Zelda: Tears of the Kingdom shipped 10 million copies over the weekend. Hogwarts Legacy sold 24 million units in a year. Palworld has 25 million players. Spider-Man 2 is Sony's fastest selling game. Starfield broke Bethesda's record. Then along came Diablo 4, Super Mario Bros. Wonder, Baldur's Gate 3, Star Wars Jedi: Survivor, Resident Evil 4… Over the past 12 months, sales records have been consistently broken.
But then other headlines emerged. You've seen it too. Epic has laid off 860 people. At Unity, he cut 1,800 jobs. Xbox 1900. PlayStation 900. 530 for Riot. At EA it's close to 700. I'd like to give you the cumulative total of people who have publicly lost their games-related jobs over the past year, but by the time this article is published, that number may be even higher.
What on earth is going on? There are multiple aspects to the answer, and to fully explain it, we need to go back to 2019 BC (pre-COVID-19).
Newscast: Why are there so many layoffs in the games industry?
pandemic boom
In 2019, the video game industry experienced strong growth. PlayStation 4 and Xbox One sales were beginning to decline, as were console game sales, as they were nearing the end of the console cycle. It was all quite normal. And the decline in the console sector was easily compensated for by mobile gaming. The global mobile gaming market grew 13% in 2019, according to data firm Sensor Tower.
All of this attracted investors to the game, pouring in their money in hopes of the next big hit. But here he is in 2020, and video games have exploded in popularity.
According to data from charts and numbers firm GSD, PC and console game sales have increased by as much as 50 per cent in certain regions due to the lockdown. According to Sensor Tower, mobile gaming revenues worldwide increased by 26%. In 2021, PC and game console sales decreased slightly due to PS5 stock shortages. However, mobile gaming grew again, and this time he increased by more than 7%.
In other words, the gaming industry was making huge profits. And started using it – three things prompted it to happen in excess. First, game companies began increasing their workforce. They were adding new teams, commissioning more games, and even founding new studios.
Then there were acquisitions. Microsoft's roughly $70 billion acquisition of Activision Blizzard (completed just last year but not announced until January 2022) was the highlight, but other multi-billion dollar acquisition deals include Sumo Digital, Zynga, Bungie, Bethesda, Gearbox and more. There was also. ..There was even a fight between EA and Take-Two over who owned Codemaster (EA won with his $1.2 billion bid).
Finally, while the game company was expanding significantly, a veteran video game maker quit his job and started a new AAA studio. The growth in gaming has investors excited about new studios and offering some of their funding, and GamesIndustry.biz reports that the new studio has been founded by former Activision/EA/Riot/Blizzard/Ubisoft gaming veterans. He was there for about a week.
However, one major challenge was the lack of experienced people to create all these games. Developers were having trouble finding senior producers, creative directors, art directors, technical directors, and more.
As a result, there was a competition for talent. Gaming companies offered better wages and more benefits to attract people than their competitors. And with remote work becoming the norm, it's easier than ever for people to leave one company and join the next. All I had to do was send my old company computer back and receive a new one.
Hangover after coronavirus infection
Talent challenges aside, it was video game party time. But then the music stopped. The gaming industry knew that once the lockdown ended, people would start going out again and revenue would likely decline. That was understandable. And it is worth noting that according to GSD, video game sales in 2023 will still be greater than in 2019.
But what was unexpected was Russia's invasion of Ukraine and its impact on inflation, the cost of living, and the cost of doing business.
The rising cost of living will naturally have an impact on people's game purchases. However, business costs are a particular challenge in video games. Gaming companies were already raising wages and expanding their teams, but now they had to raise salaries again due to inflation and deal with increased travel, service fees, rent, and more.
Increasing the price of games to compensate is not an option, with most publishers just increasing the price of AAA games to $70/£70 in 2020 and 2021. Gaming executives told GamesIndustry.biz they don't believe players will raise prices. Allow further price increases.
This meant that the cost of producing games was even higher than before. Spider-Man 2's reported budget was his $300 million, triple that of 2018's Spider-Man 1. Tekken creator Katsuhiro Harada revealed that the development budget for Tekken 8 was two to three times that of his 2017 Tekken 7.
Simply put, developers were seeing their games' sales decrease while costs were increasing. And that was a real problem.
Video games at a crossroads
There are other challenges as well. All the investment in games from 2020 to 2021 means there's a wealth of titles hitting the market right now. Last year, he had over 14,000 games published on Steam. Granted, many of them are small-scale hobby games, but they highlight just how cutthroat the competition has become.
