Why is the $180bn games industry shedding thousands of staff?

Call of Duty: Modern Warfare 3, whose publisher Activision Blizzard has laid off 1,900 employees. Photograph: AP

It is widely agreed that 2023 was a stellar year for video games. The Legend of Zelda: Tears of the Kingdom, Baldur’s Gate 3, Alan Wake 2, Marvel’s Spider-Man 2 … barely a week passed without some blockbuster hit or independent gem.

But beneath these accolades there is a sadder, more worrying story: it was also a year of widespread industry redundancies, and the trend is continuing into the opening weeks of 2024. Microsoft laid off 1,900 Activision Blizzard staff after its $69bn purchase of the company. Publisher Embracer Group let at least 900 staff go across its many studios, as well as closing veteran UK developer Free Radical Design. Epic Games, the creator of Fortnite, one of the most successful titles of the decade, laid off 830 employees; Electronic Arts shed 6% of its workforce, amounting to approximately 780 jobs. There have been similar grim stories from Ubisoft, Naughty Dog, Sega and Unity; major publishers and smaller studios alike are being affected.

Why is this happening? How is an entertainment industry said to be worth $180bn a year shedding staff at such an alarming rate?

In some cases, there are specific factors driving the redundancies. In the case of Activision Blizzard, it’s partly about the duplication of roles once the purchase was complete. “Microsoft obviously already had a publishing business, and then it bought another publishing business with ZeniMax Media, the parent of Bethesda,” says James Batchelor, editor-in-chief of GamesIndustry.biz. “It then bought two publishing businesses with Activision and Blizzard, which operated somewhat separately. If you think about the number of departments that they’ve doubled up here – HR, PR, marketing, accounting – you’ve got a lot of people doing the same jobs within the same company. This is a case of streamlining.”

Over in Sweden, Embracer Group is a games publisher that owns 135 studios around the world, including Tomb Raider creator Crystal Dynamics. It has had to close developers, cancel games and make staff redundant after a period of accelerated expansion. “It had a really aggressive mergers and acquisitions strategy that we now know was reliant on external investment,” says Batchelor. “But last year, a deal that was worth at least $2bn, reportedly from Saudi investors, was cancelled, meaning that its plans had to be adjusted dramatically. Embracer is a prime example of a company that is too big to sustain itself. There are thousands and thousands of people working on Embracer games, but they didn’t have the big sellers to sustain that number of people.”

In the background, however, one event looms large: the Covid pandemic. During lockdown, there was an explosion of interest in video games. The effect was twofold: strong sales for titles such as Animal Crossing and Call of Duty: Modern Warfare boosted revenue and sent share prices soaring, thereby attracting the attention of external investors who flooded the industry with funds. In response, hubristic publishers commissioned more ambitious projects, hiring accordingly.

But the bubble didn’t last. With lockdowns easing, sales fell as people got on with their lives. “We’ve seen a number of games cancelled in recent months. I imagine a lot more were cancelled that we don’t know about,” says Batchelor. “If you’re cancelling a project and focusing on a handful of games that you know are going to do well for your studio, unfortunately that puts jobs at risk for the people attached to those projects that are getting scrapped.”

Colin Macdonald is a veteran game developer and now director of Games Jobs Live, an industry recruitment platform. He sees a combination of three key factors behind many of the job losses: revenue projection corrections, raised interest rates and high inflation. “These three themselves are linked,” he says. “While many of the revenue projection corrections came from the delayed realisation that the Covid bubble was just a bubble, recent inflation levels have outstripped industry growth (and pushed costs up), as well as forcing interest rate increases, which put pressure on everyone accustomed to the financing available when more traditional forms of investment weren’t providing good returns.”

The solution for many publishers has been to cut back on riskier projects and concentrate on “sure-fire” hits – but this may simply be perpetuating the cycle. As Macdonald explains: “Although publishers are signing fewer games, at lower development costs, and taking longer to do so, they themselves are at risk if they leave themselves without a full slate of promising games for the years ahead.”

Macdonald also sees a possible bandwagon effect taking place. “We’re now at a point where there have been so many layoffs, across so many studios, that some of the companies are seeing it as an opportune time to make some cuts for more specific reasons, knowing that within a couple of days there’ll be a number of other studios in the spotlight for job losses instead. What’s particularly disappointing is the companies with billions of dollars in cash holdings then jumping on the bandwagon and making swathes of layoffs – the increased interest on that cash alone would likely have covered all those salaries.”

Considering this depressing start to 2024, it’s likely the fallout from Covid, and the various company acquisitions throughout the industry, will continue to affect the games business. And even as it recovers, another spectre looms on the horizon for staff: the rise of artificial intelligence in the development and production process. “Although we don’t understand just how widely AI tools have been adopted, there’s talk that some cutbacks are in anticipation of being able to utilise AI for content production,” says Macdonald.

For publishers looking to cut development costs, using AI may be a tempting prospect, especially in areas such as quality assurance and performance capture. In January, the Sag-Aftra union was criticised for reaching an agreement with an AI company that would allow it to create digital likenesses of actors’ voices, prompting furious responses on social media. Starfield and Mortal Kombat actor Sunil Malhotra wrote on X: “I sacrificed to strike half of last yr to keep my profession alive, not shop around my AI replica.”

With this threat to their livelihood, a greater number of development staff are looking to unionise, and pressure is growing on the industry to self-regulate. Established publishers are beginning to see both as a threat. Last June, an Electronic Arts financial report identified unionisation and AI regulation as having potential negative impacts on their business and results.

So how can newcomers to the games industry protect themselves? “Ultimately, job seekers have to always look out for themselves,” says Macdonald. “Check to see if a company is profitable, has a history of layoffs, that salaries seem sustainable.”

Video game companies, too, have a responsibility to look at the past year and learn from it. But what lessons are they likely to take?

“I think the industry is going to focus a lot more and concentrate on known hits and safer bets,” says Batchelor. “That’s a shame, because we still need the industry to take risks. But ultimately you need your company to sustain and fund those risks rather than relying on external investment.

“Hopefully, if companies become a lot more streamlined, a lot more sustainable, we will see a much wiser industry come out of this.”