The video game industry has never been known for its job security. Game development works in cycles, and when games are released and projects end, people are often laid off. When the next project starts, hiring begins once again only for another potential cut down the line. It was hard for video game developers to feel comfortable in their positions before the most recent period of unprecedented instability. But over the past few years, it’s become a downright crisis.

After an industry boom during the COVID-19 pandemic, when video games surged in popularity amid lockdown restrictions that kept people at home, cracks started to show in 2022 — and it’s only gotten worse from there. Roughly 8,500 video game industry workers were laid off in 2022, according to a layoff tracker created by video game artist Farhan Noor. That number jumped to 10,500 in 2023. Layoffs in 2024 are outpacing those numbers, with more than 6,000 people laid off from their video game industry jobs just 90 days into the year.

Impacted studios run the gamut from small, independent shops to massive gaming giants. Microsoft laid off 1,900 employees from its gaming division and game engine maker Unity cut 1,800 cuts, while League of Legends developer Riot Games and Amazon-owned Twitch laid off hundreds each. Airship Syndicate, a smaller studio that develops Wayfinder, laid off 12 people; Outriders developer People Can Fly laid off more than 30; and Embracer Group-owned Lost Boys Interactive laid off 125 people, among the dozens of other studios that laid off staff. (Embracer itself laid off at least 1,400 people this year.) Reasons vary across companies, but industry leadership seems to agree that this is either constriction after overexpansion during the pandemic or a response to an economic downturn. Other executives spoke about spending more than their company earned, or stalled video game revenue.

But, according to experts, those explanations are only one part of the story.

So, is this related to the pandemic?

Laine Nooney, New York University assistant professor of media and information industries, told Polygon over email in late January that this moment is a culmination of two separate but interconnected factors. The first is that video games saw “unprecedented levels of engagement” during the pandemic, Nooney said. Because people were stuck indoors due to lockdown restrictions, there was record growth and companies expanded. The problem was that executives did not consider that this upswing would stall — or backslide.

“It’s hard to believe now, but the cultural conversation at the time was really driven by this belief that these gains would hold, and that we were experiencing a fundamental and inalterable shift in cultural behavior,” Nooney said. “The media attention that was poured onto this spike in hours streamed or money made really did contribute to a kind of collective delusion that all of this was going to continue forever.”

Years later, we know that growth did not hold. Video game investments hit major lows in 2023. Industry revenue is down 4% in the U.S., according to video game investor and The Metaverse author Matthew Ball, and down $1.5% worldwide since 2021, when the market was expected to expand.

“Engagement rates and revenue might be above where they were in the last quarter of 2019, but that really just means they’re back to incremental growth,” Nooney said. “Revenue coming in is no longer compensating for those vast staffing costs. It’s not always the case that those hired during the pandemic are the first to be cut, but many companies overindulged on their expectations and now their (former) employees are now paying the price.” To summarize, video game companies aren’t making as much money as they thought they would.

Like with revenue, expectations weren’t met when it came to the video game industry’s economic growth, either. Ball said beyond the video game market, the U.S. economy is growing quickly. “Both globally and domestically, gaming has either shrunk or fallen well behind the average rate of [gross domestic product] growth — it is growing more slowly than the average sector.” That’s on top of “higher-than-expected costs” for developers and publishers as development costs balloon. And along with inflation, increasing interest rates on loans make it more costly to borrow money.

What’s that other part?

But it’s not just all that. Nooney pointed to a “broader seismic shift” in video game industry business models: “You can think of this as the Roblox-ficiation of the game industry: trying to cut costs by making content production the responsibility of your users, and reward those users who drive the most engagement,” Nooney said.

Epic Games is a good example of what that means. Epic Games laid off more than 800 people last year, and CEO Tim Sweeney pinned the changes on a shifting business model. Early on, Fortnite’s revenue mostly came from battle passes and microtransactions, i.e., people buying V-bucks. When Fortnite’s popularity started to wane — although it is growing once again — the business model shifted into something focused on the “creator ecosystem,” Sweeney said after the layoffs. Fortnite has a robust system for creating games and experiences within its platform, which keeps new content coming out consistently without much extra work from Epic Games itself. However, this also means Epic Games has to pay up to those creators to keep them coming back and creating new stuff for Fortnite.

Nooney continued:

Companies want to sell these transformations to us as new forms of innovation – but really, what motivates a lot of this activity is the fear of having the value of one’s platform degrade. There is, of course, a $1 million question lurking under all of this: if these platforms were only profitable when they were experiencing 400% engagement booms because everyone was locked indoors, are any of these businesses actually profitable at the scale their investors gambled on? What, exactly, is propping up all of these valuations?

