Reaction: What Is Happening to the Video Game Industry and Why Are There So Many Layoffs? 1

You could be forgiven for thinking the video game industry is collapsing, and you may be wondering why. Last week, PlayStation announced it was laying off over 900 employees and shutting its long-running London Studio, and it’s not alone. There have been thousands upon thousands of jobs cut across the entire industry, and virtually every major publisher and platform holder has been affected. So, why is it happening and what does it all mean?

It should first be underlined that these job losses will prove devastating to those affected and their families, so there’s a human cost here which must be acknowledged. It goes without saying that our thoughts go out to anyone caught up in the chaos, and we sincerely hope everyone affected lands on their feet as quickly as possible.

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The industry at large is in an interesting position, and the current climate goes back five or so years. At the time, the PS4 was just beginning to tail off, but this was expected due to the device entering the final stages of its lifecycle. At large, the industry was growing, driven by an increase in spend on smartphones and live services, and this all led to accelerated investment. This all came to a head in 2020, when the pandemic forced people to seek at-home entertainment, and gaming absolutely exploded as a consequence.

Reaction: What Is Happening to the Video Game Industry and Why Are There So Many Layoffs? 2

With revenues soaring, publishers sought to expand, and with remote working suddenly viable, it became easier than ever to poach talent. However, limited resources meant publishers were forced to offer higher salaries in order to compete with each other, thus driving up overall development costs. At the time, it didn’t matter, because gaming was pulling in more money than ever before, and people were happily spending on software and subscriptions because they had disposable income due to not spending on holidays, restaurants, and other social activities.

The pandemic bubble eventually burst and people started spending their money elsewhere again, and while the video game industry has continued to register record sales numbers and revenues, its costs have remained high. This has been multiplied by Russia’s invasion of Ukraine, which has caused inflation to snowball and costs to increase. Salaries, already high due to the competition for talent, have been driven even higher, and budgets have been spiralling out of control as a result – especially on tentpole titles like Marvel’s Spider-Man 2.

Add to this, the games industry has remained static. While the PS5 is doing well, the semi-conductor shortages mean its install base is smaller than the PS4’s was launch-aligned, while the Xbox Series X|S is trending behind its predecessor. In fact, the market for home consoles has stagnated for several generations now, reaching roughly 170 million customers in total. Obviously, the success of the Nintendo Switch adds an extra dimension to this, but platform holders are largely selling to the same number of customers as they always have.

Reaction: What Is Happening to the Video Game Industry and Why Are There So Many Layoffs? 3

This is a problem when you consider the budgets of games have exploded. Blockbusters from Sony rank in the hundreds of millions now, and while the MSRP of major software has increased to $69.99 this generation, publishers are unlikely to feel they can increase again. One solution is to release games in more locations, which is why we’re seeing PlayStation port some of its titles to PC and even explore mobile. Another is to introduce recurring revenue models, as seen in successful service games like Fortnite.

But there are only so many hours in the day, and most players can’t dedicate time to dozens of titles at once. This has resulted in many live services shutting down, as the big players like Minecraft and Roblox vacuum up all of the available revenue. We also can’t ignore the sheer number of titles available on all platforms these days, with dozens upon dozens of games released on the PS Store every day. Subscriptions have stalled, as consumers are faced with choice paralysis over what to play. Furthermore, inflation means players have less disposable income to buy games than they did before.

All of this has led to an industry with snowballing costs, and a finite number of players to finance it all. The recent layoffs, devastating to individuals as they are likely to prove, will likely be seen by CEOs as an attempt to get budgets back under control and course correct. None of that can account for the enormous human cost occurring here, but the hope is that companies will finally be able to bring their spending back under control, and the layoffs will become less frequent moving forwards.

What do you make of the current state of the video game industry? Where do you think things are going and what can companies do to stabilise the situation? Let us know in the comments section below.