The Economic and Strategic Battle Behind the Global Gaming Industry's Layoff Wave
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The Economic and Strategic Battle Behind the Global Gaming Industry's Layoff Wave
Every department goes through cycles of expansion and contraction, and what we're seeing is a post-pandemic realignment...
Navigating Web3 tides with focused insightsAuthor: James Batchelor
Translation: GameRes
Since the beginning of 2023, layoffs have continued across the gaming industry.
In just the past few weeks alone, Ascendant Studios, Beamdog, Crystal Dynamics, Roblox, Blizzard, Epic Games, Team17, Naughty Dog, Twitch, and Keywords have all laid off staff, with Epic cutting more than 800 employees. The reasons behind these layoffs vary. For example, cuts at Crystal Dynamics and Beamdog are part of Embracer’s restructuring plan, while Keywords’ layoffs stemmed from BioWare’s decision to terminate an outsourcing contract. However, the frequency of such headlines in a short period indicates broader underlying issues within the gaming industry.
So why are game companies laying off so many employees? Industry analysts, recruiters, and investors point to numerous factors reflecting the current economic climate—high interest rates, inflation, slowing market growth, rising development costs, and intensified competition. Indeed, these same challenges have driven massive layoffs at tech giants like Microsoft, Meta, and Amazon.
Serkan Toto, Kantan Games
“Over the past 18 months, ‘efficiency’ has become significantly more important in the games industry,” says Serkan Toto, CEO of Kantan Games. “Compared to previous years, there is now much greater urgency for game companies to reduce costs and streamline their organizations. Under pressure, CEOs in gaming are forced to wield the hammer on their largest cost component—employees. That’s what we’re seeing in 2023.”
“The prevailing mindset among these CEOs is: ‘If we don’t lay people off, our competitors will, and they’ll use that efficiency to outcompete us.’ So layoffs are happening everywhere… At the same time, they often believe that at any given moment, 15% to 20% of their workforce is redundant.”
Spike Laurie, partner at venture capital firm Hiro Capital, traces the current wave of layoffs in gaming back to a specific event: in November 2022, when Elon Musk laid off 50% of Twitter’s staff.
“He discovered through employee access logs that more people were serving food in the cafeteria than actually eating there,” Laurie says. “That became the catalyst for other business leaders to scrutinize their own company sizes and carry out what they saw as rational downsizing. Why? We’ve reached the end of an economic cycle fueled by easy and abundant capital. A year later, we’re seeing widespread layoffs across the gaming industry, leaving many talented professionals without jobs or financial security. This is especially painful for those already struggling with soaring energy and food prices.”
Emilie Avera, Senior Vice President of Consulting at IDG Consulting, adds that in game companies—especially public ones—there is a “stark gap” between executive and employee compensation, making mass layoffs even harder to swallow.
Emilie Avera, IDG Consulting
“While measures like layoffs can effectively reduce costs and temporarily improve balance sheets, executive total compensation hasn’t seen corresponding reductions,” Avera says. “The immediate priority in executive pay should be establishing a strict ‘performance-based’ model, tightly linking executive pay to actual results and performance metrics: if company performance fails to meet predefined targets, executives should take pay cuts.”
Additionally, the pandemic inevitably reshaped the current state of the games market. According to Avera, the industry experienced rapid expansion driven by the “stay-at-home economy,” but this surge was never sustainable long-term.
“As funding began drying up, game companies were forced to reassess how they allocate capital, and layoffs became the most direct way to cut expenses,” she explains. “Many companies rushed to expand over the past two or three years, conducting numerous acquisitions quickly for short-term returns, often without sufficient due diligence or proper budget management—frequently at the expense of sustainable profitability… These reckless practices ended up harming the very industry they aimed to grow.”
Avera notes that the gaming industry shares similarities with the entertainment sector: streaming platforms previously prioritized audience growth over profitability. Now, major streamers are raising prices to “patch their unsustainable models,” and the gaming industry is undergoing a “similar reckoning.”
Liz Prince, Head of Amiqus—a recruitment agency specializing in games—says that from a hiring perspective, the current situation reflects more of a realignment than deep-rooted systemic problems warranting alarm.
“First, I want to express my sympathy to everyone affected by recent layoffs and studio closures,” Prince says. “Undoubtedly, this is a challenging time, and we’re deeply concerned about so many talented individuals facing unemployment. However, every industry goes through cycles of expansion and contraction—the games industry is no exception. During the pandemic, market growth prompted many companies to rapidly scale up, make acquisitions, or over-invest in certain areas; now, a correction is necessary. Importantly, while some studios face difficulties, many others are still expanding.”
Piers Harding-Rolls, Head of Games Research at data analytics firm Ampere Analysis, agrees. “This isn’t a new phenomenon, especially during economic downturns. Of course, given the budgets of modern AAA games, canceling a single project can leave hundreds unemployed, impacting the industry more severely than in the past. Just two or three years ago, talent shortages were a hot topic in gaming, with studios fiercely competing for top developers… which partly explains why larger companies made aggressive acquisitions between 2019 and early 2022.”
