Why are so many game companies laying off people? Understand the situation

After a 2023 marked by several layoffs in the gaming world, 2024 is proving to be even more brutal for professionals working in the field. In January alone, the industry has already witnessed more than 5,000 cutsor 54% of the number of dismissals carried out throughout the previous year.

One of the most recent names to announce a reduction in its teams was Microsoft, which closed more than 1,900 vacancies at Activision Blizzard. According to the company, this is the result of the publisher's purchase finalization process and involves the elimination of redundancies in its new structure.

Microsoft has laid off Activision Blizzard employees due to redundancies.Source: Disclosure/Xbox

In recent weeks, companies such as Unity and Riot Games have also announced reductions in their teams, and a common discourse is already being established among many studios. Below, you can see some of the mass layoffs recorded in the first month of 2024, according to a list compiled by Kotaku Australia:

• Bossa Studios (Goat Simulator) – 19 people
• Unity (software company) – 1800 people
• Twitch (streaming company) – 500 people
• Playtika (mobile) – 400 people
• Discord (communication) – 170
• Lost Boys Interactive (part of Embracer) – 125
• PTW (QA and support studio) – 45 people
• Thunderful (Steamworld Build) – around 100 people
• Wimo Games (VR studio) – 35 people
• Behavior Interactive (Dead By Daylight) – 45 people
• CI Games (Lords of the Fallen) – about 20 people
• Metaverse World (studio focused on metaverse) – 70 people
• People Can Fly (Outriders) – 30+ people
• Black Forest Games (Destroy All Humans) – about 50 people
• Riot Games (Valorant and League of Legends) – 530 people
• Microsoft (Xbox and Activision Blizzard) – 1900 people

At the time of this publication, more than 6 thousand people lost jobs in the games industry in January alone, making the month reach half of the layoffs for the entire 2023. In general, companies justify their decisions as a way of “readjusting to market conditions” and make course corrections after periods of excessive hiring.

Why are there so many layoffs in the gaming world?

One of the main reasons why many companies are laying off people is growth that the gaming market experienced during the COVID-19 pandemic. During the most intense period of social isolation, many people discovered games as a way to have long-lasting and safe entertainment.

This caused many companies to see considerable jumps in their revenues, which led to great enthusiasm for making new investments. However, with normality establishing itself and people being able to leave their homes again, the games market has slowed down and has not witnessed the continued large growth that some expected.

Much of the problem can be attributed to hasty decisions by leadership teams, who did not know how to manage expectations or realize that the pandemic represented an outlier. It also hasn't helped that for years, Triple-A game budgets have been increasing at a rapid pace.

Not even big successes protect studios from layoffs.Source: Disclosure/PlayStation

Insomniac's recent leak shows that, even though it had sold millions of copies of Spider-Man and its sequel, the studio was being pressured to lay off parts of its teams in order to balance the books. To avoid this, it would be necessary to sell a practically impossible amount of games.

Rising global inflation has also caused money to become more expensive, especially for those who need to borrow it. This means that studios need to tighten their belts a little when creating new games, which attract less attention from venture capitalists.

As the success of a game is never guaranteed, many of the financiers of this type of project simply moved towards safer segments. Those that remain need more guarantees of return and end up having direct influence over the budgets and sizes of the teams dedicated to each title.

Outlook is negative

The large number of layoffs is also explained by the pressure that the technology market is exerting towards a reduction in employees' salaries. After Elon Musk fired a large part of the X (formerly Twitter) workforce and reduced benefits with relative success, other executives saw that could make similar moves and gain an advantage.

Curiously, the Japanese market was relatively protected from all these recent movements. This can be explained by the fact that the local industry focuses more on medium-budget titles and has strongly embraced the Nintendo Switch, whose production costs are lower than those of competing platforms.

These Xbox layoffs are such a mess that staff across Activision Blizzard are texting *me* to try to find out if they might be impacted. Nearly 2,000 job cuts and people now just have to wait around to see if they're part of the bloodbath

— Jason Schreier (@jasonschreier) January 25, 2024

The country also has labor laws that make it very difficult and expensive to make any layoffs, especially when they happen in massive numbers. Therefore, it is not very easy to break up teams and reassemble them shortly afterwards offering reduced salaries and benefits.

Analysts consulted by Games Industry show that the market should not improve before 2025, and the next few years will be marked by many studio closures. With constant competition from games-as-a-service and a busy release calendar, many titles simply won't be profitable, resulting in the demise of their teams.

However, there is agreement that the situation is temporary, and that not all investments are being halted. “The games market is built on very solid foundations. And when things start to grow again, we hope to see a more sustainable and wise gaming industry emerging on the other side,” said an executive consulted by the website.