I’ve been part of the video game industry for over twenty years and the tech industry in general for over twenty-five years.
I have seen more than one bubble explode: usually, these were based on elements that only to investors entirely external to these industries could appear as an interesting revolution to bet on (yes, NFTs, I’m talking about you — among others).
What’s happening in video games now (and in the tech world, by extension) seems to me to be a little different.
We are all aware (at least, those who follow industry news) of many companies’ numerous layoffs. A fairly accurate estimate is around 10,000 fired in 2023:
More than any specific video game or piece of news, layoffs defined the past 12 months. Companies large and small have felt their impact. Unofficial figures estimate 9,000 workers have been affected, and at the heart of it all are corporations that valued growth at all costs — including people.
Many articles tell these dramatic events and report interviews with former employees, trying to understand what happened in CompanyX and why the significant (and painful) staff cuts were made.
One thing, however, that I personally haven’t seen anyone do is analyze the overall picture, trying to connect the dots.
Yes, some articles have started (fortunately) to link the exponential and senseless growth during the COVID-19 explosion as one of the causes: if you grow too much and are unable to make the most of that growth, it is expected that you then have to cut.
With much of the world sequestered at home in 2020, viewership of three major streaming platforms — Twitch, YouTube Gaming, and Facebook Gaming — was sky high.
During that time period, video game companies had benefited from pandemic-driven interest in gaming, driving sales to everything from consoles and games to accessories, increasing profits.
Aubrey Quinn, senior vice president of communications for the Entertainment Software Association, agreed: The industry expanded in 2020 and 2021 during the COVID-19 pandemic, adding up to be worth $56.6 billion in 2022, she said. That’s a level of growth that no other entertainment industry has matched. “What we’re seeing now is that the market is stabilizing,”
But is it really like that? Is this really expected?
Brace yourself: this is a long article in which I will try to explain why this situation was not only predictable but, in many cases, calculated. And indeed, in some circumstances, it was the goal that was set.
Yes, this is a strongly anti-capitalist article with a good dose of idealism. Yes, I will try to prove my analysis with data and facts. No, I won’t get into an argument with anyone who calls me a conspiracy theorist (I’m not, I’m simply starting to get old, and like all older people, a pain in the ass and precise).
Timeline
- Early 2020 — COVID-19 affects the whole world tragically and profoundly. People are locked up at home, afraid, and take refuge in fantasy worlds. Thus, the gaming industry (both tabletop and electronic) also becomes a point of reference for those who — in a moment of “normal” life — didn’t have time or interest in that type of product. (Okay, we have also become expert pizza chefs and bakers here in Italy, but that’s another story).
- From mid-2020 to around mid-2021 — given the growth of interest in the gaming industry, large investors and large multinationals smell the potential business: more interest = potential more significant revenue. As a result, the period of crazy spending and investments begins, characterized by multinationals buying up dozens of other companies, investors throwing money at anyone who offers even a vaguely decent pitch, etc. These investments often have staff growth among the objectives to be achieved (imposed and included in contracts):
In short: have you sold your company? Do you want some rich bonuses before leaving it for good? Within X years, you must grow employees to +50%
- From mid-2021 to the end of 2022 — the acquired companies also go on a shopping spree. They are looking for resources to pump into their staff. And to find them, they offer competitive contracts, bonuses, and benefits that were unthinkable until some time before (benefits that, in part, will be retained — such as “full remote… ah no, sorry, we meant hybrid… ah no, sorry, our company philosophy is affected, we were joking”).
- Throughout 2023 — more or less every month, some companies start letting employees go. First dozens, then hundreds, then thousands. And to clarify: we are talking about thousands of families who end up finding themselves in difficult situations and perhaps even having to forcibly move to another country (because if you don’t have a job in many countries, they won’t renew your residence permit — even if you’ve lived there for a long time ). Not numbers: people.
Now, in an ideal world, if a company fires 30% of its employees, it should lose value. And by ideal, I mean a world where capitalism is just a bad memory to be studied in school books.
In this ideal world, before you fire people for the sole purpose of “reorganizing” the company to improve profit margins, you should cut other expenses — following the example of the giant that was Satoru Iwata at the helm of Nintendo in 2014:
Iwata is having his pay cut in half due to Nintendo’s poor performance. Other company directors will get pay cuts between 20 and 30 percent.
And laying off only as a last resort when you have no other way to keep the company afloat. So, in this ideal world, firing would mean publicly declaring: “I have financial problems; I’m cutting employees because I don’t have the money to pay them.”
You’re in trouble -> you fire staff -> you lose value.
Instead, in the total madness of this industry (and of the capitalist economic system in general, of course), the companies that cut back are gaining value:
Videogame software provider Unity Software (U.N), opens new tab will target laying off approximately 25% of its workforce, or 1,800 jobs, the company said in a regulatory filing, opens new tab and internal company memo on Monday.
After the announcement, Unity shares were up nearly 5% in after-hours trading.
