During 2023, dozens of excellent video games have been published. It has been one of the best years in history with great releases such as Baldur's Gate 3, The Legend of Zelda: Tears of the Kingdom, Alan Wake 2 or Super Mario Bros. Wonder. But let the success of a few games not blind us to the crisis that underlies the sector: massive layoffs and the closure of studios.
A priori it seems like a contradiction: How does a sector that is so successful among the public and critics function so poorly behind closed doors? There are multiple factors, like everything in life. The consequences of the pandemic come together with a saturated market, the instability caused by wars such as those between Russia and Ukraine or the genocide of Palestine by Israel.
The latest case of mass layoffs that we have heard of concerns Riot Games, owner of League of Legends and Valorant. The Californian company has laid off 530 people, 11% of the total workforce. This “restructuring” has mainly affected the Riot Forge division, which was responsible for developing independent titles set in the League of Legends universe. Two good examples of games developed through Riot Forge are The Mageseeker and Song of Nunu, both made in Spain.
According to The Wired, in 2023 a total of 6,500 jobs will have been lost in the video game industry worldwide. Other examples are the case of Epic Games, which laid off 16% of the workforce in October, or that of Ubisoft, whose restructuring affected 124 workers.
In March 2020, everyone locked themselves at home. There were countries in which confinement lasted longer and others in which it lasted less, but, for a few weeks, the entire world stopped going outside. The forced confinement forced us to look for other ways to entertain ourselves and socialize and almost all of them involved using the Internet. The consumption of series and movies through streaming platforms skyrocketed, Twitch lived its particular golden age and many people started playing video games.
The technology fever resulting from the pandemic had many consequences: from very young children with delays in speech development to a semiconductor crisis. Many video game companies suffered unprecedented growth. They gave the growth spurt. There were more players than ever playing more hours than ever and spending a lot of money.
But, when the pandemic ended, the bubble burst. Three years later, people are once again living a life similar to what they had before Covid-19. Entertainment and socialization are no longer limited to the Internet and the consumption of online content and video games is gradually returning to pre-pandemic numbers. So many of those companies that had expanded their armies of workers now realize that they no longer need them.
The crisis began in large technology companies such as Google, Amazon or Facebook. But, as this Bloomberg article points out, it has also ended up affecting the video game industry.
Another consequence of the pandemic was teleworking and the need for many companies to restructure. For several weeks productivity fell, the world stopped. This caused delays in several developments and many video games were postponed. That there have been so many excellent releases in 2023 is no coincidence: it is the result of hundreds of postponed games, titles that should have been published in 2020, 2021 and 2022.
The pandemic acted as a stopper, and now we see the consequences in the market: more video games are published than people can buy and play. There is too much offer with great launches one after another. From a large publisher they have confirmed to Games Industry that “we need to recover the release schedule prior to the pandemic and that will take us about two years.”
The perfect Storm. A bubble on the side of development companies and a saturated market on the side of consumers. But there is still another variable missing: living does not cost the same now as it did in 2019. The cost of living has increased and purchasing power has decreased. The CPI rose 6.5% in 2021, in 2022 it increased 5.7% and in 2023, 3.1%.
In addition, the increase in interest rates by the European Central Bank and the United States Federal Reserve also affect the electronic entertainment industry, as investors adopt more conservative measures and risk less. This affects both ends of the industry: consumers can spend less money on culture, entertainment and video games and shareholders inject less financing into the sector. Now, the perfect storm in all its splendor.
“If 2023 was the year of layoffs, 2024 will be the year of closures. Not only from development studios, but also from publishers, media and service companies. There are too many loss-making businesses in video games. Two years of pain await us,” assures the CEO of a large North American company to Games Industry.
The forecasts are not optimistic. With a little luck, the crisis in the sector will end in 2025. Although for many workers, studies and projects it will already be too late.
