The contradictions of the modern game industry with huge hits and simultaneous layoffs | The DeanBeat

We have some monster hits in video games this season as a lot of titles have been released as companies finally recover from the slowdown in game development due to the pandemic.

Amazing games have surfaced from long development cycles this year, including Starfield, Marvel’s Spider-Man 2, Armored Core VI, The Legend of Zelda: Tears of the Kingdom, Baldur’s Gate 3, Street Fighter 6, Resident Evil 4, Alan Wake 2, Dead Space, Cyberpunk 2077: Phantom Liberty, Super Mario Bros. Wonder, Sea of Stars, Dave the Diver, Monster Hunter Now, Lies of P, Hogwarts Legacy, Diablo IV, Mortal Kombat 1, Forza Motorsport, The Crew Motorfest, Assassin’s Creed: Mirage and Call of Duty: Modern Warfare III and EA Sports FC 24.

That doesn’t count all of the live service games that got big updates this year, or the big mobile games, VR games, AR games, cloud games and more that launched this year. It should be a year to celebrate. I just finished the campaign for Marvel’s Spider-Man 2 and it was an awesome game. And now I’m torn between Alan Wake 2 and Modern Warfare III.

But we’ve also had so many layoffs in the game industry that it feels like we’re in a downturn. These are topics that we discussed at our recent GamesBeat Next 2023 event (you can sign up to watch videos for free here and fill out an attendee survey here). But I can’t say it’s easy to explain what is happening.

Like the world during the Cold War, the game industry used to be so easy to explain. The consoles followed a five-year cycle. The PC market was steady, driven by hardware upgrades and Moore’s Law. But the five-year console cycle is gone. Leaked documents suggest that Microsoft won’t introduce a new game console to succeed the Xbox Series X/S until 2028, or eight years after the 2020 debut. On the other hand, we’re benefiting from the successful launch of the Meta Quest 3 virtual reality headset this fall, and the pending launch of the Apple Vision Pro and the Nintendo Switch 2 — likely in 2024.

The pandemic caused a huge shortage of parts for the hardware and disrupted normal patterns. Then, as we came out of the pandemic, consumers put their money into travel and other outdoor activities, returning somewhat to normal patterns for video game play.

Winners and losers?

The game industry has always had simultaneous hit games and layoffs. Some companies win the competitive battles for the consumer, and some lose. After big hits surfaced in the holiday season, layoffs often ensued in January as it became clear who lost out. That was normal every year in the games industry of the past. We’ve been lucky in some ways to go years without massive layoffs.

Farhan Noor’s videogamelayoffs.com has tracked 6,759 layoffs at game companies so far this year, not counting 30 companies where the layoff numbers weren’t known. All told, Noor’s list has layoffs at 122 companies, the numbers growing in the past few months. Oddly, this is out of sync with tech, where AI is inspiring a huge boom right now, after severe layoffs a year ago that preceded game layoffs this year.

And yet our games are getting better. Axios noted that the games of 2023 have been rated better than in the past 20 years. More games have been rated at 90 out of 100 or better in two decades. It prompted some people to wonder if we just have too many games right now.

People should be buying up lots of these games. After all, the U.S. economy is still creating jobs and we aren’t in a recession. Some economists are forecasting a recession in 2024. Yet games are supposed to be recession resistant, as people need a diversion when times are tough.

Part of the problem is that consumers don’t have time to play all of these great games, so there is a glut of too many good games. They’re cannibalizing each other. And consumers have to deal with inflation and the failure of wages to keep with it. Their money doesn’t go as far as it once did, and so they don’t have as much money available to spend on games.

It certainly can’t help that we’re still horrified by the grinding war in Ukraine and the horrific loss of life in Israel and Gaza. Faced with such horrible news, consumers probably aren’t motivated to spend as much money as they do in happier times. The geopolitics of the post-pandemic world are disturbing, with climate change causing economic disruptions and wars creating havoc for game industries in multiple countries. It is not an easy world to explain anymore. The familiar refrain is, “It’s complicated.”

Macro goodness and micro disaster

And lot of the good and the bad is trickling down. And that’s creating winners and losers in gaming. The startups that raised money during the good times are lucky to be well financed at a time when it’s getting harder to raise money — despite the presence of a lot of game VCs sitting on dry powder. While the funds have money, some limited partners may be putting pressure on to slow down the investing, and rising interest rates mean that it’s often better to hold onto the money than invest it.

I feel sorry for those who have lost their jobs and some people who have been out of work for a long time. The optimistic message for them is that the game startup ecosystem is a lot stronger than it used to be. As big companies cut back jobs by the hundreds, ambitious game startups are hiring people because they have recently received funding from some of the dozens of new game venture capital firms.

Big mergers of game companies could result in layoffs due to redundant jobs. But those acquisitions create significant paydays for founders and corporate leaders, who can go on to start new companies or invest in startups. So the big exits will result in an acceleration of the job and wealth creation cycle.

That is the way things are supposed to work. Yet on the micro level, capitalism is often cruel and inefficient. New jobs don’t magically appear just when you lose a job. That’s why it was amazing that Amir Satvat, a Tencent business development director, found jobs for 700 people in games just by organizing the job openings in an automated and efficient way — as a side gig. Satvat’s work is a small miracle — the work of just one person — that made a difference this year for so many job seekers.

Yet we see some ridiculous and terrible things happening, like companies posting jobs even as they lay off people. Embracer Group bought scores of companies, only to do layoffs and shut down decades-old studios like Volition after it failed to raise a new round of money. Meta laid off 20,000 or so people in the past year, freezing many positions.

That could very well accelerate the movement toward more unionization of game companies as anger about poor management grows. People are probably right to fear that AI could lead to further job cuts in the name of efficiency. These recalibrations are resulting in bad news for some people.

Creative destruction

Meta CEO Mark Zuckerberg said that laying off too many people led to a “hiring backlog” that the company must now fulfill as it doesn’t have enough people in certain positions that are needed. Let’s hope that the Meta Quest 3 sells well and creates a haven for VR game makers in the larger storm.

The winners and losers, the hiring and firings — all of that is known as creative destruction. And it has always happened in games, Silicon Valley, and the larger economy. When your on the side of destruction and you can’t pay this month’s rent, that isn’t much solace. But it is the larger cycle and it’s good to realize that so that you can plan to catch a wave rather than get hit by one.

One place where the jobs are growing is the Middle East. Saudi Arabia plans to pour $37 billion into games as it diversifies away from oil. Artisan Studios just announced plans to create 200 jobs in Riyadh, and the country’s NEOM region said it would pour $50 million into Animoca Brands. And Dubai just announced it wants to create 30,000 jobs in gaming.

The global games market is expected to hit $187.7 billion in 2023, a 2.6% increase from 2022, according to market researcher Newzoo. The mobile games market will hit $92.6 billion this year, a 0.8% increase compared to 2022. But many mobile game companies have had a hard time due to Apple’s move to put privacy above targeted advertising — making discovery a lot harder. Console games are forecast to grow 7.4% to $56.1 billion. All of that is good news, after a 5% contraction in 2022.

In the end, I’m still a gaming optimist. After seeing all of the growth vectors people talked about at GamesBeat Next, I have to believe that something will take off. From Steam Decks to the cloud, there are now dozens of viable game platforms that promise to grow the market. As games go to Hollywood, it’s clear that gaming is growing from a subculture to a mainstream culture, and people are willing to put more time into gaming than any other form of entertainment. These secular trends will benefit gaming until just about everyone on the planet is a gamer. So while the gaming world is complicated, it’s not a time to sell it short. It’s a time to celebrate it for the joy it creates in the world.