Everything calculated
When I read articles like the ones above where it’s said that “Well, it’s the industry that’s stabilizing,” I get pissed off.
Apart from the fact that the concept of “stabilizing” by leaving 10,000 colleagues at home seems to me to be a problem that should be explored in detail, but I could risk having a coronary burst — above all, we should ask ourselves: what need is there to “stabilize” a company when in reality it still has income in the millions and no cash flow problems?
This is not stabilization. It is not a crisis that is being contained. It is a mechanism that has been calculated to work exactly like this, divided into 3 phases (and we are more or less halfway between the first and the second).
Now, the purpose of this article is not an analysis of financial systems and their speculations — it’s not my job, so I will undoubtedly write about inaccuracies which, if reported, I will try to correct (assuming I can find the time and energy to do it).
If you are looking for a precise dictionary of these topics, unfortunately, you will not find it here. What I try to do is expose the overall picture. Its facts and its numbers. The dots connected.
Phase 1 — investments and growth
CompanyX has 100 employees and is worth 1. COVID-19 arrives, and people are forced to stay home and have more time to play: suddenly, CompanyX has the opportunity to increase its customer base.
Then comes BigInvestor, who says, “CompanyX, I’m buying you because I see potential in you: I want to invest DuckburgDollars in your company. You hire people to create better products, earn more, and we’re all happy.”
Is everything good? Not exactly. BigInvestor is not buying
CompanyX because it embraces its corporate philosophy or because it appreciates its past work. And it doesn’t even know what to do with CompanyX: it’s just investing money, which is its job.
To hire many people quickly (per the acquisition agreements), CompanyX offers very competitive contracts (high salaries, bonuses, etc.)… it does so with BigInvestor’s money.
The consequences in the short term are:
increase in staff -> greater potential -> working on a larger project -> increase in costs -> growth in the value of CompanyX on the market -> BigInvestor increases the value of its shares.
- CEO, Board, management, etc., get rich bonuses, and are happy.
- Newer employees have a good salary and excellent benefits, and are happy.
- Older employees (likely) get bonuses and raises, and are happy.
So much happiness that for about six months, the video game industry seemed like heaven on earth — the best place to work.
(Of course, the systematic crunch and rampant discrimination had to be ignored — negligible problems, come on).
Phase 2 — cuts and layoffs
CompanyX is starting to leverage the investments and the new hires, working on a bigger game — and there’s no guarantee it will succeed in doing so effectively: incorporating dozens of new employees and increasing the size of a project has its own complexities, and there’s no assurance of success, especially in the short term. Above all, even with the best management, it will take time to see the first results.
BigInvestor then sees costs growing over time and says, “Hey, you’re costing too much; you need to fire people to reduce costs.”
Please note: not “we don’t have the money. Unfortunately, we have to lay off workers” but “the profit margin is not high enough, we have to lay off workers.” Which is a little different, I think.
CompanyX fires, and here the magic happens:
staff cuts -> fewer costs, same revenues -> therefore, growing trend (fewer costs with the same revenues means more profit — in practice, the graphs that BigInvestor likes so much have the line that goes up) -> increase in company value -> BigInvestor increases, once again, the value of its shares.
- CEO, Board, management, etc., get rich bonuses, and are happy.
- The employees who remain feel lucky and, for fear of being the next to be fired, will agree to reduce benefits.
- If they are lucky, the ex-employees have received a severance package (which guarantees the companies a positive return on image), but in any case, they find themselves without a job from one day to the next.
The point is: BigInvestor was aware that it would go like this. In some cases, CompanyX managers were also aware, but not always — especially if the company was young or small.
BigInvestor was OK with speculating on the lives of disposable employees to earn more money. They knew it from the beginning, and not only did they not care, but it was an excellent opportunity for them.
Phase 3 — the sea is full of (small) fish
It’s not over: the thousands laid off will be looking for a new job in a market suddenly (and unnaturally) full of requests and poor of offers.
So salaries will devalue, and the “lucky” who find a job will be paid less, have fewer benefits, and — in the worst cases — even fewer rights. All this in the face of the specter of “if you don’t accept, there are 100 other candidates. The industry is in crisis: be grateful that we are offering you this position under these conditions.”
The consequences are:
- CEO, Board, management, etc., get rich bonuses, and they are happy.
In conclusion
Well, I think it’s a shame that I had to feel the need to spend a couple of days writing and rewriting this article (with the knowledge that if more than two people ever read it, it could cost me future contracts and jobs — as already happened in the past), to tell the missing piece that no one else is highlighting.
It’s a shame I wrote it because it’s not my job, and I’m not good at it. I hope that others will do it better and reach a larger audience (hey, Netflix — yes, you, between layoffs, if you want to make a docuseries about it, call me. I have two cats to support, so I also accept low salaries! ).
And I really wish that more and better discussions were held on this topic. Because, at the end of the day, amid all these profits, there remains the tragic silence of families losing stability, tranquility, and, all too often, mental health.