The gaming industry began to collapse.  The reasons for layoffs are worse than in IT

During the first two months of the year, gaming sector companies announced plans to lay off nearly 10,000 people. employees. This is a very big change from how Gaming companies have grown rapidly in recent years, especially during and immediately after the COVID-19 pandemic. For many people, the current market situation is very ambiguous.

What is the reason behind layoffs in the gaming sector? On the one hand, it can be said that the reasons are different and each company makes slightly different arguments. On the other hand, there are also reasons that can be called systemic – they apply de facto to all institutions in this market, or at least most of them. Unfortunately, it may also apply to other industries in the near future.

Check also: “Accept that you won't have the toys.” Older players may have trouble

Your ambitions are high and you pay the price for your mistakes

At the end of February, Sony Interactive Entertainment announced It plans to cut 900 PlayStation employees from their salaries. That's about 8 percent. The company's global workforce. This year, Electronic Arts also reduced hiring (by 5%), and Supermassive reduced about 26%. positions, and Wildlife Studios has reduced its headcount by 21%.

Let's try to analyze some companies and the reasons behind layoffs.

One common reason for layoffs – or at least that's what most companies give – is… Over ambition, i.e. excessive expansion.

Swedish holding company Embracer Group has focused on acquiring other companies, believing that this will make it the undisputed leader. At one point, it had more than 100 entities in its portfolio. It is currently selling shares and reducing the number of employees after the collapse of its $2 billion strategic partnership with the Saudi Investment Fund. Its portfolio includes studios such as Eidos and Gearbox Software, but since last June it has already laid off nearly 1,400 people and canceled more than two dozen games. The gearbox, one of the Embracer's crown jewels, is said to be up for sale. Additionally, Embracer has announced plans to sell Saber Interactive, which is currently developing a remake of Star Wars: The Knights of the Old Republic., in an amount of up to 500 million US dollars. Private Investment Group. Embracer is the most obvious example of a company that has overextended its expansion and beat its estimates..

During the pandemic, many people have stayed at home, so gaming has become a great form of entertainment – ​​also for so-called Sunday gamers who generally spend their free time in other ways. However, such a trend cannot continue forever After the pandemic, many people returned to their old habits and ways of spending their free time. Toy sales have slowed.

Other companies that lay off workers simply pay for their mistakes. Unity Software's layoff of 1,800 people came in January after then-CEO John Riccitiello Announced a new pricing model Caused rebellion Among game developers. The company withdrew its fees, but with broken confidence and much worse stock valuations. As a result, it was forced to restructure. However, there are not many cases like loneliness.

So, returning to the decline in sales after the pandemic, the industry was hit by another plague: inflation and rising costs. On the one hand, we had consumers with less free money to spend, and gaming and entertainment were not at the top of the list of necessities. So a lot of people started saving which dampened sales further. On the other side Costs have risen, not only in terms of expected profits from specialists, but also in all types of rents and even electricity bills.

There were also higher technical costs to meet players' expectations. Before the pandemic, a AAA game's budget typically ranged between $50 million and $150 million. However, several successful titles emerged and players soon began to expect a more cinematic experience. Last year's report From the UK Competition and Markets Authority (CMA) says so Development budgets for AAA games alone currently top $200 million. Or more, with some franchises like Call of Duty costing up to $300 million. To play. Marketing costs can also double your total expenses. The CMA did not reveal the names of the publishers, but said one of them admitted that development costs for one of its major franchises reached $660 million, with marketing adding another $550 million to the game's launch. This total amounts to more than one billion US dollars. For – after all – one digital product.

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Costs are up, sales are down, and there's no financing

With costs rising and sales faltering, game studios have halted or greatly delayed work on many projects. For example The long-awaited Grand Theft Audo VI will not be released this year, although in theory it is already ready. We shouldn't expect big premieres for the top PlayStation console brands – Sony has already shown that this year will be without any big fireworks.

