Why is the video game industry in crisis?
Why is the video game industry in crisis?
I keep hearing about layoffs, studios being closed and how the industry is troubled. Are companies losing money and sales are poor, or is it the same as Google and other companies laying off people just to pump their stock price and make money despite profitability?
You're viewing a single thread.
I would say its an economy thing. Google and those other large companies are letting people go mainly because interests rates are so high at the moment. With high interests rates that means lending is more expensive which also means expansions are harder to make financially work. This also applies to AAA game companies.
The lay offs will continue until there's an equilibrium of revenue and expenses (because right now, expenses are too high), or until interests rates decrease again. Since the inflation rate is still above the (Fed)Federal Reserve's desired 2% (it was at 3.5 for March, up from 3.2% in February), its very unlikely that the Fed will lower interests rates soon.
We're basically waiting on companies to reach equilibrium, cut back their spending, for inflation to go down and hoping a full on recession doesn't come about before then.
Interest rates are not high.
They are still edit slightly below average compared to what they were pre 2008.
https://www150.statcan.gc.ca/n1/pub/11-210-x/2010000/t098-eng.htm
You're right they're not high historically speaking, but they high compared to the last almost 15ish years. And this is after coming out of a time of low interest rates, and increased demand from Covid. The shock from covid wore off, and now the shock from increased interest rates is hitting hard as well.
Its only an issue if companies / people have been greedily and immorally doing fractional reserve lending /borrowing.
It would also be an issue if they assumed that with their current staff, they could burrow money cheaply in the hopes that it will pay off in the future.
Now that that isn't an option, cut down staff. Which or course sucks.
Are expenses exceeding revenues? I feel like a lot of the big companies that have laid people off are nowhere even remotely close to going into the red in absolute terms, and if they were, there would have been a five alarm panic. I mean, I can't even imagine the kind of epic shit storm that would sweep wall St if Microsoft or Google only made, say, a million dollars in profit (not revenue, mind) in the last quarter.
I don't mean that expenses are higher than revenue, just that expenses are higher relative to revenue than these companies would like. This is a bear market, they need to prepare to withstand the bear market until things look better.