Console space has not expanded. PlayStation expected that once the PS5 is fully supplied, it could achieve console sales of 25 million units during the fiscal year. Currently, it is estimated that 21 million units will be sold, making the PS5 the second most popular after the PS4. Xbox Series X/S is also struggling, and console sales will decline in 2023 and 2022.
If you look purely at the combined installed base of Xbox and PlayStation, the two platforms haven't really grown in over 20 years (around 170-180 million users). New players have come in, but almost as many have “aged out” from consoles. Microsoft and Sony have been growing their revenue through DLC, microtransactions, subscriptions, etc., but the time has come when they need more customers and they want to buy their games on PC (and in the case of Xbox now, on others). It would not be surprising to see it pushed to the console).
The Nintendo Switch remains a strong performer, but as it enters its eighth year of release, sales have understandably (and noticeably) slowed. Meanwhile, the mobile gaming sector is facing challenges after a decade of near-continuous growth. The situation has now plateaued, in part because privacy changes have made it harder for game developers to target users through ads.
Finally, there's the state of live service games. Game companies aren't just competing for money, they're also competing for time. And gamers spend hundreds of hours playing games like Fortnite, Roblox, and Call of Duty. It's one thing to convince players to abandon these in favor of playing a simple story-driven game, but it's quite different when you're trying to create your own online multiplayer game. Players are aware of all their progress in these games and their friends are also playing. Sometimes new online games break out, but they rarely play for long. Year after year, the best performing live service games tend to be the same.
major revision
As video game company executives might tell you, the business faces serious headwinds. Sales are falling, costs are rising, the market isn't growing fast enough, and there's too much competition. All of this means developers and publishers are taking stock of what they're doing and cutting back on projects to focus on what they're good at. This led to the current mass layoffs. That's a situation called “fixing.”
Layoffs will slow. Most large companies have already taken action and hope they don't need to take any further action (some analysts who spoke to GamesIndustry.biz said companies will need to hire more people in the next few years). I think it might become.) But the pain isn't over.
This level of uncertainty is scaring investors. And with inflation this high, some investors will feel safer putting their money in the bank and earning 5% on it than taking risks on games and studios. Meanwhile, a competitive market is making publishers more selective about the games they sign up for. So all the new developers I mentioned earlier will rely on investment to fund their projects and will have a hard time finding that funding.
Some of these developers are moving into for-hire development to make some cash in the short term…but with fewer games being developed overall, competition in the for-hire space is It's also fierce. The reality is that many of these new teams will not be here next year and the investment situation is not expected to improve until the end of 2024 at the earliest.
With so many people unemployed and jobs so scarce, you might expect new studios to be founded. Some will, but as investors become increasingly conservative, the reality is that many of these artists, programmers, designers, producers, writers, etc. will have to leave the games industry to find work. It will happen. Although I write this article from a dispassionate business perspective, there is no denying the terrible human costs associated with this “fix.” The anger at management, shareholders, and capitalism in general is more than understandable.
in search of a hero
Is there any hope? 2024 looks like it will be tough. Analysts had expected Grand Theft Auto 6 and Nintendo's new console to arrive in 2024, but they are now scheduled for 2025. If there's anything exciting about the gaming market this year, it's not clear.
Meanwhile, some of the industry's recent investments have not yielded the results that some had hoped. VR has found an audience, but in small numbers. Subscriptions grew rapidly, but then stopped. We'll see if Call of Duty (and Activision Blizzard's library in general) can do something about that.
Streaming is also far from becoming a thing. The dream of streaming is that it will help publishers and developers find new players because they no longer need to own expensive consoles to play these big games. However, the technology and business model have not yet been established.
But video games are still a young industry, and despite their success, there are still generations of people who didn't grow up with games. Over time, the gaming industry will naturally grow as the number of “video game natives” increases.
When the Switch 2 finally arrives, it should provide a short-term boost to business. Epic's investment in his Fortnite as a place to play and discover new games is also interesting. With around 100 million monthly users, it's a larger platform than most gaming consoles, so it could be an opportunity for game developers. And AI. This is a controversial topic and requires significant discussion from an ethical and legal perspective. However, if the concerns can be resolved, it could (in theory) help speed up development and reduce costs, especially for small teams.
The video game industry is facing its biggest crisis in 40 years. This is an unprecedentedly harsh situation. But if there's anything that gives me hope, it's the game itself.
Over the past year, we've seen some amazing video games come out. The quality of what developers create has never been better. And gamers are buying them for millions of dollars. Ask any gamer if the industry is in crisis, and they'll no doubt get a puzzled look at the mere suggestion. The industry's foundations are strong and will surely recover.
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