people, lost their jobs. It turned out that even Fortnite’s outstanding performance was not enough to maintain stability within Epic Games.

«For a while now, we’ve been spending way more money than we earn, investing in the next evolution of Epic and growing Fortnite as a metaverse-inspired ecosystem for creators. I had long been optimistic that we could power through this transition without layoffs, but in retrospect I see that this was unrealistic», — said Epic Games CEO Tim Sweeney.

The situation also affected the content in Fortnite. Even though many additional modes appeared there, such as the Fortnite Festival rhythm game, the developers of the battle royale had to actively use the old content for one season. The audience appreciated a kind of return to the roots, and Epic Games managed to save some money on development. As a result, everyone ended up in the black, albeit for not very pleasant reasons.

If even Fortnite was affected by the crisis, what about other games? Naughty Dog abandoned the multiplayer mode for The Last of Us Part II (although, frankly, there were problems with it during development). Sony generally curbed its appetite and abandoned many service games, including the return of the Twisted Metal series. And Embracer Group, which was actively buying game studios a few years ago, closed 29 projects in just six months.

Ubisoft, which has been doing poorly for the past few years without the general crisis, has also suffered. The company canceled at least the free-to-play shooter Ghost Recon Frontline and the VR version of Splinter Cell. Now the studio plans to focus on its key franchises like Far Cry and Assassin’s Creed. So if you thought that Ubisoft lacked diversity in games before, which is definitely not the case, small projects like Prince of Persia: The Lost Crown and Scott Pilgrim vs. The World: The Game clearly demonstrate this, so be prepared for the company’s future development.

Screenshot from Prince of Persia: The Lost Crown

Ubisoft and other big studios at least have a chance to fix things. Some are not so lucky. Due to the current crisis, a number of studios have closed, some of them for the second time.

Here are just a few of them:

  • Daedalic Entertainment (has closed its game development business, but will continue to operate as a publisher)
  • Free Radical Design (TimeSplitters series)
  • London Studio (SingStar series)
  • Pixelopus (Concrete Genie)
  • Volition (Saint’s Row and Red Faction series)

As a result, according to estimates by independent experts, more than 10,000 people lost their jobs in the gaming industry in 2023. Layoffs and dismissals affected all areas of game development.

In 2024, the trend continued and even intensified. Thus, Microsoft has already managed to get rid of 1,900 of its employees from Activision Blizzard and Xbox. If the current situation persists, almost 10,000 more people will be out of work in the video game development sector by the end of the year.

Of course, there are companies that are much luckier. NVIDIA continues to grow its capitalization, so it has managed to avoid layoffs. Nintendo, on the other hand, has no such policy, which is partly due to Japanese traditions.

«There is no layoff. The work we do in graphics, science, AI, and robotics is more vital to the future than ever», — this is how Jensen Huang, CEO of NVIDIA, explained his policy on layoffs.

What about Ukrainian studios?

The Ukrainian gaming industry has also been affected by the crisis. Even if the scale is not so critical, the trends common to the whole world are still noticeable.

According to GameDev DOU, in 2023, about 1,300 Ukrainians lost their jobs in the video game development industry. Most employees were laid off at Ubisoft, Playrix (Ukrainian branches of the Russian Playrix), and GSC Game World.

In 2024, according to a recent survey by GameDev DOU, at least 1,020 Ukrainians lost their jobs in the game industry . At the same time, some companies managed to hire additional people. These include GSC Game World, which hired 40 specialists. This can be attributed to the fact that the development of S.T.A.L.K.E.R. 2: Heart Of Chornobyl is nearing its completion, so “new blood” is needed for the final push.

Frogwares also managed to increase the staff by 13 people. In March 2024, the studio announced The Sinking City 2, so it definitely needs additional resources.

Screenshot from S.T.A.L.K.E.R. 2: Heart Of Chornobyl

Layoffs of one kind or another continue to this day. One of the most recent waves of layoffs occurred at the end of February 2024 at Playtika, which specializes in mobile gaming and iGaming, i.e. interactive gambling. People were fired literally on the same day, but compensation was paid.

«It all happened in one day; in the morning, we had a meeting with the C-level, where they said there would be layoffs. If you are not approached by the end of the day, you will stay working. About an hour later, I was added to a call with several other people. Without any details, they said that today was the last day. They compensated me for three salaries and paid me annual salary and bonuses that were supposed to be paid at the end of February», – this is how one of Playtika’s former employees, who wished to remain anonymous, commented on the cuts in a conversation with GameDev DOU.