Harding-Rolls adds that the recent M&A boom was also fueled by “inflated valuations of game companies”—peaking during the pandemic—and cheap debt. However, since Microsoft announced its record-breaking acquisition of Activision Blizzard, borrowing costs have surged and game company valuations have declined.
Laurie points out that many game companies have been sustaining “large, unprofitable teams.” “For a while, getting loans and raising investment was too easy, leading to too many new teams making too many games,” he says. “Massive amounts of capital flowed into unproven blockchain and metaverse studios, driving up salaries, yet those studios failed to ship any games.”
Spike Laurie, Hiro Capital
Avera highlights another factor: today, players are buying fewer games and instead spending more time immersed in franchises they love. This trend is likely to accelerate as the market continues shifting toward service-based games. Even single-player titles now demand more player time—for instance, games like Baldur’s Gate 3 and The Legend of Zelda: Tears of the Kingdom feature main storylines exceeding 50 hours. “All developers must now fight tooth and nail to capture attention from increasingly discerning players,” she says.
Kim Parker-Adcock, founder of recruitment agency One Player Mission, notes that consumer habits have broadened again since the end of the pandemic. “People are now spending disposable income on travel, overseas vacations, or live events. While hardcore gamers still spend heavily on games, far fewer are willing to buy new consoles compared to two or three years ago—because at current prices, they’re essentially luxury items… Sony’s latest exclusives no longer support PS4, meaning you have to spend over £400 on a PS5 just to play them.”
Karol Severin, Co-founder and Senior Analyst at Midia Research, adds: “Growth in the games industry has peaked. Revenues will continue rising in the future, but primarily driven by population growth and improved internet access—not by improvements within the games business itself. As cloud gaming subscriptions grow, demand for high-priced individual games will decline. When subscription-based streaming truly takes off, the games industry will face pressures similar to those in music and video. From the consumer’s perspective, the perceived value of individual games will inevitably decrease, reducing demand, which in turn will shrink the number of developers and publishers.”
Severin also notes that the number of new games is growing much faster than global game revenues. For example, over 13,500 new games are expected to launch on Steam in 2023—up from 12,500 last year. Meanwhile, companies whose core businesses aren’t gaming—such as Netflix, Amazon, and Apple—are steadily capturing larger shares of the games market.
On the future direction of the industry, Avera shares some thoughts. She believes generative AI could assist—but not replace—heavily burdened development teams, shortening production timelines. User-generated content (UGC) may also help reduce development costs. She also suggests that over time, more developers will outsource art, programming, and audio work to firms like Virtuos and Keywords, allowing them to focus on their core strengths.
Avera emphasizes that game companies also need to manage expectations around performance more wisely. “To get back on track, game companies and investors need to agree on realistic KPIs and stick to them,” she says. “Even if social media buzz around a game seems promising, that doesn’t guarantee commercial success. Before making investment decisions, we should evaluate concrete metrics like review scores, pre-order numbers, and bug counts.”
Karol Severin, Midia Research
“Undeniably, some studios may face further financial pressure and make additional adjustments, including more layoffs… But however painful these changes may be in the short term, they are necessary steps to ensure the long-term sustainability of the games industry.”
Severin adds that there’s no silver bullet for solving layoffs, as many contributing factors—like inflation and high interest rates—are beyond the industry’s control. “Although many feel pessimistic about the future, the games industry won’t disappear—it’s still worth around $187 billion this year. If companies are considering new projects, carefully planning monetization strategies—rather than focusing solely on user growth—will become increasingly crucial. Moreover, we expect games targeting niche audiences rather than chasing mainstream appeal will achieve greater success in the future.”
Toto believes the wave of layoffs in gaming won’t subside soon. “From the outside, some studios still appear overstaffed. My personal guess is that we’ll see more bad news between now and the end of 2024.”
Prince notes that due to their skills and expertise, laid-off game developers “remain highly sought after” and will likely find positions elsewhere. Parker-Adcock also observes that as some studios downsize, new studios often emerge. “These new studios are still in growth mode, but the key is avoiding overspending, ensuring team survival, and only hiring for essential roles.”
Liz Prince, Amiqus
Laurie concludes that while the future of the games industry may “seem challenging,” with the rise of Gen Z and widespread adoption of gaming technologies by major tech firms like Meta and Apple, professionals still have reasons to remain optimistic.
“If this round of layoffs becomes the catalyst that enables developers to create new games in a leaner, more efficient, and creatively bold way, then we’ll all benefit,” Laurie says. “We must remember how fortunate we are to work in such a vibrant industry. When the macroeconomic environment improves, gaming will surely lead the charge in driving economic and employment growth. In the new forward-looking digital economy, our skills will be invaluable.”
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