You may have noticed that there have been many layoffs in Western game development and the game press recently. There’s a lot going on here, so let’s get into it.
There are many factors at play as to why companies fold or simply downsize, and the reasons vary from game development to game type.
So let’s start with the big one.
Game development budgets were huge and unsustainable
As I have pointed out in many of my previous articles, the reckoning is finally here. Game development budgets were huge and unsustainable and the industry is broken. The reason this did not have an immediate and immediate effect earlier is due to two factors. The first is that games take several years to develop, and once released the total cost is often not honestly estimated on the backend. Management positions will be at risk, so the delayed release combined with management trying to hide overspending means the problem remains. The second issue is the overall demand for games. This protects against a lot of rot in gaming, and while mobile games and mid-tier games have been very profitable, strong demand for gaming in general has shielded these big budget projects, even when they lose a lot of money. However, these spending issues could not continue indefinitely, and we are now taking stock, partly catalyzed by two other factors.
The increase in inflation it has effectively made money more expensive, especially if you borrow it. This means that larger expenses, such as huge game development budgets, must be cut in order for the rest of the company to survive. This has also affected the gaming press more as the margins for it are very tight these days.
Elon Musk’s firings on Twitter/X
when Elon Musk has fired most of the staff at Twitter/X, it seems to me that it sent a message to the US and European tech industry that this was an option for them too. As gaming is somewhat adjacent to these industries, it was only a matter of time before game management tried the same thing. Coupled with massive game development budget issues and inflation, this helped fuel an Elon Musk-like purge of staff.
What about Japan?
Well, here’s where it gets interesting. First, Japanese game development budgets were much smaller than their Western counterparts. There’s more of a focus on mid-tier games, and the Switch brought the focus back to gameplay over graphics. Both reduce costs. Second, it is very difficult and expensive to fire people in Japan. The law protects permanent employees very aggressively. Granted, companies here are trying to find workarounds, but luckily the government has been diligent enough to close most of these loopholes. Such as forcing temps to be hired full-time after a certain period. In short, Japan will deal with this situation better than its Western counterparts, as there is not much to offset the overspending.
What is happening now?
Well, a much needed shrinking in the US and Europe of game budgets and a dispersal of creative talent. Many new and small game developers will emerge and focus on better games rather than bigger games. I wish this had happened before all these layoffs happened as not everyone will survive this and that in itself is an unnecessary waste of people and talent. However, the correction that had to happen in the bigger budget game development spectrum had to happen or the whole medium would have gone under. I just wish it had been understood earlier in a more intelligent, insightful and less wasteful way.
Read my Forbes blog here.