Why Video Game Layoffs Aren't Done Yet I Extra Credits Gaming

This year has just been a bloodbath in the games industry. Studios closing, jobs slashed, traditional tech retreating from investments it made in games, and just a bunch of other stuff. And amidst all of this doom and gloom, I keep hearing everywhere being shouted from the digital rooftops that we're on the verge of another great video game collapse like we had in the 1980s. But is that actually the case? Let's dig in. Thanks so much to Factor for delivering me great meals right to my door so I can spend less time cooking and more time playing games. The video game industry has shed somewhere between 9 and 12,000 jobs over the last year. That number is mind-boggling. It's unprecedented, and James has never seen anything like it in all of his time in games. To do some really loose math to put it in context, today it takes roughly 400 people in one capacity or another to turn out a really big AAA game. So, in a way, one could say we've lost the equivalent of somewhere between 22 and 30 possible blockbuster titles worth of people. So,

yeah, it's an understatement to say things are looking a little bleak. Seems like every day we hear another story of some major reconstructioning or realignment that means a company is just slashing jobs. And that just sucks so hard, especially for everyone who got laid off, who I just feel for. I have been laid off in the past. It is just a truly awful experience, and you can imagine all the reasons why because you're a human being. But to try to get some semblance of sense through all of this pain, let's look at where a lot of these job cuts are coming from. They're coming from companies like Amazon, Unity, and Embracer. From companies like ByteDance and Epic. Companies we usually think of more as games adjacent than game developers themselves. And even many of these small studio layoffs have either been from studios owned by larger companies tightening their belts or caused by publisher money becoming harder to get. So, why is this happening, and what does this mean for the industry at large? Well, first, this implosion isn't happening for the reasons you may think. It's not due to

the games industry failing exactly, but rather due to larger economic factors, specifically interest rates. You know, that thing you totally wanted to hear about when you clicked on this video you thought would be about the games industry. Please do not leave. I promise it all ties together. See, for quite some time now, the interest rate in the US was close to zero and many other countries weren't far behind. This means that if you were a giant megacorp, money was basically free because you could borrow just gigantic piles of it at a very, very low cost, which causes companies to do so, theoretically stimulating the economy as they take on bigger and grander projects than they otherwise would have been able to. Now, for traditional industries, this often comes with limiting factors and some risk. That is, you can't just say, "Well, last year we built 100,000 cars, but since we can borrow money from the giant money spigot in the sky, this year we're going to throw billions of dollars at building 10 million cars. Haha." Because one, it means building new factories, sourcing new materials, and doing all of the other things that simply can't be spun up overnight. But

two, if you do try to do that, you then have to worry about the costs of maintaining those new factories and storing all of those cars if the idea doesn't pan out or the money faucet turns off. But about 30 years ago, we started building corporations that could break this paradigm. Any guesses who? Tech companies. So, if your CEO read Snow Crash or something one night and then decided it's time to build a simulated reality, all they got to do is hire people. Now, this doesn't take zero time, of course, but it's not like building factories. Not to mention it's absolutely a problem you can throw money at. And best of all, from the investors' perspective, hey, you know, if it doesn't work out, all you got to do is cut staff, which leads us to today. You see, games were sort of a buzzword. A lot of big tech companies wanted to get into games because of the prestige or because they were recession proof or because the sector just kept growing year over year. Then, of course, COVID hit and people had stimmies and the games industry rocketed to the moon. At the same time, large companies are

continuously pressured to show growth. Yeah, we live in a strange world where potential growth is actually more important than profitability for most stocks. And hey, if you're hiring up and expanding and have exciting new projects on the horizon, well, stonks go up, baby. So, when money was free, a lot of big tech companies like Amazon and TikTok jumped into games, throwing enormous amounts of capital at an industry they didn't really understand. They built up whole divisions, acquiring buzzy things like Twitch, for example, and had it all running at massive losses with no real plan for how any of these things would ever be profitable. Meanwhile, companies like Unreal and Epic went into turbo overdrive, hiring way beyond their profitability, hoping to either edge out any future competition or to make some breakthrough that would allow them to be acquired by an even larger tech firm. At the same time, the folks over at Embracer went through a Let me see here. Ah, yes, a debt-fueled spending orgy, buying up whatever they could buy up with

