Video Game Devs Might Be Paying The Price For A Stagnating Industry

Here are the stories people are telling each other about why there are so many gaming layoffs

Jan 24, 2024

2023 was a shockingly bad year for video game industry layoffs. After just a few weeks, 2024 seems on pace to be even worse. Thousands have already lost their jobs, including hundreds across Unity, Playtika, Riot Games, and other major companies.

All of this seems to be happening even as gaming becomes more accessible, celebrated, and mainstream than ever. What the game industry creates and the economics of how it creates it feel like they've become completely untethered from one another, and no one seems exactly sure what's causing it. The only thing that seems clear is that things are bad and they're going to get worse.

That was the main takeaway from a survey of gaming bosses' sentiments by Christopher Dring at GamesIndustry.biz earlier this week. "Speaking to us privately, publishing, development and investment heads have said that continued high interest rates, oversaturated video game stores and cautious investors will result in more restructures, layoffs and closures," he wrote.

One CEO predicted that 2024 would be the year of many more studio closures, while a venture capitalist said, "Why take a gamble with a games company when you can just stick the money in the bank and earn 5%?"

The conventional wisdom at this point is that gaming companies, spurred on by an initial spike in new players at the start of pandemic, over-expanded, investing in too many new studios and projects to serve a growing audience that ultimately didn't stick around. Then interest rates spiked, making the bad bets even more costly. It makes a lot of sense but also sounds a little too simple.

Matthew Ball, an analyst and former head of global strategy at Amazon Studios, broke down the numbers in a new essay and showed that the market for gaming is lagging even behind pre-pandemic levels. "In real terms, U.S. gaming revenues in 2023 are 2.1% under 2022, 14.3% under 2021, 13.6% under 2020, and up only 6.9% from 2019 (1.7% CAGR)," he wrote. "In contrast, real GDP growth in the United States has averaged 2.0% annually since 2019 and 3.1% since 2020, meaning that the gaming industry has fallen well short of the average sector for three years."

Ball lays out several possible factors for this stagnation and the disproportionate number of cuts the game industry is experiencing right now. Apple's new privacy terms struck a major blow to mobile gaming advertising. Plus the smartphone market is pretty mature at this point and there's really no new breakout mobile games to onboard new players at this point. The same could be argued of console and PC gaming, where the best-seller lists every year are dominated by many of the same games and genres.

They're also becoming more expensive even as the traditional $50-$70 boxed game pricing model has completely broken down. Spider-Man 2 cost Sony over $300 million–almost three times the first game's budget–but is just $10 more to buy than the original. But despite being hailed as the fastest selling PlayStation first-party game ever, it doesn't look likely to surpass the 2018 game's sales.

Immortals of Aveum, a decent magic shooter that nobody seemed to play, was seemingly in development for five years beginning with a team of 30 that eventually rose to 100. It laid off half the studio last september. 2022's The Callisto Protocol sold 5 million copies but still failed to recoup its apparent $160 budget. There were dozens of layoffs at the studio behind it last summer as well.

So in addition to CEOs possibly being extremely dumb to expect that pandemic lifestyle changes and near-zero interest rates would last forever, there are some other theories for the current game industry layoffs, including increased competition over a pie that's not growing. I think a lot about former PlayStation boss Shawn Layden’s critique of blockbuster gaming’s obsession with longer and longer sequels to games most people clearly don’t want to play.

The quote that stuck out to me the most in the GamesIndustry.biz piece was this one: "It's also not just the number of new games you're competing with, but all the old games and live service games that are there and doing huge numbers." I've played thousands of hours of Destiny 2 and Rocket League which is thousands of hours I did not spend buying and trying dozens of other games.

I don't have any deeper evidence for this at the moment but it certainly feels true to my own experience that the growing back catalog of cheap or free games produced over the last decade has made it demonstrably harder for new games to get their moment in the sun, even aside from the growing number of games released each week across all platforms.

And of course there are some more cynical and grim possibilities for the current bloodletting at studios and publishers. As pointed out on a recent episode of Remap Radio, layoffs are one way to discipline your workforce. It's sort of an uncontested first principle among many executives that occasionally cuts, whether logical or not, are a good way to "stay lean and mean." You're less likely to push for a raise if it feels like there's no place else to go, and potentially might even be less likely to try and unionize if it feels like your entire team could get disconnected from their email at any moment. And once rolling layoffs have begun, it's easy for other companies to join in without attracting extra scrutiny or negative press.

The last thing I'll say on this subject for now is that I think many companies are also facing unique circumstances that, while perhaps exacerbated by the current post-covid mismanagement, aren't necessarily part of a larger trend. Ubisoft was nearly twice the size of Activision Blizzard a couple years ago and yet had no games on the bestseller list for 2023. Riot Games' parent company, Tencent, saw billions wiped away from its market cap the second China previewed new rules to outlaw various online gaming rewards mechanics aimed at getting people to spend more on microtransactions. Twitch is a social media problem whose main problems seem pretty distinct from how many games people are buying.

All of it sucks, but for potentially different and not entirely related reasons. Understandably, it makes it feel like the walls are closing in around everyone who shares this space. Notably, former Unity CEO John Riccitiello was the only executive to get sacked instead of writing another "this hurts me more than it hurts you" downsizing email, and he still got paid millions for the mess he left behind.

Pokémon with guns is only getting bigger

Palworld, which I will never stop calling "Pokémon with guns," accurate or not, for obvious reasons, continues gaining new players and warping the discourse around it. The creature-catcher survival crafting sim hit 7 million copies sold and a new Steam concurrent player peak of over 2 million, beating out Counter-Strike and closing in on the all-time record set by PUBG. There's already an ambitious roadmap for more bug fixes, raid bosses, and player-vs-player combat. This clip from VideoGamersPod is a very good example of what is actually fun about the game.

