People working in gaming must feel like they’re living through the end times right now. Over the past few months, cuts have torn through the industry: every week, another announcement of layoffs, from Riot, EA, Twitch and even Xbox.
And then, last week, more bad news: PlayStation announced it was cutting 900 jobs worldwide and completely shuttering (i.e. closing) its London offices. That’s about 8 per cent of its entire workforce – 8 per cent!
Those 900 people (and the smart money is on that number rising) will be joining an estimated 6,000 who find themselves recently unemployed across the gaming sector, and the news of PlayStation’s decision has come as a shock for many.
Sony, by any margin, is riding high right now. It has the best-selling console on the market in the PlayStation 5 (which has, as of December 2023, shifted 50 million units, three times more than its main rival, the Xbox X/S). Its games – God of War, The Last Of Us, Spider-Man 2 – are bona-fide award-winners.
Putting aside what this news means for London (the gaming sector here isn’t huge), the PlayStation layoffs spell grim news for the industry as a whole.
After all, if a gaming giant like that – a giant with the financial backing of Sony – is having to cut down on its workforce, what hope is there for the rest of the industry? Gaming is a massive market. Worldwide, there are an estimated 3.24 billion gamers; almost half the world’s population.
There is money here – it is estimated that the industry will be worth a massive $321bn by 2026 – so why are so many studios currently struggling to make ends meet?
One reason, according to Gareth Sutcliffe of media research company Enders Analysis, is that although “all of these games companies are inherently profitable, what happened during the pandemic is that they went on kind of a hiring binge and the cost of labour during that period was really, really high.
“They were paying over and above the odds for developer talent; for engineering talent; for all of the kind of stuff that was used to make games and so what we're now getting is a correction.”
Liam Deane, a principal analyst in games tech at Omdia, agrees. “The games industry is kind of in a place right now where even though things are not doing too badly... they haven’t quite grown at the rate that people were hoping they would after Covid.”
And there are other factors at play. Gone are the days of small teams taking risks on a shoestring budget, like the iconic video game Doom (which was made by two developers) or even Minecraft, which was the brainchild of Markus "Notch" Persson. These days, when everybody is investing huge money in flagship games, nobody wants to pay for experimental titles that might not earn back what it cost to make them. Tekken director Katsuhiro Harada, who has more than 30 years experience in the industry, sums it up. Two decades ago, “development was going on at a much faster pace, with much lower labour costs than now,” he wrote recently. “Now it is completely different. Everything has become huge, all costs have skyrocketed, and it takes a lot longer.”
“There are more and more self-proclaimed game industry people and executives who are not creators, do not even have development experience.” Or to put it another way, these days, gaming studios are not run by creators, but by businessmen for whom profit is king.
The games being made today are massive affairs that regularly go over deadline and over budget. A report from Kotaku examined documents leaked in the 2023 attack on gaming studio Insomniac (which is owned by PlayStation) and found that their flagship title Spider-Man 2 cost $300m to develop; that’s $30m over budget.
With losses like that, the game needed to sell 7m copies, full price, just to break even. That’s a huge ask for any studio; no wonder Insomniac is also being hit by the PlayStation layoffs. And no wonder too that countless small, indie studios are closing.
PlayStation faces other issues, too. “The profitability of PlayStation as a division inside of Sony has diminished over the last three years,” says Sutcliffe.
Though the studio is making huge games, it has failed to really break into the highly lucrative ‘games as a service’ business: think titles like Fortnite or Call of Duty (both made by studios which have also had to make cuts), which regularly update their content to keep users engaged.
Today, it’s all about profit margins – and the result is games like Suicide Squad, which was touted as a successor to the massively success Batman: Arkham Asylum series. Instead of a single-player RPG in the Arkham mould, it was made into a live-service multiplayer, presumably in the hopes of creating the next Fortnite. The result was a flop.
Is it possible to make games sustainably? Certainly not right now, with a business model that puts profits over people, and indeed over the experimentation that made gaming such a vibrant industry to begin with. In the short term, expect to see more cuts and fewer games, as studios seek to consolidate their losses and operate on a more sustainable business model.
To thrive, what it needs is drastic change. And for most studios, the most obvious solution is to find a bigger market, by opening up console-centric games and making them titles that can be played on all types of devices: mobile, Xbox, PC, the lot.“There still is enormous room for expansion,” Sutcliffe says. “What Sony have done is that they have not really pivoted away from a very expensive console model which requires you to buy dedicated hardware and also buy games as you go with a very limited subscription service. Frankly, the world is moving away from that model. There is a move towards much more of a platform-agnostic approach.”
These days, even companies like Microsoft are starting to think about opening up accessibility on their games. “[They are] making some – very very few, but some – titles available on other platforms, [and] more importantly, really talking about a subscription service that works on console, PC and mobile. It has all of the legs of the stool, right, in terms of being able to build a very large audience based around subscription.” And the bigger the audience, the more the money.
“I think we're probably at the worst point in the cycle right now,” Deane adds. “Probably things will be looking a bit brighter by the end of this year and the market is still growing. It's just hasn't quite grown as much as people thought it would... but you know, we’re still see hits coming out all the time. Individual games continue to do very well; certain individual companies are still doing very well, and I think 12 months from now the industry will be in a happier place.” Here’s hoping.