seemingly little concern for whether the acquisitions really had a lot of long-term value. But all this free money finally caught up with all of us and created a global inflation crisis. And do you know what you do to counter inflation? You up interest rates. And it worked. The truly massive recession and runaway inflation that was predicted didn't occur as bad as tons of people thought. Instead, we are on track for like a year or two of truly brutal prices as governments course-corrected from both a global pandemic and a decade of giving away money for nothing. So, yay for that, right? Not having the absolute worst-case scenario, but also way less yay for all of us everyday folks who had to live through this economic experiment. But for the context of our story, these higher interest rates meant that it was no longer free just to run things at a loss. You couldn't get more cheap loans to prop up your eye-wateringly unprofitable divisions anymore. Now loans come with a real price to pay them back. So, what

did every CEO running one of these companies do? They cut bait and ran. Because scaling back is easy if you don't mind that pesky human cost, you know. Wow, with that lack of empathy, I'm really starting to believe this whole CEOs are the easiest thing to replace with AI theory. And so, now all of these companies are right-sizing their divisions that never made them a profit in the first place. Sometimes with almost comical attempts to squeeze their customers for more money. I'm looking at you Amazon, asking us to spend three extra bucks a month to not see ads before the videos you know we already are paying for. And of course Unity with everything you guys are doing there. But more frequently than all of those things, the answer's been massive layoffs. So, is the games industry on the verge of collapse? No. But are we going to see more downsizing before it gets better? Probably. Because a lot of companies made a lot of bad decisions and risky bets with their zero interest loans. But overall, things will eventually correct themselves. Heck, even most of the companies doing these gigantic layoffs aren't really hurting, you know. They're often doing them to

just be more profitable. Meaning the industry is not going to fall apart. If anything, it's going to shrink in on itself for a while and move away from this strange relationship it had with big tech where game companies were trying to emulate big tech companies and big tech companies were trying to get into games. And honestly, if it didn't cost a ton of people their livelihoods and jobs that they loved, I might even say that separation could be seen as a good thing. But the truth is a lot of people in this industry are suffering right now. So, we should look to our history and ask if there's a better way to handle this. Now, I know 10 years ago is a long time in the internet age, but please follow me here. Do you remember back in the day when Nintendo took a risky gamble on the Wii U and it didn't pan out financially. Do you remember what they did? Instead of massive layoffs, their entire executive suite took a huge pay cut with Iwata giving up half of his salary instead of firing people and Shigeru Miyamoto giving up a quarter of his wages so they didn't have to let people go. That right there, that is leadership. That's the whole point of

the C-suite. Fiduciary duty be damned. So, while we don't think the games industry is going to collapse financially, if we saw more companies taking responsi bility like Nintendo once did, it sure would go a long way in not collapsing the game industry's soul. Once again, thank you so much to Factor for helping me not worry about what to eat while working on a difficult episode like this one. Factor, of course, being the best ready-to-eat meal delivery service that I've been using for over a year and a half now for great-tasting breakfasts, lunches, and dinners. Each of their meals is ready in just 2 minutes with no prep, no mess, and best of all, no cleanup. Just great food ready when I have time to eat it. It's awesome. Every week I review Factor's rotating menu and pick what I'm feeling from their tons of tasty meals and add-on options. Like, for instance, their cold-pressed juices, which are great, or their protein shakes, which I just tried out, or their great wellness shots, or their smoothies, which I know you know I can't get enough of. And they always have so many options to choose from. I can always be sure that everyone in my household gets the food that they love fast. Like earlier today, I had their fusilli and ground pork tomato ragu, which is one of my absolute faves.

And since I didn't have to cook the whole dang thing from scratch, I was actually able to find time and sneak away to Arrakis for a bit and check out Dune part two, baby. Gee, I hope that Paul kid's going to be okay. So, head to factor75.com or click the link below and use the code extracedits50 to get 50% off your first Factor box. And wait, what? Free wellness shots for life as long as you're a subscriber. Hot damn. So, it is now tasty task time. Get fast and flavorful meals that you'll love here and then once dinner is decided, check out our next savory selection right here. Thank you so much to Ahmet Ziya Turk, Angela Valenciana, Arclight Games, Dominic Valenciana, Ilknur, Easy Coin, Joseph Blayman, Kuya Koy for being the absolute best legendary patrons.