The cuts also affected Ukrainian Fractured Byte. It was working on porting Brothers: A Tale of Two Sons, Borderlands Legendary Collection, and Tony Hawk’s Pro Skater 1+2 to Nintendo Switch. According to sources, the studio was supposed to be directly involved in the development of the unannounced Borderlands 4, but Gearbox Software decided to cancel the project.

However, recently there have been rumors that Borderlands 4 is in active development. Probably, this was facilitated by the merger of Gearbox Software with Take-Two Interactive. But there is no information yet whether this has affected the work at Fractured Byte.

This situation clearly demonstrates the problem of many Ukrainian game studios. They are heavily dependent on the decisions of their parent companies in other countries, sometimes on several at once. For example, Fractured Byte relies to some extent on the decisions of Gearbox Software, Saber Interactive, and Embracer Group. The Ukrainian office of Ubisoft Kyiv depends on the overall situation at Ubisoft. That is why the global crisis in the industry directly affects Ukrainian game developers.

However, there are studios in Ukraine that are not only surviving the crisis relatively easily, but also manage to grow even in the current environment. These include, for example, Room 8 Group, Pingle Game Studio, and N-iX Game & VR Studio. Do you know what these studios have in common? They are all engaged in external development, or outsourcing, as it is sometimes called.

Room 8 Group has worked on art for various well-known games such as Dead Space, Deathloop, Diablo IV, and Alan Wake II. But the studio is not limited to art. The studio also develops trailers and cinematics, tests and directly creates gameplay mechanics and systems. Pingle Game Studio has worked on The Outer Worlds and The Finals, while N-iX Game & VR Studio has worked on Victoria 3 and The Dark Pictures Anthology: The Devil in Me. All of these are quite well-known games for every taste.

Screenshot from Alan Wake II

You may have never heard of any of these studios. The fact is that the gaming industry has long practiced outsourced development, but the main studio tries to focus on itself. This is useful for marketing and promoting games among the gaming community. However, sometimes this strategy goes to extremes. A striking example is the term “Hideo Kojima’s game,” which makes it sound as if Kojima personally did everything in it, although this is certainly not the case.

External development has become a kind of salvation for the gaming industry in difficult times. It allows you to save a significant portion of the budget, because outsourced studios are often based in countries where life is several times cheaper than in the United States.

However, outsourcing cannot be considered a panacea for Ukrainian studios. While in May 2023, Room 8 Group saw an increase of 136 people, as of March 2024, it lost 121 people. At Pingle Game Studio, the management laid off 122 specialists, and N-iX Game & VR Studio increased by only 5 people.

Representatives of the studios attribute such changes to the legalization of relocated specialists abroad, internal restructurings, and the general slowdown of the IT market. However, companies remain cautiously optimistic and plan to expand in the next six months.

But how did it happen that video game developers found themselves in such a difficult situation?

Causes of the crisis

To understand the current situation in the video game industry, we need to go back a few years. Specifically, to the beginning of 2020. It was then that the coronavirus began to spread, leading to a global pandemic. Millions of people were virtually locked in their homes due to quarantine restrictions.

What can you do when you spend a lot of time at home? That’s right, at least play video games. That’s why the coronavirus pandemic has led to an unusual increase in financial performance in the gaming industry, at least for a while.

For example, in 2020, players began to spend an average of 39% more time on video games than usual. In Latin America, this figure was 52%. Sales of console games grew by 155%.

Speaking of specific games, everything was great here too. 2020 brought us at least Fall Guys and Among Us, or rather, the latter was released in 2018, but 2020 was the year when it peaked in popularity, allowing us to feel like we were among friends and strangers even in the middle of quarantine. Grand Theft Auto Online saw an increase in players, with 267,000 users simultaneously playing in February 2020. Almost all service games such as Call of Duty and Fortnite experienced an increase in revenue.

Screenshot from Fortnite

In total, US players spent $977 million on games, consoles, and related products in May 2020 alone. This is 52% more than in May 2019. Such staggering figures signaled to the gaming industry that it was time to expand, invest, and actively pursue new projects. Back then, no one knew how long the pandemic would last, and it even seemed like a new reality.

Around the same time, a process that can be described as the consolidation of the gaming industry was actively taking place. Sony and Microsoft were actively buying independent studios to strengthen their portfolio of exclusives. As a result, Sony acquired at least Bungie (Destiny) and Insomniac Games (Marvel’s Spider-Man, Ratchet & Clank), and Microsoft acquired Activision Blizzard and Bethesda, which do not need any further presentation.

