Game Studio Layoffs: Why are Videogame Companies Downsizing?

The past few days have seen more and more Western video game studios and companies announcing a series of layoffs across their departments.

Various reasons were given but it mainly boils down to either a corporate restructuring, weak sales, or changing market conditions.

However, there are a bunch of other factors at play other than the ones cited in official statements.

The job cuts show a worrying trend in many companies today as multiple reasons affected these decisions, from game development to the society it operates in.

Also Read: Riot Games Lays Off 11% of its Workforce 'Across All Areas'

Unsustainable Budget

It is not a secret many game development projects have unsustainable budgets. Recent AAA games were released with hundreds of millions of dollars in budget.

This is not to count overbudgeting and overscheduled development that has become common in big titles, further increasing the budget needed for the project to be completed.

A big sales flop is the final nail in the coffin.

The eventual drawback usually falls to employees as the studio or company decides that cutting down its paychecks for the next fiscal year will be enough to recover from their big loss.

While seen in bigger studios, it is not entirely rare for medium-sized development studios and mobile game companies to downsize for similar reasons, especially for live service games.

Aftereffects of Pandemic Lockdown

Many game studios have increased their hiring capacity during the pandemic when there was a huge demand due to many people stuck in their homes all day.

However, now that life has virtually returned to normal and people can finally go outside, the demand for video games has significantly lowered.

The company's earnings are now unable to provide enough for that big of a workforce. Well, at least not enough that top executive will still receive their pay cuts in full.

Inflation

The past years have recorded rapidly increasing inflation in the US. This means that a higher cost for operations is needed to continue across all departments.

Several game companies have been noted to shut down entire studios to avoid bankruptcy.

With the gaming press on a tight revenue outlook, it becomes much harder for a company to survive.

Introduction of Advanced AI Technology

The gaming industry, much like the rest of the IT industry, experienced lesser job growth last year compared to previous reports.

One of the reasons pointed out is the increasing demand for AI technology across all services.

While AI integration has yet to be seen to heavily impact game development, several companies like Square Enix have indicated intentions to use the technology for future projects.