It's also become the third most-played game on Xbox, the only place you can currently play it on consoles, despite that version being severely nerfed and glitchy. PlayStation's Shuhei Yoshida is possibly working to get the game on PS5 as well. No word yet on if we'll ever see a Switch port. Nintendo doesn't appear to have taken any action against the game following claims it may have been partially based on assets stolen from older Pokémon games, though the Mario maker did issue copyright takedowns of a mod of the game that added actual Pokémon to it.

YouTuber Toasted Shoes teased the mod on Twitter before posting a full video on YouTube of gameplay from it. Both have since been removed by the respective platform holders. "Nintendo has come for me," Toasted tweeted. He said he wouldn't release the mod itself for now in an attempt to "tread lightly for the time being." But he seems to be enjoying the attention.

Is Pokémon with guns legal?

A bunch of people have been talking to lawyers to get a sense of whether Nintendo would actually have a case in the event it did try to murder Palworld in court. Former head of the legal team at the Pokémon Company told Game File's Stephen Totilo that Palworld looks like the "usual ripoff nonsense" and he's surprised it got this far. Lawyer Richard Hoeg thinks Palworld does a lot to distinguish itself and "wouldn’t be eager to bring a legal claim on the game itself if I’m Nintendo/Pokemon." MinnMax contributor and IP lawyer Haley MacLean explained how fair use tests work and why any legal outcome would be heavily dependent on whatever judge was tapped to review the case. Lawyers Bloomberg interviewed feel like Palworld maker PocketPair is in the clear.

What else are people saying about Pokémon with guns?

"You won't feel like any artist has been involved, or that anything meaningful might come to mind. You will instead feel like you're playing a product designed to be sold, rather than to be played. You will feel like a mark. And you'll be right." – Chris Tapsell, Eurogamer
"A new generation of young people is experiencing the tension of constant, unavoidable exposure to the adult world while adults – whether parents, authority figures, or companies – tell them they’re not ready to live in it yet. Their imaginations are bigger than the sanitized playgrounds with which they are presented by the likes of Nintendo, so they welcome opportunities to explore taboos and societal ills via other, still-familiar outlets like Palworld. These outlets don’t need to be deep or uniquely novel. That’s not the point! That, in fact, runs contrary to the point." – Nathan Grayson, Aftermath
"Great: Palworld may crib quite a bit from Pokémon’s homework, but deep survival mechanics and a hilarious attitude make it hard to put down – even in Early Access. 8/10." – Travis Northup, IGN
"It hasn't got a single original thought rolling around inside its little empty skull, but it's polished and fun and leans into the inherent comedy of its concept with success. It has also managed to sidestep the usual pitfalls of early access open world releases by both running with solid and stable performance and actually having a substantive amount of content on launch. By all accounts, Palworld should be a disastrous mess, but somehow it is not. It's sheer recombinatory logic somehow manages to arrive at something compelling." – Punchy, Steam

Forever Game Pulse check

Halo Infinite won't have a sixth season. The online shooter is instead moving to a new model of occasional "Operations" content drops. It's basically what the Master Chief Collection had been doing, though not quite the decade-long live service platform originally touted by Microsoft. “It’s really about creating Halo Infinite as the start of the next ten years for Halo and then building that as we go with our fans and community," Chris Lee told IGN back in 2020. He left to join Amazon later that year.

Sea of Thieves, meanwhile, just set sail on season 11 earlier this week. Players can now use the Quest Table on their ship to pick custom voyages and start them from sea, repeating until they are ready to bring their loot to port. Rare's pirate sim is one of live service gaming's unsung heroes, and recent big changes, including solo play, continue to build out the full promise of its underlying concept. It really does feel ripe for finally getting ported to PS5.

Xbox disc death watch

There's mounting evidence that people really don't buy physical copies of Xbox games. Walmart destroying a bunch of Starfield discs seemed like it might be part of this trend, but it turns out the retailer marking copies of the sci-fi RPG down to a few pennies might actually just be part of a normal inventory swap as boxed discs with more recent versions of the game (including post-launch updates) replace the older "pre-release" ones.

Still, fans and gaming preservationists are now tracking the health of Xbox gaming sections out in the wild. "If you’re out shopping, take photos of your local Xbox sections!" Digital Foundry's John Linneman recently tweeted. "With all the talk about this lately I want to make sure we document these! They still have a decent amount here thankfully."

Gamertag Radio's Danny Peña shared a photo of the Xbox section near him and it looked dire. "There are more Xbox digital cards than physical discs at my local Target," he tweeted. "Is it the same at your local store?" The decline in Xbox physical media isn't entirely surprising given the digital-only Series S is outselling the Series X, but it's still not clear why Xbox players are more onboard with the switch than PS5 or Switch owners.

If you happen to see an Xbox gaming section IRL in your upcoming travels, dear reader, please be sure to take a pic and send it to Linneman, Peña, or me at deadgame@substack.com. The truth is out there.

2024 already has too many games

January, normally a quiet month for witling away at last year’s backlog, has been surprisingly stacked so far. Not even counting the surprise takeover by Palworld, Prince of Persia: The Lost Crown (side-scrolling metroidvania), Like a Dragon: Infinite Wealth (turn-based gangster RPG), and Tekken 8 (3D fighting game) all received rave reviews. I was hoping to skip one or two of them until later in the year but now I have incredible FOMO.