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?
The video game industry is not in crisis, big game publishers are because their goals of infinite growth and profit are in jeopardy, therefore they make more and more unsustainable moves, cuts and cuts and.....more cuts. Indie devs are more and more often breaking into the spotlight because AAA game publishers are failing the industry
I think it is also related to the economy as a whole. While the pandemic was dragging on and on, inflation got much higher and central banks responded by increasing the interest rates. As a result, investors no longer had access to infinite free money.
Turns out, there are lots of companies that relied on constant funding instead of actual revenue. Those companies are undergoing some major changes at the moment.
It appears to me that most of the layoffs are from publishers of AAA games. Perhaps it is too hard for AAA game development to be sustainable. Too high costs and not always good return on investments.
Yeah I feel like it's similar to movies in a way. You can only push so much money and development into something before you start seeing diminishing returns.
It isn't just AAA by a longshot. Indie devs are also going through hell.
Part of it is that a lot of companies overstaffed over the pandemic, finished up those projects they were behind on (there is a reason Winter 23/24 has been INSANE), and are now laying people off.
But mostly it is because of economic uncertainty and inflation. Investors are a lot less willing to throw dump trucks of cash at people. That leads to wary investors/shareholders for the large companies and a "need" to punish labor for management's mistakes. And for indie devs that means an inability to get funding.
Danny O'Dwyer and NoClip have been making a game for the past few years to better understand what development is. And they put up a REALLY good video where Danny talks about what goes into a pitch for a publisher and just how incredibly bleak it is. Lots of "Well, at least this one person told me they weren't interested rather than just ghosting us" vibes.
I really like smaller, focused games. I don't need a game to be every genre, and I don't need to sink over 100 hours into it. I'd rather play something like Celeste than yet another open world collectathon with observation towers to climb, crafting, shitty combat, boring story, bad minigames, and running back and forth again and again on mindless escort treks that exist solely to pad the game runtime. I'd rather spend $5-20 on a 4-10 hour game than $70 on a game that overstays its welcome in order to justify the pricetag.
You need to understand, the people managing these companies don't make their money from profits, they make it from not paying people.
The profit is the baseline. It's the status quo. It pays for things you already have. Money coming in already knows where it's going and getting more of it is a fight with people higher up then you are.
But money you've freed up from not paying people? Layoffs? Closing departments? That's big earnings that show you're a savvy business man you can cut the fat. Numbeys go ups.
Big biz: "actually we need it, so bad, we are going into withdrawals, Steve only bought 3 yachts this week and he's about to go ape shit, we need it, WE NEED ITTTTTTTTTTTTT"
Also because of this, they are only pumping cash into big titles that are good bets for return, so nobody wants to spend money on a gamble. We need to let the big studios burn and collapse, they are way beyond their expiration date and only a few haven't gone bad. Let the shareholders burn too, they are the driving force behind most of this shit.
E: also you can only 'innovate' the wheel so much. New games become an obvious cash cow. I'd have to go back a decade+ for Battlefield, Call of Duty, Need for Speed, etc to see an actual change in the game, not just new assets and skins in a new place that looks like the old place but 'we swear it's different'
It's less about profit and more about sustained growth. During the COVID lockdowns publishers saw a big bump in cash flow due to increased sales and subsidies. That caused them to hire new employees en masse among other investments because in the corporate world there is no such thing as leaving money unspent. Money needs to earn more money because capitalism and shareholders.
After the lockdowns, that extra cash flow receded quickly. The response from publishers to keep their growth rate from also falling is to lay off employees and reduce risks.
The videogame industry has been lurching from crisis to crisis for as long as I've been paying attention. I'm starting to think that's their business model.
Simple. Large game studios have become more about releasing IP content and less about actually creating art. If you look at all those yearly carbon copies EA releases, 2K has to follow suit. Any title that is not aggressively marketed will die a silent death because every genre is oversaturated.
The game industry now consists of just a couple of very big names and thousands of small games that aren't profitable. It's becoming more and more like the music industry.
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.
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.
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.