In addition, we are dealing with another systemic problem: The increase in interest rates has made it more difficult for companies to obtain financing. Public companies have become less willing to take on debt, and private companies have found that investment capital has dried up completely. The exception is companies that deal strictly with AI, but gaming companies, although they use AI, are not competitors to OpenAI or Mistral.

The result is that for private companies, the current market situation means inevitable layoffs. As for the public on the other hand Shareholder demands for growth often lead to actions to inflate shares – and this is where cost-cutting is an easy card to playwhich we already wrote about in the text on layoffs in the IT industry.

This trend is unlikely to disappear any time soon. With no major titles on the horizon and changing business models, headcount reductions and company restructuring are likely to continue over the next few months.

Read also: Don't let AI take your job. Here are five technology trends for 2024.

Below is a list of companies that slowed down in the first months of this year.

January:

  • Unity Program – 1,800 people
  • Twitch – 500
  • Playtika – 300-400
  • Riot Games – 530
  • Microsoft – 1900
  • Eidos-Montreal – 97
  • Sega – 61

February:

  • Sony – 900
  • Electronic Arts – 670

It's also the staff's fault

On the occasion of the layoffs at Sony, CEO Hiroki Totoki explained that the PlayStation division was profitable, but it was not profitable enough How long should it be?.

The CEO also noted that developers in his organization “don't necessarily understand how their efforts relate to overall growth, sustainable profit generation, and higher margins.” in addition to He allowed himself to comment on some developers, calling them irresponsible. He mentioned that some professionals are good people, very creative, but they are bad at managing money (they don't respect budgets) and deadlines (they don't respect timelines).

Perhaps this is partly true, but Totoki overlooked the fact that in companies there are often managers who do not have the appropriate knowledge (they do not know games, but they know management on a large scale), and the projects themselves are unnecessarily inflated into mega-projects and mega-projects. Structures. Those that no one can control later, and as a result, very complex games arrive on the market, with giant maps and beautiful graphics, but they are simply boring or full of errors and shortcomings. (No one should be reminded of the state in which Cyberpunk 2077 arrived on the market the day it was released.)

Here another problem arises for the gaming industry: players are increasingly choosing older games because newer games do not suit them. This is partly why it has recently appeared on the market A lot of old titles updated, for example Dead Space, Demon's Souls, The Last of Us Part I, Resident Evil 2 or Tony Hawk Pro Skater 1+2. These are always highly rated titles loved by players, which receive a new audio-visual setup, and often also some new gameplay elements – in the end, these products will not only always be highly rated by reviewers, but will also have guaranteed high sales.

Game studios should return to their roots and not exaggerate the size of their projects, because it later turns out that no one can control them – neither developers nor managers. Riot Games admitted this Layoffs were implemented specifically for this reason. The company said it had become “an organization that doesn't have a sharp enough focus” and has “too much on its plate”. She added that some of her investments did not achieve the results she expected, and costs rose to the point where it became difficult to control.

There is also artificial intelligence in the background

Finally, there is artificial intelligence. AI tools allow many things to be automated, and certain tasks can be performed by fewer people at the same time. There are even cases where one person has managed to create a game, or small studios have created large games with the help of AI (and may be violating copyright in the process).

There are situations, for example, when people write books using AI, and Amazon has to impose restrictions because its store is full of novels generated by AI, or some companies fire office workers from call centers and replace them with virtual assistants based on AI.

AI allows you to do “more with less,” meaning many businesses will be able to maintain their current productivity, but with lower hiring costs. This applies not only to the gaming sector, but to other sectors as well (such as translations, text writing, graphics creation, and image processing). with Research has shown Moreover, AI may not eliminate jobs immediately, but it will make us earn less. This suggests that the wave of layoffs currently affecting the gaming sector may not be the only one we'll face this year. Other industries are also at risk.

Author: Grzegorz Kobra, journalist at Business Insider Polska

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