Why Are There So Many Layoffs in the Games Industry Now?

Why Are There So Many Layoffs in the Games Industry Now?

Some really basic economics for ya.

pocru by pocru on Mar 03, 2019 @ 12:31 AM (Staff Bios)
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I’m sure you’ve noticed that things don’t seem to be going so hot in the games industry right now. There have been layoffs, followed by layoffs, followed by even more layoffs – from different companies all around the globe. A once problematic yet common and manageable symptom of a creative industry seems to have bloated in recent years to no longer affect just contractors and employees between projects, but actual full-time employees, professionals in adjacent fields, and entire studios.
 
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The games industry has always had problems dealing with employees. But with nearly a thousand layoffs just two months into 2019, it seems like we’re verging on a catastrophe. The big questions we’re left to ask are twofold: why is this happening, and then what, if anything, can be done with it.

The answers are, in short: 1) Fortnite, and 2) More downsizing.

But let’s go into a bit more detail.

When we talk about how troubling the games industry seems to be as of late, others – and myself – have often made the mistake of assuming that the trouble started earlier last month when Activision-Blizzard decided to lay off 800 employees in an unprecedented show of greed. But that kind of thinking is actually a bit of a fallacy, because while we like to think of years of starting/ending points, really they’re more or less arbitrary and don’t ‘separate’ things as much as we often feel they should. So the first real signs of trouble in the industry were actually a little bit before that: back when Telltale Games was shut down.

I know, I know, you’re probably sick of hearing about that. But we’re not going to linger on it for long: I only bring it up because they, like Activision-Blizzard, EA, GoG, and Arenanet, suffered from a very problematic, very modern problem that we don’t really have a solution for as of yet: the many, many contradictions and paradoxes of late stage capitalism! Woo!

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To oversimplify an extremely complicated system: companies exist to make money. Public companies, however, which most game publishers are, don’t exist to make money for themselves : they exist to make money for their shareholders. The idea is pretty simple: you invest some money in a company, and then you get a small amount of money (proportional to what you invested) back on a fairly regular basis, depending on how well the company does. Good companies pay more. Bad companies pay less.

However, despite being called “investors”, they’re rarely if ever actually “invested” in the companies they put their money into. These days, people who play the stock market do so with the ultimate goal of selling the stocks they own for more than they paid for them: it’s a quicker, more lucrative, and often safer way to make money than simply hoping the stocks you have continue to turn out a bit of money. That’s why Investors don’t really care about profits, they care about growth: the more a company grows from when they bought the stock, the more they can sell it for later. Everyone follow?

Because that’s the reason, despite the fact that Activision-Blizzard made record sales in 2018 and made more money than ever before, that they decided to lay off 800 employees: the money was fine, but their growth had slowed down. If growth slows down, shareholders, likely nervous that the stocks might soon be worth less, will start to cash out early. If they cash out, the value of the stock will decrease. And if it decreases, then Activision-Blizzard will start making way less money, and things could fall apart at the seams.

The problem with this system – well, the main problem with this system – is that it’s unsustainable. And that’s what I mean by late-stage capitalism: growth and money are not infinite resources. There’s only so much out there, and that means growth cannot last forever. Once it inevitably hits that ceiling where it can’t get any higher, the only place left to go is “down”… and that’s inevitably where it’ll wind up.

And that’s where Fortnite comes in. Because it’s not an unfair thing to notice that all these complications in the industry really started to hit its stride after Epic Games decided to put out a billion-dollar Battle Royale.

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Here’s the thing: game companies are an entertainment media. That means their consumers don’t just invest money into the product (like, say, a new florescent bulb or a new chair), they also invest time in it. On one hand, that means more money-making opportunities for the company – no chair producer has found a way to milk more money from someone who bought their product, after all – but on the other hand, time is a limited resource. One could in theory own like 13 different chairs from 13 different companies. You can buy 13 different games if you’re made of money, but you can still only really play them one at a time, and that means you can only engage with all the extra money-making schemes the game has built into it one at a time as well. And since so many games rely on those extra money-making streams, it means 12 of those 13 games that you aren’t playing aren’t “making money” the way their developers and publishers want them to. Hence the push for more “games as service”.

This has proven a problem for developers, because it means that the potential ceiling for growth and profit is astronomically high, but the practical ceiling for 99.9% of all games is relatively low.

And that’s where Fortnite comes in. Because no game ever exists in a vacuum, shareholders will see how quickly Epic Games is growing and expect similar levels of growth, and a higher growth ceiling, from the developers they’re invested in. And while it’s potentially possible for those developers to reach those eights, it’s effectively impossible because Fortnite already has a (not unshakeable) monopoly on the time investment those other games would need from their fans to continue to produce revenue in non-standard ways. Some companies have been able to “fake it” by introducing more, crazier ways of making money that can squeeze every possible penny out of their audience. But no one can fake forever and when there are simply no more pennies to squeeze… things fall apart.

TellTale games, for example, didn’t really have a good model for monetizing on their games, which meant their effective growth ceiling was low. However, due to some early success, they grew very quickly and got a lot of investor’s attention, which sadly left them stuck having reached that ceiling early and having very few methods to artificially extend it. Their solution was to make more and more games faster and faster, which ultimately was not sustainable, and the whole thing collapsed on itself before too long.

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But that’s just one example of an industry that’s currently wrestling with this issue. And I worry it’s only going to get worse before it gets better, with giant industries introducing ludicrous ways of trying to milk cash out of their users before they inevitably go belly-up when their growth hits its inevitable peak.

And that brings us to part two: how to fix it. The good news is that the solution is simple. The bad news is that it’s basically impossible.

We need more, smaller companies in the industry.

I’m no economist – there’s a good chance an economist might look at the above few paragraphs and want to strangle me – but the solution is to have smaller, more manageable companies that are either privately owned and thus not terribly preoccupied with “growth”, or publically owned and can manage their growth slowly and consistently so it doesn’t unexpectedly swell up and inevitably blow up in everyone’s faces. From a practical standpoint for gamers, that would likely mean either shorter or less pretty games, but it would also mean the industry wouldn’t feel throttled by the need to choke every game with grind, micro transactions, and expansions. They could produce moderate games, get a moderate prophet, and increase their output slower to give investors a “safe bet” between their latest tech startups.

But of course, this will never, ever happen. Not in the kind of widespread, industry-wide way that would be needed to avoid the inevitable crash.

And don’t get me wrong, peeps: there’s going to be a crash, and when it happens, it is going to be ugly. It might be tempting to see this mess and think that the crash has started but no – all this stuff is just the measures people are taking to AVOID the crash, postpone it for a little bit longer. When it does hit, it’s going to make this whole few months of layoffs and closings seem like a pleasant dream.

Fortunately, it’s just video games, which aren’t exactly the most important or vital industry out there.

Unfortunately, it’s still video games, which is how I personally get my escapism from this sort of thing happening all over the place in other industries.

And that was my first, and hopefully last, lecture on basic economics.

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