The last few years in games have been turbulent, to say the least. Changing consumer preferences, shifts in technology, and fierce competition across the sector have all contributed to significant upheaval for studios, many of which have suffered job losses due to layoffs and restructuring. Over recent weeks, I’ve been assessing the macroeconomic factors driving these changes, drawing parallels with related industries and delving into the nuances of the games business to better understand the long-term impact of this challenging period. You’ve likely heard claims that “things will pick up,” but what does that actually mean? And when can we truly celebrate the industry’s return to “normal”?
This three-part series will examine investment in games, exploring technological trends, financial flows, and competition within the sector, and how these factors have impacted – and will continue to shape – labour markets in the future. Today’s focus is a commentary on current trends and observations. In the next article, we will analyse over 100 VC and investor portfolios to assess where investment is being targeted and what this could mean for the wider industry. Finally, we’ll take a close look at competition, both from a development perspective and its impact on labour markets, and consider how best to prepare for future challenges.
Introduction
To begin, let’s reflect on the year so far. An estimated 12,000 people have been made redundant in 2024—a staggering figure that continues to rise as we approach the end of the year, more than three years after most COVID restrictions were lifted worldwide.
By now, we’re all familiar with corporate buzzwords like “restructuring,” “streamlining,” and “reductions,” which remain ever-present in news and studio announcements. The word cloud below, based on GamesIndustry.biz headlines for 2024, highlights some common trends.
Terms like “budget cuts,” “lack of investment,” “overinvestment,” “volatility,” and “profit reductions” indicate an unstable macro environment and an industry evolving not just from a business perspective, but also in response to shifts in consumer behaviour and wider tech disruptions.
Streamlining
Streamlining, often framed as a means of reducing costs, increasing capital efficiency, and boosting output per worker, is a common theme across industries. Every studio environment is different, but it’s clear that the growing use of technology has made certain roles vulnerable to being replaced by software or external services.
With increasingly volatile macro conditions, studios are keen to mitigate risk. This has led to a significant rise in partnerships with specialised outsource vendors, offering services that replace the need for large, expensive, centralised teams.
In February, Griffin Gaming Partners released the 2023 Game Development Report, which found that 95% of 537 game studios surveyed were either working on or aiming to release a live service game. Historically, multiplayer games represent a significant investment for studios, particularly due to the complex infrastructure required to build and run cloud services, backend systems, matchmaking, and data management. According to Omdia, studio spending on cloud and backend services now accounts for over 7% of the games industry’s total value, with providers like AWS, Azure, and GCP fiercely competing for market share. These providers offer packages that allow studios to access multiplayer services that scale with player demand, at a fraction of the cost of building an in-house team and infrastructure.
While large-scale multiplayer studios still require dedicated backend/cloud teams, these teams are smaller than they would otherwise need to be, as studios rely on flexible, on-demand solutions. This dynamic has removed what were once significant barriers to entry for smaller studios in the multiplayer space, enabling them to compete with high-budget productions. Though development and marketing costs remain, the ability to launch live games at lower costs allows smaller studios to build communities, which can trigger the investment needed to reach a wider market.
This example highlights the benefits of outsourcing areas of development, helping studios save costs and manage risk. Outsourcing allows studios to bring in services as needed without making costly permanent hires, which can lead to redundancies and restructuring if projects are cancelled.
Subscription models in games have helped reduce the cyclical nature of cash flow compared to traditional boxed releases, but a substantial time gap still exists between concept, design, and release. AAA titles take years to develop, and even though sunk development costs may be high, there are also significant costs associated with marketing and community-building once games launch. For example, Creative Assembly’s Hyenas was cancelled just weeks ahead of release, despite being near completion. This illustrates a broader trend: even when development costs have been incurred, publishers may pull support if it appears that funds won’t be recouped.
The over-investment driven by COVID, coupled with the focus on live service games, has also backfired for many studios. During the pandemic, publishers were drawn to Games-as-a-Service (GaaS) models, which appeared to be endless cash cows. However, as players were flooded with similar experiences the market became saturated. Audiences, limited by time and budget, stuck to a few core titles like Fortnite or Minecraft, leaving new live service games struggling to attract sustainable player bases. The “GaaSacre” in February 2023, which saw titles like Apex Legends Mobile and Knockout City cancelled, underscored how publishers overestimated the scalability and appeal of live service games.
The industry’s reaction to these failures has been swift. Risk tolerance has dramatically decreased, with live service games now expected to prove their audience and financial viability within months. Developers face increasing pressure to achieve immediate success, and if they fall short, titles face swift closure, as seen with Concord, a hero shooter that was cancelled shortly after launch despite its considerable budget. The “forever game” model, once heralded as gaming’s future, has revealed its limitations, and studios are now scrambling to adapt to a more cautious approach.
So, streamlining can take various forms, but it ultimately comes down to managing costs and risk in an increasingly competitive landscape. But why have so many studios found themselves in a position where streamlining is necessary?
Overhiring
Overhiring is a major factor behind the layoffs and restructuring we’ve seen across the industry. The pandemic-driven boom in gaming and the influx of capital led many studios to expand rapidly, creating roles that became unsustainable as the market corrected. As the industry’s growth trajectory returned to more typical patterns, these inflated teams became financially difficult to justify, especially as consumer habits shifted back to pre-pandemic norms.
This overhiring trend was not limited to smaller studios; some of the largest organisations were the most aggressive in their expansion, both at parent company and subsidiary levels. Faced with competitive pressures to stay agile, many studios have had to reassess their organisational structures, leading to difficult decisions around staffing and resource allocation.
It wasn’t just staffing decisions that went wrong. Overconfidence in post-pandemic growth also led to an influx of investment in projects that, when consumer interest waned, couldn’t meet financial expectations. This reckoning, combined with global macroeconomic issues like inflation and rising costs, as well as geopolitical restrictions, has forced studios to further cut costs.
But, is it all doom and gloom?
From a broader perspective—no. The games industry remains on an upward trajectory, with gaming ETFs outperforming the S&P 500 year-to-date, VC funding up quarter-over-quarter, and growth stage funding exceeding the 2023 average. Q3 2024 saw 41 M&A transactions, a 58% increase month-on-month. However, for everyday developers, the effects of these trends won’t be felt immediately. There will be more layoffs, project cancellations, and 'streamlining' across the sector, making the talent market increasingly competitive. Yet, as we approach Q4, there are signs of recovery, with more job openings and growing opportunities in emerging areas as games and interactive experiences continue to expand into everyday life.
Next time, we’ll delve deeper into these investment trends and explore which subsectors are attracting the most capital to decipher how candidates can adapt to changing employment, and how studios, and games businesses can attract skillsets already commonplace in the sector for new, transformed roles.
Side Note:
If you've got this far, thanks for reading. All feedback is welcomed, so feel free to contact me at sam@webcube.io or drop me a message on LinkedIn.