The matter was not limited to platform owners alone. Embracer Group was also actively developing its studio portfolio. The Swedish company has acquired a lot of developers, including Crystal Dynamics (Tomb Raider series), Tripwire Interactive (Killing Floor), and 3D Realms (Duke Nukem series).

China’s Tencent also participated in similar activities, but in more subtle ways. It bought not only studios, but also significant stakes in various developers to exert influence on them. This is what Tencent’s management did with Guillemot Brothers Limited, the parent company of Ubisoft.

Everyone in the gaming industry was preparing not just for the PlayStation 5 and Xbox Series X/S generation of consoles, but for a new era that began with the start of the pandemic. Developers and publishers believed that this extraordinary expansion of the gaming market would continue, if not forever, then at least for a significant period of time. But already in 2021, with the spread of vaccines, people began to gradually return to normal life. This means that they began to spend much less time playing games.

For example, in 2021, mobile game revenue fell by 15%. The console segment has reached a plateau, with very small fluctuations around a few percent. This did not benefit the plans of large gaming companies.

The problem is that the cost of game development has increased dramatically. For example, the cost of developing Half-Life 2, which took five years, amounted to $40 million. Today, this amount is not enough even for a “mid-budget” game.

And this is not the author’s opinion: a similar wording can be found in Insomniac Games’ leaked presentation on its financial plans. They state that a “mid-sized” game will cost $100 million, and a full-fledged AAA release will cost the full $300 million.

Slide from the leaked Insomniac Games internal presentation

Each new Call of Duty installment also costs at least $300 million. The UK’s Competition and Markets Authority interviewed many game publishers, all of whom gave roughly the same figures. One of the publishers also shared that the development cost of its most expensive game was $660 million, and another $550 million was allocated for marketing and promotion. No specific titles were mentioned in the survey, but rumor has it that this is the budget of Grand Theft Auto VI. And it may well reach $2 billion.

Add the following factors to the mix:

  • the failed idea of a metaverse, which many gaming companies have been chasing for several years, but which has failed to interest the mass user;
  • the failed idea of NFT and its very critical perception in the gaming community;
  • massive but not very successful attempts of developers to implement their game services;
  • тechnical challenges in developing large projects;
  • high expectations from AAA games.

It turns out that the gaming industry has put itself in this position on its own. Companies started spending more, focusing on abnormal demand during the pandemic, but earning less. Hence the massive waves of layoffs.

But here’s something else that’s disturbing. There is an opinion that during the current crisis, studios are getting rid of employees who were hired not so long ago or specialists in non-critical positions. For example, Electronic Arts laid off about 200 people in 2022 who were involved in supporting FIFA 2022 users. And everything seems to be logical: fewer users, less time in the game, and therefore less support is needed.

However, the crisis has affected even veterans of the gaming industry. For example, composer Michael Salvatori, who worked on Halo, lost his job at Bungie. Michael has been working with Bungie since 1997, but still fell under the wave of layoffs.

Even Unity CEO John Riccitiello lost his job in October 2023, although there was no shortage of scandals surrounding Unity’s desire to charge developers extra money for installing their games.

It turned out that no one is safe. The absence of trade unions in the gaming industry as a mass phenomenon only weakens the position of developers and increases the risk of being left with nothing. And the situation is not going to change yet.

What’s next?

The layoffs in the gaming industry are not over yet. News of layoffs and closures continue to come almost every week. Developers are trying to deal with this somehow, for example, by protesting during the GDC conference. But large companies and investors are in no hurry to make a decision.

Against this backdrop, the indie scene is growing in importance and influence, as well as the organic distribution of video games through streamers, bloggers, and social networks. The concept of “unexpected successes” has become one of the hopes for many developers.

The example of Helldivers II clearly demonstrates this. Even though the game was published by Sony, the publisher didn’t seem to believe in the cooperative shooter from Arrowhead Game Studios, so it didn’t invest much in advertising. Even on PC, the game was released simultaneously with the PlayStation 5, although Sony usually releases exclusives with a delay of a year or two. But as a result, Helldivers II is now breaking records in terms of the number of players, and the developers even had to expand their staff to consistently meet the demand for new content.

On the other hand, the potential threats posed by generative artificial intelligence have not disappeared. We recently talked about it in a separate article. There is a risk that developers in various fields will be replaced by AI, which will lead to even more layoffs.

It is impossible to predict anything now. But from a somewhat cynical point of view, we can say that the gaming industry is returning to “normal” after a supernatural expansion, albeit at a heavy price. And now a lot depends on how long this return will take.

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