Of course, this isn’t relevant to all video game companies, but it’s not hard to see how shifts like these have impacted the industry. Minecraft, Roblox, and The Sims 4 are three examples of games that benefit from user-generated content that keeps players coming back to the game. In the cases of Minecraft and Roblox, it’s a similar model to Fortnite. But for The Sims 4, players stay engaged by creating and sharing in-game and modded creations; Electronic Arts is expected to expand this model for its next game, Project Rene, which is The Sims 5. You can also look to Rockstar Games and its Grand Theft Auto 5 role-playing community, which has generated immense success for the developer.

People are also not spending money on games like they did years ago, which is surprising considering spending on other entertainment, like books, movies, and music, is actually up.

“Gaming’s long-term tailwinds haven’t changed — there are over [100 million] new gamers born every year, there are more indie successes than ever, the medium’s creative achievements continue to grow (and expand into books, film, TV) — but without material growth in players or spending, or new breakout genres… the challenges seem likely to continue,” Ball explained.

Are all video game companies facing the same troubles?

Yes and no. While it’s true that these companies all exist within the same industry economy where player spending is down and debt costs more, they all also have different business structures. What is similar in most of these cases is that executive leadership at these companies prioritized short-term growth over long-term stability. They gambled that the pandemic-driven industry boom would hold, and their workers paid for it. At the end of the day, it comes down to not meeting growth expectations and making cuts to keep shareholders happy, but the circumstances that led it all there are unique.

Unity’s struggle over the past couple years is much different than, say, Discord’s or Twitch’s. And those companies have separate struggles from a place like Microsoft or Epic Games or Airship Syndicate or Embracer Group.

Unity is an interesting case because player revenue isn’t relevant. Instead, Unity makes money by licensing its game engine out to developers, its ad-selling business for mobile games, and several other software tools. Unlike Epic Games, which owns Unity competitor Unreal Engine, Unity doesn’t make video games itself. Unity makes a lot of money from these revenue streams — it brought in $1.3 billion in 2022 — but it’s not profitable. Unity tried to up its prices for its game engine license in 2023 and faced intense backlash. The new pricing model was universally despised by game creators. The company eventually pulled back and revised the plan. But before that, Unity faced a few smaller controversies, which eroded the company’s trust with its users; when the install fee news hit, it was the last straw for some people.

Twitch, on the other hand, does have a stake in viewer spending: It takes a cut of subscriptions and donations to streamers. But it also makes a lot of money from selling ad space. These ads run during Twitch streams, but they’re also visible throughout the desktop site and mobile app. Twitch doesn’t discuss this side of its business much, but the problems feel adjacent to what’s going on in the media business: Ad sales have plummeted. Companies aren’t buying ad space like they used to, so Twitch is likely making less money from that revenue stream but still has to pay out creators that run ads on their broadcasts. That’s on top of all the other ways Twitch compensates creators for their work — many of which have been widely criticized for not being enough or being unfair.

Bloomberg reported in January that Twitch, like Unity, isn’t profitable. As Twitch leadership figures out how to grapple with the “enormously expensive” task, per Bloomberg, of supporting so much live video, it’s workers, again, that suffer.

What do we do?

This devastating period of layoffs is something the video game industry has been through before, albeit maybe not at this scale, and it will likely go through it again. Venture capitalism relies on growth, and that makes it easy to see little other than money and numbers. From that perspective, maybe you don’t see anything that needs to change, so you’ll go about your business as usual, with shareholder interests being of utmost importance. That structure hasn’t supported the people making video games — and thus the practice of making games themselves — and some developers are looking to rethink it.

For one, video game developers are unionizing, and even at the biggest of corporations, like Microsoft. Unions mean that developers will have a louder, collective voice in the workplace, one that stands up to shareholder demands. Some studios are also looking at alternative models that buck corporate structure altogether, like worker-owned co-ops. That structure means there isn’t any one boss — all people who work at the studio are equals.

Grassroots efforts to mitigate the pain of layoffs have also popped up across the industry; developers want to help each other, even as they compete for a limited number of positions. Amir Satvat has kept a running list of job openings on LinkedIn, providing information and networking to people looking for video game industry jobs, and it’s been a boon to the community. Additionally, Satvat created the Job Seeker’s Workbook, which pulls together resources in one place while also connecting job seekers to recruiters.

“This kind of cyclical hiring and firing behavior has been part of the game industry for decades,” Nooney said. “It might settle down for a couple years, but it’ll inevitably come back in new clothes. I think a widespread general frustration with employment for carrying games is one of the reasons we’ve seen such an uptick of unionization spread throughout the industry.”

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• Source: https://www.polygon.com/gaming/24074767/video-game-industry-layoffs-explainer