The Impact of Mass Layoffs on the Gaming Industry

The year 2023 has been marked by a surge in layoffs across the gaming industry, with numerous companies, including Ascendant Studios, Beamdog, and Epic Games, downsizing their workforce. The reasons behind these redundancies vary, but analysts point to the current economic climate, characterized by high interest rates, inflation, and increased competition, as a major contributing factor. According to Kantan Games CEO Serkan Toto, the emphasis on efficiency has increased significantly over the past 18 months, leading to a sense of urgency among game industry CEOs to reduce costs and streamline their organizations. This has resulted in a wave of layoffs, with many companies feeling pressure to cut staff in order to remain competitive. Hiro Capital partner Spike Laurie attributes the current wave of layoffs to Elon Musk's decision to cut 50% of Twitter's workforce in November 2022, which he believes prompted other business leaders to reevaluate their company's size and make judicious cuts. The end of an economic cycle fueled by cheap and readily available cash has also contributed to the current situation. The gaming industry is not alone in facing these challenges, as major tech firms like Microsoft, Meta, and Amazon have also experienced widespread layoffs. However, the industry is unique in that it has expanded dramatically during the pandemic, only to experience a correction as the market returns to normal. IDG Consulting's SVP of consulting Emilie Avera notes that the disparity between executive and non-executive compensation has become more pronounced, with executives often receiving significant compensation packages while non-executive employees face layoffs. She advocates for a pay-for-performance model, where executive compensation is tied to tangible outcomes and performance metrics. The pandemic has also played a role in the current state of the market, as the industry expanded rapidly during the stay-at-home period, only to experience a correction as the market returns to normal. Avera observes that the short-term focus on aggressive growth, often at the expense of sustainable profitability, has led to a frantic approach to game development, with many studios struggling to launch games. Liz Prince, head of recruitment specialist Amiqus, views the current situation as a recalibration rather than a deep-seated industry issue, noting that every sector undergoes cycles of expansion and retraction. Ampere Analysis' head of games research Piers Harding-Rolls agrees, stating that the scale of big-budget game development has led to a broader impact when projects are cancelled, resulting in hundreds of layoffs. The M&A spree during the past few years, fueled by lofty games company valuations and cheap debt, has also contributed to the current situation. However, debt is now more expensive, and company valuations have fallen since Microsoft announced its proposed purchase of Activision Blizzard. Avera suggests that the industry needs to address its expectations, focusing on realistic KPIs and tangible metrics such as review scores, pre-sales, and proven track records of releasing games with minimal bugs. She also believes that generative AI could be used to assist overburdened development teams and reduce development time, and that user-generated content could help trim development costs. Midia Research co-founder and senior analyst Karol Severin notes that the pace of growth for the games industry has peaked, and that the industry will continue to grow in dollar terms, driven by increasing population and better internet connectivity. However, the value of individual games will decline, leading to a need for fewer games, developers, and publishers. Severin adds that the number of games released is growing faster than global games revenue, with Steam tracking over 13,500 games in 2023, compared to 12,500 last year. The rise of cloud gaming subscriptions and the increasing presence of companies like Netflix, Amazon, and Apple in the gaming market will also impact the industry. Ultimately, the industry must adapt to the changing landscape, focusing on sustainable growth, realistic expectations, and innovative solutions to reduce development costs and improve efficiency. While the current situation may seem challenging, the growth of the industry, driven by Gen Z and the adoption of games technologies by big tech firms, offers cause for optimism.